RANCHO SANTANA, NICARAGUA – Here’s an angle we haven’t considered yet…
Some readers may remember me describing the Dow-to-Gold ratio as “trendy.” I didn’t mean trendy like skinny jeans. I meant trendy as in “predisposed to forming trends.”
“Once the Dow-to-Gold ratio gets in motion, it tends to stay in motion” would be another way of saying this.
You can see this clearly in this 120-year chart of the Dow-to-Gold ratio. It forms well-groomed, long-period waves. (Most securities form choppy, patternless charts.)
What if the Dow-to-Gold ratio continues moving in big waves and we had a “primary trend indicator” that would flash whenever the wave reached an important turning point?
We could simply hold stocks whenever the primary trend was up and then switch to gold whenever the primary trend was down. All we would have to do is follow our “primary trend indicator” and we’d make a steady fortune.
I’ve found such an indicator… and it just flashed a “primary trend change.” More below…
String of Exotic Vacations
My family and I spend all our time together, by the beach, in jungles, visiting family, or exploring new cities. Kate and I don’t have “jobs.” We don’t pay bills. We don’t keep to-do lists. We don’t do housework.
We’re seeing the world AND we have a ton of spare time for reading, journaling, studying, and laughing together.
In short, our life has become a string of exotic vacations.
(We burn through money at about a quarter of the speed we used to burn through it when we lived conventional lives back in Florida. Admittedly we were divorced back then so we had two apartments, two cars, two cable bills, etc., but even so, we’re still living on a much smaller budget.)
I don’t say this to brag or gloat. I say it because I hadn’t realized it was possible to live without working and paying bills.
But then two years ago we tumbled through a portal, sold everything, hit the road, and found ourselves in this awesome parallel universe… where life is an endless vacation.
We burned through quite a bit of savings at first… but then new doors opened and now we’re able to sustain ourselves as long as we don’t live in the United States.
Through the Portal
The only reason we were able to find this portal is because I got so sick in the head that I lost my job, my business, my writing ability, my kids, my sleep, and I was wandering around all day trembling like a rattle, thinking about killing myself.
The real miracle happened after about two years of this, when I let go of hope, accepted my pain would never go away and adopted a “Live each day like it’s your last” attitude.
(I started eating fast food exclusively and doling out money to random people in the street. I even considered taking up cigarette smoking. This is also when I decided to turn all our savings into gold and “bury” it.)
The next two years were the best two years of my life. The pain has completely gone, replaced with joy and an appreciation for the beauty of life.
Was it just a lucky coincidence? Probably. But what I can say for sure is that every time in my life I’ve slayed my fear and leapt through the portal, it’s always worked out spectacularly well.
I’m writing this message to you now from our new digs in Rancho Santana, where we’ll be guests of Bill Bonner. Bill has given us our own little cottage by the beach.
We came in on a flight from Fort Lauderdale in the middle of the night. Now the sun has risen, we get to see our surroundings. This is going to be my desk for the next couple of weeks…
My new desk in Rancho Santana, Nicaragua
Our Simple Trading System… And a Flashing Signal
Going back to Dow-to-Gold, here’s a chart of the ratio again, except I’ve added a second, much smoother line (in red).
This smooth line also represents the Dow-to-Gold ratio. The difference is I removed all the chop. I did that by plotting its average price over the previous 200 trading days (about 10 calendar months) instead of using its weekly price. We call this the “moving average.”
Notice that when the Dow-to-Gold ratio crosses its moving average to the upside, you get a long unbroken “primary” uptrend. And when the Dow-to-Gold ratio crosses its moving average to the downside, you get a long unbroken “primary” downtrend.
In other words, it gives us a simple trading system:
Sell stocks/buy gold whenever the choppy line crosses the smooth red line to the downside.
Sell gold/buy stocks whenever it crosses to the upside.
Otherwise do nothing.
Now notice that last fall, the Dow-to-Gold ratio crossed its moving average to the downside for the first time in 18 years. Here’s a close-up view:
If this simple trading indicator works as well as it would seem to, the Dow-to-Gold ratio should keep falling for the next five to 10 years (meaning gold will beat stocks).
But that still raises the question: What should we do when the ratio is chopping back above and then back below the red line, like it has been since last fall?
The short answer is, I don’t know yet. I need to keep thinking about this. Perhaps a rule such as: whenever it breaks the line, wait a month, and if the break still holds, then act on it. But until it’s spent a month in “quarantine” proving it’s a genuine break, we don’t call a primary trend change.
– Tom Dyson
P.S. We’re “all in” on gold now anyway, so this indicator doesn’t change anything for us. It just gives us a tool to know when to sell our gold and return to stocks in the future.
Readers turn to gold and other precious metals… and to the Dysons’ “Bedouin” lifestyle…
Reader comment: Love your Postcards and your take on gold. I am about 50% bullion (silver included), some metal/mining trusts, and the rest cash. I’m thinking of deploying more cash for gold.
One of my wife’s closest friends is stationed in Hong Kong, where he is a director of one of the world’s largest hotel chains. Occupancy, as of a day ago, was 3%! Yup, a single digit.
Reader comment: I LOVE your Postcards (admittedly, I’ve become addicted!). I am learning so much, and my mind is expanding like never before. I’m just trying to get up the guts to do what you did (throw it all out the window, put the savings on the sidelines, and go live my life). I believe that I am getting closer daily.
But like many of your readers, I imagine, I am afraid of making a costly mistake that will leave me stranded and destitute (a rational fear I suppose, but a limiting one, nonetheless). Then I read this in last Wednesday’s Postcard:
“By spending most of our time in countries with devalued currencies like Vietnam, Egypt, India, and Turkey, we cut our cost of living in half.”
Would you consider offering a premium service to those of us that want to do what you have done, which is to say, live a more Bedouin lifestyle? It would be so difficult to do alone. If however, there were someone with real world experience that were keeping a close eye on exchange rates and cost of living in different countries, who also happens to have living experience in many of those countries to offer advice when traveling to those countries, many of us could follow your lead with a little less fear.
I cannot speak for any of your other readers, but I, for one, would be willing to pay for such advice. This is travel advice VERY different from any other travel service/blog that I have ever seen. The knowledge that you are acquiring has value.
Tom’s response: I’d love to write something like this. But the thing is, I’m not holding anything back in these Postcards. You’re already getting pretty much everything I am learning/have learned about the international squatter lifestyle. Anyway, when I feel I can offer something a little more “actionable,” I’ll let you know. In the meantime, I’ll continue doing “research.”
Reader comment: Thank you again for your Postcards. Unlike many others who have told you to settle down, I think that your kids are going to benefit more from what you are doing than they could EVER from being “settled.” Does this make social interaction more difficult? Of course, but you seem to recognize that and are taking steps to offset this downside.
I have no crystal ball, but I suspect that I will see your children’s names 20+ years hence as international business people, ambassadors to foreign nations, etc. There is no way that they can understand the blessings that you are bestowing upon them.
Tom’s response: Thank YOU from both Kate and me. Writing to you every day is one of the greatest privileges I’ve ever had. But getting all the encouraging and supportive messages from you every day is an even greater privilege.
I’m so grateful to you all… both for your attention and your feedback. Kate and I read your letters every day and sometimes I read them to the kids, too. They motivate me as a writer in a way I’ve never felt before.
I honestly don’t think I’d be writing these Postcards still if you hadn’t spurred me on with your nice letters. Please keep writing us at [email protected].