CORPORATE APARTMENT, BALTIMORE – Things don’t make any sense.
This coronavirus outbreak will surely put a crimp in China’s economic growth. Yet the market shrugs it off… and goes even higher.
It increasingly seems to me the market has no relation to the real world. It’s almost like I’m watching the wrong channel… or reading the wrong script. It seems to be completely off…
But this isn’t a revelation to me either. I understood this about the stock market years ago. So I look at all this stuff with a sort of bemused detachment… like watching a couple arguing in public.
And it just underscores the decision I made a year ago: to get out of stocks and go “all in” on gold.
I don’t want to play the stock market’s game. I want no part of it. I’m just happy to sit on the sidelines in gold bullion, out of harm’s way, and wait for the insanity to pass.
Meanwhile, my family and I are going to keep having fun together like it’s the only thing that matters…
Homeless and Aimless
Greetings from Baltimore! My family and I just traveled around the world. We visited 29 countries on four continents over 18 months.
We had the most epic trip. But now we’re back in America, homeless… and aimless… squatting in an apartment we’ve been loaned for a few weeks.
We don’t even have much money left. We put everything into gold.
We spent the last two months catching up with friends and families in familiar countries – the U.K., the U.S., and Canada. It’s been great. But now what?
“Life is a precious gift,” I think to myself. “I don’t care about anything else except spending time with my family. I know I’ll never regret it. I know I’ll never wish I hadn’t spent so much time going on adventures with them when we were all still young.”
We bought one-way tickets to Argentina today. (We paid $300 per ticket.) We leave next month…
To My Children… One Piece of Advice
If I were to give one piece of advice to my children about managing their investments, it would be “focus on the process, not on the results.”
In other words, don’t get caught up by all the fads and crazy trends in the world. Do what’s sensible and logical. Even if you have to wait years – and you probably will – in the end, the market will vindicate you.
Undisciplined investors always get what they deserve. The markets always come back to fundamentals.
Not only have Kate and I gone “all-in” on gold. We’ve gone “all-in” on the time we have left together as a family.
The downside: By not settling for a “job,” I am also forfeiting the chance to rebuild or grow a retirement nest egg should my big bet on gold go wrong.
In other words, either the market returns to its fundamentals over the next 20 years… or Kate and I are going to be retiring in poverty…
This chart shows the stock market’s valuation going back 150 years, as measured by the Crestmont P/E.
(Remember, P/E – or price-to-earnings – ratios measure how much investors are paying for every $1 of a company’s earnings.)
Well-known Wall Street researcher Ed Easterling created the Crestmont P/E. The unique thing about it is Easterling incorporates prospective GDP growth into his earnings data to give a slightly more balanced picture.
And it shows that, right now, we are right at the top of the third stock market bubble in America’s history…
– Tom Dyson
P.S. My big fear is I’m ruining my children’s future, throwing away all our savings, and Kate’s going to leave me. And I’ll be stuck documenting it all in these Postcards.
FROM THE MAILBAG
Encouraging words from Tom’s longtime readers… Others want to know more about Tom’s Dow-to-Gold thesis and his comments about income… While some echo the Dyson family’s traveling spirit…
Reader comment: I was one of your early Palm Beach Research Group members. I found your investment philosophy great.
As you think about the future, perhaps you need a situation where YOU are in control of your destiny. If you can include your wife and children in that endeavor, so much the better. I think you would be very happy.
Good luck. We are all pulling for you.
Reader comment: I first read your column when you worked with Mark Ford at The Palm Beach Letter, and always used your options trading advice to make money. I was sad when you left The Palm Beach Letter, and was glad to follow your family’s progress as I have read most of the Fringe letters.
I always look forward to the Fringe letters, and I’m following your Dow-to-Gold ratio advice. I have been wondering for some time if the Dow Jones average means as much as it did 30 years ago. After all, it only follows 30 great stocks. Wouldn’t it tell a more realistic story by using the S&P to gold or Russell 2000? Would love to hear your thoughts on that.
Tom’s response: In theory, you’re right. The S&P 500 is a far closer representation of “the stock market” than the Dow 30.
But for my purposes of tracking the stock market’s return to its fundamentals, the Dow is good enough. And I like it better. It’s more familiar to me. Just personal preference.
Reader comment: You intend to sell your gold when the Dow-to-Gold ratio hits 5. How do you sell your gold? To whom will you sell, and how do you get a good price for it?
Tom’s response: I will canvas all the gold coin dealers I know and sell to the highest bidder.
Reader comment: I just read your last Postcard and have one observation, and that is that stocks AND gold are both showing strength. This divergence can’t last for long, though, and I suspect gold will continue and stock valuations will change and falter.
I want to profoundly compliment you and thank you for sharing your view of the markets. I have truly learned more from your postcards’ economic mini-teachings than a whole lot of wasted years learning little.
Tom’s response: Actually, I think gold and stocks can continue to show strength together.
The Federal Reserve is about to inject trillions of dollars into the financial system and devalue the entire paper money system built around the dollar. It’s the ONLY way the government can meet its obligations without hard defaulting.
Some of this liquidity will flow into the stock market and I don’t see much downside in the nominal price of stocks over the next decade.
The key word is nominal here because adjusted for inflation or gold… stock market returns will be terrible. It’s just the man on the street won’t be able to see it.
Something similar happened in the 1970s… (Bill Bonner wrote about that in detail here.)
Reader comment: Regarding a response to a reader, it made me wonder about your thoughts on dividend stocks. In your response, you felt that rental real estate and other hard assets would be the place to be in the coming decade.
You mentioned that capital income (stocks and bonds) would not be the best place in the inflationary period you expect. But I wonder how dividend stocks in essentials and services would react in that environment.
I have recently sold off my rentals because I no longer want to deal with the issues of evictions, etc. At my age, 73, I am looking to reduce stress and enjoy retirement.
Tom’s response: Dividend stocks will prove to be toxic to income investors. They’re at ground zero of this bubble and absurdly overvalued.
Never confuse a good business with a good investment. Many dividend stocks are great businesses. In the future, I hope to be buying them with all the gold I can sell.
At current valuations, they will turn out to be TERRIBLE investments.
Reader comment: Am enjoying reading your articles. We also homeschooled for a while, but found it kind of challenging (for us as parents) keeping up as the kids got older and the curriculum/teaching became more detailed. We switched to distance education learning where the state education authority looked after the learning via online lessons and projects, and we could travel.
Purely on time savings alone, we found that our children could complete the studies in approximately four hours per day with no travel time cost (used to be a 40-minute bus trip twice a day), which allowed them (and us) to pursue other projects/interests. They used a version of Google Classroom. I believe this is the school model of the future.
Reader comment: Many years ago as a single mother of three young boys ages 4, 5, and 6, I took a risk, bought a used stripped-down VW bus, moved out of a rental house into it, packed a 9×12 tent and three burner Coleman stoves on the roof, and set out to explore the western U.S. and Canada for three months. We got cold, hungry, and tired, and learned to pull together.
The next summer we traveled to Mexico and Alaska. I taught my sons to backpack, fish, forage, and survive in the wild. As a team. They are now adults raising their own kids and teaching the same skills of self-sufficiency.
It saddens me to see so many kids today who are helpless and coddled, living in a fantasy world of tech devices, bored and unaware of the majesty and beauty found in living close to nature.
Your kids are blessed to have seen the world with parents who opened their eyes to the diversity and wonder of life in other countries. Please write a book!
Tom’s note: Thanks for writing in! Kate and I read every note you send us. Please keep them coming at [email protected].