Fed Chairman Powell has the impossible task of guiding the economy to a “soft landing” – balancing the need to tame out-of-control inflation while preventing a major market crash and recession/depression.

Here’s what is bearing down on America.

• The Fed bailed out the banks; $9 trillion+ in phony money.
• Government debt skyrocketed over $34 trillion and climbing. Soon the interest cost will exceed 50% of tax revenue.
• Government deficit spending continues accelerating.
• Government debt to Gross Domestic Product (GDP) ratio is projected to be 150% by 2028. A Hirschman study shows 50 of 51 countries topping 130% have defaulted on their debt, either through collapse or inflation.
• The stock market continues to levitate. A John Hussman analysis study shows a 99.9% probability of a major correction looming.
• Inflation still rising despite 11 rate increases since 2022.
• Much of the “cheap money” debt has to be rolled over at higher interest rates; creating problems for both lenders and borrowers.

While Powell tries to balance his approach, a soft landing isn’t gonna happen, something has to break.

If he holds rates steady, government interest and deficits will continue to soar, “too big to fail” banks will lose money and the economy will head into a major recession. If Powell pivots and drops rates, inflation will skyrocket; the economy, and possibly the dollar will collapse.

The elites (top 1%) own over 1/3rd of the nation’s wealth. Not wanting to lose their wealth/power, they’re pushing Powell to reduce rates.

Ayn Rand clarifies:

“Inflation is not caused by the actions of private citizens, but by the government: by an artificial expansion of the money supply required to support deficit spending.

Since 2008, trillions have been borrowed, creating a historic credit and stock market bubble. Much of that debt can’t be repaid and must be purged from the system to get back on track.

Ludwig von Mises explains:

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

Who’s looking out for “the people?”

The political class is fighting to protect their wealth and power while governing against the will of the majority of Americans.

Chuck Butler reminds us that “politicians will work together for the good of the people when it is also in their best interest.” Are we there yet? Until the government controls spending and stops bailing out the “too big to fail” banks, things will continue to get worse.

Don’t count on the government to look out for us!

Chairman Powell may be caught between in a trap but we don’t have to be.

We know what the Fed and government should do, however, these are things we cannot control. Every investor must fend for themselves.

Ayn Rand reminds us:

“If a businessman makes a mistake, he suffers the consequences. If a bureaucrat makes a mistake, you suffer the consequences.”

“If you don’t know, the thing to do is not to get scared, but to learn.”

Our problems are clear, understandable, and cause for concern. Baby Boomers, at the end of their working years, played by the rules, worked hard, and saved their money. Now their wealth, standard of living and culture are threatened.

It’s time to fight the fears and keep learning.

Without exception, the experts I rely on feel gold is the absolute best wealth protection available. Investments like land and hard assets are terrific but don’t always have the ability to price fairly or the liquidity that gold offers.

Today let’s take a different approach in looking at gold.

The Dow/Gold Ratio

Gold Avenue explains:

“The Dow to Gold ratio shows how many ounces of gold it takes to buy the shares in the Dow Jones Industrial Average index. For example, if the ratio is 10, that means we need 10 ounces of gold to buy the Dow.

Now, this ratio is actually pretty useful because it can tell us whether stocks or gold are more expensive or cheap. Here’s how it works:

When the ratio is high, that means stocks are expensive and gold is undervalued. …. Conversely, when the ratio is low,…stocks are undervalued and gold is expensive.

What does this all mean? Well, basically, if the ratio is increasing, that’s a sign that you might want to sell some of your stocks and buy some gold.”

Long Term Trends provides a handy graph:

Note the 1980 highlight “gold peaks”. Stocks were undervalued, gold was expensive – inflation was skyrocketing and investors were trying to protect their wealth and buying power. Paul Volcker became the Fed head in 1979, raised interest rates well into the double digits, a short recession followed, and he brought inflation under control.

Conversely, at the height of the “dot-com bubble” the ratio hit 40, (gold was undervalued and stocks were overvalued) a market crash followed, taking decades to recover.

The current ratio is currently just under 20 and rising.

Gold Avenue continues:

“Investors have been using the gold-to-Dow ratio for over 100 years to guide their investment decisions rather than follow it as a strict rule.

One notable investor who uses this ratio is Bill Bonner, who focuses on the reference points of 5 and 15. Bonner sells stocks and buys gold when the ratio goes above 15, indicating that gold is undervalued compared to the Dow.

Otherwise, Bonner sells gold and buys stocks when the ratio falls below 5, suggesting that stocks are undervalued relative to gold.”

A 2017 study indicated the ratio surpassed 17.5 twice since 1900. It’s recently surpassed it again.

What does this mean?

Mr. Hussman’s analysis predicts a 99.9% chance of a major market correction. While it might signal it would be a prudent time for investors to take some profits, there’s another issue to consider – inflation!

The highest inflation in recent memory came during the Carter years.

Inflationdata.com provides the inflation data:

Using the inflation calculator, the accumulated inflation amounted to 59.9%.

Using that data, let’s assume retiree Joe Saver bought a $20,000 Ford truck on 1/1/77 and wanted to replace it five years later. If Ford raised their prices equal to the inflation rate, replacing the same vehicle would cost $31,984 in 1982.

Joe Saver also bought a five-year 6%, $100,000 Certificate of Deposit on January 1, 1977. Joe is in the 25% tax bracket and used the income to pay his bills. How did his investment do during that time?

Joe’s $30,000 in interest nets an after-tax income of $22,500. Five years ago, his $100,000 would buy five trucks. When his CD matured, his $100,000 would only buy 3.1 trucks, his money lost considerable buying power to inflation.

Fixed-income investments might be safe from default; however, the buying power of your money is not protected.

Let’s consider three options. On 1/1/77:

1. Joe invests $100,000 in a 6% CD.
2. Joe invests $90,000 in a 6% CD and $10,000 in gold (74.75oz.).
3. Joe invests $80,000 in a 6% CD and $20,000 in gold. (149.5 oz.).

Only Gold supplies us with historical gold prices which we will use for our analysis.

The Umbrella effect

Gold increased in value more than inflation. The umbrella effect is the additional appreciation offsetting some of the loss in other assets.

While Joe never wrote an “inflation” check to Uncle Sam, in each case he lost significant buying power because of inflation.

Is gold still beating inflation?

On 1/1/2000 gold was $282.05/oz.

Gold closed 2023 at $2,063/oz. Since the turn of the century gold has handily beat inflation, providing significant umbrella protection of your wealth.

When Chuck Butler says “got gold?” he means it.

How much reduction in current income is Joe Saver willing to take to protect his wealth and buying power in the future? The rule of thumb used to be 10%, my wife Jo and I are currently close to 20%.

Chuck Butler’s recent article Powell Throws A Cat Among The Pigeons! Powell is trapped and making things worse.

“Powell who just a couple of weeks ago, said that there were no plans for a rate cut this year… UGH! I just don’t get it… Inflation isn’t going away, and Powell is talking about a rate cut? …. You do know that the deep state is Powell’s boss, and they don’t like seeing their stock holdings going down in value… I’m just saying…”

While Powell might be trapped, we don’t have to be.

The Dow/Gold ratio is signaling it’s a good time for investors to review their gold/stock allocation, and possibly increase your gold holdings. Pay attention!

On The Lighter Side

Well March Madness has officially begun. The final four will be played here in Phoenix at the football stadium. Just for fun, I looked up some ticket prices. Tickets up in the rafters are well over $200 each. Check this out for the final game…

I was certainly surprised. Step right up and buy your tickets in section 107 (highlighted in yellow), priced from $1,499 each to $7,823 per ticket. Tickets up in the 400-level rafters are selling for over $400. Who says college sports isn’t all about the money? Crazy! I’ll watch it on TV, thank you.
 

Quote Of The Week…

“With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.”

— Friedrich Hayek
 

And Finally…

Subscriber Robert G. shares some aging truths:

• “The idea is to die young as late as possible.” – Ashley Montagu
• “People ask me what I’d most appreciate getting for my eighty-seventh birthday. I tell them, a paternity suit.” – George Burns
• “Time may be a great healer, but it’s a lousy beautician.” – Anonymous
• “You know you’re getting old when you stoop to tie your shoelaces and wonder what else you could do while you’re down there.” – George Burns
• “I don’t do alcohol anymore – I get the same effect just standing up fast.”- Anonymous
• “By the time you’re 80 years old, you’ve learned everything. You only must remember it.” – George Burns
• “Old age isn’t so bad when you consider the alternative.” – Maurice Chevalier
• “You know you are getting old when everything hurts, and what doesn’t hurt doesn’t work.” – Hy Gardner
• “I’m 59 and people call me middle-aged. How many 118-year-old men do you know?”- Barry Cryer
• “It’s paradoxical that the idea of living a long life appeals to everyone, but the idea of getting old doesn’t appeal to anyone.” – Andy Rooney
• “Wisdom doesn’t necessarily come with age. Sometimes, age just shows up all by itself.” – Tom Wilson
• “Always be nice to your children because they are the ones who will choose your retirement home.”- Phyllis Diller

And my favorite:

• “All men are the same age.” – Dorothy Parker

Until next time… 

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More By This Author:

The Impossible Dream
We Can No Longer Afford To Ignore Reality
Fighting The Debt Tsunami