Our Dow/Gold ratio tells us that stocks have a long way to climb down. The ratio is usually around 10. Now, it’s 16.5. Stocks will have to lose about 40% of their value to get down to the average.

During the episodes of financial chaos that occasionally erupt in our economy, we will be equipped both financially and emotionally to play offense while others scramble for survival. 

                                                                                                                — Warren Buffett 

Here at Bonner Private Research, we are in Maximum Safety Mode. Why?  

Like Buffett, we suspect that a period of financial chaos is coming. We want to be ready for it. 

The Primary Trend has turned down; it could last for many years. As prices sink, there are bound to be crises. 

But we don’t have to predict anything; we just have to notice that stocks are expensive. The S&P is selling at a CAPE ratio of 34. That’s twice the average price for stocks — in the 97th percentile historically.  

This suggests that stock prices could be cut in half, just to get back into a ‘normal’ range.  

Our Dow/Gold ratio, too, tells us that stocks have a long way to climb down. The ratio is usually around 10. Now, it’s 16.5. Stocks will have to lose about 40% of their value to get down to the average. 

But markets do not simply go to ‘normal’ and stay there. They swing from over-priced to under-priced... and back. Right now, stocks are on a downswing (or so we believe) of unknown magnitude. But since the feds pushed the last Primary Trend to an extreme...  

... and since they now seem to be pushing this one to an opposite extreme...  

... the coming period of chaos should be a doozy.  

Our model tells us to stay put in safety mode until the Dow/Gold ratio falls to 5 or lower (when you can buy the entire list of 30 Dow stocks for the equivalent of 5 ounces of gold). At that point, it will be time to channel our inner Warren Buffett and “play offense while others are scrambling for survival.” Like Buffett, we are hoarding cash... (in our case, precious metals and dollars). 

In the meantime, we continue to marvel at the astonishing ways in which the feds make a bad situation worse. This just in from the DailyHODL: 
 

US National Debt Surges $273,859,000,000 in Two Months As Billionaire Leon Cooperman Warns Nation Heading Toward Financial Crisis 

Cooperman: 
 

‘You have no idea when the stuff hits the fan...  If deficits don’t matter as some people insist, then I’m being too conservative. But deficits matter... I think we’re heading into a financial crisis in this country.’

Colleague Dan Denning adds: 
 

The Treasury announced it would be borrowing $243 billion in the April-June quarter and $847 billion in the following quarter. That means the government's annual deficit will probably be much larger than the current projections of $1.5 trillion. The second quarter figure is $41 billion larger than they figured in January. But these days, what's $41 billion in the context of $35 trillion? 

Demand for longer-term bonds has been weak. So everyone is expecting the Treasury to announce a mix of Bills and Notes. Shorter-term debt. But it means that everything sold at a shorter maturity has to be refinanced sooner as well.  

Wouldn't want to be Janet Yellen this week. Or ever, really. 

It is obvious to everyone that adding debt at this stage will lead to trouble. Big trouble. Soon, we will hit the doomsday trigger — with debt at 130% of GDP. Fifty one times out of fifty two, when the trigger level was hit... the system blew up. But maybe this time it won’t.

We’re special, aren’t we? We’re the indispensable nation, no? The normal rules don’t apply to us, do they? 

Tomorrow... we’ll try to figure out why policymakers seem to be aiming for chaos. We’ll also look at another ‘trigger’ point just revealed in a Goldman Sachs study. It could be hit any day now. And when that happens, stocks go down.  

What? You say stocks are already going down? The Dow went down more than 570 points yesterday?  But you ain’t seen nuthin’ yet. Nobody is ‘scrambling for survival.’ Not yet. And when they are, we don’t want to be among them. 

Stay tuned. 

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