Friday, July 31, 2009

The Dow-Gold Ratio and the Economy

From the Chart of the Day: a long-term perspective.
This chart is misleading in that it does not include dividend income from stocks. The outperformance of stocks vs. gold from 1980-2000 was greater than shown.
I would also quarrel with the downturn trendline. I believe that too much of the past year's ratio is shown outside the major downtrend.
Given the greater than usual lack of interest in policymakers in sound money these days, I would think that the general downtrend in the Dow/Gold ratio will tend to remain in force, though it would not be surprising to see the ratio move up a bit longer as the economy is tipped to be transitioning to the classic low-inflation, healing phase following a major econonic downturn.
Absent fundamental reform of the financial system, the primacy of the bankster-gamblers that was codified by the Clinton Administration with the effective repeal of Glass-Steagall a decade ago--which correlates with the peaking of the Dow/Gold rato--continues and therefore the existing trends are likely to remain in force.
A new silver ETF, symbol SIVR, is now available. Yours truly is an owner of it. The numbers of the silver bars it owns are published daily on the Net. And sophisticated gold buyers may want to own the Canadian version of GLD, symbol GTU. Perhaps it has a bit more certainty that the gold it says it physically owns is actually there than does GLD.
Note that the GDP number released today had worse than expected consumer numbers, but the overall number was less bad than predicted because of greater government spending. But remember that GDP was actually UP in Q2 2008.
The economy has been given the equivalent of blood count booster shots that dialysis patients, who suffer from chronic anemia, receive. Neither is a sign of good health. The economy remains in poor health, cyclical changes notwithstanding.
Copyright (C) Long Lake LLC 2009

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