08/03/10 Tampa, Florida – Most of us gold bugs are ready for the explosive blowout top after a long, spectacular parabolic rise in the price of gold, so that we can then move along to Phase 2 of the Terrific Mogambo Retirement Plan (TMRP).
This is the part of the TMRP where we shamelessly spend vast fortunes in the pursuit of fun and the absence of responsibility, except for the part where we sleep something off, get any new tattoos removed, nullify new contracts or marriage licenses, and pay for any damages. Otherwise, whee!
Phase 1 of the TMRP, of course, is when we spend those grueling years at our stupid jobs, smiling on the outside but secretly plotting our revenge while continuously buying gold, silver and oil with what we can salvage from our meager pay, gradually accumulating gold, silver and oil in a sheer panic because the Federal Reserve was creating too much money, which the federal government borrowed and spent to enlarge itself and its scope, and creating too much money which everyone else borrowed, too, to enlarge themselves and their scopes, which has gotten us all in debt up to here, a waistline out to here, garages full to there, and now we’re freaking doomed, except for…(pause for dramatic effect)…those who were buying gold, silver and oil when they were cheap, like now.
So how much money are we talking about? Well, Joel Bowman, managing editor of The Daily Reckoning, notes, “Historically, the peak of a gold bull market/stock bear market occurs when you can pick up the 30 bluest stocks for about one, maybe two, ounces of gold. The Dow/Gold ratio, at that point in time, is said to be around 1:1 to 2:1. During the furor of tech mania in the late ’90s, early ’00s, when the Midas metal was scoffed at in polite company, that ratio reached 45:1.”
In terms of the sheer weight of that much gold, in case you want to, for example, calculate how much gold your kids will have to carry if you are planning to sneak across the border, if needs be, “it would take you 2.8 POUNDS of Mother Nature’s money to buy the Dow”! Wow!
Then, to show you how gold holds its value, he notes that “During the past decade, as stocks stagnated and gold rallied fourfold, that ratio has slipped dramatically,” and now, today, gold has risen in price so much that “it takes about 8.6 ounces of gold to buy the Dow,” which is less of a burden on kids (“if needs be”), and even less of a burden next year when he expects “a Dow/Gold ratio of about 6:1.”
Ian Gordon of the Longwave Group verifies, in his essay “The Perpetual War: Gold vs. Paper” that the current price of the Dow Jones Industrial Average divided by the US dollar price for an ounce of gold currently stands at 8.54, which he considers quite high, considering that “the trendline joining the two lows in 1932 and 1980 is currently at 0.68 (0.68 ounces of gold to buy the Dow Jones Industrials)” which “would be equal to something like 2000 points on the Dow and a $3,350 gold price.” Wow!
Phase 2, here we come!
Before I could get carried away with wild daydreams of pleasure and gluttonous debauchery paid for with piles and piles of ready cash, I am instantly on defensive alert when Mr. Gordon’s warning rings out, loud and clear, “It’s a possibility, but not a ratio to which we give a high probability.” Darn!
Being a pathetic guy whose hopes and dreams are always crushed by a cruel, uncaring world, I naturally expect the “but,” since it implies that gold is not going to soar soon, and I’m going to have to keep working at my stupid job longer than I had hoped, meaning that I will have to put up with the wife and kids and family and boss and neighbors for one more hour, one more day, one more week, one more month, or one more year than I had feared. Or more! Oh, woe is me!
On the other hand, it makes sense to keep working as long as gold, silver and oil are so cheap! Looked at it like that, what can one say except, “Whee! This investing stuff is easy!”?
The Mogambo Guru
for The Daily Reckoning
The Mogambo Guru
Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning , and other fine publications. For podcasts featuring the Mogambo, click here.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
Unlike other gold bugs and silver bugs, The Mogambo Guru recognizes the need for an exit strategy, that the day will come when the holders of gold and silver should exchange their precious metals for stocks, bonds, and other income earning investments.
This exchange of metals for investments should only occur when fiscal sanity returns to governments, inflation is really under control (none of this fudging the CPI to make it look like inflation seems to be low), or if interest rates spike to get inflation forced down ala 1980.
This is The True Wisdom Of The Mogambo, (TTWOTM) that you will need to trade value for value, gold and silver for income earning investments so that you not only become rich from gold and silver ownership, but you sell your precious metals for income earning investments and stay rich.
Many gold/silver bugs forget this detail and think they should hold onto gold and silver forever, completely missing TTWOTM and lose out on making their fortunes grow.
Oil, in the form of oil stocks, will pay dividends as demand increases worldwide, the supply decreases as older oil fields are depleted, and oil gets harder and harder to find. Renewable energy sounds good, but the technology and infrastructure to make renewables the replacement for oil will take decades if not a century.
Of course, real Junior Mogambo Rangers know this from reading the rantings and ravings of The Mogambo Guru (and thorough careful study of The Mogambo Secret Code Book), it is the non-JMRs who miss the answer (and the obvious) entirely.
Long Live Mogambo!
I have been texting you for the past three hours 777, do you , like all the others, have me on ignore?
Hi Guru
Dollar is again down against Yen @ 85 plus only. How much dollar will down against Yen in the near term, say, 80, 75, 70 or 50?
JMR bayou bobby
I don’t text, I don’t have a cell phone or blackberry or anything like that with texting abilities. I just post via my computer, unless there is someone else who is using my sign in name as junior mogambo ranger 777 and texts.
I am not ignoring you, I just have no means of recieving your messages other than posts you make on on Daily Reckoning.
“Renewable energy sounds good, but the technology and infrastructure to make renewables the replacement for oil will take decades if not a century”.
Yeah, its’ REALLY REALLY difficult to tighten the four bolts on a solar panel and connect it to a cable….Yes it is SOOOOO incredibly difficult to point mirrors at a fresnel lens, create steam and then power turbines….Yes, it is really hard work to stick a propeller in fast moving water and make hydro power!!!! NOT!!!!!
If this sort of astonishingly easy change really takes America a century to do, you really are up **** creek without a paddle….Not to mention that it should be considered TREASON to use so much foreign oil and get your country further into debt!!
JMR 777 is right about the TTWOTM. The ratio I am tracking is GLD/GND (Girl Next Door).
Long Live Mogambo! (LLM!)
fred,
if it all it took was four bolts and a cable, your roof must certainly be covered with solar panels. You must not live where it is cloudy, or hails, or snows in wintertime. Not to mention the energy equivalent of solar isn’t anywhere close to petroleum.
And it is REALLY REALLY hard work to stick a propeller in fast moving water. There is nothing astonishingly easy about building the Grand Coulee, Hoover, Oahe, Three Gorges or a constellation of other dams. Google James Bay Project just for fun. Besides, envirowanks dislike dams just as much as they do Deepwater Horizon.
What is the up front cost of all of the solar panels needed to make one house self sufficient electric wise?
How much is the up front cost of batteries to store solar power generated electricity when it is night time or cloudy out?
Generating electricity in large quantities from a power station is cheaper than producing electricity in small quantities using solar or wind.
Many Americans will do the total upfront cost of buying solar panels or a wind turbine vs. the cost of buying from an electric company and many will decide to go with the latter. The “how much a month” mentality will turn off many potential buyers of renewables in spite of all of the arguments in favor of solar/wind/fuel cells. When it comes to ‘how much will it cost me now’ renewables have an up hill fight to gain acceptance.
Electric cars and electric powered trucks sound like a good idea, but the range of such vehicles is limited making them an unfavorable choice for hauling freight over long distances. For this reason, diesel fueled trucks and trains will still be needed.
The infrastructure is key when thinking about renewables. Who will pay for the hydrogen refueling stations, who will make solar or wind affordable, who will do all of this-
? Without Government Subsidies?
Government Subsidies=all taxpayers pay for it even if they individually don’t use it.
You have to consider all of the disadvantages as well as the advantages when dealing with renewable energy.
Yes! The truth shines like a xenon bulb in a root cellar! My gold will not actually go up in value, but the dollars will get smaller and smaller as the Fed prints more and more until their value equals 1 divided by a big, big number.
Then, when my neighbors house has devalued to some ridiculously low number of these teeny tiny dollars, and my gold is worth three hundred trillion of them, I will buy his retched hut and burn it to the ground so I can have a better view and can fish in his pond.
Um, I mean, I will trade it for income earning investments, as JMR 777 so wisely suggested.
When interest rates spike, it will be too late to sell. Gold will probably loose a hundred bucks or more for every quarter of a percentage point that rates rise.
I mean no ill will to ‘fred quimby’ but please don’t show people how ignorant you are. Any cursory investigation of producing and integrating alternative energies into a single house or an entire city will quickly overwhelm the interest of the ‘American Idol’ generations. There is a lot more to it than four bolts or dropping a propeller into some water….geeze what a moronic summation. It is exactly these distorted ramblings which keep undermining the industry. It is not a cakewalk.