The Long and Short of Informed Investment Decisions

“What is your favorite government agency, and why?”

“What are the two largest holdings in your own personal wealth?”

“What is your trade of the new decade [best long and short idea for the next ten years]?”

“Where will the Dow and gold be a year from now…and what is your favorite chilled beverage?”

The questions came on thick and fast at last night’s “rough and tumble” Whiskey Bar Debate here in Vancouver. If you’ve attended our little shindig before, you’ll know what it’s all about. If you haven’t yet partaken in the feistiest chapter of our annual symposium, we basically get our most outspoken, controversial contrarians liquored-up and hit them with a slew of attendee-penned questions.

Here’s a taste of what went down when the Trade of the (New) Decade question popped up, as relayed by our mates over at The 5-Minute Forecast:

  • John Mauldin – Buy emerging markets, sell sovereign debt…but not now. Treasuries are going to go lower in the short term
  • Andrew Lowenthal – John is 100% right: Rolling over US debt is going to be so much easier than what people think…it’s too early to short Treasuries
  • Eric Kraus – Buy resource producers in places where people are afraid to invest. Short finance sectors of developed countries
  • Barry Ritholtz – Short the euro, long stocks in 2016, when the next bull market begins
  • Byron King – Sell the euro: It’s doomed, just a question of time. Buy crude oil. There’s just not enough of it. I’m long the Tea Party, too
  • Doug Casey – I’m inclined to own a lot of gold, cattle and agricultural land…keep it simple. I would short the euro, yen and US stock market
  • Gary Gibson – I own nothing. If I had anything, I would have dollars now, uranium later. Buy energy.
  • Eric Fry – Short euro, long uranium
  • Porter Stansberry – There are just too many good shorts. Short Treasuries, especially in US and Italy. Buy gold, silver, timber and super-high-quality blue chips when they yield 10% or more
  • Chris Mayer – Short the state of California and Illinois. Long uranium and high-quality farmland.

The gold/Dow/chilled beverage question also yielded some colorful responses from the panel: Gold at $1,800 per ounce…Dow down 20%…Mojitos…

Not a member of the distinguished panel, your humble editor didn’t throw in his 2 cents last night, so we’ll do so now. But instead of measuring the index in points and the metal in dollars, we’ll do away with floating abstractions and simply measure the index in metal.

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 other words, it would take you 2.8 POUNDS of Mother Nature’s money to buy the Dow.

During the past decade, as stocks stagnated and gold rallied fourfold, that ratio has slipped dramatically. Today, it takes about 8.6 ounces of gold to buy the Dow. Our bet, for what it’s worth, is that this trend continues for a while yet. Next year, we’re probably looking at a Dow/Gold ratio of about 6:1…and not because the Dow goes to 60,000.

Oh yes, and we’ll take a caipirinha.

Joel Bowman
for The Daily Reckoning