The rise in the Dow could end tomorrow or perhaps we could see a continued rise for a limited time but trying to catch the last few points of the rise is an extremely dangerous exercise that could lead to ruin. NOW is the time to take profits in stocks and protect your assets from total annihilation.
The Market Cap to GDP Ratio
The Buffett indicator of market cap to GDP is now giving us a major warning. As the graph below shows stocks are now at an all time high valuation in relation to GDP.
The Shiller Cape Index
If we look at the Shiller Cape index, it is now at a historical high (excluding the Dot Com bubble) and 2X the historical average. Yes, overbought positions can extend but the subsequent crash will be long and vicious. I would be surprised if markets in the next few years fall by less than 90% like in 1929-32.
The Dow/Gold Ratio
The Dow peaked against gold in 1999. but the Dow/Gold ratio came down from 44 to 6 (-87%) in 2011. We have now seen a 10 year correction with the compliment of the Fed and massive money printing combined with credit expansion.
The rise in the Dow could end tomorrow or we could see a continued meltup for a limited period but, regardless, the time for Confucian preparedness is now and here.
The rise in gold and fall in stocks will mean that the Dow will fall another 99% (see chart above) from here to reach the long term trend line (not shown) so getting out of stocks and holding physical gold will not only be a seminal decision but it will also heed 2,500 years of wisdom that Confucius taught.
As I showed in last week’s article, gold is today as cheap in relation to money supply as it was in 1970 at $35 and as cheap as in 2000 when gold was $290. The short term correction in gold is now finishing and the next move up will be the strongest we have seen years.
Editor’s Note: The original article by Egon von Greyerz has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy read. The authors’ views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
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