| How's this for a bubble? | | | | next 18 months. |
| In 1965 one in ten Americans owned stocks. In 1990, | | | | During the last bull market in gold, the precious metal |
| one in five Americans owned stocks. Put another | | | | rose 2,329% from a low of $35 in 1970 to a high of |
| way, it took 25 years for stock ownership to double | | | | $850 in 1980. However, during that time, there was a |
| in the US. And most of that growth came between | | | | period of 18 months in which gold fell nearly 50%. |
| 1983 and 1990 with the introduction of 401(k)s, IRAs | | | | From mid-1971 to December 1974, gold rose 471%. It |
| and other stock-based retirement plans: suddenly | | | | then fell 50%, from December '74 to August '76. |
| anyone with a large scale employer could invest in | | | | After that, it began its next leg up, exploding 750% |
| stocks without having to open a brokerage account. | | | | higher from August '76 to January 1980. |
| Thanks to the Internet and low fee online brokerage | | | | Now, in its current bull market (2001 to March 2008), |
| accounts, it only took seven more years for stock | | | | gold rose over 300% from $250 to a little over |
| ownership to double AGAIN. Put another way, the | | | | $1,000. And just like in the mid-70s, it began showing |
| rate at which new participants entered the stock | | | | signs of weakness after its first big rally up to $1,014 |
| market accelerated four fold between 1990 and | | | | in March '08. At one point, it even fell to $700, a |
| 1999. By the end of the 20th century, 48% of US | | | | 30% retraction. Granted, it wasn't a full 50% |
| households owned stocks. | | | | retraction like the one that occurred from 1974-76. |
| This is the one bubble no one talks about. | | | | But we are experiencing a financial crisis. And gold is |
| I'm talking about the bubble in "investing in stocks." | | | | the most common catastrophe insurance. |
| Never before have so many Americans done this. It | | | | If we were to go by the historic pattern of the gold |
| gave us one of the biggest bull markets in stock | | | | market in the '70s, gold should experience upwards |
| history: a mega-18 years run from 1982 to 2000. But | | | | resistance for 19 months after its first peak today. |
| it also means that stocks have got a long ways to | | | | Gold's recent peak was $1,014 in March '08 (roughly |
| fall to get back in line with their historic relationships | | | | 14 months before the writing of this report). If this |
| to other asset classes. | | | | bull market parallels the last one, then gold should |
| Particularly gold. | | | | renew its upward momentum in a very serious way |
| A lot of commentators talk about how gold is near | | | | starting in October 2009. And this next leg up should |
| an all-time high and that stocks have fallen 50%, | | | | be a major one (the biggest gains came during the |
| making them cheap again. However from a long-term | | | | second rally in gold's bull market in the '70s). |
| perspective, gold and stocks are nowhere near their | | | | In fact, it's already happening... |
| normal relationship. | | | | According to Capital Gold, a precious metals dealer, |
| According to Dr Marc Faber, editor of the Gloom | | | | the demand for gold from self-directed IRAs has |
| Boom Doom Report, gold and stocks move in | | | | more than doubled since January 1, 2009. The World |
| distinctive long-term trends. Over the last 110 years, | | | | Gold Council notices similar spikes in demand for the |
| these trends has staged six major phases: | | | | gold ETF, writing "Inflows into gold ETFs continued to |
| 1900-1929: stocks outperform gold | | | | grow throughout the quarter, with investors buying a |
| 1929-1932: gold outperforms stocks | | | | record 469 tonnes of gold, dwarfing the previous |
| 1932-1966: stocks outperform gold | | | | quarterly record of 145 tonnes, set in the third |
| 1966-1980: gold outperforms stocks | | | | quarter of last year." |
| 1980-2000: stocks outperform gold | | | | Globally, entire gold markets that didn't exist in 1980 |
| 2000-???: gold outperforms stocks | | | | are now beginning to buy the precious metal. |
| Overall, the median stock to gold ratio for the last | | | | Vietnam started trading gold futures in June 2007. |
| 106 years is 5.4. In other words, throughout the 20th | | | | Already the exchange trades around $100 million in |
| century, on average 5.4 ounces of gold would buy | | | | gold futures a day. China's Shanghai Futures Index |
| one unit of the DJIA. | | | | started trading gold futures just a few months ago. |
| Today, gold trades at $980. The DJIA trades at | | | | The latter country has already surpassed the U.S. as |
| 8,500. This puts the ratio of gold to stocks at 8.6. | | | | the second largest consumer of gold behind India. |
| Thus, the DJIA needs to fall to 5,292 (a 37% drop | | | | Prepare in advance. |
| from today's level), gold needs to rally to $1,574 (a | | | | Bottomline: don't let the talking heads fool you. |
| 60% rally from today's level), or some combination | | | | Stocks are not cheap, especially compared to gold. |
| of the two, in order for gold to be appropriately | | | | And the bull market is gold is nowhere near over. |
| priced relative to stocks again. | | | | Over the last 35 years, more Americans began |
| When exactly this will happen is anyone's guess. The | | | | investing than at ANY other period in history. As |
| gold vs. stocks trends over the last 106 years have | | | | stocks collapse later this year, they'll either pull out |
| ranged in length from three years to 29 years. | | | | their money pushing the DJIA lower OR they'll shift |
| However, judging from the Fed's money printing and | | | | their money into alternate investment classes like |
| the recent action in gold, it's quite possible we'll see a | | | | gold. When they do, the DJIA will fall further and gold |
| mammoth run in the precious metal sometime in the | | | | will erupt higher. |