Friday, December 2, 2011

Stealth-Dip Update

Dow/Gold Dec 2, 2011
The above chart plots the track of the Dow/Gold ratio. This literally prices the Dow in terms of Troy Ounces of Gold. Usually economists look at this ratio to compare historical values of the Dow over eras of highly variable inflation and monetary policy. My thesis is that the much anticipated second dip in the broad market has already occurred but was disguised by the two rounds of quantitative easing. The chart above is consistent with my stealth-dip thesis: the low in August occured when S&P downgraded the US debt and is lower than the March 2009 low in the ratio. The D/G has touched above the March 2009 low-level but I don't consider the thesis confirmed yet. Confirmation would come when the market tests the 7.2 level as support which may happen sometime in Spring of 2012.  You heard it here first.

Comments welcome.

Best.
-Allen

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