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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Webster Groves who wrote (149377)	4/13/2011 11:02:42 PM
From: ChanceIs	3 Recommendations Respond to of 206166

RE: DOW/Crude Chart The monster spike in the ratio of Dow to crude in '98 has two simultaneous attributes: 1) the DOW spiked, and 2) crude got pounded down tot he ridiculous level of $10. Big numerator and a small denominator yields a monster number. I find it hard to imagine the set of circumstances occurring again which drove the crude price to $10 - or an inflation adjusted price today. Same for the DOW/tech bubble - and to have them occur simultaneously!!!!! But ignoring the spike, what can we learn? I see a long term average of about 150 (not sure of the units). We seem to be sitting around 200. Reversion back to 150 would come from a dropping DOW or rising crude.OF course the two are correlated. We see a sharp drop in the early '70s which no doubt was the Arab oil embargo. Things were ugly throughout the '70s. I think that oil came back down in price pretty quickly, but the DOW remained sick. The only performers at the time were the oil stocks. High oil prices lead to low DOWS, so given the current crude trend, I would say that we are reverting (as opposed to"excurting") I suppose it is safe to say that oil stocks will outperform other stocks in this environment. Stocks could go down to restore equilibrium, oil up or both. A look at the Dow priced in gold (Dow/gold ratio) might also shed some light (see below). I heard one analyst proclaim that there should be a large overshoot to the downside. He also pointed out that we may only be ten years into a 35 year reversion in DOW/gold. (These days we have the usual gold is in a bubble vice gold is just getting started pundits hawking their investment letters. Take your pick.) That makes sense to me. Again its the same problem we have with DOW/crude. Will the DOW drop or commodity (gold) soar? One might associate a time cycle with the DOW/crude of length 35 years. One cycle might be from 1955-1990. This suggests that the current reversion might run out to 2025. If this means anything (hell, it might - at least don't laugh), one might think that the correction should last a little longer than 2025 given the huge overshoot. Every day it seems I read an article that it will take housing five years longer before it becomes a safe investment again. (Are we out to 2050 yet on that?) We all know that the '70s were a time of stagflation. I see a number of eerily similar indicators. No bell bottoms, leisure suits or disco yet, but I have the antenna raised. Nixon printed a whole lot of money to finance Viet Nam, and the 70's was the hell we paid. Nixon tore up the gold standard in '71(?). Hmmmm. There was another big meeting at Bretton Woods this last weekend. (I won't attempt to discern a cycle of being off and then on the gold standard. I will leave that sort of nonsense to Paul Krugman.) Regardless, I think that both of these charts suggest favoring the harder commodities over common equities. But equities in precious metals and crude should fare better. I have done well in the past in oil services. They have had a good run. I know people pounding the table over the opportunities in the PM miners.