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Market Dysfunction & You

Jun 10, 2012
Benchmark investment indicators turnaround again this week, as the Dow Jones Industrial Average and gold continue to twist around breakeven for the year. Using gold as an indicator of money and the Dow as one for economic activity -- both look confused.  

In the current environment, with bad money policy and negative Market fundamentals, stock values should be falling and gold should be rising. Using the action zone midpoint as a gauge for the "fair value" of stocks, stocks are overvalued by at least 10% – perhaps twenty or thirty percent is more appropriate considering the whole picture – and gold is undervalued by at least that much.  

The 15-51 Indicator looks much less confused, remaining up 27% for the year, but like the Dow, is also over-valued at these levels. Here’s the picture. 


How the Dow and gold could look so confused about the condition of money, debt, and economic strength is beyond me. Here’s a sample of recent news headlines crossing the wire in the Wall Street Journal on-line:
Spain Warns Market Access Being Shut
China Readings Show Room for Stimulus
Big U.S. Banks Brace for Downgrades
UBS Gets Stung by Facebook IPO

In a nutshell, Spain doesn’t have money to circulate through its marketplaces, China’s economy needs stimulus because its also shrinking, and the weakness in large U.S. financial institutions called "banks" is about to be exposed through a forthcoming downgrade from Moody’s ratings service. To bother financial matters even more, foreign money center bank UBS reportedly lost $350 million on the facebook IPO. This corroborates my previous assessment that JP Morgan Chase wasn’t the only "bank" taking high-risk positions outside of traditional banking practices – which puts those banks at risk and brings future bailouts into play. They’re "too big to fail," after all.

There’s no reason to be confused about "the market's" dysfunction. 

Market conditions remain poor for money and debt, bad for stocks, and good for currency hedges like gold. Recent movements in stock prices and gold are indications of Market confusion and dysfunction. In times like these, play defense and make money too.   

Here’s an update to my 50-50 portfolio for the most recent 12 months, comprised like this:

Asset Class        Allocation
Stocks (15-51i)      25%
Gold (gld) 25%
Cash                 50%
Total                100%


This 50-50 portfolio more than doubled the Dow’s gain with just half the risk (11% versus 5%) and a fraction of the volatility. With smart design and superior 15-51 construction it’s easy to achieve almost any reasonable investment objective.  

You can do it, too – even in environments like this. The only thing stopping you is someone telling you that you can’t do it. I say they’re wrong.  

What say you? 
ShieldThe road to financial independence.™
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