Quote du Jour: Marc Faber on a Dow Jones/gold ratio of one
“In a money-printing environment, it is very difficult to know what is actually cheap and what is expensive. Is the price of wheat high, or is it low? Inflation-adjusted, it is extremely low. In nominal terms, it is relatively high. I believe that, in March 2009 when the S&P was at 666, the market was actually much cheaper than is generally perceived, because of the money-printing, and I do not anticipate that we will see 666 on the S&P again, in nominal terms. In other words, they are going to print so much money that the S&P could be at, perhaps, 2000, but in real terms it could be down below the lows of March 6, 2009.
“Maybe in gold terms we could one day reach a ratio of Dow Jones to gold of 1-to-1, as we were in 1980. In other words, the Dow could be perhaps at 10,000 or 12,000, and gold could be at the same level.That is why I am advising people to accumulate gold.
“Can gold have a correction? Yes, there has been a little bit too much euphoria about gold and we may have a correction, but I do not think we are in a bubble in the price of gold. In fact, I could make a case that gold at this level of $1 400 an ounce, is cheaper than in 1999, when I look at the unfunded liability growth of the U.S., at the credit growth of the U.S., and at the household growth, and at the money printing, and at all the wealth creation that happens in China and Russia.
“Just consider, when I started to work in the 1970s, it was said there were two billionaires in the world. One was Rockefeller, and the other one was Mr. Ludwig. Then in 1980 there were, I think, six or eight billionaires. Now you have thousands of billionaires. The paper money has become of lower value, and in that environment, it is conceivable that actually stocks do not go down a lot, in nominal terms, but they go down inflation-adjusted, and not inflation-adjusted by what the government is publishing, but in inflation-adjusted terms as John Williams [Shadow Government Statistics] points out. He says inflation is running at 8% per annum. I have it slightly lower, depending also on the household, whether you have children, or no children, and where you live, but I would say between 5-10% in America is probably a realistic figure, and between 8-12% in countries like India, China, Vietnam.”
The long-term chart below illustrates the Dow Jones/gold ratio Faber is referring to.
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