Suntzu:

Thanks for the PDF.  I found it hard it hard to argue with what Faber said, especially since every expert in the world has been saying the same thing.  Also, I am well aware of the inflation situation.  The US trade deficit, soaring energy prices, the housing bubble, and the fact that new Fed chief Bernanke has publicly endorsed printing money are all reasons to expect rampant inflation.  Here are a few questions:

1. In the Dow/Gold ratio, do they only look at the absolute number of the Dow?  What about its P/E ratio?
   
   
2. Energy and precious metals have had a huge run, some would say even speculative.  Are you concerned about a correction there too?  I mean I’m seeing a lot of penny PM stocks with no earnings, assets, or even reserves flying extremely high.
   
   
3. As a general indicator, I am concerned that most people are getting back into the market and going ga-ga over energy and PM.  The hot money has seen 100% PM mutual fund returns and is chasing more of the same.  It reminds me of the dot-coms again.  I realize there is a supply/demand imbalance with energy and PM, but I don’t like being where the crowd is.  What are your thoughts there?
   

Hey Theo,

Here are my opinions on what is happening.
1. The Dow/Gold is only looking at price. It is the price of the Dow measured in gold, not dollars.
2. Yes, energy and precious metals have had a nice run since 2000. 2000-2002 was when the easy money was made, but the trend is still up. I'm not just talking technicals here. The supply/demand situation for energy and PMs is incredible. As for being overbought, corrections are always a possibility, but keep in mind they were coming off of such a low base.
In 2001, oil was under $20 and gold was under $300. Considering monetary inflation, this is almost free.
3. Yes, there's been lots of hot money in these sectors, but that's what hot money does. As for the crowd being there, I'll tell you an anecdote. I live in Vancouver, where housing prices are insane. I was at a party with some people, who pay no attention to the markets. Everybody was speculating in real estate because it never goes down. I mentioned gold once and was laughed at because it had "no value". When people like that are bragging about how much money they made in gold, I'll sell my gold and maybe buy some real estate.

I have a question, as well. When the average person has 70% of their portfolio in stocks and no gold, which one is in more danger of correcting?