By Porter Stansberry in the S&A Digest:

Here's a different way to look at the stock market... A view that I happen to believe is a lot more accurate than the way you're probably used to seeing it:


The chart above is the price of stocks (as measured by the Dow Jones Industrial Average) expressed as a ratio to the price of gold. One of the biggest problems with our government's money is that its value is constantly manipulated. The feds control both the price of money (short-term interest rates) and the supply. This distorts one of the most important roles of money: to deliver accurate information about supply and demand. It's hard to know what to do with your savings when you don't really know what anything else is worth, thanks to the vagaries of paper money. And that's why looking at asset prices through the lens of gold is sometimes very helpful.

If you'd been looking at this chart in late 1999/early 2000, it might have been more apparent to you how expensive stocks had become. When you look at this chart today, it's more apparent how close we may be to a long-term bottom in stock prices.

It's interesting that at the peak of the gold mania in 1980, one ounce of gold was the same price as one unit of the Dow. The Dow-to-gold ratio was 1 to 1. At the peak of the stock market (the real peak) in March 2000, the ratio was 42 ounces of gold to one unit of the Dow, or 42 to 1. Today, the ratio is about 7 to 1. If you were going to lean one way or the other right now, you'd have to say stocks are the better value. Meanwhile, everyone we know is selling stocks and buying gold, including many people who are buying gold for the first time in their lives.

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