Market performance for June.


Weekly Market Update by PLP Advisors

Markets last week were pretty calm.  Stocks and metals both rose ever so slightly, which left the Dow to Gold ratio virtually unchanged.
If you’re a new reader, the Dow to Gold ratio takes the value of the Dow in US Dollars and divides it by the price of gold per ounce in US Dollars.  Last week with both stocks and metals markets moving up marginally the Dow to Gold ratio barely moved edging down from 17.03 to 17.01.
If you’ve been a long-term reader of “Portfolio Watch” you know that we are predicting a large move downward for the Dow to Gold ratio.  We are ultimately expecting that this ratio will fall from current levels to around 1, which means the Dow and gold will be at parity.  In order for that to occur, stocks will have to fall significantly or gold will have to rise significantly, or both.
Stocks falling and gold rising would likely be the outcome if there was a deflationary outcome to the current private sector debt level crisis.  Stocks maintaining and gold rising would be the likely outcome in our view should an inflationary or hyper-inflationary environment emerge prior to the deflationary event due to central bank policy.
In other words, private sector debt levels are so high presently that this level of debt simply cannot be paid.
With private sector debt reaching near record highs according to many sources, we expect that will be a drag on the housing market as well as the rest of the US economy.  Chart One is a chart of US housing starts.  As one can easily see from the chart (from Doug Short), housing starts have begun to decline, at least for the moment.

Chart One is housing permits as a percentage of the US population while chart two is a chart of actual housing permits.
Chart Two may be confirming Chart One.

We once again got a “buy’ signal in US Treasury bonds this week.  After literally falling off the proverbial cliff over the last six months of 2016, US Treasury Bonds are once again in an uptrend by our measures.
The US Dollar did break through the strong uptrend line that had existed from early 2014 until recently.  The fact that the US Dollar is beginning to lose steam makes an argument for the inflation outcome discussed above rather than going to a deflationary environment right away.  Should the deflationary environment emerge, on would expect that the US Dollar would get noticeably stronger.  Our admittedly cynical view is that the Federal Reserve will diligently fight against this inevitable outcome perhaps eventually at the risk of the US Dollar losing world reserve currency status.
It is for this reason that we have advised our readers to consider putting 10% of their assets into hard metals with the majority of those metals holdings being in gold.  An 85% to 15% ratio of gold to silver within this 10% portfolio allocation would be good place to start considering this suggestion.

Chart Three does offer a potentially conflicting view of this inflationary outcome.  Chart Three plots the monthly inflation rate as measured by the CPI or Consumer Price Index.  When looking at this chart, one would conclude that inflation is under control.
However, the government’s estimate of the “official” inflation rate may be flawed.  Over the years, the government has changed the way the inflation rate is calculated.
Many would argue that if one wanted to have a better idea of the actual inflation rate, one might consider using the Chapwood Index.  The Chapwood Index uses a very simple methodology to calculate the inflation rate.
The Chapwood Index tracks the prices of the top 500 items that American consumers spend on and tracks the cost of these items bby metropolitan area.
When one analyzes the Chapwood Index, one finds that the one year inflation rate has ranged from 8.1% to almost 13% depending on the metropolitan area one is looking at.
That’s a far cry from the official inflation rate, but arguably far more accurate.
Due to numerous requests, we are holding another New Retirement Rules class on July 15.  It will be held at the East Beltline campus of Western Michigan University beginning at 9:00 AM and concluding at 2:30 PM.
For more information or to register, visit
The class is open to first time attendees only due to space limitations.  Thank you for your cooperation.

 “Misfortune shows those who are not really friends.”



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