Tuesday, February 17, 2009

Ratios

I don't expect this will be a very popular post among some of you out there. But I would like to comment on a couple of ratios in light of the writings of Another and FOA some years ago.

The gold:oil and gold:silver ratios right now seem to many like an explosive opportunity in both silver and oil. I would just like to lay out an opposing view of this that was presented many years ago at a time when these ratios were much less inviting.

Another and FOA made some specific predictions which can be compared with the current state of things in order to give us some fresh perspective. It is clear right now that paper-based wealth is burning. This can most recently be seen in the foreign currency exchange-based derivatives purchased as "insurance" by a Polish manufacturing company. Purchased insurance should only come into play when needed, and to positive effect. But in the case of these derivatives, this paper investment has collapsed the very manufacturing company it was supposed to protect. This is what I would call the explosive potential of paper.

Another said that "all paper will burn". This can also be seen happening in your own 401K, and nearly all mutual funds, pension funds, and any other kind of fund you can think of. Paper wealth is burning away.

Because of this phenomena which he predicted would happen, Another predicted that gold would be set free to seize the day, to mop up the mess. This free gold would rise to heights that most people would never imagine, mainly because their foundational understanding of the world is based upon thinking about the value of things priced only in US dollars.

Ratios are simply a way of pricing things in something other than US dollars, and this really gets down to point of this post.

First, let's look at the gold:oil ratio. Most observers assume that regression to the mean will rule the day when all is said and done. This would mean that ultimately this ratio will return to 10 to 1. On average, most people believe that one ounce of gold should buy 10 barrels of crude oil. Right now, one ounce of gold buys 28 barrels of oil. This means that in dollar terms, either oil must go up in price, or gold must come down.

But in Another's world, we are entering a time of transition. Martin Armstrong would call it a phase transition in the wave's frequency and amplitude. If we apply some of Another's more specific predictions, like that a very tiny amount of gold will buy a barrel of oil, we come up with a ratio of 1,000 to 1. One ounce of gold will ultimately buy 1,000 barrels of oil. Or stated another way, 30 milligrams of gold will buy one barrel of oil. More on this in a moment.

If we look at the gold:silver ratio right now it stands at 69:1. One ounce of gold will buy you 69 ounces of silver. In most people's minds, regression to the mean here would be back to around 20:1. But in FOA's world, we are heading to a much higher ratio. FOA puts a worst case ratio for silver at 2000:1, but I find that hard to imagine. Perhaps he was exaggerating in order to make a point. The worst case ratio I can imagine for silver is 500:1.

I am sure this is hard to believe and even harder to stomach if you own some silver like I do. So all I will say is read the entirety of his writings linked on this site and make up your own mind. Also, this does not mean we will head straight from here to there. We could certainly see a great bounce in this silver ratio before it ultimately settles where it will.

The point I want to make is that there is an alternate opinion out there, even among hard money advocates, as to whether these current ratios are an explosive opportunity to buy silver and oil, or whether they are simply confirmation of a very interesting prediction made more than ten years ago that is only now coming to pass. And that this alternate view should be factored into any investment decision.

Back to oil. You might ask "why would the oil producers ever part with a barrel of oil for only 30 mg. of gold?" The answer to that question lies in letting go of your dollar-based thought process. If you can do that and enter into the world of Another, you will see that 30 mg. of gold will be a great increase from the price they are receiving right now. It will be a fair price. And for that price, the oil will flow freely to anyone who has some gold with which to pay for oil.

Most importantly, this price for oil will be stable and sustainable, impervious to speculation, currency fluctuation, market manipulation, inflation, deflation, and even hyperinflation. You need to look no farther than this statement for the answer to many vital questions that plague the world today.

Sincerely,
FOFOA

1 comment:

d2thdr said...

This post is so relevant right now, with explosion in the silver price.

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