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The American Consumer in Three Shocking Charts

By Amber Lee Mason, editor, DailyWealth Trader
Friday, November 14, 2014

Which would you rather own? A pile of gold... or a business that sells boats?
If you're a newsletter reader... and I know that you are... chances are you answered "gold."
Boats are expensive consumer items. They cost a lot of money to buy... They cost a lot of money to maintain... And they depreciate in value. You can only sell boats to folks who don't mind wasting money.
Gold, on the other hand, has served as "real wealth" for millennia. It's portable, durable, divisible, and it has intrinsic value. It's a way to store wealth, rather than destroy it.
In the investment-research business, there's a popular belief that the consumer is "tapped out" and can't afford things like boats, pools, motorcycles, and other big-ticket items. There's a popular belief that you should buy gold and avoid businesses tied to consumer spending, because another economic collapse is around the corner.
Here's the thing: The market disagrees. It's voting for boats and bikes over gold. And no matter how foolish you think the trend is, it's vital you recognize it. If you don't, you're likely to lose a lot of money...
Let me back up a bit and show you what I mean...
Years ago, in late 2007 and early 2008, my colleague Brian Hunt ran a series of charts in his "Market Notes" column. He was tracking the prices of "real assets" – like iron ore, coal, oil, and gold – versus the share prices of companies that make "landfill stuffing" – like Harley Davidson (motorcycles), Nordstrom (expensive clothes), Winnebago (mobile homes), and Brunswick (boats).
Take a look at this chart below. From late 2006 to late 2007, the "gold to HOG" ratio doubled. In other words, you were much better off holding an ounce of gold than a share of Harley Davidson stock.
This chart illustrated one of the biggest trends in the world at the time: the rise in value of hard assets against the equity of businesses that live and die by the American consumer's capacity to spend $100 on a shirt... $20,000 on a motorcycle... or $100,000 on a mobile home.
The "real assets versus landfill stuffing" contest was tipping toward real assets because folks didn't like the look of the American economy... and they didn't feel good about the value of the American dollar.
And if you placed your bets against the trend – and in the "landfill stuffing" corner – you got badly hurt. After Brian first introduced the "gold to HOG" ratio, it soared from under 20 to over 100. Gold's value increased more than five-fold relative to shares of Harley Davidson.
But today, that trend has reversed... dramatically. And it has surprised a lot of people.
Back in 2010 and 2011, most folks you talked to would have told you that a sagging economy and the government's "EZ-Credit" policies would crush the American consumer... and inflate the price of commodities. Many folks are still expecting that to happen.
What we're seeing is the opposite.
Here's the "gold to HOG" ratio since 2010. An ounce of gold has fallen 63% versus the share price of Harley Davidson.
Here's the "oil to Brunswick" ratio. The price of a barrel of oil has dropped 75% versus a share of the boatmaker.
Here's the "copper to Nordstrom" ratio. The price of a ton of copper has fallen 58% versus a share of the department store.
In short, "real assets" are getting clobbered by "spending stocks."
I recently spoke with Brian about the reversal. Here's what he told me:
In early 2011, I warned Stansberry Research readers that the uptrend in commodities had broken down... and that commodity trades were dangerous. It was sound advice. The benchmark commodity index fell 28% from its 2011 high. Mining stocks have been obliterated.

During that time, businesses that are sensitive to the health of the American consumer, like Home Depot, have done well. The Market Vectors Retail Fund, which is a great gauge of retail stocks, has nearly doubled since early 2011.

What should we do now? If you hold winning positions in consumer spending stocks, stay long with trailing stop losses. The American consumer is doing a heck of a lot better than the pessimists would have you believe. The uptrend is likely to run further... but trailing stops will get you out with a profit in case it does not.

That's exactly why we've recommended long positions on the American consumer – like in "Big Cheap Tech." These companies will grow alongside the consumer's ability to buy more phones and businesses' ability to buy more software.
Of course, the trend toward "landfill stuffing" and away from "real assets" won't last forever. That's why we've recommended making trades in commodities like uranium and grains.
But remember, the market is the judge, jury, and executioner of any trading idea. Today, the verdict is against "real assets"... and for "landfill stuffing." The consumer is doing better than the pessimists would have you believe.
Good trading,
Amber Lee Mason

Further Reading:

Just because the trend is against gold right now doesn't mean you shouldn't own any. Dr. David Eifrig says a small position in gold can serve as a "chaos hedge" – the sort of thing you own and hope to never need. Learn more here.
DailyWealth classic: "Gold is the asset that can't be inflated, yields nothing, and is no one's liability," Dan Ferris writes. "It's real wealth, pure wealth... the most enduring wealth in history." Learn more here.

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Market Watch
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Symbol Price
Biotech (PBE) 49.70 -1.2% +41.0%
Semis (PSI) 23.09 -0.4% +29.9%
Transportation (IYT) 162.29 -0.4% +28.3%
Health Care (IYH) 142.22 -0.3% +27.8%
Big Tech (QQQ) 102.75 +0.3% +24.8%
Real Estate (IYR) 75.41 +0.5% +22.1%
Utilities (XLU) 45.24 -0.6% +20.9%
Financials (IYF) 87.97 -0.3% +16.5%
Defense (PPA) 33.92 +0.4% +16.8%
Software (PSJ) 38.84 +0.6% +13.4%
Industrials (IYJ) 106.22 -0.4% +11.9%
Consumer Svcs (IYC) 130.37 +0.6% +12.1%
Basic Mat (IYM) 84.65 -0.3% +10.0%
Insurance (IAK) 48.92 -0.4% +8.9%
Telecom (IYZ) 30.64 +0.3% +9.1%
Water (PHO) 26.00 -0.8% +4.6%
Construction (PKB) 21.69 -0.9% +3.2%
Media (PBS) 24.85 +0.0% +1.0%
Retail (PMR) 36.06 -0.1% +1.8%
Alt. Energy (PBW) 5.64 -1.9% -13.8%