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Gold and the Dow: The exceptions, or the rule?
Nothing is more perilous for an investor than to think exceptions are the rule
When someone says the financial bubble has burst, we all know what "burst" means: A decline in asset values like stocks and real estate. Yet too few people realize that the "bubble" itself involves more than just asset values -- it also involves psychology. And it's really, really important to distinguish between assets and psychology, for this simple reason: the end of bubble asset values does NOT mean the end of bubble psychology.
In fact, mini-bubbles can happen after the big bubble has burst.
Depending on how big the big bubble was, it can take a long time and a lot of losses to extinguish the psychology that drove it. It's easy to understand if you think about it. If things aren't so good now, and better times are a recent memory, it won't take much to get the old enthusiasm going.
Alas, too much enthusiasm based on too little evidence is common to ALL bubbles, big or small. So here's where it gets tangible: Gold prices have recently pushed to all-time highs, the Dow Industrials to a new yearly high. But gold and the Dow have done this ALONE, as in NO other equity indices or commodities have followed.
Yet which markets get all the media coverage? Gold and the Dow, of course -- to the point that people think the performance of these two markets is not the exception but the rule, facts be damned. Too much enthusiasm, too little evidence.
Nothing is more perilous for an investor than to suppose exceptions are the rule. That is why Bob Prechter put two charts right on the front page of the just-published Elliott Wave Theorist: The first chart compares the Dow Industrials to seven other major stock indices, the second compares gold with seven other commodities. If you have any doubt about the exception vs. the rule, one glance at these charts will make those doubts vanish.
And yes, there's more. This issue of Prechter's Theorist includes 13 charts, complete with analysis, insights and forecasts that you simply cannot find elsewhere. The conventional wisdom is convinced that the few months of financial chaos in late 2008-early 2009 was as bad as it's going to get. They'd have you believe that those few months is all it took to reverse a psychology that was decades in the making.
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