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 the following presentation is based on content from my new book The Great gold and silver Rush of the 21st century to read the free online chapters or order the book please go to ggsr21.com thanks hi this is Mike Maloney with Chapter 3 of The Great gold and silver Rush of the 21st century two of the chapters chapters 3 and 4 were taken out of the book and put online only because it reduced the price of the book significantly reaching a much larger audience but more importantly there are things that I wanted to

explain in videos and and make it a little bit easier to grasp especially in chapter four but in chapter 3 that was also uh for a few people people that were Master chart readers it's an optional chapter you really don't have to uh uh understand everything about charts uh before you can go on with the rest of the book but for most people it's really good to know the difference between a linear chart logarithmic chart what an indexed chart is uh a ratio chart and correlations if you don't

understand those you're not going to get the most from the book now this book is a very chart heavy book and I did that on purpose because you know I'm very fond of saying if a picture is worth a thousand words then a chart can be worth a million numbers because they can't it's basically just a picture of numbers and so uh I'll get right into it here I start this chapter at the beginning the very rudimentary Foundation of chart reading and that is usually the bottom scale will be time moving forward in

time time and the vertical scale will be either the price of something the points of something it's a quantity or a percentage change usually now with this first chart here this is just simply a can of Campbell's tomato soup the price change over time going all the way back to 1898 to today and but this chart tells all of these charts tell a story and if you're good at chart reading you can see the story that they contain this is what I do and I actually love doing it I'll sit on the federal

reserve's website and generate chart after chart after chart for hours on end and try and see how different charts correlate and the story that they're telling this one is very interesting because this confirms chapter one where I pretty much I I believe that I have proven beyond the shadow of a doubt that no country on Earth right now uses money we use currency you should stop using the term money when you're referring to the dollar the Euro the Yen the pound and so on those are all Fiat National

currencies and it when you call them money you're bestowing upon them and a an Accolade for you know for a virtue that they do not contain an attribute an attribute that they lack and that is being a store of value and this chart proves it here this chart of a can of Campbell's tomato soup over time you can see that while our currency the paper notes in circulation and the digits in our bank account when those were still connected in some way to money and and it was a very small connection under the

Bretton Woods system the the final version of a gold standard the final vestiges of a gold standard uh where by the time that ended the dollar was really only backed by about eight percent gold but still gold kept inflation in checked in check and it it kept your currency as money it was a store of value and so uh currency has to be a unit of account it's got to be a medium of exchange portable durable divisible fungible where all the units are interchangeable and money has to be all of those plus a

store of value this chart proves that uh the dollar is no since 1971 has not been money it is currency and when you call it money uh you're doing yourself a disservice and you're raising the stature of the dollar to a level that it does not deserve uh what you see here is that up until 1971 the dollar stored value and then the price of soup didn't go up the the soup didn't change in fact the price of soup should have fallen if we were using money because uh man got more efficient at doing everything the

cans being manufactured at high speed they're just punched out one after another all of the ingredients going through these these very industrial manufacturing lines and ending up in that can on the Shelf uh think of how much work it was to create a can of tomato soup in 1898 I mean that was a lot of work and with a modern can of soup it's just a few seconds of work to create that same can so you can see what happened here is the soup didn't change from 1971 on it is a different U.S

dollar and it's the dollar that keeps on changing the dollar loses purchasing power requiring more and more and more units of currency to purchase that same can so that is the story that I see when I just look at this one chart I I see this story in this interconnectedness this is the reason that charts can be so phenomenal at informing you in a very short span of time so that can of soup is now about 12 times higher in price than it was in 1971 but but for for the uh 80 something years before that or

whatever it is uh the price really didn't you know it went up and down and up and down with changes in velocity of of money back then uh not the dilution of the currency Supply which is what we experienced today the next chart is the federal funds rate and you know you can start to get a story out of this that we've got a roller coaster Happening Here with sort of a curiosity to it there's a periodicity with with periods to it you can see these bumps that happen on a semi-regular basis and another thing you

see here is that ever since we've had the Federal Reserve setting interest rates this is just like completely insane out of control the lowest interest the highest interest rate is 559 times higher than the lowest interest rate that had never happened before the Federal Reserve and then when we go to the next chart I'm going to introduce recession bars here and those by adding the recession bars to the time scale and the percentage we now have a real story here the Federal Reserve lowers rates and creates an economic

boom or a bubble until it gets uh too much and they start sensing that the economy is overheating they keep on raising those rates and and then that bubble will pop so the FED creates a bubble and then pops a bubble and when they pop the bubble they slam rates back down again saying oh no the free market isn't working which I always find hilarious because we have no free markets we haven't had since the Federal Reserve opened their doors for business in November of 20 of 1914. it was uh

December of uh 1913 that the Federal Reserve Act was passed but it took them a while to get organized and open their doors for business but anyway what you see here in this rate roller coaster is all of these bumps and dips are caused by the FED they raise rates until they pop a bubble and once they've popped the bubble they slam rates down in an emergency maneuver and it would be much better to just let the free market take care of these things now one of the things about this chapter it's important to understand how

a chart can lie to you because a lot of times charts are used to manipulate you and you want to be able to see through that and so some of the things that can be done they can skew your perception by using different types of charts a linear chart is when you go like one two three four five six when each increase is the uh same amount over the same amount of space on the chart and uh so that's a linear chart and it tends to expand the the top of the data in comparison to the bottom of the chart when you're

measuring especially over long periods of time um uh what this does is the percent change from uh one to two is a hundred percent but from two to three is only fifty percent yet it's taking up the same amount of space on the chart and from three to four is only 33 percent but it's taking up the same amount of space that one hundred percent took initially so when it's one two three four five six seven eight nine ten uh on and each step is the same measurement uh you know as far as inches goes or

millimeters then that is a linear chart and so here's a uh the Dow Jones Industrial Average presented from the from 1880 until today in a linear chart and uh so it's going ten thousand twenty thousand thirty thousand in the steps between this it's ten thousand points each step and that step is the same measurement and so next we have logarithmic charts and uh this is measuring the percentage change instead of the amount change and usually it will be even steps but the steps instead of going one two three four five

six seven eight go one two four eight sixteen thirty two sixty four and so on or they might go one ten one hundred one thousand ten thousand and so in the first case you've got a 100 change each time one to two is one hundred percent uh above one two to four is one hundred percent above two four to eight is one hundred percent above four and so on uh with the other ones each each step was times ten uh so here is a version of the Dow Jones Industrial Average with uh each step being ten times the

previous step and as you can see here compared to that last chart where we're looking at the linear chart the the uh on the linear chart you couldn't even see the big run up in the Roaring 20s and the stock market bubble of 29 and the Crash from 29 to 32. they weren't even visible on that chart I mean barely discernible little tiny bump on the bottom of the chart but here where you're measuring the percentage of change instead of the amount of change this chart wins this one tells a very

honest story over this long period of time and you can see that the crash of 29 to 32 how much bigger that was than the NASDAQ crash or the global financial crisis of 2008 they look like nothing compared to that crash that brought us into the Great Depression and then the next chart shows another type of logarithmic chart where instead of the numbers going 1 2 4 8 16 32 and so on here the numbers are 1 2 3 4. but the numbers the spacing between the numbers gets closer and closer together each time so it's a logarithmic chart uh

with that's numbered linearly and so uh here I put the Dow Jones Industrial Average and the S P 500 on the same chart because I wanted to show the huge uh difference between these the s p starts at Just Four Points back in 1880 or 1890 and goes up toward the top of the graph at three or four thousand points uh and but the Dow Jones starts at about 30 points I believe and goes up over thirty thousand almost touching forty thousand here and they're plotted on the same graph and this brings us to our next chart where I've

taken these two and indexed them and so what I've done here is you take the beginning point on these you know the percentage change now of each one of these from its beginning so you take the Dow and the s p and you give them a starting point of a value of one and then you show the percentage change in each one of these and what you discover is that over this long time period from the late 1800s until the 2020s they're almost identical they're almost the same now that brings us to correlations and

it is very important to understand correlations to understand the rest of the book and a correlation function is inside of every modern spreadsheet and a correlation of one means they're pretty much the same a correlation of zero means they have no discernible relationship a correlation of -1 means they're opposite and I didn't put any pictures in the book here but using a a bell curve this uh distribution of probabilities a distribution curve or a bell curve if you took that bell curve

versus a straight line that straight line would be a correlation of zero you've got as much area above that straight line as you do below it with the Tails it would be a correlation of zero if you flip the bell curve upside down they'd have a correlation of minus one you've got one curve going this way and another curve going this way and they they are the opposite of each other they're minus one if you put them over the top of each other uh you know so they're both doing the same thing

they've got a correlation of one and so it's very important to understand all of this now when we measured the 122 years of the Dow versus the S P 500 from 1896 to 2018 their correlation was a 0.9981 meaning they're 99.81 percent the same I mean this is an an incredible correlation and so I wanted to point that out but then some of the ways that a chart can lie to you is if somebody is measuring it over a very short time span uh very often I would see an article where they say such and such a stock

crater today on the news that and they're showing a daily chart that's going minute by minute it shows this huge drop and then I go to a website that I use very often to to chart things and I log in and it just automatically goes with either like a six month or a one year or a three-year chart is what I see and I can't even see this thing that they were showing when they were zoomed up on just that one day because it it automatically scales the chart so you can also see if if somebody is trying to

skew your perception if you look at the scale on the side the quantity scale so you've got to really look at both of these scales and see if any of that is being manipulated if the chart only goes from a value of 99 to 100 then a little uh one tenth of one percent drop up is going to look very very dramatic but if it starts off at zero and goes to 100 on the side you're not going to be able to even see you're not going to be able to detect a one-tenth of one percent drop and so uh taking a look at those scales is very

very important because you'll see if somebody is trying to manipulate your perception and and what you can glean from that chart the next section of the final section is about price versus value and this is something you know I wrote a chapter that was cut from the book because the chapter was already at 90 pages I mean it was like more than a third of the book at that point and it wasn't nearly done I call it wealth Cycles this trying to discern what the true value is of something not the price because the

currency is always going down in value so you can't measure value with currency this is very important to understand that when you try to measure when you measure stuff with currency you're measuring the price you have no idea what the value is looking at just that one chart so uh with with this what I do is I take the currency out of the equation by taking two different items and dividing those price of items into each other the price of those two items when you do that it eliminates the price

and so what I've done with this one is uh simply taking the Dow Jones Industrial Average and dividing it by the price of gold each day the points on the Dow divided by the price of gold each day what that does is it gives you the price of the Dow in ounces of gold not in dollars and so now you end up with a chart of the value of gold versus stocks or stocks versus gold uh if you flip this chart upside down instead of the Dow gold ratio it'll be the gold Dow ratio and uh you can see here that uh it

it looks to me if you look at that uh before the Roaring 20s and then uh through the 30s and and 40s and again in the uh late 70s early 80s a value of four or five seems like a fair value where the two items are in balance with each other and by the way I will come out with a book one day on wealth Cycles because I have data for a whole bunch of different items where I took oil real estate gold stocks and other items like that did this process and measure them all against each other uh going back into the 1800s and what

you see is that nothing goes up everything is trapped in this valuation Channel going sideways throughout time and I believe that the trick is to sell the overvalued thing and buy the undervalued thing and try and ride that up try and identify the next most undervalued thing and then sell again and buy that undervalued thing and ride that wave up and now you're out of that valuation channel that investors are trapped in unless they realize this now the only ways of getting out of this are cash flow like high dividend yields uh

interest or cash flow from Real Estate something like that or switching asset classes at the appropriate times so that's really it for this chapter we've we've wrapped this one up I hope you have a better understanding of how to read charts and get the most from them because Every Picture Tells a Story as Rod's Rod Stewart used to say Every Picture Tells a Story every graph tells a story and a graph is a picture of numbers I want to thank you for watching this this video and I'll see you in the

next chapter thanks for watching but this is by no means the whole story if you want the full story including my free online only chapters and companion videos there's a wealth of information at ggsr21.com thanks [Music]