Chart of the Day: Sell Biotech. Buy Gold.

The Non-Dollar Report View in browser Tuesday, September 29, 2015 These Five Charts Prove Stocks Will Collapse by 50% According to this rogue economist, five charts prove that the stock market is on the cusp of crashing by 50%, maybe more. (The last time these charts aligned was right before the 1929 stock market crash)... See the five charts here. Field of (Broken) Dreams by Eric Fry Six years ago, biotech stocks and gold stocks traded at nearly identical valuations. Today, even after the wicked sell-off of the last few weeks, biotech stocks are about seven times more expensive than gold stocks. Perhaps, therefore, the forward-looking investor should consider selling a biotech stock and buying a gold stock. On the surface, biotech stocks and gold stocks share no connection whatsoever. But upon closer examination, these two completely different sectors possess some remarkably similar traits. Both sectors sell dreams. Both sell the prospect of "making a big discovery" and of "striking it rich." In pursuit of these high-risk dreams, companies in both sectors must jump through a long series of regulatory hoops while spending billions of dollars to do so. On average, a mining company spends more than 10 years and more than $1 billion to bring a large mine into production. The drug development process is not much different. "In the United States," MedicineNet reports, "it takes an average of 12 years for an experimental drug to travel from the laboratory to your medicine cabinet. That is, if it makes it. Only five in 5,000 drugs that enter preclinical testing progress to human testing. [And only] one of these five drugs that are tested in people is approved." As for the cost of drug development, the Tufts Center for the Study of Drug Development pegs the price tag of developing a prescription drug that gains market approval at $2.6 billion. Clearly, dreams don't come cheap in either the biotech or the gold mining sector. The risks are high. But even the riskiest of sectors can become much less risky... at a price. With gold stocks trading for one-seventh the valuation of biotech stocks, they are mathematically less risky now than when they were trading at parity with biotech stocks. The opposite is also true. Biotech stocks are about seven times riskier now than they were six years ago, based on simple math. But simple math does not always dictate the direction of share prices. To the contrary, the stock market is often more about poetry than mathematics. And poetically speaking, investors have spent the last few years writing love sonnets to biotech stocks, while utterly ignoring gold mining stocks. These opposing passions have elevated biotech stock valuations to the heavens, while kicking gold stock valuations into the gutter. Based on price-to-sales ratios, the Nasdaq Biotechnology Index (NBI) is seven times more expensive than the XAU Gold and Silver Index. Based on price-to-cash-flow, the NBI is also seven times more expensive than the XAU, and based on price-to-book-value, the NBI is eight times more expensive. Bottom line: The biotech sector is offering very pricey dreams relative to the gold mining sector. Or to put it another way, gold mining stocks have rarely been as depressed as they are today. Therefore, we predict investors will have a change of heart... eventually. Their infatuation with biotech will end, and their contempt for gold mining stocks will moderate... and then reverse completely. The gold mining sector might not turn around on a dime. But it could. If the recent global stock market chaos intensifies, investors might (finally) become fearful enough to buy some gold. For centuries, investors have trusted gold as a kind of vaccine against financial trauma and capital loss. They have injected doses of the yellow metal into their portfolios to inoculate them against economic crises or contagions. And for centuries this financial vaccine has worked wonders. But despite gold's efficacy against capital loss when times are tough, it should probably come with a "Warning" label. Just like every new biotech drug that comes to market, gold can subject investors to a long list of potential side effects. In some cases, owning gold can cause nausea, indigestion, sleeplessness, irritability, marital strife, alcoholism, depression and suicidal thoughts. Be sure to alert your financial advisor about a depression lasting longer than four hours. Cheers, Eric J. Fry For The Non-Dollar Report This is an unusual and often overlooked way to make money... It doesn't involve stocks... banks... gold... or real estate. Instead, you know ahead of time just how much money you're set to make. It takes so many of the "what ifs" out of investing your money. 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