WATERFORD, Ireland – It is a bright, sunny day here in Ireland.
A good day for the Grand Opening of our new overseas headquarters – a classical-style mansion that was built for a local merchant family in the 1860s.
Later today, we’ll give a brief speech thanking all those concerned… drink a few glasses of wine… and hope to God we haven’t made a huge mistake.
We’ve invested – heavily – in the building, where we will have as many as 200 employees.
It represents capital… accumulated over the last 35 years… that is now anchored in a forgotten corner of a foreign country.
It is not “money in the bank.” It is not money in the stock market either. It cannot run from high taxes. It cannot seek the highest rate of return.
It is here… on this little island, subject to the tides of politics and business, unable to protect itself from either.
Long-term capital investments (this will take 20 years to pay off) need time. And time comes with risks.
That’s why we have interest rates on loaned capital… and why real negative interest rates are impossible. Or fraudulent.
Time brings crises, problems, challenges, setbacks… and the grim process of aging, breakdown, and decay.
In time, everything goes away. We are confident, for example, that it won’t be too long before the market cracks. (Please don’t hold us to this forecast, but don’t forget if it turns out to be correct!)
U.S. corporate profits are falling. GDP is sinking. Productivity has slumped for the longest period since the 1970s.
And going by the CAPE ratio, which looks at stock prices relative to the past 10 years of earnings, only three times in the last 100 years (in 1929, 2000, and 2007) have stocks been this expensive.
The crack, when it comes, will produce new demands of fiscal stimulus and money from helicopters.
Just to keep our terms straight, fiscal stimulus comes from government borrowing and spending. It shows up in the deficit.
“Helicopter money” is spending directly financed by central bank money creation. It happens without a single dollar being added to the deficit.
They are very similar; what matters is how they are financed.
When it comes, the next recession will provoke calls for spending on infrastructure projects. These will be accompanied by estimates of how much the projects will return.
The numbers are pure nonsense. Without a real cost of capital and a way to price the output or figure out the profit from a project, all the calculations are fiction.
But we are getting ahead of ourselves…
So far, so good. Hillary is the frontrunner. If she wins, nothing will change.
If Donald wins, nothing much will change, either. But he may rattle investors.
One of the hardest things to understand about our present situation is the way in which things are not what they seem.
We have written frequently about how today’s money is fake. How interest rates are fake. How statistics are fake. (Take the “unemployment rate”… Please!)
Our “wars” are now fake, too. When the feds announce a new war, we naturally assume their goal is to beat the enemy.
Not so. Instead, they want to keep the war going. That means NOT beating the enemy. That way BOTH sides win.
The War on Poverty was the first of our fake “wars.” It was a nice collusion between poor people and an entire industry – 92 government programs – that received and spent money on their behalf.
Set up in 1964, the War on Poverty has already cost $22 trillion… and it goes on.
Because poor people get money. And because the “elite” who control the cash flow get the support of poor voters… and a substantial part of the money, too.
For every dollar distributed, the poverty-fighting insiders keep 72 cents (a figure widely discussed, but far from certain). If that figure is correct, the insiders have pulled in more than $15 trillion over the last 50 years – by pretending to fight poverty!
The War on Drugs came in 1971.
Harvard economist Jeffrey Miron says it has cost taxpayers a trivial $41 billion.
The “war” is best understood as a public-private partnership – between the illegal drug business and the drug-fighting agencies.
After all, where would former addict and now America’s “Drug Czar” Michael Botticelli be without the drug pushers?
And without the DEA, where would the drug kingpins be?
Suppose they had to compete on price, quality, and service… instead of on drive-by shootings. They’d soon be put out of business by guys with PowerPoint slides and spreadsheets.
Giant tobacco and liquor companies – with decades of experience, distribution networks, retail channels, and marketing know-how – would eat their lunches immediately.
Instead, the illegal drug industry – the drug fighters at the BATF, DEA, FBI, local police, the prisons, the courts, and a whole subculture of criminals – stays in business.
More on our fake wars… including the biggest of them all… on Monday.
By Chris Mayer, Chief Investment Strategist, Bonner Private Portfolio
For an investor seeking maximum growth, dividends are an expensive luxury…
It sounds like sacrilege. But it’s undeniably true.
Say you have two companies, with $1,000 invested in each. And both earn a 20% return on that money invested (equity). We call this 20% the return on equity, or ROE.
Now, say Company A pays all of its profits in dividends. Company B reinvests all the profits.
After five years, Company A is still worth $1,000. But you have $1,000 in your pocket in dividends – leaving out taxes for the moment. Not bad.
Company B, however, is now worth $2,488. You’ve got almost 25% more.
Over longer periods of time, the accumulated results are staggering:
After 10 years…
Company A is still worth $1,000 and you have $2,000 in dividends.
Company B is worth $6,192.
And after 25 years…
Company A is still worth $1,000 and you have $5,000 in dividends.
Company B is worth $95,396.
That’s the power of compounding!
Now, yes, you could reinvest the dividends. But you would also have to pay taxes on them.
The point remains, in any case. I simply want to show you the power of reinvesting.
This doesn’t mean there isn’t a place for dividends. But for maximum gains, the most important factor is not dividends. It’s the company’s ability to earn a high return on equity and to reinvest those profits.
At some point, a business matures and reinvestment opportunities dwindle out. Then a dividend is often the right thing to do.
Look at Microsoft. It went public in 1986 and paid its first dividend in 2003. By then, it was already a 250-bagger.
Or Intel, which went public in 1971 and paid its first dividend in 1992. By then it was a 128-bagger.
Some of the biggest winners in the market have yet to pay a dividend. Think about superinvestor Warren Buffett’s Berkshire Hathaway… up more than 150,000 times since 1965!
In his classic study, 100 to 1 in the Stock Market, Thomas Phelps writes:
If you must have income, don’t expect your financial doctor to match the capital gains that might have been obtainable without dividends. When you buy a cow to milk, don’t plan to race her against your neighbor’s horse.
Again, I’m not discouraging you from investing in dividend-paying stocks. My goal is to get you to think about the importance of the business itself and its ability to compound capital.
If you want to shoot for 100-baggers, the most important thing is to look for companies with the ability to reinvest profits and earn a high return on equity – again and again and again…
P.S. In my new investment service, I’ll take you deep behind the scenes of every recommendation I make with in-depth analysis to rival any hedge fund. It’s all about finding a small number of high-quality companies with the idea that any one of them could be the homerun that puts all your retirement concerns to rest. For all the details, watch here.
How to Make a Million With Other People’s Money
One of the top stock-pickers in the business shares the story of a Canadian farmer who became a millionaire through the controversial practice of leveraged investing.
If You Own These Securities, Sell Immediately
Earlier this week, Bill told you Deutsche Bank is in a world of trouble. And if Deutsche Bank goes bankrupt, investors in these 20 securities could lose their entire investment.
The Alternatives to Hillary and Donald
Hillary and Donald are the two most disliked presidential candidates in our history. But there are two alternatives. Find out where these two candidates stand on major issues here.
Wow! Carlos must be a troll! Apologist for our mis-trusted leaders (aka: politicians).
Yes Bill, please don’t call names, Simians is too formal; should’ve said "New World Monkeys," another name for the crooks. Although the "Monkeys" will be sure you get your fair share, I’m sure.
– John L.
Thankfully, you are a better historian than some of your readers. Carlos, David, and Edward are wrong! You are right on! Thank you.
– William C.
I just want to tell Carlos that, like you, I don’t have the world’s goods either, but I don’t resent Mr. Bonner’s wealth because I am sure he busted his rear end attaining his goal while during the same years I dissipated my money, time, and talents in women, cars, and having a "good time." If that shoe fits then wear it.
The fact that Mr. Bonner is expressing the truth does not deprive you of your right to live in your fantasy world nor your God given privileges to keep your rose colored glasses.
I also believe in hope but not on one depending on corrupt politicians or a system that’s raping the good people of this land while pretending they are the "good guys" rather than the criminals they are.
– Melvin Z.
Edward R. says Jefferson edited the Bible to teach Christianity to the Indians. What a beautiful fable.
Jefferson removed all third-party verbiage, leaving only those statements that could be attributed to Jesus. He didn’t desecrate it, as some suggest. He attempted to purify it because he was a Christian, not a Catholic.
– Paul A.