PARIS – As New York Mayor Ed Koch used to say: “How we doin’?”
A reader’s question suggests we’re not doing very well:
How can we take your recommendations seriously when you missed the biggest bull market of our lifetimes?
He was referring to the big run-up in stock prices since 2009.
We strongly object. That is a gross misrepresentation of our record! First, we don’t give recommendations; we just tell you what we’re thinking and doing. Giving advice requires far more confidence in our own opinions than we have.
Second, we didn’t miss one of the biggest bull markets of our lifetimes; we missed two of them!
But wait. There’s more to the story. And (we can hardly believe it ourselves) it explains how we beat practically every investor in America…
The Time to Buy…
Yesterday, the Dow fell 275 points – or 1.6%.
This followed news that a key measure of the health of the U.S. manufacturing sector, the ISM Manufacturing Index, revealed a second month of contraction in December.
“The Fed should not be raising rates,” said some Wall Street analysts.
“Don’t worry about it. As long as services are still expanding, we’re all right,” said others.
Most likely, they will both be proven correct: We’re all right… until we’re not. And when it becomes obvious that we’re not, the Fed will put an end to its rate hikes.
Which takes us back to… us.
We began writing a daily e-letter in 1998. Back then, it looked to us as though investors had gone a little loopy in the dot-com craze. And after 16 years of falling inflation and rising stocks, it looked to us as though that long cycle was coming to an end.
The late Richard Russell had taught us that markets move in large swings – from cheap to expensive and back again.
You can never know when prices are going up or down. But the time to buy is when they are at historic lows. The time to sell is when they are at historic highs. Everything else is noise and muddled guessing.
Our First “Trade of the Decade”
So, in January 2000, we described a “Trade of the Decade”…
Buy gold. Sell U.S. stocks.
Few people today believe gold is a good investment. Even fewer were bullish on gold at the start of the new millennium.
We can’t remember the last time we read a positive comment on gold in the mainstream press.
Gold has been in a bear market for the last four and a half years. In U.S. dollar terms, it’s lost 44% of its value since hitting an all-time high of $1,921 on September 6, 2011.
Meanwhile, at the dawn of the new millennium, U.S. stocks were the place to be. They had been going up in a more or less permanent bull market that began in 1982 with the Dow under 1,000. By January 2000, the Dow had risen to 11,723.
“The top is in,” we wrote.
Actually, we don’t know what we wrote. But we must have thought the top was in because we were proposing to get out of U.S. stocks… and to stay out for at least the next 10 years.
January 1 was a holiday in 2000, as it was in 2016. It was a Saturday to boot. But when markets opened on Monday, you could buy an ounce of gold for $288.
If you had done the simplest thing – sell your U.S. stocks and put the money into gold – as of yesterday, you would have watched a $10,000 investment turn into roughly $37,000.
If you had stuck with stocks, on the other hand, and NOT missed the two great bull markets – of 2001 to 2007 and 2009 to 2015 – you would have watched your $10,000 become almost $19,000 (including dividends).
This is still much better than what most investors earned.
Most traded in and out of stocks over the last 15 years – most often buying and selling the worst stocks at the worst times.
This would have gotten you only a fraction of the buy-and-hold return… and most likely a negative result.
A New Trade…
So, guess what – missing bull markets in stocks is no sin. Catching them is no virtue. And even after losing more than one-third of its value, gold is still not such a bad place for your money!
But what if you’d followed the rest of our formula?
In 2010, we described a “New Trade of the Decade.”
This time: Buy Japanese stocks. Sell Japanese government bonds (JGBs).
This left us with a couple of questions…
1. What if you had been more aggressive in our first Trade of the Decade and, between 2000 and 2010, you’d shorted (i.e., bet against) the S&P 500 as well as bought gold?
2. What if you had bailed out of gold on January 1, 2010… bought Japanese stocks… and switched from shorting the S&P 500 to shorting JGBs?
These calculations take more space than the back of our envelope provides, so we turned to Bonner & Partners researcher Nick Rokke.
Adjusting for fluctuations in the yen against the dollar… adding in dividends… and accounting for the short positions against U.S. stocks and JGBs, Nick crunched the numbers.
And he came up with the returns you would have made on our combined Trades of the Decade between 2000 and today.
And as you can see, this simple strategy beat all major asset classes.
But it’s all right with us.
There have been plenty of false alarms when it comes to gold…
But looking at today’s chart, you could be forgiven for thinking that the yellow metal is finally carving out a bottom.
Since the start of last December, the price of gold bullion has been trading in a range of $1,050 to $1,300 an ounce.
Why 309 Millionaires Did a Bank Run
In 2015, hundreds of U.S. millionaires yanked every cent of their fortunes out of American banks. But they’re not hiding it all under their mattresses… They’re stashing their millions in another part of the financial system.
How to Tell the Difference Between a Boom and a Bubble
As Bill has been warning, bubbles are dangerous. But not all booms lead to bubbles. A new study of 21 markets, from 1990 through 2014, reveals that only 10% of market booms resulted in a bubble.
The Next Casualty of Saudi Arabia’s Oil War Could Be… Saudi Arabia
Saudi Arabia’s economy is a hot mess. Bottom line: You can’t have an economy based on redistributing oil money when there isn’t that much oil money to redistribute. That means painful spending cuts ahead.
Today… a warning to stay out of the “prophet business”… along with more praise for Bill’s insights.
You said: “We are still waiting for the post-1971 monetary system to collapse. And we wouldn’t be surprised if we were still waiting… three, four, five years from now. The system is more resilient than we thought.”
You are very wise in not calling for a time when things collapse. Howard Ruff once made the mistake of placing a date [in print] for when things would go belly up. I guess he felt like the girl who had to confess to her parents that she was just a little bit pregnant.
If you’re into worldly things, stay out of the prophet business.– Jerry C.
I am from Sri Lanka and have been reading the Diary for over two years now. I haven’t sent any feedback till now and feel that I should do so, as we are starting a new year and I want to let you know how much I appreciate your daily musings.
I love the way you write with your tongue-in-cheek sense of humor and your witty comments… along with the historical narratives from time to time. Your contrarian view is very refreshing.
Your writings have helped me understand the reality of what is happening in the U.S. and around the world. It’s given me a different perspective and much to think about, even when similar things happen in my own country. It helps me to understand world affairs in a different light.
Thank you very much for the Diary. Keep up the good work. Let me take this opportunity to wish you, your family and all at Bonner & Partners the very best of Health, Wealth and Happiness.– Uditha F.
Just wanted to say thanks for the articles and wish you a happy New Year. You sometimes question your prediction of a collapse.
I think your thesis is correct, but the timing is impossible to predict. I just went to the movie The Big Short, based on the book by Michael Lewis. I had read the book years back. But the movie reminded me that the Deep State and affiliates can, by fair or foul means, delay the natural flow of economics.– Doug L.
I suspect you’ll never see this little note, but I’m going to write it anyway. I began reading your work some time ago and simply want to thank you for all I have learned from you – and will continue to learn.
I just finished the December issue of The Bill Bonner Letter. And it, in particular, makes me fear for you. You are a man of great courage. May you be well protected!– Jurgis B.
P.S. To learn why Jurgis is so concerned for Bill’s safety, you need to understand what’s motivating the shadowy forces of the Deep State. It’s a story Bill blew the cover off of in the January and December issues of The Bill Bonner Letter. He exposed how the cronies behind the Deep State have pushed the world to the brink of an irreversible disaster.
And now he’s revealing how that disaster will unfold… and, more importantly, how it’ll change your life forever. Watch Bill’s warning here.
In Case You Missed It…
Last week, we told Diary readers about the CIA’s Project Prophecy. In 2006, it uncovered warning signs of an impending terrorist attack three days before 24 London-based terrorists planned to blow up 10 passenger jets bound for the U.S. And in 2007, it warned of the looming housing crisis in America.
Now the architect of Project Prophecy is coming forward with a time-sensitive warning about a $100 trillion threat to the U.S.…