About that Trade of the Decade

Plus, an old friend comes to visit, Big Oil reports record profits and plenty more...

(Source: Getty Images)

Bill Bonner, reckoning today from Normandy, France...

Here’s the latest from oilprice.com: 

Big Oil Set To Report Record $200 Billion Profits For 2022

The industry, the top performer in the S&P 500 index over the past year, has boosted dividends and share buybacks in recent quarters thanks to the massive cash flows.

The five biggest oil majors in the world are expected to report record profits for 2022 in the coming days, for around $200 billion in combined yearly earnings thanks to the jump in oil and gas prices last year. 

‘So, how’s that trade going?’

Porter was asking about our ‘Trade of the Decade.’  

20/20 Hindsight

Porter Stansberry is an old friend and shrewd investor. We met him about 25 years ago, when he drove up in an old BMW with the bumper falling off. We gave him a job analyzing stocks. And he took to it like a fledgling bird takes to the air. Soon, he was soaring on his own. Later, he left our firm and started his own – Stansberry Publishing. That company was sold to a SPAC in 2021 for almost $3 billion.

Porter came to visit last weekend.   

“I wish I had taken your advice,” he said. (We had advised against the sale.)

The SPAC deal didn’t work out as planned. Porter did not end up with the money he thought he’d earned. The timing was bad (just before the market turned down). The deal was bad (there were a number of unanticipated twists and turns). And early retirement was not as fetching as he imagined.  

But now Porter has begun a new business, Porter & Co. He came over to France to interview us about money. Flattered, we had to admit that we didn’t know any more about it than he did. But we had a good time reminiscing and reflecting with an old friend.

“So, tell me about the Trade of the Decade,” he asked, with the cameras rolling.

Porter thought we had invented it. But we got the idea from Mark Faber. He showed how, by taking a long-term perspective, you were able to eliminate the distraction of the daily news…and focus on trends that were more important and longer-lasting.

We should give credit to Richard Russell, too. Richard began writing a market analysis newsletter – Dow Theory Letters – in the 1950s. He kindly invited us to his 90^th birthday party – more than half a century later – when he was still writing the letter.

A Numbers Game

Late in life, his letters tended to drift to memories…of the people he’d known…of the markets of the ‘60s and ‘70s…and most often, of WWII. Richard had been a bombardier, based in England and dropping bombs on German infrastructure by night.  

“It was a numbers game,” he wrote. “You knew that the more missions you flew, the more likely you wouldn’t come back.”

What does a man think when he is in a big, metal contraption, high above Dusseldorf, with German ground artillery and fighter planes gunning for him? “I was scared. You’d have to be crazy not to be scared,” he wrote.

It was Richard who came up with the idea of the “Primary Trend.” He recognized that stocks may go up and down, more or less at random. But looking back over the long haul, you see trends that take the market from major highs to major lows. In the stock market, a peak was hit in 1929, for example. The next peak came 37 years later, in 1966. After that, the next major high didn’t come until 1999, 33 years later, and the ‘final’ high didn’t show up until 2021 – 55 years later.

The point is: these trends are long. And the surest way to make money (apart from actually owning a growing, profitable business) is to invest with the primary trend and stick with it. Our ‘Trade of the Decade’ merely tries to capture a piece of the primary trend.

The trouble with measuring gains over a long term is that the tape stretches. Over time, inflation tends to distort real values, making it hard to see what is going on. That’s why we use gold as our most basic metric. Ultimately, we want to count our wealth in ounces…not in dollars.  

A Catastrophic Breakdown

At today’s price, if you have 17 and a half ounces of gold you can buy all the stocks on the Dow. That is the same price as August, 1929 and May 1962, etc. From 1929 to 2021, apart from dividends, investors made no progress in 98 years. Stocks generally are worth no more today than they were then.  

Nor can you expect to get richer just by holding gold; you’ll have no more ounces in the future than you have now. Instead, if you want to make financial progress, you have to trade your money (gold) for businesses that are growing in value. And that’s where the primary trend comes in. Sometimes businesses are becoming more valuable. Sometimes they aren’t. Sometimes the primary trend for stocks is up. Sometimes it is down.

And there are primary trends for commodities too, trends that last 10 years or more..  

“Porter, the Trade of the Decade is meant to highlight trends and help us understand what is going on. I don’t know if anyone actually makes the pure trade.

“But here’s the thinking behind it: Governments all over the world are trying to put the squeeze on traditional forms of energy. So, the producers are not spending money on new wells, pipelines or refineries. But our standards of living depend on energy. And unless and until there is some technological breakthrough, people are going to want gas and oil.  

“I like solar as much as anyone. My whole ranch, in Argentina, runs on solar panels, because we don’t have a power grid. It works fine. But it’s not cheap. And I was a pioneer in low-carbon-footprint building. I built a passive solar house in Maryland, the first…and the last…of its kind.”

“Those things are fine for people who can afford it, but they don’t change the realities of the world’s energy markets.  

“Government meddling in energy is not likely to work out any better than in any other industry. We’ll be lucky if we don’t get a catastrophic breakdown.

“And at the very least…with no new sources…and no new competitors….and no need to make additional investments, existing energy companies should be more profitable than ever. At least, that was our bet a year ago.”

“Well…how did it turn out?”

“Energy was the best performing sector last year. So far, so good.”

Our son, Henry, had been watching from the sidelines.  

“Dad,” he interjected when the cameras were turned off, “that house in Maryland was always cold and a little creepy. Mom refused to live in it.”

Regards,

Bill Bonner

Joel’s Note: A direct answer to Porter’s question… since Dan and Tom announced their specific Trade of the Decade to members, back in January 2021, it’s up ~115%.

Readers will recall our contrarian bent here at BPR. We’re not contrary because we wish to be disagreeable… but simply because, as Bill has written before, we’ve seldom met a line we wanted to join. So when the mob zigs, we tend to zag… and vice-versa.

For the past decade or so, the mobjority went all in on ESG- (Environmental, Social, and Governance) style investing. Described as “non-financial factors,” these considerations are said to be the antidote to evil capitalists putting “profits before people.”

Utter nonsense, of course. In a free market, the two are inextricably linked. Honest businesses make profits by satisfying peoples’ desires, by meeting their needs and catering to their demands.

Politicians (surprise!) are suspicious. And it’s any wonder. They operate in a world where profits come fast and thick, often at the expense of the very people they affect to serve. But in the market, there is nowhere to hide. Either you keep the lights on… or your customers go elsewhere.

In the energy sector, governments around the world have force fed “non-financial factors” into their regulatory framework, raising the cost of exploration and production for oil and gas companies. If the world could power itself on campaign promises and Facebook likes, this wouldn’t be such a problem… but the reality is, the global population is growing, developing nations are industrializing and even China has abandoned its zero covid policy.

Demand ain’t going anywhere, in other words. And neither, we think, are higher prices over the long run.

BPR members are invited to follow along with our Trade of the Decade Report and the frequent updates provided by Dan and Tom on a weekly and monthly basis. If you’re not yet a member, but would like to jump on this primary trend, consider joining our contrarian ranks here…