Friday, September 11th, 2026
Bill Bonner, from Poitou, France
‘Sell paper, buy stuff.’
—Tom Dyson
We rise this morning to salute the great yin and yang of the financial world. Business Insider:
Oil jumps above $100 a barrel as US-Iran fighting raises Strait of Hormuz disruption fears
What to do? Buy the oil — the stuff? Or buy the oil company — the paper?
In a nutshell, real stuff is calm, slow-moving and taciturn. It is useful. And practical. Down to earth. Paper is more volatile and voluble. It gives off new signals every day. It has visions and delusions. It puffs itself up into grotesque proportions...and then crashes like the Hindenburg.
Over the last 45 years, for example, the price of a barrel of oil has gone up about three times. But the price of the paper — Exxon Mobil — has gone up 40 times. Clearly, owning the paper was better — since 1980 — than owning the oil itself.
There are gold mines. And there are pieces of paper (or electronic notations) that claim a share of the profits. When the world is inflating, you want to own the paper; light as air...swift as a pickpocket...it races far ahead of the real thing it represents.
When deflation is the primary trend, however, you want to own the gold mine, not the paper. The real value of the gold mine — the gold it produces — may not change much. But as the paper goes down in flames, the real thing — the stuff — is relatively more valuable.
Warren Buffett — a Midwesterner not given to dreamy self-deception — tried to capture this paper/stuff dynamic by comparing the nation’s GDP (the stuff it produces) to its stock market capitalization (paper). The result was the Buffett Indicator.
The chart of the Buffett Indicator shows the Primary Trend pretty much as it ought to be. Paper (represented by the Wilshire 5000) went down until 1980...then up until 2000. There was another leg down to 2009. Since then, paper has outperformed stuff, spectacularly...the ratio was barely 50% at the bottom of the mortgage finance crisis and is now around 230%, an all-time high. The paper holders are richer than ever.
It is easy enough to jump on the ‘paper’ bandwagon. Stock brokers are standing by to take your call. But what do you do when ‘deflation’ is the Primary Trend? How do you ‘own’ GDP? It is very impractical to stack barrels of oil in your backyard.
A major trend of the last half century was the ‘financialization’ of the stuff. Financed at ultra-low interest rates, Wall Street tried to turn everything into paper.
Investors could not only buy part of a company, but they could buy a fund that owned part of the company. Or a contract that gave them the right to buy the fund that owned the company. Or a bond, a loan, an option, a derivative, a crypto, Private Equity...Hedge Fund...any paper might be tied to some other paper, all trussed up together like mountain climbers on a slippery slope. Everybody seemed to get rich as paper prices (assets) went up...ignoring the huge crevasse of debt beneath them.
After the dot.com sell-off, investors turned to housing…safe, dependable stuff, they thought. “Housing never goes down,” they told themselves. The Fed nourished the delusion by cutting interest rates again, bringing financialization into the bedroom.
The debt bubble in mortgage finance blew up in 2009, forcing some 4 million families to look for new homes. But the bubble was soon patched – with even lower interest rates – and continued to grow.
The ‘stuff challenge’ is what to do with your money when almost everything from housing to gold mining stocks seem to be inflated. Our solution: we buy gold itself. There are booms and busts in gold, just as there are in everything else. But over time, gold tends to be a pretty good proxy for stuff.
Gold eliminates what appears as upward bias in paper assets. Everyone believes, for example, that stocks are a lot more expensive today than they were 100 years ago. ‘You can’t go wrong in stocks,’ they say, ‘not over the long run.’
Gold makes the picture much clearer. The Dow/Gold chart shows the historic inflation of stocks — 1980-2000. Then, there is the great deflation, in which stocks lost 80% of their value, in gold terms, and didn’t resume their inflationary trend until 2011. Since then, they’ve bounced from a Dow/Gold ratio around 7 to currently near 12. In other words, paper has been inflating for the last 15 years, but is still far below its 1999 high.
But over 100 years, far from showing a triumphal march upwards, the Dow/Gold ratio shows a hike uphill...and a tumble down again. As of today, the ratio has the real value of the Dow at the same level it was 99 years ago — worth about 12 ounces of gold. Even in this Bubble Empire, stocks are not really worth a penny more than they were in the 1920s.
Oil, meanwhile, at $100 a barrel, has come a long way from when it was under $1 a barrel 100 years ago. That’s an easy-to-figure 100x gain. But gold has gone from $20 to $4,400 — a 220x gain. So, the 1927 vintage oil, held in your basement for a century, is only worth half as much as it was back then — just as classical economists predicted it would be.
Most stuff tends to become cheaper as new technology delivers more of it. Gold is not perfect ‘money,’ but it is more reliable than most other stuff. New tech makes getting it easier...but the deposits are farther down, and harder to get at. And the economy is much larger, requiring more money just to keep prices more or less stable.
And now what? All of our indicators — including that dark-of-night twitch at 3am — tell us that paper has had its run. It OUGHT to deflate. Whether it will or not...we don’t know. But betting on paper, now, is unlikely to pay off.
Regards,
Bill Bonner
Research Note, by Dan Denning
‘Core’ US inflation was 2.4% year-over-year in August, according to this morning’s data release from the Bureau of Labor Statistics. The headline figure was 3.4%. Both are well above the Federal Reserve’s target inflation rate of 2%.
Unsurprisingly, given the ongoing war in Ukraine and the US war with Iran, energy prices were up 16.3% year-over-year. AAA reports that the national average price for diesel fuel is now over $6/gallon for the first time ever. In California, it’s over $8/gallon. Diesel is a key input in the cost of food, construction, and shipping.
Later today I’ll publish my conversation from yesterday with Bill Bonner about what the Fed will do next. Raising rates at next week’s meeting would be a natural response, given today’s inflation figures. But with 10-year US Treasury yields already rising (despite Treasury Secretary Scott Bessent’s best efforts to contain them), the US government can’t afford higher interest costs on its $40 trillion in debt ($9.5 trillion in debt must be refinanced in the next twelve months, or about 30% of total marketable debt outstanding).
Gold was up sharply on the CPI report after trading lower overnight. Stay tuned for more later today, including an update on possibility that AI will kill all of humanity sometime in the next ten years (and the cynical strategy that’s actually behind this exaggerated claim).
The Big Warsh was hired to decrease interest rates, not to increase interest rates.
Haven't we heard all this before ? We were all waiting for computers to go belly up on 1st January 2000 and what happened. Nothing -Zilch.
So now we have to wait for AI to get rid of mankind ? Some excitement this waiting-maybe its the "real" thing !