Problem Solving

If you really don’t want to lose money, you should buy gold. If you want to make money, on the other hand, you need to do some serious research on individual companies... and get lucky.

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Wednesday, September 4^th, 2024 

Bill Bonner, writing today from Poitou, France

‘Our priority now is to balance the budget. Through fiscal discipline today, we can free up resources tomorrow. ‘  

Jimmy Carter, 1980 

Jimmy Carter is “coming to the end,” says his grandson, “but he’s still there.” We will speak of Mr. Carter in the past tense... but hope he makes it to his 100th birthday on October first.  

What a pity!  The old conservatives have disappeared…both from the Republican and Democrat ranks. 

Mr. Carter was a Democrat... but of a different era... with conservative instincts. He feared God and loathed the Devil. He got married and stayed married. And he lived in the same modest house for the last half a century.  

Carter believed in science and man’s capacity to make improvements (after all, he was a nuclear engineer!) But he knew there were limits... things you shouldn’t do. When you’re in a submarine you don’t sleep with the windows open.  And when you are on the surface, you don’t spend money you don’t have. 

After Jimmy Carter left the White House, the US budget was almost never balanced. There was no fiscal discipline. Today is yesterday’s tomorrow. And the resources that should be available today are already gone…used to solve yesterday’s problems that were better left alone.  And now, those spent resources are entombed in $35 trillion of debt, dragged into the future like a ball and chain attached to every newborn. 

What to do in such a world? How do you protect yourself? 

Gallup pollsters asked people what they considered the best long-term investment. As expected, most cited stocks... or bonds... or real estate. 

But one curious crack appeared. Twenty-seven percent of Republicans chose gold as the best place for their money, nearly four times as many as Democrats. 

The basic numbers are simple. Looking back over 100 years, gold went from $20 an ounce in 1924 to around $2,500 today. Up 125 times. Stocks went up more than 400 times (measured by the Dow). But the averages can be misleading. More than half of all stocks went nowhere... for zero gain, while a few went ‘to the moon.’ The best performing stock of all time, for example, was the cigarette maker, Altria (formerly Phillip Morris)— whose stock rose 265 million percent. 

Rates of return on bonds varied too, but bonds are particularly susceptible to inflation. Few bond investments were able to outrun the dollar’s 98% loss. 

And real estate? One study says $100 invested in real estate in 1928 would be worth 50 times as much today. Maybe. But some areas have gone up dramatically; others have not. We once studied properties in Baltimore and concluded that the old mansion that now serves as our company headquarters probably peaked out — in real terms — in the late ‘20s. It’s been downhill ever since.  

The lesson we draw from this is that if you really don’t want to lose money, you should buy gold. If you want to make money, on the other hand, you need to do some serious research on individual companies... and get lucky.  

We believe you’re much more likely to be lucky if you buy stocks when they are cheap and sell them when they are expensive — using gold as the key metric. That is the essence of our Dow/Gold strategy. When the Dow falls below 5 ounces of gold, we buy stocks. When it goes over 15 ounces of gold, we sell them. More about that in our report Gold Report.

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But why would Republicans have a different opinion of gold than Democrats? 

Yesterday, we backtracked over the last 100+ years of financial problem solving by the feds. Their ‘solutions’ always involved spending more money... or making more money available at lower interest rates. They ‘threw money at the problems,’ we concluded, and made them worse.  

If the feds had merely sat on their hands — instead of pretending to ‘solve problems’ — today, our national debt would probably be about the same portion of GDP that it was under Jimmy Carter, about 32%. Instead, it is 125%.  

But both Democrats and Republicans have had their conservative instincts washed away on a tide of cheap money. Democratic voters still believe they can craft a better world, by spending money they don’t have. They want to elect politicians who ‘solve problems’ and think it will pay off... at least for them. 

Republicans, perhaps with a trace of conservatism still in their DNA, are skeptical. They buy gold to protect themselves against the Democrats’ problem solving. 

Regards, 

Bill Bonner 

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Research Note, by Dan Denning

Nvidia [NVDA] lost $279 billion in market value yesterday. It was the largest single day loss in market value in stock market history. In fact there are only 29 US listed stocks whose market caps are bigger than the loss in value suffered yesterday by Nvidia. During the greatest financial experiment of all time, everything gets inflated (and deflated later), especially the market values of the most popular growth stocks.

By the way, the US Justice Department sent subpoenas to Nvidia yesterday, probing what it alleges are anti-competitive practices at the company. The move echoes another set of charges leveled by the Justice Department in April 2000 against Microsoft. Those charges came near the peak of the dot.com bubble, when Microsoft was the largest company in the world (by market capitalization).

A Federal judge later found Microsoft guilty and ordered the company broken up into two companies. That remedy was ultimately reversed by a Federal Appeals court and Microsoft made structural changes to its business model to appease the DoJ. No fine was paid.