What We're Doing with our OWN Money

Bill answers the two questions he posed to a recently convened BPR Round Table...

(The mountains between Salta City and Cafayate, Argentina. Source: Getty Images)

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

As for financial crises… well, haha, it would perhaps be presumptuous to say that a financial crisis will never occur again, but with our current knowledge and tools for prudential monetary policy, certainly we can say that a financial crisis will not occur in our lifetimes.

~ Former Fed chief, now Secretary of the Treasury, Janet Yellen

Janet Yellen was still alive in the first half of 2022. And there it was. Only months after saying such a dumb thing… came the proof of how idiotic it was.

The first 6 months of the year were almost unbelievably bad. Stocks and bonds went down. Cryptos vanished. A traditional, balanced portfolio – 60% stocks, 40% bonds – had never had such a bad time of it. And a recession began.

Ms. Yellen had no idea what was happening. But we wanted to know. So, we put two simple questions to our most experienced and most thoughtful analysts:

“What do you think is going on?”

“What are you doing with your personal money?”

Unsurprisingly the answers were as varied as the experts themselves. Some said ‘hold em.’ Some said ‘fold ‘em.’ Some said ‘walk away.’ And some said ‘run.’

Doug Casey, Alex Green, Chris Mayer, Byron King – and many others – gave us their thoughts. Bonner Private Research members can view their responses here. (Or read the full transcript here.)

Private Briefing for Bill Bonner and BPR subscribers only

If you’re not a member yet, but would like to join us, here’s how you can become one…

A few readers asked for our own answers. At the risk of repeating much of what we discuss every day, herewith, we give them:

What do we think is going on?

We believe we are in the early stages of an about face in the Primary Trend. From bull to bear… low inflation to high inflation… from low interest rates to high ones… from order to disorder… and from bad to worse.

Since the new money was introduced in 1971, US markets have been more responsive to the Fed’s liquidity than to real changes in the economy itself. GDP rose about 20 times since then. But the stock market rose twice as much. The more ‘liquidity’ (money printing and ultra-low interest rates) coming from the Fed, the faster stocks and bonds went up. Marty Zweig, an early investment newsletter guru who lived in the most expensive apartment in America, on the top of The Pierre on 5th Avenue in New York, understood what was going on long before we did. “Don’t fight the Fed,” was his sage advice.

Had you followed it, you could have simply bought the Dow and rode it up, from 900 in 1982 to 36,000 in 2021. The Fed was paying the band. Everybody was dancing.  

The climax of this hoedown came in 2020-21, when the Fed turned up the volume, with an additional $4 trillion in brand new money… used to finance the federal government’s stimmies, PPP loans, and unemployment boosters. The combined effect of Covid shutdowns, supply chain disruptions, money printing, and deficits was to push bonds to their peak in the summer of 2020 and stocks to their tippy top at the end of the following year.

Then, with consumer prices butting up against double digits… the Fed was forced to change course. That is the big difference between this and every other downturn since 1982. Now, if you don’t want to fight the Fed, you’ve got to turn around.  Because the Fed is draining liquidity out of the market. It is deflating, not inflating.  Very slowly. Hesitantly. But so far, steadily.

Until 2020, bonds had been going up for 40 years as the Fed consistently cut interest rates. Now, the Fed is raising interest rates. Stocks and bonds are going down. And if this is the Primary Trend we think it is, it will continue for many years.

So, what to do now? More precisely, what are we doing?

First, we don’t have unlimited confidence in our own guesswork, so we keep about a third of our family wealth in Chris Mayer’s Woodlock House Capital Fund. Chris is smarter than we are. He buys quality stocks and sticks with them. Good companies produce real wealth. Over the long, long run, owning them will pay off. 

Second, we have another third in cash, gold and energy. In the short run… which could be 10 to 20 years… there are problems to be reckoned with. How it will all shake out, we don’t know. So, we keep some physical gold, some gold stocks and some coins. We do not regard gold as an ‘investment.’ It is simply a way to hold wealth for future generations. Perhaps, some day, gold will be upstaged by some form of crypto currency. In the meantime, we’ll stick with the yellow metal.

Energy, on the other hand, is an investment. We expect fossil fuel providers to do well as governments try to put them out of business.

Third, we have the rest of our money in quirky investments that we’re almost too embarrassed to mention. Property, for example. Business start-ups. A marble company in Latin America. A book publisher in England. A little of this… a little of that.  

In one portfolio, we choose the worst performing stock markets in the world… and buy them. We know nothing about them. We are simply relying on ‘regression to the mean’ to bring them back to normal.

Has it worked? Yes… and no. Russia, for example, was one of the worst stock markets in 2021. So, we bought it for 2022. Disaster! There are always surprises… most of them, unwelcome.

We are also buying farmland in South America. This is a flukey situation, too, more of an adventure than a real investment.

Cropland varies greatly in price and productivity. In this (relatively poor) region of France, it goes for about $5,000 an acre. In the Midwest US, it’s more like $10,000 an acre. In Ireland, it can go for $20,000 an acre. But in Bolivia, a large tract of cultivable land will sell for $1,200/acre. Given likely assumptions about crop prices, fuel, fertilizer, labor, etc, we are able to project a 10% return on investment.

The odds of an ignorant foreigner, like us, actually making this work are very slim.  And we certainly wouldn’t advise anyone else to try it. But we’ve been raising cattle in Argentina (at a loss!) for more than 15 years… and every year we learn a little more… and every year we think we’ve finally got it figured out.

So, we’re not going to stop now! Not when we are getting so close.

Regards,

Bill Bonner