A Market for Long-Term Investors

What to do now… I really don’t know
I really don’t know, what to do

– The Rolling Stones

Stocks are up…should you buy? Wait, stocks are up…maybe you should sell!

Here’s the report from The New York Times:

The broader S&P 500 rose 8.8pc on the month and the Dow Jones was up 7.7pc.

The last time Wall Street saw a stronger September, when the Dow Jones soared 13.49pc, was at the start of the Second World War, when traders anticipated a strong rise in demand for US manufactured goods and war materials.

However, on Thursday the S&P 500 fell 3.53 to 1141.20 and the Dow dropped 47.23 to 10788.05 as new data on jobs and economic growth continued to indicate the economy was recovering at a slow pace.

Gross domestic product, which measures the output of goods and services in the US, increased at an annual rate of 1.7pc in the second quarter and the number of Americans filing new claims for jobless benefits fell more than expected last week for the third time in four weeks.

So you see, everything is looking up.

Gold keeps going up too…it rose another $8 on Friday. Experts say it is going to $1,500 next year. Or maybe $2,000. Or $3,000. Maybe you should buy.

China is buying. Insurance and pension funds are buying. Even central banks are buying. Wait a minute…maybe you should sell!

But it’s too early for the final stage of the bull market in gold. The average fellow is not buying gold. There’s no frenzy yet. Nobody is worried that his savings will disappear.

The final stage seems a long way away.

Gold may not be ready for it’s great blow-off…but the dollar seems headed for the basement anyway. You should get rid of the dollar. It’s trash. It’s headed for the dump.

But wait. Aren’t we in a period of major de-leveraging? Isn’t this the Great Correction? Isn’t everything going down? Shouldn’t the dollar be more valuable? Maybe the dollar doesn’t know we’re in a major correction?

But shouldn’t you be holding onto dollars…saving dollars…hoarding dollars?

What to do now?

The more we think about it, the more we like the solution offered by Rob Marstrand. Rob has just taken the job as chief investment strategist for our family office. That is, he’s advising us on what to do with our very long-term oriented family money. This is money that we’re not going to spend. It is supposed to go to the next generation…and the one following. So, we’re not looking for profits anytime soon. We’re more concerned with not losing it.

Rob told us about one vegetable producer in China. It’s a huge company, but still growing like a teenager. And nobody ever heard of it. You can buy it for barely 4 times earnings – Great Depression levels, in other words.

Another one of his discoveries is a company based in Singapore but with huge real estate holdings in the “other” BRIC – Indonesia. He reckons you can buy it for only about 60% of its break-up value. In other words, you can get the business for free.

And since these companies are in emerging markets, we can expect that they will do better than stocks in the US. Maybe not this year. Maybe not over 5 years. But over 20 years? Well, who knows, but it seems like a good bet.

Which do you think will be worth more, dear reader? Twenty years from now. A $20 bill issued by the US Treasury. Twenty dollars worth of US stocks? Or $20 worth of profit-making companies in high-growth economies?

We don’t know how much the stocks will be worth. But we have a strong hunch that a $20 bill won’t be enough for a cup of coffee. Why? Because dollars don’t cost much to produce – especially the electronic variety. And the feds are going to need a lot of them.

They’re spending $2 for every $1 in tax receipts. You can’t do that for too long before your credit is shot. And what’s behind the US dollar? Nothing but the full faith and credit of the US government.

What to do now? Find solid businesses at bargain prices. Invest in real estate with good cash. Buy collectibles…jewelry…art – things you want to own no matter what the price.

Bill Bonner
for The Daily Reckoning