Bill Bonner

That is no country for gold bugs
The young in one another’s tattooed arms
Birds in the trees
Those dying generations…sick with desire
And fastened to a dying economy

Dear Readers who wish to understand what is going on in today’s economy might want to read Yeats’ poem — ‘Sailing to Byzantium.’ In our view, we are all en route to Byzantium…or perhaps to Rome.

We are bound for romantic decay…or a grubby fight to the finish. We will see.

But this is no place for gold’s final bubble. Not here. Not now. Not yet.

Gold “hit the wall” yesterday, says one headline.

“Biggest break in gold in 30 years,” says another.

As anticipated, gold is getting whacked. But what kind of whack is it?

To speculators on the wrong side of the trade, it was catastrophic. But was it serious? Maybe. Maybe not.

We’ve already given you our big prediction on gold. No point in saying anymore.

The bull market in gold began at the end of the ’90s. It will keep going until the price of gold intersects the price of the Dow. Currently, the Dow is over 10,000…and going up. Yesterday, it rose 143 points.

Gold, meanwhile, is going down. December contracts lost $104 yesterday. At one point, the spot price was down $150. It now costs less than $1,800 to buy an ounce of the stuff.

So, there’s still a WIDE gap between the Dow and gold, and it’s getting wider. Will it ever close? Who knows? But that’s our bet. And if we’re even close we’ll call it a success.

Because what it tells us is that the movements in gold and in stocks are long and big. And if you want to make real money, you focus on these big movements, not in the day to day price frenzy.

The way we see it, the time to get into stocks was in August 1982. Or anytime in the ’80s. Stocks went up for years…until the Dow finally peaked in January 2000. It had gained more than 1,000% — a 10 bagger, as investors like to say.

But then what? Then, forget stocks. January 2000 was the time to get into gold. There was a bust in the stock market in the early ’00s…followed by intervention from the feds…which led to a huge bubble. That bubble blew up in ’08-’09…sawing the Dow almost in half. Since then, another more massive meddling by the feds has moved the Dow back up. But to where? Around the same place it cracked 11 years ago.

In other words, for all the sturm and drang in the stock market over the last 11 years, investors have made nothing. Not even nothing. Less than nothing. A barrel of oil was $25 in 2000. Now, it’s over $80. More than 3 times as much. Prices have gone up for everything…while the stock market investor has not a penny more than he had when Bill Clinton left the White House.

The gold buyer, on the other hand, has 5 times as much money — even after yesterday’s big whack.

He who laughs last laughs best.

Yesterday, stock market investors got to laugh at the gold bugs. It’s time they had a chuckle. They’ve waited years for it. And our guess is that they’ll have plenty more laughs in the months…and years…ahead.

Because this is no place for a gold bug. Not really. We are fastened to a whole herd of dying animals — the credit expansion…the housing decline…Keynesian economic theory…the dollar-based monetary system…the social welfare political model…the bankrupt empire…the declining marginal utility of military force, debt and oil…and all those dying generations themselves. And we could probably think of more! All of them, in their dotage, will drag down prices…including, perhaps, even the price of gold.

We will have to wait for these wretched things to die. Then, when they are out of their misery and out of the way…or brushed aside by a desperate Fed…the next stage of gold’s bull market can begin.

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success in numerous industries. His unique writing style, philanthropic undertakings and preservationist activities have been recognized by some of America's most respected authorities. With his friend and colleague Addison Wiggin, he co-founded The Daily Reckoning in 1999, and together they co-wrote the New York Times best-selling books Financial Reckoning Day and Empire of Debt. His other works include Mobs, Messiahs and Markets (with Lila Rajiva), Dice Have No Memory, and most recently, Hormegeddon: How Too Much of a Good Thing Leads to Disaster. His most recent project is The Bill Bonner Letter.

  • Pewky

    Good column for such a “most lazy writer”…good thing you’re in London because I smell something rotten in Omaha….Buying $5 Billion of BOA stock. Maybe he knows what the helio pilot has in store for tomorrow afternoon..

  • Dirty Sanchez

    Buffett’s a creep!

  • Bruce Walker

    I wonder how many box cars of cash the Fed secretly sent down the rails towards Omaha just to get Buffet to endorse BoA as a going concern.

    As for the DOW30 – Gold instersection theory, there’s one big hole in it. The DOW30 components are constantly changing, the boys on Wall Street always cook the index to make stocks look “good for the long haul”. While I can’t say for certain, I suspect if you took the DOW30 components from 1929 (most of which are no longer in business) you would discover that the DOW30 still hasn’t recovered from the 1930s much less made it to its current aleged 10,000+ level.

    Same applies to the previous DOW30/gold instersection. If you used the DOW30 components from 1981 the stock market probably hasn’t recovered from the lows of 1982 either.

    A far more meaningful comparrison would be gold vs. S&P500. I’m sure there are some equally appaling ratios over the years when gold peaked and when the S&P500 peaked etc that could be graphed, and unlinke DOW30 the graph would have some meaningful information.

    Bottom line is this: The DOW30 is and always has been nothing but a marketing ploy to suck people into the stock market. When a few companies in it made investing in stocks look bad, the boys on Wall Street simply booted those components out. That’s why today, in 2011, there is hardly any industrial representation in the index even though the index bears the name “industrials”. With that in mind, there’s really little point in watching a ratio to gold based on it, as the results are meaningless anyway.

  • gman

    “The DOW30 components are constantly changing, the boys on Wall Street always cook the index to make stocks look “good for the long haul”.”

    never thought of it that way. thank you.

  • Some Idiot

    “January 2000 was the time to get into gold.”

    Perhaps. It certainly wasn’t a terrible idea. But a much better idea was to get into real estate, which generated a yield of nearly 300% between 2000 and 2007. Between 2008 and 2011, gold has generated a mere 100% yield.

  • anaconda

    “The gold buyer … has 5 times as much money”

    The amount of gold remains the same – if he sells, he gets 5 times as much paper.

  • Erik Whiting

    Gold: can’t eat it, can’t clothe youself in it, can’t live in it, can’t easily break it into tradable amounts, can’t verify it’s purity without an expert third party, can’t sell it without paying a 28% tax on its inflated value…

    I could go on, but as Bill coyly says in his column…why bother?

  • Imperial Custodian

    Erik:

    Pay tax on its sale?

    One does not buy gold to sell it. This is a ( pretty good ) bet that the system will implode.

    As far as I know, nobody repealed the tax laws of the Roman Empire, and you are still therefore “subject” to them! But you’d be hard pressed to find their tax office, or anyone coming to collect from you…

    That’s what we expect when we turn to gold as an “investment”.

  • Erik Whiting

    Imperial,

    So if you’re not going to sell your gold what do you plan on doing with it after the system implodes?

    If the system does not implode, what will you do with it?

  • Alistair B Wittingsworth

    Imperial, if you never sell or trade your gold, and instead hoard it forever, how will you use it to buy food, shelter, etc?

    Better to own a house first – not for investment places, but simply as a place to live – and worry about gold later (or never).

  • Erik Whiting

    Another fun fact about gold: I can’t find any modern references for an economy imploding, then turning to gold to solve their exchange/transaction issues. Weimar Republic hyperinflation was is the most recent (past 100 years) that I can find, but it was resolved via the Rentenmark which was backed by industrial plant capacity and farmland. No one turned to gold.

    Zimbabe? Nope, no using gold there.

    Can ANYONE point out where gold has actually been used? Or do the bugs just stash it in a pile and act like Scrooge McDuck, eagerly counting coins? Since they apparently don’t sell their gold, I can’t think of what else they do with it…

  • Jonny Come Lately

    Cash in the bank, cash in securities, cash in real estate, or cash PMs. The latter two for me please sir. I can always sell them for the latest styles in paper currency.
    The banks are 1 away from locking you out of your .02% interest bearing savings account. The stock market has enough of mine locked in 401k that I cannot access unless I quit my job. So choices on how or where to store your wealth narrows quickly unless of course you’re BB and can divest across the globe.

  • Jonny Come Lately said

    That’s 1 keystroke away…

  • Scott Walker being b***h slapped by a DMV clerk

    Common stocks: can’t eat it, can’t clothe yourself in it, can’t live in it, can’t easily cash out without paying fees, can’t sell it without a dealer or without paying capital gains tax on it’s inflated value…

    Can ANYONE point out where stock has actually been used? Or do paper bugs stare at their monthly broker statements and act like Scrooge McDuck, computing the change from the month before and praying the stock won’t disappear like Enron or Borders? Since they apparently don’t sell their stock, I can’t think of what else they do with it…

    And you don’t even get a cool stock certificate to hang on your wall anymore.

  • Erik Whiting

    Hey Scott…I didn’t say I buy stock. It’s a shame you didn’t take the time to read and respond more carefully.

  • Erik Whiting

    Long-term capital gains on stocks (15%) vs. gold (28%). Gold also doesn’t pay dividends, but many stocks do. Sure you pay your tax rate on those, but even at 35% the dividend receiver is enjoying a 65% bump over what gold is paying (0%).

    Your response fails to address the legitimate questions I’ve asked regarding gold, plus it raises a false conclusion (people don’t sell stock…uh, yeah they do). Plus I wasn’t even the one who said Gold Bugs don’t sell gold…go after Imperial for that one.

    So, try it again and let’s see if you have any legitimate answers.

  • Scott Walker being b***h slapped by a DMV clerk

    I’m so ashamed.

  • gman

    “Can ANYONE point out where gold has actually been used?”

    used? no, probably not. but it has always been treated as money, even now.

    the cases you cite were local. but our situation is a bit more complex. the debt dollar is the world-wide reserve currency and has no competitor or replacement. but it has become unstable and is losing trust. simultaneously the american and european economies are in decline and promise further decline both rapid and profound. together these economies and their fiat currencies comprise half of world economic activity. since the other half of world economic activity consists largely of exporting to these two it can be expected that they and their fiat currencies will decline at least equally if not more. this is unprecedented. during this decline it may be expected that in an attempt to remain above a barter economy people will look for some kind of stable dependable currency in which to conduct remaining business. gold can and may be used as formal money once again. that is the thinking.

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