Blessed by Misfortune

It’s still way too early to know if the bull market trend of the last seven years has run its course. Mr. Market may be exhausted from all this running uphill. Or he may be just toying with us. We will wait to see.

When prices go in your direction, you’re asking for trouble. No need to think; you know it all already. No need to worry, either; just sit back and let the money come to you. Until it doesn’t.

You are much better off when the financial news goes against you. Then you have to wonder about your premises, your emotions — and your sanity.

Hardly a day goes by that we don’t thank our lucky stars. We were blessed, you see, by misfortune.

As a child, we had no money. We couldn’t lose the family fortune; we didn’t have one to lose! Which turned out to be a good thing. For if we had had any money, we would have lost it in the Great Bear Market in Gold of 1980–1998.

President Nixon finally severed the dollar’s connection to gold on Aug. 15, 1971. We’d read enough history to know what that meant. Soon, we would be pushing wheelbarrows full of $100 bills to the liquor store to buy a six-pack.

How to protect yourself from the inevitable hyperinflation?

Simple: Buy gold.

That is how we became a “gold bug.” Then the worst possible thing happened: Gold went up. From $41 an ounce in 1971, the yellow metal soared to over $800 an ounce by 1980.

We were right! We were smart! We went “all in” on gold… and waited to be rich.

Fortunately, our luck changed before we got far. Misfortune smiled on us… setting us at odds with an 18-year secular bear market in gold.

Do you know what that is like, dear reader?

Every day… every month… every year… losing money… mocked by the market gods… dissed by family and neighbors.

Every day proved even more emphatically than the day before that we didn’t know what the hell we were doing. Every day, at the sound of the closing bell, Mr. Market pronounced his solemn judgment: We were idiots.

For 18 years, we endured this punishment. And thank God we did. Because now we know how easy it is to be wrong.

You try to make out what is going on. But you see only shadows and hear only echoes. Like having a ghost haunting an old house, you will feel a chill breeze brush your face…. you will see things appear in strange places and wonder how they got there. But you will never know how this spectral world works, not as long as you cling onto your mortal coil…

As we clung to our losing positions in gold, the smart money went into stocks. Perhaps it understood that we were in a huge credit expansion that would take stocks up to 20 times their value in 1971.

From 874 in 1971 to 18,574 yesterday. Wow! But wait. What if you had just stuck with gold?

Let’s see… from $41 to $1,340 an ounce. Holy smokes. That’s over 30 times your money!

Maybe our “crackpot” insight was right all along. And maybe gold will turn out to be a stellar investment after all.


Bill Bonner
for The Daily Reckoning

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