Get Rich on the Generation Switch

The Daily Reckoning PRESENTS: Every 17 years or so, the investing generation switches…and True Wealth’s Dr. Steve Sjuggerud thinks he’s found the choice of the new generation…


My grandparents thought they were making a sensible decision by avoiding stocks.

If you’d lived through the Depression, and through an entire generation (the 17 years from 1930-1947) when stocks lost money, would you ever consider buying stocks again? Probably not. Yet stocks rose by more than 500% in the following generation, from 1947 to 1965 (18 years).

Folks who invested in stocks during the 1950s and made that 500% return started to believe the opposite of my grandparents – they believed that stocks always go up. This boom ended with the “tronics” mania, the 1960s version of the dot-com stock craze.

For the next generation from 1965 to 1981 (16 years), the Dow Jones Industrials stock index gained less than a point:

Dow Jones Industrial Average, Year-end Values

1964                            874

1981                            875

Folks who invested in the 1970s learned – like my grandparents did before – that you could never make money in stocks. You needed real assets, like real estate and gold.

It’s funny how it all goes in cycles…

Almost like clockwork, that 1970s generation of investors who saw the Dow go nowhere learned to avoid stocks, and then missed out on the greatest stock boom in history. Stocks soared from the end of 1981 to the end of 1999 (18 years).

When you look at it over history, a rough pattern starts to emerge…

It’s a pattern where every seventeen years or so, the investing generation switches. One investment rises by triple digits, while the other loses money. Again, it’s not clockwork, but it is interesting.

I can show this “switching” to you in a simple table. I’ve put together stock prices versus commodity prices. Take a look… triple-digit gains in one generation, losses in the next.

100 Years of Investment Generations


Data source: the CRB Index and the S&P 500 Index, from
* Data starts in 1914, so we don’t have 17 years of data
** While stocks had a small positive return for 1965-1981, if you adjusted the number for inflation, it would be negative.

The simple idea here is that we’re into a new investment generation now. If the last investment generation ended around 1999 – and the pattern holds, then we could see stocks do poorly for about 17 years…or until 2016.

I’ll admit the evidence from a statistical standpoint is a bit flimsy, as we’re only going back five generations here. But the generational idea makes sense… and the numbers do fall into place. Legendary investor Jeremy Grantham sees it too…

“It is absolutely no coincidence the great speculative bull markets of the 20th century occurred [when they did: 1929, the late 1960s, and 2000]. They fell exactly where you’d expect they would…

“Why? Let me describe the nature of a [stock market] bubble: First a real bubble needs above all to get rid of the old fogies. So you can’t have a bubble five years after a bust… A bubble needs to rotate serious investment professionals out of their jobs…”

So far, we’re on track. Stocks (as measured by the S&P 500 index) are down about 15%. Meanwhile, commodities prices (as measured by the CRB Index) are up 46%. Some commodities like oil and gold are up significantly more.

The point of this essay is not to get you to invest now in commodities based on that table. The point today is that, sometimes, it’s good to be in stocks, and sometimes it’s not. Now is probably one of those times when it’s not.

And just exactly what should you buy instead? Oh man, have I got a Big List of things to buy for you…

The Big List has been our cheat sheet for the last few years. The idea behind it is pretty simple. We’re buying up what worked during the last generational switch….

The last stock market peak was the late 1960s. A few years after that, gold, coins, commodities, and other assets started to soar. So we took The Big List as our blueprint.

Here we are, a few years after a stock market peak once again, and the exact same things are working. It’s uncanny. Take a look:

The Big List:

What Worked the Last Time Around
Performance of Various Assets, June 1970-1980

Chinese Ceramics607%
U.S. Farmland271%
Old Masters’ Paintings242%
U.S. Consumer Price Index110%
Treasury Bills110%
Foreign Exchange102%

It really is crazy. The exact same things that did well in the 1970s have done well again today, practically in the same order. And I believe there’s plenty more to come.

They say history doesn’t repeat itself, but it rhymes. I believe we’re only at about the year 1972 on this list. From 1972 to 1981, stocks were horrible performers. And the things above did well for another eight years after 1972.

Of course, it may not be exactly eight years. But that’s a reasonable ballpark guess. Based on the size of the boom that we just went through in stocks, and how it captivated everyone, it’ll probably take the full 10 years to shake everyone out of believing in stocks, and into believing in The Big List.

When folks finally start believing in gold and other commodities, it’ll be time to buy stocks with everything we’ve got.

But until then, we’ve still got hundreds of percent upside in the Big List. Make sure you’re on board.

Good Investing,

Dr. Steve Sjuggerud,
for the Daily Reckoning
July 6, 2006

P.S. Actually, The Big List I included here is not completely accurate…

The 3rd best investment of the 1970s, something I call the Secret Currency, is missing. It returned 1,035% during this period – more than silver, and less than gold bullion.

Recently, I’ve found a unique way to own the Secret Currency, which is probably the best investment in the world right now.

This is a strategy that has been used by the wealthiest families in the world (like the DuPonts, Rothschilds, and Morgans) for centuries. These super wealthy families prize this investment for its safety and anonymity. Now it’s possible for you to do the same thing, and make just as much money as these folks, at least on a percentage basis.

From Bloomberg comes news that the working stiff is…being stiffed:

“American wage gains are evaporating as inflation accelerates, helping explain why confidence in the economy isn’t soaring along with job growth. Weekly wages adjusted for inflation fell 0.7% last month and are down 0.2% over the past year, according to a report last week by the Labor Department. Pay has been flat or declined in more than half of the 65 months since January 2001.”

Our old friend, Congressman Ron Paul, says he has never seen Americans so disgusted. On the surface, the economic figures look pretty decent, so it must be the war in Iraq that is stirring up so much negativity, he concludes. Some people thought it was a stupid war from the get-go, and others think it hasn’t been pursued aggressively enough. But nobody is very happy with it – except maybe the companies making millions from government contracts. The cost of America’s foreign wars is expected to hit the half-trillion-dollar mark next year. The new U.S. embassy in Baghdad, alone, is supposed to cost $600 million. Many wonder why we need such an expensive headquarters when we’re not planning to occupy the country indefinitely.

Here at The Daily Reckoning, we wonder why we need an embassy at all. Just set up a toll-free telephone number to the U.S. State Department with a recorded message to anyone calling from Iraq for advice or assistance: “You’re on your own, pal.”

We forget. We’re the imperial race, the master class. We’re in charge of maintaining order and prosperity. It is our duty to establish truth, justice and the American way throughout the world, even if we go bankrupt.

But the drive to turn old Mesopotamia into the new Mecca of modern American capitalism seems to run into one ditch after another. George W. Bush announced, “Mission accomplished,” when Baghdad fell. We imagined victory parades and ticker tape. It turns out that he was premature. The celebration was duly planned and the invitations went out. Virginia ham and Maryland oysters were laid out as canapés. The booze was brought in. But, for some reason, the desert tribes didn’t show up.

Then, when Saddam was dragged from his hole in the ground, victory seemed at hand again. But again, we were disappointed. Someone forgot to tell the Iraqis, who continued to resist as if nothing had happened at all. Finally, U.S. military forces got a tip-off about where to find the most insurgent of all the insurgents between the Tigris and Euphrates. They not only took him out, but everybody with him, too. Not only that, they blew his house to dust, and would have leveled the entire town and salted the earth around it had not TV reporters been spotted in the area. But did that stop the lesser insurgents? No. They just became more insurgent than ever.

And back at home, it is Americans now who find themselves in a hole. And they find they need dollars to get out. Specifically, they need more of the almighty buck to pay for energy, and for higher mortgage payments – especially those whose adjustable rates have now been adjusted upwards.

Why do Americans need more dollars? Because yesterday, the price of oil headed back toward its all-time high of $76. And the price of gold, too, went up $13. While the dollar holds its own against foreign currencies, things that are quoted in dollars have gone up. And while Americans have too few dollars, people outside the United States may be finding they have too many. They seem eager to exchange them for things – things you get only get from a hole in the ground!

No wonder Americans are in a sour mood.

Meanwhile, in Britain, a headline from the Daily Telegraph: “Families worse off than five years ago.”

The typical English family has lost 10% of its spendable income over the last five years, according to accountants Ernst and Young. While income increased 18% during that period, costs for national health insurance, taxes, mortgages and utilities increased even more. “The cumulative effect on the average family,” says the Telegraph, “has been to cut the cash it has to spend on whatever it likes by one-tenth…”

How could it be? That during the biggest worldwide boom in history – with soaring house prices and near full-employment – most citizens of the two countries at the center of the whole English-speaking commercial empire have made no financial progress whatsoever? What would have happened in a slump, we wonder? What will happen when the boom finally ends?

We don’t know. But we think we’re finally going to find out.

Yesterday, we noted that usually you could still sell a house for more than you paid for it. Well, yes…but it depends on when you bought it. According to the Economic Cycle Research Institute, nominal prices for houses nationwide are going down for the first time in history. Which means, if you bought your house last year, you’ve probably lost money. This is hard news for the Average Joe. His earnings are going down. And now, that trusty ATM machine in his bedroom, from which he has extracted hundreds of millions in “equity” in his house, is on the blink. And its owner is in a funk.

And since the U.S. economy (and the whole world economy) depends on Average Joe’s continued willingness and ability to spend, we can expect to see the funk spread. Perhaps later this year. Maybe the next. Count on it.

More news from our team at The Rude Awakening…


Eric Fry, reporting New York:

“‘Water shortage? What water shortage?’ most Americans must ask themselves, whenever they gaze at the sprinklers that douse every blade of grass in their backyards.”

For the rest of this story, and for more market insights, see today’s issue of The Rude Awakening.


More views from Bill Bonner…

*** “They never understand English,” said Edward.

Our twelve-year-old was complaining. He deals with few merchants – only those at the pizza place, the convenience store, or the movie rental. They don’t speak English, he says.

“Well, they do speak English,” we explained to him. “But it’s not the same English that you speak.”

“No, they don’t speak English,” he insisted. “They’re all foreigners.”

“Wait a minute, Edward,” we thought we should straighten him out. “We’re the foreigners. Some of them were probably born here, for all we know.”

In this new, globalized world, it’s hard to know. Who’s the foreigner? Those whose ancestors came from here? Or those who live here now? Those who hold the passports of the country they live in? Those who pick up the trash and drive the buses?

“At a dinner hosted by the top brass of one of the major London investment banks the other day,” writes our friend Simon Nixon, “I found myself in the company of a couple of Americans, a couple of Italians, a Turk, an Indian and a Lebanese – oh, and two Brits. That’s an extraordinary turnaround in just 10 years, when almost all the senior jobs at any London bank were filled by Brits. The City [London’s Wall Street] is now a genuine global market for talent, where nationality is irrelevant.”

It is also a place where people get paid a lot of money. Salaries in the City, as on Wall Street, are spectacular. In New York as in London, the rich get richer. The poor and middle-class masses, on the other hand, are finding the new world order a tougher place to get along. The competition among people who speak different forms of English is intense. A man may expect to earn a decent wage for working an eight-hour shift as a convenience store clerk. But how can he compete with a family of Pakistanis who run the store down the street…and never sleep! A man may hope to earn a respectable wage fixing plumbing or cleaning carpets, but what is he going to do when the Eastern Europeans come to town? They’ll do the same job for half the price.

The new world economy seems to reward those at the top, handsomely. But at the bottom, the poor in rich countries struggle to keep up standards of living. That is one reason they borrowed so heavily in the last five years, because real incomes were falling. They assumed it was a fluke, something temporary that would pass. Instead, the trend seems likely to last for decades, until wages in India and China catch up to those in the West.

*** A letter from a Dear Reader:

“Can I ever relate to that!

“In 2003 I moved to St. Thomas in the U.S. Virgin Islands and found far more freedom here than now exists in, as we call it here, ‘the States.’

“I love the idea of America and what it was intended to be. But, as you folks have said on so many occasions, the ‘powers that be’ have, over the past century, slowly eroded what was the foundation and cornerstone of our democracy in the name of ‘equality’ or some other such pretense.

“As Americans, we have been forced to abandon our religious freedom (wasn’t that one of the original cornerstones?), the freedom to live our lives the way we wish (whether it be in a multi-million dollar mansion or a grass shack lacking electricity and plumbing), and our cultural heritage, so as not to make ‘relocatees’ to our country feel uncomfortable. It was as if, upon relocating to France, you demanded that France undergo major surgery in order to accommodate you and all your whims.

“Granted, the USVI has made accommodations for ‘relocatees,’ such as myself, in order to enjoy the benefits of residing under the American flag. But, I love this place so much…scars, warts and all…that I would be willing to assimilate myself in order to live here.

“Thank you especially for the fourth paragraph of your letter. It gave me chills and made my eyes tear up a bit.”

*** We reprint the paragraph:

“Where freedom is, that is my country,” we’ve always believed. Americans used to be a restless breed, always searching for greater freedom, greater opportunity, and a place to have a smoke. Your ancestors probably left the old world because they were looking for something better – a place where they could mind their own business, earn a living and find happiness in their own way. But now that the country has become the homeland of a vast decadent empire, with an agenda of its own, we have to ask ourselves:

Where should real Americans live? Where is freedom now? Where are opportunities?”

*** We are still wondering what we are, or what we are becoming. Yes, your editor has been created by modern technology and globalized commerce. For nearly half a century, he knew exactly what he was, and what he was doing. But then, he took his trade, his laptop computer and his family on the road. Now he is not sure what he and his family have become. To almost every question on the subject, comes an uncertain reply:

Are we European? No, but that is where we expect to live. Still, we don’t think like Europeans.

Are we English? No, but that is where our headquarters is. That is where we work.

Are we American? No, but that is where we come from.

Maybe we are Irish? Well, that is what our family was before it became American, and what it may be again.

Or maybe we will become Anglo-Argentine, and make our new home out in the wide-open spaces of the Andes piedmont. We like the food. We like the people. Why not? What is the tax rate in Argentina, anyway?

“I do not want to live a gypsy life,” says Elizabeth. She is putting her foot down. But we are not sure where. “We need to live somewhere permanently. Where we have friends, family, connections with the community.”

We must be something, but what? Whose team do we cheer? Whose flag do we salute? Can we live without a strong national connection without Social Security? Without unemployment compensation? And even if we are 100% American, after living there for 48 years, what about our children, who’ve scarcely ever lived there at all? We don’t know, but as with so many other things in life, we will find out.

The Daily Reckoning