Emma’s Note: Bill is on the road today. He’s leaving Rancho Santana and heading for pastures new. So we’re running a “classic” Diary from Bill. He wrote this a year ago, having recently arrived at Rancho Santana from Mexico.
By now, we’re all-too-familiar with the shackles the coronavirus pandemic rescue measures have placed on the American finances for generations to come. Over $4 trillion has been added to the national debt – just since last year.
But today’s essay takes us back to a time before the coronavirus took over our lives. Was everything in America really that great back then?
RANCHO SANTANA, NICARAGUA – Children shouldn’t have to learn that Santa Claus doesn’t exist. And some facts are too brutal even for adults.
That things go down as well as up… and get worse as well as better… is blindingly obvious to everyone over 55. But it will come as a rude shock to today’s investors.
So will today’s insight: that there are hard seasons in human life as well as soft ones.
Human life is cyclical. It’s not onward and upward forever. There are recurring patterns… frost as well as warm breezes… clouds as well as sun.
Science and technology may grow all year round. But in love, politics, war, and money, we flourish in the summertime… and die back every winter.
Nothing Like the Yucatán
Here in Nicaragua, it’s nothing like the Yucatán Peninsula, where we spent the last two days. Here we are on the Pacific; there on the Atlantic. Here it is dry. There it is humid. Here it is mountainous. There it is flat.
Here it is quiet and backward. There it is crowded, modern, and booming. Here it is poor. There it is relatively rich and prosperous.
There are seasons here, too. In the summer months, it is rainy. In winter, it is dry. And this time of year, the dust blows across the roads and dry leaves accumulate on the ground.
We got to the airport at 10 p.m. In the daytime, we’d have to make our way through heavy traffic, inevitably getting caught behind a truck, lumbering up a hill at 10 mph, while breaking black wind from its tailpipe.
But last night, the road was nearly empty. After an hour or so on the Pan-American Highway, we left the blacktop and took a shortcut on a dirt road.
There, too, we would normally drive through clouds of dust turned up by other cars and trucks.
But with no other traffic, our own dust whirled behind us, coming to rest on the freshly washed school uniforms hanging on clotheslines near the road.
Both Mexico’s Yucatán and Nicaragua’s Pacific coast are attracting more and more U.S. retirees. And this trend – like the rise of Florida before it – may continue for a long time.
Rendezvous With Destiny
Cycles take time. The credit cycle, for example, can last a lifetime. The last time interest rates were this low was around the time we were born – in the late 1940s.
A complete stock market cycle, too, is surprisingly long. But we have to look at them in terms of old money – the gold-backed dollar – to see them clearly.
The last major low came in 1980. Then, it took only 1.3 ounces of gold (equal to about $700 at the statutory rate) to buy the entire Dow 30 stocks.
Twenty years later, the bull market had run its course, hitting a high of over 40 ounces of gold in 2000. That was the high-water mark for U.S. stocks. They had never hit such a high before… and never have again since.
[For more on the Dow-to-Gold ratio, click here.]
And there’s still no bottom in sight, 40 years after the last low.
Investors and the financial press applaud every up move in the stock market. “Dow 30,000,” they cheer.
But to get back to its real level of 1999 – at 42 ounces of gold to buy the Dow – it would have to go to 67,000.
Even as stocks go up in new, nominal dollars, gold goes up more, leaving them further behind.
And our guess is that this pattern will continue, too… and when the Dow finally finds its bottom – its rendezvous with destiny – it will be under 5 ounces of gold.
End of an Empire
According to Sir John Glubb, the imperial cycle lasts 250 years.
Maybe so. Maybe not. But the U.S. empire definitely seemed on the downswing after 1999. And once the cycle turns, none of the king’s horses and none of his men are able to do much about it.
That is a recurring pattern of history, too – like it or not, empires die. All of them.
We have been chronicling the many promises of the 21st century that didn’t pan out.
The dot-coms blew up in March 2000.
The Information Revolution buried us under a mountain of data.
The stock market headed down… and in real terms, is still only at half its 1999 level.
The mission, whatever it was, was never accomplished in Iraq.
The war in Afghanistan has turned into the longest ever. The U.S. military still hasn’t won a war in 75 years.
New technology failed to produce a new boom.
The most aggressive Federal Reserve response ever (to the crisis of 2008-2009) yielded only the weakest recovery on record.
The Obama election failed to heal racial wounds.
The Trump tax cut failed to increase growth.
The Trump trade wars made no appreciable improvement in America’s manufacturing sector.
And the Baltimore Ravens did not win the Super Bowl in 2020.
The seasons change, in other words… even for empires.
And MAGA never had a chance.
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