RANCHO SANTANA, NICARAGUA – Let’s recap our basic position.
First, the stock market moves in great waves between overvaluation and undervaluation.
Societies have mood swings and the stock market reflects society’s mood swings.
These “moods” typically take a decade or more to swing from one extreme to the other in the stock market. It’s always been this way… and it always will be.
The last “mood” extreme happened in the year 2000. It was an optimistic extreme and ended with the stock market at its highest valuation in history relative to earnings, book values, revenues, etc.
The next “mood” extreme will occur sometime in the next 10 years. It’ll be a “low” extreme. The stock market will be near its lowest valuations in history relative to earnings, book values, and revenues.
We’ve been calling this “down” part of the cycle a “valuations bear market.”
Typically, you get four to six recessions in a complete valuations bear market. We’ve had two brief ones so far (in 2001 and 2008). So I’m expecting another two to four of them before this valuations bear market bottoms out.
And because we haven’t had a recession for over 10 years, I’ve been expecting a recession to come along soon…
A Recession “First”…
And What It Means for Us Today
I noticed this chart the other day. It shows how many months the U.S. economy has spent in recession per decade since the founding of the country…
There are 120 months in a decade. So as you can see, over the last 200 years, it hasn’t been uncommon to see the U.S. economy in recession anywhere from a quarter to a third of the time.
But for the first time in America’s history, the last decade was a decade without any recession months.
So how many recession months will there be in the 2020s?
Moody’s, the bond rating agency, says the U.S. may already be in recession. In which case, this new decade is off to a fast start…
My guess is, we will spend at least a quarter of the months of this new decade in recession. We’ll see…
– Tom Dyson
P.S. Some people use a buy-and-hold investment strategy. But I think we can do better. How? By only being invested in the stock market during the “up” part of the mood swing… and then retreating to the sidelines (in gold) during the “down” part of the mood swing. (This way we avoid all the recessions.)
As you know if you’ve been reading these Postcards, the Dow-to-Gold ratio maps society’s mood swings – and valuation swings in the stock market – almost perfectly.
This is why I pay such close attention to it… and why I’ve based our investment strategy on it.
P.P.S. Here we are on the beach last night, under a full moon, roasting marshmallows around a fire, listening to Berman play his guitar…
Enjoying the bonfire Berman, who works here at Rancho Santana, set up for us
Readers weigh in on Tom’s predictions… income after retirement… and buying silver…
Reader comment: Enjoy your column even though it freaks me out with your predictions.
Reader comment: It’s gratifying to hear your children are seeing farm life – animals especially. It’s so rewarding to see. So many kids in today’s USA don’t know where milk comes from. This part of your exploration makes this farmer delighted to see you and your family in your travels.
Reader comment: My whole family reads your Postcards! Wonderful to see someone putting their “money where their mouth is,” and also keeping us abreast of all updates and news – good or bad. We value it immensely.
Reader question: My wife and I are in our 80s. We are about 70% in gold and the rest in U.S. dollars. (Unlike you, we don’t have the courage to go all in 100% in gold!)
If, as you suggest, the USD continues its strength, I don’t see any viable options to fund our day-to-day living.
I know you cannot offer personal advice but, I was wondering: If you were 81 years old and in good health (at this moment), so not looking at the long-term future, what would you do? I am sure many of your readers are not looking ahead 10 years due to their age.
Tom’s response: My parents are in their 70s and have the same issue. They want to buy dividend stocks. I tell them that would be a mistake because income is as overvalued as it’s ever been, and “reaching for income” is dangerous.
Instead, I suggest they live off their savings by spending a little bit here and a little bit there. They don’t like doing that. Makes them feel insecure to spend their nest egg.
But I don’t think they have a choice. And besides, isn’t that the whole point of savings? They say, “But we want to leave you with an inheritance,” and “What if we run out of money?” And I say, “I don’t think you have a choice while interest rates are so low.”
Reader comment: I’m glad to see you on the happy side of life! A great family = best investment = best return of life! Anyway, it doesn’t sound like you bought or stored any silver. I’m wondering why that is, especially considering the gold/silver ratio. Weight? Storage difficulties?
If you care to opine on it in one of your Postcards, I’d really enjoy reading about it. Good luck with everything!
Tom’s response: We have a big position in silver, which I bought through a silver ETF. I still think gold is going to do better, though.
Reader comment: If sharing your experiences and your thoughts is narcissistic, this sad world could sure use a lot more of it. I have never thought any of your postcards have shown any narcissistic thoughts, just your honesty and great love for your family. May you have safe travels as long as you wish to travel.
Reader comment: You rose from the ashes like a Phoenix. You did the honorable thing and put family first. See, when we stay humble and embrace life, magic can happen. You started out just volunteering to be their driver for the first trip… Yes, I do read some of your excellent writings.
You had courage to follow your heart, no matter what. Good things are coming to you, brother! Stay strong! Be proud of the man you are becoming or, more accurately, being!
People who wish they had the heart you do often complain and vent their weakness in your direction. They talk; we walk the walk. Keep on keeping on. P.S. Walking the Earth is good for the soul. Doing it with those you LOVE is even better. Peace out, kid.
Reader comment: You sharing your experiences, your and your family’s adventures, your market insights and wisdom… these demonstrate your kindness, your generosity, and your street smarts. Pay no attention to negative and critical voices. And keep up your endeavors and keep nurturing your family and your dreams.
Reader comment: No, narcissism is NOT what it is. You are very correct that bonding and satisfaction are very important parts of life. I’m glad you have made that most important step. I believe that, at some point, you will see that producing is also a very important step.
Consider Bill Bonner. He could be cosmically lazy but is constantly pursuing projects of various creativity. Some work well, and some are more of a struggle, but he is quite steadily doing SOMETHING constructive.
Reader comment: I’m very sorry that that reader accused you of being narcissistic. I am more sorry that you appear to have taken it to heart – enough so to have let it creep into your Postcards and cause you to explain yourself. Are you narcissistic? I have no idea.
I, too, was accused of that during my divorce. The woman with whom I had planned to spend the rest of my life decided that she wanted something different, but rather than just leaving, she had to leave a trail of destruction and hate in her wake, alienating everyone whom she loved and loved her. In that wake, she accused me of the same.
Like you, I took it to heart. I never really knew what it was. It was something that “other” people were, maybe, but never thought of myself in that light. This demoralizing accusation served a great purpose for me, though. That word remains in the back of my head as I try daily to be a better man than I was the day before, and ever grow into, and be present. So in hindsight, that meanness was the gift that she ever gave me. Perhaps too, you can let that accusation go, and instead use it to be one more tool in your arsenal to becoming the best version of you that you can become.
But let me address the accusation directly: If offering insight into your life and/or advice for others to ponder is narcissistic, then close the libraries and bookstores, and ban and burn all books, lest those narcissistic writers have undue influence upon us.
I cannot speak for anyone else, but your Postcards have done more than just inspire me… They have got me dreaming again. “What if?” What if I were to reach deep down and find the guts to do what you have done? Thanks for the inspiration. Keep living the dream.
Tom’s response: Please keep writing us at [email protected]! Kate and I read every note you send us.