Emma’s Note: Emma Walsh here, managing editor of the Diary.
Longtime readers will be familiar with Bill’s last two Trades of the Decade. His “Sell Stocks; Buy Gold” trade in 2000, in particular, turned out to be about the best bet you could have made at the time.
And over the course of the last two decades, Bill’s two trades returned more than 500% gains.
Just last week, Bill, along with his Bonner-Denning Letter coauthor, Dan Denning, revealed the latest trade of the decade. Read on below for a sneak peek…
We’ve been lucky with our Trades of the Decade. The first one, in 2000 – Sell Stocks, Buy Gold – was a big winner. Gold was one of the top-performing asset classes for the next decade, while stocks lagged.
The next, in 2010, was more “foreign.” Sell Japanese Bonds, Buy Japanese Stocks. It, too, came right in the end, but less emphatically.
Together, they would have multiplied your wealth about six times over the last 20 years. [For a more detailed breakdown, click here.]
That doesn’t seem like much, if you compare it to Tesla or bitcoin. But both of those are speculative bets. Either one could have gone to zero. There was no way, on the other hand, that gold or all Japanese stocks were going to zero.
And so, here it is again… a new decade. We withdraw from our Japanese trade. What to buy now? What to sell? We only do this once every 10 years, so we have to get it right…
Back Into Whack
Our Trade of the Decade is designed to capture something that is out-of-whack. Things that are extraordinary tend to be less extraordinary as time goes by.
People return to their senses. Wars end. Bubbles pop. Depressions give way to new growth. Whatever is going on, a 10-year period gives you plenty of time to get back into whack.
We don’t have to look very hard to see what is out of whack today. In other words, we don’t have to work very hard to see what to put on the “sell” side of the trade.
The U.S. dollar is the world’s reserve currency. It got that status after World War II, when it was the currency of the world’s leading economy.
It was also backed by gold, so central banks could hold U.S. dollars and redeem them at any time for gold. Holding dollars and holding gold were essentially the same thing.
But then, in 1971, the Nixon administration slammed shut the “gold window” – where foreign nations came to redeem their paper dollars for the metal.
Since then, the world has still been using dollars, which – even though they have lost 94% of their pre-1971 value (measured in gold) – remained a durable reserve currency.
But the fundamental problem was identified by a European economist, Robert Triffin, back in the 1960s.
The more people (and foreign central banks) wanted dollars, the more the U.S. needed to furnish them. Then, the more dollars the U.S. “printed,” the less each one should be worth.
The Triffin Dilemma guarantees that no reserve currency – unless it is resolutely linked to gold – will long survive. And the current policies of the U.S. government (the dollar’s custodian) tell us that the dollar is about to get marked down in a major way.
Gone Hog Wild
Currencies are always subject to an iron law: If the quantity goes up, the quality goes down (more is not better).
Governments can control one or the other… but not both. They can “print” more currency… thereby reducing the quality. Or they can maintain the value (quality) of the currency, but only by not “printing” more.
The U.S., however, has gone hog wild on a printing spree… unlike anything we’ve ever seen.
With the passage of the next coronavirus “stimulus” measures, this year’s deficit could hit $2.3 trillion. As a percentage of GDP, that would be higher than at any other time in recorded history, outside of World War II.
And everywhere you turn, there are more and more calls for “stimulus,” with no real concern for where it comes from.
Inevitably, it must come from the printing press. And each additional dollar must dilute the value of the existing stock of U.S. currency.
Sometime over the next 10 years, that “inflation” is almost sure to be more obvious than it is today… and the dollar’s value is almost sure to be lower.
But what to put on the “buy” side?
Along with my Bonner-Denning Letter coauthor, Dan Denning, I recently published the full details of my latest Trade of the Decade. Paid-up Bonner-Denning Letter subscribers can catch up here.
Regards,
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Bill Bonner
Editor, Bill Bonner’s Diary and Coauthor, The Bonner-Denning Letter
Managing Editor’s Note: If you’re not a Bonner-Denning Letter subscriber, you can click here to sign up. Once you’ve subscribed, you will find our Trade of the Decade issue on the members-only website.
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