Emma’s Note: Emma Walsh here, managing editor of the Diary.
Longtime Diary readers will be familiar with Bill’s previous two trades of the decade. His “Sell U.S. stocks; Buy gold” trade in early 2000 proved particularly prescient. By the end of the decade, the gold side of the “trade” had approximately quadrupled, while stocks ended the decade with little-to-no growth.
Bill will reveal his new trade of the decade in the January issue of his paid subscription, The Bonner-Denning Letter, next Wednesday. To be among the first to read all about it, subscribe here.
In the meantime, for an insight into Bill’s thought process when deciding on his next trade of the decade, read on below. It’s an extract of Bill’s recent quarterly “State of the World” conversation with his Bonner-Denning Letter coauthor, Dan Denning, which we sent exclusively to his paid-up subscribers earlier this month.
Dan: In a recent Diary entry, you summarized an idea that you had back in 1999 and 2000 – that with these long-term trends that take years to develop, if you get the general direction right, there could be simple trades that, over the course of 10 years, would be right. So you could profit, if you got the trend right.
Back in 2000, your first “trade of the decade” was long gold/short the U.S. dollar. So dollar down, gold up, which worked extremely well.
And then, you had another trade in the 2010s, where you said you thought Japanese stocks, which had been down for decades, would begin to outperform and Japanese bonds would be in a bear market.
You admitted that it worked well on the stock side, but we didn’t anticipate the intervention of the Bank of Japan in supporting the bond market. So that didn’t work as well.
But overall, over that 10-year period, that trade of the decade was successful.
So here we are in 2021. In the January issue of The Bonner-Denning Letter, you’re going to unveil your new trade of the decade. [Paid-up Bonner-Denning Letter subscribers will receive the issue on Wednesday, January 27. If you’re not yet a subscriber, go here to find out how to join before Bill’s new trade of the decade is announced.]
Without unveiling that here, can you give readers a preview of what you think the major trend for the next 10 years is, that they might be able to trade?
Bill: When I look at the situation, I see one thing… The government, these people who control the money, they control almost everything. They can control the bond prices.
They can even buy stocks. In Japan, they are buying stocks. I predict they will buy stocks in America, too.
They can control the price of labor. They can control almost everything.
Certainly, they can control Congress. That’s no problem. Congress is a cheap date.
But the one thing these people who print the money can’t control is the value of the money itself. That, to me, is the weak link in the whole chain. They can control the volume or the price, but not both.
They’re going to control the volume. That we know. They’re going to up the volume because they have to. It’s inflate or die for them. They’re going to inflate.
And by the way, the whole world is in an enormous debt trap. There’s just too much debt. It can’t be paid.
Now, when a person gets in a debt trap, we know there are only two ways out. One is that you default. You declare bankruptcy. You admit you can’t pay. You do what you can to work it out, then you go on with your life.
What is the other way? You either pay it… or you don’t pay it.
Dan: There’s default, or you can inflate. If you have a printing press…
Bill: If you’re a government, you can inflate. That’s the difference. In America, we can print money. And since we can print money, that introduces a whole wild card of things that can go wrong.
It changes an ordinary, honest bankruptcy – because bankruptcy is something that happens. People have bad luck. They make bad decisions. They have bankruptcies all the time – into a very corrupt and nasty episode. And that is an inflationary blow up.
We’re seeing it right now in Venezuela. And not too long before, it was in Zimbabwe and in other countries.
So we know what it looks like. But we still can’t believe that it would happen in America.
I don’t even know if I believe it, but I see it as a theoretical matter. And there’s no doubt, the inflate-or-die motto is correct. There’s no doubt that the government’s going to inflate.
The doubt is when does the inflation stop going into prices for Tesla and things like bitcoin… and begin going into the prices for automobiles and everything that you and I need in our apartments, our houses, and our lives? When does that switch over?
We don’t know the answer to that. But it will, we assume, someday… Because we can’t see what else could happen. They’re going to inflate. And sooner or later, the prices of stocks go up through the roof.
That’s inflating Wall Street, which, of course, is what [Treasury Secretary nominee and former Federal Reserve Chair] Janet Yellen is all about. But they need to inflate Main Street, too.
And the political demands for more inflation – the calls for $2,000 checks are very strong. Not just from the Democrats, who are always in favor of bigger government, but also from the Republicans.
So we’re going to see a lot more pressure for fiscal stimulus as well as monetary stimulus.
And the fiscal stimulus – bigger deficits, more spending, more money, more giveaways, more boondoggles – is what leads to price inflation. So we’re probably going to see that – inflation – starting up sometime this year.
Dan: It’s hard to pick one particular thing to look for that tells you that inflation’s starting to happen.
It could be wages. It could be food prices. It could be used car sales. And there are lots of things in the real economy that indicate that the inflationary monetary policy has moved from the financial markets into the real economy.
But 50% of Americans don’t own stocks. So they might read that the Dow is making a new high. Or they might hear the president say that their 401(k) is at a record high. But that doesn’t make them feel wealthier because they don’t own stocks.
If we’re right, inflation taking hold in the real economy will make people poorer.
We haven’t quite narrowed down what we think the best way to trade that is, because inherently, it’s a defensive move. It’s how to protect what you have. It’s not how to make a lot of money during a hyperinflation.
And the other thing we’re looking at is whether or not we could be wrong with that. The thing that went wrong with the Japanese trade, on the bond side, is that the central bank proved to have an infinite supply of money with which to support the bond market.
But now, it seems like the trend in the U.S. is that everything being done on the fiscal side and on the monetary side should suggest a weaker dollar.
That brings me to the next question. Since you and I last saw each other in Baltimore in December, bitcoin has gone through the roof. It went through $20,000, and then it went through $30,000, in dollar terms.
And a lot of friends and colleagues, and especially people on Twitter, are now claiming that that was a crossover point, where bitcoin and gold are quite similar because of their scarcity, although in different ways, and that bitcoin is now a sounder version of money than gold ever was.
Do you believe that? Has that changed?
Bill: Well, they might be right. I don’t know. First, I’m troubled because I don’t really understand how bitcoin works. I’d like to understand the mathematics of it a bit better anyway. But I don’t think that’s the problem.
Young people tend to be in favor of bitcoin. Maybe they just understand it better.
My children decided that the family should invest in bitcoin. This was about three years ago. And I said, “No, no, no. That’s not a very good idea. We don’t understand it.”
But finally, I relented, and they did invest in bitcoin. We were just looking at the account. It’s up something like 500%. So naturally, they’re telling me how right they were not to pay any attention to me, which is generally good advice for anybody.
But the thing about money is you just don’t know. There’s money in theory… and there’s money in practice. Money in theory is what Zimbabwe had a lot of. At the end, they were printing up these $10 trillion notes. Now, in theory, that’s a lot of money. But in practice, it was worthless.
But what you want is money that works for people, meaning that they want to hold it. Because you can print up all the pieces of paper you want and they’re not going to be worth anything.
Now bitcoin, we just don’t know. We know that theoretically, it works. I mean, it makes sense to me. It has a lot of the attributes we talk about when we talk about money. It’s divisible, it’s portable, it’s indestructible, and all those things, which make it very, very good money. It’s limited, which is the main thing. It’s very limited.
But I just don’t understand why other currencies might not be just as limited, just as portable, just as easily used to do transactions. And if that’s so, mightn’t there be another one coming along, which has another feature, which makes it even better? I don’t know the answer to that.
So that’s why I would say that theoretically, bitcoin is better than gold. But as vernacular money, we just don’t know. We’ll just have to wait a couple of hundred years. Then we’ll find out.
Dan: It’s probably not a coincidence that gold is back near $2,000 an ounce… silver broke out… bitcoin’s over $30,000… and stocks are near a high, all in response to these inflationary policies we discussed earlier.
That in some way, all of these moves in these different asset prices can be seen as investors anticipating inflation and looking for a way to preserve value.
Regards,
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Bill Bonner & Dan Denning
Coauthors, The Bonner-Denning Letter
P.S. If you had invested $100,000 in Bill’s last two trades of the decade, you would now have more than $600,000. That beats the returns on the Dow ($251,000, including dividends) and the S&P 500 ($222,000, including dividends), hands down…
Bill’s next trade of the decade will be unveiled exclusively to his Bonner-Denning Letter subscribers next Wednesday, January 27. If you want to be among the first to read all about it – click here to subscribe now.