We’re in the airport at Washington on our way to India. As we write, the Dow is down some 300 points and still falling.
Still way too early to know if the bull-market trend of the last five years has run its course. Mr Market may be exhausted from all this running uphill. Or he may be just toying with us. We will wait to see.
What goes around comes around. What’s been going around lately has been fear and loathing of both emerging markets and gold. Since these are our two favourite investments, we are forced to think about what is going on.
When prices go in your direction, you’re asking for trouble. No need to think, you think you know it all already. No need to worry either. Just sit back and let the money come to you. Until it doesn’t. You are much better off when the financial news goes against you. Then, you have to wonder about your premises, your emotions and your sanity.
Hardly a day goes by that we don’t thank our lucky stars. We were blessed, you see, by misfortune. As a child, we had no money. We couldn’t lose the family fortune; we didn’t have one to lose. Which turned out to be a good thing. For if we had had any money, we would have lost it in the ‘Great Bear Market’ in gold of 1980-1998.
Richard Nixon cut the dollar’s connection to gold on 15 August, 1971. We’d read enough history to know what that meant. Soon, we would be pushing wheelbarrows full of $100 bills to the liquor store in order to buy a six-pack. How to protect yourself from the inevitable hyperinflation? Simple: buy gold. That is how we became a gold bug.
Then, the worst possible thing happened. Gold went up. From $41 in 1971, the yellow metal soared to over $800 by 1980. We were right! We were smart! We went ‘all in’ on gold and waited to be rich.
Fortunately, our luck changed before we got very far. Misfortune smiled on us, setting us at odds with an 18-year bear market in gold.
Do you know what that is like, dear reader? Every day, every month, every year losing money, mocked by the market gods, dissed by family and neighbours. Every day proved even more emphatically than the day before that we didn’t know what the hell we were doing. Every day, at the sound of the closing bell, Mr Market pronounced his solemn judgment: we were idiots.
For 18 years, we endured this punishment. And thank God, we did. Because now we know how easy it is to be wrong. You try to make out what is going on, but you see only shadows and hear only echoes.
Like a ghost haunting an old house, you will feel a chill breeze brush your face. You will see things appear in strange places and wonder how they got there. But you will never know how this spectral world actually works, not as long as you hold onto your mortal coil.
While we clung to our losing positions in gold, the smart money went into stocks. Perhaps it understood that we were in a huge credit expansion that would take stocks up to 20 times their value in 1971. From 874 in 1971, to 15,400 yesterday. Wow!
But wait. What if you had just stuck with gold?
Let’s see, from $41 to $1,250. Holy smokes. That’s 30 times your money!
Maybe our ‘crackpot’ insight was right all along. And maybe gold and emerging markets will turn out to be decent investments after all.[xyz_lbx_custom_shortcode id=5]