A Market for Long-Term Investors


What to do now… I really don’t know
I really don’t know, what to do

– The Rolling Stones

Stocks are up…should you buy? Wait, stocks are up…maybe you should sell!

Here’s the report from The New York Times:

The broader S&P 500 rose 8.8pc on the month and the Dow Jones was up 7.7pc.

The last time Wall Street saw a stronger September, when the Dow Jones soared 13.49pc, was at the start of the Second World War, when traders anticipated a strong rise in demand for US manufactured goods and war materials.

However, on Thursday the S&P 500 fell 3.53 to 1141.20 and the Dow dropped 47.23 to 10788.05 as new data on jobs and economic growth continued to indicate the economy was recovering at a slow pace.

Gross domestic product, which measures the output of goods and services in the US, increased at an annual rate of 1.7pc in the second quarter and the number of Americans filing new claims for jobless benefits fell more than expected last week for the third time in four weeks.

So you see, everything is looking up.

Gold keeps going up too…it rose another $8 on Friday. Experts say it is going to $1,500 next year. Or maybe $2,000. Or $3,000. Maybe you should buy.

China is buying. Insurance and pension funds are buying. Even central banks are buying. Wait a minute…maybe you should sell!

But it’s too early for the final stage of the bull market in gold. The average fellow is not buying gold. There’s no frenzy yet. Nobody is worried that his savings will disappear.

The final stage seems a long way away.

Gold may not be ready for it’s great blow-off…but the dollar seems headed for the basement anyway. You should get rid of the dollar. It’s trash. It’s headed for the dump.

But wait. Aren’t we in a period of major de-leveraging? Isn’t this the Great Correction? Isn’t everything going down? Shouldn’t the dollar be more valuable? Maybe the dollar doesn’t know we’re in a major correction?

But shouldn’t you be holding onto dollars…saving dollars…hoarding dollars?

What to do now?

The more we think about it, the more we like the solution offered by Rob Marstrand. Rob has just taken the job as chief investment strategist for our family office. That is, he’s advising us on what to do with our very long-term oriented family money. This is money that we’re not going to spend. It is supposed to go to the next generation…and the one following. So, we’re not looking for profits anytime soon. We’re more concerned with not losing it.

Rob told us about one vegetable producer in China. It’s a huge company, but still growing like a teenager. And nobody ever heard of it. You can buy it for barely 4 times earnings – Great Depression levels, in other words.

Another one of his discoveries is a company based in Singapore but with huge real estate holdings in the “other” BRIC – Indonesia. He reckons you can buy it for only about 60% of its break-up value. In other words, you can get the business for free.

And since these companies are in emerging markets, we can expect that they will do better than stocks in the US. Maybe not this year. Maybe not over 5 years. But over 20 years? Well, who knows, but it seems like a good bet.

Which do you think will be worth more, dear reader? Twenty years from now. A $20 bill issued by the US Treasury. Twenty dollars worth of US stocks? Or $20 worth of profit-making companies in high-growth economies?

We don’t know how much the stocks will be worth. But we have a strong hunch that a $20 bill won’t be enough for a cup of coffee. Why? Because dollars don’t cost much to produce – especially the electronic variety. And the feds are going to need a lot of them.

They’re spending $2 for every $1 in tax receipts. You can’t do that for too long before your credit is shot. And what’s behind the US dollar? Nothing but the full faith and credit of the US government.

What to do now? Find solid businesses at bargain prices. Invest in real estate with good cash. Buy collectibles…jewelry…art – things you want to own no matter what the price.

And more thoughts…

We went to a charity gala dinner on Saturday night. It was to benefit Catholic schools sponsored by the Baltimore Archdiocese.

“Why are we going,” we had asked Elizabeth earlier in the day. “We’re not even Catholic.”

“Don’t be a curmudgeon. Our children went to Catholic schools. They got good educations. So we’re helping the schools. They’re having a silent auction. I gave a week at our house in Normandy. It will be fun to watch them bid on it… Besides we have two free tickets. There’s a band. And there will be dancing.

“Remember, we took dancing lessons. We don’t want them to go to waste.”

Americans are good at fundraising. In comparison, the English are amateurs…and the French don’t do it at all. We went to an event for the Conservative Party in London a couple years ago. There was a huge crowd, eager to elect David Cameron. The organizers might have made sport of it. They might have made fundraising fun. Instead, they seemed embarrassed to be raising money…and disorganized.

The French don’t even try. Anything worth doing, they figure, ought to be paid for by the state. They pass the plate at Catholic Mass in France, but the parishioners give little. The typical donation is a 2 euro coin. Then again, the churches are maintained by the government. And everyone thinks the church is rich.

But the Catholics in Baltimore did a good job of it. Archbishop O’Brien made a simple and sensible appeal to the 600 or so gala goers. And then a young man gave a speech recalling how a scholarship had enabled him to get an education at the Catholic school.

“I can tell you frankly, that it changed my life. I wouldn’t be the man you see tonight were it not for that scholarship,” he said.

There was no need to say any more. Everyone present knew what he meant. The Baltimore public schools were little more than prep schools for prison.

But here was a young man who grew up in the Baltimore ghetto (a photo showed his house…it looked very much like where we used to live!) He had no money. No father. And no future.

But after he graduated from Catholic high school, he went to college and then to law school. A very impressive fellow; it was easy to imagine him running for Congress in a few years.

Naturally, we all gave him a sincere applause. Many were probably thinking – “he’s a credit to his race.” But no one said it. That quaint sentiment went out of fashion 50 years ago. In fact, he was a credit to any race. And any religion. And with this success story in front of us, who could resist? Pretty soon each table was competing to see who could donate the most. Elizabeth dug deep into her husband’s pockets. By the end of the evening, it was the most expensive free dinner we had ever had.


Bill Bonner,
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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3 Comments on "A Market for Long-Term Investors"

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Richo (the Second)
Richo (the Second)
6 years 19 days ago

…or invest in $USD now and ride the bullish direction of the $USD over the next 6 months and then buy the business for fractions of peanuts in 6 months time

Ned S
Ned S
6 years 19 days ago

“Baltimore public schools … little more than prep schools for prison … But … he graduated from Catholic high school … went to … law school … easy to imagine him running for Congress in a few years.”

And you were doing so well at convincing me it was a worthy cause for a while there Bill! ;)

6 years 18 days ago
Well, I just about cleared out of my portfolio. Not one to run with the herd. Perhaps I can’t see the wood for the trees, but this last rise has scared the hell out of me. Seems like everyone has forgotten about the mining tax, good job, I got in, good job that I got out again? (don’t know, but the profit is in the bank). Bad news from the continent seems to be being ignored at present, funny what three months can do (didn’t know that the fundamentals can change that much in 12 weeks! – anybody remember mid… Read more »
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