Contrarian Investing and Predictions-Plus for 2011


New Year’s Resolutions & Predictions-Plus!

We’re at the beginning of the 2nd decade of the 3rd millennium.

What will happen this year? We don’t know. Most likely 2011 will be a lot like 2010. That’s the way it usually works. Big trends are hard to see. One year seems to wander around much like the one before it and the one after. Only much later can you see where they were going.

If 2011 is like 2010 you can stop worrying. Almost everything went up in 2010 – except for real estate.

Stocks went up. Even US bonds went up.

What went up most was our favorite investment – gold. It closed the year at a record high, giving us a gain of nearly 30%.

So far this year, the trends continue. On the first trading day the Dow rose 93 points. Gold went up $15.

But wait. Should you bet on stocks and gold? Will gold do as well in 2011? Will stocks go up another year?

Do you seriously think we have answers to those questions?

You can’t know what will happen. Predictions are worthless. So what we give you are Predictions-Plus. What’s a prediction-plus? It’s better than a prediction; it’s the thing that probably won’t happen but that you should expect anyway. It’s the thing you should believe even if it isn’t true.

Hey, look, that’s the way all the important things in life work. No kidding. You meet a pretty woman. Maybe you could get to be friends. Maybe you could take her on a weekend tryst…like a state governor would. It could be a lot of fun. Most likely, your wife would never know. But you’re better off believing she would find out tomorrow!

Or, suppose you sent in a fraudulent IRS return in order to get a big refund. You’d probably get away with it; that’s a prediction. But here’s a prediction-plus: you’ll get audited before the end of the week!

Likewise, there are predictions-plus in the financial area. What’s most likely in 2011? A repeat of 2010. That’s what you usually get.

But that’s not the best thing to believe or the best way to bet. Everyone is betting on higher stock prices, higher gold prices…and higher just about everything.

The money is to be made in the Predictions-Plus – betting on the contrary.

Here’s our old friend Marc Faber with one of them. Bloomberg:

Marc Faber, who advised investors to buy US stocks in March 2009 as the Standard & Poor’s 500 Index began a rally of as much as 86 percent, said US Treasuries are a “suicidal” investment.

Government bonds are likely to decline, said Faber, who publishes the Gloom, Boom and Doom Report. After bottoming in December 2008, the 10- year Treasury yield rose as high as 3.9859 percent in April on government measures to stimulate the economy. Concern about a second recession in three years sent yields lower through October.

“This is a suicidal investment,” Faber said in a telephone interview from St. Moritz, Switzerland. “Over time, interest rates on US Treasuries will go up. Investors will gradually understand that the Federal Reserve wants to have negative real interest rates. The worst investment is in US long-term bonds.”

Treasury 10-year note yields will rise to 5 percent from yesterday’s level of 3.349 percent, Faber said, without specifying a time frame. As bonds fall over the next decade, he said investors should buy precious metals, real estate or equities. US debt has returned 5.7 percent in 2010, more than erasing last year’s 3.7 percent loss, according to a Bank of America Merrill Lynch index.

“If you print money, the currency goes down and the S&P 500 goes up,” he said. “By the end of 2011, people will look at 2012 and think 2012 could be a very bad year because the policies applied are not sustainable and create a lot of instability. Investors may look at 2012 and 2013 with horror.”

The Great Correction could make bonds a good buy again in 2011. But it’s a bad bet. So here’s a prediction-plus: the bond market will crack in 2011.

How about stocks? Well, we’ll have to talk about them tomorrow.

And more thoughts…

Would you like to correct your mistakes? Fix your errors? Make yourself a better person? Have more success? Find love, happiness and money in 2011?

You need a resolution!

Fortunately, most people’s lives are easy to improve. They don’t have to do anything. They just have to stop doing things that are stupid.

Let’s talk a little about fat people. What’s the solution to fatness? Easy peasy. Nothing. Just don’t eat so much. Don’t fix a big meal. Don’t go out to a restaurant. Don’t have a second helping. Just don’t do it. We guarantee it will work.

The same could be said of most people’s financial problems. The average lumpenproletarian can’t easily increase his income. He has a job. He earns a limited amount of money. Or he has a fixed retirement income. Unless he is young enough to still have career choices in front of him, his income is already effectively set. His choices have already been made.

So if he wants to improve his financial circumstances, all he can do is to work on the expense side of the ledger, not the income side. And while the income side is helped by “commission” – that is, by doing things…the expense side is helped by “omission” – that is, by not doing things.

Want the secret to financial success? Make sure the expense number is lower than the income number. How complicated is that?

Yesterday, we were in the Miami airport reading in the newspaper about people who are facing severe financial stress. In some cases, they have lost jobs and income. In other cases, they have not saved enough for retirement. Still others simply have let their spending get away from them.

What’s the solution? The most obvious solution for all is: stop doing it. Don’t spend. See something you want? Don’t buy it. See something you need? Think again; you probably don’t really need it.

As we reported yesterday, 10,000 people will turn 65 every day for the next 19 years. Most of these baby boomer retirees are financially unprepared. They don’t have enough money saved to live the way they expect to live.

But that’s just the beginning of the story. If we’re right about the Great Correction, standards of living in the US are falling. Jobs will be scarce. Incomes – in real terms – will go down.

This leaves almost everyone with a tight budget.

What to do about it? Nothing! Cut spending by not doing anything!

But what about those poor people in the newspaper? They have to pay for housing. Food. Gasoline. Insurance. Health care. All the usual stuff. After they pay the basics, they don’t have anything left. In fact, an article in The New York Times two weeks ago showed how a couple with even $250,000 of income still had almost no free cash.

How can you cut discretionary spending if you don’t have any discretionary spending to cut? What if you’re already down to the essentials?

This is where it gets interesting. At a certain point, you have to stop doing nothing and begin to do something radical.

We were just down in Nicaragua. On the beach, we met a Dear Reader.

“That guy really has it figured out,” said Elizabeth. “He has a beautiful house right on the beach. No heating bills. Property taxes are almost nothing around here. And you can’t spend much money; there’s nothing to buy. But it’s a very high quality of life. If you don’t miss shopping malls and movie theatres.”

Of course, you don’t have to move to Nicaragua to live cheaply. Many places in America are even cheaper. Small towns in Texas. Arkansas. Tennessee.

You can get a enough land to plant a garden. And heat your house with wood. Throw away your credit cards.

Heck, it could be fun.

[Joel’s Note: Wanna take a look at the real estate opportunities down in Nicaragua? Our next available Rancho Santana “Chill Out” Weekend is scheduled for June 7-11. There are only 4 spots left here, though, so you’ll have to be quick. As always with deals like this, exclusivity is key. So right now, invitations are limited to Reserve members only. Fortunately, due to the mistake we mentioned above, you still have a few more hours to join. Chill Out weekends are just one of the many benefits to Reserve membership. Check out the rest here…but only ’til 5pm today.]

*** A Dear Reader sends a report on the effectiveness of the new see- through-clothing screening techniques at airports:

Year-to-date statistics on Airport screening from the Department of Homeland Security:

Terrorist Plots Discovered 0
Transvestites 133
Hernias 1,485
Hemorrhoids 3,172
Enlarged Prostates 8,249
Breast Implants 59,350
Natural Blonds 3


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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