REVEALED: The Trade of the Decade

Daily ReckoningDaily ReckoningJanuary 3, 2020

This post REVEALED: The Trade of the Decade appeared first on Daily Reckoning.

Dear Reader,

Yesterday we snuck into the future… and smuggled out a worrisome vision:

The S&P will end the decade 50–60% lower than where it began the decade.

Our snooping revealed that “mean reversion” will run down the elusive stock market at last.

That is, the long arm of statistical law will finally collar its man.

Yet as we wondered yesterday: Can a “trade of the decade” lock in your wealth?

Can it be your Rock, your anchor against stock market catastrophe?

If so… what can it be?

Today we rip the wrapping paper off the trade of the decade.

But first, what other visions did our adventure into the future reveal?

Here is a brief sketch of the 2020s as we saw them, a tour of the horizon…

The Next Two Presidential Elections

President Trump will retain his throne this November.

The economy will gutter along before sinking into woeful recession in 2022 or early 2023.

The Federal Reserve will leap to action. Interest rates will go to zero — and yes, below zero.

Quantitative easing on the scale of the Marshall Plan you will see.

But all attempts will be vain.

The Federal Reserve will stand discredited, embarrassed, helpless.

In the 2024 presidential election, the American people will invite in a “progressive.”

He/she/hir, we could not identify the winner — the haze was thick, the picture grainy — will sign into law some version of Modern Monetary Theory (MMT).

It will differ vastly from the Federal Reserve’s quantitative easing. Quantitative easing was contained within the banking system. It largely prospered Wall Street… and largely bypassed Main Street.

The American people were left to scratch by on the leavings.

But MMT promises to pour money directly onto Main Street — and Maple Street and Oak Street and Pine Street and Birch Street.

Everything for Everyone

The print press will go into fantastic and ceaseless operation. It will promise to fan a roaring whirlwind of prosperity.

Off the presses will fly the wherewithal for Medicare for All, universal college education, guaranteed employment at $15/hour, a Green New Deal, etc.

It will give a good original impression. The economy will jump, thrill and excite… after dozing lo so many years.

And the authorities will finally have their 2% inflation, sustained.

MMT will receive a highly favorable press. What ogre, what misanthrope, what dastard could be against it?

But a paper prosperity is a false prosperity. It is the eternal quest to lunch for free… and the immemorial dream of cranks.

That world has no existence… at least not upon this Earth.

MMT will give an overall increase of the price level — but without a corresponding increase in goods, products and services.

The Stirrings of Inflation

After decades of muted (official) inflation, inflation’s initial gurglings and bubblings will catch the American people off their guard.

But after some hard experience, they will recalibrate their expectations. They will begin to hunker in against the expectation of rising prices.

A chance spark will light an inflationary brush fire. It will soon jump the perimeter. Before long it will spread like prairie fire… carried along by the gusting winds of sentiment.

And so MMT will ultimately kindle a fine inflationary blaze.

The authorities will be eager to get water on it. But they will discover it rages beyond all control.

Can it happen so fast? Yes, it can happen so fast.

Explains Jim Rickards:

MMT advocates also seem to think inflation can be dialed back or tweaked at will. Maybe they’ll say we’ll only spend $90 million on a Green New Deal instead of $97 trillion. They think they can dial it down. But they can’t. Once inflationary expectations set in, they take on a life of their own. It’s a nonlinear system.

It’s like moving the control rod in a nuclear reactor. If you get it wrong by just a little, you can melt the reactor down and kill a million people…

Inflation is not a linear phenomenon but a nonlinear phenomenon that can spiral out of control before you can do anything about it.

The fiscal authorities will truly have a tiger by the tail. But what can they do?

No Good Options

They can kink off the oxygen feeding the fire. That is, they can turn off the print press.

But a paper prosperity requires ever-increasing amounts of paper. Shutting down the press would murder it.

The late-lamented Paul Volcker put down inflation in 1981 by lifting interest rates to 20%. But the debt level then prevailing was a trifle — a pimple against today’s Matterhorn.

Today’s creaking, debt-addled economy may not withstand 5% rates… much less 20%.

But if authorities let the fire run, it may burn until nothing remains to burn.

What will they decide?

It is at this point — 2027 or 2028 — that our vision of the future turned to static.

And perhaps it is just as well, given the hell-mouth scene we report.

‘It Can’t Happen’

You may laugh the preceding out of court. The “experts” certainly will.

But did the experts foresee the 2001–02 dot-com smash-up? Did those same experts holler about a subprime mortgage crisis beforehand?

And how many would have told you this in 2007?

That negative interest rates would soon become reality… or that “quantitative easing” would soon become a household term?

Indeed… how many would have told you Mr. Donald J. Trump would one day be president?

Yet they came to be, all of them.

Do you wish to peer around the next bend? Do you wish to steal an unauthorized glimpse of the future?

Then you must range out ahead of the herd. You must venture out upon the thin, spindly branches, risking a fall. You must shoo away consensus.

And you may need to fall in with disreputable company. As our co-founder Bill Bonner recently reminded us:

To find the new truth, we have to go far out on the knowledge spectrum to the edgy part… the shady and speculative part… where the kooks, geniuses and gurus are.

Come we now to the “trade of the decade”…

The Candidates

Is the trade of the decade some promising, youthful technology company?

Is it a manufacturer of driverless autos, or artificial intelligence?

Is it a wager on China — or a wager against China?

Is bitcoin the trade of the decade — or a rival cryptocurrency?

None of these is the answer. Then what is the answer?

Colleague Byron King recently sat at a business meeting where Mr. Bonner was likewise sitting.

During the proceedings Byron cleared his throat, faced Mr. Bonner… and requested his trade of the decade:

“Well,” he said…

“When I look at what’s going on with the world, with the U.S. dollar, politics, everything…”

The room was silent. You could hear a pin drop. You could detect the vibe of grinding vertebrae as people strained their necks to pick up on Bill Bonner’s latest Trade of the Decade…

Mind you — gold was Mr. Bonner’s trade of the previous decade. It was also his trade of the decade prior.

Did gold satisfy its advertising?

“If you followed Bill Bonner’s Trade of the Decade for 2000–09,” Byron reminds us, “you more than tripled your money, in terms of dollars.”

Plenty handsome. But what about the decade just vacated?

“If you bought into Bill’s Trade of the Decade for 2010–19, you went from $1,100 to just over $1,500, or a 36% gain… admittedly with a ride.”

The Trade of the Decade

So what is Mr. Bonner’s trade of this freshly hatched decade? Has he found an alternative to gold?

In Mr. Bonner’s own words:

I’d have to say stick with gold. I can’t think of anything else that’s as well set up to hold value and deliver gains.

Thus you have your trade of the decade — gold — ancient, fusty, unresponsive, unglamorous gold.

Gold will provide you a potent antidote to the monetary toxins above described. And if the stock market is knocked flat this decade?

Gold should help keep you upright.

Thus we speak our piece for gold.

Might we report a faulty vision of the future?

It is entirely possible. Our eyes have failed us before.

If erring, we find solace in this one supreme fact:

We face no consequences for our botchwork.

On Jan. 3, 2030 — 10 years from today — no living soul will recall a single word we wrote this day.

But if proven correct, we will be certain to remind you…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post REVEALED: The Trade of the Decade appeared first on Daily Reckoning.

Source: Daily Reckoning

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