Gold News

Stick to the Rules

Woe, deceit and conceit crumble before true investing ignorance...

SHOULD higher rates begin to do the work of tightening credit, as they are supposed to, the Fed will back off and fly to the aid of Wall Street and fellow bankers coast to coast, reckons Bill Bonner in his Diary of a Rogue Economist.

They have rigged the system to function on fraudulently low interest rates; now the fraud has gotten into its bones.

The economy – especially the Wall Street economy – depends on cheap money. It will fall in a heap without it. All of which will probably happen anyway – but despite the Fed, not because of it.

Commodity prices are another matter...

"Fresh wave of selling engulfs oil and metals markets," proclaims the top headline in the morning's Financial Times. Copper has reached a six-year low, the paper tells us.

Behind the falling commodities is a big story, a real story...something the feds don't control.

China is slowing...along with the rest of the global economy. China's white hot growth of the last 30 years – caused by huge exports of Dollars from the US – is now cooling off.

Americans no longer buy from China the way they used to. China no longer builds so many factories to supply them. We see evidence for this not just in commodity prices but also in falling shipping rates, falling foreign exchange currency reserves, and falling credit growth.

With less money going into China, less is coming out, too. As one dear reader pointed out, there was more than a coincidental relationship between US trade deficits and US federal budget deficits.

The US sent Dollars to China in return for gadgets and gizmos. The Chinese central bank sent them back to the US to buy Treasury bonds. With the US budget deficit comfortably financed by foreigners, Wall Street could use its own money to bid for stocks!

It is a long tale of woe, deceit, conceit, self-deception, and foolishness. And not one that we have time for today.

Instead, here's something we wrote a few years ago. It not only looks at why we can never know the future...but also why we're better off that way.

Rules are what we turn to when we don't know what to do.

Most often, we don't know what to do. Hence, our investment approach – like our philosophy of life – is founded on a bedrock of ignorance.

Sure. Constant. Unyielding. Ignorance is something you can count on.

A man is wise (and here you may quote us) only to the extent that he is aware of his own ignorance.

The wiser he is, the more he sees himself as an ignorant fool. The real fool, on the other hand, thinks he is wise. He thinks he knows things he cannot possibly know.

It is not given to man to know his fate, said the ancients. We can never know what the future will bring – neither in our investments nor in our private lives.

Since we cannot know the future, we cannot hope to improve it...except in the most marginal, modest ways.

"We will be better off," we say to ourselves, peeking ahead just a few seconds, "if we don't step off the curb quite yet; let us let the bus pass first."

But will we be better off next year if we buy Google today? Will the world be a safer, better place in 10 years if we bomb Tehran today?

The gift of clairvoyance is not something you can give at Christmas. But what an awful gift it would be.

Yes, you could read tomorrow's newspapers today...

And yes, you could see what direction the gold price is heading and adjust your investments accordingly.

You could read about natural disasters...strikes...revolutions...and make sure you are somewhere else!

But what a boring life it would be. There would be no pleasant surprises. And no chance to improve or achieve. You might win a Nobel Prize.

But so what?

It was foreordained. All of your striving, sweating, and stretching would make no difference; the whole thing was in the bag even before you began.

And imagine the tediousness of it. Day after day, going through the motions of life without the serendipity...the sheer chanciness...of it.

Every action...every word...every event...already written out for you in bold relief. And you – just muttering your lines like a brain-damaged celebrity, not even bothering to think about what they mean; for what does it matter?

The show would go on anyway with or without you...you are just playing a bit part in it.

You could look ahead, too, and foresee your last gasp.

You hope for (at least) a small crowd of weeping friends and woebegone relatives...gathered around your bed...as you bid them farewell.

Perhaps you will even get to do a grand death bed oration. ("The evil that men do lives after them," you will remember from Julius Caesar, "the good is oft interred with their bones.")

You will look at your children, grandchildren, your wife, your mistress, your creditors, your drinking buddies. And you'll say: "Please remember the good that I was, the good that I did, and the affection I have had for all of you. And remember, I'll be waiting for you all, with open arms, on the other side."

At this suggestion, the grandchildren will get quizzical looks on their faces. They won't know where the "other side" is. But they have no intention of getting there anytime soon. And the thought of grandpa's hairy arms waiting for them will not make them want to hurry.

But what's this? You turn to the future...you look ahead...and see yourself crushed by the same crosstown bus you avoided today!

Or done in by a jealous husband in Santa Monica.

"Darn! No deathbed scene. I never get good scenes," you complain to yourself.

At that moment, you will be tempted to do a little rewriting. "Ah," you say. "I think I'll stay out of Santa Monica."

But could you?

Even if we could know what the future will bring, we probably still could not reach ahead and improve it before it happened. There are simply too many possibilities. Change one today, and tomorrow's lines don't make any sense.

Soon, the performance changes in ways even the fortune-teller cannot foretell. Even if you could look into the future as it will be...you couldn't possibly look into all the futures that could be.

As soon as you departed from the script, the ending would change in a way you couldn't predict.

You would have lost the power of clairvoyance and will pop right back into the same impromptu low comedy you're in now – ad-libbing from one day to the next, ignorant of how things will turn out but hoping they sort themselves out better than you have any right to expect.

You will have your appointment with your maker, no matter how far you think you are from fate. If you look at the many mistakes and bamboozles of history, what you find is that the leading characters were misled not by ignorance but by knowledge.

What they thought was so...turned out to be not so. Hannibal knew the Gallic and Lombard tribes would rally against Rome. Hitler knew his master race could beat all the rest of Europe.

Also, investors in 1929, in 2000, and in 2008 knew that stocks always went up in the long run.

No one has ever been let down by ignorance, on the other hand. Because ignorance forces upon a man a kind of modesty that rarely fails him. He has to retreat to the few things he knows best...and follow rules that keep him from getting into too much trouble.

"I always tell the truth," Congressman Andy Jacobs once told us. "That way I don't have to remember what I said."

Likewise, a man who follows rules neither has to remember what he did...nor wonder about the consequences.

"Did you kill John Brown?" the prosecutor asks him. "I don't think so," says our modest hero, "It's not something I would do."

"Why not?" the lawyer follows up.

"Because I would never know how it might turn out."

If you knew that you would be better off by telling lies or killing people, you would go ahead and do so.

If you could look into the future – and if you had the power to improve it before it happened – why wouldn't you?

Imagine that it was 1920...and you had the history of the 20th century in your brain. You are traveling in Bavaria and happen to be sitting in a railway car when a sullen young man, recently discharged from the German army, enters the car.

His name, you discover, is Adolph Hitler...and you have a loaded gun in your pocket.

Pull the trigger?

Why not?

Whatever happens, it is not likely to be worse than what did happen.

Alas, we have no histories of the future – ignorance is all we can count on...and rules are all we have to go on.

We do not kill...we do not steal...and we do not lie. We follow rules because we are ignorant.

Nor do we buy investments that are overpriced. They might go up, of course. But we can't know that.

So, we stick to the rules.

Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and more recently the election of President Trump.

See full archive of Bill Bonner articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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