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A Sure-Fire Winning Investment Strategy

A sure-fire winning investment strategy...

PSST! WANT a dead-cert investment strategy? asks Bill Bonner in his Daily Reckoning.

Find out what the dopes are doing with their money. Then do the opposite.

Some investment advisors are smart. Some aren't. Some are mavericks with original, interesting ideas. Some just read the paper and do what everyone else is doing.

Last week, we got an advisory letter from one of the of the dopes. We read it carefully; if he were pointing investors in the same direction we are going, we'd have to change course.

But no! He urges investors to buy major US stocks and to sell gold. Gold is "overpriced" he says.

What a relief. He still has no idea what is going on; he thinks things are getting back to "normal".

And wait. Here's James K. Glassman, writing in The Washington Post. His piece is entitled, "The Modern Investor". And what's the modern investor supposed to do? Put half your money in stocks. The other half in bonds.

But wait a minute...Isn't this Glassman the same man who came out with Dow 36,000 back in 2000 – the year the stock market topped out and began the first of two great slumps over the last decade? It is? Well, great! That does it for us.

We don't want to be a modern investor. We don't want stocks or bonds. We'll stick with being an old fashioned investor and stick with our program: Sell stocks on rallies; Buy Gold on dips.

Meantime, here's a headline in the Financial Times:

"ECB hint on rate rise jolts markets."

The European Fed said it might raise its key lending rate in April. But the case we've been making is that the ECB can't "normalize" interest rates. Neither can the Fed. In Ireland, most people have floating rate mortgages. If rates floated up to market levels, the Irish would sink. They can't afford higher interest payments.

The situation is the same for the Irish government. At market rates – 9% or more – it will go broke immediately. So, it looks to the ECB, the IMF, and the World Bank...and every other possible source of below-market meet its budget needs.

And the US? Ditto!

Historically, which is to say for the last two decades, the average rate of interest on US 10-year Treasury notes is about 5.7%. You'll notice that that's a bit more than the 3.5% the Treasury is paying now.

And then you can do the math. Nah, we'll do it for you. Imagine that the whole of the federal debt was financed at 5.7%. The total bill would be about $800 billion per year – or more than a third of total tax receipts. Of course, much of the debt is fairly it won't have to be rolled over tomorrow. And much of it is held by the government itself...

But you can imagine what would happen to the bond market. And imagine what would happen to the stock market if interest rates went back to 5.7%?

If interest rates returned to "normal" stockholders and bondholders would lose trillions of Dollars.

What's more, there's no law that says interest rates can't go higher than the recent average. Suppose they went to 18% – as they did at the end of the '70s? Suppose the whole of the federal government's debt were financed at 18%? Then, guess what, the total interest charge would be approximately equal to 100% of tax revenues.

Well, you can imagine how long that would last. Not a single minute. The whole system would fall apart long before it came to that.

But you see what we mean? Normal is out of the question. Grotesque. Weird. Strange. Extraordinary. Perverted. That's the financial system we have. And that's the financial situation we'll have for a while longer...until it finally blows up.

At least, that's our theory.

No recovery. No "back to normal." No exit.

If the feds try to exit from their twilight zone policies they're going to hit a bridge abutment. Markets will crash. The economy will go to pieces. Unemployment will go up. People will point fingers and accuse them of exiting "too soon."

We saw, too, editorial opinions already stating that the ECB was "trigger happy"...and urging the Fed to avoid following its lead.

No worries on that score. Here at The Daily Reckoning we put the odds of an exit at zero.

The economy now depends on cheap money. It can't survive without it.

Get the safest gold at the lowest prices using world No.1 online, BullionVault, today...

New York Times best-selling finance author Bill Bonner founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group exposed and predicted some of the world's biggest shifts since, 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 the election of President Trump (2016). Sharing his personal thoughts and opinions each day from 1999 in the globally successful Daily Reckoning and then his Diary of a Rogue Economist, Bonner now makes his views and ideas available alongside analysis from a small hand-picked team of specialists through Bonner Private Research.

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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