It's not technically a new decade yet. But if the trade of the last decade was to sell stocks and buy gold, then maybe the best trade for the next ten years is to sell bonds and buy energy. Gas, coal, oil, conventional, unconventional, renewable, alternative. You have a whole portfolio of choices.
By the way, last year at the Agora Wealth Symposium in Vancouver, one of our colleagues took the stage to point out that your editor was complete moron. In this particular case, it was for being bullish on gold.
He said that gold hadn't done much adjusted for inflation since 1980. What's more, he said that it's worth less ― adjusted for inflation ― than it was twenty years ago. How, he speculated, could anyone take the advice to buy gold seriously when it had performed so abysmally?
Well here are the facts. The gold price bottomed in October of 2000 at $263.80. At that time, the S&P 500 traded at 1,379. Since then, the S&P 500 has fallen by 31% (closing yesterday at 942.43) while the gold price is up 262% to $956.
We've asked Kris Sayce to bring this small fact to the attention of our colleague when he attends this year's Vancouver show next month. The theme of this year's show is "Ten Years of Reckoning," celebrating the tenth anniversary of the Daily Reckoning. Kris will be spearheading the Australian delegation. More details on that later this month.
In any event, it seems pretty obvious, that for the last ten years anyway, selling stocks and buying gold would have been a good trade/strategy. Stocks ended an 18-year bull market in 2000 and gold ended a 20-year bear market. One asset class was at a cyclical low. The other was at a cyclical high. In fact, you might even say that one was at a generational low and the other was at a generational high.
Gold is no longer as low as it once was. But it's still not as high as we expect it to go before it starts to look foolish. Meanwhile, today's government bond market looks an awful lot like the stock market circa 2000. You're seeing a generational high in bonds. It's another version of the "high-low" strategy.
This time around, though, we would add energy stocks to the mix, along with gold. Crude oil climbed to an eight-month high over $70 on Tuesday. Bloomberg says the weakness in the U.S. dollar is, "bolstering the appeal of energy as an alternative investment." Sell bonds, buy energy. Pretty simple.
There is probably some truth to the fact that oil's latest move is driven by investment demand more than, say, demand growth in the real economy. But investors ARE looking for ways to profit from U.S. dollar weakness. Oil is liquid and popular. In the long-run, it's the smaller-than-expected oil supply growth that will drive the market.
One thing Kris will probably be making clear to U.S. dollar-based investors is just how relatively attractive Australia's position is in the developed world. "Even as Australia's challenges increase, it will still be the envy of the developed world," writes William Pesek at Bloomberg. "Even in its worst moments... Australia is among the least unsightly economies anywhere," he adds rather optimistically. We'll see about that.
Finally, we meant to write a bit about other possibilities in China today. That is, we were going to explore collapse scenarios (financial, political, and societal). But we did not realize it would be ambitious to try that in a few hundred words. So look for something more considered later this week in the essay spot.
And there you have it, Shooters. Dan Denning is officially not going to be in Vancouver nor will he be on the Whiskey Bar panel.
We won't get to see Dan walk onstage with a bikini top this year, but I'm sure it's still going to be a hoot. Read more here.
More bad news: Patrick Cox will not be tending the bar this week…but you will learn below why my knee's perfect health is so vital to me and why I'm so willing to be a stem cell test subject.
Now to your letters! We'll start with the outpouring of response to Linda Brady Traynham's report on the coming tobacco legislation…
Hear, hear! The federal government just increased cigarette prices here about a dollar a pack (to pay for SCHIP, do it for the children!). Now it's over $100 for 2 cartons and that's in the cheapest areas of the state. The CA state legislature is supposedly debating whether to add another $5 or another $9 to each carton. It was worse when I visited AZ a couple months ago, over $8 a pack and that was before the fed tax kicked in. The level of hypocrisy is astounding, what will they do when we all are forced to quit? My wife and I were looking at over $300 a month to continue smoking so we are quitting at the moment. However we are getting crankier and crankier and purchasing loads of 12-gauge and .45 ACP ammo with the money we save. I got a ticket for a seatbelt violation the other day for pulling out from a parking lot onto the road way as I put the seatbelt on. I was wearing the seatbelt when I was pulled over. I have just about had it with this level of crap from government. I have lived my life far more responsibly than the fed or state government, but they are determined to criminalize us all in one manner or another.
Thanks for writing.
Hi Gary and Linda,
In response to Linda's Wednesday essay on tobacco taxation and regulation, I wouldn't worry too much about the economic effects of what I agree is the true goal ― prohibition.
People are accustomed to tobacco being relatively cheap, and there will be a relatively low limit on their tolerance for tax-and-regulation driven price increases. This will put a natural and rather low ceiling on the revenue that the Washington pirates can realize from tobacco. No matter, because a far more lucrative prospect is on the horizon. One which, coincidentally enough, is also consumed by smoking it.
Ounce for ounce, marijuana on the black market (and is there any other at the moment?) is far more expensive than tobacco. Our enterprising masters in DC, in their never-ending and increasingly desperate quest for plunder, will eventually realize that they could legalize pot, establish a price significantly lower than today's and composed predominantly of taxes, and literally make out like the bandits they are.
It will start with low-key trial balloons from the government "health" establishment, calling into question through "new and more advanced research" the previous declarations from that same establishment which declared the unequivocal menace of marijuana. A wise investment strategy might be to short tobacco companies for the immediate future, but to take said trial balloons as a sign to go long. After all, who will be better equipped for large-scale production of cannabis for purposes other than Woody Harrelson's hemp sandals? Note carefully that this will have exactly nothing to do with the God-given right of every competent adult human being to decide for him/herself what substances will be ingested into his/her own private and personal body.
I'm calling it: Within 10 years, tobacco will be a prohibited substance (and for that reason a black-market bonanza) while reefer (with a government-certified THC content) will line the shelves behind the cash registers of every Quikkie Mart in America.
BTW, I appreciate Linda's byline from "The Republic of Texas." I hope to live long enough to earn the privilege of citizenship in said independent Republic, under the benevolent guidance of President Ron Paul.
Best regards to all of the Agora crew!
Many happy returns. And thank you for writing. See you in Texas!
Gary, as a physician, I believe that anyone who chooses to smoke is a bit addled, but as a constitutionalist I will ardently defend his choosing to do so, although I would prefer that he do it somewhere I'm not.
Sounds pretty good to me.
I agree with Linda. But, when I first heard of this bill, I read that RJR and Altria were in favor. This seemed odd of course, so I searched it out. The bill also proposes that cigarettes would be deemed "unmailable". This means that folks who buy smokes online or by mail order from Native Americans or tobacco co-ops will no longer to do so. Of course this would pretty much put them out of business and largely favor "big tobacco". And then of course there is the loss of revenue to the Postal Service. A legal, taxed product that cannot be mailed. Freedom is going up in smoke.
Freedom's always going up in smoke. I have some scientific evidence that indicates that 90% of humanity is genetically inclined to hate individuality and personal liberty. A small minority of us is born with a tendency to do as much for ourselves as possible and only trade fairly for what we don't have or can't do ourselves…without the force of the state behind us.
We'll discuss the evidence I have and my conclusions another time…
I drink on a regular basis and I welcome increased taxes on alcohol and believe smoking, sugar, corn syrup, etc should be taxed more too. These are luxuries and also lead to health problems so I have no problems with an added tax. If the government tried to outlaw them completely that would be problematic but as long as there is choice I see no reason to complain about some people scaling back or being priced out of a luxury good. If you believe everyone is entitled to luxuries then maybe the government should subsidize yachts, luxury cars, etc so everyone can get one.
A better solution than higher taxes on smokes would be to ban anyone that smokes from using government assisted healthcare for any illness/condition that has a high probability of being caused by smoking. You can get treatment if you can pay out of your pocket otherwise it's between you and God.
The same could be done with all the illegal drugs. Make them legal, tax them and refuse government sponsored medical care to anyone with a history of drug use that is probable in the cause of the condition. The government could grow revenue, reduce medical, court, prison, and police expenses all at the same time. Next stop the wars, reduce military spending and we can make a big dent in the budget shortfall. I realize more is needed but it is a damn good start from where I sit.
It should be pretty damned obvious to all your Shooters that in this bar we really don't care what you put in your body ― nicotine, alcohol, cocaine, crack, smack, needles, razors… We just don't think it's anybody's business but yours.
But then you have people who think like this…
I don't smoke and I resent the hell out of having smokers foul my air. I have a right to breathe clean air and they really don't have a right to foul the air I must breathe. Your comments are full of venum. I hope this reaches you because with these kinds of comments, I really want to respond. I have a lot to say. They can tax it all they want and I could care less. By the way, I live in North Carolina and the health benefit the state pays to care for sick smokers amounts to more than the industry pays the state.
"But your nasty smoke is fouling my air." And the nasty exhaust from millions of vehicles and industrial civilization in general are polluting my atmosphere and warming my earth (maybe…I guess…). You don't see me complaining.
When I left NYC, smoking had been illegal in bars for a couple of years. So instead of the smoke remaining in the bar (where the patrons CHOOSE to go and ingest drugs on enclosed private property), all the smokers were forced by law to spill onto the street and blow their smoke into the faces of passersby.
No big deal because Congress will soon mandate that all smokers be rounded up and shot anyway. This is Modern America, after all! No one will have the right to do anything that has the potential to annoy other people…on pain of taxes and eventually death.
Now for the final word on this in today's Shot…but first a little explanation…
Your editor recently began a competitive powerlifting career after years of trying to get bigger and stronger in the gym. He spends an inordinate amount of time actually training and posting on training forums on the Internet.
If one trains seriously with a barbell, then by now one would have heard about Mark Rippetoe. A few years ago Coach Rippetoe co-authored a book by Dr. Lon Kilgore called Starting Strength that has gone on to become THE book on the form and mechanics of the basic barbell lifts, particularly the most important lift in the universe: the barbell back squat.
Coach Rippetoe is an avowed classical liberal from the Republic of Texas with an inimitable style and a way of phrasing tings. His online forum focuses on training, but he often allows the occasional political thread to blossom. Smoking and training came up a while back.
Here were Coach Rippetoe's last words on it, edited for more delicate readers. The emphases are mine…
Just so you'll know, I hate smoking. My parents smoked and I remember being a powerless little kid in the back seat unable to breathe. It stinks, it creates trash that I seem to always have to pick up, it causes health problems (which of course are your own business unless your f*****g government makes me help pay for them), and it adversely affects performance. I grew up with people that smoked, and I think that the VAST majority of people who smoke started because "their friends were all doing it", and that the VAST majority of people who still smoke do so because they are pussies who cannot make themselves quit (I'm sure that there are ex-smokers here that will have an opinion about that). I had to watch my father die of COPD because of smoking, having been rendered rather useless for several years prior. Nobody hates it worse than I do.
The ONLY thing I hate worse than smoking is the government telling me that I can't, in whatever form this coercion may take. If you want to "enjoy" your tobacco, go ahead. "Enjoy" it wherever you want to and wherever the owner of the private property allows you to. And God Damn to Hell the busybodies who want to make laws that tell me how I have to use my property that I paid for and pay taxes to keep. The post office and the municipal building are one thing, but local bars and restaurants, and even my gym, are quite another.
I realize that this is a different discussion, or that at least it should be, but don't confuse my hatred for your bad habit with a desire to keep you from doing it. I just wish it killed you faster so I didn't have to smell it as long. But I would NEVER use the power of government to make you act like I wanted you to.
Not much more I can add to that…except this…
Whiskey tenet number four: Taxes are either theft or coercion, usually both.
We got some response to that abiotic oil issue, too, but I think we've argued enough today. We'll be returning to the topic very, very soon, however.
Byron King will be stopping by tomorrow to show us how very hard oil is to get in the first place. Hope to see you then.