Stocks don’t look any less risky in 2019… But keep an eye on the “Trump put”… Bill Bonner’s favorite assets to hold in a bear market… In the mailbag: “The more intervention by the government, the more crime there is”…
Which means… if you haven’t taken our advice to prepare for a bear market yet… now is a great time to start.
To help you bolster your game plan, this week we’re bringing you our 2019 Roundtable Series, where we share the Legacy Research team’s top predictions for the coming year.
We kick off our series today with an exclusive two-part Q&A with Legacy cofounder Bill Bonner.
Below, Bill reveals why cash and gold are at the top of his list of assets to own as we head into the new year… how political forces could still try to prop up the stock market… and why the move to crypto-fiat money is coming soon.
Chris Lowe: Bill, you’re a self-described doom and gloomer. What’s your view on where stocks are headed as we go into 2019?
Bill Bonner: I don’t know whether stocks will go up or down. But in my view, there’s a lot more risk on the downside than there is opportunity on the upside. Then again, I’ve believed the risk has been to the downside for a long time.
Chris: Right now, your gloomy prediction for U.S. stocks is paying off. To say stocks have been in turmoil over the last couple of months is an understatement.
You and I have been warning about a bear market for a while now. But many investors are still optimistic. That’s not surprising considering how well stocks had done over the past 10 years. What kept the bull market going on so long, in your view?
Bill: It can all be traced back to 1987. That’s when we got the Greenspan put. You remember that?
After the Black Monday crash on October 19, 1987, Alan Greenspan – barely two months into his tenure as Fed chairman – came out in defense of the stock market.
He made this big press announcement where he said the Fed stood by as a “source of liquidity to support the economic and financial system.” He also got to work encouraging banks to continue to loan on their usual terms. And the stock market quickly recovered.
From that day on, investors have interpreted that the new job of the Fed is to protect them from risk. And of course, they’re right. The Fed isn’t going to let stocks fall too much because it sees no benefit in letting that happen. The way the Fed sees the world, the way to get a strong economy is to gin up stock and bond prices and make investors rich. Letting stocks crash is anathema to them.
We saw the same thing in 2008, with the Bernanke put. Ben Bernanke was Greenspan’s successor as Fed chairman. In the wake of the subprime mortgage crash, he slashed short-term interest rates to zero and dumped in almost $4 trillion worth of new money into financial markets by way of “quantitative easing,” or QE.
Now, we have what you might call the “Trump put.”
Chris: And what’s that exactly?
Bill: Before the Fed raised interest rates recently, the president was tweeting that it’s “incredible” that the Powell Fed was “even considering another interest rate hike.” And a lot of his supporters seemed to be warming to the idea of keeping rates lower for even longer.
You’ve basically got the president of the United States saying, “I’m going to do what I have to do to keep stocks going up.” He staked his presidency on the success of the U.S. stock market. Despite the turmoil, that may keep the whole show going for a while longer.
Chris: If Trump manages to keep interest rates low in the long run… and Powell turns into another Bernanke or Greenspan… could we see a blow-off top before stocks head south for good?
Bill: Anything is possible. People are funny. They do funny things. And markets have funny blow-offs from time to time. The indicator I watch the closest is the price of stocks in gold terms. Gold is real money. So you keep track of what stocks are worth in terms of gold.
As we’ve been saying in our daily e-letter, the Diary, you want to invest in stocks when you can buy the 30 Dow stocks for less than 5 ounces of gold. You sell stocks, and move back to gold, when the ratio goes to 15 or above.
With the Dow now selling for about 18 ounces of gold… it’s time to be in gold, not stocks.
Chris: What practical advice do you have for readers who are thinking about how to position their portfolios as we head into 2019?
Bill: In 2018, we saw something very interesting. Being in cash has been about the best thing you could do. That was according to a study by Deutsche Bank. They looked at asset price performance in 2018 and found that cash beat 89% of other assets for the year in U.S. dollar terms.
So, make sure you’re holding plenty of cash. I expect it to continue to do well versus stocks. I would also have some of that cash in gold. Gold has the advantage over the dollar in that it’s a great way to hedge against currency debasement… something that’s worth doing these days.
Chris: How much cash and gold should folks have? Is there a good rule of thumb?
Bill: It’s down to personal choice. But I would say the longer you have until you need to spend your money, the better off you are staying in gold throughout this period – which is very dangerous, difficult, and uncertain.
If you have a shorter time frame in mind, then dollar cash is preferable. You can use this to pick up bargains in a bear market.
Chris: Before you go, I have to ask you about the most volatile asset in 2018 – cryptocurrencies.
Bill: I have a son who is interested in cryptocurrencies. And we own some in our family wealth portfolio – although it’s not a significant amount.
Cryptos are a mystery to me… as they are to just about everybody else. In 2017, I suggested to readers that they dip a toe in the crypto market to figure out what they were and how they worked. I even made a video about trying to buy bitcoin.
I come at this from a theoretical point of view. Cryptocurrencies ought to work. There’s got to be a cheaper, faster, better way to transmit information – and money is fundamentally information – than by giving people physical pieces of paper. And the banking system is not exactly a system people have a high degree of trust in. Who wants to be trapped in a bank account, for instance, that gets whacked with a negative interest rate?
So theoretically, some form of cryptocurrency ought to exist… ought to succeed… and ought to replace other kinds of currency. But there are so many cryptocurrencies right now, who can know which one will be the winner?
My advice is to dabble in cryptos for now. But don’t take it too seriously. Most of the coins out there now are going to go to zero. Cryptos are intellectually fascinating. But they’re not anything you want to put a lot of your money into in my view. At least not yet.
Chris: As we’ve been covering here at the Cut, central banks are floating the idea that they should issue their own versions of bitcoin. What do you think about this? Will there come a day when the world’s money system is run through purely digital – even purely crypto – channels?
Bill: I think that’s coming – yes. It’s too juicy a plum for the feds to resist.
Governments always control money. And they always control the military. With control over those two things you can control people. You can keep them in line. You can make sure they pay their taxes and generally do what you tell them to do.
In a world of digital money that’s under their direct control – with no more input from private banks – the feds will gain a new advantage in keeping track of people. Also, with 100% control over the money system, they’ll be able to do so much more regulating through the financial channels without going to Congress and asking for new laws.
The suggestion put forward by International Monetary Fund director Christine Lagarde is for people to be able to bank directly with the central bank using some form of purely digital currency.
If we all have accounts with central banks, central bankers can control us. They can tell us what to spend… and when to spend. They can fix our interest rates directly. They can fix our mortgage rates directly. They can directly deduct taxes from our accounts. They can also easily lock us out of the system.
Fall out of line, and you may find your spending and earning “privileges” suspended. In a world where all money is crypto-fiat money… and all banking services government-run… it will be possible for the feds to financially assassinate you with a keyboard stroke.
Chris: Thanks, Bill. That’s all we have time for today. Talk to you tomorrow.
Bill: You’re welcome.
If you haven’t yet, we urge you to check out our Ultimate Crisis Playbook. As Bill said above, we’re in a difficult and uncertain period.
This playbook lays out the top strategies Bill, Teeka Tiwari, Doug Casey, and many of our other Legacy experts use to protect their wealth in market downturns… recessions… even depressions and market crashes. As a Daily Cut reader, you can access it for free here.
Tomorrow, in the second part of our conversation with Bill, we’ll be returning to a core theme here at The Daily Cut – the rise of the Surveillance Society.
As you’ll see, Bill shares our view that we’re only at the very beginning of this worrying trend. And he reckons it’s coming to America faster than you may think. So look out for that in your inbox at 5 p.m. ET tomorrow.
Meantime, we want this to be a two-way conversation. Are you moving into gold and cash to protect yourself against the volatility in stocks? Or will you ignore Bill’s advice and bet big on stocks rising in 2019? Let us know at [email protected].
The pot legalization debate is heating up, with mixed opinions from your fellow readers…
Everyone should follow the lead of Portugal. I believe sometime in the 1990s, Portugal made all drugs legal. At the time, everything had to be approved by the government. There were so many illegal drugs. Only the illegal drugs gave criminals a chance to make big money. It is the legal drugs that the criminals avoid.
When Portugal made everything legal, the criminal activity ceased and the population became normal. Let this be a lesson to all governments. Let the people decide. The more intervention by the government, the more crime there is.
– Douglas L.
I’m a Vietnam veteran. I carried a machine gun in the 1st Cavalry Division 69-70. PTSD has been a 50-year struggle so far. I presume I will suffer the consequences of what I saw and did for the rest of my life. I use medical marijuana to alleviate the anxiety and sudden rage which overtakes my life.
There are legitimate reasons to use pot, and while I understand people’s concern about driving under the influence, my experience is that pot smokers are more likely to drive at 10 mph than 100. Their concern should be for alcohol: It is much more likely to cause problems on the road than marijuana.
– Joe K.
All these opinions from potheads, that are only concerned with themselves being able to get high, are not concerned about the destruction of the younger generation.
Pot has been proven to have lasting psychotic effects that will eventually destroy the youth of this nation. Without the youth, there’s no chance that this country will survive as we know it in the future. It’s the same old story, and it’s disgusting that they have no regard for the lives that were lost fighting for the freedom of the USA, the country some of us love so much.
– Nico P.
Does smoking pot make you psychotic, as Nico P. claims? Or as Vietnam vet Joe K. says, does it help alleviate anxiety? Send your thoughts to [email protected].
Until tomorrow…
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Chris Lowe
December 31, 2018
Dublin, Ireland