Charles’ Note: “If the gringos and Chinese start nuking each other, we’ll be fine. Peru is too small and insignificant to warrant nuking.”
I paraphrase from the original Spanish. But my dinner companion in Lima had a point. There is a certain freedom in being small and off the radar. You can tune out the political noise. You can be open for business… and importantly, mind your own business.
It’s liberating.
Of course, that can be easier said than done when the political noise is causing 5% daily swings in the S&P 500.
It looks like we may have already seen “peak trade war.” Tensions between the U.S. and China are easing. Yet gold – which has served well as a crisis hedge this year – is still hugging all-time highs.
So, what’s next for the barbaric relic?
Is it time to rotate out of gold and back into stocks?
As always, one of the greatest market commentators and thinkers of our time, Bill Bonner, has a way of putting it all in perspective. As founder of Bonner Private Research, Bill has dedicated his life to understanding market insanity and using that knowledge to invest successfully. The man’s been connecting the dots for longer than I’ve been alive.
His take?
Ignore the noise and follow your system.
As for us, here at the Freeport Society, whether gold has hit its top or not, it will always have a place in our model portfolio. We’re holding open gains of 10%, 25%, 45%, and 61% in our gold positions. That’s great, but we hold gold for more than the profits it can hand us. It’s a hedge against the dollar’s demise and the effects of this Age of Chaos.
There will come a time when we take profits in our more aggressive gold plays, of course. Like any asset, gold has bull markets and bear markets. There are times we want to own a lot… there are times we’d want to hold less. But we’ll always keep a little of the yellow metal stashed away.
Over to you, Bill!
Tranquilo
By Bill Bonner, Bonner Private Research
Ireland is a pleasant rest-up… a peaceful refuge… a comfortable place to hang our hats for a couple weeks.
“Tranquilo?” asked an Argentine friend.
“Yes… muy tranquilo.”
The fields are green. The cattle are fat. The spring flowers are blooming. The traffic is calm.
“I think the biggest thing,” said a neighbor in County Cork, “is that we’re not in a battle with anyone. You don’t feel the tension that you feel in the U.S.”
She had a point. The American empire needs enemies – foreign and domestic. Otherwise, there would be no cause for such bare-knuckle politics. And no point to a $1 trillion military budget. No need for tariffs either… and to “get even” with other nations who are “ripping us off”.
Or 17 different spook agencies.
But after a short stay in Ireland, we’ve come to Buenos Aires to visit a daughter. In our younger, more expansive, more reckless years, we invested heavily in Argentine farmland. It was cheap!
But a farm is not a stock. It needs to be managed. It is a business, not an investment. “It’s the eye of the owner that fattens the cattle,” say the Argentines. But who was going to keep his eyes on these animals?
Fortunately, along came a son-in-law with an interest in farming. He and our daughter have been on the job for almost two years
How is it going? We’ve come to South America to find out.
Meanwhile, gold has been flying. It’s up 30% so far this year. You’d have to go back to 1979 to find a similar start to the year.
And when 1979 was over, gold had gained more than 120%.
That huge run-up was followed by a big “uh oh.”
“Gold will go to $5,000 an ounce,” predicted Howard Ruff at the New Orleans Investment Conference of 1979. He was right. Just 46 years early!
Right when investors were sure gold was headed to the moon, it peaked in 1980… and fell for the next twenty years. Ominously, adjusted for inflation, gold is now once again at an all-time high… even higher than it was in 1980.
The 1980 inflation-adjusted gold price high was $3,486.11, according to TheChartStore.com
Uh oh.
Could gold go into another long bear market? Of course it could. It will. But that’s the whole point of our Dow/Gold Indicator. It recognizes that stocks and gold both go up and down. It aims to guide us to whichever one is the most bombed out, beaten up, and widely regarded as “hopeless.” Then, we buy… sit tight… and wait for the world to turn.
After 1980, the seasons changed. Stocks — which had been pronounced dead by a BusinessWeek cover story in August 1979 — “The Death of Equities” — came back to life and roared ahead until January 2000.
Then, it was gold’s turn again. Over the last 20 years, the gold ETF, GLD, has outperformed the S&P ETF, SPY, 622% to 571%.
Up… down… and up again.
And now, gold has gone up so much — while the stock market has come down — that our key Dow/Gold indicator has been cut in half since 2018…. It dropped from 16 just a few weeks ago down to 11 on Tuesday. This leaves us just 6 points above our key turnaround point — 5. That’s when we reverse our Maximum Safety position and go all-in for stocks.
It makes us nervous to think about it. Gold has been good to us. “Tranquilo.” The world of stocks, on the other hand, seems dangerous, unpredictable and unproductive. And stock prices are still hugely inflated by fake money.
Here’s something interesting. It was just a few months ago — back at the close of 2024 — that U.S. stocks were seen as the be-all and end-all of investing. Based on their CAPE ratios, U.S. stocks traded at prices 86% higher than those of Europe.
But then, cometh the Trump Team, and U.S. stocks took a beating. So far this year, U.S. stocks have the worst performance of those of any major nation — 15% lower than the global average and 23% behind the Eurozone. And the U.S. dollar is getting hammered too.
Not surprisingly, the stocks that are taking the worst licking are those that were most highly prized. Nvidia is down 24%. Tesla has lost 40%. Amazon has dropped 21%. And so on…
The trouble is, there is still a lot of grief to come.
Even with their bruises and cuts, the Magnificent Seven are still on their feet… and still expensive. Apple and Amazon are priced at 31 times their earnings. Nvidia is at 35. Tesla sells for 118 times earnings.
The theory of our Dow/Gold trade is that by the time the ratio falls to 5, stocks ought to be cheap… with little risk of further price declines. But if gold races ahead too far, too fast… we might hit our BUY STOCKS target — at 5 ounces of gold equal to the 30 Dow stocks — while stocks still have a lot of downside left in them.
Then what?
If we buy stocks, we risk taking a beating too.
But if we don’t buy them, we risk taking a beating in gold.
What do we do? We stick with the program. Tranquilo.
Stay tuned.
Regards,
Bill Bonner