Contrarian Stock Market Investing News - Featuring Bargain Stocks » Bill Bonner

To boldly go . . . into the gold market

Bill Bonner — Wed, 23 Dec 2009 11:53:36 +0000

Bill Bonner, President of Agora Publishing and writing for The Daily Reckoning, UK Edition, takes advantage of the holiday lull to examine the current state of gold – amidst all its ups and downs.

Bill Bonner (The Daily Reckoning, UK):

The financial world is slowing down. Analysts… economists… and blabbermouths are getting ready for the holidays. The news flow is quieting. The noise is abating.

So, let’s talk about gold. But first… a note about the little train that couldn’t.

The Eurostar connects London and Paris. Last Friday, several trains entered the tunnel and stopped. According to the press reports, the weather was unusually cold in France and unusually warm in the tunnel. This caused some sort of malfunction, stranding 2,000 travellers under the dark water and thousands more on both sides of the channel.

It was a blow to France’s pride; the French consider their train technology to be the best in the world. Yesterday, President Sarkozy called the head of the Eurostar and chewed him up… and this morning, the trains were meant to be running again.

We rose at 5am to rush to the Gare du Nord, so we could get the 6:43 to London.

“You’re going to take the Eurostar,” said the taxi driver with a laugh. “Well… good luck…”

When we got there, it was obvious something was wrong. Passengers weren’t lining up in an orderly fashion. Instead, hundreds of travellers who had been waiting three days for a train formed a miserable, complaining mob.

We were just trying to figure out what was going on when a phalanx of police came down the steps, followed by another group of Eurostar staff members. They wandered around… formed the passengers into lines… answered questions and then, nothing happened. We waited…

And waited…

“This is intolerable,” one French passenger yelled at a young woman in uniform.

“You people have no respect for your customers. We’ve been waiting days to get back to our families… and you treat us like cattle. It wasn’t our fault the trains didn’t run as they were supposed to. It was your fault. And you should have done a better job of dealing with the trouble you caused.”

A murmur of approval went up from the crowd. The clerk walked away. We waited. Finally, after half an hour, your editor gave up. His business in London could wait. We walked over to our office, only about 20 minutes away, on foot.

Now… back to gold…

The price fell $15 yesterday to just under $1,100. We expected a correction in the gold market. But we thought it would come along with a correction in the stock market. Stocks rose 85 points on the Dow yesterday.

We take this as a warning: something is going on that we don’t understand. That said, there’s a lot going on that we don’t understand.

But the broad patterns generally make sense. Boom was followed by bust. As dear readers know, the force of a correction is equal and opposite to the deception that preceded it.

The deception of the Bubble Era being exceptional, the correction would be exceptional too – even under the best of circumstances.

But these are not the best of circumstances. Because several other things are happening… things that need to be reckoned with too.

• The US is losing its privileged place in the world. Americans now compete with many other people in many other places for the world’s resources – including its savings.

• The international monetary system, an experimental system built of paper dollars, may be falling apart.

• The days of cheap and bountiful energy are over.

• Governments are going broke. State governments. National governments. In Europe. In the Middle East. And in America.

• The engine of economic growth – Americans’ willingness to go into debt in order to consume more and more of the world’s output – has gone into reverse.

• And, governments are meddling on an unprecedented scale… delaying and avoiding necessary adjustments, possibly turning an ordinary depression into a Great Depression… or even a Much Greater Depression.

These are not small challenges. Any one of them would be a worthy crisis on its own. Put them together and you have the makings of a catastrophe.

What will happen? Don’t know. Wish we did.

A series of mini-disasters? Or one big planet-wide blow-up?

Or, are the authorities so smart that they can engineer trouble-free solutions to these challenges?

Click here for the rest of Mr. Bonner’s commentary at The Daily Reckoning, UK Edition.

Rollin’, rollin’, rollin’ – the Depression rolls along

Bill Bonner — Mon, 21 Dec 2009 13:16:11 +0000

Bill Bonner, c0-author of The New Empire of Debt and daily columnist for The Daily Reckoning, UK Edition, offers his analysis on the state of the global economy.

Bill Bonner (The Daily Reckoning, UK):

Leading economists have a one-stop solution for just about everything: stimulate consumer spending.

When the price of oil hit $150 a barrel, the first major alarm sounded. Something was wrong. Now we have a clearer idea of what it was.

To make a long story short, leading economists have a one-stop solution for just about everything: stimulate consumer spending. But $150 oil warned us: continue down that road and you will run out of gas. There isn’t enough oil in the world to allow US-style consumption for everyone.

Two weeks ago, Dubai gave us another wake-up call. Thought to be risk- free, since it was implicitly backed by all the oil in the Middle East, Dubai World nevertheless stopped paying its debts. And last week yet another bell banged our eyes open. Greece announced first that it would not try to reduce its deficits… then, that it would. Hearing the news, the financial world rolled over and went back to sleep. But The Wall Street Journal offered a hint of trouble to come: “Markets force Greek promise to slash deficit,” said its page one headline.

If markets could force the Greeks to trim their deficit – about 13% of GDP… not far from the US level – could they not force Britain and America too? Coming right to the point, the fixers face not just one crisis, but many. They have a growth model that no longer works. They have aging populations and social welfare obligations that can’t be met. They have limits on available resources, including the most basic ones – land, water, and energy. They have a money system headed for a crack-up, and an economic theory that was only effective when it wasn’t necessary. Now that it is needed, the Keynesian fix is useless. If a recovery depends on borrowed money, what do you do when lenders won’t give you any?

But let us backtrack to a smaller insight. Then we will stretch for a bigger one. Americans are supposed to be insatiable shoppers. For at least three decades, the world counted on it. It was the growth model for almost all the Asian manufacturing economies… and for resource producers everywhere. But as we approach the biggest shopping season of the year, a survey of consumers signals an earthquake. Americans plan to spend an average of 15% less during this holiday season than the year before. Only 35% say they will take advantage of post-Christmas sales, traditionally when the stores unload unwanted inventory. They seem to be satiable after all.

Push come to shove, Americans react like everyone else. Now, they are being shoved into a new world, very different from the one they have come to know. In 1973, the American working stiff went into a decline. His weekly earnings, in real terms, went down for the next 36 years. The typical worker earned the equivalent of $325 a week in 1973… adjusted to constant 1982 dollars. By US official accounting he was down to $275 a week in 2009. Unofficial estimates put the loss as high as two-thirds of his purchasing power.

Yet, his spending increased anyway. How? He squeezed the rest of the world. The US trade gap began to go seriously negative in 1992. By 2006-2007, foreigners were shipping to America nearly $900 billion more per year in goods and services than they received in exchange. This gave the typical American a standard of living few people could afford; too bad, he wasn’t one of them.

Now he’s up against billions of Patels and Hus. They work for less. They save more. They want more stuff too. And they’re suspicious of the dollar.

Their economies are growing faster…

Click here for the rest of Mr. Bonner’s commentary at The Daily Reckoning, UK Edition.

Loose Money – Bernanke’s got yours

Bill Bonner — Thu, 17 Dec 2009 12:04:39 +0000

Bill Bonner, daily columnist for The Daily Reckoning, UK Edition, turns his attention today to the latested antics of the U.S. Fed Chairman and the ten year rolling trends in the U.S. stock market.

Bill Bonner (The Daily Reckoning, UK):

Gold rose $15 yesterday. What to make of it?

Perhaps it was because Ben Bernanke’s extended his “extended period” pledge?

He said, in effect, if this economy doesn’t come out of its slump, it won’t be his fault. He’ll keep monetary policy as loose as possible for as long as possible. Not that we had any doubt about it. He has a theory. It’s a bad theory, but it’s all he has. And it tells him that you fight a depression with loose money.

So, what do you expect? Interest rates will remain artificially low as long as Bernanke can get away with it… or until the depression ends… whichever comes sooner.

That said, he hardly has to lift a finger. Judging from the last auction of short-term Treasury debt, lenders can’t think of anything better to do with their money than to give it to the government – in return for nothing. The last auction produced a yield of zero on one-month loans.

We went to visit a pair of clever Swiss bankers yesterday. These fellows manage money for clients all over the world. What do they think? They were focused on stocks:

“This year, the people who made the most money were those who were most heavily invested in equities. And if the patterns of the past hold up, 2010 will be a good year for equities too.

“Whenever the ten-year performance goes close to zero, the next few years tend to be very good for stock market investors.

“In fact, there has never been an exception, going all the way back to 1881. Last year was one of the worst years in stock market history. This has been one of the best. And next year should be one of the best too.”

He handed us a chart to illustrate his point. It shows the 10-year performance of the stock market.

We see that very rarely are stock market returns negative over a 10-year period. In fact, there are only two worth mentioning. One was in the ‘30s, when in August ‘39 stocks had returned MINUS 4.68% for the previous ten years.

The other major losing period came in February of this year, when investors had gotten an average annual return of -3.43% since 1999.

The message seems simple enough. When the market turns down sharply… expect a sharp turn-up to follow. But studying the chart more carefully, we see two things.

Click here for the rest of Mr. Bonner’s commentary on The Daily Reckoning, UK Edition.

The ‘Benefits’ of Inflation

Bill Bonner — Wed, 16 Dec 2009 11:56:38 +0000

Bill Bonner, venerable voice of reason and co-author of The New Empire of Debt, brings a tongue-in-cheek look at inflation in the new U.S. economy for The Daily Reckoning, UK Edition.

Bill Bonner (The Daily Reckoning, UK):

Are we in a depression yet? The number of Americans living on food stamps has risen to 37 million. The ‘30s had soup lines. The ‘00s have food stamps.

And what else was big in the ‘30s? Escapist movies. Here’s a headline for you:

“Box office takings set to smash records,” says the Financial Times. What kind of movies? End of the world catastrophes… vampires… strange non-humans doing strange things.

For example, there are ads for Avatar all over Europe. The film seems to concern Spock-like creatures who use bows and arrows. Pure escapism, in other words.

Stocks went down a bit in America yesterday. The commentariat blamed it on higher producer prices, thought to be harbingers of consumer price inflation.

Of course, consumer price inflation is what everyone is counting on.

The debts of the past need to be reckoned with. Borrowers are doing the best they can. They pay when they’ve got the money. They default when they don’t. Since ’07, mortgage debt is down about 2% –to about $10 trillion. Most of that decline comes as a result of defaults and repossessions.

Let’s see, 2% over two years ain’t very much. At that rate, it will take half a century to bring mortgage debt down to the comfortable levels of the ‘80s.

What’s more, it will be hard to do at all. Incomes are stagnant… or actually falling. As people cut back on their spending in order to pay down debt, it reduces income to employers, as a consequence of which the economy is weaker… with fewer jobs and less income to the folks who are trying to pay off debt.

What a drag! People ran up huge debts believing that they would never actually have to pay them. They figured they would refinance, and pocket the built-up ‘equity’.

But, according to a report in this week’s press, though mortgage rates are at a multi-generational low, finding a banker willing to lend is as hard as finding a liquor store that makes home delivery on Sunday.

That’s largely because the equity most homeowners have is negative. Houses are down about 30% since ’07. Any buyer who bought or refinanced a house in the last four or five years is likely to be under water.

Even in normal circumstances paying off debt is a long, hard process. Mortgage debt is long-term. Paying it off is long-term too. Many people see years of painful scrimping and saving ahead of them.

What they would all appreciate is a little help from inflation. Inflation lightens the load. It increases nominal incomes while holding mortgage payments steady. It increases nominal ‘equity’ too.

House prices tracked inflation for a hundred years. It was only in the last ten years or so . . .

Click here for the rest of Mr. Bonner’s commentary on The Daily Reckoning, UK Edition.

Feeding Frenzy! As the Gold Market Churns

Bill Bonner — Thu, 10 Dec 2009 11:44:45 +0000

Bill Bonner, resident voice of reason and chief columnist for The Daily Reckoning, UK Edition, analyzes this past week’s actions in the gold market, including its relationship to U.S. stocks activity.

Bill Bonner (The Daily Reckoning, UK):

We are high over the African veld… at least, we think it is called veld. That’s ‘field’ to you and us. And we’re so high above it we can’t see it anyway.

After a few days in Johannesburg, we’re on our way to Dakar. Why would Bill want to go to Dakar? We asked the same question. But Dakar is just a stopover on the way to Washington.

Meanwhile, there are things to be reckoned with.

When we left the ground, it appeared that we were finally getting the shakeout in gold that we’ve expected… and maybe the beginnings of a shakeout in stocks too.

(Whoa… we just landed in Dakar… got an internet signal. Seems gold is down another $22. The Dow, however, rose 51 points yesterday.)

On Friday, the London gold market saw the highest volume traded in history.

London gold expert, Dominic Frisby, sent this commentary:

“After peaking last Wednesday at about $1,220 an ounce, the price has fallen almost $100 in just four trading days. Friday’s capitulation – some $60 – was particularly ugly. It shows just how much speculative, hot money there is in the sector.

“So what now?

“In the week to last Wednesday 7 December, almost $300m of call options (options betting the market will rise) were traded in the largest gold exchange-traded fund (ETF), GLD.

“That is more than the entire call volume of the second and third quarters of this year – in just five trading days. On Wednesday alone, trading volume in GLD calls amounted to almost 50% of what the market traded in the entire second quarter.

“That is a sign of extreme speculative excess. It is not the time for short-term investors to buy. At such extremes, you have to ask: where are the next buyers going to come from?

“The time to buy is when the put volume (bets that the market will fall) is at record highs. Or, as the Wall Street proverb puts it: ‘When there is blood on the streets’. I daresay there will be just such opportunities again.

“As we head into year end, there are a lot of fund managers who will want to lock in their profits for the year.

“I’m afraid that means they will sell their gold – and anything else they own that has done well – at the slightest hint of a turn in the markets, because they will want to secure their gains (and their bonuses) on what will have been an excellent year. That’s what we saw on Friday and why the market fell so hard, so fast.

“In the short term, this does not bode well for any market – except one. “It may be that we are finally seeing the end of the ‘Great Reflation Trade’, this astonishing rally out of the crash.”

Click here for the rest of Mr. Bonner’s article at The Daily Reckoning, UK Edition.

Gold – this Bull keeps running

Bill Bonner — Thu, 03 Dec 2009 12:42:22 +0000

Resident GoldBug at The Daily Reckoning, UK Edition, Bill Bonner offers his analysis of gold, the stock market and the end of the depression.

Gold’s best part is still ahead. And this is not just a bull market; this is a fortune maker.

Bill Bonner (The Daily Reckoning, UK):
Yesterday, gold closed at $1,200. Long-term Daily Reckoning sufferers can finally hold their heads up. We bought gold at the beginning of the bull market. New readers, with no gold buried in their back yards, may wonder: is it too late?

Here is a quick answer: no. We’re still a long way from gold’s ultimate destination. Our ‘Trade of the Decade’ was to buy gold on dips and sell stocks on rallies. The idea of that trade was that gold and stocks were going in opposite directions. Stocks were supposed to go down. Gold was supposed to go up. They would meet at some point, we imagined.

But lately they’ve been going in the same direction. Yesterday, for example, stocks rose with gold; the Dow added 126 points.

Which poses a bit of a dilemma. We think stocks are more likely to go down than up. Will gold go down too? Yes, probably.

Does that mean you shouldn’t buy gold here? No, not necessarily. If you’re trading, we’d suggest you wait. Gold is ready for a correction.

But it is usually a mistake to trade in and out during a major bull market. If the trade goes against you, you end up sitting by the sidelines as the market roars forward. You miss the best part.

Gold’s best part is still ahead. And this is not just a bull market; this is a fortune maker. Gold still hasn’t entered the bubble phase. It is just a very strong bull market. Eventually, it will soar… adding $100 in a single day. It will take our breath away. You want to be in it when that happens.

But is $1,200 the best price you can get to enter the gold market? Probably not. But it’s not a bad price. You can wait for a better one; but don’t wait too long.

John Hussman puts the odds of a major market crash sometime in the next 12 months at 80%. If stocks go, gold is likely to go down too. And it could stay down for a long time.

We keep our Crash Alert flag flying… and have a hunch the crash will come sooner rather than later. Day after day, the bubble gets bigger… and the pins get closer. Greece? Britain? The US?

Click here for the rest of Mr. Bonner’s analysis at The Daily Reckoning, UK Edition.

The Dubai Delay – is it the beginning of government defaults?

Tara Useller — Mon, 30 Nov 2009 13:44:49 +0000

Bill Bonner, resident Cassandra at The Daily Reckoning, UK, analyzes the potential impacts of last week’s announcement from Dubai World on the world’s economies.

Bill Bonner (The Daily Reckoning, UK):

Well, the days are dwindling down. September. November. Tomorrow it will be December.

This bubbly bounce must not have much time left. And it is surrounded by 10,000 pins.

Last week, one of those pins looked as if it might pop it. While Americans enjoyed their turkey dinners, Dubai announced that it would ‘postpone’ payments on its debt. The world was left to wonder: what’s going on? Is Dubai broke?

Dubai was the great success story of the Near East. With nothing but rich sheiks behind it, it had set itself the goal of becoming a major financial and tourism centre.

And for a while, it looked like the sheiks might just pull it off. Skyscrapers soared into the air. Manmade islands rose up out of the sea. You could ski indoors – and then go swimming in the warm waters of the Sea of Araby. They were even planning to put up the world’s tallest building…

But the whole place was built on debt and sand. And as the debts mounted, the sands washed away.

On Friday, US markets reacted. The Dow lost 154 points. Gold lost $14. Oil slipped to $76.

Our crash flag is still flying. But that was not a crash. Just a bad day. And today’s news tells us that other Gulf states are rallying around Dubai, ready to extend a helping hand and lend a buck or two. Oil is rallying on the news.

Does that mean this bubbly trend is stronger than we thought? Is this a bubble made of Kevlar? Will it resist other pins?

We wouldn’t count on it. Remember, China is “ Dubai times 1,000”, as James Chanos put it. When China pops, we’ll see US stocks down a lot more than 154 points.

In fact, we expect to see the Dow in 5,000-ish territory when this bounce is over. And when that happens, emerging markets will probably be hit even harder.

Dubai was a “wake up call”, for investors in emerging markets, says the New York Times today.

But the pin that pricks recovery hopes won’t necessarily be imported. There are plenty of sharp objects in the homeland too. There is, for example, the growing realisation that the recovery is a fraud.

“Half a recovery,” says a New York Times columnist, may be all we get.