What to Believe About Gold, Stocks and Bonds in 2011

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Recently by Bill Bonner: The
Economic Flop That Was 2010

 

 
 

Yesterday,
we promised to give you a “Prediction-Plus” about the
stock market. You remember what a “Prediction-Plus” is,
don’t you? It’s better than a prediction. It’s what
you should believe…even if it turns out to be wrong.

What should
you believe about bonds? They’re going down. They’re a
“suicidal” investment, says our old friend, Marc Faber.

What should
you believe about gold? It’s going up. Yes, we know…it
might go down. Yesterday, gold dropped $44 dollars. Whee! We’ve
been warning you for months that gold could correct. No bull market
goes up in a straight line. And gold has already attracted too many
speculators who don’t really know what they are doing.

Remember what
happened during the last big gold bull market in the ’70s?
Gold lost 50% (from memory) of its value, in ’74, before finally
hitting its high in ’80. Gold could drop down below $1,000.

We wish it
would. So we could buy more!

But what about
stocks? What should you believe about the stock market?

You should
think they’re going down.

Why?

Because there’s
more downside than upside. Because stocks are good things to buy
during an expansion, but not during a contraction. Because the bear
market that began in 2000, or in 2007, has never fully expressed
itself; it has a rendezvous with the bottom…which should be
at less than half today’s levels. Because stocks normally rise
when interest rates go down; today, we’re probably facing rising
yields for the next 5 or 10 years.

And because
there are potential crises coming up in 2011 – which could
trigger a big sell-off in stocks.

Because…because…because…

You have to
play the odds. The last big run-up in stocks began in 1982. At that
time the Dow was barely over 1,000, the yield on a 10-year US Treasury
note was around 15%, and the US was just arriving at its Reagan-era
peak.

Today, the
world is practically the inverse of ’82. The Dow is over 14,000
and yields are close to zero. And the US is tired, slipping down
like a used-up empire. Yields have nowhere to go but up. The Dow
will probably go down.

And even if
it doesn’t, you should think it will. Because investors are
overwhelmingly bullish. They’ve plumped their money down on
stocks. The smart money is taking the other side of that bet. You
should too.

January
6,
2011

Bill
Bonner [send
him mail
] is the author, with Addison Wiggin, of Financial
Reckoning Day: Surviving the Soft Depression of The 21st
Century
and
The New Empire of Debt: The Rise Of An Epic Financial Crisis

and the co-author with Lila Rajiva of Mobs,
Messiahs and Markets
(Wiley, 2007).

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Best of Bill Bonner

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