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Lookout Below
In fact, our investment firm ran an advertising campaign called the Dawn of a New Bull Market in 1981 that was three quarters too early. Then 13% long-term zero coupon bonds outperformed all other investment vehicles for the next 28 years. XOM had a tax exempt zero coupon bond.
In 1982 I held seminars and told people the popular Dow, then under 1000, would likely quintuple in the foreseeable future based on market history. Most laughed uproariously and watched on the sidelines in disbelief until market psychology changed and they had to get in because it felt right. The Dow actually went from 777 to 14,198, 17 times plus dividends.
By 1999, most Americans became convinced bonds, stocks and real estate were a one-way sure thing. They borrowed money to plunge. Which is exactly what the markets did from 2007.
We had warned people before the 2000 real peak we were entering a real long-term (secular) bear market in most assets. People were as skeptical at the top as they were at the bottom. Such is human nature, to sell when we are uncomfortable, and buy when we are confident. It is hard to have the courage to buy fear and sell greed.
Although many may note the Dow and Real Estate prices continued higher after 2000, this was primarily a monetary illusion as the dollar fell in half under long-term neoKeynesian deficit usury fiscal and monetary policies alleged to be good for the budget and trade. If so, where were the actual surpluses without raiding the Social Security Trust?
And now the prodigal chickens are coming home to roost despite bullish mass media headline pundits to the contrary.
This essay is timely warning to anyone who cares about our financial future. No man is an island.
We entered a financial era unseen for three family generations. Our grandparents warned us to save for a rainy day.
We entered deflation, and all the Nobel Prize winners in the world did not put humpty dumpty together again. Only saving cash and paying down or forgiving our debts can do that. Cash, including Constitutional gold and silver tender, incidentally, outperformed most assets the past decade.
Mentor Sir John Templeton told us he built his fortune by saving half of what he made to buy low and sell high.
