"America’s Succession Battle Continues"
By Bill Bonner
SAN MARTIN, ARGENTINA – "What a jolly week! The whole world has been on the edge of its chair. Here, on the frontier of civilization in Northwest Argentina, our neighbor reported: “I stayed up until 1:30 a.m. to see who your next president will be.” As of this morning, we still don’t know for sure who will get to boss us around over the next four years. But the spectacle has been entertaining…
Each country… each era… needs its unifying myths and rituals. Pharaoh was a god. Louis XIV exercised the “divine right” given to him by God Himself. And now, when all the votes are finally counted, recounted, hidden under the table, and miscounted… either Donald Trump or Joe Biden will be crowned by the voters.
Succession Battle: Succession has always been a dangerous time. Even in the time of Pharaoh and divinely appointed kings, being next in line was no sure thing. Often, the obvious successor was judged incapable or unreliable by the insiders. So they looked around for a replacement. Then, too, a cousin or an uncle might present himself – backed by his own army – claiming he was promised the crown. Often, the power struggle was bloody.
Edward the Confessor, King of England, but who lived most of his life in Normandy, France, died in 1066 without an heir. Three claimants to the English crown came forward. Harold, King of Norway, said he was the rightful ruler because of a deal made between his father and King Harthacnut of England. William, Duke of Normandy, meanwhile, claimed that Edward had promised him the crown. But Harold Godwinson, Earl of Essex, probably the most logical claimant, was quickly proclaimed king and crowned by the Archbishop of York.
The Norwegians invaded, and were beaten by the newly crowned King of England. Days later, William the Bastard, Duke of Normandy, landed with a force of knights drawn from Normandy, Flanders, and Brittany. The rest, as they say, is history – including the massacre of a substantial part of the English population, along with the expropriation of vast estates by the Norman warriors, some of which remain with their descendants to this day.
Biggest Disappointment: But investors today do not seem much concerned about a succession battle. A hung election? A civil war? Bankruptcy and hyperinflation? COVID-19 on the rampage? What? Me, worry? No matter what happens, investors seem to think “the system” will continue. By Thursday’s close, the Dow had gone up almost 2,000 points this week alone.
That, of course, is the biggest disappointment to us. There is now little chance of a conservative revival. And almost no chance that the spend, spend, spend… borrow, borrow, borrow… print, print, print tendencies of both parties will face any real opposition. Even if he loses, Donald Trump proved that he has the support of about a third of the voters. And even though many Republican politicians are distancing themselves from his election fraud charges, it is likely that the Republican Party is still the Party of The Donald…
What this means is that there will be no challenge to the prevailing jackassery, neither from the Right nor the Left, Republicans nor Democrats. Neither will there be any challenge to the foreign wars… nor to the domestic spend-a-thon or the Fed print-a-thon that support them. The Federal Reserve is “printing” about $11 billion per day… Come Hell or high water, Biden or Trump, Blue or Red… that will continue.
Sure, the two parties will argue over the terms of their socialized medical system. Yes, they will get into scrapes about Supreme Court appointees, the Second Amendment, transgender rights, DEA (diversity, equality, accessibility), and reparations… But it won’t be guns… bathrooms… bribes… or giveaways that wreck the nation. Nope. It will be the old-fashioned, tried-and-true society-wrecker – spending more than you can afford and making it up by printing fake money.
Long-Term Trends: All we can do is try to protect ourselves. The idea of the Trade of the Decade is that trends take time, and you only really make money (or protect your wealth) when you are on the right side of them.
We have many colleagues who like to trade options, for example. The nice thing about them is that you can make fairly small bets, with limited downside. Occasionally, you will hit the jackpot. It can be exciting and engaging… like all forms of gambling. But, in our opinion, it’s not a way to make a fortune, build up your retirement savings, or protect your wealth. It’s only by making big, bold, long-term investments, and sticking with them, that you can come out seriously ahead. There are three reasons for this…
First, the Efficient Market Hypothesis is close to correct. It tells us that it is very hard to “beat the market.” You never know which direction Mr. Market is going. And you never know which stocks (or other investments) will be favored by future developments. Further to the point, we started our publishing business more than 40 years ago. We’ve worked at it 10 to 12 hours per day… ever since 1979. And yet, can we tell if business is going to be better or worse next year? We cannot. Every year is a surprise. How, then, would an outsider have any idea?
Here and Now: Second, we are all victims of the here and now. One of the surprising conclusions of market research is that most investors do not do as well as “most investors” are supposed to. The stock market may double, but the typical amateur investor is likely to get only half of that. Why? Because he reads the paper… watches Jim Cramer on TV… or follows the advice of his stockbroker. He is in the here and now, where everybody tells him to act… to buy whatever is hot now… or he will “miss the boat.”
Alas, whatever is “hot” is usually already overpriced. The insiders get in early. Experienced, serious researchers buy in soon after. By the time the amateur investor gets wind of it, it is usually too late. He is not actually investing in a business at all; he is simply buying an existing investment from a shrewder investor who is selling out! And then, even if it is a good investment, the sirens bid him move on – to the next “hot” investment – at the worst possible moment.
(This “here and now” phenomenon seems to take more time now that Robinhooders are in the markets. They tend to buy “momentum” stocks… including some of the worst companies on Wall Street. Stocks that should have already crashed are still going up. But we assume that, eventually, they will all lose a lot of money.)
Patience: Third… Markets, sectors, companies – none of them turn on a dime. The best investments are not flashes in the pan. They are companies that grow, month after month… compounding your money over many years. Companies take decades to perfect their products and their marketing strategies. It takes decades, too, for management and employees to learn the particular skills necessary to make them work.
Again, drawing on our own experience, we worked for 25 years before ever making a real, accrued, after-tax profit. But relatively few investors have the patience to wait that long. The financial press and Wall Street always encourage you to act… to get out of slow-moving investments… and take advantage of the latest fads and fashions.
Top Performers: One of our favorite studies of investor behavior came from the Fidelity Mutual Funds group. The company wondered which of its customers had made the most money. They separated them by age, sex, and account size. But what they discovered was that the best performers had none of those things in common. Instead, the distinctive feature common to the best performers was that they all lacked, shall we say, “animal spirits.”
That is, they were all dead. But their accounts had not yet been closed – and often remained open for decades. Resting among the shades, they were never tempted by TV. No brokers called them with hot tips. No gossip reached them. They traded neither in nor out. They sought neither to improve their returns nor to impress their neighbors. They paid no commissions. They did nothing… and their accounts rose.
Trade of the Decade: Our Trade of the Decade is intended to imitate a deathly state… without actually dying. We take a guess about what we think may go up… and what may go down. We make our trade. And we forget about it for 10 years. What do we buy? What do we sell? And how have our “Trades of the Decade” worked out over the last two decades? We’ll take up these questions next week…
But we’re setting aside Monday to pay homage to Donald J. Trump. Stay tuned…"
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