Fear and Loathing of Emerging Markets and Gold

We’re in Washington Dulles airport, on our way to India. As we write, the Dow is down some 300 points…and still falling.

It’s still way too early to know if the bull market trend of the last five years has run its course. Mr Market may be exhausted from all this running uphill. Or he may be just toying with us. We will wait to see.

What goes around comes around. What’s been going around lately has been fear and loathing of emerging markets and gold. Because these are among our favourite investments we are forced to think about what is going on.

When prices go in your direction, you’re asking for trouble. No need to think; you know it all already. No need to worry either; just sit back and let the money come to you. Until it doesn’t.

You are much better off when the financial news goes against you. Then you have to wonder about your premises, your emotions – and your sanity.

Hardly a day goes by that we don’t thank our lucky stars. We were blessed, you see, by misfortune.

As a child, we had no money. We couldn’t lose the family fortune; we didn’t have one to lose! Which turned out to be a good thing. For if we had had any money, we would have lost it in the Great Bear Market in Gold of 1980 to 1998.

President Nixon finally severed the dollar’s connection to gold on August 15, 1971. We’d read enough history to know what that meant. Soon, we would be pushing wheelbarrows full of $100 bills to the liquor store to buy a six-pack.

How to protect yourself from the inevitable hyperinflation?

Simple: Buy gold.

That is how we became a ‘gold bug’.

Then the worst possible thing happened: Gold went up. From $41 an ounce in 1971, the yellow metal soared to over $800 an ounce by 1980.

We were right! We were smart! We went ‘all in’ on gold… and waited to be rich.

Fortunately, our luck changed before we got far. Misfortune smiled on us…setting us at odds with an 18-year secular bear market in gold.

Do you know what that is like, dear reader?

Every day…every month…every year…losing money…mocked by the market gods…dissed by family and neighbours.

Every day proved even more emphatically than the day before that we didn’t know what the hell we were doing. Every day, at the sound of the closing bell, Mr. Market pronounced his solemn judgment: We were idiots.

For 18 years we endured this punishment. And thank God we did. Because now we know how easy it is to be wrong.

You try to make out what is going on. But you see only shadows and hear only echoes.

Like a ghost haunting an old house, you will feel a chill breeze brush your face…you will see things appear in strange places and wonder how they got there. But you will never know how this spectral world works, not as long as you cling onto your mortal coil…

As we clung to our losing positions in gold, the smart money went into stocks. Perhaps it understood that we were in a huge credit expansion that would take stocks up to 20 times their value in 1971.

From 874 in 1971, to 15,400 yesterday. Wow!

But wait. What if you had just stuck with gold?

Let’s see…from $41 to $1,250 an ounce. Holy smokes. That’s 30 times your money!

Maybe our ‘crackpot’ insight was right all along. And maybe gold and emerging markets will turn out to be stellar investments after all.


Bill Bonner
for Markets and Money


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Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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