What to Believe About Gold, Stocks and Bonds in 2011

We’ve come up to Brooklyn to help our son, Jules, move into his new digs. (More below…)

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.


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.


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.

And more thoughts…

Europe has its deadbeat debtors. America has its own. Bloomberg reports:

Illinois lawmakers will try this week to accomplish in a few days what they have been unable to do in the past two years – resolve the state’s worst financial crisis.

The legislative session that began today as the House convened will take aim at a budget deficit of at least $13 billion, including a backlog of more than $6 billion in unpaid bills and almost $4 billion in missed payments to underfunded state pensions.

The fiscal mess is largely of the lawmakers’ own making, and failure to address the shortages threatens public schools, local governments and other public services, said Dan Hynes, the state’s outgoing comptroller.

“Illinois’s deficit, about half its $26 billion general-fund budget, puts it among the US states confronting $140 billion in shortfalls in the coming fiscal year after closing $160 billion in gaps this year, according to the Center on Budget and Policy Priorities, a Washington research group.

“The state has been spending $3 for every $2 it takes in, and borrowing to cover its current operating expenses,” said [Miles] White, chairman of the Civic Committee of the Commercial Club of Chicago.

Wait. That’s about the same as the US government. The feds spend about $3 for every $2 they take in too. How come they’re not in a financial crisis?

Oh…we forget. They can print money!

*** Jules is a musician. And Brooklyn…or to be more precise, Williamsburg…is the place for up and coming musicians to be.

Or, so he tells us.

Brooklyn – at least this part of it – is an ugly place. Almost all the old apartment buildings have been defaced with rusty fire-escapes put right on the front. Trash is heaped up on the street. Doors are dingy. Floors are worn and dirty. Metal is corroded and twisted. The town looks like it has been in a slump for the last 50 years.

Still, prices are high. Jules pays $1,200 per month for a room in an apartment that we wouldn’t live in even if someone paid us. Pipes are jury-rigged and exposed. The “hardwood floors” are made of plywood. Bricks are missing from the walls and the bathroom fixtures are so old they could be the first ones installed in North America.

Still, it looks like it would be fun to live in Brooklyn…if you were 21 years old. Almost everyone we saw was under 30. Most were dressed like “hipsters” – cool, casual, and cheap. The restaurants were funky. We went to one across the street from Jules’ apartment. It had been furnished in chairs and tables that must have been bought at the Goodwill or found on the street. Nothing matched. But the walls were painted in bright colors and the waitresses were young and pretty.

Well, maybe we wouldn’t mind living in Jules’ apartment…if we could be 21 again too.

*** A Dear Reader writes:

My family sounds a lot like yours.

They are “getting tired” of hearing my “gloom and doom” analysis of the US’s financial situation.

Unfortunately I have direct experience of hyperinflation, circa 1960’s Fidel Castro’s Cuba.

My family lost 99% of our assets there. I remember my dad exchanging pesos for dollars at 10 to 1, when a year earlier he could have changed them at about 1 peso for 1 dollar.

I feel the same way now changing dollars for gold and silver – except that I am, relatively, way ahead of what he did.

I love this country and it’s so hard for me to see what is happening. I believe that 99% of those that I know are either clueless or in denial.


Bill Bonner,
for Markets and Money

Bill Bonner

Bill Bonner

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.
Bill Bonner

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2 Comments on "What to Believe About Gold, Stocks and Bonds in 2011"

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It doesn’t take much to persuade me that gold will increase in value gainst the US dollar.
However it is not so obvious where gold will go against the Australian Dollar. Since we live in Australia, this is what matters.
Bill are you referring to the Australian or US dollar in this article? It’s not clear to me. If I had to hazard a guess I would say USD.

Ned S

Bill Bonner is an American Richo, so if he’s taking about dollars without specifically saying what sort, it’s pretty much a given that he’s talking USD.

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