“Everything will end badly.”
– Bill Henry (quoted in The Maxims of Wall Street, Page 110)
“Businessmen can profit handsomely if they will disregard the pessimistic auguries of self-appointed prophets of doom.”
– J. Paul Getty (Maxims, Page 110)
Last week in my Liberty Through Wealth column, I recounted my interview with a permabull: David Gardner, co-founder of The Motley Fool. “I am an optimist,” he told me, and he is always 100% invested, even during crashes and bear markets.
He and his brother, Tom, are firm believers in the American Dream both now and in the future. Like Ben Franklin, J.P. Morgan, and Oxford Club Chief Investment Strategist Alexander Green, they believe in American exceptionalism, despite all our problems.
By being fully invested for the long run, the optimists have been highly successful and have accumulated a far better record than the prophets of doom.
After interviewing Gardner, I spent the following days with investors on the other side of the aisle.
Let’s take a look at both sides of the debate and what it could mean for investors.
A Gathering of Doom-and-Gloomers
I recently visited New Orleans for the annual gold bug conference, which I call “the granddaddy of investment conferences.” Since 2000, it has been run superbly by Brien Lundin. It is still famous for being the gathering of doom-and-gloomers, who are almost always bearish on stocks and bullish on gold.
I’ve been a speaker since 1978, back when I was a full-fledged gold bug myself… until Ronald Reagan was elected president in 1980.
I well remember the 1980 conference. Over 3,000 investors showed up. But I was astonished to learn that Jim Blanchard, the founder of the New Orleans conference, and most of the speakers refused to accept the idea that Reaganomics was a revolution and would dramatically change the financial landscape.
I was an outlier. Right after Reagan was elected, I wrote a piece for my newsletter Forecasts & Strategies with the headline “The Financial Shock of 1981.” Readers opened the envelope and read, “Reaganomics will work! Sell your gold and silver and buy stocks and bonds!” My prediction proved to be accurate, but few believed me.
About 45 years later, the debate in New Orleans hasn’t changed much. The question on everyone’s minds this year was the same one I wrestled with in 1980: stocks or gold?
The Future of Stocks and Gold
Gold and silver went through a 20-year bear market and have been in a rocky up-and-down market since then. But in the long run, the precious metals have moved higher and have outperformed the stock market in the 21st century.
Despite a bear market in gold and silver this year, the vast majority of speakers at this year’s conference (many of them miners themselves) were bullish on precious metals and warned the audience that the AI boom is a bubble that could collapse at any time.
Indeed, tech stocks dropped sharply on Friday, raising the specter of another boom-bust cycle like 1997-2003, when the Nasdaq more than doubled and then fell over 70%.
And yet the crowd was not happy seeing gold also sell off sharply to $3,900 an ounce and silver fall below $50 again. The miners exhibiting at the conference sold off. Bitcoin also had a tough week, dropping almost 5%.
Is there no place to hide? Well, in the model portfolio in The Skousen Report, my financial and healthcare stocks fared better on Friday.
Even so, optimism remained in short supply at the conference.
“The Four Horsemen of the Apocalypse”
The conference in the Big Easy highlighted four permabears: Peter Schiff, Doug Casey, Porter Stansberry, and Robert Prechter. I call them the “Four Horsemen of the Apocalypse.”
Peter Schiff took issue with my view that new Fed Chairman Kevin Warsh is an inflation hawk and is determined to bring consumer price index inflation down to its 2% target rate. “The money supply is growing at 6%,” Schiff said. “That’s inflationary. Buy gold!”
Doug Casey has been calling for “The Greater Depression” for 50 years now. It’s still on its way, he said.
Porter Stansberry is the most bearish. He recently updated his 2011 End of America book with a new title – 2029: The End of America. It predicts a massive monetary reset after a financial crash and depression on the 100th anniversary of the 1929 crash.
For decades, Robert Prechter has interpreted the Elliott Wave Theory, a technical cycle based on a Fibonacci series, in a negative way. After correctly forecasting the start of the 1982 bull market and warning clients ahead of the 1987 stock market crash, Prechter turned staunchly bearish and has spent decades anticipating a severe economic collapse and market crashes.
In a New York Times article in 2010, Prechter forecast a historic stock market crash worse than the 2008-2009 financial crisis, the Great Depression, and the Panic of 1873, suggesting the Dow Jones Industrial Average could potentially plummet by 70% to 90%. Instead, Wall Street enjoyed what I called the “mother of all bull markets.”
Interestingly, Prechter is now predicting a bear market in both stocks and gold, saying that gold could fall to $3,100 before bottoming. No one was happy to hear that in New Orleans.
Now, even though we disagree, I do believe these experts are sincere and, like Old Testament prophets, they feel the need to warn the world of the dangers and excesses of “irrational exuberance” created largely by bad government policies.
“What Am I Missing?”
We’ve all made mistakes and bad predictions, but the key question every forecaster must ask when they’re wrong is this: “What am I missing?”
Here’s what the permabears all seem to be missing this time: They underestimate the ability of government to right the ship by engaging in bailouts and guiding the ship back to normalcy while allowing free-enterprise capitalism to work its magic.
Despite every effort by Republicans and Democrats to overtax and overregulate citizens and depreciate the currency, the state has not been able to keep America from growing.
It’s happened over and over again: in 1980, when Reagan was elected and Fed Chairman Paul Volcker killed double-digit inflation… in 1987, when Fed Chairman Alan Greenspan stabilized the stock market crash… in 2008, when the government bailed out Wall Street… and in 2020 during the pandemic, which brought more bailouts and easy-money policy.
Can the government bail us out again in the next crisis? The Four Horsemen of the Apocalypse would likely say, “No, the leveraged debt has gotten too big and out of control.”
They may be right… eventually. The most recent monetary crisis won’t be the last.
But history shows that the investors who stay the course are the ones who come out ahead. Every crisis has eventually given way to recovery, and every bear market has been followed by a new bull market.
Meanwhile, let’s stay invested in a diversified portfolio that includes stocks and gold.
Dick Russell said it best: “In a bear market, the man who wins is the man who loses the least” (Maxims, Page 108).