Bill Bonner: Where to put your money now

From Bill Bonner, Chairman, Bonner & Partners:

CAFAYATE, ARGENTINA – We drove down from the ranch yesterday to the tourism and wine town of Cafayate.

With our own 4×4 truck, we could have easily made it through the pass where we got stuck two weeks ago. But the track was so rocky, we decided to avoid the wear and tear by taking the long way around.

Even so, the road was still so rough (unpaved all the way) that it jolted a taillight loose.

By the time we got to Cafayate three and a half hours later, the truck – missing a rear light – was so covered with dust, and so beaten up, that a group of French tourists paused to laugh at it.

Bill’s pickup truck after the long, bumpy drive

But today, we turn to practical matters…

Dogs of the World

Recently, we made some money – a little dividend from a woodworking shop in Nicaragua.

The shop was set up with a modest investment and modest ambitions. But as the number of people building houses on the coast has increased, so has business.

Now we find ourselves making money.

The question on the table: What to do with it?

Stocks? Bonds? Cash? Gold? Real estate?

Bringing the end of the story right up to the beginning, we decided to buy a little bit of timberland in Virginia.

But let’s back up and work through the choices…

We hold about one-third of our liquid wealth in stocks. Part of that is in the long-term, conservative recommendations Chris Mayer makes in his Bonner Private Portfolio advisory.

It’s early days still. But Chris’ portfolio is up about 9% since he launched his service last April.

We have another little portfolio of country-specific stock market ETFs (exchange-traded funds).

The idea is simple. Individual companies go broke. Countries rarely do. So when an entire stock market is beaten down and hated, there’s good reason to think it will go back up.

The idea came from the “Dogs of the World” strategy popularized by fund manager Michael B. O’Higgins.

We buy the cheapest markets in the world… and wait.

No stock analysis. No guesswork. No investment fees. No reading the newspapers or wondering what will happen next. The current list of dogs: Turkey, Malaysia, Mexico, Denmark, and Britain.

Cash “Insurance”

This approach is not for everyone.

Because not everyone can wait for the long run to come. And over the short run, anything could happen. Awful markets – such as Greece – can get awfuller.

And the big picture for stocks, worldwide, is bad.

They are priced for a world of near-zero interest rates – a world that can’t last much longer.

So, given our druthers, we’d rather not put more money into stocks.

Bonds?

Forget it. By our estimate, the 37-year bull market in bonds peaked last July.

High-quality bonds could go back up in the next crisis. Then they will eventually get murdered by inflation and higher interest rates.

It will take nerves of steel to play that move.

Low-quality bonds will sell off fast as soon as the next credit crisis begins.

It is impossible to say when or how, but the risk is high for us.

Cash?

We already have about one-third of our money in cash, half in U.S. dollars and half in Swiss francs.

Holding Swiss francs is painful. The banks charge us a negative interest rate. We aim to get the money into something else; we just haven’t gotten around to it.

Dollars?

The problem there is that consumer price inflation is probably twice the official tally… and it looks like it could get worse.

Recent tallies by MIT – which collects 15 million online prices daily – reveals prices rising as much as 3.6% a year. That’s nearly twice the official, fake-news rate.

It’s hard to say, but we could be losing 2% or 3% a year on our dollar holdings.

But we don’t mind holding some dollars. They are a form of insurance. If we’re right about the coming crisis, these dollars will be the best “investment” we have.

But the longer the crisis takes to arrive, the more the insurance costs. And as Voltaire reminds us, paper money always returns to its intrinsic value – zero – eventually.

Bitcoin or Gold?

Another form of insurance is gold.

That makes up about another third of our liquid investments.

Our children think gold is for fuddy-duddies. They believe cryptocurrencies, such as bitcoin, will make gold obsolete. Maybe they’re right. But we’ll wait for proof.

Besides, when the crisis comes, it’s likely to be accompanied by a broad failure of the electronic money processing system. Even the power grid and the internet could be affected.

You may have millions in bitcoin but be unable to access it.

A Krugerrand, comfortably carried in your pocket, needs no cord, no power, and no internet connection.

But gold is not cheap. Our estimate shows it is more or less fully priced. So the insurance value costs you nothing extra. But – apart from the insurance – there’s no obvious upside.

So what then?

The problem with stocks, bonds, cash, and gold is that you get no pleasure from them. At least we don’t.

Real estate, on the other hand, can be fun.

Yes, it can also be a pain in the derriere. Yes, you can lose a lot of money, too, if you’re not careful. But it can also be a good way to tuck money away for the future.

Harvesting Wealth

Warren Buffett once explained that one of the best investments he ever made was a farm in Illinois.

He didn’t intend it as an investment. He didn’t watch farm prices. He just forgot about it. And it rose in value.

It doesn’t always happen that way. We invested in a piece of property down here – close to San Martín de los Andes – about 20 years ago. Today, it is still worth what we paid for it (in nominal dollar prices). Not a penny more.

Timberland, though, is usually a good buy-and-forget-about-it investment.

You buy. You pay the taxes. You get a timberman to look after it. And then, many years later, you… or your children… harvest the trees.

From a 2010 report from Charlie Curnow at Advisor Perspectives:

Between 1987 and 2009, the most common measure of the performance of timber as an asset class – the National Council of Real Estate Investment Fiduciaries Timberland Index, which tracks a large pool of individual timber properties acquired in the private market for investment purposes only – earned a compounded annual return of more than 14%. The S&P 500, by comparison, has returned about 9.4% in the same period.

Plus, if you buy in the right place, you may decide to convert your timber property for another use.

In our case, we paid more than we should have for pure timberland. But location was key. The land we just bought is within a half hour of Charlottesville… a charming college town.

It is within a half hour from a sister and next door to a brother.

As we look ahead to how we might live in the last part of our lives, we think… maybe… we will build a little bungalow near the rest of the family.

I’ll do the gardening and dig up the weeds… while Elizabeth knits a sweater by the fireside.

Bouncing grandchildren on our knees…

… singing night and day…

… and collecting our Social Security checks.

Regards,

Bill

Crux note: You won’t read about it on the news. But behind the scenes, the Deep State has been scrambling to avoid an even bigger crisis than the one that hit in 2008. It has nothing to do with stocks… or bonds… or international currency markets. And when it strikes, it could bring down the entire monetary system. To learn more about the coming monetary catastrophe… and the steps you can take to protect yourself, follow this link.

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