The yen is falling. It’s down 5% against the dollar since November.
Investors are finally noticing. With a deficit of 50% of GDP, the Japanese government walks where angels fear to tread. Americans aren’t far behind. To make a long story short, our money is on the angels.
Only an economist would dare to look ten years ahead. Only a fool would put money on it. Today, we do both. But our new ‘Trade of the Decade’ is not so much a look into the future as it is a look at the past.
Ten years ago, your humble correspondent offered his first ‘Trade of the Decade’. He should have stopped there, for the trade was a big success.
It was a simpleton’s trade: Sell US stocks/buy gold. That was in the year 2000. At that time, US stocks had been going up for the previous 18 years, multiplying investors’ money 11 times.
By then, stocks had been going up for so long that the memory of man ranneth not to the contrary. Investors’ imaginations saw no alternative. ‘Stocks For The Long Run’ was the title of a popular book. It was also an investment formula that seemed unbeatable.
Alas, the formula proved beatable. It was time for stocks to go the other way. The first decade of the 21 st century proved to be the worst time to hold stocks since the ‘30s. Net returns were negative – especially when adjusted for inflation. Adjusted to the CPI, the Dow ended the decade down 40%.
The other side of the trade – the buy side – was just as simple-minded. Gold hit a high over $800 in 1980. Then it slipped for the next 20 years. It didn’t come to rest until September 1999 at $260. That was the famous ‘Brown Bottom’ in the yellow metal... when the then chancellor of the exchequer, Gordon Brown, sold Britain’s gold at the lowest price in two decades. (To bring readers up to date, now Mr Brown applies his vision and energy to Britain’s economic recovery efforts.)
Gold is real money. But in the years when gold was being beaten down, other forms of money were running wild. Financial assets mushroomed all over the globe.
A whole new ‘shadow banking’ system emerged... with new financial instruments, representing trillions...…
