Here’s the latest from oilprice.com: ‘Big Oil Set to Report Record $200 Billion Profits For 2022’:
‘The industry, the top performer in the S&P 500 index over the past year, has boosted dividends and share buybacks in recent quarters thanks to the massive cash flows.
‘The five biggest oil majors in the world are expected to report record profits for 2022 in the coming days, for around $200 billion in combined yearly earnings thanks to the jump in oil and gas prices last year.’
‘So, how’s that trade going?’
Porter was asking about our ‘Trade of the Decade’.
20/20 hindsight
Porter Stansberry is an old friend and shrewd investor. We met him about 25 years ago when he drove up in an old BMW with the bumper falling off. We gave him a job analysing stocks. And he took to it like a fledgling bird takes to the air. Soon, he was soaring on his own. Later, he left our firm and started his own — Stansberry Publishing. That company was sold to a SPAC in 2021 for almost US$3 billion.
Porter came to visit last weekend.
‘I wish I had taken your advice’, he said. (We had advised against the sale.)
The SPAC deal didn’t work out as planned. Porter didn’t end up with the money he thought he’d earned. The timing was bad (just before the market turned down). The deal was bad (there were several unanticipated twists and turns). And early retirement was not as fetching as he imagined.
But now Porter has begun a new business, Porter & Co. He came over to France to interview us about money. Flattered, we had to admit that we didn’t know any more about it than he did. But we had a good time reminiscing and reflecting with an old friend.
‘So, tell me about the Trade of the Decade’, he asked, with the cameras rolling.
Porter thought we had invented it. But we got the idea from Marc Faber. He showed how, by taking a long-term perspective, you were able to eliminate the distraction of the daily news…and focus on trends that were more important and longer lasting.
We should give credit to Richard Russell, too. Richard began writing a market analysis newsletter — ‘Dow Theory Letters’ — in the 1950s. He kindly invited us to his 90th birthday party — more than half a century later — when he was still writing the letter.
A numbers game
Late in life, his letters tended to drift to memories…of the people he’d known…of the markets of the ‘60s and ‘70s…and most often, of the Second World War. Richard had been a bombardier based in England and dropping bombs on German infrastructure by night.
‘It was a numbers game’, he wrote. ‘You knew that the more missions you flew, the more likely you wouldn’t come back.’
What does a man think when he’s in a big, metal contraption, high above Dusseldorf, with German ground artillery and fighter planes gunning for him? ‘I was scared. You’d have to be crazy not to be scared’, he wrote.
It was Richard who came up with the idea of the ‘Primary Trend’. He recognised that stocks may go up and down, more or less at random. But looking back over the long haul, you see trends that take the market from major highs to major lows. In the stock market, a peak was hit in 1929, for example. The next peak came 37 years later, in 1966. After that, the next major high didn’t come until 1999, 33 years later, and the ‘final’ high didn’t show up until 2021 — 55 years later.
The point is: these trends are long. And the surest way to make money (apart from actually owning a growing, profitable business) is to invest in the primary trend and stick with it. Our ‘Trade of the Decade’ merely tries to capture a piece of the primary trend.
The trouble with measuring gains over a long term is that the tape stretches. Over time, inflation tends to distort real values, making it hard to see what is going on. That’s why we use gold as our most basic metric. Ultimately, we want to count our wealth in ounces…not in dollars.
A catastrophic breakdown
At today’s price, if you have 17 and a half ounces of gold, you can buy all the stocks on the Dow. That’s the same price as August 1929 and May 1962, etc. From 1929–2021, apart from dividends, investors made no progress in 98 years. Stocks generally are worth no more today than they were then.
Nor can you expect to get richer just by holding gold; you’ll have no more ounces in the future than you have now. Instead, if you want to make financial progress, you have to trade your money (gold) for businesses that are growing in value. And that’s where the primary trend comes in. Sometimes businesses are becoming more valuable. Sometimes they aren’t. Sometimes the primary trend for stocks is up. Sometimes it is down.
And there are primary trends for commodities too, trends that last 10 years or more…
‘Porter, the Trade of the Decade is meant to highlight trends and help us understand what is going on. I don’t know if anyone actually makes the pure trade.
‘But here’s the thinking behind it: Governments all over the world are trying to put the squeeze on traditional forms of energy. So, the producers are not spending money on new wells, pipelines, or refineries. But our standards of living depend on energy. And unless and until there is some technological breakthrough, people are going to want gas and oil.
‘I like solar as much as anyone. My whole ranch, in Argentina, runs on solar panels because we don’t have a power grid. It works fine. But it’s not cheap. And I was a pioneer in low-carbon-footprint building. I built a passive solar house in Maryland, the first…and the last…of its kind.
‘Those things are fine for people who can afford it, but they don’t change the realities of the world’s energy markets.
‘Government meddling in energy is not likely to work out any better than in any other industry. We’ll be lucky if we don’t get a catastrophic breakdown.
‘And at the very least…with no new sources…and no new competitors….and no need to make additional investments, existing energy companies should be more profitable than ever. At least, that was our bet a year ago.’
‘Well…how did it turn out?’
‘Energy was the best performing sector last year. So far, so good.’
Our son, Henry, had been watching from the sidelines.
‘Dad’, he interjected when the cameras were turned off, ‘that house in Maryland was always cold and a little creepy. Mom refused to live in it’.
Regards,
 |
Bill Bonner,
For The Daily Reckoning Australia
