Friday was the final day of the Agora Financial Investment Symposium in Vancouver, British Columbia, put on by the folks at the Daily Reckoning newsletter. The final speech was delivered by Bill Bonner, founder and president of Agora Financial, and truly one of the best financial writers of our day. He's a "literary economist," as he likes to say. Below is a partial transcript of Bonner's speech, edited for clarity.
On where we are: I think that we obviously and inevitably are in a period of debt deleveraging. That's a very important thing to understand. Most leading economists don't get it. But it's right there. It is unavoidable.
So everyone is doing what they ought to be doing: They're saving money. The savings rate is currently going up. That scares the neo-Keynesians to death, but it's what we've got. And what's happening with these savings? It's all going into Treasuries. People are fundamentally more frightened about losing money than they are excited about making money. What's the result? It's a market that's weak. It's a market that's vulnerable.
On the rest of the world: I was in Asia not too long ago. I looked around and I saw all these young, hardworking people, and I'm thinking, "These people are going to be very hard to compete with." And they are. My businesses in India are growing faster than any other of my businesses. I'm not making predictions. I'm just looking at what's going on right now. And I don't see any reason why they'll stop.
Here's a good story about global competitiveness. A lady just bought a company in France for 1 euro. And what did she get for this 1 euro? A company that has no debt and 10 million euros in the bank. How can that be? Who would sell that business for just 1 euro? Well, here's the thing: In France, it costs about 100,000 euros to lay someone off, because of unemployment benefits and whatnot. Think about that ... 100,000 euros! Just to let someone go! And this business, coincidentally, needs to let go of about 100 workers. So there's your 10 million euros. It's already gone. It's very hard for a country like that to compete on a global scale. You know how much money I've made on my businesses in France? Not one dollar.
On financial tinkering: Think about oil wells. These are complex engineering things. But it's a science. Energy engineers do make mistakes, of course. They drill 1,000 wells a year and maybe have one major accident. It's really nothing.
But then there are financial engineers, like the Fed. Financial engineering is not a science. It's an experiment. I mean, what are these guys doing? What is their plan? What are their tools? What is their success record? It's a joke. It's an absolute joke. None of what they are doing has ever been tested. All their theories are just that: theories. And they're bad theories. These people have never built a bridge that didn't fall down. Yet they are embarking on an experimental project that has already cost the world $20 trillion in lost wealth. That's nothing compared to what BP's
On how much longer until we're out of the woods: In the past 100-some-odd years, markets have peaked three times: in 1929, in 1966, and in 1999. The length between each new high is usually about the same -- 35 years. Why? Because that's the length of a generation. It's the amount of time it takes people to forget what happened last time around.
What we're seeing now is an orderly -- and I stress orderly -- destruction of debt. It's a correction. And consumers are paying off debt so quickly. Faster than the government is creating new debt, in fact. Looking at the latest figures, it's about a $500 billion net payoff per quarter. That's $2 trillion of debt that's being paid off each year. So let's do the math. If we were at 300% total credit market debt to GDP, and a comfortable average is 150%, then we need to pay down, let's say, about $20 trillion. So that's 10 years at current rates.
I like that: 10 years. It's a nice round number. It's also what history shows: These things typically take about 10 years to pull out of. This correction started in 2007, so it will probably last until around 2017. So seven more years to go. And that's only if everything goes according to plan, of course. Things could change at any moment.
My comments (Morgan here): I like Bonner. He's a rational pessimist, which is an entirely different species than most doomers. His calculation of needing another seven years to bring debt down to sensible levels struck home with me. This idea, that the world isn't about to end, but the next several years will be lethargic at best, is echoed by Bill Gross of PIMCO (the "new normal"). It really makes a lot of sense.
The most reasonable way to invest in this world, I think, is to focus on high-quality dividend stocks. If economic growth is mild, you can kiss capital appreciation goodbye. As long as that's the case, companies with durable franchises and histories of maintaining and increasing dividend payouts should outperform. Three in particular that I like are Verizon