October 28, 2013
Bill Bonner shrugs as he recounts how he tried to buy a Palladian mansion in Waterford. The seller was Nama and an Irish bank that had lent to a boom-time developer who had since gone bust. Bonner publishes the world’s most successful financial newsletter. His company, based in Waterford, has a turnover of $400 million and is growing exponentially; and yet, in 2011, when he bid for a property which was in danger of severe dilapidation, the Irish bank that in effect owned the property didn’t return his call.
At that stage he wanted to save the building, which otherwise would suffer further deterioration over the winter, and he hoped to begin reconstruction in the spring; however, it seems that ”someone local didn’t want the deal to happen”.
Four months later, as he says himself, “the roof fell in”. Today the building lies idle, “thieves have ripped the remaining copper off the roof” and something that could have been the headquarters of a global publishing business is now “beyond saving”.
You can hear the incredulous tone in his voice as he tries to figure out a country where the owners of property ,the banks and Nama, will not sell the building in order to save it, allowing the thing to fall into ruin. Now no one will buy it, and all the money is lost.
“Sometimes,” he says, “I don’t know how the country holds together”.
And yet he is optimistic about Ireland. Bonner’s publishing house, Agora Publishers, has a base in Waterford. It has been operating worldwide since the late 1990s.
“Ireland is a great country to do business in; the workforce are smart and pleasant. We’ve been delighted with our Irish office for years, but when the banks don’t respond to a buyer who wants to save a building and put a business in there, it makes me sad. The country will recover, no doubt, cycles always turn, but not before prices fall to the level where it makes sense to buy.”
Bonner, who will be a keynote speaker at the Kilkenomics economics festival (running from November 7 to 10), is a true maverick who has built up not just a publishing empire but an investment one too, buying when assets are cheap and selling when everyone wants them. He is one of the original contrarians, happy to be cautious when everyone else is reckless and be euphoric when others are despondent.
This approach to investing, called “value investing”, has garnered Bonner a huge number of worldwide followers who read his material voraciously all the time. Some 500,000 investors read his flagship newsletter ‘The Daily Reckoning’ every morning precisely because of his maverick insights. “You’d be surprised how many people don’t buy things because they are cheap, which ultimately should be the basic starting point,” he says.
Bonner has a maverick’s way of looking at the world of finance and economics. He is still based in what he describes as ”unfashionable” Baltimore, home of The Wire and ascribes some of the clarity of his thinking on economics to the very fact that he is in an unfashionable city, far away from the glitz, noise and greed of Wall Street. He describes himself and Baltimore as “the anti-Wall Street”.
Warming to the theme of how the financial industry rips people off, Bonner quotes the ultimate value investor, Warren Buffet, when he suggests that 30 per cent of all the money that goes into investment simply pays the salaries of the financial machinery that is behind the shining facades of the world’s biggest banks.
“The lawyers, accountants, brokers, underwriters and the whole apparatus of an industry is expensive, particularly as it is designed to sell a share of something to someone who doesn’t really know what he is actually buying. I mean all those stockbrokers’ luxury houses in Long Island have to be paid for!”
And who pays them? To Bonner, it’s the little guy. He focuses on the US Federal Reserve, which he describes as a “banking cartel”. Under the slogan of quantitative easing, Bonner points out that what it is really doing is transferring huge amounts of money from the next generation who will have to pay for all this money printing either in inflation or in huge debt repayments to the stock market. And who owns the stock market? Well, it’s not the guy working in a factory, as Bonner laughs at the bizarreness of the whole thing; it’s the rich people!
“If you want to know why the rich get richer, there’s no secret to it,” he muses. “The Fed makes them richer and those people happen to be in the financial sector, largely and the financial sector just happens to be the sector that the Fed most favours.”
Interestingly, unlike other contrarian voices in the financial markets, Bonner isn’t an “endist”, those who believe that the end of the financial world is nigh. On the contrary, he suggests that he has no idea how things will turn out, no one does. However, he draws on economic history, a regular theme in his writing, which extends beyond the regular diet of financial analysis to include forays into psychology and philosophy. Economic history tells us that things don’t last forever, long periods of very low interest rates are followed by periods of higher interest rates and higher interest rates will render the present worldwide policy of printing money null and void. Forecasting precisely when this will happen is impossible, but Bonner’s best guess is that this will happen in the next five years. In the meantime, stock markets will most probably keep going upwards, pumped up by the steroids of the Fed.
Bonner is the author of three New York Times bestsellers and is working on a fourth, which is aimed at debunking the entire economics profession, something he describes as ”nonsense, the numbers are just made up and not a science at all and the more you dress it up like science and the more you rely on it as a science, the more you are misleading yourself”.
He signs off, laughing, by citing Alan Greenspan, who was deemed by many for many years to be the great economist driven by numbers, theories and intricate forecasts. Yet as Bonner humorously observes, this week Greenspan pops up on TV in the US, long after the damage was done, and says: “Remember all those numbers and forecasts we based everything on? Well, you know, we didn’t really believe them ourselves.”
With that, he is gone.
The very funny, contrarian, iconoclastic Bill Bonner will be in Ireland in two weeks’ time appearing at Kilkenomics in Kilkenny on Saturday November 9th. For anyone with an interest in the world around us, his shows are not to be missed.
Book at www.kilkenomics.com
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