There are a number of illusions that investors and business people have developed in my lifetime:

  1. You can’t go wrong buying real estate, they ain’t making any more of it.
  2. Gold is the only true money and the ultimate safe haven in bad times.
  3. Inflation and bond yields only go down; can’t go wrong buying good bonds.

Can’t Go Wrong with Real Estate

I’ve addressed real estate many times.

The first middle-class generation to rise into high ownership, followed by the largest generation in history, has made real estate a one-way street from 1945 into now. A smaller generation to follow a larger one in almost all developed countries will break that trend. Real estate will be lucky to grow any more than its historical relationship with inflation after bursting as much as 50% to get back down to reality again — a zero real return as it has averaged since 1870.

The first reality hit in the 2008 financial crisis.

The next will be the final epiphany!

My quote on the matter: “Real estate will never be the same in developed countries.”

The Golden Standard

Gold was God-like in the inflationary summer recession of the 1970s and commodity bubble into 1980. And it rallied to massive new highs with the second commodity bubble peaking in 2011 for metals, then crashed when runaway money printing — printing that was supposed to create inflation — didn’t create inflation!

Gold first showed its true crisis protection when it first crashed in the second half of 2008. It did the opposite of the gold bugs’ forecasts — down 33% while the U.S. dollar up 27%. Not the safe haven they thought it was…

The dollar and Treasury bonds (and AAA corporates) turned out to be the true safe haven!

Gold showed its true inflation colors when inflation continued to fall despite a dramatic second escalation in money printing in 2013 — gold crashed down to $1,050. And it will hit new lows in the next crisis before embarking on its next 30-year commodity cycle run.

Can’t Go Wrong with a Good Bond

Then there are Treasury bonds…

They have been in a nearly non-stop bull market since their 1981 all-time top in yields during the highest sustained inflation in modern times… almost four decades long!

But how many people remember the 40-year bear market in bonds as inflation rose from the beginning of World War II into 1980?

This, like gold in its 30-year commodity cycle, is just another cycle.

This cycle has been driven even further along by the greatest inflation surge as the massive Baby Boom entered the workforce in unprecedented numbers.

The chart above has been the key driver of my 80-year Four-Season Economic Cycle. It’s simply expanded from 60 to 80 years. And tweaked to cover the past K-Wave from the new 40-year generation cycle driving the booms and busts since that first middle-class generation that drove real estate into its historical outperformance until 2006.

All the bubbles of this also most-exaggerated Fall Bubble Boom Season will have to come back down to reality: commodities and real estate for the second time, stocks for the third time…

But what was the safe haven at the worst in 2008? The U.S. dollar and the highest quality bonds denominated in it…

As investors run for cash and the highest quality bonds to pay them a stock-like dividend, yields will fall lower and the value of those bonds will be one of the few rising assets in this “great reset” of financial asset prices — as in the 1929-1932 crash and throughout that Winter Season.

Of course, the Fed and other central banks will again lower short-term rates back to zero or lower — and will be printing money feverously again to buy those longer-term bonds to force rates down to zero or negative.

After that projected 2022 bottom of most financial assets and bond yields, bonds will be in the next longer-term bear market. Investors will ride rising yields to their disadvantage into the next, much more modest inflation cycle, which will peak between 2038 and 2040.

Commodities will boom with that inflation cycle into 2038-2040.

Stocks will boom again with Millennial demographics around 2036-2037, just not as strongly as this last boom.

And real estate will recover the most anemically.

The bond bubble will be the last to burst with something like an 18-year bear market to follow, and sharply at first when investors realize that the great reset and deflation game are nearing an end…

All of a sudden, bonds will look like you can’t go right buying them! Then they will boom again when inflation goes down into 2074 or so.

It’s just how cycles work.