Is this “Uptober”? Or the End of the Road?

Welcome to this week’s issue of The Adventure Capitalist! I’ve been spending a lot of time thinking about the outcome of the next few months. I hope you enjoy it.

Here’s what you can expect this week:

• The S&P 500 is quietly on pace for the best year this century. Where do we go from here?

• Blood & Oil: A tale of ruthless consolidation

• Taking over a new company? Try the “broken shelf” approach

Let’s go.

Is this “Uptober”? Or the End of the Road?

The markets have ripped over the past 12 months. Since October of last year, the S&P 500 and Gold have both been up almost 40%. During the same period, Bitcoin has been up 100%, and Solana has rallied by over 400%.

The fact that the Bitcoin rally was so sudden and it’s an election year means it’s received less coverage than it deserves.

If you narrow your focus down to solely 2024, the S&P 500 is quietly on pace for the best year this century.

We’ve been cruising for over a year, but if you go into Crypto Twitter all you see is talk of a “new bull market for Bitcoin” or “Uptober is here”.

Crypto speculators are talking about a “melt-up,” but with returns like that over the last year, has the melt-up already occurred?

In this post, I attempt to answer the questions:

1. When was the last time (if ever) that Gold and the S&P 500 both moved by 40% during 12 months?

2. And if so, what happened in the following 12 months after that?

Has This Happened Before?

The answer is yes, at least sort of. There have been three “Surge Periods” where Gold and the S&P 500 experienced large gains in lockstep. There was never a 40% increase for each in 12 months, but sizable gains nonetheless. Let’s dive into it:

August 1971 to August 1972 (Stagflation Era)

Gold Increase: Approximately 60%

S&P 500 Increase: Around 15% in the same period.

March 2009 to March 2010 (Post-Global Financial Crisis)

Gold Increase: Approximately 20%

S&P 500 Increase: Around 59% during the same period.

March 2020 to March 2021 (Pandemic Recovery)

Gold Increase: Approximately 11%

S&P 500 Increase (12-month period): Around 60% during the same period.

Bitcoin Increase (March 2020 to March 2021): Approximately 700% from March 2020 to March 2021.

As you can see this move is not unprecedented, but two out of the three times it happened was directly after a financial crash. That makes more sense as valuations of the S&P were compressed and they were getting back to baseline.

What Happened Next?

To figure out what happened to Gold and the S&P in the following year after a “Surge Period”, I looked at the following 12 months for guidance about what might come next. Did they continue to climb? Or was there a sharp retreat? The results were mixed.

August 1971 to August 1972 (Post-Stagflation Period)

*Since Bitcoin didn’t exist at this time, we’ll focus on gold and the S&P 500.

Gold Return: Approximately +67%

Gold continued to rise due to inflation concerns and the breakdown of the Bretton Woods system, maintaining strong gains.

S&P 500 Return: Approximately -1%

The stock market entered a bear market in 1973, driven by inflation, rising oil prices, and economic stagnation, leading to negative returns.

March 2010 to March 2011 (Post-Global Financial Crisis Recovery)

Gold Return: Approximately +30%

Gold continued to rise sharply, peaking in 2011 as concerns about inflation, global monetary policy, and debt crises fueled demand for safe-haven assets.

S&P 500 Return: Approximately +15%

The S&P 500 continued to rise, driven by economic recovery and monetary stimulus, though at a more moderate pace than the previous year.

Bitcoin Return: Approximately +3000% (yes, 3000%!)

Bitcoin was in its infancy during this period and experienced explosive growth, starting from a very low base of a few dollars to around $1 by early 2011. Its performance was driven by increased awareness and adoption by early enthusiasts.

March 2021 – March 2022 (Post-Pandemic Recovery)

Gold Return: Approximately +15%

Gold performed relatively well as inflation picked up and geopolitical tensions rose, although it didn’t see the same explosive gains as in earlier periods.

S&P 500 :Return: Approximately +14%

The S&P 500 had another year of moderate gains, with a focus on sectors like energy and financials, despite rising inflation and interest rate hikes.

Bitcoin Return: Approximately -30%

Bitcoin faced significant volatility, declining from its peak in April 2021, though it had periods of brief recovery before closing lower.

Where Do We Go From Here?:

I think we have a better chance of repeating the 1972 - 1973 outcome than that of the 2000s. That means gold continues to climb, and the S&P 500 is choppy at best. As far as Crypto goes, I’m less sure. Generally, I think it will continue to track the S&P so I imagine we’ll see headwinds going forward.

Key Factors:

Economic Environment:

We’re in a more similar environment to the 1970s than we are to the Post-Global Financial Crisis or Post-COVID. We have persistent high inflation, the U.S. equity market has reached the most extreme level of valuation in history, and forward return expectations for companies are mediocre at best. Pair that with record levels of debt and it doesn’t look pretty.

Monetary Policy:

The 1970s were characterized by tightening monetary policy (high interest rates).

There is an expectation of rate cuts from the Fed, but we might not get them. Inflation is still hot. If it persists, it will lead to a second wave of rate hikes, exactly what happened in the 1970s. Smart money is betting on a second wave of rate hikes.

Investor Confidence:

Like in the 1970s, investor confidence is low due to geopolitical instability. It’s an election year, and nobody is happy with it. It seems like wars are popping up everywhere. I don’t see this improving any time soon.

Political Risk:

Hedge Funds are positioning themselves for a Trump victory. If Trump wins, I believe this will lead to at least a short-term rally in equities. If the Republicans sweep, things could get silly.

If Kamala wins, smart money is betting on Gold going higher and a pullback in equities.

Regardless of who wins, persistent inflation will likely be a thorn in the side of the next administration and investors. Buckle up.

Where do you think we go from here?

None of this is investment advice; it’s just my attempt to decipher what is happening in the markets.

The Adventure Capitalist Podcast:

In this week’s episode, we discuss why all roads lead to inflation, is coal cleaner than LNG?, inside America’s secret war in Yemen, and why North Korea is sending bags of shit into Seoul.

🎙️Listen to the full interview on Spotify.

🎙️Listen to the full interview on Apple Podcasts.

The Lifestyle:

🌎 Global Adventure:

I’m in the middle of reading Blood and Oil: Mohammed bin Salman's Ruthless Quest for Global Power. It’s a fascinating book about the rise of MBS in Saudi Arabia. If you have any interest in the Middle East, the politics of oil, and the meteoric rise of one of the most important (and least understood) leaders on the global stage – this book is for you (link)

💰Wealth, Business, and Life:

John Mearsheimer and Jeffrey Sachs go against the grain. This is the most interesting panel I’ve listened to about America’s foreign policy towards China, India, and the Middle East (link)

The entire silver run could be over in several weeks if history repeats itself (link)

Taking over as a CEO of a new company? Avoid best practices and instead try the “broken shelf approach” (link)

🚁 The Best of the Best:

I have been trying to drink more tea lately. I find that I just feel better when I’m drinking tea rather than coffee, especially in the afternoon. One of my favorites is GABA Oolong. (link)

On the other beverage front, when I was down in Guyana I discovered El Dorado Rum. Guyana is known to produce some of the best rums in the world and the company behind it has a fascinating history. In the 1700's there were more than 300 distilleries in Guyana. Over time the vast majority of them closed. El Dorado has lasted and it’s an incredible treat (link)