The Flying Frisby - money, markets and more

I was never particularly interested in politics growing up. My father was an active social democrat, and I remember him jumping up and down with excitement when the SDP was formed, as David Owen, Roy Jenkins, and Shirley Williams broke away from the Labour Party.

Even as a student, I never got interested beyond having a feeling that something wasn’t right. I felt I should be left-wing - that that was the right thing to be, but I never felt particularly engaged, only alienated. My vague understanding of political ideology was that Stalin and the Bolsheviks were far left and Hitler and the Nazis were far right - I didn’t realise Nazi meant national socialist back then - but that far left and far right were actually quite close in philosophy. Horseshoe theory, basically.

It seemed actual far right was something that didn’t really exist in the UK. There was Oswald Mosley, but he was a bit of a laughing stock, and the National Front was tiny and ineffectual.

In my mid-to-late 30s, as a result of studying gold, sound money and limited government, I discovered libertarianism. For the first time, here was a political philosophy that resonated with me. Government is inherently incompetent, inefficient and inequitable. The more it does, the worse things seem to get. The less it does, the better. “A multiplicity of individual decisions,” to quote John Cowperthwaite, former Governor of Hong Kong, “will produce a better and wiser result than a single decision by a Government or by a board with its inevitably limited knowledge of the myriad factors involved, and its inflexibility.”

It always amazes me that somebody who advocates peace, free trade, less government, and, in the case of anarchism and anarcho-capitalism, no government at all, can be sectioned off with Nazis and labelled far right. Far right involves more government not less.

To say far-right libertarian, as the Guardian did the other day to describe Argentina’s new president Javier Milei, is surely oxymoronic. Or maybe just plain moronic.

At best it’s lazy and ignorant. At worst it’s the stuff of smearing and straw men, and wilfully dishonest. I used to think it’s the former. Now most of the time I realise it’s the latter.

I am proud to have written the Libertarian National Anthem, which distils libertarian philosophy. The lyrics read:

Arise libertarians above totalitariansOur guide is the mighty invisible hand.Reject state controllers, collectors, patrollers.Our choices are better than government plans.

Taxation is a form of theft.Free markets and free trade are best.Free speech, free movement, free minds and free choice.Our actions are all voluntary,Not coerced or compulsory.War we abhor, socialism does not work.

No debt or inflation, no stealth confiscation,No pigs in the trough at the gravy to drink,No state education to brainwash our nation,No experts dictate what to do, what to think.

We scorn your fiat currency.Gold and bitcoin is our money.We own ourselves and we live and let live.We take responsibility.Life, love and liberty.Leave us alone, let a thousand flowers bloom.

How is any of that far right?

(If you want to watch the video of the above, which I heartily recommend, it is here).

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What actually is “far right’?

Time for a Wikipedia definition:

Historically, "far-right politics" has been used to describe the experiences of fascism, Nazism, and Falangism.

That’s what I thought.

But here’s the problem. They’ve done that change-the-definition thing:

Contemporary definitions now include neo-fascism, neo-Nazism, the Third Position, the alt-right, racial supremacism and other ideologies or organizations that feature aspects of authoritarian, ultra-nationalist, chauvinist, xenophobic, theocratic, racist, homophobic, transphobic, or reactionary views.

So, basically, now far right can be anything you don’t agree with.

The name derives from the left–right political spectrum, with the "far right" considered further from center than the standard political right.

Of course, the whole prism of left and right is false, in any case. Authoritarian v libertarian is much more telling, and the political compass is the best scale of all. But so overused is the term far right that the political compass is starting to look something like this.

I have argued many times, starting with Life After the State, that healthcare, education and welfare would all be cheaper and of a higher standard, if the government stayed out of it. The internet is the most powerful learning tool ever created and it’s (almost) free. In the context of the times, the Friendly Societies of the 19th century were much better providers of care than the state equivalent we have today. But, somehow, if you argue that state care is no good, and that we should do away with it, people think you are advocating a society with no care at all, and therefore you are a fascist and far right. It’s not about wanting the best care for people though, with them, is it? It’s about control.

This week we have seen the election of Javier Milei in Argentina, who is a self pronounced libertarian and anarcho capitalist. His rants denouncing the state are the stuff libertarian wet dreams are made of. I know the purists say he is a WEF stooge. Please. Real life will never as clean as idealists and theorists would like. It is muddy and impure. Take the win. Milei’s victory is a good for the libertarian cause, even if only for the PR it has given the word(s) anarcho capitalist. If his policies start to work, the potential for other countries to copy and for libertarianism to spread multiplies. Nevertheless, he is, as we learn from the Guardian, far right.

Then on Thursday, an Algerian migrant in Ireland went on a stabbing spree at a school in Dublin, counting three small children and a woman among his victims. Many Irish people, like the rest of Europe, have had had their concerns about large-scale migration ignored by their leaders, who have set pro-immigration policies in place, for years. They’ve seen increased racial tension, increased crime, especially violent crime and rape, criminals released from prison early due to overcrowding, unaffordable housing get even more unaffordable, while schools, healthcare, transport infrastructure all struggle to cope with the increased numbers. But the stabbing made something snap and Dublin saw the biggest riots it has seen in living memory.

Then came the reporting. This was the Telegraph, who should know better.

Who committed the knife attack? Was that not violent? Or did it just happen? You’re far right if you are angry kids are being stabbed?

The Irish leadership took no responsibility. This had nothing to do with their policies. Instead it too blamed the far right. It was hooligans “driven by far right ideology”, said the head of police. My breath was taken away by Taoiseach Leo Varadkar who as good ignored the crime but condemned the reaction as racist, having no place in multi-cultural Ireland, and pledged more censorship and clamping down of hate speech.

“The problem isn’t that Ireland is being flooded with unassimilable, predatory aliens,” as John Carter so eloquently writes. “The problem isn’t that a little girl was stabbed by one of them. No, the problem is that the Irish have a problem with it.”

The death of the media

The Far Right it seems is now everywhere. Brexit was a far right thing. The Dutch feeling threatened by mass Muslim immigration is far right thing. Argentina, deciding that enough is enough after umpteen hyperinflations, large scale corruption and Lord knows what else, is far right. Even being opposed to the inequitable tax that is ULEZ is far right, apparently - by that measure, Robin Hood, Gandhi, Boudicca, the Peasants Revolt, the American and French Revolutionaries - yes, they were all far right. 

Both Just Stop Oil and Black Lives Matter are self-proclaimed far left organisations. Why does the media almost never refer to them as far left?

There hasn’t been a sudden rise or re-emergence of the Far Right. There has just been a rise in name-calling by a media that operates with dual standards. The name-calling can be justified because the definition of what is far right has been changed. And now people who are unhappy about a child being stabbed can be bracketed with Hitler.

Do you remember the Nice terror attack in 2016? A Muslim terrorist drove a truck into a crowd of people celebrating Bastille day and killed 84 people. How did the media report that? This is the BBC headline:

Killed by lorry! No mention of the driver, his background or political affiliation. Just the passive voice.

But anyone who reacts to murderous conduct by an illegal immigrant is far right.

When people are angry because George Floyd is killed and we get several months of looting, that’s fine. But when three Irish kids are stabbed and the Irish get hacked off about it, that’s far right. Such blatant double standards.

Here we see “Oxford men”.

We all know the media lies and has probably always lied. But it also has to be truthful at the level it operates. This switching between active and passive voice is, effectively, lying and sophistry. When the truth is so obviously ignored by a media too scared to call a shovel a shovel, people will inevitably lose trust in it.

Thank God for alternative media, that’s all I can say, or should I say, alt right media. At least there’s a truth to it. Give me a citizen journalist at the heart of the action over a hack any day of the week.

I don’t think anyone minds people applying to come to a country, working hard, contributing, being respectful and so on. But they do mind lots of fighting-age young men coming illegally, stabbing people, raping women, exhausting local resources (such as accommodation, education and healthcare) and then being called racist and far right for raising objections.

If you keep calling people far right Nazis, they will eventually start behaving like far right Nazis, as my friend Low Status Opinions keeps saying to me. The longer moderate political parties ignore the concerns of those who elected them, then the more they will be driven to extremism.

It’s all very well saying the mainstream media is dead. There’s no doubt that it is in decline, but it still has enormous influence. The quicker it dies, the better in my opinion - then some kind of genuine free market can return and replace the  monopolistic media we have endured for the last few decades. I say “free market” can return to the media - maybe I should say “far right markets”.

When all is said and done, we are seeing a battle for control of the narrative and one side is losing. That’s when they start using smears like far right.

Good morning to you from sunny California, where I am visiting my dear mother.

If you missed them last week:

* Check out my interview with Lyn Alden.

* As well as the silver stock with a 47 million ounce surprise.

* And, if you are thinking about buying gold in these uncertain times, be sure to speak to The Pure Gold Company.

Today, though, it’s the stock market. We think it’s going up. Now could be the time to invest. Here’s why …

The tricky month of October, the month of choice for the stock market crash, is now behind us. There was a wobble. A very wobbly wobble. But the blob held. The stage is now set for a juicy rally into year end.

November to January is, historically, the best three month period of the year for the S&P500, the index of the largest 500 companies in America, while November to April is the best six month period. We are at the beginning of that run.

If you bought the Dow Jones Industrial Average on November 1 every year since 1950 and sold it six months later on April 30, a ten grand stake would now be $1.2 million, give or take. 

But if you did the reverse and bought the Dow on May 1st and sold it on October 31, you would barely be at breakeven. That is some difference, particularly when you add currency deprecation into the mix. One option gives you breakeven over 73 years, less inflation, the other option gives you $1.2 million. 

Don’t ask me to explain why this is. It might be some kind of self-perpetuating, herd mentality thing. It might just be that different people do different things at different times of the year. I swim more in summer, for example. (I know that sounds trite, but you take my point). 

But there is more.

This is the third year of the four-year US Presidential Cycle. It might be because the powers that be are trying to get everything looking hunky dory in time for the next election. It might just be one of those things. But third years are very good years for stocks, the years in which the strongest gains come - one of the reasons I was arguing in January that this would be a good year for stocks. This year has been particularly good, especially in the Nasdaq - I gather it had one of its best first six months ever. 

In 2019, President Donald Trump’s third year, there was a 27% rally in the S&P500. Prior to that, from 1933 to 2015, the average gains have been 16%, compared to 6% for the other three years. 

That November-to-April run is even stronger in the third year of the US Presidential cycle.  

We are at the most bullish time of year in the most bullish year. The portents are good. 

It may not feel that way after the October we have just had. October, is almost always the most volatile month. Octobers are often so horrible that nobody wants to buy. That in itself is almost reason to buy. “Buy when you don’t want to, sell when you don’t want to,” is not bad, as stock market adages go.

Sentiment models are looking good. Last week’s AAII sentiment survey, which measures retail sentiment, showed 50% bears. Hedge fund sentiment is similarly contrarian bullish: long/short funds are the most defensively positioned in 11 years. Insider purchases are up and exceed insider sales. The bond markets have calmed down. Inflation, as they measure it, looks like it’s calming down in the US too. 

Finally we got a Zweig Breadth Thrust buy signal. I’m not going to try and explain that technical signal here. Google is your friend. Just know that it is bullish

We heard a lot of talk about an impending stock market crash last month. I’m of the mind that if it was going to happen, it would already have happened. Last week saw an eye-watering reversal and short-covering rally. We can expect a bit of digestion over the next few days, before things get going again.

So how to play all this?

An engaging conversation with financial expert Lyn Alden as we explore the past, present, and potential future of money through the lens of technology.

Lyn's new book, Broken Money, challenges conventional wisdom about monetary systems, emphasizing the crucial role of technology in shaping the way we exchange value. From the significance of the printing press and the telegraph to the rise of Bitcoin, we discuss into the intricate relationship between technology and money; the impact of central bank digital currencies (CBDCs) and how Bitcoin fits into the financial landscape.

A thought-provoking conversation about the evolving world of finance.

Subscribe to this amazing publication.

I went to the ARC conference yesterday - to give it its full name the Alliance for Responsible Citizenship. It is an organisation set up by Jordan Peterson, Paul Marshall, Philippa Stroud, Alan McKormick and others to “develop a better narrative in response to life’s most fundamental social, economic, philosophical and cultural questions”. 

I spent much of the day taking notes, and I thought I’d write them up here so that readers can enjoy a distilled version, without the rigours of having to travel to the depths of London SE and sitting through a lot of talking.

“What’s it like?” Merryn Somerset Webb texted on her way in that morning. “A bit like a religious gathering,” I replied, (something Tim Stanley also observed in a barbed piece in the Telegraph). I’m quite happy with that, because I am one of the believers. 

I have to say the organisers have put together quite a roster of speakers, one massive oversight aside, which was not having me speak.

Philippa Stroud and Jordan Petersen hosted the morning events, which began with recently removed US speaker of the house Kevin McCarthy. Peterson, who had made a brave choice of suit even by his standards - and, I say with a little concern, looked exhausted  - made the point that we each have a responsibility to do our own little bit, if we are to improve things.

In this Noah’s Flood of podcasts through which we are currently living, I’m kind of done with conversations. So many people now just seem to be regurgitating the words of others. So few seem to say anything original or interesting. We are caught in this media merry-go-round in which everyone is just commenting on what everyone else has said and nobody actually seems to be creating anything. Moreover, I am kind of done with panels. Three guests, sitting on chairs, a host, who keeps opening it up the the audience, where the conversation then loses all direction. Give me strength. It’s always a good way to go into an event with low expectations because when reality exceeds expectation you end up happy. So it was here. (Read more on the secret of happiness). Laurence Fox, who is a buddy and with whom I hung out, was in a similarly jaded frame of mind. The right is great at identifying what the problem is, he said to me over coffee and a fag, but no good at doing anything about it. The problem, I suggested, is that many don’t actually know what to do, which is why so much talking goes on. Perhaps the answer lies in Peterson’s solution. We each have to do our own little bit in our own little worlds, doing whatever we do. That’s the nature of free markets and free everything: it starts with the individual and it is a bottom-up thing.

The first panel was about narrative. That had former Aussie deputy PM John Anderson, who was excellent on the fact that in the Anglosphere, we have stopped telling our own story and, as a result, lost sight of who we are and what we stand for. This was a recurring theme throughout the day. Somali-Dutch activist, Ayaan Hersi, talking about Hamas and Islamic extremism, added that “their story is not your story and your story is not their story”, so it is never going to work. She may not have meant it, but that is actually quite a strong argument against multiculturalism. And I loved this line from US author Os Guiness: “freedom is not the power to do what you like. It is the power to do what you ought”

I went into the break keen to do my own little bit and put the world right, and ran into my old boss from GB News, Angelos Frangopoulos, who was similarly invigorated. I had a good chat with him. I then ran into Jimmy Carr, of all people, who I know of old, and had a good chat with him too. I then met Holly Valance, who is a famous actress from Neighbours, if you didn’t know (I didn’t) and had a good chat with her about home education. So, never mind the roster of speakers, the calibre of audience was pretty good too.

The next session was hosted by Fraser Nelson of the Spectator, another of the many UK media outlets which has forgone the opportunity to give me work. There was a talk by MP Miriam Cates about mental health and the decline of family. I agreed with pretty much every point she made, but don’t read your speeches, speak them, Mmiriam. They have more impact when you do.

Next Nelson would interview a chap over videolink to the states, Jonathan Haidt, and my heart sank. Why have I come all this way to watch a live zoom call? Guess what? It was brilliant.

It was about children and mobile phones. Moral of the story? Don’t let your kids anywhere near them. Mental health, depression, anxiety and suicide rates among young women  in the Anglosphere and Nordic countries are all all at all time highs. They are not so bad among religious conservatives, they are much higher in cultures where female independence is strong, especially left wing, secular liberals (who tend to be allowed on their phones more). It has rocketed since 2010 when we all got smartphones.  

He talked about the importance of play amongst children, and how we have replaced a play-based childhood with a phone-based childhood. Kids see each other and socialise far less now than they used to. Kids don’t need connections. They don’t need retweets and likes. Even less do they need all the bullying and shaming that goes on. Tiktok messes with your mind and your ability to concentrate, but Instagram is the worst for women and mental health.

Haidt’s solution was not to give kids a smartphone before the age of 14, give them flip phones. No social media before the age of 16. No phones in schools, not even in your backpacks otherwise kids will find a way to feed the addiction. Get back to play. 

The rise in teenage suicide is perhaps the biggest problem since we wiped out polio, cholera and mass disease.

Tell your mates.

So to the afternoon …

In the afternoon, Paul Marshall gave a brilliant talk. For someone who is supposed to be shy and retiring, he was great - and he didn’t read his speech, or if he did it didn’t show. He was particularly good on one of my pet hates, crony capitalism. (I even wrote a song about it). 

He observed how we have benefited from capitalism and free markets, peppering his talk with great historical stories. He bemoaned the conflation of capitalism with monopolistic capitalism, crony capitalism and, what he called swamp capitalism, describing US politics as “continuity swamp”, and called for a politician with strength to stand up to vested interests. He didn’t say anything particularly new, but it was one of the best summaries of everything I had heard in a long time. We are both singing so loudly from the same song sheet, I felt he must have been studying my stuff (I doubt he has), though he didn’t mention the zero patients in all of this: our systems of money and tax.

Then there was another video link with US presidential candidate, Vivek Ramaswamy, on the campaign trail in Utah or somewhere I’ve never been to. He went down very well in the room too. Merryn Somerset Webb hosted a good panel on ESG investing. The S in ESG is totally subjective, said Derek Kreifels, while Terry Keeley called it the biggest misallocation of capital in history. The general takeaway is that ESG is done. The arguments have been lost, even the FT is now slagging it off. It is, I’d say, roughly where the Nazis were in 1943 after they failed to take Moscow and winter set in.

Michael Shellenberger, not a man with whom I was previously familiar, was next and he came out with my line of the day. “Pull back the curtain and there is no Wizard of Oz, just Greta Thunberg with a really bad religion.”

His main theme was debunking climate alarmism. He argued that carbon emissions are improving, sea levels are not an issue if the Netherlands is anything to go by. The reason northern countries are so wealthy is that the harsher conditions forced us to develop more. Deaths from climate disasters are down 90%, he said, against a population that is four times bigger. He is more worried about death from drugs. You can’t say much of this on the internet though because you get censored. 

Climate change is a religion. Nihilism leads to secular religions, and not very good ones. There are three new secular religions: they are climate, race and gender. Climate change is also a psychopathology, and most activists have some kind of personality disorder, often narcissism. Frequently they are just spoilt children.

The answers lie in increased efficiencies. The fact that the amount of land required to make the same amount of food is decreasing is good: it means more land for nature. The fact that less material is required to do stuff (eg all the things you can do on your phone, a bluetooth speaker vs a stack stereo kit from the 1980s) is another example. 

Think of the woman who used to have to cook food using dung and wood. Gas has been liberating for her. The solutions lie in gas and nuclear. Not in solar, the panels for which are made by slave labour in concentration camps in China, nor in wind, the blades of which do not recycle or decompose. 

A panel next with Alex Epstein and Marian Tupy made similar points, and was great. Epstein’s argument was that so much of environmental philosophy is just anti-human. That’s the underlying problem. We ignore the human flourishing effects of fossil fuel to be anti-human. While Tupy pointed how much better we are producing resources and using them so that their prices fall. Eventually we will create elements through nuclear fission or mine them in outer space where they are plentiful. I liked Tupy.

Humans create as well as destroy. Atoms may be finite, but knowledge is infinite, and the more knowledge you consume, the more you end up with. 

We need freedom and we need population. We need the freedom to explore, the think, to invent, to experiment. And it is so much better when the market, not the government, chooses the winners. 

In the final session of the day, historian Niall Ferguson spoke. He described how liberal democracy, which in the context of the world today and of history, is tiny, is now under threat, both from within - so many now dare not speak or explore issues because they are scared of the backlash - and from outside. Beware the alliance between China, Russia, Iran and North Korea. 

I’d had enough talking by this point, so I left the auditorium, had a cup of tea and did some networking. 

I hope this summary was useful.

In other news, I am working on a piece on S&P500, which could be set up for a good year end rally. I am also working on something to do with gold. It is finally catching a bid. New highs around the corner? Maybe. We are going to need them if juniors are to finally catch a bid.

Please subscribe to this brilliant newsletter.

Good morning to you,

We are talking Japanese currency today.

First, in case you missed them last week, check out:

The story of my pilgrimage got a big and positive response from readers.

This piece on the true value of UK housing also got a big response.

If you haven’t already, and if speculative silver mining stocks are of interest: watch this interview with Alex Langer of Sierra Madre Gold and Silver.

And, finally, a big thank you to all who came to my gold lecture on Thursday. What a great night. A reminder that due to sell-outs, we have added some extra London dates - February 14th and 15th. You can get tickets here.

Right, the yen. I can’t help thinking there are some real opportunities coming …

The currency has been weak as hell for a long time.

Against the US dollar it is at lows not seen since this century. We all know what a rotten currency the pound has been. It has lost a third of its purchasing power just since 2020. A third! Against the constant that is gold, it has lost 90% of its purchasing power since 1999.

And yet against the yen, the pound is at seven-year highs, not far off the pre-2008-financial-crisis levels. In those days a pound got you two dollars, instead of the $1.21 it gets you today.

In terms of trading volume, then yen is the third most important currency in the world, after the dollar and the euro, accounting for around 17% of global daily forex turnover. Given that is thought to be $7.5 trillion, we are talking about around $1.3 trillion of daily trading volume. No small beer.

Why has the yen been so weak?

The main reason is that, while other central banks, especially the Federal Reserve, have raised rates, the Bank of Japan (BoJ) has not. It has ignored rising inflation (perhaps because Japan has had issues with deflation for so long). Indeed the BoJ has been creating digital money and buying extraordinary amounts of government bonds with it in order to cap rates. The BoJ now owns over half of Japanese national debt. My mind boggles when I read stuff like that. How can it be possible to print so much money and buy so much debt without apparent consequence? This is BoJ’s so-called yield curve control. 

I wish they’d print money and buy me a mansion. Or even just a nice car.

Suppressed rates lead to the yen carry trade - borrowing yen at a cheap rate and holding other currencies that pay a better yield. But when the carry trade reverses, as in 2007-8, it tends to reverse very quickly.

The yen, as a result, also tends to act as a safe haven currency: during times of panic, such as we saw in 2008, there is rapid flight to the yen in a rush to unwind the carry trade.

Here is a very long term chart of dollar-yen going all the way back to 1987. (When the chart is rising, so is the US dollar).

The dollar made its low - or the yen its high, depending on how you view things - in late 2011 and 2012. Since then the yen has halved. 50% declines for a major currency is kind of a big deal.

Look at the speed at which that thing came down between 1990 and 1995, between 1998 and 1999, from 2007 to 2011 and in 2015-16. When that thing moves, it moves. (We’ll come to another yen currency pair that moves even faster in just a moment).

Here’s the last three years zoomed in. Kind of very double toppy.

I’m not going to pretend to be any kind of an expert on Japanese policy, plans or goals, but I ask, at a certain point, if the BoJ will step in to shore up the currency? Surely they must. Everything I read tells me they will. If so, at what point?

The 150 level is one commonly cited number. 150 is where we are now. But I stress this is only rumour. 

A related question is: how long will so-called yield curve control go on for? Indeed, how long can it go on for?

Again, I can’t pretend to know the answer. Little old me is struggling to get his head around the fact that it has even been able to go on at all, let alone this long.

So to that yen currency pair that really moves. Ooof, take a look at this one. This is where I think the money is going to be made.

The British pound and the Japanese yen

Here’s a long term chart. (When the red line is rising, the pound is rising and the yen is falling. And vice versa).

Again, during those periods of yen strength, this thing came down like a stone. Between 1990 and 1995 (especially 1992 - that was Black Wednesday in the UK). From 1998 to 2000. 2007-8 - Gosh! it really came down then. And then 2015-16. 

It also ties in with my 8-year cycle of the pound: it is even more apparent when viewed in yen.

As so much of the British economy is built on finance, sterling tends to be strong when financials are strong. It sells off during market panics - which is when money flees to the yen. Thus the pound and then yen are inverted.

Sterling has been weak against most currencies since the summer. Cable (pound-USD) has gone from $1.31 to $1.21. The 8-year-cycle in the pound seems to be playing out again. But against the yen it has hardly moved. It’s the same price it was in June-July.

Here is pound-yen since Covid. Does this trend continue? Or is it exhausted?

Most of the 2020 Covid trades - the boom in tech, in commodities, in bitcoin - have played out and unwound. But not the decline of the yen. It is still going strong. There is some catch up to be had.

When does it end? That’s the question. There may still be some gas in the tank, but I’m starting to think sooner rather than later - if only because so few people are talking about it. I asked three different finance WhatsApp chat groups that I’m on if anyone had any decent yen material. Nobody came back with anything. Such things are often a good, contrarian sign. Nobody rings a bell at the top of the market, unfortunately. But this is one to watch.

Forex trading is extremely difficult. There is so much that can go wrong, especially to do with risk management, position sizing and timing. I don’t recommend it unless you know what you are doing. But I feel there could be an opportunity here.

Thank you for reading. Thank you for being a subscriber. Until next time …

Disclaimer:

I am not regulated by the FCA or any other body as a financial advisor, so anything you read above does not constitute regulated financial advice. It is an expression of opinion only. Please do your own due diligence and if in any doubt consult with a financial advisor. Markets go down as well as up. I do not know your personal financial circumstances, only you do, but never speculate with money you can’t afford to lose.

Before we get started today, if you haven’t already seen it, check out my interview with Alex Langer of Sierra Madre. There could be quite an opportunity setting up with this silver mining company.

And if you haven’t read this piece on UK (and US) house prices yet, you might like it - it’s proved quite popular.

Right. The Eighth Wonder of the World …

How can you turn a tiny sum into a large one?

Speculate in small caps is one way. The problem is you risk losing your shirt.

There is another, safer path. All you need is time - lots of it - and some discipline.

You will often hear it said that time in the market is more important than timing the market. There is a lot of wisdom to the adage, though, in defence of timing, get it right and you gain significant advantage. 

The underlying wisdom of the adage derives from the power of compounding, what Albert Einstein called the eighth wonder of the world. “He who understands it, earns it. He who doesn’t, pays it,” he is said to have said. (It is one of those attributed quotes, but it’s better coming from Einstein than anyone else, I suppose). 

If I offered you a million quid upfront, or a magical penny that doubles in value every day for 30 days, would you take the million quid? I imagine you would.

You fool!

A penny that doubles every day would be worth over five million on day thirty.

But here’s the thing: it is the effect of compounding in the later stages that is breathtaking. The early stages are muted. Take that magical penny. On day 10, it’s only worth a fiver. By day 20 it’s north of five grand.

But it’s in the last three or four days that the vast sums are made. 

Take a look at this table.

Compounding works even for relatively low annual returns. To benefit from it you have to start as early as you possibly can, re-invest everything you make and, ideally, keep adding. But it enables you to turn small sums into large ones. Just ask Warren Buffet.

This table shows the effects of compounding at different rates of return, but it assumes you don’t add to the initial pot. If you do that, the effects are more dramatic.

Tell your kids about compounding, and get them saving and investing. They’ll thank you.

To really benefit from compounding you also need to keep fees and taxes to a minimum. Thus the maximum gets re-invested. Avoid losses like the plague. Keep adding to the pot, and the compounding works even more in your favour. 

There is a really cool tool here at Monevator, which allows you to see the effects. An initial deposit of £5,000, with £2,000 added every year and a 7% rate of return becomes half a million in forty years and a million in 50.

Invest just £2,150 every year at 7% and in fifty years you will have a million quid. But at the same rate over a fifteen year period to get to a million you would have to invest £33,800 - fifteen times as much.

The table below, courtesy of Visual Capitalist, demonstrates the maths.

The rule of 72

There is also a useful predictive tool which can tell you how long it will take for your money to double, assuming you compound at a certain rate. It’s called the rule of 72.

Further to some correspondence with reader K the other day, I thought I should tell you about it.

Divide 72 by your annual rate of return and that will tell you the number of years it will take your portfolio to double.

Put in mathematical terms it looks something like this: 

72 ÷ by rate of interest/return = number of years.

Let’s say you have a 5% annual rate of return. 72 divided by 5 is 14.4, so that’s how long it will take for your money to double: 14 years five months, give or take. 

At 10% you will double your money every seven years. (The rule of 72 does not take inflation into account).

At the suppressed interest rates of the 2008 to 2021 period, it’s a very different story. Savings left in cash at 0.1% would take 720 years to double.

Of course, if you lose money, in a given year, it’s a very different story. Compound purists avoid losses like the plague, as we all should, and, most of the time, steer clear of cyclical sectors that can be prone to prolonged bear markets - unless they feel they can time them. That’s why compounding works well in conjunction with a diversified portfolio.

You can read more on portfolios here.

Until next time …

Here is an interview with Alex Langer, CEO of Sierra Madre Gold and Silver. This video was exclusive to paid subscribers, but I am now releasing it for one and all.

I own stock in this company. I know that we are in the thralls of a really bad junior mining bear market, and thus that you might not have the appetite for speculative silver development plays, but I still think there might be an opportunity here.

Have a listen. (You can listen to it above or via Apple podcasts, Spotify or your regular podcast provider). See what you think.

If you prefer you can watch the video of the interview. The transcript is here.

My previous notes on the company are here and here. (My guide to investing in silver is here, and if you want to buy physical, here is where to go).

Sierra Madre Gold and Silver (SM.V)

Share price: C$0.36cFully diluted: 148m sharesMarket Cap: C$59mCash: US$9m

You can find out more about Sierra Madre here.

Buying Canadian stocks

If you don’t have a broker who can deal with Canadian stocks, Interactive Investor is a cheap and usually fairly reliable option for UK investors.

They have their shortcomings, but they are cheap. If you sign up with them, say I referred you – [email protected] – and you will get a year for free, while I gets a referral fee.

If you have signed up with Interactive Investor in the past, please can you drop me a line at the above email and let me know.

Disclaimer:

I am not regulated by the FCA or any other body as a financial advisor, so anything you read above does not constitute regulated financial advice. It is an expression of opinion only. Resource stocks are famously risky, especially small and midcaps, so please do your own due diligence and if in any doubt consult with a financial advisor. Markets go down as well as up. Especially small and midcap resource stocks. I do not know your personal financial circumstances, only you do, but never speculate with money you can’t afford to lose.Further to my email last week, A Hidden Gem in The Silver Markets, about Sierra Madre Gold and Silver (SM.V), here is my interview with the CEO, Alex Langer.

Before we get started today, if you haven’t already seen it, check out my interview with Alex Langer of Sierra Madre. There could be quite an opportunity setting up with this silver mining company.

There are just a handful of tickets left for my lecture with funny bits about gold in London on October 19. I’m not sure when I will next be doing this show so book early to avoid disappointment and all that.

And, if you haven’t yet seen Programmable Money, I think you will be amused.

Right, house prices. They are in free fall …

“Fastest fall in 14 years” said the Guardian on the back of the latest numbers from the Halifax, which reported year-on-year falls of 4.7%. The Telegraph was similarly gloomy. ”London house prices slump,” said City AM. “6 months of consecutive declines,” noted the FT. The latest Nationwide numbers showing declines of 5.3% are even worse.

But, some context. Here are house prices since 1950. Relentless. The current declines are a mere blip, though it may not fee like that.

I have long-argued that houses are, in effect, financial assets whose prices are largely determined by the availability and cost of money. When lending is loose and money is cheap, house prices rise. When lending tightens and the cost of money goes up, so do house prices fall. With rising rates, the reality of this is now plain to see.

It would seem that the housing market peaked in summer 2022. I know nominally it was November, but in reality it will have peaked 6 to 9 months before that because of the various lags in house price data reporting. (There is a chap called Charlie on Twitter, who is very good on this by the way). Housing data lags the market because moving home is such a slow process: you decide to move, you put your house on the market, you wait for a buyer, it takes time to exchange and complete, then there are several months more before the Land Registry actually reports the transaction. 

But from August 2022 to August 2023, according to Bank of England data, mortgage lending has fallen by 43%, while the number of approvals is down 36%. Of course house prices are falling.

How far do house prices fall?

The answer to that lies with the Bank of England Monetary Policy committee, gilt markets, interest rates and all the rest of it. Sterling also has issues, which is going to put upward pressure on rates. But with another million or so cheap fixed rate deals coming to end in the next year, and another million the year after that, something like two million households are going to be hit with much higher mortgage costs. Just how much will those costs be? 

The genius that is Merryn Somerset Webb, as always, has the answer:

“Mortgage on 350k at 2%: £1484 a month and total payment £445,126. Mortgage on £350k at 5.5%: £2149 a month and total £644,745. To get payment back to £1484, you can only borrow £243k (total payment 447k). And that's why house prices are falling.”

Considerable problems lie ahead. 

All in all, I don’t think the worst is over by a long chalk and, a year from now, I think we will see distressed selling, along with opportunities for bargain hunters. This could all have happened in 2008, but the powers-that-be saw fit to suppress rates and print money. Then we got Help to Buy. I don’t quite know what they will do this time around - no doubt something is being planned - but in the meantime it seems we are seeing the beginning of the unwinding of a 30-year, generational bull-market/bubble. 

By way of reference, here is the that infamous Jean-Paul Rodrigue illustration of the lifecycle of a bubble. (I used to have this on my wall, I liked it so much). I would argue that we are probably in the fear stage, with the bull trap having come during Covid, but it may be we are still in the denial phase. As with so much academic projection, real life is never quite as neat and tidy.

At the same time, as those of us who were around in 2008 will testify: all ye who call the end of the UK housing market bubble, beware. The housing market has a nasty habit of making bears look stupid.

Some see a correction of 35% or more in nominal terms. Others are more muted at 5-10%. Both are possible. In the short term I think housing goes lower. A 1989-94 scenario looks more likely than 2008-11, though I reserve the right to change my mind, as events unfold.

So to gold

Here you can see gold vs sterling since 1999 when Gordon Brown sold ours for £150/oz or thereabouts. Today, such is the rise of gold (or the decline of sterling more like), we are at £1,500/oz.

Josh Saul of Pure Gold Company has reported to me numerous times over the past year how many buy-to-let and other property investors have been selling real estate and buying gold. When will they flip back into property?

Gold is the oldest money in the world, it is a constant, so I like to take a periodic look at house prices measured in gold. Of course, we do not use gold to buy houses. We use sterling. But as the verse goes:

“Money is a matter of functions four.A medium, a measure, a standard and a store.”

While gold may no longer have much use as a medium of exchange, as a store of value, a standard of deferred payment and a measure of relative value (ie unit of account) it remains and will always remain a far more effective form of money than fiat, because it is permanent, constant and you can’t print it.

If the average UK house is now £288,000 (it isn’t - it will be lower because of time lags) and gold is £1,500/oz, then the average UK house price in gold is 192 oz.

Here, courtesy of Nick Laird at goldchartsrus.com, we see the cost of UK house prices, measured in gold, since 1950.

It’s a rather different story to nominal UK house prices, as displayed above.

By this measure, the peak of the UK housing market was 2004. Sterling was (relatively) strong at more than $2 . The UK housing market was booming. Gold was sitting around $400/oz.

The depths of the market came in 1979. The UK economy was weak. There was civil unrest. Gold was at the end of its epic bull market of the 1970s when it hit $850/oz. The average UK house could be bought for around 50 ounces of gold.

How much have we been ripped off by fiat ?

If gold is to increase by say 20% against sterling, and nominal house prices are to come down 10%, then those 2008-11 and 2020 lows of 150oz for the average UK house look pretty nailed on.

If house prices come down 30 or 35%, however, as they did in 1989-94, and the gold price were to double, then those late 1970s and early 1980s numbers around 50oz for the average UK house suddenly come into play. Barring a full-blown sterling crisis (don’t rule it out), I’d say that was unlikely.

For no particular reason, other than round-number-itis, I have a target of 100oz.

Of course, the other possibility is that gold falls, and house prices resume their uptrend.

How many ounces of silver to buy the average UK house?

Here, for the silver bugs, is the same ratio but for silver.

Look how cheap houses in silver were in the 1970s. You could get the average UK house for about 1,000oz!

Will silver ever go back to those levels? I doubt it. It has the potential, but, as we know, silver always disappoints.

Finally, for American readers, are US house prices in gold and silver.

Post 2008 they almost went back to 1980 levels.

Here they are in silver.

Tell your friends about this amazing article

There is an absolutely stellar line up of speakers at New Orleans Investment Conference in November: Dave Collum, Rick Rule, Matt Taibbi, Peter Schiff, Konstantin Kisin, Lyn Alden, Danielle DiMartino Booth, Jim Rickards and many more besides, yours truly among them.

So I got together with Brien Lundin, the organizer, to chat about the event, as well as to get his take on the state of the markets. You can listen to this conversation here, or via Apple podcasts, Spotify or your regular podcast provider.

Ths video version of the conversation is here.

If you happen to be in that neck of the woods, please come and say hi. I hope to see you there. It’s a great event: New Orleans is unique.

And if New Orleans is too far to travel, there is always my gold show in London on October 18th.

When it comes to investment returns, asset allocation, as I said on Monday, has repeatedly proven to matter more than individual stock picking: the market you choose matters more than the companies you select within that market.

With this in mind, if you haven’t already, check out the pieces I have recently put together about portfolio allocation:

* My own…