The Flying Frisby - money, markets and more

A number of people have asked me to cover bitcoin after this week’s insanity - and I will very soon, I promise, but today we consider fossil fuels once again.While the oil and natural gas prices have not done a great deal these last six months - up a bit, down a bit, then sideways - the associated companies have done very well: the producers, the service companies and so on.Many years of bear market and belt-tightening are now paying off.However, we are not yet, I would suggest, at that point of excess and decadence that marks the end of a cycle - crazy mergers and acquisitions, insane valuations and Bacchanalian behaviour from the executive classes. So I venture today, as last week, that there is still plenty of gas left in the tank of this bull market.With that in mind I wanted to share a few charts with you today that give an idea of what is possible.Oil and gas stocks are on the rise The first of them shows the ratio between energy stocks and the rest of the market. Indeed, without energy stocks there would not be a rest of the market. A simple point that many, especially those who make policy, seem oblivious to. The world we live in today and the economic benefits we enjoy, relative to our ancestors, have been made possible by fossil fuel.So here is the energy sector relative to the the S&P 500. The higher the chart goes, the bigger the relative market cap of energy stocks. You can see that, even with the rally we have seen in energy companies since 2020, on a relative basis, energy companies are, give or take, where they were at the turn of the century, when oil itself was around $10/barrel and that secular bull market was only just getting started.You can also see that we are in an uptrend. Energy stocks are increasing in value, while the broader S&P500 is flat or falling.It’s also worth noting that the relative market cap was almost three times as large in mid 2008, when oil went to $147/barrel. The inference is that the bull market has a lot further to run.Tell the world about this amazing article.Oil versus stocksNext we consider the ratio between oil - West Texas Intermediate - and the S&P 500. You would expect this chart to trend lower over time because oil production and extraction techniques should improve over time, while broader economies and the companies who operate in them grow. Nevertheless we are below the levels we were in the early part of the century. You can see how high this ratio went in 2008 - and how low in Corona panic of 2020, when oil futures, somehow, went into negative territory.It feels a bit like, as far as this ratio is concerned, we are in late 2003.Relative to the S&P 500, oil is roughly where it was three or five years ago - I’d say it’s at its 3- or 5-year average. And it’s a lot cheaper than it was throughout that entire 2003 to mid-2014 timeframe. So even with the gains of the last two years, oil does not look expensive relative to the S&P 500. It is at the cheaper end of the range. Another sign there is more gas left in the bull market tank.Here now we look at oil relative to gold. These two - as hard commodities - tend to trade in a much tighter range over time, but my observation again is that it is in the low to middle of the 20-year range and not at one of those points of extremity whereby you might consider rolling out of one and into the other.For sure we are nothing like where we were went oil went to $147 in 2008. In fact, we are below where we were for most of the 2000s. On the basis of this chart, oil is probably the cheaper of the two.Trade of the lustrumAs regular readers will vouch, oil is a drum I have been beating since 2016 when it was $25 or so, declaring it our “trade of the lustrum”. A lustrum is a five-year period - a useful and underused word I’d say.That lustrum is now becoming a decade. We continue to beat the drum on oil, gas, coal and the related companies. Fossil fuel demand will continue to grow until at least 2030, the IEA has forecast (2040 in the case of natural gas). That means it is not just enough to maintain current production levels, they need to increase. Yet there have been seven or eight years of underinvestment - leading to today’s shortages. Partly because of ESG deterring investment, partly because so much capital has gone into green energy related companies instead and partly because of the excesses of the previous bull market still needed to be purged. The bull market conditions are still good and longer term, I think fossil fuel stocks go higher.I’m a big believer in narratives within markets. The fossil fuel story is only slowly starting to change. Many are realising just how important they are and what they have made possible. Indeed, that there is a strong moral case for them, not against them.But the narrative is not yet at end-of-cycle levels. When people start talking about Peak Oil again - that’s the sort of thing you want to be looking out for. That the need for alternative energy sources is not because fossil fuels are bad, but because we have consumed them allI don’t know what the end-of-bull market narratives will be - that’s a story that is yet to be told. But if legislators and subsidisers start abandoning electric vehicle initiatives because the ultimate source of the electricity remains the burning of fossil fuels, and it’s really quite inefficient, never mind hypocritical - that is one possible scenarioSo hold on to your positions - enjoy the ride.Subscribe to this epic publication.This article first appeared in Moneyweek. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

Today’s missive comes to you from the Galapagos Islands out in the eastern Pacific, where two stories of noble energy initiatives reflect the broader realities of energy policy around the world. We tell these stories with a specific question in mind: how much gas, so to speak, is left in the tank of this energy bull market?The Galapagos population is only around 30,000, but, as a fully functioning society, the same dynamics observed in this small ecosystem occur elsewhere, even if less visibly, so it serves as a useful case study.So we come to the first of our two stories.Not so green transport in GalapagosIn order to limit traffic, protect the environment in this most ecologically delicate of places and protect the taxi industry, the local government made it extremely difficult to get a vehicle licence. All sorts of problematic bureaucratic hurdles had to be jumped, and most people ended up using bikes or public transport.But then in 2016 the powers that be, with a brighter, greener future in mind, decided that anyone could get a licence to own a vehicle, no permit required - as long as it was an electric vehicle. There was just one condition. The buyer had to have a family. Given that most people on the islands have relations, that was a pretty easy condition to meet, even for the single folk. There was a great deal of PR and fanfare about this new initiative: clean, green, sustainable - all that stuff - and a blind eye was turned to the increase in traffic, or of roadkill to the many tame birds on the streets of the island (this is a major problem).At this point it’s worth reminding ourselves that there are, around the world, three main areas of energy consumption - transportation, heating and electricity. While cleaner forms of energy, such as nuclear or wind, might be increasing as sources of electricity, 84% of global energy still derives from the burning of fossil fuels, as the graphic below from Our World In data shows.Even electricity, despite its green credentials, still relies on fossil fuels. The burning of the fossil fuel may be out of sight and, therefore, out of mind, but over 60% of global electricity still derives from it, as our second graphic shows. Wind and solar between them account for barely 10%.Sign up to The Flying Frisby.As we are all now discovering to our cost, despite many years of considerable investment, some might say over-investment, in green energy, there have, simultaneously, been many years of underinvestment in fossil fuel exploration and extraction, nuclear power (the use of which in electricity has, on a relative basis, been declining since the 1990s) and public grids. Hence the current energy shortages especially in Europe. The Galapagos Islands followed the international trends in this regard - which is one reason this story makes for such an interesting case study.Here on the Galapagos Islands, the majority of electricity, despite what you may read, is produced by burning diesel. And at this point we deviate to story number two.The Galapagos wind turbines.There were, once upon a time, some wind turbines built by a consortium of overseas energy corporations, looking to advertise their green credentials to the world. Said corporations conducted a one-year study of wind on the island and concluded that next to the airport (where they would also conveniently be seen by everyone arriving at and leaving the islands) was the best place to erect the turbines. The turbines were duly installed, the publicity was had - here is the world’s first airport that runs 100% on wind and solar, all that stuff - and the energy companies retired back to their nation states.It turned out that year of the study had been an outlier for winds, and they hadn’t built the turbines in anything like the windiest spot. Then the wind turbines stopped working, but nobody on the islands knew how to fix them. Nor was it clear whose responsibility they were. Ever since, the turbines have sat there, stuck - even when the wind is blowing up a storm. Ask a local for the story, and you’ll get a wry shake of the head and a smile at the stupidity of it all. Lord knows how much fossil fuel was burnt mining the necessary materials, manufacturing the turbines, transporting them to the islands and erecting them, only for them not to work, but that is, despite the good intention, what has happened. There they remain, motionless, like statues from a fallen empire. But how now to get rid of them?The episode is neither clean, green nor sustainable.Tell the world about this amazing articleSo back to story number one and the attempt to make the islands greener with electric vehicles (EVs). With the easing of regulation in 2016, the locals who had previously wanted a vehicle but couldn’t get one (a lot) piled in and bought electric vehicles, much to the benefit of the EV manufacturers.But as diesel is the major source of electricity on the islands, so more diesel than ever was now burnt. Again, neither clean nor green. In fact so much diesel got burnt, and so much electricity was consumed, that the shortcomings of the grid and the lack of investment therein were exposed. Power outages soon followed. Multiple and regular. The power outages got so bad that just three years after the EV fanfare, in 2019 a moratorium on electric vehicles was discreetly declared - no fanfare this time - and the islands went back to their old ways.I can’t help thinking that the West is travelling a similar path. As consumers,, encouraged by the green credentials, adopt more electric vehicles, has there been a concomitant investment in power grids to meet the new demand? In many - dare I say most? - countries there hasn’t. What proportion of this rising new electricity demand will entail more burning of fossil fuel, coal especially? Will there be power outages as a result?It’s stupid to expect us to consume less energy. As civilisations progress, they consume more energy. They also get better at consuming energy. A civilisation that consumes less energy is a civilisation in recession and decline. We should not be advocating the consumption of less energy, but advocating the better and more efficient consumption of energy, and that means we have to invest in the exploration and production of fossil fuels. How else is the developing world to pull out of poverty without the benefits of fossil fuels? The International Energy Agency (IEA) forecast in 2020 in its World Energy Outlook that growth in global oil demand will only end in 10 years and that “global natural gas demand growth might stop around 2040”. Those two landmark years - 2030 and 2040 - are not when we stop using oil and gas, just when the demand for them stops increasing. (And they are probably optimistic forecasts).That means that, to meet demand, not only do we have to maintain oil and gas production at current levels, we have to increase them - or prices will go a lot higher. That means greater investment in coal, oil and gas is required. And that means this bull market is far from over.The whole narrative needs to change, as it is slowly starting to do.There have been at least ten years of underinvestment in coal, oil and gas - partly because of the excesses of the last secular bull market and partly because of the powerful anti-fossil fuel story. That now needs to be corrected.There is also now a strong case for a reversion to traditional auto manufacturers, as opposed to the likes of Tesla. But that’s a subject for another day.The Flying Frisby is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.Interested in buying gold? Check out the Pure Gold Company.If you are in or around London on November 24, wearing my comedy hat, I’m doing a gig with the Gilets Jaunes - that’s my band - at Crazy Coqs in Piccadilly Circus underneath Brasserie Zedel. It’s a fantastic venue for this kind of thing. It’s going to be a great night. Please come on down.Thank you for reading The Flying Frisby. This post is public so feel free to share it.This article first appeared at Moneyweek. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

The highest form of charity, argued the 12th-century Jewish philosopher Maimonides, is when the help given enables the receiver to become self- sufficient.But our systems of state charity - aka welfare - have too frequently had the opposite effect: they have actually created dependency. It is time to re-think the way we help people.I suggest something that may be heinous to some, but it’s this: welfare would be more effective, more varied, more widespread and affordable if there were no state involvement.People instinctively think that without a welfare state, the poor and needy would not be looked after. At such an unacceptable prospect, people then become fervent in their defence of state welfare systems. You can see the passion people feel about this erupting all over the Twitter and the blogosphere.Before we start, I want you to get your head around one thought - suggesting that the welfare system is not working and that we should do away with it is not the same as suggesting the poor and needy should not be looked after. Not at all - in fact, quite the opposite.The provision of care is a delicate, complicated and unpredictable process. Sometimes money might help the recipient towards self-sufficiency, but sometimes not. Giving money might lead to a temporary lessening of suffering, but often it can lead to greater dependency and less self-reliance. Sometimes something local is required, sometimes something practical, sometimes something psychological or emotional, sometimes something specific to the individual's circumstances - sometimes what's needed is a proverbial kick up the backside. Different circumstances require different forms of care.The dignity of the recipient also needs to be considered. It can be demeaning to receive charity. On occasion anonymity might be required - but on other occasions it might not be.How on earth can anyone hope to design a top-down, one-size-fits-all, system of state welfare that can meet all these varying needs consistently over time?Then there is the matter of the giver. He or she must also be considered.Compassion, care and the giving of charity and care are essential human functions - they are a part of human nature. People need to give as much as they need to receive. You just need to see the pleasure children get from giving as evidence of this. Even perhaps the most ruthless, murderous drug-trafficker that ever drew breath, Pablo Escobar, was a prolific giver. He built houses, churches and schools in his native city of Medellin on a scale unmatched by the Colombian government.In the charitable process, the giver has needs too. Sometimes the giver wants to be anonymous - sometimes they want recognition. Sometimes he or she likes to be involved with the recipient in some way, sometimes not.But, in the process of state care, the giver's needs are not even considered. Taxes are taken and that is it. We are given no real say in how the money we have earned is spent, bar a vote of dubious effect every five years. Often the giver is morally opposed to what his taxes are being spent on!The forced giving that is taxation actually destroys the altruistic satisfaction that people get from giving voluntarily. To help others and to share with them is part of humanity. But, in a world in which government is responsible for the care of the poor and needy, that compassion is removed from life. As a result, the state now has a near monopoly on compassion!if you find this interesting, please share .In fact it is even more bizarrely specific than that: the pro-large-welfare-state left wing has the monopoly on compassion. Anyone who doesn't agree with the concept of a large, generous welfare state is deemed heartless and selfish.While you have to pay the government through tax to provide welfare (or heathcare or education) your ability to provide any of these things for yourself or your family is reduced, because you have less money. After taxes are taken from you, you often you can't then afford to pay for your children's school, your doctor, your hospital, your home, or your charity to others - so you find yourself depending on the state help in some way. And so more and more people, in some way or other, are caught in the ever-growing dependency net.What's more, if the state is providing care to the needy, you are then absolved of the responsibility to do so.Meanwhile, government welfare, as well as being inflexible, is expensive . The large organizations, such as the NHS or the DWP, through which care is administered can be inefficient and wasteful. Worse yet, they are be prone to corruption and rent-seeking (people gaming the system in some way).If you look at food, clothing or technology - essential human needs that, largely, are not supplied by the state - we have, over the last thirty of forty years, seen dramatic falls in price and dramatic improvement in quality. Competition has driven costs lower. Yet welfare has not experienced the same improvements. Why not? Because, thanks to the state's near monopoly, there is no competition.The idea of competition in welfare is offensive to many. But we need it if we are to improve quality and lower costs.The greatest expense in our lives is not, as many believe, your house or your children's education, it is in fact government. But imagine a world with minimal state. Suddenly that expense is removed. Without the cost of the state, we have more capital to spend and invest. People are empowered. Our ability to help others is increased.In a world with no state, what's more, suddenly our responsibility to help others is also increased. If the state is not helping people, you must. Simultaneously, thanks to competition, the help we want to offer is cheaper and better in quality - organizations are competing with each other to offer better help at a lower price.The result will be more affordable welfare, more widespread and diverse welfare, more flexible welfare that can provide for specific needs, more effective welfare, more onus to provide welfare - ultimately, better welfare.Without a welfare state the poor and needy won't be looked after, you say? I suggest they will be - to a much higher standard than they are today.The Flying Frisby is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.If you are in or around London on November 24, wearing my comedy hat, I’m doing a gig with the Gilets Jaunes - that’s my band - at Crazy Coqs in Piccadilly Circus underneath Brasserie Zedel. It’s a fantastic venue for this kind of thing. It’s going to be a great night. Please come on down.Thank you for reading The Flying Frisby. This post is public so feel free to share it. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

Money evolves constantly. Every day there is some tiny new fintech development, but it’s only when you take a step back and look at the ten-, twenty- or thirty-year  picture that you realise just how much things have changed. What is money today is a far cry from what was money when I was a child. Digital technology barely existed back then. We used cash and these things called cheques. You’ve probably heard of them.It’s not just what we use as money that evolves. How money is created - that changes too. And just this decade there has been a major evolution. That’s what I am going to talk about today.Thank you for reading The Flying Frisby. This post is public so feel free to share it.The creation of money and debtOnce upon a time you would create money by mining gold and silver. But debt-based money systems have also existed since the dawn of civilization, when clay tokens representing valuable items such as barley or sheep would be baked inside clay balls. When the debt was settled the clay balls would be smashed open.Humans, being the ingenious folk they are, especially when it comes to money, soon found that it was quicker to simply inscribe the clay with pictures of said items and so did the first systems of writing develop - hieroglyphics. Coins came along, and then the printing press, both remarkably long-lived technologies, but behind it all there was always metal.Western Europe abandoned gold in 1914 so it could print the money to pay for the First World War, and the United States did the same in 1971 amidst spiralling welfare costs and the conflict in Vietnam. Both years were landmarks in the evolution of money creation.This became the fiat era, when money became debt. Some physical cash was printed or minted, but money for the most part was created when loans were made. You borrow a thousand pounds to buy a house, the bank created that thousand pounds using the house as collateral and suddenly there was a thousand pounds in the housing market that wasn’t previously there. That’s why houses kept on rising in value - the constant introduction of newly created money through mortgages. Introduce debt into a market and prices rise. If houses were cash based, they’d be a lot cheaper. Something similar happened in the bond markets and the financial markets with the use of leverage. Leverage is just a fancy term for debt.There were occasional moments of credit tightening, but the broader trend, especially as economists and governments became obsessed with what they call growth, was for ever expanding credit.Human beings, being the greedy folk they are, especially when it comes to money, took the whole thing too far, 2008 came along and the bubble went pop.Then a whole way new to create money was invented: Quantitative Easing. Central Banks now started creating money, and they bailed out the financial system with it. Then they started using the money to buy government bonds - so they effectively printed money to pay for government spending. They also bought other financial assets. And so lots of newly created money went into the financial system and from there to the expensive houses in which many of those who work in finance live, and we got another decade or more of rising prices.But because all this newly created money went into financial assets and housing, it didn’t show up on the inflation numbers. Central bank inflation measures don’t include houses or financial assets. So they said there was no inflation. Then Covid came along. Central banks could now print money and it doesn’t create inflation, they thought. They forgot about the sleight of hand that was their inflation measures. So they printed more money and the government handed it out to people. That money made its way into the real economy and now we have inflation. And they are all scratching their heads and blaming Vladimir Putin.But the nature of money creation has changed. Now money is not just debt. Governments are creating it to fund their activities. And when central bank digital currencies come along, they are going to do that even more. As a result governments, are going to play far greater role in where capital gets allocated. We turn to the wise old owl that is financial historian Russell Napier. “By issuing state guarantees on bank credit during the Covid crisis, governments have effectively taken over the levers to control the creation of money”. They said it was temporary, but, to quote the great Milton Friedman, “nothing is so permanent as a temporary government programme”.We now have the War in Ukraine and with it spiralling energy costs - another emergency. How to deal with it? Keep with the programme. Lend money and guarantee loans. Russell Napier again: “By telling banks how and where to grant guaranteed loans, governments can direct investment where they want it to, be it energy, projects aimed at reducing inequality, or general investments to combat climate change. By guiding the growth of credit and therefore the growth of money, they can control the nominal growth of the economy.”It’s a huge win for the unelected technocrat. Nobody designed this, nobody planned it, they have just discovered they can do it. And who was at the heart of it all in the UK? Our new Prime Minister. Perhaps, among other things, it means that the age of the all-powerful central bank is coming to an end.“This is a shift of power that cannot be underestimated,” says Napier. “Our whole economic system of the past 40 years was built on the assumption that the growth of credit and therefore broad money in the economy was controlled through the level of interest rates – and that central banks controlled interest rates. But now, when governments take control of private credit creation through the banking system by guaranteeing loans, central banks are pushed out of their role. We are moving from a mechanism where bank credit is controlled by interest rates to a quantitative mechanism that is politicised. This is the politicisation of credit.”Inflation is often accompanied by high unemployment. It was in the 1970s. But we are in an era of low unemployment. Many are struggling to get the staff (at the price they are prepared to pay) - this isn’t a Brexit thing. It’s happening across Europe and the US.Many government spending programmes will be popular. They’ll create a lot more employment. We’ll probably get a load more “growth”, which means higher levels of inflation will be more acceptable (and long-lasting).Government is about to get a whole lot more involved in the economy - and in our lives. It ain’t getting smaller.How to navigate it all?We turn to our man Russell once more. “First of all: avoid government bonds. Investors in government debt are the ones who will be robbed slowly. Within equities, there are sectors that will do very well. The great problems we have – energy, climate change, defence, inequality, our dependence on production from China – will all be solved by massive investment. This capex boom could last for a long time. Companies that are geared to this renaissance of capital spending will do well. Gold will do well once people realise that inflation won’t come down to pre-2020 levels but will settle between 4 and 6%.”Gold is in a downtrend. But we like it. It’s even more permanent than a temporary government programme. But the nature of money creation has evolved once more.The Flying Frisby is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.Interested in buying gold? Check out the Pure Gold Company.If you are in or around London on November 24, wearing my comedy hat, I’m doing a gig with the Gilets Jaunes - that’s my band - at Crazy Coqs in Piccadilly Circus underneath Brasserie Zedel. It’s a fantastic venue for this kind of thing. It’s going to be a great night. Please come on down.This article first appeared at Moneyweek. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

Here at the New Orleans Investment Conference, I met up with veteran geologist and mining newsletter writer Brent Cook of Exploration Insights together with not-so-veteran, but equally on-it investor Kai Hoffmann of SF Capital. What followed is a 20-minute chat about the state of the mining markets. Those of you that are interested in the state of mining - enjoy! This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

Back in the 90s, when we were in our 20s, all my university buddies and I wanted to do was travel. We wanted to go everywhere and see the world. The problem was how to pay for it.My solution was to work all year, save up, then, having spent Christmas with my folks, get a flight somewhere on Boxing Day or the day after (flights were always cheap then) and come back at the end of January. The business I was in at the time – voiceovers – never really got going until mid January, so I would end up with almost six weeks of backpacking and only miss a couple of weeks of work, if that.My best buddy, who is now a big cheese at Channel 4 so I won’t mention his name, went several stages further. He got a job compiling guide books for many years. As a result, he has been to more places than anyone I’ve ever met – across Asia, Africa, Europe, the Americas, you name it. And, of all of them, he says he reckons New Orleans was the best.So, imagine my delight when I got an invitation to come and speak at the New Orleans Investment Conference this year. Do I want to come? You betcha!The conference took place last week and I thought it might be of some use or interest to you if I shared some of my observations.Will the Fed keep raising interest rates?First up, I had a great time. The conference, organised by Brian Lundin of the Gold Newsletter and his supremely competent team, lasted four days. There were workshops and events galore, plus a host of great speakers – from celebrated resource investors such as Rick Rule, Brent Cook and Sean Broderick to macro strategists such as Danielle DiMartino Booth, Peter Boockvar, James Grant and Jim Iuorio to the unorthodox with the likes of Jim Rickards, George Gammon, Dave Collum and Robert Prechter. Over 600 people came and there were 100 exhibitors. I would say the bulk of the attendees were American, over 50 and male. There were a lot of gold bugs in the room. I felt well at home. Plus there was plenty of fun to be had in this most musical of cities by night – and great food too.I would say the overriding theme of the conference – the subject that would not go away – was the Federal Reserve Bank. How long does it continue to raise rates for? When does it pivot? At what point do debt levels become unsustainable? The US has interest to pay on $31trn of debt – that surely caps how much further it can raise interest rates? But then it has made it clear that fighting inflation is its number one priority. Round and round the subject went. Some argued that it pivots, others that it keeps on raising.There was also plenty of talk about falling real estate prices; commodities – especially base and battery metals, not to mention energy; the strong dollar and the Ukraine war. I found myself on a panel with George Gammon and Jim Rickards about the threat of imminent nuclear war that got very tin-foil hat. When I suggested that, to everyone’s surprise, Russia was losing the war in Ukraine, Rickards declared that I had fallen for the propaganda and had become a mouthpiece for the globalist agenda and the New World Order. Each to their own, I guess.Opportunities for investors in the UKAnother theme that cropped up a couple of times was investing in the UK and the opportunities there – or here, I should say. The yields on real estate investment trusts (Reits) are incredible, said Peter Boockvar, and, unlike New York where a lot of commercial property is sitting vacant, while many continue to work from home, in the UK it’s mostly being used again. Perhaps most importantly, UK property is looking very cheap to our transatlantic friends thanks to the strong dollar. I warned about the potential for rising rates here in the UK and the damage it could potentially do to real estate, whether commercial or residential, but Boockvar still felt the UK is looking like an attractive proposition at the moment. We have a tendency to denigrate ourselves here in the UK, which is why it’s so good to go abroad and meet people who see the UK in a much more favourable light.A lot of North American money is going to make its way to Europe and the UK, not to mention Japan, in the not too distant future, I would venture.I focused my talk on subjects that I have been covering quite extensively on these pages in recent weeks – energy; gold and its relevance (or lack thereof) in today’s world and China’s monumental gold holdings; and the strong dollar superseding all.There were plenty of mining companies there too exhibiting their wares. I think my favourite was probably a silver mining company by the name of Sierra Madre Gold and Silver (TSX-V.SM), which has a dynamic young management, good broker backing, some promising exploration properties and has just acquired a silver mine from First Majestic Silver (Toronto: FR, NYSE: AG) that it is now putting back into production. Pending the closing of this transaction, the stock is currently halted, which is what all silver companies should be – it removes the temptation to buy them!The Flying Frisby is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.If you’re in London on November 24, wearing my comedy hat, I’ll be doing a gig with the Gilets Jaunes at Crazy Coqs (underneath Brasserie Zedel), which is one of the best venues in the West End for musical comedy. It’s going to be a great night. Please come on down.This article first appeared at Moneyweek. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

I was listening to an interview the other day with entrepreneur Balaji Srinivasan, in which he argued that there are two ways by which you can raise capital: one is through investment, the other is through charity.If you are raising capital through investment, the incentive is to demonstrate strength, competence, ability, prowess, honesty and many such other qualities. The more competence you demonstrate, the more likely people will invest in you and the more they will invest. Broadly speaking, this applies to gaining employment too.On the other hand, if you are looking to appeal to people’s charity, then the opposite applies. You must demonstrate that you need and deserve this charity, and so the incentive is to demonstrate weakness, affliction, victimhood and so on. Many of these messages of affliction have made for some of the most powerful ad campaigns ever conducted. Young children and animals are probably the most evocative - from the starving Ethiopian children that inspired Live Aid to the battered seals of anti-fur campaigns.Welfare and, to an extent, healthcare can be seen as forms of charity, even education in a way. In the 19th century responsibility for the provision of welfare, healthcare and education mostly lay with the church, the friendly societies and other private bodies, but in the 20th they, for the most part, became the domain of the state.Today there are countless institutions that rely on government subsidy for their existence - from those fighting climate change or promoting green energy to those fighting perceived inequalities such as Stonewall to many in the arts. All rely on demonstrating affliction to fund themselves and exist. Meanwhile, charity has become an enormous business in the developed world, and all sorts of scandals are starting to emerge of corruption, of the huge salaries many of those who work in it enjoy (get paid lots and be virtuous) and the fact that so little of money donated actually reaches the intended recipients - less than 50% is the key stat from the David Craig book, The Great Charity Scandal: What Really Happens to the Billions We Give to Good Causes? Some charities rely on donations and subscriptions, many rely on the state and its subsidies, many on both. And the industry is heavily regulated by state (with questionable results if the above is to be believed). Regulation also costs a lot of money to adhere to.As those who read my stuff, especially Life After the State, will know, I constantly argue the state is not the best means to provide these things to the highest possible standard at the lowest possible cost, that in fact, for all its good intentions (let’s assume they’re good) the state often causes more harm than good and its role in exacerbating the health, wealth and opportunity gaps is demonstrable and large. Thus we should shrink the state as much as is possible.But because the state has grown so bloated in the West, and because it is the main provider of this second form of capital - charity - whether by subsidy or through its other systems, and because the solution to pretty much any social problem that arises is that the government “must do something”, I suggest we are getting caught up in an extremely unhealthy psychological loop. Rather than incentivising strength, competence, excellence and so on, our systems are incentivising behaviours by which that second form of capital be raised - weakness, victimhood and so on. That’s why there is so much of it about.New afflictions are being found all the time, as “entrepreneurial” spirits try and find new means to secure special favour, protection and subsidy.Thus, by shrinking the state do we shrink victimhood. We want people to be the best they can be, surely? Not the opposite.Thank you for reading The Flying Frisby. This post is public so feel free to share it. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

Today we turn our attention to the physical gold markets.There is, as veteran dealer Ross Norman of Metals Daily puts it, a “disconnect between the gold price and what is happening in the physical markets.”“Our biggest challenge,” says Joshua Saul of the Pure Gold Company, “is finding enough stock on a daily basis to sell. There is a long line of demand, but very little supply. There’s more demand than at the height of Covid.”These situations don’t occur very often, but they do occur. The gold price is falling, but demand for physical gold is highI remember 2008 like it was yesterday. Gold cratered along with everything else in the second half of that year. It lost around 30% – falling from north of $1,000/oz to $720/oz. The mining companies fell by a lot more.Yet there was a scramble in the physical gold markets. Bullion dealers had never been so busy. The general public were rushing to get their money “outside the system” into an asset that was nobody else’s liability. Gold would later turn up long before most other assets. November was the low, while the S&P500 carried on lower until the following March. But the fact was there was a scramble to buy physical gold even as the price was falling.It happens. “Coins and bars,” says Norman, “are just a subset of a much bigger industry.” That industry includes the futures markets, exchange traded funds, institutional buying and selling, central bank buying and selling and, of course, jewellery. Ordinary investors may look at the state of the world and think, “I need to buy some gold”. They may be doing that at unprecedented levels. But that is not enough to balance out institutional investors who are, says Norman, “selling three to ten tonnes a day.”As I say, these disconnects do happen, but they don’t necessarily last.The US dollar has stolen the showIt’s all about the US dollar, as we have been saying on these pages for many months. In the year to date, gold is up around 13% in sterling. That’s an almost stellar return compared to stock and bond markets. But against the dollar it’s down some 8%. How long does the dollar stay so strong? That’s the question we must ask ourselves. On current form, a while longer it would seem.Norman, who has an extraordinarily good forecasting record, agrees. “The rampant dollar looks like it might be here for a while,” he says.You don’t need to look further than US interest rates relative to European interest rates and US energy dependency relative to Europe’s, to understand why we are where we are.“Never in my career did I think we’d see the circumstances we are now in and gold behaving like it is,” says Norman. “It’s extraordinary. The dollar has stolen the show. But nuclear war is a real possibility!”Gold, by the way, will survive a nuclear explosion, and none of the three types of radiation that follow – alpha, beta and gamma – will affect it.Smart investors are still buying gold bullionBut one of the few bright spots in this market is what Norman calls “the literate investor” who continues to support it.Saul of Pure Gold makes a similar observation. His company makes a point of talking to clients as they buy and sell, to understand their motivations. As a result, they build up a lot of qualitative data.“Everyone’s looking to protect their wealth in a time when things are really uncertain”. But there have been two notable trends he has observed.First, there has been a notable increase in buyers from the financial world. “Traders, investment bankers, financial services, accountants, lawyers – they’ve been buying large sums. I find this notable: “Their trade sizes are bigger. The median trade size is probably three times bigger than it was a year ago – and during Covid.”Saul says many of them are worried about what is going on behind the scenes at the banks. “These are considered investments, where there is a lack of alternatives.”The Flying Frisby is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.Money is moving out of property and in to goldThe second notable trend is the exodus of money from real estate – whether commercial or residential.“Property investors normally like to remain liquid, so they have cash on hand ready for the next deal. Buy-to-let landlords, commercial landlords, people who buy big buildings and let out floor by floor, developers. Companies and individuals. A lot of them have a lot of cash. They have an appetite for debt, but the increased cost of debt, plus the possibility that the underlying asset will fall in value means there is too much risk for them. They’re now parking that cash in physical gold.”“We are also seeing a growing amount of people with properties on the market, who when their property sells will move their capital into gold. Many are removing their exposure to debt that they might have taken two or three years ago.”What we are seeing then is capital flowing from finance and from real estate into gold. I find that telling. Thank you for reading The Flying Frisby. This post is public so feel free to share it.China is driving demand for gold bullionThere’s a shortage of physical metal. Premiums are higher than normal, as a result. But that is not deterring buyers. Guess where premiums are highest? Yup, China.That’s where the demand for gold bullion is highest.“As much as $50 over spot in some places,” says Norman. “Normally arbitrage irons this out, but that’s not happening.”The trend of gold making its way from West to East continues.Here in the West, on the ground, there is a scramble for physical gold that you would not know to look at the gold price. It won’t last. It never does.The technicals for gold do not look great at all; it’s in a downtrend. That cup-and-handle formation that had us so excited earlier in the year looks like it may have been invalidated. As in 2008, gold looks like it might need to go lower before it goes higher. But at grass roots level there is a lot of smart money buying physical gold. Somebody has got this wrong. The question is, “who?”If you are looking to buy physical gold – coins or bars – let me recommend The Pure Gold Company in London, with whom I have an affiliation deal. You can take delivery or store it safely allocated to you in vaults in safe jurisdictions. The Flying Frisby is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.This article first appeared at Moneyweek. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

I stumbled across this 2013 blog earlier today. I’m posting it because I thought you might enjoy it, and partly because it’s relevant to a thought piece I’ve been working on that I’ll be posting later in the weekOoh, what fun There's nothing surer The rich get rich and the poor get poorerPeggy LeeMost of us now enjoy luxuries that would have been unheard of a hundred years ago - running water, electricity, computers, phones, cheap food and clothing. Yet, despite all this, there is discontent. Huge amounts.The problem is inequality. Inequality is everywhere, it is increasing and it comes in many different forms.There is the wealth gap.The wealthiest 400 people in the world are worth more than the poorest 140 million.70% of the land in the UK is owned by less than 1% of the population.When once CEOs of major corporations earned 20 times more than their employees, now they can earn a thousand times more. A Burberry sales assistant (according to Glassdoor) earns £16-17,000 including commission. The Burberry CEO, Angela Ahrendts, received £16.9 million last year. I shudder to think what the Burberry factory worker is getting.Over fifty per cent of young people believe they will never own a house, while the average age of the first-time buyer in London is now over 40. He or she'll be a pensioner before they can start a family.We can build a decent house for less than a hundred grand, and only 2.5% of the UK is actually built on, so how can we have a society in which houses have got so expensive that most young people think they will never own one?There is the health gap.Unbelievably - and despite best intentions - health inequality, as measured by life expectancy, has actually increased since the founding of the NHS in 1948. There is also huge discrepancy in the quality of care received between the top and bottom of society.And we have the opportunity gap.Despite billions being spent on education, despite more and more taxation, subsidy, legislation and regulation all with the intention to spread wealth and bring equality of opportunity, the top positions in just about every area of the economy you can think of - politics, law, media, finance, medicine, even manufacturing - are dominated by the 7% of the population who went to public school.Even in the Olympics you were five times more likely to win a medal if you went to public school.Something is wrong. People are, rightly, angry about it.Tax the rich more. Stop companies like Google evading their tax. Clamp down on immigrants. Stop benefit cheats. Spend more on education, on health care, or is it infrastructure? Increase regulation of banks. Build more houses. Subsidize wind farms or environmental initiatives. More austerity. Everyone has their own idea about what needs to be done and over the last decade a huge ideological battle has been unfolding as people argue about it.But all these ideas and many more besides, some of which come from the left and others from the right, all involve the same thing: that the government does more, that it takes action.I suggest the opposite - that the ONE thing government should do is LESS. I suggest that, counter-intuitive though it may seem, the huge rise in inequality is BECAUSE of government and the unintended consequences of its actions.For a hundred years the state has got more and more involved in our lives. It now look after our birth, our education, our health, often our employment, our old age, even our burial. Through its money and interest rates, through its taxes and subsidies, its rules and regulations, it looks after our economy. The more it does, the greater these gaps have all grown.It's time to try something else - Life After The State.Life After The State by Dominic Frisby is available on Amazon. The audiobook is available at Audible.And if you happen to be in the Louisiana neck of the woods next week, or fancy a trip, I’ll be speaking at the New Orleans Investment Conference, which runs from October 12-15, at the Hilton New Orleans Riverside. There are lots of big names on - Rick Rule, James Grant, George Gammon, Jim Rickards, Doug Casey and many more besides. Come and say hi!The Flying Frisby is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

We’ve seen incredible rallies across the board this week.After a worrying sell-off late in the day and into the close on Friday, the Dow and S&P500 all both took off on Monday, rallying by over 3%. They then followed through with gains of another 3% on Tuesday.The Nasdaq was up by even more.Given that tech was so totally beaten up, I guess the bigger rally is no surprise. You could apply the same logic to precious metals. Silver, sold down into the abyss, rose by eight and a half percent on Monday. The call for a multi-week rally in silver is looking good.Even the once internationally sought-after currency that is sterling has seen a barnstormer. A week ago everyone was talking about parity with the US dollar. It was all over the headlines (which usually means it’s time to take the other side of the trade). Even Turkey’s President Erdogan, with a display of hypocritical chutzpah that would capture the admiration of even the most duplicitous of tyrants, was deriding it. It has “blown up”, he said. He’s not been looking in the forex mirror lately at his own lira, it seems.Sterling went from $1.03 almost to $1.15.What we’re looking at is a typical short squeezeI want this bear market over as much as you probably do, and I hate to go all prophet of doom on you, but these kinds of rip roaring rebounds are just that: rebounds. They are not so typical of bull markets.Let me give you some depressing stats. 1929, 1931, 1932 and 1933 were among the worst years of in US stockmarket history. Famously so. Yet, on a percentage basis, the ten biggest rallies in the Dow Jones Industrial Average i n the first half of the 20th century all took place in those years.Prior to this decade, the best days in the stockmarket since 1950 were, says JC Parets of All Star Charts, in 1987, 2002, 2008 & 2009. Again, 2009 aside, not a great time to buy stocks.These kinds of spikes are not typical of bull markets. That’s not to say they don’t happen in bull markets, but they are more typical of bear markets. Bull markets tend to grind higher. Increased volatility, heightened fear and risk, big up days and big down days, short squeezes: these are all things you see in bear markets.Indeed, it’s a typical short squeeze. There have been lots of sellers. There are lots of people with big bets that prices will continue falling – a lot of shorts – and suddenly there are no more sellers in this crowded market. As the price turns, the shorts quickly cover their positions – which means there are suddenly lots of buyers – and the market rockets higher. It’s the sudden and rapid covering of positions that causes the spike up.Of course, sometimes you get these spikes at the final low. March 2009 was one example. March 2020, at the height of the Corona panic, was another. The problem is that on the way to that final low there have been many such up days and down days, so, in real time, you don’t actually know which this is the final one.“From false moves come fast moves in the opposite direction” is a phrase you may have heard me utter on these pages several times. Friday’s move down was one such example. A break down to new lows, below the June lows, everyone thinks we are going lower. Rumours are flying about. There’s an emergency meeting of the Federal Reserve Bank on Monday. Credit Suisse is going under. The implications of this are bigger than Lehman in 2008. Then the market turns around and rips everybody’s faces off.Rip-roaring up-days are are normal for bear marketsAs I write now, most markets have turned down again – though at present it looks more like consolidation action after the gains of the last couple of days.Here’s the S&P500 over the past year. Just look how many rip roaring up-days there have been in 2022, and yet it has been a horrible year for longs.An obvious magnet for this move is that falling blue trend line just around 4,010. Another potential target would be the 3,850-3,900 area.I’ve also shown that false move from which this fast move has come: the break below that dashed blue line which marks the June lows. What do you think? Is the final low or have got more bear market action to come?Price action tends to set the narrative, and the stockmarket tends to lead the broader economy, so even if you are of the mind that this economic downturn is not over, the stockmarket can still quite easily go higher. We are going into a good seasonal period for stocks. There’s probably too much pessimism about. We have the US mid-term elections in a month, which will give us a better idea of where things are going politically. I’ll change my opinions as events develop. I always do. We all do. But for now I think the likelihood is that this is a bear market rally.And, as for silver, I don’t think this is the beginning of the big kahuna to $50. Low- to mid-20s is my target.And if you happen to be in the Louisiana neck of the woods next week, or fancy a trip, I’ll be speaking at the New Orleans Investment Conference, which runs from October 12-15, at the Hilton New Orleans Riverside. There are lots of big names on - Rick Rule, James Grant, George Gammon, Jim Rickards, Doug Casey and many more besides. Come and say hi!The Flying Frisby is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.This article first appeared at Moneyweek. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe