The Flying Frisby - money, markets and more

Back in 2016 we learnt a new word. “Lustrum”. It means a five-year period. Given how long decades are, I can’t believe it doesn’t find more use. Even if we don’t use the word, we investors often think in terms of lustrums. Many of the investments we make are made with a three-to-five-year time horizon in mind.Which is precisely why I started using the word. We had identified a trade of the lustrum. It was oil. So how’s it doing?Oil still looks very cheap relative to most other assetsVery well, is the answer. But it hasn’t been an easy ride. At times we have really had to bury our heads in the sand. Crude was in the mid-$30s when we recommended it, but at one stage we found ourselves $60 underwater! How is that even possible, you might wonder? Well, of course, oil went negative back in 2020.But like all normal humans when presented with facts they don’t want to hear, we put our hands over our ears, shouted, “blah, blah, blah fishcakes” and went and played table tennis. It won’t last, we thought, and we were right. In fact, we should have bought more.Our reasoning back in March 2016 was that oil was extraordinarily cheap relative to other assets, be they stock markets, tech stocks, houses, gold, or even other commodities. It could go lower, we reasoned. Then again it might not. But, we observed, it was an anomaly that it should be trading at the same price it had been in the 1980s given how much money has been printed since.So here we are six years later, with oil three times the price or more, how’s the trade looking now? Do we sell?The trade is maturing nicely, I’d say. But, to use an analogy, although the wine in the cellar is getting finer all the time, it’s not yet at its most drinkable.Why oil could go to $300Let’s consider some long-term ratios, starting with oil vs stocks. This chart shows how many units of the S&P 500 you can buy with a barrel of West Texas Intermediate (WTIC – the US benchmark). Currently you get 0.03 of an S&P 500 unit (4,135) for a barrel of oil ($114).When the chart is falling, oil is getting cheaper relative to stocks. When it is rising, oil is getting more expensive. So you can see that it fell through the ‘80s and ‘90s, as the oil price declined, yet it rose through the ‘00s as the oil price made its way from $10 to $150/barrel.You would expect this ratio to fall over time as oil production techniques improve and stock market valuations increase as economies grow. Nevertheless, we are nowhere near the “sell” zone. If anything, we are still in the “buy” zone. The ratio is the same price it was in 2002. No reason here to sell our oil and move the money back into stocks. Call me again when the ratio is at 0.06 or 0.07. That’s another way of saying I see oil getting at least twice as expensive relative to stocks as it is now before this is over.If the S&P 500 is 4,000, a 0.07 ratio gives you an oil price of $280. Mark my words – $300 oil is not such an outlier.Here’s WTIC vs the Nasdaq. Again you would expect Nasdaq valuations to improve over time versus oil because of the scalability of digital and the growth in that sector. But on a relative basis, oil again looks very cheap and is still a buy.Whre’s it going back to? 0.04 maybe? Doesn’t look unreasonable.Using the ETF VNQ as a proxy for US housing, here is WTIC vs housing since 2004. It was three times higher before the end of the last bull market.And finally here is crude against gold – how many ounces can you get for a barrel? The answer is 0.06 of an ounce.This ratio tends to be much tighter over time – just as oil production techniques improve so do gold mining techniques, and there isn’t the growth-of-companies factor to push it lower.We are somewhere in the low-to-middle range. Call me when it gets above 0.1. If gold is $1,850 an ounce that would mean oil at $185/barrel.It’s not just relative – there are strong fundamental reasons for oil to go up too   So we’ve looked at relative valuations. What about the fundamental reasons to expect a higher oil price?First, there’s 14 years of money printing and inflation. A lot of that money is going to go into the basic human requirement that is energy. Even if they print less, the money has still been created and oil is essential. Unless there is a sudden 2008-style debt destruction moment, that money will remain.Second, despite the fracking revolution, and the improved productivity it brought about, for almost ten years now there has been huge underinvestment in the sector. From lack of new discoveries through to aging pipelines, this means higher costs.Misguided anti-fossil fuel narratives perpetrated across the media and social media have made this sector toxic. Few want anything to do with it. Talent goes elsewhere, and with it investment. So productivity declines.Governments have exacerbated the lack of investment with their pursuit of green energy and net zero. They clearly don’t get it. The narrative now is windfall taxes. That’s only going to further disincentivize investment. Policy-makers are attacking and blaming this essential industry, not helping it.The Russian invasion of Ukraine has accelerated things. But this was all going to happen anyway. The hypocrisy of the net zero movement is that it is going to require the burning of one heck of a lot of fossil fuel to make it happen.Fossil fuels are essential. Demand isn’t going anywhere. Not for a few years anyway.The latest news out of oil cartel Opec has wobbled the price a little. I’m not concerned. I’m thinking longer term. What was my “trade of the lustrum”, is now my “trade of the decade”.My preferred vehicle to play oil back in 2016 was, oddly, BHP Billiton (LSE: BHP). Known as a mining giant, something like 22% of its revenue and 34% of its earnings came from petroleum. And if you plot a chart of BHP over WTIC, you would see that one tracks the other quite beautifully. However, BHP, for reasons stated above, is moving away from the sector. This will further help the oil price of course, but it also means its use as a proxy is no more. Consider SPOG – the iShares Oil and Gas Production ETF (LSE: SPOG) – as a vehicle.Another option is the Han ETF – Alerian Midstream Energy Dividend UCITS ETF (LSE: MMLP) – which yields around 6%. It gives exposure to midstream energy companies involved in the processing, transportation and storage of oil, natural gas and natural gas liquids in the US and Canadian markets.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

Back in the early 1990s comedienne Mandy Knight did a show at the Edinburgh Fringe called, “Some of my best friends are ginger”. I always thought it was an inspired title, exposing a double standard that still persists today, and it always stayed with me.Then, a few years back I presented a series for Italian TV about beauty, Senso Della Bellezza - Sense of Beauty - and we did a feature on red heads. I thought it would be a nice piece today to mine that feature and expand on it, explore the history of redheads, and thereby celebrate the unjustly mocked 1% of the global population that carry the MC1R gene.The Book of Genesis is perhaps the first book to have been written down and, in the book of Genesis we have the first celebrity redhead, and a victim of some treachery, Esau. Esau came home hungry one day after a long shift in the fields, and his brother Jacob offered him a bowl of soup, but only in exchange for something: his birthright, his first-born son status. Esau, who seems to have been a bit of short-term thinker, put his stomach first and he accepted. Thus did Jacob inherit, and so did Jacob - and not Esau - go on to become one of the Fathers of the Israelites. All things considered, it was probably better for the Israelites that he did.Esau was born red all over “like a hairy garment”, and one interpretation is that Esau had some recessive Neanderthal gene - the theory is that Neanderthals had red hair, although I do not suggest red heads are any more Neanderthal than the rest of us. The genetic mutation responsible is different to the one that which causes red hair in modern humans.Red hair occurs most commonly in people of Germanic or Celtic origin. Ireland has the most red  heads per capita at around 10%, but the highest density of red heads and thus the red head capital of the world is actually Edinburgh. No wonder Mandy’s show did so well there.It’s thought that the reason red heads are more commonly found in colder climates is that it is actually an advantage to be pale, where sunlight is sparse. The lighter skin of red heads improves the absorption of sunlight, which is vital for the production of vitamin D by the body. Red hair is also relatively common among Ashkenazi Jews. Many Jews in literature have been portrayed with red hair. Shylock in Shakespeare’s Merchant of Venice and Fagin in Dickens’ Oliver Twist, being two of the most famous. Judas, the betrayer of Christ, is often portrayed as a redhead.During the Inquisition in Italy and Spain, where red hair is less common, those with red hair were identified as Jews, even if they weren’t actually Jewish. Today the commission for Racial Equality do not monitor cases of discrimination and hate crimes against redheadsRedheads were first mentioned in literature by the Greek poet Xenophanes around 500BC describing the Thracians, who it seems were red headed and blue eyed. The Ancient Greeks seemed to be particularly admiring of red heads. In men red hair was associated with honour and courage, while in women red hair was associated with beauty. Homer says the heroes Menelaus and Achilles were both redheads, while Helen of Troy, the most beautiful woman that ever lived, was also a red head.Aphrodite, Goddess of beauty and love was also red headed. (During the Renaissance, Botticelli and, especially, Titian were always painting beautiful women with red hair to the extent that titian now means auburn).The hair of female statues in Ancient Greece was often painted red - the Greeks loved the colour red.Many slaves in ancient Greece and Rome were the northern territories. Red headed slaves would often fetch a higher price, as they were thought to bring good luck. Red wigs were given to actors depicting slaves in Greek and Roman theatre. Indeed one fringe theory to explain modern mocking of redheads is that it stems from the Roman subjugation and persecution of Celts after the Romans arrived in the British Isles.Aristotle was not as keen as other Ancient Greeks is supposed to have said that "Those with tawny coloured hair are brave; witness the lions. But the reddish are of bad character; witness the foxes."Romans seemed just as admiring of red heads as the Greeks, particularly among the fierce Gaulish tribes, who Titus Levy said, “stand first in reputation for war … with their tall bodies, long red hair, huge shields, very long swords, and songs and yells as they go into battle, they terrify their foes.”From the Gauls to the Vikings to the Celts there has always been this connection between martial strength and flame-colored hair. The English warrior queen Boudicca was a red head. Perhaps the greatest warrior of the lot, Ghenghis Khan, was “long-bearded, red-haired, and green-eyed.”Egyptian pharaohs were found to have hair with reddish pigments, among them ‘Rameses the Great’, the most powerful of them all, and Cleopatra. Alexander the Great, Richard the Lionheart, the great Ottoman naval commander Hayreddin Barbarossa (Red Beard), Queen Elizabeth I, Mary Queen of Scots, Mary Magdalen - they were all depicted with red hair. Even the gods Bacchus and Hades were.Red-headed men have often been stereotyped as temperamental and quick to violence, while red headed women as loose, libidinal and wild. The Prose Edda is one of the oldest Norse documents. Odin the All-Father, ruler of the gods, is a wise and thoughtful ruler with blonde hair, but his quick-tempered son Thor, God of Thunder, though, is possessed of a full head of red hair and an enormous bushy red beard.In Gullivers Travels, Jonathan Swift said "It is observed that the red-haired of both sexes are more libidinous and mischievous than the rest, whom yet they much exceed in strength and activity."This might even be born out by science. A  German sex researcher found that women with red hair have sex more often, and an English study found that redhead girls have sex an average of three times a week, while blondes and brunettes only twice. As for the temper stereotype, a 2004 study found that redheads feel both pain and cold temperatures more vividly, and they get stung by bees more often. Maybe there’s a reason for the anger.A 1486 Treatise on Redheads, Malleus Maleficarum, declared that those whose hair is red, of a certain peculiar shade, are unmistakably vampires. So now you know. 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

Not being a Fed-watcher, I have been rather slow to this particular narrative, I’m afraid, and it only really dawned on me last week as I was losing money trying to catch falling knives in the stock market.It was Zoltan Pozsar writing for Credit Suisse who switched on the lightbulb for me. He’s the new rockstar among institutional market strategists.A couple of other analysts have reached the same conclusion.It’s this: the Federal Reserve and America’s other policy-making powers that be, actually want the stock market lower…The Federal Reserve really does want to fight inflation I’ve heard so much hot air coming out of government officials’ mouths over the years that I think my mind is actually programmed now not to believe a word they say. It’s not that I’m treating what they say with a healthy dose of cynicism. I’ve reached unhealthy levels of cynicism. My default, so low is my trust, is now not only not to believe a word they say: it is to assume they are lying. Probably not a good place.It turns out that sometimes those in power do actually tell the truth. I got my first surprise dose of this earlier this year from Foreign Secretary Liz Truss, when she warned that the Russian troops on the other side of the Ukraine border were about to invade. Pull the other one, I thought. Russia wouldn’t do that. It turned out that Truss was talking straight, and her intelligence was correct.When US president Joe Biden said his top economic priority was getting inflation down, my inner cynic muttered: “yeah, course it is mate.” It turns out what he was saying might actually, believe it or not, be true. The Federal Reserve’s primary mandate is to keep inflation down. It might be that chief, Jerome Powell, is taking this mandate at face value. All that stuff about his hero being Paul Volcker might even be true too.Lower asset prices help the cause.Back in 2008, and for many years since, everyone in Policymakerland was worried about deflation, and every effort went into staving it off. So we got QE, ZIRP (zero interest rate policy) and all the rest of it. We got very used to it. It went on for so long, it became normalised. The idea that they would ever do anything else seemed far-fetched. But, no, in Policymakerland they are genuinely worried about inflation, and so asset prices are not going to be defended. Au contraire. They want them to fall.Bear markets mean financial conditions tighten. Tighter financial conditions mean lower money velocity and lower inflation, according to modern definitions at least.The Fed is talking tough, and it might be that talking tough does a lot of the job for them – and they might not have to actually act as tough as they talk.If they can get stock prices down a bit, house prices down a bit, and a lot more caution around the place, with just a bit of jawboning, then the need for higher rates will diminish, and the western world might not actually implode. Falling crypto markets help the cause too. There won’t be that particular thorn in the Federal side exposing the shortcomings of fiat money.Tighter conditions will put some upward pressure on unemployment, which means the upward pressure on wages will go away too, and that will help reduce inflation.If this has to happen sometime, that time is now, in the second year of an election cycle. Come 2023, the priority will shift to getting the economic conditions in place to win the next election. Part of this of course is lower inflation, but they will want the correction in the past and asset prices moving back up again.OK. So if you buy this theory - how far do stocks fall?How low can the S&P 500 go?Currently we are at 3,970 on the S&P 500, having been as high as 4,800, and over the last couple of days the bulls appear to have regained control of the tape. The low was 3,800 - off about 20% from the highs. Another 10% or 15% would take us to the low 3,000s.While we could bounce a little here, I’m inclined to think we haven’t yet seen the lows. Best-case scenario, I’m going to say 3,600 – that’s the post Corona-panic high. Worst case? Down around 3,000 at the 2019 highs. Most likely, I’m going to guess somewhere in the middle at 3,400 – the 2020 pre-lockdown highs. Remember these are just guesses.But the bottom line is this: the “print-money-and-protect-asset-prices-at-all-costs” narrative has gone. It’s history. The issue is no longer deflation, by their definition. Now it’s about inflation. They’ve been able to ignore it for years by crooked measures, ignoring asset prices and all the rest of it. They can’t any longer. That’s what they are now fighting.As they say, “don’t fight the Fed”.It won’t be the case forever. Elections have to be won. But it seems the case for now. Psychologically, we might need some despair and maximum pessimism before the bear market can be deemed over. There still seems to be too much optimism about. We need to be at that point of perception that the bear market is entrenched and we are never going to get out of it, before it can end. We haven’t reached that point yet.Everything bubbles on the way up, everything pops on the way down.It might be, by the way, that UK stocks – small and large – turn out to be a very good place to hide. (I’m not saying the UK economy – stocks markets and economies are different beasts). My reasoning? A presentation by fund manager Gervais Williams that I saw at the UK Investor Show last weekend. UK stocks have been rubbish for 20 years, but in the inflation of the 1970s they were one of the best global places to park capital. Fingers crossed the same thing happens this time around.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

‘Due to our low tax policy . . . revenue has increased.’John James Cowperthwaite, Hong Kong Financial Secretary, 1961-71Fourteenth-century Tunisian, Ibn Khaldun, is probably the greatest philosopher of the Islamic Golden Age. In his magnum opus, The Muqaddimah, he wrote: ‘In the early stages of an empire, taxes are light in their incidence, but fetch in large revenue. As time passes and kings succeed each other, they lose their tribal habits in favour of more civilised ones. Their needs and exigencies grow . . . owing to the luxury in which they have been brought up. Hence they impose fresh taxes on their subjects . . . and sharply raise the rate of old taxes to increase their yield . . . But the effects on business of this rise in taxation make themselves felt. For businessmen are soon discouraged by the comparison of their profits with the burden of their taxes . . . Consequently, production falls off, and with it the yield of taxation.’ Never mind his own Islam, he might have been describing Rome or Greece before, or Britain or the US after. Low taxation and small government accompany the ascent of great civilisations, high taxation and big government their demise.It may be counter-intuitive, but it is an observation that goes back centuries. Low tax rates often bring in greater revenue, while higher tax rates bring in less.Khaldun was not the first to make this observation. It was the guiding philosophy of the fourth caliph, Ali. Take great care, he instructed his governors, ‘to ensure the prosperity of those who pay taxes. The proper upkeep of the land in cultivation is of greater importance than the collection of revenue for revenue cannot be derived unless the land is productive.’ If conditions are bad, then suspend taxes, he advised. “Do not mind the loss of revenue on that account, for that will return to you one day manifold in the hour of greater prosperity of the land and enable you to improve the condition of your towns and to raise the prestige of your state.”Hong Kong’s John James Cowperthwaite acted by the same philosophy and would always push for the low- or no-tax option. Eventually, ‘funds left in the hands of the public will come into the Exchequer’, he said, but ‘with interest’.In 1924, US Secretary of the Treasury Andrew Mellon wrote, ‘It seems difficult for some to understand that high rates of taxation do not necessarily mean large revenue to the government, and that more revenue may often be obtained by lower rates.’But perhaps the most famous proponent of this argument was the American economist Arthur Laffer.In 1974, Laffer was having dinner in Washington DC with two of (recently impeached) President Richard Nixon’s former advisers, Dick Cheney and Donald Rumsfeld, as well as a writer for the Wall Street Journal by the name of Jude Wanniski. Laffer was arguing that the incumbent president Gerald Ford’s recent tax increases were flawed and would not lead to increased government revenue. To illustrate his argument, so the story goes, he drew a curve on a napkin showing the relationship between tax rates and revenue. At very low rates of tax, government revenue is low; but it is also low at high rates (because the economy is weaker, profits are down, earnings are down, evasion is higher and so on), so the curve is bell-shaped. The top of the bell is the point of maximum revenue – that is, the sweet spot at which to place tax rates if your goal is to maximise government revenue. Laffer’s argument caught the imagination of those present; Wanniski would later dub it ‘the Laffer Curve’, even though Laffer later stressed, ‘The Laffer Curve, by the way, was not invented by me,’ and mentioned many others, from Keynes to Khaldun, who had observed the same phenomenon (perhaps we should call it the Fourth Caliph Curve). As President J. F. Kennedy once said, ‘It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the tax rates.’ It is a lesson that mankind continually seems to forget, and one that continually needs re-teaching. Hence today’s post.(That was an adapted extract from Daylight Robbery, How Tax Shaped our Past and Will Change our Future). 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

You might call it the cable that changed history.In the mid-19th century there were various attempts to lay cables across the Atlantic Ocean between Britain (Ireland) and the US. It took several failures, numerous bankruptcies and over ten years before they got it right. But eventually they did and on July 27 1866 Queen Victoria broadcast a message to US President Johnson. Here’s what it said: Osborne, July 27, 1866To the President of the United States, WashingtonThe Queen congratulates the President on the successful completion of an undertaking which she hopes may serve as an additional bond of Union between the United States and England.Johnson replied:Executive MansionWashington, July 30, 1866To Her Majesty the Queen of the United Kingdom of Great Britain and IrelandThe President of the United States acknowledges with profound gratification the receipt of Her Majesty's despatch and cordially reciprocates the hope that the cable which now unites the Eastern and Western hemispheres may serve to strengthen and perpetuate peace and amity between the governments of England and the Republic of the United States.(Signed) Andrew JohnsonMoney is a form of communication technologyTo send a message by ship could take ten days or more. Now it was a matter of minutes. So somebody came up with the slogan "two weeks to two minutes".Transmission speeds improved rapidly. Morse code became words. It was soon possible to send multiple messages at once. By the end of the 19th century, Britain, France, Germany and the US were all linked by cable.Personal, commercial and political relations were altered for all time.Back then gold was money of course, as were paper notes representing gold. You couldn’t send gold down the cable, however, nor paper. But you could send a promise.And, within a fortnight of Queen Victoria’s message, that’s what two parties who trusted each other did. An exchange rate between the dollar and the pound was agreed and then published in the New York Times on August 10.That is why, to this day, the pound-dollar exchange rate, GBPUSD, is known as cable.Promises, promises, promises“All money is a matter of belief,” said Adam Smith. He had a point.Look at a twenty pound note (if you still use them) and you will see the words “I promise to pay the bearer”. Money is promissory.Of course, promises disappear. Gold doesn’t. The two are quite different forms of money: one is belief, the other is real. Nevertheless, since the dawn of civilisation, we have been using promissory money. In Ancient Mesopotamia, man used mud tokens - a cone or a sphere- representing sheep or barley, baked inside clay balls to log debts owed. Over time, he found it more efficient, rather than bake tokens in balls, to inscribe pictures of the tokens in the mud for the same purpose. That is how the first system of writing came about.  In Ancient China, man recorded his debts on bits of leather. After the invention of printing he started using paper. Today the promises are recorded and exchanged between trusted third parties on computers.Millions, probably billions of promises are sent across the internet every second, transferring as quick as words, probably quicker. Not only does (promissory) money evolve with communication technology, it is often the spur, the impetus for communication technology to evolve. Now bitcoin, with its blockchain, obviates the need for trusted third parties altogether. That is one of many reasons it is so special. Here is a money communication network backed instead by mathematical proof and the most powerful and resilient computer network ever known to man: the trusted third party is the blockchain.Why would you not want to own a share of such a breakthrough technology? That, effectively, is what owning some bitcoin is – owning shares in a new monetary technology. And it’s not like they are doing any roll backs.Money has evolved like languageMy purpose with this is to illustrate a point: if you’re sending important promises, you need good communication tools. What is money, then, but a form of communication?Let’s explore further. It’s often said (by me at least) when considering politicians: look at what they do, not at what they say. What we do says more about us than what we say. What we do with our money says even more.And what we do with our money communicates value, not just between buyer and seller, but across the economy. What is the price of this thing? What is its value? The answer is constantly being sent and received, digested and acted upon; and so does the economy constantly, incrementally evolve and develop with each new signal: the how, why and when, of what needs producing and where.Money then is like a language. Constantly evolving and changing. Nobody is really in charge. Not even central bankers. Our fiat system wasn’t really planned. It has just constantly evolved, with billions of people contributing in their own different ways simply by using it. The architects of fiat money did not plan what we have today, they just used it to get out of a tight fiscal spot – extenuating circumstances at the time.Similarly nobody planned the language we speak today. Language is hard to plan and regulate, try as many have over the years – and still do. It just constantly evolves and develops, according to the use and needs of billions.The English we speak today is a long way from the English of Chaucer, Shakespeare or Dickens. There are probably fewer words, certainly fewer tenses. Grammar is simpler. Yet it is far more widely spoken. The network has grown.Mandarin may have three or four times more native speakers, but English is more widely spoken. There may well come a time when everybody in the world speaks it. It is the dominant linguistic network.Meanwhile, other languages fade away. Cornish has gone. Few now speak Welsh or Gaelic. The local dialects of France and Italy are disappearing. Similarly, there are no doubt a plethora of African, Asian and American languages that are on the way out, if they haven’t already gone.The question to ask is this: how scalable is the language? English has the potential to become the default language of the world. It’s almost inevitable at this point. Despite having more native speakers, that’s unlikely to be the case with Mandarin.   It’s certainly not going to happen to Gaelic, Neapolitan or Swahili.How many different monies have there been in history? Shells, whale teeth, metals, paper, cigarettes, mackerel packs, cognac, Zimbabwe dollars, reichsmarks, denarii, farthings, shillings, s**t coins. Most have died. Most of those which haven’t yet died, will die. Only gold goes on, immutable and permanent.But, as with transatlantic cables, you can’t send gold over the internet. Only golden promises between trusted parties.Bitcoin is money for the internetThe US dollar is the global reserve currency. You can send that over the internet. But it’s hard for people who aren’t American to get US dollar bank accounts. Foreign exchange fees are expensive. Money transfers can take several days sometimes. Billions remain unbanked and thus excluded from the financial system altogether.The dollar is a national currency that is used internationally. A country – and several do – could use it as their national currency, but they would be importing US monetary policy too, and so subjecting themselves to US political whims. Which is why most countries with their own political agenda issue their own currencies.Thus, though “international”, as a national currency, the US dollar is limited by its national borders and its politics. The same goes for any national currency.But language is not limited by national borders – or at least English isn’t.If only there was an apolitical, borderless currency for the borderless medium that is the internet, then that really would be scalable in a way that no national currency is. A network that has evolved organically, and is constantly growing.You don’t need a bank account to start using bitcoin. You only need a phone with an internet connection. We are not far off that point when everyone who wants one has one. That means even the unbanked can use it.My argument is this: if money is language, then bitcoin is English. It has a potential to scale that no other currency has. And even with the falls in price we have seen the network is 20% bigger than it was a year ago. Now that’s growth.Just as a final quick aside, here’s a nice little anecdote from not so long ago when the pound had greater global recognition than the dollar. In 1889-90, in emulation of Jules Verne’s Phileas Fogg, who went Around The World in 80 Days, American journalist Nellie Bly went on a trip around the world in 72 days. She took pounds, but she also brought some dollars, as she put it, "as a test to see if American money was known outside of America". She went east from New York, and did not see American money until Colombo, Sri Lanka, where $20 gold pieces were used as jewellery. They accepted her dollars – but only at a 60% discount.It’s a bit of an ask – though possible – to get people to accept bitcoin in the physical world. But that is not what it is for. It is money for the internet. And, as such, boy, is it scalable.And if you’re interested in buying bitcoin, my report on how, where and when to buy it is here.  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

Thousands of years before the dawn of civilisation, as prehistoric man hunted and gathered his way through the Stone Age, he came across 6 metals - the six native metals, which occur in nature in a relatively pure state: silver, tin, lead, iron, copper and gold. He found gold in river beds - nuggets, mixed in with sediment, relatively easy to collect and shape.Man adorned himself with it - as well as with bones, teeth, precious stones and shells. This was long before the Bronze Age and the discovery of smelting, when he started using copper, tin and lead.The oldest records we have of man using metal are fragments of gold in Spanish caves inhabited by Paleolithic Man, dating back perhaps as much as 40,000 years. The first records of man using copper came tens of thousands of years later. Lead, tin and iron’s first use came even later.The beauty of gold - dense, glimmering, shining - as well as its imperviousness no doubt captivated Stone Age Man the same way it does his 21st century descendants. We are the same animals, after all, with the same instincts.Gold is symbol of power and status, and of reproductive fitness - look at me I have access to this shiny substance. Like shells, bones and stones, even hand axes - gold was not only used as decoration, but as reward - as an expression of gratitude, as a prize for completing a task, for heroic deeds, as a tool in barter and exchange. In other words, it functioned as early money. Even in prehistory gold was performing the role it has always performed - and always will: to store and display and exchange value.Stone Age man had the same instincts we do today - the same urges, desires and compulsions. Survival is the most basic compulsion. You have to find water, food and shelter, for yourself and for those close to you. Then there is the survival of your species: you have to reproduce. If you survive, thrive and reproduce, so does the species as a whole grow stronger. Our self-interest is good for the species as a whole. And so we have the same basic instincts: fear, desire, love, hate. What often goes unmentioned is our instinct for beauty.  What we find beautiful is often good for us in some way. It is why man has always sought beauty.We are instinctively repulsed or alarmed by things that are dangerous – snakes, spiders, a cliff edge, loud noises. Things that aid our survival we find beautiful - the sound of running water, a fit and healthy potential mate, an open landscape with water, varied animal, bird and plant life, good visibility and shelter. With its unique characteristics, beautiful yet impervious, gold found special status in our psyche even before the dawn of civilisation. Our prehistoric ancestors cherished it before they were able to speak. Our instinct for gold, the emotion it inspires, is as eternal as the metal. It is a primal instinct.Beauty is truth, truth beauty,—that is allYe know on earth, and all ye need to know.John KeatsADDENDUM: Good point from tinopener1A version of this article originally appeared at Glint. 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

With the entire crypto sector crashing – I thought I should give you some thoughts on bitcoin this morning.Needless to say, it’s not pretty.At all.Faith in crypto has been battered, in most cases, quite rightlyThis time last year, bitcoin went on one its monster runs above $60,000. It then had one of its monster crashes. I can’t remember if it was in Moneyweek or on Twitter, but somewhere I suggested that a reasonable target for the correction might be $20,000. $20,000 was the old high from the 2017 boom and bust and an obvious pivotal price point.But the correction stopped at $30,000, or just below. The conclusion I drew – and on current evidence wrongly drew – was that, as bitcoin matured, its volatility was declining. The 90% corrections of previous bull markets were now 50-60% corrections.Bitcoin had a second run above $60,000 in the autumn, followed by another of its humongous corrections, and lo and behold, $30,000 held again (actually just below, but I use round numbers as they are more readable).As an asset, bitcoin has become highly correlated to the Nasdaq and tech stocks and, as we all know, tech stocks have been walloped. Peloton, for example, which we wrote about yesterday, is down over 90%.So over the past fortnight, I was quite encouraged to see bitcoin holding up quite well relative to other tech stocks. $30,000 looked like it was a floor.Then we got the collapse in the protocol Terra, and its so-called stablecoin UST, and the sector has been absolutely battered.This is big, and it’s going to take some recovering from. The bubble of 2016 was verging-on the-fraudulent ICOs. Today it’s staking and stable coins. The yields on staking – over 20% in some cases – were unsustainable and so they have not been sustained. (If you’re baffled as to what I’m talking about here, don’t worry, you haven’t missed out and at this stage it’s very much for the best). Hundreds of thousands of people have lost money, in some cases fortunes, and as someone who has lost big money in the past, I offer my deepest sympathy. You start blaming yourself for your greed and stupidity, you feel huge shame, worse you start thinking you have betrayed your family, you think you will never get your life back and you sink into a horrible depression. In some cases, people will feel suicidal. I’ve been there (although not the suicide bit) and it is not nice. Yes, you made a poor judgment and it has cost you, but you haven’t betrayed your family. You were only trying to better your lot and thereby make all of your lives better. There is nothing wrong with that. The reputational damage of this episode to crypto is considerable. All those who declared that “crypto is a fraud” are now looking wise, while those, myself to an extent included, who made the argument that bitcoin is a hedge against currency debasement are looking stupid, given that it is off some 65% from its highs.Bitcoin will survive (again) but it’s likely to hit $20,000 and could go even lowerOf course, bitcoin and crypto are not one and the same. Bitcoin remains a product of technical and open-source genius, but forever in its wake, and surrounding it, are disasters, gaffes, frauds and scams. Altcoins, NFTs, the Metaverse, Defi, staking, whatever the latest buzz thing is – all of it is puking value, and the bubble has well and truly burst. Again.And there lies the keyword – again. This is not the first time this has happened, and it will not be the last. And, for all the junk that surrounds it, bitcoin keeps on keeping on.The sector has lost some $1.7trn in value. That is a number similar to the subprime losses that triggered the Global Financial Crisis. But in crypto there are no bail outs. As I write it sits at $27,500. I would have thought we will see a retest $20,000. All the better if not. Oddly this episode might prove good for bitcoin in that it will produce a lot more bitcoin maximalists and hodlers.We hope $20,000 holds, but these are horrible, horrible, horrible markets – and I’m not just talking about crypto. It was oil going bananas in 2008, rising to $150 a barrel, which triggered that collapse. It seems like something not too dissimilar is happening now, following oil’s spike to $130 last month.There will be a lot of forced sellers out there – leveraged players across the board. So we are going to see a lot of liquidation. My advice, if you own quality assets, and you don’t have to sell, is not to. Gold, bitcoin, good companies – whatever. Their price may go lower, but if you are not confident you can beat the market, then don’t sell. Because just as bubbles always burst, so does quality always come good. And bitcoin itself – I’m not talking about other crypto – bitcoin itself is a quality asset: the single-most resilient information technology system in the world, backed by the most powerful computer network ever created.There’s even a chance it could go back to its corona-panic lows of March 2020. Heck, everything else seems to be going that way. That would take us to $3,000. I would have thought that unlikely, but never say never, especially in these markets.There’s also a chance it goes up.If you think you can beat the market, as I say, go for it. If you have a great trend-following system, great.If not, HODL quality. Don’t trade it.Remember the four phases of a bitcoin cycle:* There’s the Quiet Accumulation. Few outside of the bubble of ardent bitcoiners take notice, as it discreetly creeps up. * The Frenzy and Blow-Off Top. The price rises accelerate. There is a rush to buy. The media is all over it. Everyone on social media is crowing. There’s a huge row about whether bitcoin is in a bubble or not. I get invited onto the BBC to talk about it. You get a phonecall from your mate’s nan asking how to buy it. Dean from up the flats starts holding court in the cafe about irresponsible monetary policy at the Federal Reserve. Bitcoin has one of its blow-off tops. See 2013, 2016 and 2021 for more details.* The Monster Correction. Bitcoin loses over 50% of its value. Economists who missed the boat go on telly and declare they were right, ignoring the fact that the price to which bitcoin corrected to is several hundred percent above where the quiet accumulation phase began. Earlier in bitcoin’s evolution these corrections could be 90% or more. Now they have “scaled back” to more like 60%. Or have they?* The Frustrating Consolidation. Bitcoin goes into a period of range trading, consolidating the gains of the previous bull market. This is a period of relative quiet, at least by bitcoin standards. There are rallies that get many excited, but prove to be false dawns. Investors get frustrated by the grinding action. The media loses interest. Many forget about it, and so we gradually drift into another Quiet Accumulation phase.I thought we were in phase 4. Turns out we are back in phase 3. Phases 4 and 1 are the time to buy - unless you want to try and catch falling knives. But if you want to take the plunge and buy bitcoin, take a look at my guide. 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

Did you buy a Peloton in the lockdown? I know a couple of people that did. I nearly did. I certainly looked at them online and lusted after one. But then I didn’t get round to buying one. Can’t remember why not. It might have been the waiting list. It might be because I don’t have anywhere to put it…The tech bubble has well and truly burstA Peloton, by the way, is an indoor exercise bike that comes with an app with loads of classes built in, so you can have someone shout at you while you cycle. They do treadmills and things as well.Peloton Interactive (Nasdaq:PTON) was one of the go-to stock darlings of the Covid tech boom. It IPO’d in September 2019 at $29 a share. The IPO price was probably a bit high because over the next month the stock fell by a third to $20. It rallied a bit, but at the height of the Covid panic in March 2020 it sunk even lower to $17.Then people like me started wondering how we could exercise during a lockdown. Over the next nine months the stock went up ten times. By January 2021 it was $171. Then it started falling. Yesterday it hit $11.That’s a fall of somewhere between 93% and 94%. It’s now trading at roughly a third of the IPO price. It can still fall by another 93%.But I still think I want a Peloton. Though where would I put it?Netflix (Nasdaq:NFLX) has gone from $700 in December  to $177 yesterday. It’s “only” fallen by 75%. But my kids still watch Netflix. I don’t. But that’s because I’m a stroppy old grinch who doesn’t like TV. I can’t bear actors with shoddy diction, you see, and there are rather too many of them. They brutalise the language and nobody seems to care (except me). Another example of falling standards.Amazon (Nasdaq:AMZN) has gone from $3,773 to $2,177 yesterday. It’s “only” down 43% and it actually makes money. Or so I’m told.Whatever, I still use Amazon ALL the time.The tech bubble has well and truly burst. But tech companies are a lot more real than they were in 2000, last time around.The bursting cannot be blamed on Vladimir Putin and the war in Ukraine, I don’t think. It was a speculative bubble and speculative bubbles, even though they can go on much longer than is “rational”, pop. Suppressed interest rates and digital money printers endlessly brr-ing keep them going, but one day they pop.And it’s not like these declines are confined to Nasdaq stocks.Over the last week the defi protocol Terra has fallen by over 90% and, in doing so, collapsed the entire bitcoin and cryptocurrency ecosystem. We are deep in the bleak cryptocurrency midwinter and eyes are bleeding.Over in the similarly stupidly speculative sector that is junior mining, pain is apparent across the board. Markets are puking. Selfies of speculators now seeking work at McDonald’s abound.The bearish factors at play are obvious - the war in Ukraine, rising geopolitical tension, inflation, interest rates that don’t reflect inflation, fear that interest rates will soon have to reflect inflation, and the likely popping of the global debt bubble.Ukraine aside, these aren’t anything new, it’s just now they all seem to matter, when previously they didn’t.Where can you hide? Bonds are tanking, stocks are tanking, commodities are tanking, precious metals are tanking, crypto is tanking, even cash is tanking – in that it’s losing 10% of its purchasing power every year.Well, that last point may be true, but during a global margin call, cash suddenly starts to look valuable. The good thing about bear markets is that they don’t last forever. I don’t know when this one will end, but it will end, eventually.At a certain point, real businesses with cash flow are going to look very attractive - if they don’t already.The secret I guess is to look around at all those companies you wanted to buy when times were good. Have they changed? No? Well, now’s your chance to pick them up at a discount. When TVs and computers are on sale, people queue overnight round the block to get their bargains. When stocks are on sale, everybody panics and sells.The lesson is to always keep some cash in reserve for times like this. The problem is you spend it when you think something is cheap. It falls by more and you don’t have any cash left to buy it when it is cheaper.Gosh these markets are difficult. The sheer speed of the declines over the last month have been extraordinary.Are we at peak panic yet? I can see lots of opportunities out there. But I don’t think we are quite at the final flush point yet. But I dare say we are not that far away.This would seem to be a bear market of the grinding variety. Far more painful than the short and sharp crash-boom variety we saw during Covid.Stay safe! Awful expression, but I guess in this case it means don’t use too much leverage. 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

There are about 65 million people in the UK and 60 million acres of land – almost enough, in theory, for an acre each. (It’s not quite that simple, of course, and not all acres are equal.) Yet about two-thirds of the land – 40 million acres – is owned by fewer than 6,000 people. Land is the most basic form of wealth there is, so if there is a more telling statistic about the unequal distribution of wealth in this country, I’d like to know what it is. And it’s been that way since 1066.Today, so distorted is our system of taxation, many landowners actually receive subsidies for for land. The rest of us, meanwhile, must pay council tax. The largest landowners, whether families or institutions, exploit tax loopholes. Some families pass land from one generation to the next via the tax avoidance vehicle that is the trust, while the rest of us must pay inheritance tax.The complexity and inconsistency of our tax systems are to blame for so much wealth inequality. One group - large institutions, the super-rich, the government - has the resources to find the loopholes and exploit them, the rest of us don’t: and so pay more on a proportional basis. Complexity allows there to be one rule for some and another for everybody else.About the only way the person who starts out with nothing can improve his or her lot is through labour. And yet we tax labour constantly and heavily. The worker pays the vast majority of taxes: 40% of government revenue comes from income tax and national insurance, with another 20% from VAT.The wealth of the super-rich does not derive from their labour, however. It derives from the appreciation in the value of their land, their houses, their stocks, their shares, their bonds, their fine art – what economists call their assets. These go untaxed, unless you sell. So most don’t.If you want to redistribute wealth naturally, rather than via the moral minefield that is state re-allocation, the answer lies in changing the way we tax people.Instead of taxing our labour – what we produce – why don’t we tax what we use? Instead of taxing the wealth that is earned, why don’t we tax the wealth that is unearned? I’m talking about land. Nobody made the land. Nature gave it to us. By building on it, or farming it, or mining it, you have improved it, but the land itself was always there. So let us look solely at the unimproved value of the land. This is easy to assess.Obviously real estate in city centres commands an extremely high value, remote rural farmland very little.If you want the right to occupy a piece of land, and you want the government to protect your title to that land, then a rent should be paid to the community that reflects the value of that land, because it is the needs of the community which have given that land value. The least bad taxWhat I’m describing might sound extremely left wing, but the granddaddy of rightwing economists, Milton Friedman, described it as the, “least bad tax”: that is LVT – land value tax.Who would pay the most if we hand land value tax in the UK? Whoever occupies the most valuable real estate. The Queen (she owns most of it - or rather the crown does), the Duke of Westminster (or rather the Grosvenor Trust, which owns the land), the Duke of Buccleuch, the Duke of Atholl, Captain Alwyne Farquharson, pension funds, utility companies and large government bodies such as the Forestry Commission and the Ministry of Defence.The late duke may have been a canny businessman, but he did not invent anything new, he did not bring some amazing new product or service to the world, which we all wanted to use. His ancestors benefited from the corn laws 200 years ago and the estates were built. Now planning laws are such that few can build anything new. The estate, which owns some of the most desirable land in London, was effectively handed a monopoly and the duke made good from the fact that so many people want to live and work in London.There’s big money to be made in land banking but there is nothing creative about it. You are not bringing anything new to the world or improving it. It is simply exploiting the restrictive planning laws in this country that prevent progress and money supply growth. It is crony capitalism at its worst.If you don’t want to pay land value tax, you don’t have to. This is a tax that is voluntary. You simply sell the land to someone who is prepared to.The amounts of tax payable are clear. It’s an easy tax to administer. It doesn’t require 10 million words of tax code. And there need be no loopholes. The land is here – it is not in the Cayman Islands – and you are the owner.The Green party actually has LVT in its manifesto, but it has it in addition to other taxes. LVT should replace other taxes.Remember the mantra: don’t tax labour, tax land. Not only would it make for a much healthier, happier and more productive society, it would make for one in which wealth is more fairly distributed and one in which the relationship between government and citizen is held in balance.This article first appeared here in the Guardian. 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

Stock markets have taken quite a tumble this past week or so, and there has been a great deal of noise about the end of the tech bubble. Even with some 70%-plus corrections, many tech companies’ valuations remain extraordinarily high. What seems to have gone rather less reported is the extraordinary battering that metals have taken too. Whether base or precious, ferrous or platinum group, Russia-centric or dispersed, they have been walloped. The reason? Their nemesis has risen…The US dollar is the most important price in the worldWe have have been fretting about the US dollar for some time now. A year ago in June, over at Moneyweek, we wrote that “everything hinges on the direction of the dollar” and then in November we warned investors to “beware - the most important price in the world is rising”.We were worried, first, it would rise and then that it was rising. Well, talk about risen.The US dollar has been, of late, doing its best impersonation of bitcoin on one of its bull runs. It’s gone parabolic. And right now, it’s at a particularly critical juncture.The problem with the dollar is that, when it rises, everything else tends to go down the swanny – generally speaking, of course. It’s a bit of a chicken and egg job. I’m never quite sure if the dollar is rising because everything else is tanking, or if everything else is tanking because the dollar is rising.In any case, we speculators prefer an environment in which asset prices rise and the dollar falls. We may give it the big one about the Federal Reserve’s money printing, but we still want them to do it – if it means the well being of our portfolios is preserved.Central bankers and politicians are not the only hypocrites!But back in June we identified two key levels for the US dollar: 88-9 and 103.This is the US dollar index we are talking about here. That’s the US dollar measured against the currencies of its major trading partners – the euro and the Japanese yen mostly, with a bit of pound sterling, Swiss franc, Canadian dollar, and Swedish krona thrown in.The only currency that has been outperforming the dollar of late has been the Russian rouble. Go figure. But note that one is the petrocurrency and the other is gas money. Fossil fuels pay. Indonesia should start demanding rupiahs for its coal (it’s the world’s largest exporter).In any case, after its bonanza of the last 12 months, the dollar index now stands at 103. With the exception of the dotcom bust era 2000-2002, this would be as high as it has been since 1985, when the G5 nations had to get together and agree to devalue it.Yet even with its relative might, US inflation still stands at 8.5%. That’s fiat currency for you.Investors should pray that the US dollar starts falling from hereI cannot stress enough what an important technical level 103 is. If the dollar goes above 103 and stays there, what is currently an eye-watering situation is going to become eye-bleeding.If it makes a high here, or does a false move and a fast one in the other direction, then the long metals, anti-US dollar, inflation trade is back on.In fact, it’s pretty extraordinary how well metals have done this past year, given US dollar strength. That’s shortages and years of under-investment for you. Wait and see what happens to them if the dollar starts falling!In any case, let’s take a look at the long-term chart of the US Index to give you an idea of where we are in the grand scheme of things.This recent rally looks miniscule on the 40-year chart, but let me tell you, it’s been quite something. As anyone who followed it through 1984, 2008 and 2014 will tell you, parabolic US dollar moves can go on longer than you think. But dollar moves also tend to end with spikes such as the one we have just seen. And 103 is an obvious place for a spike to end. The Fed has raised the federal funds rate by 50 basis points at its rate-setting meeting this week, as expected, and the pressure has eased off. But one wonders if general geopolitical jitters are a bigger factor here.Bottom line - and without trying to second guess policy-makers - if we get a move above 103, 120 comes back into the frame. That really would hurt. Below 103, pressures ease.But in this increasingly nuts world, the only real surprise seems to be no surprises. 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