The Flying Frisby - money, markets and more

I was lucky enough to attend the Students for Liberty conference, LibertyCon 2022, in Prague last weekend.Oh, my goodness. What a beautiful city is Prague!I’d never been before, but I shall be returning ASAFP.While there, I heard a talk by Li Schoolland, a Chinese-American business woman, who is the Director of External Relations Asia Pacific for the Acton Institute. She fled China in 1984, having survived Chairman Mao’s Cultural Revolution.She made the case that China, not the US, is the “paper tiger”. What did she mean and what does it imply for investors and the Chinese economy?China is in troubleThe expression “paper tiger” is used to describe something that appears powerful or threatening, but is in fact weak and vulnerable. The term was made famous by the notorious chairman of the Chinese Communist Party and founder of the People’s Republic of China, Mao Zedong, in 1957. He said: “All the reputedly powerful reactionaries are merely paper tigers. The reason is that they are divorced from the people. “Look! Was not Hitler a paper tiger? Was Hitler not overthrown? I also said that the tsar of Russia, the emperor of China and Japanese imperialism were all paper tigers. As we know, they were all overthrown.“US imperialism has not yet been overthrown and it has the atom bomb. I believe it also will be overthrown. It, too, is a paper tiger”.There’s rather a lot to unpick there. As time is of the essence, we shall ignore that classic of the Godwin’s Law genre (whoever mentions Hitler first loses the argument), as well as the hypocrisy of criticising authoritarian rulers for being divorced from the people when you are an authoritarian ruler.Schoolland’s main argument was that today China’s regime is “divorced from the people” and so is a paper tiger. As an authoritarian, corrupt and often incompetent planned economy, it is vulnerable. The events of the past week would seem to bear her out.“Don’t buy Chinese stocks!” she said. There are so many frauds. Many exist solely to secure funds, with no operating business behind them. Over 60% of China’s market capitalisation is state owned. “If you buy stocks, you are supporting an authoritarian regime.” Even something like TikTok (ByteDance is the parent company) is “under the regime”. I’ve been unable to verify this: but Schoolland argued that, never mind its use as a surveillance tool, if you read the small print, then once uploaded, your videos effectively become the property of the Chinese state.Like TikTok, central bank digital currencies (CBDCs) – a field in which China very much has the lead – are a useful surveillance tool. Those tools will now be used on all those athletes who downloaded money apps during the Olympics. As well as to control, they will be used to market stuff. The app will know if you need a loan, say, as well as what type of loan and what your circumstances are, and so will begin marketing financial products to you.Property is no better as an asset class. Over 30% of the build cost of a property in China is government bribery, she says. I’m not quite sure how you verify that figure, but it doesn’t sound implausible.Meanwhile, despite all the pictures you might see of amazing buildings in China’s cities, says Schoolland, more than 43m people still live on less than a dollar a day – although that has come down from more than a hundred million in the 2000s.China is heavily indebted too, which makes it vulnerable. Its debt-to-GDP ratio, Schoolland argues, is greater than the stated 70%. It’s closer, in fact, to 275%.Shanghai is unravelling with the extended lockdown there. Supply chains are breaking down. There is much discontent and, Schoolland insists, revolution is very much in the air. China needs a new system, not just a new leader, she says.How to play China’s efforts to revive growthThe evidence of the past few weeks hints that Schoolland may well have a point. Supply chains have been disrupted, inflation is biting – especially in food and energy prices, interest rates are being held down, the currency’s at its weakest since late 2020, international funds are selling out of Chinese assets, attempts to lure domestic investment into capital markets aren’t working, the stock market is down over 20% this year – and a slowing property market is also eroding wealth. On top of everything else, the evidence of the last two years is that viruses are beyond government control, and that lockdowns do more damage than good. Nevertheless, President Xi Jinping remains committed to “covid zero”. Irony of ironies, he blames covid on the germ warfare of “US imperialism”.But you can’t just ignore China as an investor. It’s too big. The way to play it, for me, is to be in the business of selling it stuff. President Xi has committed to boosting infrastructure construction to bolster the economy. Planned investment this year amounts to at least $2.3 trillion, according to Bloomberg. Load up on base metal mining stocks, is my advice.Base metals and their miners have taken an absolute battering this week, as the US dollar has done its best bitcoin impersonation and gone parabolic. Violent correction in a bull market or major change in trend? I’m guessing the former.The People’s Bank of China has declared it “will promote the healthy and stable development of markets and provide a good monetary and financial environment” and that “liquidity will remain reasonably ample”.We are back to that centrally-planned economy thing again. Oh dear. But that money has to go somewhere. This is a public episode. 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When I look at the things fossil fuels have made possible for mankind, I sometimes shake my head and wonder why we loathe them so much.The energy created by fossil fuels have opened up so many possibilities for so many people. We can go just about anywhere, quickly and safely. It really is possible to experience the whole world. The trading opportunities that have opened us mean the whole world can be brought to us, without our having to leave our warm, safe, well lit homes. We live longer, better, safer lives thanks to fossil fuels. We can communicate with anyone anywhere. We have instant access to unlimited information. Billions have been brought out of poverty thanks to this unique, low-cost, reliable energy source. We enjoy lives and luxuries even the most decadent figures in history from Marie Antoinette to Caligula could never have dreamed of. Life expectancy has rocketed, As Alex Epstein says, and poverty has plummeted.We still have a long way to go, of course. Perfection has not yet been attained. I question the morality of trying to abandon these energy sources when there are still billions of poor in the world who have yet to experience the luxuries we now take for granted that have been made possible. It’s like pulling up the ladder after you’ve climbed, so that others cannot climb too.And we have got so much better at consuming these energy sources too. Even in my lifetime the smoggy air of London has got cleaner. Stone Age man would burn down a whole chunk of forest just to trap an animal. As human beings progress we get consume more energy and we consume it better.I know this is a view that many will not hold, but wake up to the benefits of fossil fuels, embrace them, celebrate them, don’t denigrate them, and for the good of man invest in them too. It’s your moral duty!They are even making the transition to renewable energy possible. That’s what so few seem to get. To get your green revolution, all the metal that’s required for wind turbines, lithium batteries and solar panels, to then manufacture and transport them on site, you’re going to have to burn a heck of a lot of fossil fuel.  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

It’s a touchy subject, to put it mildly, but today we consider UK demographics. What will the UK population look like in 2035? Very different from today is the answer.I happened upon these Department of Education statistics, as you do, from the January 2021 school census. They are telling.White British now make up 64.9% of UK primary school kids, while what the DoE calls “minority ethnic” makes up 33.7% (the remaining 1.6% is unclassified). Minority ethnic means Asian (12%), white non-British (8%), black (6%) and mixed (6%) - the category my two eldest kids come under.Bear in mind that this is the whole of the UK. So it includes primary school kids in remote rural parts of the country, where British will make up probably over 90%. Where I am in south-east London in the borough of Lewisham - white British makes up a much lower percentage. I’d guess less than 20% of some classrooms.This 65/34 ratio compares with roughly 80/20 in 2006, and 85/15 in 2002. So that's a roughly 70% increase of minority ethnic in 15 years, or 125% in 19. I hope I have those calculations right - statisticians please correct me, if I haven’t. Another 70% rise in 15 years would take us to 58% - thus white British minority in primary schools - by 2035. What is the case in primary schools will within a generation or two reflect the country as whole. Demography is destiny, as the saying goes. Here are those stats visualised:You will notice a slight levelling off in the past couple of years. That will be, I venture, Covid slowing the movement of people. Possibly also some white Europeans seeing their children as “white British”, particularly as they get older and into secondary school. (My thanks to AW for the charts).Given the pandemic, it is probably not wise to adjust the trend off the last data point. Thus we project those trends as follows:At some point between 2030 and 2035, white British are likely to be a minority in Primary Schools. White British are already a minority in state nursery schools (although the headcount is much lower so as to be, statistically, not so significant).White British have long since been a minority in London. That landmark was reached in the mid-noughties.  I couldn’t find the results of the 2021 Birmingham census (I gather they are not out yet), but white British are, at least according to the BBC, likely to already be a minority there too. (In 2011 they were at 53%). What to make of it all?Some will see this as a good thing - champions of multi-culturalism, those who don’t like white people or feel Britain needs to atone for the Empire and so on - others will not. Is it a good thing? A bad thing? It almost doesn’t matter what your opinion is. It is not something that British people were ever given a vote on and that is the trajectory we are now on. There are more people in the world than ever before. More of them than ever before are on the move - whether displaced by wars, by lack of water, by poverty, hunger - or whether they’re simply looking for better opportunities. Can you blame people for wanting to move to improve their lot? It’s quite natural and normal. As we have better planes, trains, and automobiles - and boats - than ever before, people are able to move quicker and further than ever before. This is a global migration of people of historic proportions, a tide in the affairs of men.As libertarian who isn’t crazy about the idea of national borders I’ve always had a fairly relaxed attitude towards movement of people. If you want free minds and free markets you have to have free movement as well. However, if you want an expansive and benevolent welfare state, then open borders don’t work. Infrastructure, transport, schools, healthcare, welfare all get overwhelmed, and locals will feel that they are not getting what they pay tax for.Free markets can quickly adapt to large scale mass movement of people. Businesses won’t complain if they have more people to sell to, or cheaper labour to employ. State systems - education and the NHS, for example, heavily unionised and regulatory, as they are - cannot move so quickly. Nor, with such restrictive planning laws, and the way land is distributed, can home building. The reality of the social democratic world in which we live today is that we do have national borders and an expansive welfare state.The UK, in the way it currently operates, will struggle with immigration levels over 200,000 a year for a sustained period. We don’t have the infrastructure. Net migration is currently at 313,000, though I imagine Covid will have changed that.My eldest son, who is an Afro-Caribbean, Anglo-Saxon, Latin, Nordic, Celt, was saying to me the other day how Britain is better off geographically than Ukraine, because, as an island, we are so much harder to invade. The immigration we have seen over the last twenty years would suggest otherwise.But how do you get the numbers down? Do you even want to get the numbers down? I gather something like 700,000 people come to the UK each year and 400,000 leave. A simplistic solution would be to let no one in for a period, while letting those out who want to go.In the face of this global mass movement of people  - should the state defend local people and traditional ways more? Many feel the UK authorities are not doing that. That, in fact, institutions from the BBC to the police, in bending over backwards to not be seen as racist, are doing the opposite, whether it’s through not properly policing child rape gangs or knife crime, bias and discrimination in the media or changes in the way history, in particular, but other subjects as well are taught. Even something as banal as banning saying Happy Christmas for fear it offends non Christians (some councils and the Red Cross did this) and replacing it with bland nothingnesses like Seasons Greetings instead. They are all constantly erosions of long-standing Western European traditions. Maybe these ways need eroding. I’m not sure: I’m with Jordan Peterson on this one, that a tradition is the combined, accumulated wisdom of our forefathers over hundreds of years, and not to be shedded lightly. But no wonder so many people feel so threatened by what is going on. And to then be told that our ways are not acceptable, that we are racist, that we need to do more or whatever - no wonder people get pissed off.I’d wager, though it can never be proved, that smaller, more localised government, with greater power, autonomy and responsibility thus handed to individuals, families and local bodies ,would have dealt with this much better than the big government we now have. But we will never know.I’m not sure what the answer is. But the sooner we can talk about this openly and honestly without fear of people screaming racist, the better. 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

It’s a national religion for some, heresy for others. Today we look at house prices.But we do not consider property through the window of the estate agent’s, but rather through the prism of an 18-year cycle, one that was brought to public attention by economist Fred Harrison is his cult classic Boom Bust: House Prices, Banking and the Depression of 2010. He published it in 2005 so, if you’re into forecasting, that’s some title…Cycles are often what you want them to beBefore we start, let me issue my usual disclaimer on cycles. Cycles exist everywhere: the seasons of the year, night and day, the life cycles of plants and animals. They exist within our own bodies in the form of circadian rhythms. They exist, sort of, in markets too – there are good times and bad times, bull markets and bear markets, four-year presidential cycles, commodity super-cycles and more. Mining companies, in particular, go through clear cycles – perhaps phases is a better word – from exploration and discovery, through development and mine building, to actual production.I’m a keen observer of hype cycles. How much of this story is known? How much more hype is left in the tin? Or is this story now tired?And cycles can make for good copy. Kondratiev made his name pedalling them. We like reading about them because they bring a veneer of certainty where there is in fact, often none.But cycles – especially in markets – are also arbitrary, random and uncertain. It’s easy for an academic to look back at history, find a pattern and declare it a cycle. When real life doesn’t fit the model, you’ll hear something like: “Well, the war upset the cycle”, or “they printed loads of money, so the cycle didn’t work out” or whatever. Cycles in markets are not fixed and predictable in the same way as the days and weeks of the year. And they are not so apparent in real time - only in the rear view mirror.You get the point. There is a certain amount of salt to pinch when it comes to cycles.Nevertheless they are useful instruments. I know some who swear by them, especially Harrison’s, whose book was clearly brilliant in its forecast. I remember thinking in 2005: “This market is nuts. It has to crash”. Many felt the same way, including many of the brightest minds in the City. A whole website - housepricecrash.co.uk – sprung up around the theme. Many of us were certain the game was about to end. Then I stumbled across this brilliantly prophetic article by Harrison in MoneyWeek saying, “No, we are a couple or three years from the top”. He was right. After last week’s missive on house prices versus gold, I was thinking about our distorted property market and the spectre of rising interest rates. The thought occurred to me that we must be close to Harrison’s next peak. Lo and behold, Merryn Somerset Webb interviewed him in the latest MoneyWeek podcast.Harrison’s short answer is that 2026 will see the top of the market. We have another three years, in other words.A quick guide to the 18-year property cycleLet me quickly explain how his thinking works. His idea – and it is more about land prices than it is house prices, though the two tend to rise and fall together – is that property tends to see 14 years of price growth, followed by four years of decline.Broken down an 18-year cycle might something like this:Harrison says he can follow prices back some 200 years to find this clear 18-year cycle at play. I don’t have all the data to cross check back that far, but I do have the data going back to 1951 (care of Nationwide), so let us at least check that. Before World War II, property was not the overpriced monster it is today. Home ownership was lower (sub-25% most of the time – most people rented from private landlords) and mortgages hardly existed (they only really reared their heads in the 1930s), so the cycle, even if visible, would not have been as pronounced as it is in today’s debt-ridden fiat era.The top of the last cycle (in the UK) actually came in the third quarter of 2007. The average house price then fell from £183,000 to £149,000 in the first quarter of 2009. It would be 2012 before the market properly got going again.There was definitely a buying window during that 2009 to 2012 period, but prices, especially in London, did not fall by anything as much as many buyers were hoping. That’s mostly because there were few forced sellers, because interest rates were slashed. Had there been, then house prices would have come down by a lot more. They fell by a lot more than 18% if you were a foreigner, however, as the pound lost a good 30% in the foreign exchange markets (measured mostly against the US dollar).Go back 18 years and you have the crash of 1989-94. Prices peaked in the third quarter of 1989 at £63,000, before falling to £51,000. Things got going again in the mid-to-late 1990s. The pound lost a lot of value in the forex markets then too.The cycle is working well.Going back 18 years further takes us to 1971-72. The 1970s were a horrible decade economically, but housing was not the worst place to be. Houses were a better inflation hedge than cash. And between 1970 and 1973 house prices actually doubled. After 1973 they positively rocketed.So we are going to declare that Harrison’s cycle did not work here. (I’d be interested to hear what Fred has to say about that. There’s bound to be an explanation).However go back another 18 years to the early 1950s, and house prices did see declines, before the market took off in the second half of the decade and into the 1960s.Here are UK house prices since 1951, with the cycle peaks market by red arrows.Going back further, I guess World War II upset the cycle. The recession of the early 1920s hurt house prices, then from 1926 to 1939 house prices rose a little, but by so little the market would be better described as flat. They went from £619 to £659. Mortgages barely existed and prices were much more relative to the amount of cash people had. Mortgages saw to that.Six hundred quid for a house! How money has been debased. It’s £274,000 now. House price crash 2026? It could happenAll in all I’m going to give the cycle an A-minus. It is not perfect, but, like many cycles, it is a useful guide. And a scenario of higher prices going into 2025-26, followed by a slump, is something I can very much envisage.So if you’re looking to buy, start getting your finances in place now. If the slump is anything like 2008, you’ll have to move quickly. If it’s like 1990-95 you’ll have plenty of time.I’ll be re-evaluating in 2025, but my own experience when it comes to buying your own home (investing in real estate is different) is that you have to move when the time is right for you, to the place that best fits your circumstances. Trying to second guess the market can lead to unhappy outcomes. House prices only ever go up! And if they do go down, they won’t come down as much as you want them to. And one final tip – period property keeps its value better than new build.Thanks for reading. Please subscribe if you haven’t already, and check out my paid letter. Lots more great content on its way. 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

An independent Scotland could become the richest country on earth. I’m not joking. It has all the necessary ingredients. Let me explain.Each year the World Bank, the IMF and the CIA each independently publish a list of the richest countries in the world - as measured by GDP per capita at purchasing power parity.The UK sits at a rather disappointing 26th but topping those rankings, year after year, you have the likes of Qatar, Luxembourg, Singapore, Brunei, Norway and Switzerland.(I’m discounting Ireland because its figures are distorted by the number of corporations domiciled there)Some of these nations have got on that laist thanks to their oil. But oil isn’t everything – otherwise the likes of Saudi Arabia (17th), Russia (57th) or Iran (65th) or Venezuela (don’t know) would feature.Others have got there because they are financial or commercial centres. But the same regulatory options that have enabled them to be so are open to other countries - they have just not been adopted.There is, however, one characteristic common to all the top ten ranking nations. It is that they are small. The UAE is the most populous on this list with 10 million; Switzerland 8 million; Singapore and Norway both have around 5 million; Qatar 3 million; the rest are all sub 1 million.The US (13th - 330 million) and the Netherlands (15th - 17 million) are the only large nations to feature in the top 15. In 1950, and indeed in 1970, the US was top. Back then though, its states were semi-autonomous and, on a gold standard, its money was independent. As its state has grown and power become more centralized, its ranking has slid.This is because there is a direct correlation between the size of the state and the wealth of the people - the bigger the former, the smaller the latter. The more power is concentrated, the less wealth is spread.But in a small nation, forced to live from a smaller tax base, there is more of a limit to how big state institutions can grow. Monitoring becomes more efficient, it is harder to obfuscate, so there is more transparency and accountability, and less waste. Change is easier to implement, making a nation flexible, dynamic and competitive. With fewer people, there is less of a wealth gap between those at the top and the bottom.The evidence of history is that the free-est countries with the widest dispersal of power have always been the most prosperous and innovative.The city-states of pre- and early-Renaissance Italy are a good example. There was no single ruling body except for the Roman Catholic Church. If people, ideas or innovation were suppressed in one state, they could quickly move to another, so there was competition. Venice, in particular, showed great innovation in turning apparently useless marsh into a unique, thriving city. Renaissance Italy became breathtakingly prosperous and produced some of the greatest individuals that ever lived.But it would be overtaken by Protestant northern Europe. The bible was translated into local vernacular, and Gutenberg’s printing press furthered the spread of knowledge – and thus the decentralization of power. The pace was set by Holland, also made up of many small states, then Britain led the pack. In spite of its union with Scotland and its later empire building, England would disperse centralized power by reducing the authorities of the monarch after the Civil War of 1642–51, and later by linking its currency to gold.Since its unification in the late 19th century, Italy has been nothing like the force it once was, blighted by infighting, bureaucracy, organized crime, corruption, rent- seeking, inflation and division. Its state is bloated, its political system dysfunctional.So back to Scotland.With independence it would have the opportunity to enact the same legislation, taxation and regulation that other top ten countries on that list employ, following, say, the blueprint of Singapore. It already has a rich tradition in trade, finance and banking.It has the oil.And, with just five million people, it is small.It has all the ingredients to be the richest country on earth – on a per capita basis. It has ‘the triple’. I can think of no other nation in the world with such a wonderful opportunity.The Scottish contribution to the world, whether in engineering, invention, industry or finance, has been astounding. Think Adam Smith, Alexander Fleming, John Logie Baird, James Watt. You cannot doubt Scottish talent - they are a formidable people. But they do not dominate the global stage as they once did. There will be a tough period of adjustment to get through, yes, but independent, living off their tax base, with dynamism and self-belief restored, they can do so once again.But, first, they must make the right choices.This article originally appeared in the Independent. 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 return to one of my favourite subjects, and one that we periodically visit: UK house prices measured in gold.As regular readers will know, I am firmly of the mind that unaffordable housing in the UK (and indeed across most of the developed world) is as much a consequence of our system of money and credit as it is of dumb, prohibitive planning laws.If interest rates reflected actual inflation, the story would be very different. I’m not talking about the consumer price index (CPI) measure targeted by the Bank of England (and even that now stands at over 6%). I’m talking about the inflation of the money supply, whether via debt expansion or quantitative easing (QE), and the resulting costs felt. House prices are currently rising at roughly 11% a year, and you’re telling me inflation is only 6%? Pull the other one.The incremental effects of these rises – 7% one year, 12% the next – over many decades  have made house prices ludicrously unaffordable to young people. It’s been going on since at least the early 1990s, and the days when Ken Clarke was chancellor, and before. Salaries have not kept up.If interest rates rose to reflect our current 11% house price inflation then the ensuing rush for the exit would pretty quickly make house prices affordable again. The entire house-of-cards economy would come crashing down too, but that’s another matter.For this reason, we conduct the occasional exercise of measuring house prices in sound money. Gold has served this role since the Stone Age, and so we bow to the wisdom of Mother Nature, and use it here.The pound in your pocket has lost a lot of value compared to a house…The average price of a house in the UK is now £274,000 according to the Office for National Statistics and the Land Registry. The average salary is £31,285, so house prices are at roughly nine times earnings.The house-prices-to-earnings ratio in most big cities, especially in the south, is much more distorted than that. It was three times when I bought my first flat in London in 1993.We’ll start with house prices in pounds. This chart goes all the way back to 1953, when mortgages barely existed. Debt is the big driver of house prices – if there is no debt in a market, prices will reflect local cash levels and be much lower. Introduce debt, and up go prices. (Debt, even with all that QE, remains the biggest supply of new money).On the other hand, debt makes it possible to do things now you would otherwise not be able to do – like buy a house. But keep debt costs low and more money enters the system, prices stay high and the economy “grows”. That’s why the authorities prefer to keep interest rates down.“You’ve never had it so good”, was the government’s cry at the time, as the Tories actively encouraged a “property-owning democracy”. Stamp duty was cut and the government lent money to building societies, so they could issue mortgages. Home ownership rose from 29% in 1951 to 45% by 1964, and the train of higher prices was put in motion. They rose by over 50% during that period. The above chart is astonishing in its relentless rise higher. It looks like bitcoin! The crash of the early 1990s, in which hundreds of thousands of people lost their homes amid surging interest rates, is a mere blip. Far fewer lost their homes in 2008, because rates were slashed.But looked at from another perspective, you can see just how much value your money has lost. In 1953, the average house cost £1,891. Today it’s 150 times that. The pound has lost more than 99% of its purchasing power in 70 years. Money. Huh! It’s a fraud. But you can’t do without it.… but the gold in your vault has notNext we turn our attention to UK house prices measured in a much sounder form of money - one that central banks can’t print. This is the same house prices measured in gold since 1953.As you can see, it’s rather a different story.Back in 1953 the average house cost 150 ounces of gold. Same price as in 2020. Wait a minute, what?And today a house will cost you 205 ounces of gold. Wait a minute you’re telling me house prices are only up 30% since 1953?If you measure them in gold, yup.In 1980 you could buy the average UK house for 50 ounces of gold. You could have done so in the 1930s as well (not shown on the chart). In 2004, with gold sitting at around $400 an ounce, and the average house at £150,000, it took over 700 ounces to buy a house. The noughties aside, the long-term “normal” price of a British house in gold terms ranges between 150 and 300 ounces.So what’s next for the house price to gold ratio?I thought the end was nigh for the housing bubble in 2007. I was wrong. I didn’t foresee interest rates being slashed like that. Woe betide anyone who calls the top in housing. The only thing that will send house prices lower is increased rates – though even at 3% or 4% there would be problems. No policy-maker wants falling house prices on their watch, partly because they own houses, partly because of the damage to their reputation and partly because they don’t want to see people lose their homes (never mind those who can’t afford). So I very much doubt that we will see rates reach the levels that real (and even CPI) inflation suggests they should be. Perhaps the Bank of England’s hands will be forced, maybe by problems in the gilt market, spiralling food and energy prices, or the rising cost of de-globalisation. Even so, never underestimate the ability of central bankers to print and obfuscate.On the other hand, gold looks like it wants to go higher. It’s gold – it has a propensity to disappoint (to put it mildly), but, from war to riots to inflation, it is not like there is currently a shortage of fundamental drivers to push it higher. So I would argue that that ratio will come back to 150 ounces a house before it goes to 300. And, who knows, a little bit of a crisis will send it back to 50 ounces.“Yes, yes”, my father used to say. “But you can’t live in gold. And gold doesn't pay rent.”He has a point. But so do I. Central banking has left a generation homeless. Fiat money has done terrible things to society.Thanks very much for reading/listening. Sign up to my Substack if you haven’t already. Lots more quality content coming. Share this article with a friend if you liked it and check out my paid letter - our stocks are doing pretty well at the minute.This article first appeared at Moneyweek.Here it is in video form: This is a public episode. 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Here’s something to contemplate this Sunday morning: where are rates going?In many ways it’s the most important question in finance - the biggest question in investing: what is the future price of money going to be?Policy makers are caught between a very big rock and a very hard place. Official UK inflation stands at 8.5%. It’s higher if you use the traditional RPI as a measure. But real inflation is much higher still. Official measures only look at the price of goods and services, which are mostly prone to the deflationary forces of increased productivity. If you include things like house prices and financial assets inflation is much, much higher - over 10%. The same argument applies pretty much everywhere across the developed world.Looked at another way, money is losing value at over 10% per year. The same salary in a year’s time will effectively be 10% lower in that it will buy you 10% less . The purchasing power of your savings will be 10% lower. The already extraordinarily large inequality gap between asset owners (the rich, the old) and everyone else (the young) will be 10% bigger.Any responsible central bank, whose core remit is to keep a lid on inflation, would “do a Volcker” and hike up rates until this messy situation is under control. But they can’t. There is too much debt in the system. If rates were put up to a level that reflected actual inflation - ie north of 10% - the housing market would collapse, stock markets would collapse, the bond markets would collapse and government’s own debt servicing costs would go bananas. Their budgets would be blown. In other words the whole system comes tumbling down. It’s a house of cards.So they will make a lot of noise, edge rates up by ¼% here and ½% there and hope this unfortunate inflationary episode goes away.Good luck with that.Thanks very much for reading. Please check out my paid letter. Our stocks are starting to lift off. It looks like we are in a bull market. Bull markets don’t last forever, but they are fun when they do. 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

If you want to listen to this article, you can via the button above. “Look at what they do, not at what they say.”If you are seeking truth of any kind, this is a great maxim to live by - particularly when it comes to politicians. And lovers.And indeed mining CEOs.My advice today is to apply the maxim to your author, because there is a marked divergence between what I say on the subject of gold mining companies and what I actually do.We’ll start with what I say…Here’s why everyone believes that gold miners are a leveraged play on goldTalk to any grizzled goldbug who remembers the 1930s – there must be one or two that were there at the time – and one or two more that have read about them. In the US, the story went as follows. After the stock market crash of 1929, the US sunk into an economic recession that became known as the Great Depression. In order to fund a government stimulus programme, the President, Franklin D Roosevelt, confiscated his citizens’ gold. It became illegal for Americans to own gold. Like the loyal citizens they were, Americans handed their gold in and the authorities gave them dollars in exchange at the official exchange rate of $20 per ounce.Roosevelt then devalued those dollars by 40%. The official price of gold would now be $35 per ounce. Some moaned, while many didn’t notice, but the cannier folk thought: “We might not be able to own gold, but we can own gold mining companies – and their profit margins have just gone bananas.” Homestake was the biggest gold miner in North America at the time. Its share price multiplied many times over. It became the investment of the decade.Fast forward to the 1970s, a decade which policy-makers seem intent on re-living in some kind of Black Mirror parallel universe situation. Inflation was rampant, money was debased, the gold standard was abandoned and there was an energy crisis. The decade ended with Russia invading a neighbouring country, in this case Afghanistan.Gold went from $35 to (briefly) $850 over the course of the decade. But gold miners – whoosh. They multiplied and multiplied and multiplied. They were the investment of the decade.Thus has it been implanted in our psyche that gold miners give you leverage to the gold price. When gold goes up, gold miners go up by more.Except they don’t.Gold miners have been terrible investments compared to boring old goldHere we now present Exhibit A, which is the ratio between the HUI, the index of unhedged gold miners, and gold since the mid-1990s. The chart has been falling since late 2003. In other words, gold has been outperforming gold shares. Apart from odd bouts of outperformance, this has been the case for more than 15 years now.Barrick, off and on the world’s largest gold mining company, has had a good couple of years since it changed management. Even so, it is still trading at the same price it was in 2005. Gold was selling for less than $500 an ounce in 2005. It’s $1,900 now.In 2018, Barrick was trading at the same price it was in 2001. In 2001, gold was $250.In other words, what has been the point of owning gold miners, when you could simply have owned gold? And some would argue what is the point of gold, when you can own bitcoin?So how do to explain the underperformance of miners? The reason, in my view, aside from a proliferation of incompetence among management, is that, starting in around about 2003, when that chart peaked, we saw a plethora of different ways by which ordinary investors could buy and hold gold.Aside from taking delivery of bullion itself, we saw the rise of online storage companies – Goldmoney, Bullion Vault, Goldcore and so on. The exchange traded funds (ETFs), by which investors and institutions could buy and hold gold via a broker, came into existence. Cheap online brokers became commonplace. If you wanted something a bit racier, there were spreadbets, futures, CFDs, covered warrants, leveraged ETFs and more. Why bother with individual company risk with some many options? They made the gold miner’s role as the levered way to play gold even more redundant. Has that changed? No. It’s very hard to intellectually justify owning a gold miner in the face of the above. So that is what I say.But what do I do? I own a load of gold miners. I’m overweight gold miners. I’ve spent a lot of time researching mining companies. I think the ones I own are really good – exceptional even. But they are still gold miners – and sector allocation usually proves more important than individual company selection.I do look at that above ratio and suggest that it has made a low and is now rising. The low came at the end of 2015 and it was re-tested in the coronavirus panic of 2020. It looks like it’s on the rise. I also note an odd divergence over the last month, as the chart below shows. Gold sold off. Gold miners didn’t. They actually outperformed. What gives?Gold is in red. The miners are in blue. See the outperformance??Gold mining companies are better run, generally, than they were. There are some real growth opportunities. But it is still a dirty, risky business and a lot can go wrong.So what’s the point? I don’t know. But look at what I do, not what I say.And if you want to know what my biggest personal gold mining holdings are, take a look at my Special Reports. Here’s one pick. And here’s another.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

Commodity prices have started to cool – with the exception of one industrial metal that is in short supply but is an essential ingredient in almost everything. Dominic Frisby looks at copper.The Substack picks are here See acast.com/privacy for privacy and opt-out information. 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

Was that the high? The pound moves in an eight-year cycle, and in its next cycle, it may have nowhere to go but down.Click here to view the charts at frisby.substack.com See acast.com/privacy for privacy and opt-out information. 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