The Present Risks Of Holding Government Bonds

BankNotes photo

For a long time it has often been assumed that government bonds of developed countries are a safe investment. Whenever there has been a stock market correction, one always benefited by holding government bonds. Especially if they had a decent yield and it was above the rate of inflation. The difference now is that before the current market crash towards the end of February, interest rates in most developed countries were already at very low levels. Yet as the crash unfolded both the Bank of England (BoE) and the Federal Reserve (Fed) reduced interest rates even more to stimulate the economy. As I write this article, the current BoE rate is just 0.1% and the Fed rate is at 0%. Since 2016, the European Central Bank (ECB) interest rate has remained unchanged at 0% and so far there has been no plan to drop it down further towards negative territory, yet that could easily change in the coming weeks or months if the current crisis exacerbated by the Coronavirus pandemic shows no signs of improving.

The current yields on ten year government bonds in the following countries are just 0.8% in the USA, 0.39% in the UK, 0.02% in Japan, and in some countries such as France and Germany they are already negative at -0.03% and -0.37% respectively. For those bonds to increase in value these already pitifully low yields would have to fall even further. By investing in bonds with negative yields, you are essentially paying for the privilege of holding the bonds. And I have always wondered what would make one invest in bonds with negative yields?

In the case of Germany, if one had a lot of cash which they didn’t want to invest in other securities or deposit in a bank account, they would invest it in those negative -0.37% yielding government bonds. They may be too scared to deposit it all in a bank, which is financially not in great shape and may even be faced with the very real risk of going under Lehman Brothers style. The two main German banks, Deutsche Bank and Commerzbank, are both currently not in great shape financially and may need a bailout to save them. If a bank goes under, your money in a bank is safe up to a certain threshold and if you have savings deposits, which exceed the threshold amount, you will likely lose the entire excess amount if the bank goes bust. In contrast to other Eurozone (EZ) countries, Germany is in better shape than many other EZ countries. Furthermore, it’s national central bank, the Bundesbank, is running a massive surplus against the national central banks of most of the other EZ countries.

Unlike Germany, the yields on the ten year government bonds for Italy and Greece are positive at 1.21% and 1.43% respectively. Yet both countries have enormous and unsustainable levels of debt and are thus at a much higher risk of default. As I explained in some of my previous articles, I continue to remain of the view that it is becoming increasingly likely that the Eurozone will not last and that all Eurozone countries will revert to their own currencies. If this were to happen, it is highly probable that within the EZ area, there will be a huge flight of money to those countries such as Germany who will be least affected by any great devaluations of their new currencies. For example, the New Mark is likely to strengthen in value whereas the New Lira or New Drachma is likely to fall in value quite sharply against the new currencies of other stronger former EZ countries. Thus within the framework of the entire EZ, negative yielding German bonds are probably one of the safest securities to invest your Euros into despite the fact they come with a price. If the EZ falls apart and most EZ banks go under, those negative yielding German bonds will immediately be denominated into strongly valued New Marks. By contrast, those positively yielding Italian and Greek bonds will be converted into new weaker currencies.

In spite of all this, I think government bonds are overall very expensive where their risks vastly outnumber their rewards. Of course, their low yields reflect the low interest rates of their countries. However, if one were to look at the chart of the yields of ten year UK and US bonds over a 40 year period, it is clear they’ve been in a huge bubble for the duration of this time frame. In September 1981, the yield on 10 year US treasury bonds was over 15% and in that same year in October, the yield on 10 year UK gilts was over 16%. Yet since that time, the yields on both bonds has been in a downward trend and currently they both yield less than 1%. Some are predicting that the interest rates of both countries will fall into negative territory and therefore the yields of both bonds will also be negative suggesting that if one were to buy such bonds even with their extremely low yield, the yield may get even lower.

An unpopular opinion I hold, which many don’t share, is the real risk of dramatic and unexpected inflation. Many are predicting a long period of negative interest rates and deflation, but I am not so sure. What concerns me greatly is the huge amount of debt in many countries. Much of this debt is a result of an unusually long period of low interest rates. Since the middle of the last financial crisis in 2008, total levels of global debt have increased over 50%. And now with the current new crisis triggered by the coronavirus pandemic, this already staggering level of global debt is only going to get bigger as national governments plan huge rescue packages to prop up vulnerable businesses and households. In the USA, the Trump government is planning a $2tn stimulus package. In the past years since the 2008 financial crisis, large rounds of Quantitative Easing (QE) haven’t had too much of an affect on inflation. However this time it could well be different as the amounts of money printing rounds that national central banks will embark on could easily result in a great spike in inflation. This is very worrying as not only will this lead to central banks massively raising interest rates to tame this inflation, it will also make all outstanding government, corporate and household debt much more expensive to service. It is for those reasons that I think buying so called safe government bonds at current yields is a much more risky exercise than many realise.  Furthermore, as all those big accumulated existing debts become more expensive to service with rising interest rates, there will be lots more defaults which in turn will weaken the purchasing power of the currencies of major economies including the USA.

All these concerns naturally make me more attracted to precious metals like gold and silver, which, as tangible forms of insurance, will increase in value as the purchasing power of major currencies like the dollar and the euro declines. As precious metals are commodities, it is hard to predict their price movements. Yet if like me, you believe that they are a viable hedge against a world that is increasingly becoming smothered in debt, you will realise that there is quite a compelling case to owning some precious metals as a form of insurance against these economic vulnerabilities. Precious metals are the new safe havens rather than government bonds.

 

By Nicholas Peart

30th March 2019

(c)All Rights Reserved

 

Image: NikolayFrolochkin

 

MARKETS UPDATE: Thoughts On The Current Market Crash

comic-1296117_1280 (1)

The last two months have been an exceptionally volatile period for global stock markets. The current CORVID-19 pandemic was a quintessential black swan event, which took everyone by surprise and its consequences have had a clear affect on the markets during this period. For a long time, I thought that markets were overvalued and due for an eventual correction. The root of my worries were based on the increasing levels of global debt since the last financial crisis of 2008 that have been fuelled by an unusually long period of low interest rates. With low interest rates money is cheap and cheap money has been the cause of the high valuations of many stocks and other assets such as property. All this concerned me. I knew it wasn’t sustainable and that eventually something would have to give. Yet little did I know that the catalyst for this current market crash would be a virus, which is now affecting citizens and the economies of every country on the planet.

I wrote an article back in 2017 and another one last year stating my fear that markets were overheating. Throughout all of 2019, I almost became resigned to the fact that we were in a ten year plus long bull market that seemed to show now signs of slowing down. Save for a sharp but very brief correction in equity markets from October to December 2018, the markets duly recovered and subsequently continued to hit new highs. Earlier this year, the NASDAQ index hit over 9,000 points and by mid February it had hit a new record of over 9,700 points. Back then I decided to view a longer term chart of the NASDAQ index and had discovered that back in March 2009, in the wake of all the wreckage of the last financial crisis, the NASDAQ index had collapsed to just under 1,300 points. In almost 11 years, the index had increased over 7 times in value. In the UK, only the FTSE 250 index comes close to matching the NASDAQ’s performance, but even the FTSE 250 has been no match. During that same time frame, the index went from under 6,000 points in March 2009 to a record high of almost 22,000 points in January this year. That represents an almost four fold increase in value. Impressive but still falling short of the NASDAQ’s run.

The reason for the NASDAQ’s epic performance is quite simply the unbelievable success of many of the biggest technology companies in the world, which are all listed on it’s exchange. The following NASDAQ listed companies: Amazon, Apple, Facebook, Alphabet, Netflix and Microsoft: have all been quite simply ‘crushing it’ throughout the last decade.

In the UK, the two principle stock market indexes are the FTSE 100 and the FTSE 250. Even though the UK doesn’t have anywhere near the kinds of innovative and exponential tech companies that come out of the US, the UK has a lot of thriving successful growth businesses and lots of these are listed on the FTSE 250. The FTSE 100, on the other hand, is made up more of long established big businesses with multi billion pound market capitalizations. Examples of such companies include Royal Dutch Shell, BP, Rio Tinto, HSBC, Unilever, Vodafone and British American Tobacco. These are big behemoth companies, which may lack the growth prospects of the smaller businesses listed in the FTSE 250. Yet what they lack in growth potential, they make up for by paying quite large dividends to their shareholders as their businesses generate a lot of cash. The FTSE 100 overall has, by comparison, not been a great performer. Even though from March 2009 until the January 2020, it went from less than 3800 points to almost 7700 points. Even though the index more than doubled during this period, it’s also worth bearing in mind that just before the turn of the new millenium, on December 10th 1999, the index was over 6700 points.

What is noticeable about this particular market crash is just how dramatic it’s been. Before the very beginnings of this market crash, when the markets closed on Friday 21st February, the NASDAQ was trading at over 9500 points, the S&P 500 was over 3,300 points, the FTSE 100 was over 7,400 points and the FTSE 250 was just a few points short of 21,800 points. By the time the markets closed just a few days ago on Monday 23rd March, the NASDAQ was below 6,900 points, the S&P 500 was a little higher than 2,200 points, the FTSE 100 had gone below 5000 points, and the FTSE 250 was trading slightly north of 13,000 points. In fact, just a few days previously on March 19th, the FTSE 250 had hit almost 12,800 points.

In the space of little over a month, the NASDAQ had fallen around 27%, the S&P 500 had lost around 33%, the FTSE 100 had shed 32% and the FTSE 250 had lost over 40% of it’s value. Since these lows from last Monday, markets have made some gains owing to stimulus from central banks, yet at the close on Friday yesterday, a good chunk of these gains were erased.

Going forward

The question now is, how will markets behave over the coming weeks and months? Will the lows hit last Monday be retested? It is always hard to predict the future, but I think they will be. The difference between this crisis and others is that this virus has been very disruptive. Since there is still currently no cure for the virus, the only measures to contain the virus have been for governments to impose lockdowns and restrict the movement of people. The most affected industries include the airline and travel industries. The airline industry in particular has been greatly affected as the number of flights have been severely diminished. It is likely that even the most established airline companies will struggle going forward without some form of a government bailout. With their cash flows from operations dramatically reduced, they will be drawing on their precious cash reserves to keep the lights on. But the truth is, with the restriction of movement, most industries will be affected. If a lot of the most affected companies struggle to remain a going concern they will go bust and as a consequence many people will lose their jobs. As an increasing number of people lose their jobs, they will have no income and likely also little to no cash savings to keep them going. There will be a frantic need to create liquidity to free up emergency cash. And this is why there has been a sell off of almost everything, even the most defensive of assets such as gold. When people are desperate for cash they will sell anything. This notion that cash is trash is a myth. In a difficult crisis such as this one, hard cash is king.

So going back to my earlier question; will markets continue to fall? I think they will as I don’t see lockdown measures easing any time soon. I also see an increasing number of people continue to lose their jobs and as a result an increasing need for emergency cash as more incomes dry up. In this situation, markets will continue to sell off. Shares that may seem like a bargain now will get even cheaper. I think the situation is serious enough to say that it is likely that some of the lows of the 2008-9 financial crisis will be tested. Yet do I think there are currently bargain shares to buy? Of course. But at the same time one should ask themselves the following; how much free cash do they currently have to invest? Not essential cash to survive, but cash they can either afford to lose or not have any need to draw upon for at least five years. If the latter than I would recommend periodically drip-buying a select number of quality companies (that are not over leveraged, that generate a lot of cash and have sufficient liquidity to be able to ride out this crisis and thus recover once its over), investment trusts or tracker funds over the coming weeks and months.

Cheap money 

It is likely that as the current crisis continues to bite, they will be a lot of government intervention to help citizens and business. One solution that has been doing the rounds is the idea of creating ‘helicopter money’ whereby central banks print money which is then given directly to households to help them and keep them solvent. In the USA, the current Trump government is planning on putting together a $2tn rescue package to aid businesses and households most affected. With interest rates at close to zero, the idea of printing staggering sums of money is a tempting one. As mentioned at the beginning of the article, since the 2008 financial crisis we have had a long period of low interest rates. And since the first shocks of the current crisis began to appear, both the Fed and Back of England reduced interest rates even further. As of now, the current Fed interest rate stands at 0% and the Back of England interest rate is 0.1%. With such rock bottom rates, the temptation to just keep printing money to infinity is very strong. As previous rounds of Quantitative Easing (QE) since the 2008 financial crisis have barely had an impact on triggering inflation, the current conventional wisdom is that even bigger rounds of money printing will also barely stoke inflation. Even the former head of the European Central Bank (ECB) Mario Draghi who back in 2012 vowed to do ‘whatever it takes’ to save the Euro, recently commented that interest rates will remain low for a very long time. Others also share this belief. But what if, out of nowhere, in the midst of all this money printing, a tsunami of inflation catches everybody off guard forcing central banks to abruptly increase interest rates to control it?

In gold and silver we trust

If you have read some of my other articles you will see that I have always been a big fan of precious metals. And this is especially true now in our current economic climate where uber-low interest rates and cheap money have been reigning supreme. A consequence of more than a decade of low interest rates has been that total levels of government, corporate and household debts have increased dramatically. To exacerbate an already fragile economic situation, the current crisis has triggered central banks of major economies to drop interest rates to zero. On top of this, humongous rescue packages are being created to aid affected households and businesses. Although this may create short term relief, it will further accelerate already staggering levels of global debt, which have already been allowed to get out of control for too long. Taking on debt is fine when interest rates are low, but what happens if all of a sudden interest rates increase? I say this, because as I previously mentioned, not many people are taking into account the very real threat of inflation, which may finally be awakened out of its slumber in a big way as a consequence of larger than normal levels of money printing. When interest rates increase to control this inflation, suddenly all this cheap money floating around will seize to be cheap and all this gigantic debt will become more expensive to service.

I can’t help but think that all this will be nothing but beneficial towards the prices of gold and silver. Over the last several months, gold has been slowly increasing in value. It recently hit $1,700 an ounce and is currently hovering in the $1,600s. In my view, I think any dips in the gold price should be taken advantage of. It is unavoidable that there will be dips in the gold price as households scramble to free up cash, but over the coming months and years I think gold will do very well.

I am equally keen on silver. It is less scarce than gold and is more sensitive to industrial demand, but compared to gold it is currently extremely under-priced. For many years the silver to gold ratio (SGR) oscillated between around 20 and 100, and it was an incredibly rare moment if it ever went above 100. Over the last two weeks, this ratio broke the 100 ceiling and spiked to over 125 at one point. As I type, the ratio is 112. A consequence of this further distancing between the gold and silver price has caused some to say that silver is done and has lost its appeal as a store of value. Yet I disagree strongly. If anything, I think this is an incredibly good buying opportunity to have exposure to silver as I can foresee it playing catch up to gold in an epic way.

 

By Nicholas Peart

29th March 2020

(c)All Rights Reserved   

 

Image: OpenClipart-Vectors

 

THE FURORE-ING TWENTIES: My Thoughts On The New Decade Ahead

guerrero-1838996_1920 (1)

As we leave the 2010s and head into a new decade, I naturally like to meditate on what the next ten years will have in store for the world. Approximately ten years ago to this day I was in Peru in the Andean town of Huaraz. Back then my eyes were not so open and I couldn’t see beyond my own little self-created bubble of rock n roll, existential literature and nomadic travelling. I had little to no understanding about global politics, technology and the financial system.

Predicting the future is hard enough. Very often, the predictions that turn out to come true are ridiculed from the start. If I were to say to a group of fellow travellers at some bar in Huaraz on New Years Eve 2009 that during the following decade Donald Trump would become president of the USA and that there would be a referendum in the UK where the UK would vote to leave the EU, they would have looked at me as if I had lost my mind.

What do I think will happen in the 2020s? I think it will be a very interesting decade where lots of changes will occur.

I will begin with the financial markets. As of now, many stock markets are at all time high levels. The 2010s has been an absolutely stellar decade for US stock markets, especially the NASDAQ. Back in 2009, towards the end of the financial crisis, the NASDAQ was trading below 1500 points. Today, it’s close to hitting 9000 points. That’s a six-fold increase within the space of a decade. The question now of course is, will this rally continue or are markets in danger of crashing? When I try to make my own predictions, I like to also gauge what the general consensus is. On social and traditional media sites, there seems to be no shortage of videos and articles predicting that 2020 will be the year when markets are going to crash. With such an overwhelming consensus, I, naturally, have to re-evaluate my own thoughts and vision.

The important point is that for all of the 2010s since the 2007-9 financial crisis, interest rates have been at very low levels. In some countries they are now at negative levels. The consequence of this has been that since the 2008 Lehman Brothers collapse, total global debt levels have increased by almost 50% from $173 trillion to $255 trillion. This era of cheap money has played a large role in this decade long stock market boom. Instead of trying to predict when the next crash will occur, it may be better to predict when interest rates will finally return to more normal levels. My feeling is that this is not going to happen anytime soon and that interest rates will, at least in the short run, continue to fall even if they breach negative territory (as they already have in some countries). This will be bad news for trying to reduce the already gigantic levels of global debt. Debt will only just continue to increase and stock markets will continue to rise, until the moment when inflation will kick in, which will immediately trigger central banks to raise interest rates.

Throughout the 2010s, gold has never dipped below $1000 per troy ounce. It has always remained above that level. At the start of the millennium, 1 troy ounce of gold was trading between just $250-300. It was almost as if it were considered obsolete, a relic from another age. With hindsight one can shoot down in flames the UK’s former chancellor Gordon Brown for selling off half of the UKs gold reserves back in 2001 at such low prices. Yet at the time, gold just wasn’t on many people’s radars save for a small selection of far-sighted individuals. As the 2000s chugged on, the price of gold went on a phenomenal ascent breaching $1000. By the end of 2011, just 2-3 years after the financial crisis, the price of gold nearly hit $1900 an ounce . As of today, the price of gold is hovering around the $1500 an ounce mark.

Why does all this matter? It matters, because I believe in the 2020s precious metals will do very well due to the extraordinary circumstances we are facing with record levels of global debt, perpetually low/falling interest rates and stock markets showing no signs of slowing down. The ‘kicking the can down the road’ mantra can only go on for so long until eventually the music will have to be faced.

But it’s not just fragile economic circumstances that will contribute towards precious metals doing well. Political circumstances will also play their role. In continental Europe, populist governments will continue to rise as will government spending. The economic situation in several Eurozone countries remains very precarious and this could lead to the Eurozone facing a genuine existential crisis. There are vast financial imbalances between the major Eurozone countries. During the last Eurozone crisis at the start of the 2010s, the European Central Bank (ECB) was able to utilize monetary tools such as Quantitative Easing to stimulate flagging Eurozone economies thus saving the Eurozone. The question now is if the Eurozone were to face another such crisis, would the ECB this time be able to successfully avoid a disastrous situation? It is trickier now for two reasons. Firstly, the Eurozone is carrying much more debt than before. Many Eurozone banks also continue to remain in dire shape. Secondly, the discontent of citizens in Eurozone member counties and the rise of populist parties in these countries could only exacerbate and make worse any already fragile/vulnerable situations.

Another thing that will be interesting to see is how the whole Brexit saga is going to play out in the coming months. What kind of a trade deal will be negotiated between the UK and the European Union? Will there even be a deal? If the UK were to leave the EU completely with no deal, it’s likely that the burden of keeping the EU together (and contributing more money towards it to keep it going) would fall increasingly more on Germany and to a lesser degree on France. This would put the entire future of the EU project in a very difficult position, especially if the German economy were to fall into a recession due to factors such as additional tariffs on the bulk of its exports as well as the very real prospect of a substantial government bailout to save two of the country’s largest banks; Deutsche Bank and Commerzbank.

It pains me to say that the 2020s could very well see the first stages of the Eurozone being dismantled followed by the EU itself. I am praying that such a situation doesn’t happen, but I feel this may unfortunately become a reality. A breakup of the EU could lead to Russia gaining much more dominance in the region with some former EU countries forging stronger ties with Russia. At the same time, I can also foresee some of the southern European Eurozone countries, especially Italy and Spain (which, like Germany, also have large manufacturing industries), experiencing multi-year long economic booms once they have their own currency (which they will be able to devalue and thus re-gain their economic competitive advantage). Whilst the German economy benefited greatly from adopting the Euro currency, the Euro hurt the economic competitiveness of other major Eurozone countries such as Italy, Spain and to a lesser degree even France.

One of my boldest and most off-the-wall predictions would be to say that the USA will experience a taste of some kind of socialism at some point in the 2020s. I feel there’s a high probability that, as unlikely as it may currently seem with the impeachment inquiry hanging over him, Trump will manage to secure a second term in power in 2020. However, his second term will be more challenging than his first. It is also highly likely that the long-awaited stock market crash that everyone is predicting will happen at some point during his second term. And when it does occur it will be very painful and cause another economic recession. In the wake of this, it is possible that many of Trump’s most loyal supporters begin to turn against him. By the time of the 2024 elections in the USA, I think the Democrat party will have moved more to the left just as has happened with the Labour Party in the UK over the last few years. By the time of the 2024 US elections, I envisage the Democrats winning the election with a barely tested transformational socialist agenda. By 2024, many of Trump’s traditional Midwest supporter base, who will have felt let down and failed by him, will opt for any kind of new change regardless of the consequences.

Any kind of future socialism though will likely not be like the socialism of the past, but more a kind of technological socialism. Before the fall of the Berlin Wall, the internet didn’t even exist, and it was possible to easily control information. The world was a much larger place. A future kind of socialism could be one where technology is so advanced that everyone’s most basic needs are all provided for and there is no need to perform any repetitive jobs or tasks. Technological socialism within the paradigm of a post-work or post-scarcity society. However, this kind of a vision is still some way off.

The truth is, in the coming years ahead, one is likely to witness an increasing number of savvy and hyper aware Millennial and younger Gen Z politicians come to the fore, who will want to change the rules. In the United States, the politician Alexandria Ocasio Cortez is a prelude and prime example of those next generation politicians who will eventually rise to prominent positions of power.

The 2020s will be a decade of exponential technological progress. The implementation of 5G networks will be crucial and integral towards the development of the so-called Internet Of Things, where every electronic device – be it your electronic household devices, street lights, transportation vehicles etc – is connected to the internet. Once this has been further developed, the transition from Smartphones to Smartglasses with enhanced Augmented Reality capabilities will become more of a reality and I predict this transition will begin to bear fruit from around the mid to end part of the 2020s.

In one of my very first blog posts back in 2016, I made a moonshot prediction that by the beginning of the 2020s, every household would have a 3D printer. It seems that I got that prediction horribly wrong. Back in 2013/14 there was quite a bit of hype around 3D printing and how it would revolutionise manufacturing. I am still a big believer in 3D/4D printing or however one wishes to call it. Such a technology makes it possible for anyone to print any physical thing no matter where in the world they may be.

The 2020s will also be a decade to watch regarding the development of Space Exploration and Sustainable/Renewable Energy. Elon Musk is at the fore of those developments with his companies Tesla and SpaceX. Most people who are aware of Tesla view it as a company that sells high priced electric vehicles. Yet the mission of Tesla is to transition the world away from fossil fuels. The building of its giga-factories in various locations around the world will enable Tesla to develop a level of scale to successfully achieve its mission. In many financial circles, lots of investors and analysts have been predicting that Tesla will go to zero. Lots of people have been betting against Elon Musk. However, I feel that such a move is unwise. I believe that Tesla will ultimately succeed in its mission and will become a very valuable and important company.

The 2020s will also see quite a lot of activity from Musk’s other company SpaceX. I think that SpaceX will lead the way in the nascent space industry and be responsible for dramatically reducing the costs of space exploration. The last part is very important as its currently prohibitively expensive to launch even just a satellite into space. Hence that’s why there are not many players operating in this industry due to high costs and high barriers to entry. In the 2020s, we are likely to see via SpaceX, the greatest accomplishments in the space industry since 1969 when the first person landed on the moon. The mission of SpaceX’s Starship rocket is to transport people to Mars and create a permanent human colony there. Using ground-breaking bioengineering innovations, the goal is to turn Mars into a planet similar to Earth (via the process of ‘terraforming’), with a climate and atmosphere containing vegetation and oceans and the right temperature and levels of oxygen for living organisms to flourish. Although all this is highly unlikely to occur as early as the 2020s, the next decade may well see the beginnings of the initial stages of such a mission coming into fruition.

However, one SpaceX project to keep an eye on in the near future is Starlink. This project involves sending lots of satellites into low orbit to beam down high-speed internet on all corners of the world, event the most remote corners. The last point is very important. Even though billions of people are already connected to the internet, there are billions of people living in remote and undeveloped parts of the world with no access to it. Currently, almost all of our wi-fi and telecommunications networks come from land-based cell towers. A mass adoption of super strong satellite beaming internet would be a real game-changer in the next level of network/internet connectivity, as it has the potential to enable everyone in all corners of the world to have access to a high-speed internet connection.

It will be interesting to also see how cryptocurrencies/blockchain technology will evolve in the 2020s. Lots of people invest in cryptocurrencies such as Bitcoin hoping that the price will go higher, yet what does the future hold for cryptocurrencies? My greatest fear is that increasing government regulation will affect the development and performance of the main cryptocurrencies. In an article from earlier this year, I wrote about certain cryptocurrencies such as Bitcoin, Litecoin and Zcash acting as a store of value. Many people also tout Bitcoin as a form of digital gold and some even say that it will disrupt physical gold as a store of value. I fear that such a situation is unlikely to occur and that Bitcoin will likely never again see the highs it witnessed at the end of 2017.

Privacy coins, especially Monero, have long been a thorn in the side of governments around the world. Of all the privacy coins, the one I am keen to watch is Zcash (where privacy is just an option – transactions can be shielded or unshielded), especially since I think it is currently fundamentally undervalued compared to other privacy coins. Furthermore, the other advantage it has is that, unlike many other cryptocurrencies, it was created by professional academic cryptographers.

The underlying blockchain technology itself will continue to evolve, and I can see further development of so called ‘stablecoins’ (which are not prone to fluctuate madly in value) becoming more widely adopted. One project I am interested to see manifest is Facebook’s own digital Libra currency. Facebook has the unique advantage of unbelievable network effects with over 2.4 billion users from around the world. So, Facebook simply introducing its own digital currency, means at least a third of the world’s total population potentially using it. This could be a huge benefit for Facebook users in countries with unstable currencies. However, I fear that the implementation of Facebook’s Libra currency will be met with lots of opposition from governments around the world who may fear that it will pose a threat to the stability and performance of their very own national currencies.

In fact, there is a big chance that at some point during the next decade both Facebook and Google/Alphabet will face even higher amounts of regulation by governments around the world with the very real possibility of both these companies eventually being broken up. This kind of regulation as well as the more extreme break-up threats will likely begin to kick off in a big way in Europe and could further manifest in the USA itself if a left-wing Democrat party politician (with an anti-billionaire, anti-Big Tech agenda) where to come to power in the 2024 elections in the USA. However, taking an axe to both Facebook and Google could also have the effect of further empowering their Chinese rivals, Tencent and Baidu. It could well be that Facebook and Google’s loss become Tencent’s and Baidu’s gain.

So, these are my thoughts for the coming new decade. Reading them over again, they can seem to oscillate wildly from overly pessimistic to naively optimistic with scant middle ground. When writing these predictions, I tried very hard to overcome any well ingrained cognitive biases by envisaging potential events that could likely occur even if I don’t want them to happen and/or they are against my beliefs and values. In a sense, this is also a kind of experiment and I expect to get several of my predictions completely wrong. Yet I feel that the unexpected black swan events we all witnessed throughout the 2010s will continue into the 2020s taking many by surprise.

 

By Nicholas Peart

27th December 2019

©All Rights Reserved

 

 

 

 

SOURCES/FURTHER READING

https://mises.org/wire/150-years-bank-credit-expansion-nearing-its-end

https://www.ccn.com/edward-snowden-zcash-interesting-bitcoin-alternative/

 

Image: aitorvz

 

 

Labels Are Meaningless

labeling-people photo

Alt right, hard left, SJW, influencer, gender neutral, trans gender, queer, vegan, hipster, bi-polar, activist, eco-fundamentalist, post-modernist, hippy, rocker, mod, socialist, capitalist, liberal, radical, anarchist, feminist

Please.

Give me a break.

I don’t know what any of these labels mean.

They mean nothing to me.

Would you like to know what does interest me?

I am interested in who you are as a person.

I am interested in what you have to say.

I am not interested in your identity.

I am interested in the true and authentic substance of you.

I am interested in your heart.

I am interested in your mind.

And I am interested in your soul.

 

By Nicholas Peart

(c)All Rights Reserved 

 

Photo source: harikalymnios.com

Could Copper One Day Become A Precious Metal?

copper bullion

Copper is an important and much needed commodity. It is classified as an industrial metal. However, what if at some point in the future it became scarce enough to be reclassified as a precious metal?

Such a scenario seems inconceivable at this stage. After all copper is much more abundant than precious metals such as silver and gold. Most view it in the same light as other industrial heavy weight commodities such as iron ore or crude oil; fundamental resources in the movement, development and growth of the world.

Much of the world’s copper sources are also concentrated in just a few areas of the world most noticeably in Chile, which is the world’s largest copper producing country. Peru is the second biggest producer of copper followed by China and the USA. In 2018, the total global production of copper was 21 million tons. By comparison in that same year, the total global production of usable iron ore was 2.5 billion tons. For aluminium it was 60 million tons, for nickel it was 2.3 million tons, for lithium it was 85 thousand tons, for silver it was 27 thousand tons, and for gold it was 3.26 thousand tons.

A United States Geological Survey (USGS) global assessment of copper deposits around the world conducted in 2014 stated that there contained 2.1 billion tons of copper resources (note resources and not reserves) discovered under the ground while the number for ‘undiscovered resources’ of copper came at 3.5 billion tons. As of 2018, total global reserves of copper were 830 million tons. 

In 2018, total global reserves for the following commodities were as follows…

Iron Ore: 170 million tons of ‘crude’ ore reserves containing 84 million tons of iron reserves. *However it should be noted that the total amount of identified iron ore resources under the ground currently stands at 800 billion tons of crude ore resources containing 200 billion tons of iron resources. 

Aluminium: Global resources of bauxite (from which aluminium is extracted) are estimated to be between 55-75 billion tons.

Nickel: 89 million tons. *Total global resources of nickel are currently identified at 130 million tons 

Lithium: 14 million tons. *Total global resources of lithium are currently identified at 62 million tons

Silver: 560 thousand tons. *Silver is primarily extracted as a by-product mostly from lead-zinc mines, then from copper mines and then thirdly from gold mines 

Gold: 54 thousand tons.

So in light of all my findings, could copper one day become a precious metal? In my view, this is unlikely to happen anytime soon. Even if there is a growing demand for copper, the fact is, compared with silver and even other industrial metals like nickel and lithium, there is simply an abundance of copper. The current total global copper reserves are nearly ten times greater then the current total global nickel reserves and over a thousand times greater than the total global silver reserves, never mind gold.

Still, copper is aesthetically a very attractive metal and I rather like the novelty value of owning a few pieces of copper bullion. You can often buy a 1kg bar of copper via most bullion dealers for a very modest sum and the German bullion company Geiger Edelmetalle has a number of copper coins and bars you can buy from their online shop.

However, if you wanted exposure to copper in your portfolio, as with other industrial commodities such as iron ore, crude oil or aluminium, you are better off investing in blue chip mining stocks such as Rio Tinto or Antofagasta, which produce a lot of copper. What’s more, both companies also pay a dividend. Alternatively, you can invest in a copper ETF, where you have direct exposure to the copper price, but without the added stress of having to worry about factors such as company mismanagement or political issues when investing in copper related mining companies.

Both these options are far more practical than owning physical copper, which is just not feasible at current prices if one wanted to accumulate a large position. Even accumulating a growing stack of physical silver at its current prices can incur high storage costs if you wanted to store it with a reputable bullion dealer.

By Nicholas Peart

(c)All Rights Reserved

 

 

 

SOURCES/FURTHER READING

Main USGS link for commodity stats…

https://www.usgs.gov/centers/nmic/commodity-statistics-and-information

 

Copper production 2018 link…

https://prd-wret.s3-us-west-2.amazonaws.com/assets/palladium/production/s3fs-public/atoms/files/mcs-2019-coppe.pdf

Iron Ore production 2018 link…

https://prd-wret.s3-us-west-2.amazonaws.com/assets/palladium/production/s3fs-public/atoms/files/mcs-2019-feore.pdf

Aluminium production 2018 link…

https://prd-wret.s3-us-west-2.amazonaws.com/assets/palladium/production/s3fs-public/atoms/files/mcs-2019-alumi.pdf

Nickel production 2018 link…

https://prd-wret.s3-us-west-2.amazonaws.com/assets/palladium/production/atoms/files/mcs-2019-nicke.pdf

Lithium production 2018 link…

https://prd-wret.s3-us-west-2.amazonaws.com/assets/palladium/production/atoms/files/mcs-2019-lithi.pdf

Silver production 2018 link…

https://prd-wret.s3-us-west-2.amazonaws.com/assets/palladium/production/atoms/files/mcs-2019-silve.pdf

Gold production 2018 link…

https://prd-wret.s3-us-west-2.amazonaws.com/assets/palladium/production/s3fs-public/atoms/files/mcs-2019-gold.pdf

The Plato’s Cave Of Identity

identity image

It is so easy for one to become trapped and stand too close to the picture. In this instance one becomes myopic to their greater surroundings. When I think of identity I think of a tangled red tape maze of labelling and a neglect or disconnection to a more meaningful unifying permanency.

An important question one must ask is, ‘Who Am I?’.

Do I define myself by my race, social class, nationality, politics, culture or subculture, my external looks, fashion style etc ?

Or do I transcend any of these superficial identities and connect more with my heart, mind and soul?

In a more universal context, identity has no currency or power. The matter and energy in the universe is bereft of any labels or boxed confinement. It is that and nothing else.

For example, when I refer to myself as an artist, I am already putting myself in a box by creating an identity. I would severely limit and sell myself short if I were to solely think of myself as an artist. With my paintings, I strive to transcend identity. The inspiration for my paintings derives from what I like to refer to as ‘the eternal source’. By this I mean an eternal spirit or consciousness, which is permanent and will outlive me. I find it a challenging task to explain this in words, hence why I create the paintings I create. Through my paintings, I project and get closer to this eternal source much more than I would through words.

I believe focusing on identity creates a great deal of unnecessary anxiety, stress and friction. We become like spread-out and jagged fragments of broken glass; sterile and running on empty.  We become our own worst enemies.

When we drop identity, the concept of something such as likes and dislikes melts away.  We become more in tune, connected and empathic to our greater surroundings. We become more, dare I say, enlightened.

By Nicholas Peart

(c)All Rights Reserved

 

Image source: Pixabay

THE TRUE SINGULARITY: A Universe Of Unlimited Abundance And Eternal Harmony

background-1462755_1920

The Singularity is a term referring to the point when Artificial Intelligence (or more specifically Artificial General Intelligence) will be at the same level as human intelligence. I feel that the term is often misunderstood and many people find the prospect of this dystopian and dehumanising. Technology has already changed our lives in unprecedented ways. When I think of technology, I don’t just think of hardware or software. For me, technology means problem solving or finding a much needed solution to a glaring limitation. When seen through this lens, it is clear that technology enhances and assists our lives. The world is much more connected then ever before and we have many applications (most of which are free) at our disposal to help us save time and money.

The beginnings of the first industrial revolution in the 18th century, via the inventions of the steam engine, spinning jenny and power loom, dramatically reduced the number of hours traditional labourers worked. This period was an unprecedented gamechanger in the evolution of humanity. Then the invention of the railroad, the development of an advanced network of roads, the move from the horse and cart to the automobile, the invention of electricity and the lightbulb negating the need for candles and oil lamps, the invention of the aeroplane, the invention of the radio and the telephone, and then the television and later the internet; the invention of all these things created solutions, made our lives easier, saved everyone time and money and enhanced the connectivity of the world.

For some, the Singularity is solely based around this concept of AI matching human levels of intelligence and the potential end of the human race. What many forget to understand are all the benefits of AI. Instead of this doom and gloom future, I see the continued development and enhancement of AI contributing to a more prosperous and peaceful world. I believe that technology via AI will make all jobs obsolete. A Post-Work society is unavoidable. Many people worry about such a situation and its perfectly understandable. Yet they are worrying about it from the limited paradigm of our current economic model of global capitalism. Lets try to view the bigger picture. What if technology became so advanced that it were to, by default, make economics and money obsolete? In a world where nothing is exclusive and all physical goods and services are unlimited and at zero cost, since technologies such as 3D/4D Printing, AI and data creation and mining, Nanotechnology, Genetic Engineering and Robotics would have contributed towards making such a world like this a reality.

In today’s world, most people’s primary worries are economic. Followed by their physical and emotional wellbeing. Followed by their hopes, dreams, desires and ambitions. A world of an unlimited abundance of everything at no cost would take care of our economic worries. A common worry of such a post-work Singularity future is how a lot of people who always had jobs would begin to develop serious psychological problems since much of their identity was always traditionally defined by their job. Yet when I envisage the Singularity and super advanced AI, I also believe that by that time every single cell in the body of each one of us will be completely understood at the most minute level. Each one of our bodies will be like smart data machines with highly advanced algorithms continually keeping track of the entire physical and emotional health of our body, and enabling us to maintain perfect optimum health via the nano-signalling and detection of decaying cells and any irregular and abnormal behaviour in our nervous system. Nobody would ever become ill or develop serious illnesses such as cancer. Our bodies will be merged and upgraded with technology. The latest AI developments will be merged in our own bodies. Everyone will be a SMART hyperconnected entity. And I would even go as far as saying that this would negate the need to eat, drink, sleep, experience temperature fluctuations or fatigue. Our consciousness and memory would be preserved, stored and enhanced. Yet all the limitations and shortcomings of our physical sensations would be transcended by technology. This technology won’t numb us or kill our empathy (I would even argue that it will augment our empathy and consciousness in unprecedented ways), but it will protect us from many mental health issues, which currently affect so many people around the world. Mental health will cease to be invisible as it is today and will be just as clear as our physical health. There will be no chasm between the two. 

Furthermore technology extends to providing solutions to bigger issues, beyond paving the way for transhumanism and a post-work and post-capitalist society. Climate change and global environmental pollution (such as air, land and sea pollution) can all be reversed by technology. Technology has the power to eradicate all the plastic and polluting debris in our oceans. Technology has the power to purify the air in large cities. Dare I say technology even has the power to replenish and restore the environmental balance of the world.  One day technology will enable humanity to be an interplanetary and intergalactic species.

In short, technology has the power to create solutions to all our current problems we experience today. It is easy to be cynical and look at how technology can also be destructive but if we are looking at technology in all its totality in providing solutions to all the most pressing struggles and limitations faced by many, then a post-work, post-scarcity, limitless, prosperous, and a perfectly level and peaceful world is more than achievable.

 

By Nicholas Peart

(c)All Rights Reserved 

 

Image: acekreations