Backward Nation

I just want to write this post to wish everyone a Merry Christmas!

But before I do, I also need to add that something quite odd is going on in the gold market. 

I’ve been investing in gold for quite a while, on the grounds that I think one day fiat currencies – ie currencies not actually backed by anything, other than government fiat - will collapse, based on simple maths, and the fact that every other fiat currency in history ever tried has, eventually, also collapsed. The temptation for a government to print money, if there are no constraints on creating it (ie it’s not backed by anything), eventually just becomes too overwhelming. Subsequently, people lose trust in the bits of paper being issued, realise it's all just made up, and the whole thing goes down the swanny. 

This is the first time an entire hemisphere has tried this process at the same time, which should be quite wild when it ends.

Buying physical (or non-physical, but allocated) gold is the simplest and, arguably, best way to hedge against this (ps I AM NOT GIVING OUT FINANCIAL ADVICE! ASK A PROFESSIONAL). Silver, too. Houses also used to be good, as long as the rate of debt interest against them was fixed, but I suspect Rachel’s increase on property taxes in the budget is only the beginning.

Recently, the gold price has been increasing by quite large amounts – although to be technically accurate, I’d once again point out that the value of gold has been staying the same (most stuff priced in gold is – within quite a wide tolerance - more or less stable): it’s just that the number of £s needed to buy the same amount of gold has been increasing, as the value of the currency slowly (for now) disintegrates. It’s currently about £3,200 an ounce – when Gordon Brown sold a big chunk of the UK’s (our) gold c. 2000, it was about £175 an ounce (whoops), just FYI. Idiot.

As a side note, this poses a bit of a problem for a gold “investor” – if you buy gold to hedge against a collapsing pound, and it’s gone up in £s more than you think – should you sell? Seems unwise to sell gold in order to get more £s than you thought you could, as the £ has collapsed faster than you thought it would….but I digress. The price of gold often actually initially goes down in a market crash, as that's the only thing that can be liquidated in a panic to cover margins.

Now to the odd bit. Recently, gold has experienced something called “backwardation”. Backwardation is a term used by coke snorti….sorry, I mean traders at investment banks, to describe a situation where the spot price – ie today’s price – is higher than the futures price: a futures price being a contract for future delivery. For example, in the middle of winter, the immediate price of wheat might be quite high, as there’s a shortage: but there’s a harvest in a few months, and there’ll be more then (unless mad Keir takes all the farms away, not out of the question) so the futures contract price for wheat is lower. This would be a case of backwardation in wheat.

However: THIS SHOULDN’T HAPPEN TO GOLD, and in fact almost never does. There’s no shortgage of gold, and no sudden production surge on the horizon – and as it remains constant, ergo no backwardation happens in the gold market. Ever. Except….erm, well, it’s happening now. As of last month. 

Why?

Well, this suggests that coke snorti….sorry, I really should say traders, are losing faith in futures delivery contracts. In other words, they no longer believe in the bits of paper being issued: they’d rather have physical gold, now, than a bit of issued paper in a few months time, even if this means they lose out on other bits of paper. Basically, they’re losing trust in the bits of paper.

This is quite concerning – if the people right at the heart of the system are starting to think that some of the bits of paper they trade with each other every day are actually made up (gosh!), then how long before everyone else realises the same about all of the other bits of made-up paper - basically, everything else…..? 

I still think we're not quite there... but when they do – the system will collapse. When everyone works out that what they think of as money is actually just worthless bits of paper based on a credit somewhere that won’t be paid, then there’s no energy production, as there’s no hydrocarbons to produce energy (note: mad Ed Miliband is doing his best to get to this bit on his own). And if there’s no energy, then there’s no commercial food production.  And what’s the carrying capacity of the UK in this scenario…? I think it’s probably not 70 million, anyway.

So I thought I should point this out, as it is odd. 

Anyway, I got sidetracked – I’m sure we’ll be fine. Have another mince pie. Merry Christmas!

The Pirchforks Are - Almost - Here

Sometime ago, I wrote a post suggesting that the our economy isn’t a game that is rigged – in fact, I pointed out that it isn’t even a game - it’s essentially an activity, where wealth is transferred from the many to the few. And I postulated that when people realise this, they’ll appreciate that the only option they have left is to go to the few that have the wealth, carrying pointy-tools, and…take all their stuff.

I pointed out that London now is nothing more than a random group of people, who share nothing non-geographical in common and often don’t even speak the same language, and who live in a society with income and asset inequality not seen for over a century. The rest of the country would be the same soon. And now the entire debt bubble it’s based on is showing signs of stress.

I posed the question – how do you govern that?

I think we now know the answer – no one, in fact, can. We are, therefore, close to everyone in the country picking up a metaphorical pitchfork.

From the reasonable state of calm that existed not that long ago forming the general hive mind of the populous, the comfortably numb feeling has completely dissipated and been replaced by…well, something akin to despair, in a (quiet British) sense. People aged 20-35 are fleeing in as-yet largely unreported droves. Economic stagnation is now essentially taken as the norm – not that long ago this would still have been regarded as completely unprecedented, long-term and therefore it must be aberration - but we forget these things. Now, no other path is conceivable. People are just quietly giving up. Mad Ed is still hell bent on closing down our reliable energy system, and at this stage possibly even he knows that what he’s doing is completely idiotic, but still, somehow, just can't stop it.

Are we, then, near peak doom?

I actually think we are still not quite at the crash stage. Cycle theory – Kondratiev (friend of the blog) and co I think are still worth basing analysis on, and suggest that 2026/7 is when the shit hits the air source heat pump. We need to be looking out for news, for example, announcing the new “World’s Tallest Building” which should presage the next crash.

But we can’t be far off. Geopolitical factors will play a part in pulling the trigger on the UK's debt-bomb. US debt is now going parabolic – instead of adding a trillion in USD to their debt every 3 months, as they were last year, it’s now…every 2 months. A trillion is big number to get your head around: a million seconds is 12 days, a billion seconds is 32 years, and a trillion seconds is…32,000 years. Basically, two trillion is a lot.

Key to this is potentially the completely delusional EU desperation to confiscate Russia’s frozen foreign reserves, held in US Treasuries (as have been most foreign reserves, for historical reasons) – or at least use them as collateral for a giant loan to Ukraine, to be repaid from Russian war reparations - which obviously won’t be paid, ergo it’s essentially confiscation. I am no fan of what Russia are doing - but would point out that when this happens, it’s confirmation to the world that US Treasuries aren’t actually as good as gold, and henceforth more non-western countries will switch their foreign reserves into actual gold. And the price of gold will go up more, and US debt will be worth less and it’s all a bit bleak…. and, as the UK is the one of the largest holders of US Treasuries, this might be the thing that tips us all over the edge.

So, what to do? Panic? Well, if you’re going to panic, it’s normally best to panic first. So buy gold. Buy a generator. And maybe even buy a pitchfork. And why not? Everyone else will have one soon, hopefully metaphorically speaking – but you never know these days…

Flying Saucer Cu*t

 

I read a book a long, long time ago about a chap that joined a flying saucer cult in 1950s America. This cult – let’s call it “the flying saucer cult” - were convinced that flying saucers would come to earth on a particular spot on a particular day (I think it was Christmas Eve - but I did read it twenty years ago) – and they had to perform particular, peculiar rituals, and live together in a particular, peculiar way, to prepare.

Not to ruin the book for you - but after several years, the day finally came: the cult members took their allotted slots in a specially selected galactic landing field, laid down to wait, and (spoiler alert): obviously nothing happened. The next day, our correspondent got up, dusted himself off, said “righty-ho, I guess that was all completely wrong then but nevermind” and cracked on with his normal life.

But he was fascinated by the fact that other members of the cult…well, just carried on. They saw the fact that the flying saucers didn’t come as proof that their rituals and peculiar way of life…worked. The fact that the opposite of what they thought would happen, happened, meant that they actually doubled down on their bizarre beliefs (it would be unkind here to point to Secret Surveyor blogs passim...) More, better rituals. Higher frequency. More peculiarity. And so on. He was so intrigued that he wrote a book about it.

Which brings me to Ed Miliband and energy policy.

We’re in a very interesting period: it’s clear that our current energy policy is creating more expensive energy. We know this as energy prices are…well, going up. Quite simply, if you introduce more renewables into the grid, you make the grid harder to manage: as you replace reliable hydrocarbon base load generation with intermittent renewable generation, which is...well, harder to, erm...manage. And if you make the grid harder to manage, it becomes more expensive to manage the grid. And energy prices go up. QED.

We know this is the case, as this is precisely what has happened in the UK recently. And there’s been no impact on global carbon emissions (another spoiler alert: what you are told about global warming is, in fact, going to happen. We are going to run the experiment. And it’s going to be bad).

And yet, and yet…

Renewable energy is meant to bring down energy costs, according to Ed. And as we have introduced renewables into our grid faster than anyone else, globally, and prices have gone up faster than anyone else, globally, this must mean that….we should, what, slow the introduction of renew…..NO! MORE RENEWABLES! FASTER! THE FLYING SAUCERS WILL COME!

Sorry, not sure what happened there…

But it is odd. The enormous grid-failure that happened in Spain should be a wake-up call. Sod the energy transition: it’s obviously nonsense, will be counter-productive, will make no difference at all to global ppm and will leave us in an infinitely worse position to deal with the calamities that are heading our way, climate-wise.

But it won’t be taken as a wake up call, sadly, as this has become far too politicised (“Sorry, you’re against solar panels? What are you, a racist?” Etc).

We are now firmly in a world of preference fabrication – I have met numerous physics professors at conferences who know the above to be true, and will happily tell you so after a few pints (ok, we had more than a few). But will they actually voice this at work? Of course not. Why would they? They don't want to be the bad guy at dinner parties. So 90% of people who know the truth about the flying saucers are keeping their mouth shut, whilst the 10% who are committed to the lunacy control the narrative, and make us all sit in the field, waiting for them to come, despite the fact that Christmas Eve has come and gone and we're getting cold and running out of nibbles...

Best of luck everyone.

Next blog: back to the world ending financially. Hurrah!

Bodge It

Happy Ne…sorry, no time for that now. I’m sorry, I can’t hold it in any longer. Why did she do it? I just can’t come to terms with the fact that the Chancellor, Rachel Reeves, lied on her LinkedIn profile about being an economist at HBOS, from 2006-2008.

I just can’t get my head around it.

HBOS from 2006-2008 was one of the worst financial institutions ever to have existed. It not only drove itself into complete bankruptcy in a short period of time, namely 2006-2008, but drove several other institutions into the ground, simultaneously, through monumentally stupid economic decisions. Then Lloyds, which had to take it over, almost became insolvent itself (well, technically it was insolvent, but just about survived, as we gave them a squillion quid of public money) because the HBOS debts it took on were so enormous.

And our Chancellor………..lied about working there. As an economist. At that exact time. I can’t get over it. Mad.

Anyway – she has bigger problems now. Despite the news being full of Very Grim Things indeed, and the Main Effort now of the government is now to Win the Debate by calling increasing numbers of the electorate Far Right (Huzzah! You’re Far Right! We win!), bond yields are now higher that they were under Liz Truss.

Remember when Mad Lizzie drove yields on the 10yr gilt to 4.3% and everyone decided we were bankrupt, and she couldn’t be PM anymore and had to go back to live in her box with all the other mad frogs? Well they’re now 4.7%, and rising fast, and barely a peep in the news. And long bond yields (ie on the 30yr gilt) are the highest they've been since the late 90s.

Why does this matter? Well, yields go up when prices go down – ie yields on UK government bonds (“gilts”: as the actual bond certificates used to have gilt edges) go up when bond investors – people that lend the government money to fund stuff they can’t fund through taxes or money printing, for various periods, eg 10 years, 30 years, etc – decide that the government is less likely to pay them back. And they are seemingly now coming to the conclusion that the UK is broke, and maybe won’t pay them back at all – and we know they do, as we can tell…as gilt yields are going up and up. And to be fair, the UK is broke. This will now, logically, start to reflect in the currency markets: ie, the pound will, not in a straight line, but steadily over time, decline in value.

The trouble is, the main tool to traditionally use here is interest rates. Interest rates are a tool to protect the currency – but the people that set interest rates think they’re a tool to control the economy. That’s another problem. Interest rates are set by a group of 9 people sitting in a room, which is yet another problem - as this is a pretty Soviet concept: interest rates are, essentially, the price of money - and there are no other prices in the economy that are decided by 9 people sitting in a room, as this is what the Soviets did, and we know that running an economy like this is the quickest way to find out what your pets taste like. And if you don’t believe me that this is a communist principle: I’d encourage you to have a look at what the central planks of The Communist Manifesto were (Hint: one of them was establish a central bank).

But if we put interest rates up to protect the economy, then the yield we pay on the remaining government debt also goes up – as much of the remaining debt is linked to the interest rate we set. And as interest rates go up, inflation will go up as the money supply increases, and yields will go up further etc. Get it? Don’t feel bad if you don’t, as the MPC – the 9 people in question in charge of this stuff – don’t get it either, as they think the opposite happens. But it’s simpler than it sounds: say you have a credit card, and can’t afford to pay it back – so you get another credit card: this second card will have a higher interest rate. But now imagine that the first card’s interest rate goes up in line with the second card’s rate: so you need a third, etc and it ends in a teensy weensy bit of an everyone's-going-to-starve-doom loop. This pushes up inflation, as the money in circulation goes up along with the increased rates (as the yields are higher). 

Not to rain on their crazy parade, but this confuses the 9 people sitting in the room deciding this stuff, as I mentioned, as this is exactly the opposite of what they think should happen – it’s called fiscal dominance, by the way. It: a) ends in bankruptcy, and: b) unhappily is where we are now.

Our economy is now dependent on, firstly, the aforementioned group of 9 people, using the wrong tool, backwards, to do something that it isn’t designed for. Secondly, we are in the hands of someone else who has so little experience of the thing that she’s in charge of – the economy – she lied about being part of the worst economic decision making team in recent record, just so she could say she had even some experience.

So we’ll all doomed, right?

Well, yes. But, not for 18 months: there’s one more blast of the money printers to go, in my opinion – they have no choice now. They’re cornered.

But at some point in 2026-2027 people will realize, en masse, that the value of things like bread and cups of artisan coffee aren’t going up – the value of their five pound note is simply going down. What physicists call a Phase Transition occurs. 

Then it’s all over.

And I haven’t even mentioned what Ed Miliband is doing to drive up energy costs (which inversely correlates to economic growth; see Secret Surveyors passim)…but maybe that’s enough doom for today.

So, Happy New Year. Have a good one. I’m off to alter my LinkedIn profile to say I was in charge of iceberg protection on the Titanic…