The Flying Frisby - money, markets and more

Inflation in the UK has just hit 10.1%, says the Office for National Statistics. That is five times the Bank of England’s stated target of 2%. FIVE TIMES! Sorry to shout. The joy of the public sector is that you can be this bad at your job and still keep it. Inflation hasn’t been this high in over 40 years.Are you prepared?None of this should be a surpriseWhen you delve below the surface, it gets a lot worse. Retail Price Inflation (the old measure) is 12.3%.Energy prices are rising. We all know that. Food prices too. But the Bank of England base rate is still 1.75%. Carnage or not, it is going to have to go up. That means borrowing costs are going to go up. And house prices are likely to come down.The pain of all this is going to eat into your wealth. On the one hand the value of your most prized asset – your house – is flat or falling. On the other, your costs – from food to energy to monthly mortgage repayments – are all rising. And it’s doubtful your income is keeping up with the increase in costs.A lot of people are going to lose their jobs and their livelihoods in the squeeze (though no one at the Bank of England).And so much of this is self-inflicted.I get so cross when I hear officials say, “no one could have predicted this” and it is “beyond anyone’s control”. We have been warning about it for years on these pages.If the market set the price of money, you can bet your bottom dollar that rates would have risen a lot higher a lot quicker.What are the causes? There’s deglobalisation – China especially has been exporting its cheap labour and deflation for so long, low prices had become normalised. Now nobody trusts anyone any more and globalisation has slowed. You can’t blame those in charge for that.There are the Covid-supply chain issues and the punitive, punishing-the-British-for-Brexit legislation on the continent that is hampering trade and thus raising end costs. Dimwitted, short-sighted, beholden-to-the-Green-lobby energy policy leading to a failure to invest in fossil fuels and nuclear has put up energy costs.Failure to measure inflation properly for decades (especially not including house prices in CPI) has meant interest rates have been too low for too long and asset prices have got totally out of kilter. And finally – yet perhaps, along with artificial rates for years, most significantly – hundreds of billions of money created at no cost through Quantitative Easing, first post 2008 and then through Covid. In short: printing money, debasing money, misguided energy policy and bureaucracy. Too much government has caused this.Now the chickens are coming home to roost. The irony is there is a scramble for cash, even though cash is now officially losing 10% per annum.This must be one of the most difficult investment landscapes I have ever known. How to protect your wealthThe most obvious asset to own in all of this is gold. Yes, in US dollars at least, gold has been a dog since the spring. Not as big a dog as other metals, or indeed tech (until a month ago), but it hasn’t exactly been doing what it did last time all this was happening in the 1970s, although dont forget it has a 50% correction mid decade. The US dollar being so strong has masked things.But let’s look at gold in sterling, and the story is different. Here we see gold in pounds over the last ten years.It was £700/oz in 2015. Today it’s £1,480. A double. It’s in a clear uptrend, and has been a good, low risk hedge against incompetent leadership and the incompetent management of the pound.You can see how gold has been making a series of higher lows – since 2015 in fact. Each sell-off comes to an end at a higher price than the last.Even since 2021 this has been the case. The current sell-off since the spring Russia’s-invasion-of-Ukraine-high has been painful. But the low in July was higher than the lows in January. That is long-term bull market action.My concern looking at that chart is a potential double top just above $1,550. Maybe it all ends there. Maybe it has already ended there.But while this sequence of higher lows continues – and looking at the mess around me – I am going to give the bull market the benefit of the doubt.Self-inflicted or not, the Bank of England is caught between a rock and a hard place. It’s damned if it puts up rates and it’s damned if it doesn’t. It’s going to have to. Looking forward to the winter, it’s easy to see a host of problems – energy shortages, more Covid, further escalation in Ukraine, squeezed citizens, no end of political discontent.I don’t know where all this ends. Often I can see where stuff is going, but this I can’t without getting shudders. We’ll find a solution. We always do. We are human beings, we work, we create, we innovate, we solve problems and life gets incrementally better. But it feels like we are early- to mid-series rather than going into the final episode.So my advice is to own some gold. I’m glad I do. It helps me sleep at night. It’s about the one part of my portfolio that I’m not worried about.The maxim “put 10% of your net worth in gold and hope it doesn’t go up” applies. Finally, here is gold in dollars, again for your reference.The bulls will want those lows around or just below $1,700 to hold – and for that to prove a double bottom. The bears on the other hand will want those highs around $2,050 to prove a double top.For now it looks like we are range-trading between the two.If you’re interested in buying gold my recommended bullion dealer is the Pure Gold Co, with whom I have an affiliation deal. You can buy gold and either store it with them or take delivery. My report on how to buy bullion is here.This article originally 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

John Stepek is leaving MoneyWeek. I’ve known for a while, but as his final day was yesterday and we have just had his leaving drinks, so the implications are just sinking in. I first started writing for MoneyWeek in 2006, which means John has been my editor for 16 years. Week in week out, he’s had to plough through my twaddle. I reckon I have written at least 800 Money Mornings in that time (one Money Morning per week for 16 years), though the figure is probably closer to a thousand, as I’ve often written two per week. Plus the stuff I’ve written for the main mag. Each Money Morning averages 1,000 words, often more, so I make that close to a million words of mine that John has read, suffered and edited. What a saint.  A happy accidentI’ve been racking my brains as to a memorable and suitable present to buy him, to say thank you. Then it came to me. What more appropriate way of expressing my gratitude than through a Money Morning itself. For all our plans, for all “the best laid schemes o’ mice an’ men”, life has a habit of taking the accidental route and so it was with my relationship with John. Although it never went, “gang aft a-gley.” Now if John was editing this, he would demand that I explain that Scottish poet Robbie Burns reference. I would say, “everyone knows that quote, we don’t need to explain it.” John would insist we do. And, in order not to patronise those that do know it, I would then find a way of explaining that “gang aft a-gley” means “go wrong” without overtly looking like I am explaining it. The result would be something along the lines of what you’ve just read. You now know, if you were in any doubt, that “The best laid schemes o’ mice an’ men. Gang aft a-gley” is a quote by Scottish poet Robbie Burns meaning, “even good plans go wrong”, but you don’t feel patronised because I’ve explained it, while apparently talking about something else. I learned how to do that through working with John.In MoneyWeek, of course, usually what needs explaining isn’t a great Scottish poet, but some incomprehensible financial or mining jargon. Back to the point. My relationship with both John and MoneyWeek all happened by accident. Back in 2006, as a jobbing comedian and voiceover artist, I had made a bit of money and I was trying to figure out what to do with it. In fact, specifically, I was trying to figure how to turn the pot I had into three or five million quid in order that I could make the musical Kisses on a Postcard happen. I didn’t entirely trust the fund managers I had met to achieve the unrealistic and astronomical multiples I was hoping for. So I started a podcast and began interviewing all these clever people I saw talking on the internet, such as Jim Rogers, Jim Dines and James Turk, to see if I could figure out a plan. Commodities and gold in particular seemed the route, and the show was called Commodity Watch Radio. One of the people I interviewed was Merryn, who said did I want to write a newsletter about commodities? I said I wasn’t sure I was equipped to do that. She said come into the office and have a chat. In I went to meet Merryn and the then MD Toby Bray. There was also some quiet bloke in the corner, John Stepek. We agreed that thrusting me into a newsletter might be a little premature, but John had started this daily email, Money Morning, and perhaps I could start writing, say, one per week and then we’d see how it goes and take it from there? Fine, I agreed.Here we are 16 years on and it’s still going. A temporary plan became permanent. A bit like Income Tax. MoneyWeek’s quiet, consistent rock Clarity has always been one of John’s priorities, but also neutrality. “You’re great on the financial stuff and the macro stuff, Dominic, but when you get onto politics, you get ranty. You confirm the biases of those who agree with you, you annoy those who don’t and you alienate the undecided,” he once said to me. That expression has always stayed with me: “alienate the undecided”. In today’s polarised worlds, if you want notoriety, it pays to be an Owen Jones or a Tucker Carlson, but that was never measured John’s priority, nor is it the MoneyWeek way, which aims to stay broadly neutral on politics. John has always edited my stuff quickly and well, but he’s never been precious about his edits. I, on the other hand, am a control freak, and John has let that be. He doesn’t seem to mind me re-editing his edits - no control freak he. The resulting compromise has almost invariably been a better piece.  I have learned so much about writing in our time together. I always wanted to be a writer. I went to drama school because all the best writers started out as actors. But, bizarrely, it wasn’t the entertainment industry that ever gave me the break. It was finance, MoneyWeek, Merryn Somerset Webb and John Stepek. I’ve since written three books, several films and endless content, as you probably know. And here’s the bizarre thing: in all that time, I’d say I have met John in person fewer than ten times. Our entire relationship, one of the most successful professional relationships of my life, has been conducted almost entirely by email. Occasionally we speak on the phone, but rarely.  Who says in this new age of digital nomadery we actually need to meet the people we work for? John must get more emails than Gary Lineker does complaints and yet throughout all of that time he has always replied to me promptly and thoroughly. It sounds trivial. But I’ve had book editors who don’t reply to emails, and it’s a blooming nightmare. Communication breaks down. I usually reply to emails quickly as well, and that has been key to our success. I once heard Merryn describe John as her rock, and he really has been that to the entire MoneyWeek operation. A pillar of quiet consistency, happy for those he edits to get the praise and the glory, while he quietly gets on with it.  He can be strong and stubborn when he needs to, but he’s also been very much live and let live, tolerant of his contributors’ eccentricities and idiosyncrasies – embracing of them even. In all that time, we have never had a falling out. In fact, I can only recall one angry word. I had been trying to write a hugely witty debunk of some nonsense from Nouriel Roubini on gold, in the same ten-point format of Roubini’s original article. But I couldn’t write it to the 10-point Roubini template – we obviously think differently – with the net result that the article I submitted was both late and unpublishable. It meant John had to write a last-minute replacement when he had better things to be doing, such as getting that week’s magazine to print. No wonder he had the hump. I’ve spent this entire article praising John as an editor and I have’t even got to his writing talents. And yet they are what his new employer has signed him up for.  He’s a great writer too.John, thank you so much for everything. I will be forever grateful. I wish you the very best of success in your new job. And you will, I’ve no doubt, have it. Because fortune favours the prepared.PS I forgot to mention the attention to detail.This article first appeared at Moneyweek. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

The Edinburgh Fringe Festival starts this week. It’s the world’s biggest arts festival, an event that sells more tickets than any other event in the world, with the exception of the Olympic Games.I shall be making my way up to Scotland’s capital to make my own little contribution, a new show that I haven’t finished writing yet (!), “a lecture with funny bits”, about the eternal subject that is weights and measures. Why do I say eternal?Because people have been arguing about them, and trying to impose them since forever.How French revolutionaries tried to decimalise timeThe very first legal documents we have from Ancient Mesopotamia depict rulers with the rod and ring – a yardstick and a measuring string – usually being handed to them by God, as they try and standardise measures in law. Ancient Egyptian documents, illustrations and hieroglyphs abound with similar references. Scales are prominent too.The opening words of the Bible establish our basic measures of time – the day and the week. This is something the French Revolutionaries tried to do away with in 1792 when they decimalised time. One week would be ten days. One day would be ten hours. One hour would contain 100 decimal minutes, and each decimal minute, 100 decimal seconds. Thus one day would be 100,000 decimal seconds per day. When the proles discovered that meant one day off in ten, rather than in seven, the system began to meet with considerable resistance and duly kicked out. The revolutionaries may have got their metric weights and distances over the line, but time was a step too far. What is a “step” by the way, but a measure? A vague but useful measure that fitbits and iPhones and health apps have become obsessed with. I did 14,126 steps yesterday. (It was a long day). What about you?“There is to be one measure of wine throughout our kingdom, and one measure of ale, and one measure of corn,” proclaims Magna Carta. “One breadth of cloths … and let weights be dealt with as with measures.”Even today, when Boris Johnson made announcements about being able to use imperial measures again, the culture wars kicked off. In his 2019 election manifesto Johnson pledged “an era of generosity and tolerance towards traditional measurements”. To the Guardian, however, this was xenophobia and pseudoscience.Which is best – “free market” imperial or “central planning” metric?I often go to the Edinburgh Fringe to do “lectures with funny bits”. In 2016 I did one about tax, which would eventually become my book Daylight Robbery. In 2019, I did one about the philosophies of Adam Smith and how they related to the economics of the Fringe, which would eventually become a film, Father of the Fringe. This time around I thought it would be interesting to do one about weights and measures.  I’ve since discovered the subject is enormous and endless, which is why I haven’t finished writing it yet. (It’s going to be held in Adam Smith’s old front room at Panmure House, so a wonderful historic setting.)The inevitable question that gets asked is: which system is better – imperial or metric? I would answer, with the bland neutrality of the on-the-fence politician, that they both have their place.I grew up with the metric system. That was what I was taught at school. But as I’ve grown older, I’ve found myself thinking more and more in  imperial. Feet make more sense to me than 30, 60, or 90 centimetres, or 1.2, 1.5 or 1.8 metres. Inches – a thumb pressed down – make more sense than centimetres. A hair’s breadth means more than a micrometre. I find it easier to orient myself around pints than I do litres, around pounds – the amount you can easily hold in your hand – than I do kilos, and around yards – a pace – than I do metres.But the problem with imperial is that it was never a designed system in the way that metric is. Most measures emerged over time through use. Impractical measures got abandoned, and practical ones stuck. The buku was the distance from which the cry of a buffalo could be heard in Russia. No doubt an extremely useful measure in a country with such vast expanses of land, but of little use today. The pound we use today, however, roughly corresponds with the Babylonian “mesa”. Shoe sizes are defined by barleycorns. A fathom is one’s arms outstretched – 6 foot. A really useful distance, especially for depth. 6 foot is the depth to which in water we can just about stand up in - or bounce - without having to swim.But there are a gazillion measures that found common use in history that have fallen by the wayside. It’s very much a market driven system.Yet as soon as you start to analyse it with the logic of the planner, imperial measures look nuts. Just take a look at some of the flow charts to explain imperial measures on Wikipedia and elsewhere if you want to understand how nuts it looks. Why can’t we just have both?Americans have a “dry gallon” and a “liquid gallon”. What’s more, their gallon is not the same as our imperial gallon (one of the reasons petrol there seems SO much cheaper is that their gallon is smaller). But their gallon is the English gallon because they use the English system, which came over with the settlers.We British, however, use the imperial system with the Weights and Measures Act of 1824, long after US independence, and exported through the Empire, in part to make sure this new-fangled French metric system didn’t take hold.This new-fangled French metric system came about with the French Revolution. “One king,  one law, one weight, one measure,” the Revolutionaries cried. They had, according to the BBC, some 250,000 different weights and measures – differing from town to town and district to district (talk about regional diversity) – and there was considerable fraud.Let us give them “a system for all people for all time” thought the savants, the 18th-century liberal metropolitan elite. Instead of defining measures around the human body and the immediate world around us, they thought, we will design a system around the earth itself. A metre will be one ten millionth of the distance from the North Pole to the equator. So two scientists were sent out to measure the distance from Dunkirk to Barcelona and they would extrapolate it from there. However, one of the scientists, who got arrested for sorcery, then for spying and then saw his money disappear with the hyperinflation of the assignat, under considerable pressure, fudged the data and so the measure is actually wrong. By how much? A hair’s breadth.The metre has since been redefined, first around the speed of light and then around atomic movements, to give it a level of precision the ordinary yard – a pace – will never have. But those redefinitions have always used as their base that first metre which was erroneous and, slightly, fraudulent.We do need one international system of measures that everyone understands, especially for science. But, in the same way it is good to speak more than one language, so should we be familiar with more than one system of measurement. And if you want regional diversity, especially in architecture, then you should embrace diversity of measurement.Today the only countries in the world not officially on the metric system are Myanmar, Liberia and the US. But on the ground traditional measures are used everywhere - from the prevalent half kilo, effectively a pound, to brick sizes (a hand) to cargo ships . People talk and think in traditional measures, because they are practical and rooted in the world around us. Metric is abstract. Long live both.Dominic Frisby’s How Heavy?, a lecture with funny bits about weights and measures, will be running at the Edinburgh Fringe from August 7-15. You can get tickets here.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

Are the people at the top – the directors – buying or selling shares in their own company?If they are buying, that’s usually a good sign. But if they’re selling, not so good.They might be selling because they need the money for something: to buy a property for example, to pay school fees, to settle some debts.Then again, they might be selling because they don’t like the look of what’s going on.Directors’ dealings can offer telling signals as to whether insiders think the company is about to thrive or dive. That’s why so many follow them.With that in mind, I had a meeting with Joshua Saul yesterday, CEO of bullion dealer and storage company, the Pure Gold Company. He told me something that I found fascinating - similar to the value of director dealings as a potential indicator. I’d like to share that knowledge with you today.Who’s been buying bullion and why?Why are doctors queuing up to buy gold?The Pure Gold Company must now be one of Europe’s top bullion dealers, with a large and varied customer base, from institutions to individuals. As such, it knows who is buying, who is selling and to what extent.But, to help them make the right investments, it also makes an effort to get to know its clients: are you old or young? What do you do for a living? Why are you interested in buying gold? And so on. As a result, it gains an insight into people’s professions and motivations and that data, “both quantitative and qualitative”, to use Saul’s words, “reveals trends about the market”.There has, over the past couple of months, been a marked increase in buying from two professions: doctors and investment bankers. Weird, huh? The latter I sort of get, but the former.Most doctors I know work pretty hard. Their diaries are full and their time is precious. Unlike many other professions, I would venture that their ability to monitor markets, research investment ideas and so on is limited. (Any doctors out there, please correct me if I’m wrong).You have to be bright to make it through medical school, to qualify and practice, so doctors, for the most part, are not stupid. But at the same time, I would venture, as a rule, that their fingers are not particularly on the investment pulse, unless their investments are somehow related to the medical field – which gold isn’t.So what gives with doctors buying bullion?Doctors for the most part have money. It’s a well-paid profession. In some cases very well paid. And they are making money all the time. “My belief,” says Saul “is, first, they’ve been too busy up until now to take much of an active role in their investments, but having seen their pensions fall, have started to to be more proactive – driven primarily by safety and security”.Makes sense. They’ve been making good money, but on the other hand, they have been watching the value of their Isas and pensions fall quite dramatically. As a result, they are turning to the alternatives, which are gold and silver.Investment bankers are getting keen on gold again“Why then has there not been an uptick in, say, lawyers or pilots or computer programmers?” I ask. There has been, it turns out, but the most notable increase has been doctors – by 44% in the last four weeks – and, as we are about to consider, investment bankers. Investment bankers’ buying of coins and bars has increased by a – quite astounding, in my view – 59% over the past four weeks.  I have to say, the implications of a 59% jump in investment bankers buying gold for their personal portfolios has some alarm bells ringing. What’s going on at the banks? Are there problems looming? What do they know that we don’t? Something similar was going in the lead up to the Lehman crisis.Possibly so. When asked about their motivation and timing, says Saul, many cited counterparty risk, exacerbated by the severe inflationary environment. Political uncertainty has been a factor too. Many fear inflation. The high cost of sitting in cash while waiting for opportunities in other asset classes, has become too high. The other factor cited was the consequences of escalating interest rates at a time of high and increasing debt, both individually and nationally. Overall, says CEO Saul, there has been a 39% increase in people purchasing gold bars and coins in July compared to the monthly average over the last 12 months, and a 42% increase in people purchasing silver bars and coins.Perhaps more tellingly, there has been a 67% increase in people selling equities within their pension to purchase physical gold bars within the same vehicle. This type of knowledge may mean absolutely nothing. I don’t think it’s reason alone to go out, sell everything, buy gold and run for the hills. But it’s one of those telling insights, I’d say, to have at the back of your mind as you make your broader macro investment decisions – how you determine your asset allocation. People are buying bullion. Especially investment bankers. It also explains the uptick in people asking me how to buy bullion. If you’re concerned about geopolitics or inflation or solvency, and you feel an investment that is “outside the system” and “no one else’s liability” is worth having, this is the type of thing that might cap your thinking and seal the deal. So there we go, I’ll leave it with you to make of it what you will – a bit like those director dealings.If you’re interested in buying bullion yourself, consider the Pure Gold Co, with whom I have an affiliation deal. My report on how to buy bullion is here.If you’re interested in miners, paid subscribers received this update last week. There might be some opportunities, given the current sell off.And, finally, If you are in Edinburgh next week, I will be performing my show, How Heavy?, a lecture with funny bits about of weights and measures, at the Fringe. You can get tickets here. Hopefully, see you there.This article first appeared at Moneyweek.Until next time … This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

I was at a dinner the other night with a buddy who is a much cleverer investor than I am. The conversation went something like this.Clever Mate: “Inflation is 10%. Rates are going to have to go to 10% to get it under control. I’m 60% in cash.”Me: “The system can’t take rates at 10%.”Clever Mate shrugs. There is an awkward silence.Clever Mate: “It will have to.”Another more awkward silence follows as I digest the implications. Do central bankers have what it takes to tackle inflation?Have today’s central bankers – the liof Jerome Powell, Christine Lagarde and Andrew Bailey – got the bottle to “do a Volcker” and put rates up to these kinds of levels? (In 1981, then-Federal Reserve chairman Paul Volcker raised the Fed Funds rate to 20%.).It’s not just the chair or the governor, of course – though they will be the ones making the announcement – but the boards behind them. To make such a decision, with such ramifications, would not just require extraordinary bottle, but extraordinary conviction as well. It’s hard to have one without the other. I’m not sure Bailey or Lagarde have the right belief systems. In the case of Lagarde, I’m as sure as dammit the career and reputational risk would be intolerable to her.So my view, on this side of the Atlantic at least, is that a softly, softly approach will prevail and that rates will go up slightly, while those in charge prevaricate and hope that this unfortunate inflationary episode does prove to be temporary and passes.We will have a clearer idea of Powell’s intentions later this week when he makes his announcement.But here’s the point. Volcker is widely credited with curtailing the inflation of the 1970s. However, when he was appointed in 1979, inflation was long entrenched. From the Vietnam War to the abandonment of the gold standard in 1971 to the oil crisis of 1973 and through all the economic turmoil of the 1970s, inflation was not something new or just a few months old, as this episode is today. Volcker’s hiking of rates came off the back of a decade of this and, what’s more, President Carter appointed him specifically to do what he did. Even against all of that, his actions still provoked enormous ire.Today’s central bankers do not have the same backdrop. The inflation narrative is too new, and there is still the hope that this is all temporary. So my forecast is for them to do the least possible for now, with Powell probably remaining the boldest of the three. Rates may have to go to 10%, as my buddy argues, but the stage is not yet set – and this current pullback in commodities may give them some respite.Inflation redefined I had a thought in the shower this morning, as you do, and it was this.The classic definition of inflation, as regular readers will long since know, is “the expansion of the supply of money and credit with the consequence of higher prices.” You inflate – blow up – the money supply and, as a result of there being more money about the place, prices go up.However, because of semantic shifts (which is a high-falutin way of saying “a shift in the meaning of language over time”) this is no longer the definition of inflation. Inflation now just means “higher prices”. Somewhere along the line, whether due to a conspiracy by central planners and bankers is not known, the bit about expanding the supply of money and credit got dropped. The semantic shift has gone a stage further still. Inflation no longer means just rising prices, but rising prices of goods and services included in the core price index (CPI) measure of inflation. So house prices rising, for example, doesn’t mean inflation. It’s nuts because, as we know, the main reason house prices go up is because of an increase in the supply of money and credit – more and cheaper mortgages.However, such semantic shifts are beyond the power of this lowly writer to control. So there is little more I can do than rage, rage against the dying of the light, then go about my day.Anyway, I’ve got through the preamble, so here’s the thought. Inflation, by its modern definition, actually leads to a shrinking of the money supply, or at least it should do, if central banks follow their remits to curb it. If inflation is 10% then rates go up to curb it (though perhaps not as high as 10%). As rates rise, many deleverage and pay down debt. (Leverage is another means by which money and credit are created). If rates rise a lot, this can become a scramble.In other words, with inflation (by today’s definition) the supply of money and credit contracts. That means asset prices – house, bond and equity prices – fall, as they are what we use leverage to buy. Even car prices. (Finance costs more).These are mostly not included in CPI, but in such a deflationary event as interest rates rising to levels concomitant with current CPI inflation, you can expect CPI to fall too. To summarise, inflation originally meant the expansion of the money and credit supply with the consequence of higher prices. Today inflation, and the central bank reaction to it, portends the contraction of the supply of money and credit with the consequence of lower prices. That is some semantic shift.I don’t know how central bankers get us out of this. But no doubt all sorts of plans with even longer and more unpronounceable names than quantitative easing (QE) are being formulated as we speak.Remember how they suddenly came up with QE in 2008? We all looked on baffled and blindsided. Except similar rabbits to be pulled out of hats.Dominic will be performing his show, How Heavy?, a lecture with funny bits about the history of weights and measures, at the Edinburgh Fringe this August. You can get tickets here. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

Metals are not going to stop crashing until the US dollar turns.I’ve been banging on about that for some time. I don’t know when that will be. Nor does anyone. But this US dollar action feels like the parabolic blow-off that you get towards the end of bull markets, rather than the creeping disbelief you get at the beginning.I’m hearing talk of forex interventions coming. That may or may not be so. So I’m not ready to pull the trigger just yet. But… I’m closely following the price action of two metals that look remarkably cheap. They are silver and platinum. I mentioned them last week.Platinum looks cheap, regardless of what happens nextThe case for platinum, the main use of which is in catalytic converters for diesel engines, is pretty simple. You would normally expect it to trade at a 25% premium to gold. That is the historical average. But demand has been shattered since the Volkswagen emissions scandal of 2015 and the subsequent move away from diesel engines.Gold is currently at $1,720/oz. If history is any guide, platinum “should” be north of $2,000/oz. It isn’t though. It’s $830.I don’t really know what’s going to change on the demand side. Platinum may have a major role to play in fuel cells and the hydrogen economy (as a catalyst), but so far this has not been perceived as significant enough to push the price higher.In any case, here is a 20-year chart of platinum. I’ve drawn a dashed blue line around $780 and you can see the platinum has been below this level just once in almost 20 years – during the Corona panic of March 2020.It went to $600/oz intraday back then. Otherwise the $770 area has been the floor.So if you can pick platinum up below $800, let’s just say your downside is likely limited.And now to the disappointment that is silverSilver is not quite as clear cut. Oh, silver! How I used to love it back in the noughties. Experience changed my view. Was there ever a metal with so much potential? Silver is to electronics and modern tech as sugar or salt is to food. It is in just about everything. Then there is its monetary allure as well. Didn’t silver go to $50 during the inflation of the 1970s? Aren’t you supposed to take refuge in precious metals during inflationary episodes? Here we are in 2022 and silver has fallen off a cliff. It’s sitting at $18. For five years between 2015 and 2020 that $19-20 area was resistance. Technical analysis 101 says $19-20 should now be support. But silver – being silver – has cut straight through it.It went to $12 in the corona panic and $8 in 2008, but the $14 zone has for many years been a pivotal price zone.Here’s a long-term chart with a dashed line drawn at the $14 mark.Can it get to $14 on this move? It would be extraordinary, given the amounts of money that have been printed, for it to go that low. There should be some support at $18 and at $16, but it’s silver, so never underestimate its capacity to disappoint.If the US dollar index goes to 120, a number I’ve been harping on about for months, then silver will get that low. And in a panic it will probably surpass it (if surpass is the right word).As I say, I’m not quite ready to pull the trigger. My appetite for risk has been somewhat tempered by the market action of recent months. But, as with platinum below $800, your downside is limited buying silver at $14 or below.When I say buying silver or platinum, I don’t necessarily mean going down to the bullion shop and buying bars, nice though they are. I mean physical metal stored in vaults, ETFs (exchange-traded funds), mining companies, even options or spread betting the price (though these last two are only for the experienced and highly risk-aware, so if you don’t already know how to do it, I suggest you don’t).If we get to those kinds of levels I’ll put out another piece explaining in more detail some ways to play it. I must say if silver goes to $14 I’m likely to get out the leverage.But I’m not quite ready to pull the trigger yet. Bottom fishing is a dangerous, and often expensive game. However, silver and platinum are very much coming into the “buy” zone. And at a certain point they will be irresistibly cheap. I’d say we are nearly there, but not quite yet. Patience…For those after physical metal, my current recommended bullion dealer in the UK is The Pure Gold Company, whether you are taking delivery or storing online. Premiums are low, quality of service is high. You can deal with a human being. In Ireland it’s Goldcore. Both deliver to the UK, US, Canada and Europe, or you can store your gold with them. I have affiliation deals with both. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

We suggested a couple of weeks back that oil might due a hit as seemed the only sector that hadn’t been walloped and so it has turned out. Both Brent and West Texas Intermediate slid back below $100 a barrel joining metals on the downward slope. Metals have been battered even harder, of course, with silver – as often seems to be the way – leading the fall downwards. How can silver be trading below $20 an ounce? How can platinum be below $850?I’m not saying they aren’t going lower. They probably are. But there’ll come a time in the future when we’ll be wondering how on earth it was possible to buy these metals at these prices. Silver below $20. Platinum below $850. Platinum is half the price of gold!Remember when nickel went to $100k per tonne? It’s $21k now.Wheat’s at $800. It was $1,300 in March. Corn, oats, soybeans, lumber – you name it, there’s pain. Never underestimate the bust-to-boom-to-bust potential of raw material markets, I guess is the lesson. They always seem to return whence they came. With this rout in commodities prices, this inflationary episode could yet prove to be transitory. (I stress I’m using the word inflation with its modern meaning: rising prices of goods in the CPI basket. The other kind of inflation – debasing money by creating too much of it – isn’t going anywhere). The villain in the piece has been the US dollar. The dollar index is now at 107. Can it go higher? Maybe. It’s come a long way already.June of last year we thought it had made a double bottom at 89-90. 103 was the huge line in the sand. It got through that at the second attempt. 120 is the next big one. It really would be an outlier if it got there – but this is a time of outliers. The euro is now $1.01. Parity beckons. In 2000, with the dotcom chaos, it got to 82c (this was also before it had fully launched across member states). Is it going there again? Again, it would be an outlier, but it’s possible.The pound’s at $1.18. I wouldn’t rule out parity there either.Could capitulation by the Bank of Japan mark the end of the dollar bull run?But I will say this. “Long dollar” is a crowded trade. Everybody’s talking about it. When it turns – and it will sooner or later – there’s going to be a lot of money made on the other side of this trade. FX traders are going to be all over it. Long anything anti-dollar – gold, the euro, perhaps even the yen.The yen’s at lows not seen since the Asian crisis of 1998. But could Japan have its own “Swiss bank” moment?I’m referring to 2015, when Switzerland announced that it was going to abandon the franc’s peg to the euro (it was pegged at 1.20 euros to the franc) and the franc instantly shot up 20% as a result. That is an astonishing amount for a major currency. The move destroyed many a forex trader’s fortune, not to mention the many people who had Swiss-denominated mortgages and other forms of debt. Many of them were from poorer nations with weaker currencies.The yen is not pegged to any currency, but the Bank of Japan has committed to holding its  benchmark 10-year government bond yield to 0.25%. With this so-called yield curve control, it pins down borrowing costs and “stimulates growth” (ergo cause asset price inflation - except that it hasn’t worked for years).For decades now, shorting Japanese bonds (ie betting on higher yields) has been the mother of all widow-maker trades. I’m not ready to fall into that trap, even if Japan’s buying of its own bonds has gone nuts. The government now owns over 50% of its own bonds, and the rate of purchase has accelerated as it tries to hold the 10-year yield at 0.25%, even as the rest of the developed world starts “quantitative tightening” (ie doing the opposite). Don’t fight the printers. You’ll lose.But even with private sector savings exceeding the fiscal deficit and so much government buying, there is a possibility Japan has to stop defending the 0.25% mark. It may be because yields get too low relative to other nations’. It may just be that inflation pushes it over the brink (and a weaker currency means higher inflation).But, cripes, there is some reversal in the yen (and thus in the dollar) that is waiting to happen.Here’s the yen since 1990 (when the red line falls, the yen is getting weaker – the Y-axis shows how many dollars you can buy for 10,000 yen).I don’t know when the dollar turns – but there’s going to be a mad scramble when it does. 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

A week or so ago, the selling action in the stock market had grown so bad that a number of folks thought a crash was back on the cards. It started to feel like that again this week.But crashes are rare events. They don’t come along very often.The 21st century has seen two so far. That’s rather a lot by the standards of the previous century, when there were perhaps five or six in the US over the course of 100 years – 1907, 1929, 1937, 1962, 1987 and 1990. It depends how you define crash of course. You could argue there were just three. The probability is, then, that if you forecast or expect a crash, you are going to be wrong. Even the great short sellers who made fortunes during crashes – Jesse Livermore in 1929, Stanley Druckenmiller in 2008 – will tell you that 90% of their fortunes were made on the long side, especially in growth stocks. (That’s what Druckenmiller says, at least).Yet, a bit like ghosts and UFO landings, crashes make for good copy. Predicting crashes gets you lots of clicks and lots of followers. I think we all have an innate obsession with them. The thought of a crash and losing everything lingers at the back of every investor’s mind, the worst-case scenario.But, as I say, selling pressure got so extreme a week or so ago that it really started to feel like a full-on crash could be on the cards. Stock markets rallied a bit, then sold off again, then rallied. The pressure might have eased, but I can tell you, I was feeling the heat, and I bet you were too.What triggered me was a recollection of 2008, when markets had been in abject decline for some months, but the oil price kept rising. It made its way all the way to $150 a barrel, or thereabouts, in July of that year, before capitulating along with everything else by the autumn.It occurred to me that something similar wass happening this year. Markets generally were declining, while the oil price kept on rising.Oil price surges are driven by genuine demand, but there is always a lot of hot speculative money in there as well, which means the rises and the sell-offs can be a bit more racy than perhaps they otherwise would be.What previous crashes can tell us about what might happen nextIn any case, history often rhymes, as the saying goes, and humans will always be humans with the same psychology, and so there is some value to fractal patterns – that is, looking for similar price patterns from different periods – if you are looking to ascertain how likely certain outcomes are.I spent some time at the weekend comparing the price action of various asset prices in the lead up to the crashes of 2000 and 2008 – the S&P 500, gold, copper, Brent crude and the long bond – compared to the price action of late.I’m not going to post a chart as there are too many squiggly lines, and it’s confusing. But the sequence has been as follows: bonds made a high at the beginning of December 2021, then relentlessly declined. Stock markets (S&P 500) peaked at the beginning of January 2022, then relentlessly declined. Brent, gold and copper all peaked in March, with gold and copper all going into relentless decline. Oil then had another rally and peaked in early June. Now we are having a bit of a relief rally in stocks.So to summarise – bonds, then stocks, then precious and base metals, then oil. Then relief rally in stocks.Turning to 2008, bonds rallied, as everything else crashed, so there is no correlation. But otherwise the sequence is similar. Stocks peaked in October 2007, then gold and copper peaked in March 2008. Gold then fell, but copper had another rally, eventually peaking with oil in July. Then they began their fall. Stocks had a relief rally for a couple of months. Then in September we went into global free fall.Bonds aside then, the sequence is similar enough to be concerning.As for 2000, bonds peaked over a year ahead of stocks, declined, but then rallied as stocks fell.Gold peaked six months ahead of stocks – which peaked in March 2000. (Gold was at the end of its worst bear market ever, so I am not even sure comparisons are valid here). But then copper and oil peaked shortly after stocks re-tested their highs in October 2000.So leaving aside bonds, there is a definite sequence of stocks peaking, followed by base metals and oil a few months after, then the big declines.We are following a similar sequence now. Sentiment is so low, and markets so oversold, there is a part of me that thinks we have already seen the low. But I’m also conscious that a relief rally in stocks now, with weakness in metals and energy, is worryingly close to the 2008 crash template, and to an extent the 2000 template.So stay defensive. Maybe not time to bet the house just yet.  This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

I haven’t covered the perennial disappointment that is gold for a while, and I felt the metal is overdue some attention, so that will be the subject of today’s missive. I say perennial disappointment, because gold “should” be so much higher. In any case, it’s summer. Usually, the best time of year to buy each year is in the June to August timeframe, so perhaps it’s time to allocate some funds that way. I stress “usually”, not always. A summer low in gold is frequent enough to be noticeable, but not consistent enough to be reliable. A bit like your errant teenager’s mood swings.In terms of price, the high for the year was $2,080 per ounce – printed in March shortly after you know who invaded you know where.The low for the year was $1,780 – that came in January. We also came close to that figure in May ($1,785 was the low).And today we are meandering around the $1,820 mark, which is also where the 52-week moving average lies. That’s actually quite a telling little fact. For all the declines we’ve seen elsewhere in stocks, bonds and crypto, and the ensuing erosion of wealth, gold sits at its one-year average. In other words, it’s done what it’s supposed to: preserved its value, and preserved your capital.And that’s with the US dollar so strong. Gold has been doing better than you thinkGold has actually done rather better against other currencies. The chart below shows gold in dollars (red), but also gold measured in pounds (blue), Japanese yen (green) and euros (yellow).You can see that against all those three currencies, gold is not far off its all-time highs. If you’re Japanese, European or British - all good then.Here’s another way of looking at the same thing. This is gold against 18 national currencies in 2021. It might be down a little against some of them – the US and Canadian dollars, the Chinese yuan, the Brazilian real, the Mexican peso and the Russian ruble (how has the ruble been so strong?!).But it’s up, significantly in some cases, against others – the Argentinian peso, the Swiss franc, the euro, the pound, the Korean won, the Japanese yen and, of course, the Turkish lira.Gold’s price is being determined then by the much bigger market that is the US dollar, as much as anything. Where’s the US dollar going next? Your guess is as good as mine. Monetary policy is tighter there than elsewhere, it’s the first port of call for capital in a panic, and so the dollar keeps rising. Currently at 104 on the index, it could go all the way to 120. Unlikely, but it’s been there before. If it does, gold almost certainly won’t be going anywhere significant.But of course, if the dollar heads lower – and it will if other countries start to tighten as much as the Americans – then gold will make a move. I gather analysts at Goldman Sachs have just put a $2,500 year-end target on gold. That would be nice.Is gold heading for a repeat of the 1970s?So many comparisons are being made between today and the 1970s. Politically and economically there are parallels galore. The big differences are technological. Nevertheless, gold had one of its best ever decades in the 1970s, going from $35/oz in 1971 to $850 (albeit briefly) early in 1980. It was bonanza time for gold mining.But even within that bonanza decade, gold went through a near two-year bear market in 1975-76 that saw it fall by nearly half – going from around $200/oz to $100. Imagine if gold went to $1,000 now. That would be hard to swallow. Here is gold during its glory years. Longer term, the fundamentals of out-of-control inflation, geopolitical instability, escalating de-globalisation and weak, unpopular leadership all tend to be drivers of flight to gold. But it remains an analogue asset in a world, where all the value is digital.It was me that first made this comparison many years ago, though I still haven’t decided what the answer is. The horse was transport for thousands of years. It was “natural transport”. With the invention of the car it became irrelevant.Gold too was money for thousands of years, “natural money”. But with digital technology and modern communications, is it now as irrelevant to finance and the horse is to transport?Or, like King Arthur to the English, will gold return to finance to save the people in their hour of need?I guess, until it actually does shows up, we’ll never know the answer From a technical perspective, that enormous cup-and-handle formation, built up over a decade, remains in play and looks ready to propel gold higher. I’ve illustrated it here.Cups and handles are another of those commonly observed chart patterns – like “double tops” or “head and shoulders” – which are fairly self-explanatory. This one was first observed in the 1980s. Investopedia calls it a “technical chart pattern that resembles a cup and handle”. It is considered a very bullish signal.If it plays out, it will give Goldman Sachs their target. And some.I own gold and I’m glad I do. I may be rude about it, but I love it. And it’s the one part of my portfolio that isn’t keeping me awake at night. In fact, it’s so boring, it’s helping me to sleep.If you are looking to buy physical gold – coins or bars – let me recommend The Pure Gold Company in London or Goldcore in Ireland, with whom I have an affiliation deal. They are kosher, competitively priced and you get to speak to a human being. You can take delivery or store it safely allocated to you at vaults in safe places like Switzerland (Zurich), Ireland, Singapore, Hong Kong, the US or the UK.This article first appeared at Moneyweek This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

I keep thinking about that interview with Stanley Druckenmiller.Druckenmiller, a legend in US investing, worked with George Soros for many years, 12 of them as lead portfolio manager of Soros’s Quantum Fund, when he, among other things, spearheaded the infamous “Black Wednesday” raid on the pound in 1992 that forced the UK out of the European exchange rate mechanism (ERM). His own fund’s performance over many decades, year-in, year-out, is almost without equal.The part that really struck home with me is what he says was the key thing he learnt from Soros: “sizing”. Others might call that: how much to speculate or invest. Others: how much to risk. Others: how much of your portfolio to allocate. “Sizing is 70% to 80% of the equation. Part of the equation is seeing the investment, part of the equation is seeing myself in a good trading rhythm. It’s not whether you’re right or wrong, it’s how much you make when you’re right and how much you lose when you’re wrong”.“I believe in streaks,” he says, “Like in baseball. Sometimes you’re seeing the ball, sometimes you’re not. And my number one job is to know when I’m hot and when I’m not. When I’m hot, I need to turn the dial straight up. When you’re cold the last thing you should do is make big bets to get even. You need to turn yourself down.”The reason this has struck home with me – and perhaps might with you as well – is that I am not hot at the moment. I’ve had streaks when I’ve been great. Every stock I cover, every call I make, every buy or sell is red hot and bang on the knuckle. I could go through old articles and pick winners that eclipse other commentators.Perhaps you followed me into these trades and made out like bandits as a result.But I’ve also had streaks when I’ve been awful. And I could go through old articles and find you plenty of those too – articles that, when looked back on now, make me look a laughing stock.Perhaps you followed me into those and made out like a bandit who’s just been put in jail.Looking back, I first thought my hot streak came to an end in the spring, in early March. I was bullish on metals – I bought into the decade-of-under-investment narrative (and I still do) – but failed to fully heed to the Ukraine invasion “pop and drop” factor, followed by the impact of China lockdowns, never mind the broader market weakness.But now I realise my mistakes go back further – into 2021 – with a failure to see the tech bear market for what it was sufficiently early to have gone on the defensive. One part of my portfolio was doing well, so perhaps it concealed the other.Then, of course, since the spring decline of everything, I’ve taken some big hits. I imagine you have too. And I have been too slow to react.That’s another thing Druckenmiller talks about by the way: act first, research later. Markets move quickly, ideas spread fast, especially good ones, so it pays to get positioned. You can always exit if your research changes the story.As well as a failure to recognize what was what, or only half recognising it, and being slow to move, my risk management was poor. So to Druckenmiller’s “how much you lose when you’re wrong” – my answer? “Too much”. I should know better, and I’m more than a bit cross with myself. Nevertheless, I have been on a bit of a tidying-up exercise, re-evaluating positions and so on. I’ve also been working on my fitness as I believe that helps you make good decisions. What I’m betting on nowRightly or wrongly, I sold down some of my oil positions last week, as I felt oil could be the next shoe to drop in these ongoing liquidations. I sold down another couple of positions elsewhere that I felt had got tired so as to have some cash in case this bear market has another leg down (none of the companies discussed with paid subscribers, don’t worry).I spent some time comparing the movements of various asset classes from 2005-09 to the movement today. My memory was that stocks peaked, then a few months later metals peaked, then oil peaked – then a few months after that everything crashed.The sequence has been similar this year, so I am now concerned that another crash is on the cards. I tend not to bet on crashes, or indeed predict them, as they are rare occurrences. With two big ones this century and maybe three or four whoppers in the last, they tend to be outlier events. Predicting crashes may get you extra hits and clicks, but more often than not, you’re wrong.But my revaluation has now persuaded me that whether we crash or not in the autumn, I think we are bouncing now. It might be a change in trend (we have seen the low) or a counter-trend rally (further lows to come). So I’ve actually ended up, after selling a bit, now buying a bit (a simple long on the S&P 500). This might all sound contradictory, but trading and investing often are. You change your mind. I’m glad to have reached where I’ve reached, because it has been the result of thought, analysis and conscious decision-making, rather than laziness, following others or emotion. I felt I’ve owned the process a bit better than I have been. My risk-management is better. And my bets are smaller – until I recognize that I’m hot again. (And I will be – it’s the Frisby you’re talking about here). Druckenmiller applied the same logic to those who work for him, by the way. He would place big bets on those he could see were on a winning streak, and often even bet against those on losing streaks.We could apply the same logic to those we follow online – to commentators such as myself: know when they are hot and when they are not. I’m not hot at the moment, or at least I haven’t been. But whatever pudding was in the fridge of my brain, has at least been stirred a bit and stuck in a saucepan.Let’s hope someone switches on the cooker. 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