The Flying Frisby - money, markets and more

I wanted to discuss the natural resources industry today – energy and mining – because I see an industry caught between a rock and a hard place. If I get a bit ranty, I apologise. But this impossible situation makes me get a little frothy at the mouth, because it is in large part so unnecessary – and not the making of the industry itself, but of idiotic policy.We, as investors, however, need to understand the binds in which businesses find themselves, so here goes.We’ll start with supply chains.Disrupted first by Covid-19, then the Ukraine War, then more lockdowns in China, supply chains are still not working as they should. You don’t need me to tell you that delays cost money. Imagine a workforce ready to go, and being paid – but without the right equipment to get started. Money is draining out of one side and nothing is coming in on the other. This is particularly punishing where capital is tight. And boy, is capital tight in mining.Then there is, as we all know, dramatic inflation in input costs, especially energy. Budgets to production are going up, up and up. Money is also tight because of lack of investment. This lack of investment takes many forms. First there is under-investment from outside. ESG (environmental, social and governance) guidelines determine where many fund managers allocate capital. Oil, gas and mining, for obvious reasons, tend not to score so well on ESG, so capital is not allocated there and the industry is starved of funds.What’s so hypocritical is that ESG demands, and the decarbonised future it wants, require enormous amounts of the very products that its investment guidelines steer it away from: metals. Copper, tin, silver, lithium, cobalt, palladium, platinum, nickel, manganese, rare earths – the list goes on. They are all essential to a low-carbon future. But how are they to be produced without investment?Vast amounts of carbon must be burnt to achieve decarbonisation, yet oil and gas have also suffered from lack of investment. It’s one of the reasons prices are now so high – lack of new supply. Yet instead the companies involved are accused of ramping up the price and profiteering. The industry is wary of expansion tooThen there is a lack of investment from within. The industry still has memories of 2013-14, when mining in particular had, as metals analyst, Nicholas Snowden of Goldman Sachs puts it, a “near death experience”. The collapse in the oil price decimated energy too.This near-death experience followed the bonanza of the 2000s, when it seemed that metals and energy prices could only go higher, driven first by China’s seemingly insatiable appetite for natural resources, and then the money printing post-2008, during which the US exported incredible amounts of inflation. But those soaring prices suddenly came to a halt. Supply met demand, prices collapsed and with them the oil, gas and mining industries. Many companies went under. People lost their jobs and their livelihoods. Worse still, those who work in the mining industry tend to have a habit of investing in mines too – so their investments went down the Swannie as well.As a result there is “internalised trauma” – Snowden’s words again – and it is now uber-cautious. Nobody wants to be the stupid guy who blows fortunes on projects that prove uneconomic. So despite all the shortages in energy and metals we keep reading about, the industry is still cautious – probably a sensible mental space to be in.Rising commodities prices, especially those of oil and gas, may largely down to ten years of underinvestment, yet still the industry is reluctant to go all in. But can you blame it? Look at what’s happening in markets across the board. We’ve got a spiralling US dollar, crashing bonds and equities, and money is tightening. Even the UK housing market looks dodgy. The next asset class that looks like it is puking is, despite everything, oil (and policy makers would actually welcome that). I was listening to a debate on Bloomberg last week between someone from the US government and someone from the US oil and gas industry. The former was demanding that oil companies re-invest their profits in the ground – in exploration – so that production can be increased and the load on the US consumer lightened. The latter was arguing that profits should be returned to investors in the form of dividends, as that’s why they invested in the first place. The former then, basically, said that if you don’t re-invest your profits in the ground of your own accord, we are going to force you to do it by government mandate. That’s hardly going to entice further investment!What if companies are forced to put their profits back into the ground, and the price of the underlying commodity collapses? That’s what the industry is so terrified of, so it tries to find a balance between re-investment and rewards to existing investors.Why should they re-invest capital, when governments have said they want an end to fossil fuels? What’s the point?You (literally) can’t get the staff these daysThis leads (in a tangential manner) to the talent issue. Few people desire the aggro of working in such difficult industries, when you could go and work in tech and earn more. Lack of talent leads to further delays. You can’t get the people you need to build what you need them to build until next year or whenever they are next available. And, by the way, their fees are higher too.Let’s say a company finally manages to navigate all of this and produce an essential commodity. With the high prices it charges, it is accused of profiteering. So a windfall tax is levied. Even the US is now talking about windfall taxes on oil and gas. (Windfall taxes, by the way, will not make oil and gas cheaper for consumers. They’ll just make companies even more reluctant to invest and lead to further supply shortages).No wonder talent and investment go elsewhere.Then there is permitting, another hurdle. Look at the arguments in the UK about fracking. It’s an obvious problem solver, but it’s toxic. Any money put towards that is just going on legal bunfights, culture war and politics. Where’s the return? Nuclear is another obvious solution. But look at the opposition. Look at the regulation. Look at the build times for nuclear reactors. We’ll all be six foot under by the time it’s done. Why risk capital in that? You’re better off buying metal itself and stockpiling that in anticipation of higher prices – in many ways the equivalent of land-banking. Buy uranium, and base metal exchange-traded funds (ETFs). But that just means yet more metal is kept off market and prices go higher still.Cheaper energy and metals would mean lower inflation, but regulation, permitting and the ensuing arguments only push costs up, by delay and by process.I can see price collapses coming with this broader correction in equity markets – and then investment drying up altogether. But I can also see soaring prices and life getting very expensive for ordinary consumers. Capital preservation is everything. The natural resources industry is caught between a rock and a hard place. And unfortunately, that rather implies that the rest of us are too. 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 don’t listen to as many interviews and podcasts as I used to, or indeed as I should (more fool me), but this interview this week with legendary investor, Stanley Druckenmiller, happened across my desk and I highly recommend it, if you can find the time. It’s long, but well worth it.Druckenmiller founded Duquesne Capital in 1981 and closed it 2010 with some $12bn in assets. He is said to have made $260 million in 2008 alone. He was also, from 1988 to 2000, lead portfolio manager of George Soros’ Quantum Fund. (Many of the best parts of the interview regard what he learnt from Soros).There are great stories, insight and wisdom, and a great deal to learn from him.Here are some of my take-aways:In his 45 years as a chief investment officer, today’s set-up is like nothing Druckenmiller has ever seen, because the bond market is so distorted with all the central bank buying of the last 12 years. He is not sure how it pans out. Normally, if he sees a bear market, he would hide in bonds. But that is not such an obvious option, when is inflation 8% and they are only yielding 3%. (Currently he seems to be mostly on the sidelines - more on this in a moment).“Once inflation gets above 5% it has never come down unless the Fed funds rate gets above CPI. And that is currently 8%.” He doesn’t think the Fed funds can get to 8%.He is generally bearish regarding today’s markets, but also makes the point that he has an overly bearish mindset, and part of his process is managing that. 90% of his fortune, and of any good short-seller, he says came on the long side, in growth stocks (in his case). The maths is with you.Think a year aheadStock markets are predictive - particularly companies within the stock market. The homebuilders, the truckers, retail - they can all tell you where the economy is going 6 months or a year from now. (He thinks a recession is likely). Retail investors tend to focus on what’s happening right now, and that is why they do not outperform. Current fundamentals are already reflected in the price. His advice is to focus intensely on what moves the stock price - what’s going to change 18 to 24 months from now? Will the company be in better shape? How are people going to react to that change?“My number one advice: Do not invest in the present. The present does not move stock prices. Change moves them.”He is not a fan of the diversification advocated in business schools. A big problem for investors is stale longs and stale shorts, he says. One should have a good knowledge of all asset classes and be able to switch between them. The act of doing that keeps you on your toes. It keeps you thinking and questioning.If you have an idea, it often pays to act quickly on it, then do the research later. Today markets move quickly and there is often not time to wait on a good idea. If an idea appeals intuitively and fits with his macro thinking, he tends to invest quickly and then do further research. If he is wrong, he can get out quickly. Good ideas tend to spread fast in the market - people talk. When an idea catches on, a security moves fast, erasing much of the trade potential, so it is important to be in as early as possible. Soros has spoken of this strategy in his books as well.Never mind the market, what about you?A key thing he learned from Soros is that “sizing is 70% to 80% of the equation ... Part of the equation is seeing the investment, part of the investment 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 one my number one jobs 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.”He applies this same logic to those who work for him. Placing big bets with those within his firm, who are on a winning streak, and often even betting against those who are on losing streaks. We could perhaps apply the same logic to those we follow - to commentators such as myself: know when they are hot and when they are not. (I am not hot at the moment FWIW).Many great traders talk of the need for humility and part of Druckenmiller’s success lies, I guess, in knowing when to be humble - knowing when he’s off. On one occasion in 2000, he went to Africa for six months, switched out of the market altogether - no screens, no papers nothing - came back and made 40% in a month.Macro chaos comingDruckenmiller sees “macro chaos” in the years ahead and feels investors will need to be able to switch between assets. He is worried about global trade and does not rule out a return to the 1930s.He thinks blockchain is going to be very big three to five years from now, a major feature of finance - but has no major positions. He is too old to compete. He may go back to short equities, but the obvious big gains have already been made, and the big concern is a humungus counter-trend rally. "You can get your head ripped off" in short squeezes, he warns“My best guess is that we're six months into a bear market that has some room to run. For those tactically trading it's possible the first leg of that has ended. But I think it's highly, highly probable that the bear market has a way to run.” He thinks there will big plays in forex. In a few months he may look to short the dollar - the US was first to tighten, others will follow. He is not persuaded by US exceptionalism.But he is very concerned about the big picture. “In my 45 years as a practitioner, I have never seen a constellation such as we have now, or frankly studied one, so I have more humility in terms of my views going forward than ever. I am open minded to something really bad. This is an analysis harder than you’ve ever faced in 45 years, so please be open minded, because this not a story we have seen before so the outcome is not predictable”. He is doing his best to listen to the voices on both shoulders.We might see inflation, we might see deflation, it could be no growth like 1966-1982 or something much worse like the 1930s.I’d like to know what he thinks about gold.Here is the interview in full: 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

Like Brexit, Trump, what a woman is, the BBC or vaccines, bitcoin has proved itself one of the battlegrounds in the ongoing culture war. Some people like it a lot. “Bitcoin fixes this” is the slogan, and bitcoin is thought to be the answer to any number of societal problems – from unaffordable housing, to government overreach, to the financial inclusion of the unbanked, the world’s poorest.There are many, however, who take the other view. It’s only used by drug dealers and money-launderers. It’s a Ponzi scheme, it can’t scale and it’s destroying the environment.The latter have been rather noisy of late. The reason? Bitcoin’s crashed. Again…Bitcoin has had a painful crash – but this isn’t that unusualLet’s start with the price. What was $67,500 back in November is now $21,000. It touched $20,000 on Monday. I make that a 70% haircut. Not good.But not so abnormal either. Bitcoin has had at least six corrections of 80% in its 13-year life – I make that one almost every two years. And yet, on broader time horizons, the network continues to grow, the number of users increases and the price appreciates. That kind of volatility is hard to stomach (particularly if you have a large portion of your net worth tied up in it, or, worse, on leverage) and it makes the case for it to become some kind of default money system harder to press. But it is what it is: a new technology whose purpose is to be money. It’s about as speculative a boom-bust vehicle as you could ever hope to design.As I see it, there have been two factors driving the price action.First, we are in the midst of one of the most vicious bear markets in my memory. Just about every asset there is is being battered. (Will oil be the next to go? I am starting to wonder.)We are talking about deleveraging across the board and, in such a macro environment, there is little time for speculative growth plays like bitcoin, the future of money or not. Panic is acute. There is a rush for cash. Never mind that, after you account for inflation, cash is losing 10% per annum. For now cash is king – specifically the US dollar, which is breaking out of its range to 19-year highs.I’m worried this goes to 120, by the way. If it does (as we have been warning for some time), never mind bitcoin, all assets are in even deeper trouble, be they stocks, commodities or other national currencies. We might even  need another Plaza Accord.But of all the sectors to have been walloped by this bear market, tech, the darling of the preceding bull market, has been hit hardest. Bitcoin may not be a Nasdaq stock, but it trades as though it is, and the Nasdaq has been hit hard.The wider cryptocurrency sector is in panic mode  The second catalyst to drive crypto prices lower comes from within the sector itself. We wrote a few weeks ago about the collapse of stablecoin Luna and suggested bitcoin would go to $20,000 then with the sudden rush for liquidity. But it didn’t. It held up. The latest scandal to dog crypto – which has a knock on from Terra and Luna – is around Celsius. And that has driven it to $20,000.Celsius is one of those lending platforms which paid what seemed like extraordinary rates of interest if you stake your crypto coins with them. They would then lend those coins out. Sort of like banking, really, but with cooler buzzwords. 7% was what it paid for bitcoin, I gather, up to 18% for others. If it sounds too good to be true, it probably isn’t true.With falling crypto prices this year, many have been withdrawing their crypto, creating for Celsius a liquidity crisis of its own. The collapse in value of its Terra holdings has only made things worse, while it borrowed ether from customers and staked it in such a way that it is now tied up and can’t sell.It’s a clusterflip. But it then emerged that it had sent over $300m in coins to exchange FTX. It looked like a rug pull. Cue a market panic, as everyone tried to get their coins back, and in many cases, sell what they have. Before long, Binance, the world’s biggest exchange, also halted withdrawals (only for a period though).Reading this I imagine most neutrals would not want to get involved in this space at all. Well, fair enough. I remain of the mind that bitcoin is an extraordinary technological breakthrough and I want to keep my shares in what is the most powerful computer network ever built. Others won’t feel the same way – and perspectives get messed with in bull and bear markets. We are at one of those points where everything looks awful.How much further will bitcoin fall from here?I’ve suggested before several times that bitcoin might come back to $20,000. That was its level in 2017 at the end of that particular episode (before it then went back to $3,000). It’s  an obvious pivotal price point. The next question to ask ourselves is: will $20,000 hold?Well, if this bear market in everything carries on for much longer, the short answer is, “no”. Everything will be going lower. Here’s a chart with a dashed line at the $20,000 mark. Let’s hope what was resistance now becomes support. It often does.If not, the next line in the sand is $12,000.A speculator might look at that and think, I’ll buy bitcoin at $21,000, with a stop at $18k or $19k. Pretty good odds? But such chutzpah is hard to find in a bear market after a decline like this. As is the necessary cash.Who knows what other rug pulls and unravellings are lurking underneath the surface. It usually takes a bear market to expose them. But this whole staking business is being hit by a massive run. If another one unravels, and 3AC is now under the spotlight, bitcoin goes lower.In the short term.If you are interested in buying some bitcoin, and I can’t say, given recent action, I blame if you’re not, I’ve put this guide together for subscribers. 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

Further to last week’s piece on, “acquiring the right investment psychology” (if you missed it here is the link) I enjoyed listening to Bloomberg’s Odd Lots podcast this week with Goldman Sachs metals strategist, Nicholas Snowdon.The recent price action in metals has cast doubts in my mind as to the secular bull market. I needed gee-ing up with some bull food. I came away from the conversation wanting to buy as many metals producers as I possibly can…The outlook for copper is very bullish“By the middle of this decade, we're forecasting the largest ever deficit in the copper market,” says Nicholas Snowden of Goldman Sachs. “So just two years away from now. And by the end of the decade, the largest ever long-term deficit. It's just an impossibly tight future.”When I hear stuff like that from randos on the internet I tend to call “BS” – it’s usually sensationalising or click bait, so my instinct is to filter out. But when it’s coming from respectable employees of respectable institutions, the implications are rather different. Let’s start with the recent correction in copper prices. That was caused, says Snowden, by weak Chinese demand (due to their Covid lockdowns). There were also higher than expected exports from Russia (!). But both of these are transitory.The longer-term bull market is underpinned by two factors. First there is increased demand due to decarbonisation, net zero, etc. That will require a lot of copper and there is no obvious substitute. Second, there has been a chronic lack of investment in the sector. This is a drum we have been beating on these pages, but it is nice to hear that view endorsed by a Goldman Sachs analyst.Demand for copper this year will come in at around 24 million tonnes. Of that, about 22.5m tonnes is “normal” – copper in construction, wiring and so on. Only 1.5m tonnes of demand is “green”, decarbonisation-related demand. That is to say for electric vehicles (EVs), EV infrastructure and so on. By 2025 this “green” demand will double. By 2030, that number is projected to be 6-7m tonnes. In other words, green copper demand will rise from being about 5% to 20% of annual global demand.Where is that extra supply going to come from? Production is set to increase slightly this year, but then it flatlines after that when it needs to rise to meet the new demand.In the bull market of the 2000s, Snowden observes, projects were quickly approved, investment flowed, and supply reasonably quickly caught up with the increased demand (from China mostly). It’s different now. “Over the last two years,” he says, “even though copper demand has doubled, there hasn't been a single new copper mine approved.” I can’t believe that not a single copper mine has been approved – but perhaps not a significantly-sized one.“The number one constraint on the copper mining industry is the experience of the last cycle. Because the mining industry faced a near-death experience in 2013 and 2014, as a result of the overbuild in response to high prices in the mid-to-late 2000s. Now you have a much more conservative mentality amongst management teams in the mining sector, reflecting that experience.”I’ll say. The memory of 2013-14 still lingers, and not just in my mind. We won’t forget it in a hurry. “Internalised trauma,” Snowden calls it, and it slows down investment.Meanwhile, the permitting process, largely for environmental reasons, has got a lot slower. What would take 6-to-12 months now takes two to three years. Chile is the world’s largest producer, but it is also one of the hardest places to get a copper project going.That slows investment, as does the ESG influence on investor allocation. Less capital goes to mining because it does not tend to score well through the ESG filter.Another observation we have made on these pages, particularly as regards oil and gas, is the talent factor. Mining is hard. Who wants to work in mining when you can earn more, while risking less in tech? The gains are quicker and the aggro is lower. “You've got a real bottleneck now on skilled labour in the industry,” says Snowden. “There aren't enough engineers to a project.” That puts upwards pressure on wages and from there on capex and ultimately on prices.In short, painful memories of previous over-expansion are holding back investment; opening mines is harder because of increased regulation; and there’s a shortage of people.  There are no obvious substitutes for the metalSubstitution – using something other than copper – might look like a solution. After all, other metals conduct electricity too. But there are practical issues with all of these too. Aluminium for example - but you need a lot more of it so it’s no good for anything that requires small space. There’re also supply issues. The decade of underinvestment has led to a shortage of supply of base metals across the board. The incentive to substitute is low. As Snowden notes, the cost of the copper content of an EV is a small part of the overall cost of the EV. So the copper price would have to go really high to motivate change.  Similar observations might be made about tin and silver. They are in everything electronic, but in relatively small doses. Higher prices will solve a great deal of this. Mining will be incentivised. Investment in alternatives will increase. Technological advances will reduce the amount of raw material required.  Recycling and scrap supply increases. Tailings get reprocessed. But there doesn’t seem to be any “shale gas moment” for copper on the horizon - ie a breakthrough technology that rapidly improves production. And even if there were, mining is famously slow. It would take ten years to implement.Copper needs to go to a price that incentivizes all the above change. It’s currently $9,700 per tonne. Snowden targets $15,000, but “doesn’t rule out that it could go to $50,000 or $100,000.”I remember at the peak of the last bull market, people were melting down coins, theft was everywhere – a bronze statue got stolen and melted down. We are not at that point yet. In fact, Snowden thinks, using a baseball analogy, we are still in the first innings. I hope he’s right. Because I’m long copper and copper producers. So how do you invest in this bull market?Investing in copperThis no shortage of methods, depending on your risk appetite – from futures to exchange-traded funds (ETFs) to spread bets to stocks and shares. If you want to simply play the copper price, without taking in individual company or mining risk, there is the Copper ETF (LSE: COPA). Then there are the miners. If you don’t want individual company risk, there is even an option for you there: the Global X copper miners ETF, the most liquid version of which is listed in New York (NYSE:COPX) but there are also “subsidiaries” in London, denominated in dollars (LSE:COPX) and sterling (LSE:COPG). The latter is probably the best way to avoid broker forex charges, though you’ll end up paying them by the back door.London has no shortage of options when it comes to mining companies. There are the giants: BHP Group (LSE:BLT), plus Glencore (LSE:GLEN), Anglo American (LSE:AAL), Rio Tinto (LSE:RIO), and Antofagasta (LSE:ANTO). US-listed Freeport-McMoran (NYSE:FCX), the world's second-largest producer (after Chilean state-owned Codelco), should also probably get a plug, as it’s a purer play than most of the mining giants, Antofagasta aside.There are plenty of smallcaps and midcaps. I’ll leave those to you to unearth – Canada and Australia probably have the most listed, although there are also plenty on London’s Aim. It’s a mining junior so caveat emptor. 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

As regular readers of my stuff will know, I’m of the view that a society should be designed around direct democracy and very low levels of land value tax (LVT), what Milton Friedman called “the least bad tax”. I may dream of Ancapistan, a land of no government, but the reality is that taxation of some kind, even if it be voluntary, is inevitable. There has never been a civilisation without taxation.Ideally, land value tax would replace ALL other taxes. However, if you offered me LVT in the UK and all other taxes, income tax especially, slashed to 10, 15 or even 20%, I’d bite your hand off. My friends in the countryside hate the idea, and I get angry messages about it, but the reality is that it is the owners of prime city centre real estate, the likes of the Crown, the Grosvenor Estate, major institutions and so on, who would bear the brunt, not ordinary homeowners or someone with 10 acres of field with no planning permission. (In my book Daylight Robbery, I argue for location value tax - it’s the same as land value tax, but I use the word “location” because the location of the land - ie city centres - is more important than the actual amount of land).In any case, LVT is not going to happen here in the UK. Introducing a major new tax is too big an undertaking. It’s easier for politicians to raise and lower the taxes they already impose, and tinker round the edges of the existing system. LVT would be a whopping vote-loser in a nation whose primary concept of wealth is the value of their house. Just explaining it, never mind getting it across the line, is hard enough. (If you want an explainer, by the way, there is one here and another here). Anyway this is all pre-amble, and I’m not here today to discuss the merits - or lack thereof - of LVT. For the purposes of this blog, just take my word that LVT keeps the relationship between ruler and citizen, between governor and governed, in healthy, transparent check. With LVT you would pay fewer taxes and lower levels of tax - ie less tax overall.So I’ve been trying to come up with a politically possible means by which* LVT can be implemented and shown in practice to work* Beautiful housing can be made affordable to ordinary people without collapsing the housing market or having to reform the fiat money system* Corporations, particularly crony capitalist building companies, planners, regulators and government are kept out of it, and people can be left to their own ingenious devicesAnd, by George, I think I’ve got it.Here’s my idea. I stress: it is just an idea I am working through so there are bound to be flaws. I’d be grateful for any comments, pointers, thoughts, statistics, data, and so on.Water Location Value TaxSummary:Today’s unaffordable housing is a consequence of both our system of planning and our system of money. They have conspired. But wholesale reform to either as good as politically impossible. With Britain’s over-leverage to housing, the financial repercussions of markedly lower house prices are politically intolerable. Instead we propose to bypass the housing market altogether with an initiative to re-populate the underused rivers, keys, docks and canals of Britain with houseboats, barges and floating homes. Local authorities and the land registry will determine who “owns” the water and the land beside it (most water is nationally owned). That which is not needed for transportation (eg the middle of rivers) will be parcelled off into small plots to be sold to individual owners – not corporate entities – on which they can then build or buy, then moor floating homes and other edifices. An annual Water Tax will then be levied along the lines of Henry George’s Single Tax (land value tax), based on the rental value of the plot, payable to the local authority and to the body in charge of the waterway, usually the Canal River Trust.20 housing ministers since 1999The unaffordability of housing has been for twenty years or more one of the biggest issues in the country. As if to illustrate the priority this problem is being given in Whitehall, we have this:In fact, we have had two more, since Esther McVey and this chart: Christopher Pincher Stuart Andrew and Steward Andrew. I make that 20 different housing ministers since Hilary Armstrong in 1999. It’s not what you would describe as evidence of a long-term strategy.It seems absurd that we should have any crisis at all. A house does not cost a lot of money to build. In China it has long been the case that a 3D printer can build a home in a day for about £3,000. Here in the UK you can buy a flatpack 3-bed house, which takes 6-7 hours to erect, yours for £24,000. The interior of one of architect, Renato Vidal’s 3-bed, flat-packed homes, £24,000. Meanwhile, there is no shortage of land. Little more than 4% of the land in England and Wales is built on, even less in Scotland. This was the finding of the National Ecosystem Assessment in 2011: just 1.1% of rural and urban land in England and Wales has domestic property on it, another 1% has commercial property and 2% is roads. The rest – around 95% - is not built on. You could, in theory, double the housing stock of England and Wales, using little more than 1% of land. (It is more complicated than that but you take my point).How on earth have we got into the situation that in 21st century Britain almost an entire generation is “priced out”? Underlying cause of high house prices number one – money supplyBetween 1997 and 2007 the population grew by 5%, yet the housing stock grew by 10%.  If house prices were a simple function of supply and demand, they would have fallen slightly over the period. Instead, they tripled.Mortgage lending over the same period went up by 370%. It was the increased supply of money, which caused house prices to rise. Money supply increased at a rate of roughly 11.5% per annum in the 40 years between 1971 and 2011. Some 40% of it went into residential and commercial property. Roughly speaking, house price inflation mirrored money supply growth. The Bank of England has a remit to curb inflation, but it does not include house prices or money supply growth in its standard measures, and so house price inflation went unchecked. If interest rates had reflected 11.5% annual money supply growth, house price inflation would have been stopped in its tracks.  Underlying cause number two – planningPlanning laws are the second part of the problem. The newly created money poured into a market which had limited ability to expand.The 1947 Town and Country Planning Act, passed by Clement Attlee’s Labour Government, became the foundation of modern town and country planning in the UK, followed by new statutes in 1990 and 2004.  It was founded on the laudable aim “that all the land of the country is used in the best interests of the whole people”. What happened, however, was that it became difficult to get permission to build anything, so the act had the effect of reinforcing the monopoly of the landowner. Today, just 6,000 or so landowners (the Crown, large institutions and a few rich families) own more than 70% of UK land. Most people do not have the time and resources to navigate planning laws, so house building has become the preserve of a few large corporations. An acre of rural land worth £10,000 becomes an acre of land worth as much as £1m once it has planning permission. This is an expensive and utterly needless cost of government, and it goes a long way to explain why house prices are so much higher than build prices. The act led to huge concentrations of both people and capital in areas that were already built up – especially London – and brought vast, unearned wealth to those who owned at the expense of those who didn’t. Our most beautiful domestic architecture was predominantly built in the 18th and 19th century, before planning laws. The more planning there is, the uglier buildings seem to get. This is causation not correlation: it is inevitable when the final say on creative decisions is in the hands of planners. Imagine Van Gogh needing regulatory approval on a painting. Here are some nice houses built before planning laws.Why this housing crisis is unsolvableTo solve the crisis requires two things: money reform and planning reform.  Both are such huge undertakings with such opposing vested interests as to be almost unachievable. As a nation, Britain is over-leveraged to housing. Too many people have too much money tied up in their house. The economic risks of significantly lower prices are high. What party standing for lower house prices would even get elected? Homeowners are more likely to vote than renters. The house price crash of 1989-94 was a major factor in making the Tories unelectable for half a generation. No party wants such a fate. A land value tax, along the lines of the Single Tax suggested by Henry George, would go a long way to resolving many of the housing market’s distortions, but there is as little chance of that as there is of money and planning reform. Politicians promising new taxes when there is no national emergency tend not to be popular. Margaret Thatcher’s Community Charge is one of many examples.There is an impossible deadlock. We must seek a solution elsewhere. In his 2009 essay, The Education of a Libertarian, tech entrepreneur Peter Thiel argued that political change cannot be achieved through political activism. Instead, one must “find an escape from politics in all its forms”, he says, and “focus on technologies that create a new space for freedom”. The Internet, for example, was one such “new space” albeit a virtual one.  In the future sea steading or outer space might be. “The mode for escape,” he says “must involve some sort of new and hitherto untried process that leads us to some undiscovered country.”It might be that there is an “undiscovered country” that exists in the middle of every major city of the UK: on its water.The most valuable real estate in the worldThere is a piece of prime Central London real estate, bigger than Hyde Park and better located. It is undeveloped - 150 years ago Londoners were making more use of it than they are today. Yet it could create all sorts of possibilities for people, not least billions of pounds worth of business, as well as lighten London's chronic congestion and housing problems. The River Thames.I lived for many years on a barge, docked on the Isle of Dogs. How it used to frustrate me, as we drove up the river, that this enormous resource, the Thames, was barely used.  A few party, pleasure and tour boats, some barges carrying freight, HMS Belfast, the Thames Clippers, a couple of floating restaurant-bars and the occasional mooring for houseboats. That's pretty much it. Plenty of office and apartment blocks have been built along each side (what a missed opportunity to produce something beautiful that was), but in front of them, from Teddington Lock to the Isle of Dogs and beyond, there is mile upon mile of unused bank wall, foreshore and river with hardly any activity. Here is Canaletto’s Greenwich Hospital painted on the southern tip of the Isle of Dogs in around 1750. It is a haven of activity: boats ferrying people about, delivering goods, industry, commerce - as well as people living in boats moored on the river. It was bustling. Here is that same view today. There is nothing going on.This is the view from either side of Vauxhall Bridge. I took these pictures during the rush hour a couple of years back. Plenty is happening on either side, but on the river itself there is nothing going on. We cross the Thames, we walk along the side of it, we look at it, occasionally we take boat trips on it, but we don’t actually use it. The River Thames used to be the lifeblood of London and we have lost touch with it. The story is the same in so many cities across the country. Each one has its water: its docks, its quays, its rivers, its canals. Almost invariably the banks have been developed in some way – the docks of Liverpool, Cardiff, Salford or Birmingham, for example - but the water itself just sits there, looking on – idly ignored. Canary Wharf is another example – even there, so much of the quay water goes almost unused. The waterways of Britain have become a relative economic desert.There should be houseboats, barges, floating structures, shops, restaurants, workplaces, offices, cinemas, theatres, small craft ferrying people in between. The possibilities are enormous. Of course there are ecological and aesthetic concerns, but these can be addressed. In London especially, but elsewhere too, there are safety issues with the tide and currents, but these are challenges which can easily be overcome by entrepreneurs, engineers and inventors between them. They managed 200 years ago. Take a leaf out of Venice’s book, take a leaf out of Amsterdam’s book, out of Seattle or Vancouver’s book. But the mayor cannot just shout “everyone in a boat”. How then to develop our water? How to do it well? And why has it not happened before?Without clear ownership capital will not be investedOne of the barriers to development has been lack of clear ownership. On the non-tidal Thames (from Teddington Lock to the source in Oxfordshire), for example, there are riparian rights. The owner of the bank has ownership of the bed to the middle of the river. However, the middle of the river must be left clear for craft to pass and the Environment Agency limits what can and can’t be done. (Can any lawyer readers confirm this?)On the tidal Thames, however – which stretches from Teddington Lock to the Estuary - these riparian rights are less clear. The Port Of London Authority (PLA) inherited ownership of the riverbed and the foreshore from the City of London in 1907. The bank and one boat width immediately next to it are owned by somebody else. Often there is a dispute over ownership of the wall alongside the river. Many moorings - Reed Wharf by Tower Bridge, Nine Elms in Vauxhall, St Mary’s Church in Battersea, for example - have been there for decades, yet they are all constantly in and out of legal disputes over ownership. Much of the problem is that ownership was never registered and recorded in the same way that “normal” land was. Water moves.When ownership is not clear, capital is less likely to be risked. Things then fall into disrepair. Take a look at the mooring by St Mary's Church in Battersea if you want to see the depths of disrepair to which boats on an unmaintained mooring can sink (literally). This could be such a beautiful mooring. The spot is glorious (though not as nice as it was before they built those horrible glass fronted apartment blocks next to it).The disrepair gives rise to nimby-ism. Riverside properties don't want their view of the river spoiled by grotty old boats.  When they have control of the access point on the bank to the water, they have control of what can or can’t happen. Moored boats, complain those who live on the river, even if lived on for many years, have fewer rights than squatters. They can be moved on with little notice or permission. The waters of Britain are, for the most part, nationally owned, under the stewardship of the Canal River Trust. The Environment Agency also has a role. In the case of the tidal Thames, the Port of London Authority is the body responsible. These bodies made certain decisions about how the waterways were to be used – no residential development on the Thames was one. But these decisions were taken without any kind of public vote. All three would vehemently defend this charge, but they have proved barriers to rather than facilitators of progress. None are popular with those who live on boats. Our goal is to sell small plots of water – on docks, canals, rivers, wherever there is ample space – to private (not corporate) owners. The owner, not the public body, will then have the say as to what they moor there. The solutionHow ironic that a land value tax could be the answer.The local authority, together with the land registry, should parcel up each area of water, foreshore and bank in its jurisdiction into plots, with a register of who owns what. Most of the water is nationally owned, but there may be some disputes over ownership of access points and banks. These will be resolved in due course, as I’ll explain.Each plot that is nationally owned should then be put up for auction with a 125-year lease, some for domestic use, some for commercial. The proceeds of the sale go to the local authority and the body in charge of the water on a 70:30 basis. We want to encourage individual owners. We want to discourage property speculators, landlords and corporate developers. So there will a maximum size to each plot and no body may buy more than one - at this stage. Buyers of domestic plots may be individuals or families – but no corporations. Against every plot a tax is then levied, which should be a proportion – likely 10% - of the annual rental value of that plot. That percentage rate is agreed in advance and, probably, fixed for the duration of the lease. Thus everyone will know where they stand. No chains are allowed in the commercial plots. Small businesses only.Every year for 125 years the lessee will pay, say, 10% of the rental value of the plot. If he/she doesn’t want to pay the tax, they sell the plot to someone who is happy to. Rental values can be assessed every three years - but they are pretty easy to determine. You just look at what nearby plots are renting for.This tax revenue, as with the sale money, is shared 70:30 between the local authority and the body in charge of the waterway in that area, usually the Canal River Trust, thereby providing an income stream for both. The Authority then has an obligation to spend or invest that tax revenue maintaining and improving the waterways, in consultation with those who live on them. The lure of the tax and the sale revenue should encourage the compliance of both in the scheme, but the order should come from above - from central government.The administration of the tax should settle many issues surrounding ownership. In many cases it should force disputes to be settled. The obligation to pay tax will force many owners, either to make use of the plot - to develop it in some way (a way that is ecologically and aesthetically agreeable, of course) - or to sell it to someone who will. Once ownership is clear, and development possible, capital will follow.With individual families and small businesses developing floating properties according to their own needs and wants – self-build essentially – we are guiding development along the lines of a Schumacherian, “small is beautiful” ethos. The large building corporations (not to mention the regulators who approved their projects), who between them have between brought Britain its bland and characterless architecture of the last 70 years, will not be involved in any way. There will be certain craft specifications (usually a limit on size), but the main say will lie with the creator not the regulator. We do not want not homogenisation, but individuality and character. Individuals developing their own places to live and work will have a far greater incentive to create something unique and beautiful than a planner looking to tick boxes. Houses – and boats and barges – can be bought and sold for much closer to their build costs, a far cry from the astronomical prices paid elsewhere. It is unlikely banks will lend recklessly, if at all, thus will we keep “excess money creation” out of this market. The obligation to pay tax should deter speculators and land-bankers. Beautiful floating edifices can be built, homes, places of work and entertainment, water commerce can flourish once again, congestion elsewhere can ease. Fantastic communities can flourish - boating communities are as close-knit and happy as you get. Thus do we create a thriving new opportunity in the middle of our cities at a low cost to entrants. A market-based policy to alleviate the UK’s housing shortage. Please share your thoughts. I’m particularly interested in any data there is on how much water is actually available. 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 remember having lunch once upon a time with a fun manager of the old-school, refined Englishman variety. He rather took me aback towards the end of the meal when he started talking about this company his fund had put money into…You need faith – but you need to back that faith with something real Previously so understated, my fund manager acquaintance became wildly enthusiastic about this company, speaking with surprising zeal - and passionate volume - about cash flow and profit margins. I almost wondered if it was the same chap.“He’s fallen too much in love,” I thought. “He’s never going to be able to sell.”Then I took stock. “This is one of the most successful fund managers in the business,” I thought. “If I compare my investment success to his, well, he is clearly a lot better at it than I am. But … he’s in love with this company to the point of being delusional.”It was then that I had a bit of a lightbulb moment about the psychology of being long. Never mind our refined fund manager. I could just have easily been describing Tesla investors, silver bugs or bitcoin maximalists when I use the word “zeal”.You need that zeal – or belief – as an investor. If you’re too cynical, you’ll be one of those people who has been declaring since forever that bitcoin or Tesla or whatever “is a bubble”, and you’ll miss out on some of the greatest investment opportunities of our lifetimes.Then again you need to be cynical too. Otherwise how do you sell?Bearish articles seem to command a lot more wide nods of agreement – never mind hits – than bullish ones. Bears are hallowed as geniuses when bear markets come around. Yet bears have also predicted 37 of the last three declines. They’re wrong much more often than they’re not – at least, the permabears are.There’s a time to be bearish and a time to be bullish. But human beings progress and thus economies tend to grow over time. So the bullish stance tends – over time – to be the correct one.The key is to be cynical and disbelieving in the face of rubbish investments, and deeply credulous when confronted with not-so-rubbish ones. Easy to say, hard to do.You’ve got to know when to hold ‘em, know when to fold ‘em, know when to walk away, know when to run, as Kenny Rogers once sang.How to know? There’s no substitute for knowledge and experience. That’s how to know when to channel your youthful bravado, and when your wizened cynic.I think we are instinctively bearish. I say that because instinct enables us to evaluate risk and take precautions. There could be a vicious predator in those trees. There probably isn’t, but there might be, so let’s act as though there is – that way we’ll survive. Let’s assume the seas will be rough tomorrow, and have a lifeboat in place.So how do we overcome our instinctively bearish psychologies in a bull market? If you’re not a 100% technical-driven investor – which is most of us, even if we do stare at charts – how do you stay bullish through a bull market, so that you stay invested and keep riding the thing up? Belief is the answer. You need some of our fund manager’s belief. But that belief needs to be founded on something. Knowledge. The more you read, listen to podcasts, and generally do your research, the more you will know. If you can back up your beliefs or theories with hard facts, truth, data and information, then you reinforce them. Your belief is not then superstition or delusional. It is fact-based - “evidence-based” to use the naff expression that is now so commonplace.How I’m approaching markets right nowHow am I applying this in today’s markets?I was of the mind that there was a major shortage in most commodities, due largely to a decade of underinvestment, and that as a result, prices of energy and metals were going higher. The action in commodities over the last couple of months has shaken that belief.I could also see that the Russian invasion of Ukraine had panicked prices a lot higher than perhaps they should have gone, given current levels of supply and demand – so we did seem to need a correction. And we got one.But it’s the sell-off as a result of falling demand from China for metal, as a result of its lockdown, that has surprised me. And the grinding action that has followed. So I’m back to reading, researching and thinking. Have the facts around this bull market changed? Perhaps a little – but not nearly as much as the price. Is this ESG, “net zero” transformation still ongoing? There is a growing realisation dawning about how much it is going to cost, but I still think decarbonisation and the electrification of everything remains a huge theme for this decade. That requires a huge amount of metal and energy.I’m looking at my portfolio of investments. I like what most of the companies are doing. I like how they are going about things. I like the sectors they are in. I can see increasing demand for their products. So I’ve got very little I want to sell – not at current prices, at least. Should I buy more, then? Ach, I’m exposed enough as it is. I’m deeming this a correction in an ongoing bull market, rather than the end of the bull. But just the fact that I’ve used the word “deemed” expresses doubt. Maybe I need to consume some more bull food, to get those beliefs a bit more entrenched. Like that fund manager – whose company went up 10x, by the way.  This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

I have an odd professional life.  I double as a financial writer and a comedian. It seems to work. I specialise in unacceptable songs. You’re bound to have stumbled across one of them at some point. Apparently, I’m Nigel Farage’s favourite comic.  I’ve just made what many would consider a comical investment. I have put more money than I care to think about into a theatrical venture on which I am almost certainly going to lose my shirt. It’s got a cast of over 50, a 15-piece orchestra and more. But I don’t care, because this is more important than money. My father, Terence Frisby, had a full and successful life. His play There’s A Girl In Soup was, for a time, the longest-running comedy in the history of the West End and a worldwide hit with runs on Broadway and across Europe (in Paris with Gérard Depardieu, in Rome with Domenico Modugno). It was made into a film with Peter Sellers and Goldie Hawn, and my father won the Writer’s Guild Award for the screenplay. His sitcom Lucky Feller, starring David Jason as one of two working-class brothers living in a council flat in south-east London (sound familiar?) was one ITV’s most successful sitcoms of the 1970s, and, another of his sitcoms, That’s Love, would become one of ITV’s most successful sitcoms of the 1980s. He made fortunes, lost fortunes, won awards, had a string of high profile court cases and beautiful girlfriends, a glamorous wife (my mum) - for a bit - and plenty of fresh air.But there was one thing that nagged away at him constantly, like squirrels in the attic of his mind. It was that he never saw the best thing he ever wrote on the West End stage or on screen. That thing is Kisses on a Postcard.How Kisses on a Postcard got its name In 1940, when my father was seven and his brother, my uncle Jack, was eleven, they were evacuated from their family in south-east London to escape the Blitz. Millions of children across the country met with the same fate. Neither they nor the parents knew where they were going, who they would be staying with or for how long.“Whatever happens, you stay together,” insisted their mum, my grandmother. “You got that? You stay together!” Then, to turn it into an adventure for the two boys, she invented a secret code for them.  “When you get there,” she said, handing them a stamped, addressed postcard, “you find out your new address,  you write it on this card and you post it to me. Got it? Now, here’s the code. You know how to write a kiss - with a cross? Well, put one kiss if it's horrible and I'll come straight there and bring you back home. You put two kisses if it's all right. And three kisses if it's nice. Then I'll know.”The two boys were put on a train along with the rest of their school, each with a gas mask, some sandwiches and a label round their neck with their name on. They ended up in a tiny village in Cornwall, where they were herded into the school hall and picked at random by whichever local would take them.Jack and Terry were chosen by a Welsh ex-coal miner and his wife, Auntie Rose and Uncle Jack, who lived in a tiny cottage by the railway with their soldier son Gwyn. Inside, they found a room packed with things: a cat curled beside the stove: a canary in a cage; oil lamps - there was no electricity here; and two First-World-War shells in their cases, over six inches tall, standing on either side of the clock on the mantelpiece. Outside in the yard, there was a pig and chickens; beyond that a valley with endless woods, a rushing river, fish to catch, streams to dam, paths, tracks, a quarry to climb. And, best of all, at the bottom of the yard lay the main line from London to Penzance. Trains!That night, on a borrowed mattress on the floor, staring at the postcard, they considered their code. They covered the card with kisses and posted it the next morning.My father would spend the next four years in that Cornish village. While many had horrible experiences as vackies, my father didn’t. He called it his second childhood. Kisses on a Postcard tells the story of those two boys and the tiny Cornish village during the war, with its conflicts, kindness, pettiness, generosity and gossip, turned on its head, first by the arrival of so many children, then by the arrival of American soldiers, prior to D-Day – a whole regiment of black GIs. No one in the village had ever seen a black man.Having had the theatre thrust upon me since an early age, I’m not as crazy about it as some. My view is that theatre disappeared up its own backside in somewhere around 1974 never to return - certainly the subsidised stuff, anyway. Kisses was only ever staged many years ago as a tiny community theatre project in North Devon, with mostly amateur performers, but it was like nothing I ever saw. Suddenly, I understood why Dad loved the theatre so much and just what a brilliant medium it can be. It became one of my lifetime missions to get Kisses on, and anyone who knows me will know that I have constantly been hustling for over 20 years trying to make it happen. I was hooked. I only stumbled upon my second career writing about money because I was trying to figure out how to raise the capital. A 1970s concept album for the internet eraMy father died in April 2020, probably not a bad time to shuffle off t his mortal coil, given what was going on at the time. As I was going through his things, I came across the script of Kisses. I took it home and stuck it on the shelf, to be dealt with at some later stage. But then, every day, as I looked up from my desk, it would catch my eye and look at me longingly, like a dog wanting a walk.After several months, I couldn’t take it any more. “I can’t let this die. It’s too good to be just a script gathering dust on a shelf. If I don’t do something about it, no one will.” To turn Kisses into a film or a West End show would require millions and, more crucially, powerful allies, neither of which I have. But, having spent a large chunk of my adult life in a sound studio - I do a lot of voiceovers as well as the financial writing and the comedy - I did have the means to make some kind of audio drama podcast thing out of it. Like a 1970s concept album, re-formatted for the internet.It needed a lot of re-writing. I could do that. The music still wasn’t right - Gordon Clyde, the original composer, had died in 2008 and Dad had turned to various others to fill the gaps. Each did their bit beautifully, but the overall result was a bit disjointed, and needed unifying. I turned to one of my occasional collaborators, Martin Wheatley, a genius who has somehow managed to remain undiscovered his whole life. By coincidence, or as I call it, fate, Martin’s father had also been evacuated to Cornwall. We set to work, composed about ten new songs as well as unearthing and reversioning a load of Cornish folk gems that only Martin and about three other people have ever heard of.We have been dogged with good luck ever since. John Owen-Jones - voted the best-ever Valjean in Les Mis and the longest-running phantom in you can guess what - would play the lead role of Uncle Jack, the man who became stand-in father to my dad and uncle. Uncle Jack was a Welsh former coal miner, now a platelayer on the Great Western Railway; fierce, humorous, passionately anti-war and anti-establishment.  When I first spoke to John - I’m still not sure who was auditioning who - he said, “Les Mis, Jesus Christ Superstar - they all started as concept albums. If you were doing it any other way, I’d tell you to do it as a concept album first. It’s how great things start.”We were all set to record with an orchestra at a London studio, which started totally breaking my balls over Covid regulations. I phoned round the other studios at the last minute, and Abbey Road had just had a cancellation. We recorded it at Abbey Road Studios! Another stroke of fortune.The result is this concept album/musical about an extraordinary time in British history. Those who were evacuated in 1940 will be in their late 80s and 90s now, if they are still with us at all. In many ways Kisses is a farewell to that generation. But I played it to some friends in the car last month, and during the evacuation scenes they all said, “that’s exactly what’s happening now in Ukraine.” The story remains so pertinent. Dad said he used to get letters from people in Germany who had been evacuated to escape Allied bombs. If you are anything like me, this story will disarm you in the most unexpected ways. I hope you will find yourself laughing and weeping, as I did, at just what wonderful things the kindest of human beings can be.The full four version of Kisses on a Postcard is available at Bandcamp, costing £16, with the 2-hour abridged version for £12.  With parts 1 and 2, freely available as a podcast here via iTunes and other podcast platforms.Everything you need to know is here at the website. This article first appeared here in the Telegraph. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

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

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

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