When Money Changes

Global financial systems tend to last around fifty years, before dying and being replaced by something new. Normally in both a mix of managed and big bang, if that makes sense. Certainly, this is what happened in the late 1960s, leading to the USA closing the Gold window in 1971 and ending the convertibility of US Dollars to Gold at the fixed price of $35 an ounce. What a significant year 1971 was, for personal reasons too.

How Ironic he interrupted Bonanza to make an announcement about gold…

1980 was also significant, being the year it took $850 to exchange for one ounce of Gold. Yes, a twenty-times increase in nine years, for purchasing something and hiding it under the floorboards for the whole time. Sounds great, doesn’t it? And so it probably was, for those in the know, who had the opportunity to prepare early before the masses panic and pile in.

So, knowing that global financial systems change approximately every fifty years, we should be able to work out another monetary switch took place in 1921. This one wasn’t so clear, but it most certainly did.

Prior to world war one, the world largely operated on a gold standard, where prices were relatively fixed, or even falling with productivity improvements and living standards were rising. La Belle Epoque, as the French called it. A high point of human civilisation, that must have seemed at the time as if it would go on forever. Many in 1914 declared war too impossible to take place, as the world had become so intertwined and living standards had risen so high, only fools would want to destroy such a perfect world. Well, with the benefits of hindsight, perhaps not fools, but most definitely those with darker intentions and few scruples about the natural universal laws.

Naturally, wars are expensive, both in human and financial capital. Governments issued new bonds and demanded patriotism of their citizens, both in sacrificing their lives and investing their funds in pathetic investments that over the long term were guaranteed to dilute their purchasing power. Interestingly, when I first followed financial markets in the 1980s, £100 war loan bonds were still trading in the UK, but with a terrible yield of perhaps, 3% and trading for around £40. Imagine what £100 could buy in 1940, versus what it could buy in 1990. As usual, the deal with government is a one-sided one and in this respect, nothing has changed for the better in one hundred years, but got markedly worse. By 1918, all sides were experiencing inflation (definition : increasing number of currency units chasing same quantity of goods) for the first time in generations and as the war ended, there was a chance that if the economies of the nations returned to anything like pre-war normal and soldiers spent the dormant earnings of the past years, inflation could’ve occurred massively. Also, there was a big question around gold no longer being able to back the number of currency units now in existence. Over the coming years, gold coins were quietly withdrawn from general circulation and replaced with pieces of paper promising the same thing, but now buying much, much less when it came to exchanges. The wisest members of the public surely kept a few gold sovereigns, if they had them, in the drawer for a rainy day. How interesting then, that a serious pandemic – Spanish Flu – came along for and semi-shut down these economies, causing large-scale unemployment and distortions for around two years.

Let’s compare it to now. In 2008, a great financial war began. One where if the natural laws were followed, the banks would’ve collapsed. Instead, they were put on life support at multi-trillion cost to the citizens of those countries affected. The war quietly continued for 11 years, with various actors and players of roles appearing to assuage and distract the public in the style of master magicians, watch what this hand is doing, don’t look at the other hand. It’s largely worked, unfortunately and people have been tricked, while the banks have recapitalised, made billions and are now perhaps good long-term investments for the next ten years, while they unscrupulously build large property portfolios of repossessed properties to be rented back to the dispossessed. In September 2019, the financial world creaked when interest rates on the repo market (short term overnight lending between businesses) spiked and everyone stopped lending to each other. All in one night. It’s very hard to find details on this, since the media completely failed to report it at the time, but the US Federal reserve began pumping billions nightly in to keep that market functioning, before Corona conveniently appeared and shutdown the world, just as Spanish flu did one hundred years ago.

I make no judgement on whether these pandemics are real or not. Only their mirrored effects in creating similar situations in the world. On this basis, they have been near-identical, so now for a prediction – Spanish flu, the mostly appalling misnamed illness of all time, considering the first case was reported in a Kansas military camp, began in 1918 and swept across the world in two years, dying out around 1920. From there, there was economic hardship and a stock market collapse during the period 1921-23, along with gigantic hyperinflation in Germany, which I covered in my book. After that, famously, the stock markets began a dramatic rise, peaking in 1929 and not finding their nadir until 1932. Perhaps the idea of a rhyming, roaring twenties is not yet done? Let’s imagine this scenario – Corona came in 2020 and perhaps Moronic Omicron is the one that dampens it down and things reopen after two years. Then economies readjust over the next few years with a destruction of money in the old system, before the new system is established. One thing is for sure, unless you are an insider, and I am clearly not, we need to retain our wits about us to survive and, just perhaps, prosper. Good luck!

As an aside, it fascinates me that the war ended on 11/11/18. An interesting date in itself. One that cleverly works worldwide, regardless of how you arrange the days and months, a bit like 6/6/44, or 7/7/05 – feel free to look those up if you are requiring historical insight. Few know that the war began on 111118 too. Oh wait no, I hear you say, it began in August 1914, when Archduke Ferdinand was amateurly assasinated by Gavrilov Princip in Belgrade, an assassination attempt so botched the driver had to help it happen. No, it began on 111118, as that was the number plate of the car the Archduke was on. 118 and gematria, you really can’t make this stuff up. Wake up and see the signs.

Evergreen

Evergiven, Evergreen, Evergrande. Are you spotting a trend yet?

Let’s take a look at a few notable media stories of 2021. A ship blocks the Suez canal and massively disrupts global trade. A truck blocks a Chinese motorway. A supposedly closed down CIA front company that even Wikipedia states was used to transport top secret cargoes around the world re-emerges again and in this moment, a Chinese property company experiences financial difficulties. Few things in life are coincidences, less so when it comes to word games and numbers. Think of life as a series of subtle and direct attempts to hijack your mind, simultaneously trying to both modify your perceptions of the past and prepare you for a future you might otherwise not accept.

For a real insight into what may be going on here, let’s travel back in time to 1907 and take a look at the curiously-named Knickerbocker Trust. Back then, a new economic superpower was on the rise, one unaware of it’s strength, but already flexing muscles in Cuba and the Philippines. It’s people free, economically productive and quite probably proud of their achievements since independence from the current world superpower almost 130 years ago. Best of all, this country had no central bank, no income taxes and transacted using sound money – gold and silver. In a short space of time, the Knickerbocker trust went bust, dragging many banks and depositors down with it. Visualise the Mary Poppins Bank run and you perhaps get some idea how it probably was for many, but with no happy ending. Official story says financier James Pierpont Morgan came along, rallied the political and financial forces of the time and saved the day. This 1907 crash was heavily used as evidence of the need for a US central bank to manage a sound currency and provide a backstop against future failures. It only took six years and lo and behold, with a top secret clandestine meeting on Jeckyll Island, the federal reserve bank was formed. On those original simple metrics, you may wonder if it has succeeded much since but it’s certainly made a select few very rich.

Hop in the time machine to 2021 and there’s a new economic superpower on the up, one that after a period in isolation is growing, trading and allowing it’s citizens the freedom to accumulate wealth. Meanwhile, this nation accumulates gold and silver reserves, perhaps in preparation for a new currency based on sound money principles. What odds then, that someone, somewhere fancies undermining them and taking a cut for themselves? what better way to do it than a financial mishap, one that loses a lot of people a lot of money and sharpens the mind, as if it was a pencil, ready for drawing in their version of a new financial era instead?

Just as then, back in the 1900s, there’s no doubt a major war is not just brewing, but actively occurring. For now it’s done with financial and cyber terrorism, by dark forces that are perhaps not the ones you are led to believe they are. Deals done in darkened boardrooms or even via secure messaging software, by entities that have, quite possibly, never met in the physical world and never will. Entities that often share different or even opposing aims, but are content to ally with their opponents to achieve shorter term mutually beneficial outcomes. Who can make sense of it all? All we can probably know is that at some point this quiet, almost phoney, war will boil over into physical conflict of some type and scale, quite probably unlike the way prior wars have been fought. Don’t forget it only took 7 years from 1907 for a colossal conflict to begin.

As an aside, let’s not forget Matt Groening and his creation, The Simpsons. Do you remember the address of the Simpson’s? 742 Evergreen Terrace. Even now, as the memory whirrs, remember this song from the 1970’s? Yes, Evergreen has been exactly that, with us all year and every year.

The New World Financial Centre

The British Empire and Sir Stanford Raffles in particular were a very shrewd lot. They identified a seemingly irrelevant island with a population of about 150 people as a piece of prime real estate back in 1817. What’s happened since is well-known of course, as the city of Singapore has developed into a major international trade and financial hub, with all the wealth and status that goes alongside that.

This place had always been on my to do list, so when a work trip in 2018 presented me with the opportunity for a one day stopover, I took it with both hands. While I didn’t actually sit down for a Singapore Sling, I did take a wander around the Raffles hotel complex and see the art deco railway station, where bullet damage from the 1941 Japanese invasion was still visible in some of the outer walls, before it probably disappears as the city modernises even further and obliterates the British symbols. The railway itself has already been moved to the North of the island and the future of the station seemed uncertain then, but ghosts were visible everywhere, as I peered through the locked gate into the past, surrounded by modern skyscrapers. I also saw the 1920s post office building, now a hotel, the main square in front of the Town hall where hundreds of thousands were executed by the Japanese and one of the world’s most expensive pieces of undeveloped real estate, The Singapore Cricket Club. I can only wonder how much longer that last piece of Imperial history will last. The battle of Singapore itself in 1941 has always fascinated me. For obvious reasons, it does not feature large in British history when World War 2 is mentioned, but will probably forever be Britain’s biggest military defeat, with a loss of 100,000 military personnel into Japanese captivity and subsequent death, along with the loss of two Battleships – The Prince of Wales and The Repulse.

I’d love to revisit some day on less of an intense schedule, but I sense my days of travel are numbered and I’ve used most of those numbers up. No matter, at least I can say I saw some of the world before all prison doors were locked with a resounding thud.

At the time, I was not ignorant of the island’s position as a major trade route and centre of wealth. Goldmoney and Bullionvault have offered Singapore as a precious metals storage location for years. However, it’s only when you are actually there on the ground, staring up at the impressive skyscrapers that you really understand how the wealth and energy is migrating from the old world to the new.

It’s interesting how stories coincide once more and get you thinking on a particular route. A few weeks ago, I expressed the view that Bitcoin is a distraction, or a preparation for a release of a new monetary system to replace the Petrodollar that has existed since 1971, the year of my birth, the introduction of decimalisation to the UK, the closing of the Gold Convertibility window in the USA and the official founding of the World Economic Forum – more on the last one later. In my view, the coming of digital currencies is inevitable and they may not be nice, with features such as time limitation (spend it or lose it) and extra credits available only to those who follow the rules of society (get the jab or don’t eat meat?). However, for them to be truly accepted, they will need to engineer a collapse of the current system and when that system collapses, every monetary system change ever has had to promise some kind of gold backing to get the public onside.

Historically, the old world still rules the precious metals world, with familiar locations like New York, London and Switzerland being where most of that trade is transacted. As the old world declines further and the new world rises, an Asian powerhouse, one with independence, strong defences, good shipping links and a robust financial system to trade gold and silver is required. There’s no doubt on these metrics that Singapore ticks all the boxes.

What really triggered it was a story mentioning the huge new precious metals facilities being developed in Singapore. It’s not the first time media, including the BBC, have reported on this. Yes, it looks possible a new world currency backed by gold/silver is coming and it will all be stored in Singapore, perhaps with an offshoot for Europe in London. On this, Brexit suddenly makes more sense – a European nation outside EU control, a defendable island where the wealth can be stored as the mainland descends into destruction. The Corporation of London certainly has a pedigree line of survival and growth, regardless of the general situation in the country. You may laugh, but despite a recent short period of comparative peace, Europe has a long, long history of huge wars for resources and after a year of rewarding people for doing nothing, while the continent becomes ever-more dependent on a few producers to carry the mass on their shoulders cracks may appear and Atlas may yet shrug.

When you think about it, it’s interesting how Switzerland always managed to remain neutral during the many European wars of the last few centuries. It becomes clearer why when you are aware of the high levels of banking secrecy Switzerland has historically maintained regarding account holders and fund sources. Consider also how much plundered loot found its way to Switzerland during World War 2. Why, the World Economic Forum itself is even based in Switzerland and Klaus Schwab, it’s apparent founder, was born in Germany in 1938, just before World War 2 began. I’d be interested to learn more on his family history, and this article is something of a primer. Having conducted their meetings in Davos, Switzerland for the entire history of the organisation, they are now holding their first-ever meeting in Singapore in August, 2021.

On closer examination of the Asian map, Singapore is crucial to all trade heading from China, Japan and Korea etc to India then onwards to Europe. Ships can only sail through one narrow strait. The Evergreen in the Suez canal feels like the first visible supply disruption which will expose Europe to how reliant it has become on foreign imports of essentials. Perhaps when those containers do finally arrive, they will be loaded up with precious metals for the return trip as Europe is stripped bare?

Meanwhile, almost everyone in Europe wanders around like idiots, wearing masks and continuing to following “official advice”, not laws on all kinds of things that really are basic human rights, like seeing family and friends, or conducting mutally beneficial transactions with other human beings. Blithely unaware of the probable imminent end of their way of life. You know, that “way of life” that you have been told terrorists hated so much that it needed to be protected, yet was immediately signed away the moment you got told a new virus with a 99.6% survival rate hit?

What do I know really? If I was better at these things I wouldn’t be working in an office following the limitations of my school programming, but on the basis of these jigsaw pieces slotting together, perhaps we should be investing in Singapore. Especially banks if it is going to be the new Switzerland after the World Economic Forum meeting. Not to say there won’t be bumps along the way – one other thing about that map is the seeming inevitability of a conflict between the old world powers and the new. That same Asian map shows how China is totally hemmed in from the sea because the USA controls Japan, South Korea, Taiwan and the Philippines. If China could punch through and take Taiwan or part of the Phillipines, they could control the Pacific. A war is brewing. I note, for example, that the UK recently sent their aircraft carrier to the China sea. A war in which Singapore will remain an agreed neutral by all parties, just like Switzerland did during the last century, but a war in which the destruction and rewards to the victors may well be huge and end up on this small island nation.

Stock Markets and Gold

Now for more news, your stock market investments may be worth under one-third of their value in 2000.  Gasp.  Yes, the gain of the last 20 years has been illusory.  For sure, some countries and some market sectors have done better than others, but for the USA main index, this is exactly what has happened.

(Chart: DJIA priced in ounces of gold)

Even if large corporations prosper, the US DJIA stock index and gold have a history of a near meeting when a financial crisis bottoms out. Currently, the DJIA is worth around 14 times the price of an ounce of gold. In 1932 and 1980, just over one ounce of gold bought the DJIA. Whether a large stock market crash achieves that, as was the case in 1932, or inflation pushing up the gold price, as was the case in 1980, it may be destined to happen again.

Oil and Gold

Oil is still one of the biggest building blocks of life.  Regardless of whether you now work from home instead of driving to work every day in the gas-guzzler or not.  It’s used in everything – fuels, plastics and pharmaceuticals, to name a few.  In fact, if you now work from home, chances are you’re turning up the winter thermostats a bit more often than you would at work.  You’re probably also buying a lot more food from the supermarket, most of it encased in plastic packaging.  Even if your heating system is not oil-based, oil remains one of the main fuels available for generation of electricity, and could well do so for many, many years, regardless of how many windmills they build.

So, the good news.  You’ll be pleased to hear is that oil is at an all-time low, when measured against gold.  Luckily enough, since with your earnings being one-sixth of the 1970 value, you may not be able to afford to keep the house warm or drive a car otherwise.  Any apparent price rises you see at the pumps are merely an inflation of your fiat currency.

Now for the bad news, can it continue?

Maybe not.  For many years, gold and Oil actually maintained a near 10:1 ratio relationship.

(Chart: Gold/Oil ratio 2010 to 2020)

As the chart shows, this relationship has become distended as a result of the Corona crisis. There’s now a near 50:1 relationship as of August 2020. This may imply oil is actually quite cheap, gold is expensive, or that the ratio no longer holds. There has been a multitude of media articles heralding the death of oil.  However, it seems to have missed the attention of many that all of this data – everyone’s Facebook posts, Instagram images, or cloud software solution is stored on a server somewhere that requires electrical power to run. For sure, in the case of one Instagram post, that electrical consumption is miniscule, but multiply it across a world of 7 billion people, and you get an idea now of the immense electrical power required. Oil, natural gas, and coal are still heavily used in electrical power generation across the globe.

(Chart: Actual and predicted power sources to 2030)

The eagle-eyed among you may have spotted the chart dates from 2003. This was deliberate since more recent data shows it to be correct. If so, the future trend for oil consumption is still upward.

(Chart: Energy consumption to 2040)

So, and this is only a question, not investment advice, maybe oil itself is not finished yet as an investment.  If not, could it revert back to the 10:1 ratio with gold and if so, at what price for both?

Housing and Gold

Now for some big news.  If you live in the UK, your house topped in value in 2005 and has been falling ever since.  In fact, it’s now about one-quarter of what it was worth then.  What?  I hear you say.  Okay, yes, in fiat currency units it has gone up, but measured in gold, it has fallen dramatically.

Measured this way, house prices are very close to the 1950 mean.  However, with the Corona crisis still in full swing, employment uncertainty for many and wages still at one-sixth of their 1970 value, it’s entirely possible the market could still have a lot further to fall.  Conversely, if something happens to get wages closer to the mean or inflation rises, well, they could easily move upwards in fiat currency terms especially.

In this case, the housing market is hard to exit, unless you prefer the uncertainty of renting.  Everyone needs to live somewhere.

Textiles and Gold

Clothes are really cheap right now, as retailers dump tons of unsold stock from the 2020 fashion ranges onto the market at bargain prices. If you already have enough clothes, fine, but if not, it might be a good time to ensure you do, especially clothes to see you through cold winters. With this glut, it’s hard to know what will happen to all elements of the clothing supply chain in the future: Cotton farmers, Garment manufacturers, and clothing retailers.

The low price of cotton has already made it hard for growers in countries like India to turn a profit and it’s hard to know how they are coping with this huge change in market conditions.  There’s been talk of suicides in the media.  With cotton at an all-time low, we can assume that prospects are not great for some cotton farmers.

Food and Gold

100 years ago, the average household spent up to 50% of its income on food. Today, that figure is nearer 10%, giving us all more disposable income for consumer goods, bigger mortgage repayments, and exotic holidays.  Food is cheap, almost too cheap, in fact.  As some farmers struggle to turn a profit and big supermarkets control the supply chain.

(Chart showing food prices as a proportion of income)

Of course, some of this is due to technological improvements in farming and manufacturing, but much of it is due to fiat currency inflation versus gold.  Perhaps it can’t last forever – we may well already be being prepared for future food shortages and increases in food prices. You may have already noticed shortages during the crisis or increases. On a personal level, visiting the supermarket regularly, a 20-25% increase in fruit, vegetables, and dairy products has occurred since March 2020, when Corona began. That’s interesting, as these products are all the ones with the shortest shelf life, that are most immediately impacted by price rises. Others, like dried, tinned and frozen goods, may be in huge stock at warehouses down the supply chain behind the supermarket facade, and price rises may take longer to feed through. Observe these headlines from recent times, as to what they may be planting the seed in your head to germinate for:-

“UK potato farmers fear another washout for this year’s crop. “

The Guardian, August 2020

“Bread price may rise after dire UK wheat Harvest.”

BBC News, August 2020

“Coronavirus: Meat shortage leaves US farmers with ‘mind-blowing’ choice.”

BBC News, May 2020

If you wonder how far food prices can rise during a monetary crisis, then here is an example of prices from “Fiat Money Inflation in France,” an excellent study of the hyperinflation that occurred there during the French revolutionary times, which coincide with the decline of the French empire before the handover to Great Britain.

Now, how well covered are you for those kinds of price rises in basic commodities, the essentials of life?

Income and Gold

First, let’s get the really bad news out of the way.  You’re probably extremely underpaid for what you do.  In fact, you probably get paid around one-sixth of the salary that a worker got in 1970 for the same job.  There has been a huge real decline in income, masked by fiat currency inflation, meaning many of us are worse off than ever.

This goes a long way to explaining why life has got harder and most households now require both parents to go out to work to keep the family going.  A less common occurrence back in 1970.

To look at this another way, to return to 1970, our salaries need to increase by six times.  Yes, six times.  Imagine that, a world that rewards work and self-sufficiency over clever monetary tricks.  Sadly, such a world is not here yet.

We Should Be Happier To Have A Job Than To Have Savings

“We Should Be Happier To Have A Job Than To Have Savings”

– Christine Lagarde, 2019.

Thank you, Christine. Your quote is the main reason why “How to Invest in Gold and Silver” got revisited 13 years after the original publication. Gold had underperformed for many years after attaining an all-time high in 2012, and gold mining companies had declined massively. Meanwhile, stock markets were apparently flying along and hitting new highs daily. Commodity prices were now lower than ever, in many cases and there was doubt in the premise of that book still being valid. Perhaps the 2008-09 crisis and fallout really was over?

When Christine said that, though, it was time to wonder. For those who don’t know Christine Lagarde, she makes big decisions on finance at the ECB (European Central Bank). The ECB is the banking facet of the European Union, and she was appointed to lead it in 2019. It doesn’t seem to matter that she was convicted of a financial crime 4 years earlier, nor did she seem to suffer any penalty for the conviction. Christine attends many events where big-ticket items are discussed, but no agenda or minutes of meetings are made public – think Bilderbergs and the World Economic Forum, for example. Christine even has Hollywood links – she was interviewed in 2010 as part of the documentary “Inside Job,” helping explain how those awful banks played roulette with our mortgages, savings, and investments, and it was all their fault. Lone financial gunmen, acting alone.

In summary, Ms Lagarde is a big cheese – or fromage grande to use her own language. When she says something, you can believe it may not just be her own words and possibly comes from somewhere deeper.

So ask yourself now, what does this quote mean to you? Images of savings being destroyed and life being a treadmill of working to earn enough to survive? Working on this premise, but not knowing what was coming or how that would be achieved, it was hard to know what to do except ensuring you have some diversification, then watch and wait.

In early 2020 it began to be clearer.