Hi all, I haven’t written anything in a while. Hope the sun is shining wherever you are. The 30th anniversary of Tiananmen Square with very little international exposure. In reading recently I was hit by the demands of the students. Their main demand was for an end to corruption in official circles ie. the Chinese communist party. An end to special privileges and excesses of their elite and more freedom of expression. Note that the term ‘democracy’ was not overtly used by the majority of the protesters.

Now 30 years on I was wondering how this brutality smothered the hopes of a generation and how China was set on a path towards authoritarian capitalism. What started to interest me has the boredom that we in the west had greeted this significant anniversary. Then I wondered how certain Chinese individuals were greeted on their release from jail after nearly 20 years. What surprised me was that the so-called western socialists seemed to have ignored their sacrifice. They are slowly fading away along with their stories. One such person was Wei Xiaotao who died in Paris in January. His crime was assisting mothers of the dead who were officially forbidden to mourn their murdered children. Just as Stalin sent political activists to Siberia so to the Chinese communists sent broken men and women into exile after nearly 20 years in jail. By which time they were mentally brutalized and broken. Left as refugees in western countries with no contact with any family. If they can lock up nearly 1 million Uighurs(Chinese Muslim minority) who will care about a few dissidents.

The Chinese communist party is, in reality, a believer in the rule of the jungle and knew in isolating them that the western media would soon tire of them and also their privileged socialist brothers. Of course, their glorious socialist brothers like commissar Corbyn of the UK were more interested in appeasing the Chinese Communist party. In 2015 meeting the dictator Mr. Xi for a meal of turbot and venison followed by a bottle of wine costing nearly £1,000. Heaping praise on China’s great leap forward. But at the same time refused to meet President Trump at his recent state visit to the UK.

Other leaders were no better bowing down to greet party officials with the hint of Chinese investment. Just look at the boom in Canadian and Australian property. You can’t get money out of China unless it’s transacted by a communist party member. So we have all drank the cool aid and it tastes great.

Ok, the venting is over. Partly as I have just returned from Ethiopia where the Chinese communists are firmly entranced exploiting the population with cheap loans for infrastructure that they will never be in a position to pay back. Colonialism, Chinese style.

With the profusion of media now available from tv, critter, foolbook and so forth I feel like Joxer in Sean O’Casey’s play, Juno and the Paycock when he asks ‘What is the stars?’

I am sure we have all been asked by a child something like this or why is the sky blue? So simple but when you think about the answer you know it’s not so simple at all. A question asked by a clear mind meets a clouded space. Our answer is usually a mix of that’s the way it is or some other bluff. Unfortunately, most never say they don’t know.

There is nothing higher than the truth but what is the truth. One method I have used is to follow the money. It seems to guide me in the right direction even when I don’t like the answer.

Neil Woodward’s Fund performance

I don’t know why it is but media seems to put people up there only to pull them down. I was reading about Neil Woodwards fund performance which has halved in the last 17 months from £10.2bn in summer 2017 to £5.13bn. Ok, he has made some pretty bad mistakes so I said to myself what about the other star performers. Take Warren Buffet and Charlie Mungers investment vehicle Berkshire Hathaway. If you remove 5 of its top investments since 1984. Its performance is only average and only keeps pace with the same results as the S&P500. Buffets father was a US senator who had contacts that assisted his son with investment funds.

Was Buffet lucky?

Take Bill Gross the now retired king of the bond market. He started his career when interest rates were 15% and left Pimco when they were about 2%.

Was Bill Gross lucky?

Bill Gates went to a high school that contained the only computer in a high school in the entire US. Was Bill Gates lucky?

I am not taking anything away from the great achievements of these titans of industry but luck did play an important part.

DOW / Bitcoin

If you overlap the monthly chart of the DOW over the last 100 years you get a strange correlation to Bitcoin on a weekly chart. I’m not saying the DOW is going to crash but it does look like a parabolic curve and they usually end with a sharp correction just as Bitcoin did. Timing is always a hard thing. Remember a digital currency and gold are quite similiar. Gold is physical currency, bitcoin is digital currency. Both are mined and are tradeable. 

Gold

I’m not a so-called goldbug but the chart is beginning to look interesting. My thinking is that a serious breakout with good upside potential. I just can’t see much risk with a trade here. The breakout is in progress as we speak. No resistance until the 1700’s. Lock and load. This will start a crack in confidence in all paper currencies. Don’t get me wrong I use cash but every week when I buy the FT and look at the bond rate returns from say Germany or Switzerland I have to ask myself for how long can you lend to these countries by buying their 10-year bonds and are automatically guaranteed to lose money! Sooner or later your going to diversify in some way and the only real asset to choose are precious metals. Negative interest rates are the biggest incentive to buy gold.

Another repercussion of this is a run on the financial system. Why leave your money in a bank when you are getting nothing really. You might as well pad up that mattress at home with some firm dollar or euro suspension.

When and where will it happen? Well based on interest rates it has to be Europe. Fractures everywhere, separatist governments rising all over the place like Italy. The stabilisation provided by Europe is shielding irresponsible fiscal management in individual countries. For example, Italy is expanding its budget deficit above 3 which is the Maastrict treaty limit. Europe is talking about imposing penalties.

The bond market is signaling recession. However, it’s not good at timing within a period of two years.

Commodities

Agricultural commodities are getting ready for some great opportunities. This ties in with a potential of a trade war with China. All we need is a catalyst.

Fear + Protection = Cash + Gold + Government Bonds.

Sweden

So where will the catalyst be? Well if you listen to any UK media they have made up their mind that it will be in southern Europe, Italy.  If you overlay FTSE and the MIB you will notice very little difference. My feeling is that it will come from somewhere considered far safer, Sweden.

1. In Sweden nearly 90% of all transactions are digital. In the 1960’s the level of private debt was 40% of GDP. Nothing unusual here. Move forward to today and its about 275%! To put this in perspective that’s twice the level of debt that exists in the US. During the financial crisis in 2008, it was 170% of GDP.
2. Corporate debt has risen to over 180% in the last 5 years.
3. A clear increase in household debt has been used for non-productive investment.  When individuals borrow big using their home as collateral they usually invest in?… You guessed it , property. A gamble on rising household prices has worked. And as we all know it works until it doesn’t. And Swedish house prices are beginning to fall.

In Denmark and Norway house prices are declining. Traditionally Sweden had a substantial trade surplus with exports from the likes of Volvo/ABB/Electrolux. This trade surplus has evaporated and if credit turns negative they will have no cushion.

Based on how their financial regulator was asleep with some of Europes largest money laundering scandals at Swedbank, Nordea, and Skandinavista Enskilda Banken. Lets see whether they will wake up. Also worth saying that Sweden and Denmark are not in the Euro European currency which will give predators something to start eating. As Shakespeare said in Hamlet ‘Something is rotten in the state of Denmark’.

Will write smaller pieces more regularly. Enjoy your summer, regards, Pearse.