The Daily Reckoning January 24th
Stocks up. Gold down. Bitcoin…waaay up.
The S&P 500 busted through the 1,500 mark this morning. Stocks haven’t been this expensive since 2007…right before they got a whole lot cheaper…for a whole lot longer. Gold, meanwhile, dipped a tad. This, despite central bankers of the world goading it on, promising to dilute the value of their respective paper currencies against the Midas Metal. Befriend the dips.
And what about bitcoin? Wait…what is bitcoin??
Why, it’s a speculation, of course; a dark horse, beloved by anarchists, ne’er-do-wells and fringe-dwelling lunatics, the kind of people you wouldn’t invite over for tea with your mother-in-law. It is the fascination of the ill-adjusted, the oddly-mannered, the heterodoxical hedonist. Indeed, the very idea of bitcoin, a “decentralized, cyber-crypto currency,” has to it a ring of the unknown…of disruption, rebellion…perhaps even revolution…
In plain English, it’s not to be trusted by members of polite society. And these are just some of the reasons we like it so much!
Since we first disgraced these pages with mention of the wretched thing, bitcoin has quadrupled in price…then fallen through the floor…then risen once again, like a Phoenix, nurtured by the fertile ashes of doubt and skepticism.
On the subject of cyber currencies, pointy-headed professors remain predictably divided. Economists, too, are split down the middle.
Even the libertarian camp seems unsure of its “official” stance…
“Can we fairly consider bitcoin a money? Is it even real? Can we take it to be intellectually ‘valid.’”
What a pompous band of academic lickspittles! You who criticize the mainstream for their blind adherence to rigidly archaic principles. You who admonish the stuffy Ivy Leaguers for their brittle little theories, lacking in dynamism and ill-equipped to deal with the world as it is and as it changes. You who rage against the concentration of power, against the arrogance of control and the folly of central planning.
Well then…Here is your misfit! Your champion of decentralized power…your catalyst for democratic, horizontal information dissemination. And with it, a price…determined by the free market you profess to adore. Here, within your grasp, lies a spectacular failure…or else the agent of change for which you’ve long been waiting. Have you nothing to say but, “Yes…but does it satisfy Aristotle’s requirements of sound money?”
Ah, Phooey to you all!
We first brought you word of this underdog currency a couple of years back, shortly after it began making waves on Internet message boards. The premise seemed appealing. It was – and still is – a bet against the omniscience of central bankers. Demand for the currency rests, in no small part, on the continued arrogance of the Bernankes, Shirakawas, Kings, Stevens and Draghis of the world.
“The demand for a totally free market currency arose, naturally, out of the dismal state of the current monetary environment,” we wrote at the time, an environment “in which governments around the world systematically debase the value of their printed monies in order to pay for the various welfare-warfare states they promised but can’t possibly afford. The resulting inflation is sometimes referred to as a ‘sneaky tax,’ one that silently, insidiously infiltrates the marketplace, with each freshly-inked dollar compromising the value and integrity of each and every currency unit already in circulation.”
What, if anything, has changed in the two years since we penned those words? Has a single central banker admitted a single mistake? Has one been reprimanded for his gross negligence – be it criminal, cerebral or a combination of the two? Is one of them serving time behind bars…or on the rack…for his crimes against progress and human advancement?
Not a chance! Indeed, it is to those who caused the mess that a brain dead populace look for solutions! These are the men, mind you, who worked – actually labored – to keep alive companies that ought now to be decomposing in the tar pits of corporate failure, breaking down in order that other creative agents might one day unlock its idle energy and potential. The very presence of these individuals at the solution table is an offense to decency.
In the end, bitcoin is a bet on the other side of The State’s coin; the free market side. It’s a bet that voluntary trade will, in the end, overcome neanderthalic force and coercion. It’s a wager that the conversation currently underway in the shadowy “black” market is far more intriguing, far more complex, far more nuanced and exceedingly more interesting than the yip-yapping that distracts the undead, mainstream TV-consumer for an hour or so around feeding time every evening.
If bitcoin goes to its grave tomorrow – and it may well do so – it will be in service of precisely the point free market enthusiasts have been advocating all along: That it is not for a committee to determine the price of a good (including money itself)…or for a state or a central agency or a law or an edict.
That is for the market to decide. Today, that market says a bitcoin is worth $19. Tomorrow, maybe 19 cents…or $19k. No one body knows…and that’s exactly the point.
It’s a whitish, ductile metal. It is No. 46 on the Periodic Table of Elements…and it is a “Buy.” I don’t just mean that it is a solid investment opportunity in which you can buy shares. I’m talking about an opportunity so big, you could literally pull a truck up to the front door — but make sure it’s an armored truck, as I’ll explain below — and drive home with the stuff.
The metal’s name is palladium, and it is used mainly in automobile and truck catalytic converters, particularly for low-temperature exhaust that emits from diesel engines. For high-temperature exhaust from gasoline-burners, you need platinum. But for diesel engines, palladium does the job.
As the chart below illustrates, annual auto-catalyst demand is currently soaking up a whopping 81% of the world’s annual mined supply of palladium — up from about 60% just a few years ago. This chart also illustrates that the palladium price trend tracks very closely with the auto-catalyst demand trend. Back in 2000, for example, when auto-catalyst demand was consuming more than 100% of the mined supply (above-ground stockpiles plugged the supply gap), the palladium priced soared to more than $1,000 an ounce!
Looking ahead, the auto sector is recovering in Europe, North America and across the developing world. Automakers have scheduled their production runs, and what’s the fastest-growing kind of vehicle? Diesel-powered. And that means rising palladium demand. Meanwhile, mine output of palladium is stagnant, while global stocks — primarily from Russia — are as tight as banjo strings.
Let’s cut to the chase. We’ve got a metal play here. So how can you invest in palladium?
The Sprott Physical Platinum and Palladium Trust (NYSE:SPPP). Here are the basics: Recently, Sprott Asset Management LP completed a $280 million initial public offering (IPO) for this new trust. Sprott used the funds to buy refined platinum and palladium. SPPP invests and holds substantially all of its assets in physical platinum and palladium bullion, with a modest management fee (0.5% annually) — collected on a monthly basis — plus any other applicable Canadian or other taxes. The trust does not speculate with regard to short-term changes in platinum and palladium prices. It buys and holds.
The idea is that SPPP offers ownership that is easier and less expensive than if one were to purchase, store and insure physical bullion directly. With SPPP, the metal is fully allocated, meaning that each bar is tracked. There is no “mixing” with other metal assets owned by other entities. Every Sprott bar is a distinct, traceable asset.
Sprott stores the metal in secure, bonded facilities. Platinum bullion is stored at a secure location in Canada. Palladium bullion is fully allocated and stored in secure locations in London and Zurich. All physical metal is subject to a periodic “spot inspection.” The metal is also subject to audit procedures by external auditors at least annually.
This SPPP trading format provides a secure, “exchange-traded” means for investors to hold physical platinum and palladium bullion. The trust units trade on the NYSE “Arca” list. The fund also trades on the Toronto Exchange (PPT:TSX).
As an added benefit, there’s a tax advantage here for non-corporate US investors. If you buy and hold SPPP units for over one year and elect to treat SPPP units as a “Qualified Electing Fund” (QEF) on IRS Form 8621, gains realized on the sale of SPPP units should qualify as long-term capital gains. You’ll pay 20% under the new tax law — but be sure to consult your tax attorney or accountant for specific guidance.
Also, SPPP investors have the right to make physical redemptions of platinum and/or palladium, under circumstances established by the Sprott group. If you own enough of SPPP, you can literally drive an armored truck up to the storage facility, complete the paperwork and drive away with your metal. (Of course, then it’s your problem!)
The bottom line is that Sprott’s new SPPP provides a means of accumulating palladium without having to lift and store all those heavy metal bars. You are just one step away from actual ownership and possession, without the hassle of arranging your own storage and security.
Meanwhile, the coming year looks strong for palladium pricing, such that SPPP offers a healthy upside. Indeed, if you want to know how your palladium investment is doing, just keep an eye on auto production numbers for diesel vehicles.
We could see substantial gains in palladium over the next two years.
A crucial feature of the evolution of the social order is the capacity to use what’s good and improve on it, and throw out what’s bad. But people have to be free to do this. The government and lots of industry groups don’t think they should be.
A recent case underscores the point.
FoxTV recently used what’s good, putting Jonathan Coulton’s remix of Sir Mix-A-Lot’s “Baby Got Back” on its show Glee. Is this stealing? Is this wrong? Coulton apparently thought so.
Coulton complained on Twitter that Fox “never even contacted me.”
There seem to be a couple of assumptions being made by Coulton and others commenting on the case: one about copyright law and another about right and wrong.
The copyright issues are laid out in a Slate piece, but somewhat mangled:
“An arrangement like Coulton’s is technically called a ‘derivative work,’ because it is based on a pre-existing ‘original work’ (Sir Mix-A-Lot’s original rap song). In order to create his arrangement and sell it, Coulton obtained a compulsory (or ‘statutory’) license from the copyright holder, the Harry Fox Agency. Coulton himself does not own the rights to Mix-A-Lot’s lyrics, of course, but according to the U.S. Copyright Office, ‘the copyright of a derivative work covers… the additions, changes, or other new material appearing for the first time in the work.’
“Even if Fox got permission for the Glee cover of ‘Baby Got Back’ from Harry Fox (which they undoubtedly did), they are also required to seek permission from Coulton for use of his ‘additions’ — chords, phrasings, rhythms, and so on — that make his arrangement unique (and choirboy friendly). Of course, he’d have to prove in court that the two arrangements are, in fact, identical, but to our (admittedly nonexpert) ears, there’s very little question. Fox owes Coulton at least an apology — and probably a check, as well.”
This analysis is not quite right (I believe): Glee‘s cover of Coulton’s version need not be identical to infringe on his copyright; after all, Coulton’s own cover of the original version was not identical to it, yet still required a license in order to avoid copyright infringement.
The assumption here is that Fox has infringed copyright and has done something wrong — though it’s not clear exactly what the wrong was: Coulton’s complaint implies that Fox’s mistake was not contacting him first; others imply that using the song without giving him attribution was wrong (see, e.g., the comments by Andy Ihnatko in the most recent episode of This Week in Tech [TWiT]). Mike Masnick of Techdirt implies Fox has been a “bad actor” here.
As for the copyright issue: As Slate notes, Glee very likely already got a license for use of the original, just as Coulton himself did. I am not clear whether they might have also acquired a compulsory license for Coulton’s arrangement without Coulton himself being contacted, but even if they did not, as suggested on TWiT, their tactic might be to use the song and wait for people to ding them afterward, at which time they would pay the requested royalty.
In any case, copyright is itself wrong, so even if there was copyright infringement here, that does not imply that anything “wrong” was done.
As for complaints that Coulton did not receive attribution: Well, as far as I know, the Glee episode featuring the song has not even aired yet, so it’s not yet known whether there is attribution in the credits.
But in my view, even if there was no attribution credit given, there is still nothing wrong whatsoever here. It’s not as if the producers of Glee are being dishonest and claiming to have come up with the arrangement on their own; there is no “plagiarism” going on here.
In the TWiT discussion about this — which, ironically, follows a discussion of how a prosecutor’s use of copyright law threats against Aaron Swartz drove him to suicide — Andy Ihnatko bizarrely claims that this has somehow harmed Coulton, even though Glee is seen by millions and this is no doubt great PR for the marginally known Coulton.
Why? Because if Coulton performs his own version of the song in a concert, people might think he copied it from Glee. Even… though… we all know that they copied it from him.
I don’t get this reasoning. Does Ihnatko think only he knows about this? He is discussing a public story. That is, Coulton’s authorship of the version is already publicly known. Coulton had no trouble demonstrating this. (This is also one reason why copyright proponents’ worries about plagiarism are off-base. Not only does plagiarism have nothing to do with copyright infringement, but plagiarism is not a major problem; anyone plagiarized will easily be able to prove they authored the work first.)
In a free society with no copyright law, in my view, there is no ethical or moral obligation whatsoever to ask permission of an artist to use or copy or reuse or remix their earlier work, nor even to provide attribution credit. The only obligation is to be honest: to not dishonestly claim original authorship. But merely singing or performing someone else’s song does not mean the singer is claiming to have originated it.
As for attribution: Sometimes it’s called for, according to context, just as footnotes are expected in a law review article but not in an email to a friend. But this is more a matter of scholarly protocols than morals.
Copyright law is not only evil for the direct damage it does to individual lives, but because it has distorted our entire culture and makes people think of copying as wrong. It is not wrong at all. Copying is good. Learning is good. There is nothing whatsoever wrong with learning, emulating, remixing, and competing. Copyright law has confused the whole world, deluded almost everyone into thinking something harmless and natural is somehow icky and bad. How sad.
The whole history of the rise of art, from the ancient world until the 20th century, was all about learning from others, copying them, and improving on their work. That’s how progress occurs, not only in art, but in technology, literature, finance, and in the whole of civilization. This culture of learning is making a huge comeback, despite government’s attempts to stop it. That’s the same thing as saying that freedom itself is making a comeback.
Original article posted on Laissez-Faire Today
Last week I was in Baltimore attending an Agora Financial editorial meeting for newsletter writers, plus numerous other Agora colleagues whose names aren’t as common on the by-lines.
The idea is to get everyone together in the same room. Then we examine all manner of investment ideas.
Today I want to give you a backstage look at what we discussed and some of the common themes I like going forward…
First, Allow me to mention how much I enjoy seeing my many wonderful colleagues, and sharing their delightful company. I’m truly blessed to be on a team of such accomplished people. Everyone has their own unique strengths. Together, it’s an investment brain-trust, and a mini-version of our annual Vancouver Wealth Symposium (OBTW – save the dates, July 23-26!)
I had the nicest talk with Agora Financial founder Bill Bonner. He’s looking great, and quite relaxed since he moved into accommodations just down the street from Agora’s main office on Mount Vernon Place. That is, Bill no longer commutes every day from/to Bethesda, fighting the Baltimore-Washington traffic mess. It’s amazing what one can do with an extra two or more hours per day of not commuting.
Bill mentioned that he was in London, not long ago, attending – sad to say – the funeral of Lord William Rees-Mogg (1928 – 2012). Lord Rees-Mogg was, as the name implies, titled within the House of Lords. During his long life, Rees-Mogg was a distinguished journalist and commentator, including many years with the Financial Times, Sunday Times and the Times of London.
Rees-Mogg wrote or contributed to numerous books. He was co-author, with James Dale Davidson, of The Sovereign Individual, The Great Reckoning and the classic Blood in the Streets. Rees-Mogg was also Chairman of The Zurich Club, a self-described “private, international network of trustworthy and knowledgeable investors and entrepreneurs,” and contributed regularly to a newsletter that was part of the Agora group, entitled The Fleet Street Letter.
Lord Rees-Mogg was a life-long student of history and economics. He paid particular attention to the rise and fall of prices in “hard” assets – real estate, energy and minerals, amongst them. He studied every significant boom-bust cycle over the past 300 years.
At the risk of oversimplifying things, Rees-Mogg documented a boom-bust cycle across the world economy twice every hundred years – or once every other generation. Another way of saying it is that, every second generation, the working and middle-classes of the developed world get walloped with a massive economic setback. (Including us, now.)
In the modern era, let’s start the calendar with the Great Depression of the 1930s. Then came the Second World War, followed by the Western post-war boom. Now add two generations – long enough for most people to forget the worthy lessons that their grandparents learned the hard way.
Here in the U.S., we’ve been “lucky” enough – if that’s what you call it – to postpone the worst of our generational turn on the rack of history by a decade or so. That is, what should have nailed the U.S. economy in the 1990s hit us in full force in the first decade of the 2000s, and we’re still on that ride. According to Rees-Mogg, things might not get much better until well into the 2020s.
So what’s the answer for us? Investment-wise, stay ahead of the decline. Save. Stay out of debt. Stick with hard assets that’ll retain value as currencies implode. Keep reading Agora Financial newsletters, I say! And along those lines, I can tell you that, at our editorial meetings, we wrestled with several themes.
One big investment theme is – not surprisingly – that energy and mineral assets still have staying power, if not long legs. Indeed, one of the great promoters of said idea is yours truly. Of course, I have evidence to back it up.
Let’s discuss gold. Gold prices, for example, seem to have found a floor in the mid-$1,600 range. I’d never rule out a price drop due to an entire spectrum of things, from a “flash crash” to deep-seated economic issues. And when bad things happen in the share markets, people sell what’s liquid. Gold is liquid.
Still, looking ahead, any gold price drop will be short in duration – more like a proverbial “buying opportunity.” Also, looking ahead, I foresee world gold mine supply tightening, and world gold demand increasing.
On that “tightening supply” side of things, look no further than South Africa, which has long been a global gold powerhouse. Yet anymore, we almost constantly hear news of labor unrest in the pits, coupled with the many problems inherent in deep mines, high costs for equipment and such, and rising energy prices.
I’m a great believer in the “anything can happen” school of thought, certainly when it comes to the big, deep South African gold mines. That approach – by me and many others – helps explain why South African gold mining shares tend to trade at a discount to other peer-group companies in different jurisdictions. It’s that darned risk issue.
In the gold arena I’ve shared with paid-up readers of Energy & Scarcity Investor the names of several standout, North American junior miners. It’s safe to say that if gold heads for its next leg higher, juniors that have a minable resource and quality management will do very well.
With gold’s next run-up waiting in the wings, now’s a time to keep a close eye on the juniors.
Other Investable Themes
Let’s get back to the Baltimore editorial meeting. It’s not just all about energy and mining. I was spellbound to learn about a number of great, money-making opportunities from colleagues Chris Mayer, Dan Amoss, Ray Blanco and Patrick Cox.
Chris highlighted a string of smallish banks that he is looking at for his newsletter. They’re certainly not amongst the usual suspects in that “too big to fail” category. So that means that management has to work hard, keep the books in order, and make money the old fashioned way.
Basically, Chris’s stable of banks are well-run, tightly managed and strong in their market niches. Plus, they’re spinning money and paying very handsome dividends. Banks? Well-run? Paying dividends? Who knew?
Dan offered a couple of great “short” opportunities, in companies whose shares are seriously overpriced, considering the fundamental flaws in their respective business models. They’re defying gravity, just now, and due for a fall sooner or later. Probably sooner.
Ray discussed an advanced, new technology called “3-D Printing,” in which software and computer processing allow you to “build” a product molecule by molecule. The simple version allows people to make basic shapes out of basic materials like recycled plastic. But there are way more complex systems out there for creating things, up to and including biological tissues – literally hand-making body parts. Astonishing. Investable, too.
Feel Great, Lose Weight…
Patrick Cox discussed breakthroughs in “nutraceutical” products – a fancy word for “nutritious” items that tilt to the pharmaceutical side of the drug counter. You can swallow these pills, but we CANNOT say that they’re “medicine,” or that they can “cure” you of anything.
No, if we use words like “medicine” or “cure,” then the Food & Drug Administration (FDA) would shut the companies down, and make them go through five years of clinical trials and spend $100 million in the process.
All we can say about these new products is that they might be good for you, in a “healthful” sort of way – like eating lots of cold water fish, fresh vegetables and brown rice. Generally, if you take these things that Patrick discusses, they taste good and you might feel better.
Indeed, you might feel a lot better when/if you notice that you have more energy, you’re losing weight, you get stronger, your high blood pressure declines, etc. Patrick, for example, has been popping these pills for about two years, and he looks not just great, but fabulous! Thin, tanned, strong… He’s younger-looking every time I see him.
Everyone is different, of course, so people could have different outcomes. Still, it helps that numerous well-regarded universities and medical schools are performing impressive studies on the application of these nutraceuticals to things like thyroid problems, diabetes, heart disease, arthritis, senile dementia and much more.
Patrick threw some history at us, and discussed how, when penicillin first came out, it was truly a miracle drug. Within five years, the use of penicillin cut mortality rates for an astonishing list of ailments. Indeed, penicillin, and subsequent other antibiotics, has been singularly responsible for helping raise the average life expectancy of people across the world. It’s one of the reasons why we have so many people living long in the U.S., and bankrupting the Social Security system.
Well, what if you can do sometime analogous with nutraceuticals? What if (when) large numbers of people start taking these new things? Could large numbers of people wind up living longer, and staying much healthier for a significantly longer time? That’s exactly what the medical schools are studying. (I think that the people who run the Social Security system ought to take a peek, as well. In a roundabout sort of way this gets us right back to our energy and mining thesis!)
Again, I don’t want to overstate the case, because I don’t want to get any calls from the FDA. But it behooves you to consider the possible merits of some of these tasty nutraceuticals, if you get my drift. There’s an investment angle here, too.
On that upbeat note, may I wish you all long life (hint, hint), good health (hint, hint) and prosperity. Or in the short-term, just have a great weekend.
Byron W. King
Original article posted on Daily Resource Hunter