Gold, God, Quantum physics – are you buying this?

INTRO Per Gessle, the Swede who composed the song “It Must Have Been Love” that was featured in the Julia Roberts movie “Pretty Woman” has said that he only writes when he’s inspired. I’m mostly like that too, all other comparisons aside. This post formed in my head over the course of less than a minute, not unlike this one on The Meaning Of Life.

THEME Contemplating and discussing the true nature of reality over the last six months seem to have led to me being hit by and interacting with a stray inspiraton* five minutes ago, incidentally right after re-watching the amazingly entertaining movie “The Wolf Of Wall Street” during a long and late Saturday brunch.

* a very rare elementary particle

CONCLUSION Cutting straight to the chase, my conclusion is that what matters on the stock market is how consistently and predictably you can earn “money” that can be used for manipulating reality into subjective experiences with certain desired properties (I hint at what those properties might be in my Perspectives article series. Start here).

IN SHORT: DO WHAT WORKS, and take a good hard look at Gran Colombia Gold Corp


This morning Mike Cernovich referenced a quantum physics article in Scientific American that discussed a new slant on how to interpret the problems of wave collapse, observer dependency, matter duality and more. It got me thinking. By the way, if you’re interested, here is my immediate reaction to the article:

 


God and reality

Winter came, and with it late night discussions about the existence and nature of God. Yes, “God”, as in some kind of power or presence outside the laws of nature, or as the very laws of nature (whatever that’s supposed to mean; I mean are they laws, or aren’t they).

For me the word “God” is too tainted by culture and tradition to possibly serve as the basis of an open minded conversation about existence. As much as I try to suppress images of a potent and aware entity, and replace them with “anything or everything” or “purpose” or some other temporary placeholder, I keep failing.

In parallel with discussing the God delusion we have talked at lenght about reality, not least whether it’s objective or not, i.e., whether reality exists or not.*

(* I’ll just add here that reality does exist. This, here that we experience is reality. In my view, that holds water whether reality actually exists or not, since I think the word ‘reality’ is defined as “this, here” that I experience and I have good reason to assume you experience too)


Solipsism and pragmatism

The conversations have ranged from pure solipsism* to self-referential unusable tautologies such as “the universe is the universe”, “God is all and all is God”, “purpose is the purpose”, and much more.

(* solipsism = I am the only thing that exists and everything else is just a dream – quite a complex dream with billions of dreamed up personalities, trillions of other seemingly independent living things, quadrillions of celestial bodies scattered over trillions of cube light years, evolving over billions of years, including Darwinistic trajectories and thousands av brilliant scientists climbing atop each others’ shoulders to scout ever further. Imagine all that in just one entity, i.e., me, not to mention I have forgotten it all and am lost in my thoughts slowly rediscovering minuscule fractions of it all before imagining dying)

I am a practical person. And, as much as I’m a fan of basic research, understanding that we can’t know when and for what that knowledge might come in handy, pure philosophical word play that doesn’t even aim for practical use, but rather aims for self-containment and non-practicality quickly loses its appeal to me.

By the way, if this post triggers a strong need in you to explain to me all the ways I have misunderstood solipsism or any other branch of philosophy, or quantum physics for that matter, please don’t. This article is not about that at all. Quite the opposite. It’s about doing what works.


The universe is all mental

The quantum physics article Mike linked to builds up to an idea about thoughts being the ultimate building blocks of nature, perhaps a little like the illusive inspiratons I jokingly mentioned above.

These ubiquitous “thoughts”, which I assume are pretty dissimilar from the everyday brain thoughts with which we humans are familiar, interfere with each other as well as with organical thoughts; thus giving rise to the physical reality.

With “thoughts” everywhere, from the empty voids of space to the cores of stars and brains of humans I’m guessing brains acts as a kind of amplifying antenna that can focus inanimate thoughts into living thoughts.

Alright, as much as I try to keep an open mind – on a theory stating that brains and thoughts are not the product of billions of years of evolution, pattern recognition and survival of the most adaptable – trying to comprehend a theory of substrate-free “thoughts” as the ultimate building block is just as difficult as stripping the word “God” of all its religious baggage.


Please explain

Why “thoughts”, I ask? Why not just super strings? They are equally mystical, ethereal, versatile and infalsifiable. Whether you decide to build a world view with turtles all the way down, hyperdimensional strings, gods behind gods in Russian dolls, or thoughts all the way down, doesn’t really matter. You’re still not explaining anything. And you’re not adding anything to the toolbox of improving your own subjective experience (except for the fun it might be to play a meaningless game for a while).


Experience, prediction, manipulation

For me, my experience is all that matters. My reality is my reality, but it’d better be pretty well attuned to the more or less predictable laws of nature for my subjective experience to be sustainably pleasurable.

Experience is all, since non-experience is non-experience. Per definition.

If you want to define these words any differently, be my guest, but I won’t understand you. Hint: if you want to be understood, strive to use unambigous words that people (can) understand.


What interests me are reliable predictions in as much as they allow me to manipulate and control my experiences.

The actual and ultimate truth might be something altogether different and incomprehensible. But that doesn’t matter to me. What matters to me is what I (can) experience.

I can’t remember anything before my birth, and there are no believable recounts of post-death experiences. This, here, this stream of consciousness began some time around the birth of this body, and it seems destined to end with this body (not yet fully counting on uploading or immortality).

So, I can experience what I can experience, and that is what appears to be a physical world of things, including electrochemical patterns in brains. Humans now understand a great deal of what can and does affect us (cause experiences), and of what can be manipulated by us. That’s just another way of saying science has laid out a pretty good map of reliable laws of nature; laws that I consider when making decisions I hope will lead to as meaningful a life as possible.

That which might “exist” but can’t be manipulated or affect us is simply irrelevant. Per definition. The world may be a dream, or nothing at all. Maybe I’m alone, maybe not. Maybe I’m a simulation… Maybe there is a “God”, even though it has left no trace of its existence since the Big Bang.

In any case, my actual personal experiences are more or less limited to sleep, food, love and a few other “experiences”. My aim is to optimize those over the course of my life, by designing as solid and consistent a foundation of predictions and manipulations as I can.


Pragmatism and investing

And, that is also exactly how I would, in the best of worlds, go about my investments. I don’t care whether the world ‘really’ exists (though it should be clear by now, that to me “exists” means whatever this experience is. Per definition), or if a country’s or company’s operational fundamentals exist objectively. I don’t care if “valutions” are real or not.

What I do care about is how to predictably and as consistently as possible make decisions that enhances my potential for manipulating reality into better subjective experiences. That might include maximizing dollar amounts on the stock exchange, or units of gold, or analysing historical metrics patterns. In doing so, I like to rely on consistent laws of nature, rather than fickle gods and “it’s all a dream” fantasies.

What matters isn’t if valuations, profits, money or even the universe is real. What matters is how I feel about it, and not least what I can do to improve on that situation.

P.S: Please, let’s keep “free will” out of today’s discussion.


Gran Colombia Gold Corp

-when did you last see a Price Earnings ratio of 1?

By the way, have you seen this Price/Earnings = 1 company in Canada? Gran Colombia Gold Corp. Disclaimer: this is not an investment recommendation and any losses incurred are your own. In addition, PER=1 might be significantly misleading due to dilution, but I’ll leave that to you. I personally, however, would be surprised if the stock didn’t reach 6 dollars per share by the end of 2018.

The coming stock market crash of 2017-2018

Topic: The case for a 50% downside for stocks in the coming 12 months, and then some

Style: Funny, ’cause it’s true (kind of)

Nota bene: this post should be read in conjunction with my previous post on the bull case for stocks


1 The trend has gone too far

I mean, what are the odds of this trend continuing (see chart) without a major hickup?

Trees don’t grow to the sky. Sooner or later, the human psyche will pull the index back to its long term trend (asymptotic to population growth + productivity growth)

Remember that stocks went nowhere between 1996 and 2009, and 2000 and 2012 or was it 2013? That’s a long time going nowhere and it seems to be about time for a re-run of a crash and no returns fro a dozen year or so.

2 Stocks are expensive

Historical peaks in the S&P 500 ratio have only briefly broken above the 20 level. Today we’re at 24.57. And that’s with significant accounting tricks, massive stimulus, zero interest rates and a generally upbeat mood and risk tolerance at highs. Whenever stimulus wanes, reality comes back to bite creative accountants in the derriere, interest rates stop falling or start rising P/E-ratios are bound to explore earlier depths. And that’s even before taking into account a less optimistic sentiment, as well as increasing actual need for funds.

By the way, here is an alternative valuation measure. It’s based on Price/Sales (from Hussman Weekly the previous week) which is an automatically cyclically adjusted valuation measure (more or less) Notice how the valuation measure has increased 4-fold since 2009. That alone carries an inherent risk of a ca. 75% fall in share prices, if sentiment were to fall to 2009 levels.

A permanently higher plateau?

3 Profits are going… where exactly?

Not that fundamentals are that important, except over very long time periods, but the profits have stalled lately. That’s despite historically hysterical monetary stimulus and budget deficits (essentially fiscal stimulus one way or the other). It’s hard to conceive of a new and bigger wave of stimulus on top of the already failing ones. There is no new China, no new India, no hoping for Africa to pull profits higher when the low hanging fruit in the U.S. and Europe have been plucked.

In addition, after 9 years of expansion a profit recession is way overdue. The profits for S&P companies quite often decrease by 30-50%, and the swings have become bigger since 1980, not smaller.

With both lower earnings multiples and stalling or falling earnings in the cards, a 50% decrease in S&P 500 is actually a quite modest expectation. Time for a black Friday soon?

Labor costs recently hit a low (inverted scale) and profit margins a mirroring high. With the magic of debt (that postpones the need for a real living wage) faltering it’s about time wages reflected living costs, and margins came back to earth. Guess what’ll happen to profits… Hint: it’s not positive.

4 Interest rates are about to rise

This chart speaks for itself, I hope. With interest rates this low, the only way is up. Retirees and pension funds can’t live off of a 2.2% return. Nominal!

Look at the chart, can you honestly say you think rates are going even lower? Anyway, rates don’t really matter, at least not fundamentally. If rates are staying low or going lower, then history teaches us that it’s because growth is low. In terms of equity valuations, lower interest rates and lower growth will cancel each other out. No, matter, unless we go completely digital, interest rates are not going negative (for long). A situation where suppliers want to be paid late, where you’re paid to mortgage your house and so on, simply is to perverse for an economy to take.

5. Dividend yields are low, and if they are about to rise, it’s only because stock prices are about to come crashing down

The dividend yield is lower than the interest rate, but rates are fixed and nominal, whereas dividends are risky and contingent of profits and not least cash flow. Dividends can be reduced or cancelled altogether.


Many more and bigger fundamental reasons to worry

There are of course numerous more reasons to expect lower profits, multiples and share prices, such as profit margins mean reverting (or inverting!), increasing churn rate among the top companies in a digital world etc. No need to mention the boomer cohort retiring, thus both reducing their equity portfolios, and cutting back on consumption (due to uncertainty about longevity and investment returns; feeding into lower sales and profits on top of any other adversity or recession trigger). I also don’t want to spoil any bull party with mentions of the debt ceiling and a congress that actually wants to see the president fail.

Finally, there is that minor detail of all too much debt in all sectors of the economy (government, corporate, student, auto, mortgage, credit cards) having already pulled sentiment and consumption forward, and henceforth putting a lid on future growth.

Oh, I almost forgot The Fourth Turning which with impeccable timing is soon upon us with its convenient total solution to small matters such as a failing European Union, currency wars, nuclear bickering with North Korea, unsustainable pension promises and the obese healthcare sector. Maybe a digital World War III, followed by a gold backed cryptocurrency fiat re-set accord could interest you?


And the bad news?

Technicals don’t look good either. Dr Hussman has frequently noted that high valuations alone rarely slow down equities. However, when the appetite for risk eventually recedes, it’s visible in “market internals”.

He theorizes that when risk is in universal demand it makes asset classes, industries, sectors and companies converge. The mirror image of such bull behavior is widening dispersion in a number of respects as a harbinger of more widespread flight to safety. The FANG phenomenon is hardly new, and narrowing markets are but one example of an early risk off signal for equity markets.

FYI: As of August 14, Dr Hussman no longer calls the rising risk aversion subtle.

Ain’t nuthin’ but a FANG!

As a final word: never forget that all securities have to be held until retired. That means that no matter how far a stock price has fallen there is still 100% owners, and thus potential sellers of the stock left. If falling equities means record high NYSE margin debt will trigger forced selling those potential sellers risk becoming increasingly urgent. And then there is the case of Ponzi schemes which have an uncanny knack of being exposed and exacerbating the negativity right when they do the most harm.

Do you still preach dancing while the music is playing, albeit close to the exits (or remaining chairs)? I mean, central banks have no way to go but ever more retard. The same goes for banks and corporations. They’ll push for just one more quarter of play pretend. Maybe they can pull themselves up by their own hair a final time before the ultimate solution. Some even claim it was the earlier downturns that were anomalies and due to very specific one-time issues.


Well I’m peepin’ and I’m creepin’ and I’m creep-in

But I damn near got caught ’cause my beeper kept beepin’

Now it’s time for me to make my impression felt

So sit back, relax and strap on your seatbelt


I wouldn’t bet on it; there’s no reason to. You can always decide to simply pass on this round and see what happens. Or, you just have to ask yourself if you feel lucky.

Well, do ya? (Please read this post in conjunction with my previous ironic post on the bull case for stocks)


Are you afraid yet? You should be.

The fire is lit, and there are very few exits — small and obscure ones.

You should be

Gold is one of those exits. Bitcoin might be another. Soft commodities could also be worth a look.


Do you want more? Do you want to stay updated? Subscribe, read my book, check in again, tell a friend.

BONUS: Check out Ludvig’s write-up in English of our interview with billionaire and hedge fund founder Martin Sandquist here.

The next 1000% trade is in gold mines

This post about gold refers to my post about uranium from the day before yesterday. The only real difference is that it’s about gold.

Conclusion: I think it’s about time to trade some of those expensive stocks for gold. Just as for URA there is a 5x potential in GLD here, and more so in GDX (miners).


The current technical case for gold

Talking about triple bottoms (see the URA trade), check out the senior goldminers ETF:

GDX

The chart is right at a pivotal point where the gold miners could break out upward, from the trend of lower highs toward a pretty solid constant bottom.


In a longer term perspective, the current formation looks like it’s just the final confirmation pattern of a larger bottoming process:

GDX

The low point in early 2016 looks like an anomaly, a final “puke”, where a lot of gold bulls simply gave up.

I should know, I did myself sell a minor part of my listed gold holdings there (to start making room for private gold exposure). Luckily, I saved the absolute bulk of my divestments for the peak in July 2016. That didn’t mean giving up on gold altogether though, not even temporarily. I simply sold my listed GLD there, and bought shares in a private Canadian precious metals royalty streaming company instead. Read more about my investments here.

Since the Canadian company is moving a bit slowly for my taste with its contract signings, I’ve re-entered the listed gold market again as well, this time with exposure to GDX (gold miners):

Fair disclosure: My exposure to GDX is only about 1% of my net worth, while my investment in Canada is around 5%.


Looking at the underlying commodity through the GLD ETF, it seems more and more likely to me that the gold price correction (halving, approximately) that began 6 years ago is coming to an end, albeit slowly and hesitantly. Or is it just wishful thinking?

GLD

The fundamentals of gold, and the lure of 5x… or 10x

Gold doesn’t really have a value per se (read more here). Nonetheless there are fundamentals pointing more and more acutely toward a surge going forward. Not least, China is hoarding the metal as a bargaining chip in a likely fiat reset or other currency accord.

Admittedly, these things take time, potentially decades, but the game is already afoot and I doubt gold can become much cheaper in USD. In contrast it can become much much more expensive.

I would be a little surprised to see the price of gold fall by more than 20% to new decade lows, and not that surprised to see it increase to 5x its current price in dollars. At the same time, I wouldn’t be at all surprised to see stock markets halve over the coming 2-5 years, whereas I find it increasingly difficult to see where a 20% upside would come from, apart from a brief inverted puke.

Nota bene that while GLD just about halved between 2011 and 2016, the GDX fell by more than 80% to less than 1/5th of its peak price. If GLD only reclaims its previous peak of 185.84 (+54% from today’s 120.77) it’s probably realistic to expect GDX to advance by almost 200% from today’s 22.79 to its previous peak of 66.92. Actually, I would expect more, thanks to miners having streamlined their operations during the long bear market for gold. Now, imagine what the miners might do if gold rose by 400% (i.e., 5x) instead of a measly 50%.

More recently the GDX increased by 2.6x (+160%) from trough to peak in 2016, while GLD increased by 1.3x (+30%).

You do the math.

(please note though, that there are huge differences between buying physical gold, a gold ETF and a gold mine ETF)

No matter, I’m getting out of the GDX trade as soon as I hear my Canadian venture is fully invested.


Summary

Gold has halved while stocks have tripled.

Gold doesn’t have a valuation, but stocks are more expensive than ever (on, e.g., a median stock P/S multiple or Market Cap to GVA), and gold could be the go to place in a monetary reset. This is by no means a 100% safe trade, but it’s way better today than it was back in 2009-2011.

The upside potential for gold is enormous, while technicals suggest the downside is quite limited. Conversely, the opposite holds true for stocks.


Continue reading about my views of macro, finance and investments here by the headline “INVESTMENTS”, e.g., this post about my holdings. Don’t miss my future musings on life, finance, health and happiness by subscribing to my free weekly newsletter — you’ll get my book on investing for free as well (we’ll see how long I’ll keep that up now that I’ve given away way over 10k pdf copies.