Mandatory Reading

I’m often asked by people to recommend good books to read in the finance and investment space. Although there are numerous titles out there, one book that always comes to mind, and one that should be on the mandatory reading list, is the Fourth turning by Howe / Strauss.

The video linked below is a wonderful taster of what is covered in the book. From defining emerging and new trends, explaining the long term 80-90 year cycles, walking you through what to expect through the high, awakening, unraveling and crisis (4 turnings). The crisis or fourth turning consists of 4 phases: catalyst, regeneration, crisis and resolution gives insight into our current social, political and economic cycle and what to expect.

In my opinion this book should be mandatory reading for anyone who wants to understand the real economic forces at play within the global economy.

The property game - monopoly

image by BP Miller

How often have you heard the following statement while out and about, in the queue at the coffee shop or even sat at the dinner table with friends and family “can you believe the insane appreciation in property values”?

I often find myself leaning in to have a listen to the replies and you’ll be surprised to hear what’s listed as the reason:

• The builders aren’t building enough so we have a supply issue

• The demand from foreign investors is crowding out local families and is pushing up price

• Safe as houses, property always goes up in this or that key city

• Mortgages are so easy to get these days anyone can buy, massively increasing demand

• the new golf course, railway or shopping centre has done the trick in this area

There are many more of the above reasons but I’d like to give you another way to look at this and then hopefully next time you hear the statement you’ll be able to give a slight better reason that’s far closer to the truth than the other reasons.

I’ll use the game of monopoly as an aid. Just think back through the last time you played the game, at the start everyone gets the same amount of money and the prices of the property on the board are all fixed. The streets become more expensive as you move through the different colours, each player must decide if they are going down the quality or quantity route with their purchases. Now suppose one player gets 4 times the cash at the start of the game and 4 times the cash after going through begin each time. What price do you think he/she will be willing to bid up prices to if they went to auction? If you guessed 4x, you’d be correct. Having 4 times the firepower as the player next to you gives you a great advantage, you won’t necessarily always bid 4x to beat your rival to a purchase but the option is there.

Now let us suppose that the everyone in the game gets 4 times the cash at the start of the game and 4 times the amount after going through begin, everyone will be prepared to pay 4 times the value of the properties on the board and over time this is what will happen. At this point it would be prudent to take out a permanent ink marker and adjust all the prices in the game by a factor of 4.

By adding extra money to the game you can change the value of the property even if there are no changes made to them.

Now, back to the original statement, if governments have added 3-4 times the money in the system since the GFC, are you still surprised to see asset price’s like property increase 3-4x. I’m not and I’d say there are some isolated cases where some assets have only increased by a factor of 2 times since 2008. This makes these cheap relative to others like the stock market which have mirrored the money printing programs.

"Bitcoin vs Gold" or is it "Bitcoin and Gold"?

image by Dmitry Demidko

Its been a really difficult title to decide on. Bitcoin vs Gold or Gold vs Bitcoin is the one most people want to see and read about because for some reason they feel they must pick a side and join the team and cheer for and against the other. Gold bugs and bitcoin maximalists are constantly justifying why their “non fiat” asset proxy is better than the other one. Wasn’t the #dropgold campaign hysterical… it seemed to take place at the exact moment when Gold broke out relative to 99.9% of all fiat currencies across the globe. Equally silly were all our gold bug friends who for 10 years before had been calling for the death of bitcoin and who have been revelling in the fact that bitcoin dropped from 19k in early 2018 to around 3k by Dec 2018. What all these famous money men failed to see was when bitcoin went from 150USD to 19K. There are countless reasons why each one is better or worse than the other, but you can go and read up on all that yourself - I don’t care for the competition. This article is about “Gold and Bitcoin”.

There is an age old saying that goes something like this … “divide and conquer”. The basic idea is that to rule effectively the easiest thing to do is to split people up into groups, let them go at each other and then while they are distracted you are able to rule. The people will be so distracted by each other they won’t even notice what is actually happening. We have a really good working example of this in the UK at present, the whole nation has been mesmerised by Brexit, neither side has actually seen the democratic process for what it really is. Imagine voting for something and then your representatives turn around and do the opposite. But none of that is important, what’s important to these 2 groups is: are we in or are we out.

Now you are probably thinking, why am I saying all this? The Bitcoin vs Gold narrative has come from somewhere, and the idea is to set each off against the other, while distracting both to the total loss of fiat currency purchasing power. The benefits of holding both should be fairly obvious and the conversation should be about the allocation percentage between the two.

You see, the one thing that both these wonderful asset classes posses is that they are not FIAT. Their supply is not mandated by a government (in plain english - governments can not create these out of thin air, like they can their own currency) . Its not that we don’t like government, its that when it comes to money creation, their track records aren’t that good. The funny thing with you gold maximalists and bitcoin bugs (hehe) is that you have so much in common, you are practically identical twins - stop this competitive nonsense and find a way to work together.

History doesn't repeat ... but it sure does rhyme

image by Giammarco Boscaro

So what exactly does this mean for you and I when it comes to social and economic events. It means that by looking back into the past we get a very good idea of what can happen in the future. When I say look back in the past, I don’t mean last week or last month or even last year. I am referring to looking back multiple generations and even as far back as the great empires. These empires go through typical phases during conception, growth, stagnation and ultimate decline.

So why is this all so important both socially and economically. I’ll start by covering the social side and this often is highlighted by the political leaders selected by the people. Just looking back 100 years at the selection of far right leaders, gives you a very interesting reference point at what would have been happening for the average person on the street. History tells us about the roaring 20’s and how a small percentage owned a large percentage of the total wealth, while the majority struggled along after the first world war paying off debt. Income gaps were rising and speculation was at extreme levels (anyone remember the 1929 crash) and the depression after that. The backlash at that time was to select pro nationalist, in-ward looking leaders who could solve their countries economic issues. Now, is this in anyway sounding familiar. Parties in the 00’s, technology and real estate speculation while the kids are out fighting the war on terror. Global Financial Crisis, ever widening income gap with stock / bond bubbles and insane levels of corporate and student debt. Brexit and Trump a coincidence?

Hopefully you are seeing the rhythm.

So why is this important for us from an economic perspective. Most of us love our families and wouldn’t want any harm to come to them. We want to be able to provide them with the basic human needs (Maslow does a pretty good job here in his hierarchy of needs). Providing these needs is going to cost money and since most of us work and invest to provide for our family, we may as well check in to see how people did this through the ages. Unfortunately there is no silver bullet and different ideas work in different times. The key is to try and identify where you are in the cycle

The video below does a very good job of identifying ways to protect your family in times of uncertainty and when the current systems are at breaking point and no longer viable. The other questions to ask yourself right now would include:

• Which assets can I own that don’t have counter-party risk

• Are assets and insurance policies I use created by bureaucrats (and under what rules do the insurance policies not payout)

• What assets do well into, during and after recessions

• When do you switch from value to growth and growth to value

I could go on all day but I’ll leave you with one of my favourite quotes on this whole topic

It's important to learn from your mistakes, but it is BETTER to learn from other people's mistakes, and it is BEST to learn from other people's successes. It accelerates your own success.

Jim Rohn

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Institutions buy down markets…

image provided by Sean Pollock

This study looks at the total destruction of capital from the peak of the altcoin bubble, which so spectacularly came to an end in Jan 2018.

The chart shows the total capitalisation of all crypto currency excluding bitcoin. After losing approx 90% of their value, it wasn’t all that difficult to predict fortunes would turn and once again we saw the money flow into alt coins for a muted rally into end Jun 2019. Most of these gains have been lost, nearly 80% down this time.

The key point which is highlighted in the second image (3 day chart) is that we are back in a buying zone. It won’t be “mom and pop” buying, they tend to buy at the top, it will be institutional investors who will be filling their bags in “overlapping green zones”.

Institutions buy markets when they are down and sell markets when they are up

This is where we can help, register your interest here to be on the right side of this movement.

How important is demographics today?

image by Tyler Nix

It’s interesting for me to listen to people from all ages who talk about finance and investing and never (yes never, not once) talk about demographics.

I won’t bore you with the details, however if you’d like to understand how important it is, my suggestion is to read Neil Howe’s masterpiece “Fourth Turning” and secondly by taking the time to watch Real Vision’s YouTube video on the coming pension crisis.

We at Momentum Analytics understand the future challenges and more importantly have identified opportunities. Register your details here to find out how.