Credit deflation and the reflation cycle to come.

[janch]

1 hour ago, Bricks & Mortar said:

Loved this very much.  I'm coming round to the idea that helicopter money might actually be likely as a first response. 

Agree Paul Hodges is on the money as usual so thanks SP for posting.  I would love some helicopter money to add to my portfolio of reflationary stocks (LOL) but I think in the UK at least, the government is more likely to put it into infrastructure as DB suggested. 

In a way though PPI/ cash for clunkers etc is a form of helicopter money.

[DurhamBorn]

2 hours ago, Ma2 said:

@DurhamBorn

Hi DB, could you just clarify if you mean PM, PM miners or both in your post above?

Personally I intend to sell off gains and potentially some capital in the miners to buy potential reflation stocks but hold the metals themselves as a hedge against whatever the hell is coming. 

Many thanks. 

When i say PMs i mean the miners.I hold the physical,and i think silver might 15x in price,but i dont count it in my portfolio as unless it runs it creates no income etc.

[DurhamBorn]

1 hour ago, janch said:

Agree Paul Hodges is on the money as usual so thanks SP for posting.  I would love some helicopter money to add to my portfolio of reflationary stocks (LOL) but I think in the UK at least, the government is more likely to put it into infrastructure as DB suggested. 

In a way though PPI/ cash for clunkers etc is a form of helicopter money.

Agree,in the UK we already have helicopter money.My friend gets £2200 a month for free in benefits and out out every other night for meals etc.

Vod up 10% today,free cash flow figures looking good.

[Bricks & Mortar]

6 hours ago, janch said:

I think in the UK at least, the government is more likely to put it into infrastructure as DB suggested. 

Over the next 5-10 years, I'm sure they will.  I meant I'm now of the opinion that helicopter money, in the form of something like a £500 cheque, might be deployed at the very beginning. 
I think we're close to this being recognised as a crisis.   I'd hoped, by now, there'd be plans in place for houses, roads, and other infrastructure.  I don't see much out of the ordinary.  So expect that'll take time to get going.  But the need for something reflationary will be urgent.   £500 each would be a bit over £30 billion, I think, and we'll be spending far more than that in the long run.  But it'll have an instant effect and I'm thinking they might do that as a stop-gap before the infrastructure projects get going.

Doubt I'll get a seat in my local that night.

It's not something I'll be banking my future on.  But I won't be surprised if it turns up.  And I think its exactly the sort of thing Boris would just love - to be the guy handing out free money.

[Majorpain]

38 minutes ago, Bricks & Mortar said:

I think we're close to this being recognised as a crisis.   I'd hoped, by now, there'd be plans in place for houses, roads, and other infrastructure.  I don't see much out of the ordinary.  So expect that'll take time to get going.  But the need for something reflationary will be urgent.   £500 each would be a bit over £30 billion, I think, and we'll be spending far more than that in the long run.  But it'll have an instant effect and I'm thinking they might do that as a stop-gap before the infrastructure projects get going.

Crisis needs to properly hit before money taps get turned on IMO, i think the main effect of a debt deflation will be when credit effectively disappears overnight.  £500 cash to everyone in that scenario might be a bit of godsend to someone living off credit cards who cant buy food.  Its in no-ones interest for there to be riots on the streets.

[Bobthebuilder]

11 hours ago, Harley said:

And while I'm at it, if you temporarily accept Economics is somewhat a science (at least in approach), then is it not the case that most scientific explanations, theories, observations, etc break down if you venture far enough standard deviations from the norm?  For example, and very relevent, do not the normal laws of physics break down as you approach a cosmic black hole?  If so in most of the sciences, then so in Economics and current policy is now many deviations (in the full sense of the word!) from the norm!  And they are a long way from perfecting the normal theories before venturing into the extreme and unconventional tail ends of the subject.  More like they are trying to terraform the economic landscape to fit their want than understand the existing one!

great post and something i think about a bit. Natural laws and the effects, i think the closer you would get to a black hole the more the laws of Physics would apply (if only for a brief moment). So gravity, a small force caused by the curviture of space time and mass , small yes, but jump off a building and that small force can manifest itself with bad results.  Bit like trading..

[sancho panza]

A family member saw this graph and posted me a printed paper copy becuase they can't send links over the interweb.....interesting chart,not sure how the debt chart is constructed but if @Majorpain recent psots are anythignt go by,godl going up.

They told me it was a Bloomberg story but couldn't find it.

 

Obviously correlation isn't causation.

https://www.gold.org/goldhub/gold-focus/2019/07/gold-prices-have-increased-amount-global-net-negative-yielding-debt

Amount of global negative net debt and price of gold

[sancho panza]

14 hours ago, VeryMeanReversion said:

Very informative, thanks for posting it.

Some thoughts:

1. When the economic models don't match reality, they keep pressing the wrong button (stimulate, stimulate).

2. "We're not getting older, we're getting better" is just delusion. The era of the most productive age groups (30-45 year old) has long passed. Encouraging immigration of younger but 'net-drains' is beyond stupid.

3. They can only print, not make real assets. That's why I aim for maximum capital but minimum £'s and minimum debt.

4. In an aging population, no one with any ability to pay back will want to borrow. My mortgage company says I can borrow £275K but I just want to clear the balance and reduce my working hours. Less than five years for me to do that then I don't want any debt at even 0%.  I'm already on a 4-day week as the 5th day is taxed so heavily, it's not worth it.

Couple of good points there VMR.Hodges is a huge fan of the EU and the demogrpahic dividend it can pay.But 1) it may mean we're depriving countries of their young peoople 2) as you say,importing net drains jsut deepens the govt debt problem.Also worth noting that if a lot of recent immigrants head back out if the economy softens then the banks may finds their risk weighting needs a check.

It's strange but Wolf Richter made a good point the other day on a podcast and that was that the monetary pokciy response to 08 aimed to stimulate inflation and that it did but only in assets.Whilst that may not be news to many on here it was the first time I'd consideered that it had created inflation in pensions ie to buy a dollar of earnings you now need to pay more.The failings of our economic establishment are myriad but all their failings are underpinned by an inability to measure inflation adeqautely.

Because their policy response failed to generate price inflation of the sort they were after ,they did more of it because,using their models,they were doing no harm.The damage they've done in social terms through the wilful distortion of risk pricing is immense and the reverberations will be felt one or two generations down the line.

 

It was ever thus though.And it seems no coincidence that the repeal of glass steagall occurred when the last of those wgho had lived through the great depression had left Congress

 

12 hours ago, Harley said:

Modigliani's theory only works if you make the age old economist's assumption of the rational economic actor.  Laughable more now than ever, especially when those pulling the levers are themselves being irrational as they have sold their economic souls to the politicians and their clients.

Friedman, well I have some support for him and his cohort having first studied in the 1980's when crony Keynsianism was seen to be failing and a balance was being sort (Keynes' monetarist views had/have been conveniently ignored).  A derivative of monetary theory is still relevant but the source of that money (government) and some other assumed long standing aspects of it no longer are.

None of this is hard if you're an "honest" economist and care for the subject.

It's never ceased to amaze me that the research bias in economics has resulted in central bankers that all follow the same failed/failing theories.

I remember reading steve keen and how 95% of the worlds academic economists were neo classical.Ergo all believe in modelling that excludes private debt and aslo based on the following three assumptions that are not open for discussion.

My expereince of life ,living and trading tells me that they're all wrong or at least there's a lot of missplaced faith in them

https://www.econlib.org/library/Enc1/NeoclassicalEconomics.html

'Neoclassical economics is what is called a metatheory. That is, it is a set of implicit rules or understandings for constructing satisfactory economic theories. It is a scientific research program that generates economic theories. Its fundamental assumptions are not open to discussion in that they define the shared understandings of those who call themselves neoclassical economists, or economists without any adjective. Those fundamental assumptions include the following:

• 1. People have rational preferences among outcomes.
• 2. Individuals maximize utility and firms maximize profits.
• 3. People act independently on the basis of full and relevant information.

Theories based on, or guided by, these assumptions are neoclassical theories. '

 

[sancho panza]

https://www.bloomberg.com/news/articles/2019-06-21/the-world-now-has-13-trillion-of-debt-with-below-zero-yields

Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.

 

 

The universe of negative-yielding bonds grew about $1.2 trillion this week after dovish messages from central banks in Europe and the U.S., pushing the total past $13 trillion for the first time.

 

 

Joining the club of government debt with 10-year yields below zero this week were Austria, Sweden and France. Japanese and German rates plumbed fresh all-time lows amid a global bond rally that even got Wall Street pondering life with Treasuries yields under 1%.

 

 

“The message from the markets is that there are problems out there that central banks, not just the Fed, are now responding to,” Ed Hyman, Evercore ISI chairman, told Bloomberg TV.

 

 

In Europe, another notable milestone was reached this week. Yields on Danish debt due to mature 20 years from now dropped to a record low, leaving the entire curve within an inch of turning negative. Some 40% of global bonds are now yielding less than 1%, according to data compiled by Bloomberg.

It’s not just sovereign debt. In the investment-grade market, negative-yielding debt now comprises almost a quarter of the total. And as companies take advantage of low interest rates to borrow more, issuance has helped drive junk bonds outstanding to more than $1.23 trillion, more than double the level a decade ago.

Whether the universe of negative-yielding debt continues to expand depends in part on the policy of the European Central Bank under Mario Draghi’s successor and upcoming moves from the Bank of Japan, the two regions making up the overwhelming bulk of sub-zero yields. Countries to watch include Belgium, teetering on the brink with a 10-year rate of 0.08%. And Spain, at about 0.39%.

 

 

Bloomberg’s calculations of total global negative-rate bonds date to January
2017; monthly tallies prior to that indicate that the stockpile is now at a record.

[sancho panza]

https://www.bloomberg.com/graphics/2019-negative-yield-debt/

The Logic Behind the
Bonds That Eat Your Money

One of the basic assumptions of debt is that ­borrowers pay interest to lenders. That idea has been upended in the global bond market. There’s now about $13 trillion in negative-yielding bonds. Investors who hold them to maturity will end up getting less money than they paid for them, even including interest.

The prevalence of negative yields pulls down the rates on all kinds of debt—including riskier loans—creating a bonanza for borrowers and some pain for lenders and savers. Yet these less-than-zero rates are largely a symptom of deeper problems in the economy.

Negative-yielding bonds make up about a quarter of the investment-grade debt tracked by the Bloomberg Barclays Global-Aggregate Index. Investors have to pay to own more than 80% of Germany’s federal and regional government bonds; almost the entire Danish government market is negative. The U.S. is one of a dwindling number of nations with no negative-yielding sovereign debt.

 

 

 

 

 

Investors are willing to pay a premium—and ultimately take a loss—because they need the reliability and liquidity that government and high-quality corporate bonds provide. Large investors such as pension funds, insurers, and financial institutions may have few other safe places to store their wealth.

Monetary authorities have brought down bond yields by keeping key interest rates exceptionally low since the financial crisis, with the aim of spurring borrowing that would lead to economic growth. After the ECB cut its deposit rate below zero in 2014—central banks are able to actually charge banks to hold their money—several of Europe’s other monetary authorities also introduced negative rates. The Bank of Japan soon followed, although it was already a trailblazer when it adopted zero interest rates two decades ago. Central banks also helped push rates down by embarking on purchases of longer-term debt, in what became known as quantitative easing.

Central bankers are reacting to broader economic forces. One reason they typically raise rates is to curb inflation. But prices haven’t been shooting upward, and gauges of the market’s inflation expectations show there’s little on the horizon. Particularly in Japan, persistent fears of deflation—falling prices—can make negative yields seem like a reasonable deal.

 

Inflation generally goes hand in hand with a strong economy. While central bankers have been trying to stimulate growth, some governments have been more conservative. Take Germany: Even though the bond market is willing to pay the country to borrow, the government has been reluctant to jeopardize its budget surplus.

One theory is that demographic forces will keep inflation and rates permanently low. Europe is thought to be going through a process that’s already played out in Japan—as populations get older and the share of working-age people falls, there may be too little consumer demand pushing prices up. Meanwhile, pension funds are willing to pay up for long-dated bonds—and accept low yields—to match their increased retirement liabilities.

 

Ultralow rates on the safest bonds has had a spillover effect on other markets. A handful of corporate junk bonds denominated in euros have negative yields. Investors are bidding up the prices of all kinds of riskier assets—from equities to emerging-market bonds—in search of better returns. “It’s a huge question and dilemma for savers,” says Andrew Bosomworth, head of portfolio management in Germany for Pimco.

On the flip side, most banks in Europe haven’t been able to pass negative rates onto their depositors, squeezing interest margins. Advocates of negative rates argue that they nonetheless have helped boost overall bank earnings by underpinning economic growth. But major European lenders say further rate declines will cut into their profitability. Deutsche Bank’s finance chief James von Moltke told Bloomberg Television on July 24 that lower rates pose “a significant risk to us.”

 

 

Average net interest margin for all U.S. banks. Spread between lending and borrowing rates in Europe weighted by banks’ share in total lending. Blended domestic and overseas loan spread as reported by the biggest four Japanese banks, weighted by their share in total lending.

Data: European Central Bank, Federal Reserve, company filings

The U.S. has never had negative rates on conventional Treasuries, but it’s come close. Two-year yields touched 0.14% in 2011 and stayed very low until the Federal Reserve started hiking rates at the end of 2015. Now, amid worries about the economy, the Fed is expected to go back to cutting rates this month.

With 10-year Treasuries paying about 2%, negative seems a long way off—the price of the bond would have to rise about 20%. But the minus sign has become so commonplace in so much of the world, nothing seems impossible. Says Scott Thiel, chief fixed-income strategist at BlackRock Inc.: “There’s no chapter in your bond math book on this.”

[Talking Monkey]

7 hours ago, Bricks & Mortar said:

Over the next 5-10 years, I'm sure they will.  I meant I'm now of the opinion that helicopter money, in the form of something like a £500 cheque, might be deployed at the very beginning. 
I think we're close to this being recognised as a crisis.   I'd hoped, by now, there'd be plans in place for houses, roads, and other infrastructure.  I don't see much out of the ordinary.  So expect that'll take time to get going.  But the need for something reflationary will be urgent.   £500 each would be a bit over £30 billion, I think, and we'll be spending far more than that in the long run.  But it'll have an instant effect and I'm thinking they might do that as a stop-gap before the infrastructure projects get going.

Doubt I'll get a seat in my local that night.

It's not something I'll be banking my future on.  But I won't be surprised if it turns up.  And I think its exactly the sort of thing Boris would just love - to be the guy handing out free money.

But would that be the best way to do it 30Billion pissed up against the wall, why not try to spend the 30Billion trying to expedite the infrastructure projects

[Noallegiance]

10 hours ago, Majorpain said:

Crisis needs to properly hit before money taps get turned on IMO, i think the main effect of a debt deflation will be when credit effectively disappears overnight.  £500 cash to everyone in that scenario might be a bit of godsend to someone living off credit cards who cant buy food.  Its in no-ones interest for there to be riots on the streets.

I have only a tiny amount of debt and three kids. Live in SE. £500 wouldn't touch the sides for life now let alone in a crisis/inflationary environment.

[leonardratso]

37 minutes ago, Noallegiance said:

I have only a tiny amount of debt and three kids. Live in SE. £500 wouldn't touch the sides for life now let alone in a crisis/inflationary environment.

30bn in total, £500 each you say, I cant see it myself although you never know what kind of crazy half arsed stuff might be pulled. But yes, £500 is not a life changing amount and wont really go anywhere, be gone in 2 or 3 days, i could probably spend that on scratchcards in a day if i was that way inclined.

[dgul]

1 hour ago, Noallegiance said:

I have only a tiny amount of debt and three kids. Live in SE. £500 wouldn't touch the sides for life now let alone in a crisis/inflationary environment.

 

57 minutes ago, leonardratso said:

30bn in total, £500 each you say, I cant see it myself although you never know what kind of crazy half arsed stuff might be pulled. But yes, £500 is not a life changing amount and wont really go anywhere, be gone in 2 or 3 days, i could probably spend that on scratchcards in a day if i was that way inclined.

That's kind-of the point.

It is a sum of money that would get instantly spent (that part is important*) and so add to the economy, but not large enough to actually change any behaviours.  I'd say it would add perhaps 1% to GDP.

[* it really is important that it isn't 'saved' -- that wouldn't be helpful.  So it could be in the form of vouchers, say.  This is exactly why they've aimed stimulus money where they have -- pensioners spend because they've 'done the savings bit', while the welfare addicts spend because they're feckless.  They've not really given any to nice private sector upper middle class folk -- they'd just shove it in their pension]

[Majorpain]

50 minutes ago, dgul said:

It is a sum of money that would get instantly spent (that part is important*) and so add to the economy, but not large enough to actually change any behaviours.  I'd say it would add perhaps 1% to GDP. 

Yes, it keeps things ticking over.  There are 60,000 critical people in the country who need to go to work or the economy starts to completely shut down, various people are looking into civil resilience which hasnt been a thing since the Berlin wall came down.

[Ma2]

Another interesting email from Freetrade, this time on mining. No link I’m afraid -

Did you ever play Red Alert or Starcraft?

If so, your first impression of how the economy works might have been: "Well you dig ore out of the ground and turn it into everything else."

 Like generic blue ore. You can make almost anything out of that. 

The crazy thing is that it’s almost true. Sure there are a million types of businesses but the actual physical stuff we all use daily? It's mostly just rock that's been dug up and refined. 

Iron and aluminium for construction and vehicles. Copper for electronics and wiring. An iPhone alone contains over 60 metals.

On that point, fun fact, a tonne of iPhones contains more gold than a tonne of gold ore.

Mining is one of the most ancient industries and still one of the most powerful and consequential. And the companies who make it happen have some of the craziest stories around. 

That's so metal 🤘

While mining generally means digging something out of the ground, there's a lot of diversity among different miners: what they mine, what impacts them and how they operate. 

Sirius Minerals, for instance, is completely focused on developing a not yet operational mine in Yorkshire to unearth potash and polyhalite, potassium-rich minerals used for fertiliser. 

So it's pretty hard to establish broad patterns among miners and there are a few different ways to slice it. However, in the commodities market, there is a loose distinction between base metals and precious metals. 

Base metals are abundant, inexpensive ones widely used in manufacturing and construction. Stuff like aluminium, zinc, copper and tungsten. On the commodities market, iron isn't included in the base metals for historic reasons but it has similar characteristics: common, relatively cheap and widely used. 

Precious metals are rare, non-reactive metals like gold, silver and platinum. There are some industrial uses for precious metals (gold is in lots of electronics, for instance) but their demand is largely driven by their use in jewellery and as financial assets. 

Precious metal miners operate a bit like prospectors and a bit like asset managers. It's incredibly important for miners to manage their balance sheets so that price declines don't render the mines loss-making. 

In fact in the 1980s, a bubble in silver prices actually harmed silver miners more than it helped because their short hedging contracts (derivatives that pay out when a price declines) were costing them more on a daily basis than the extra value of the silver they were mining.

Still though, not all miners hedge. 

Mining, in general, is a contentious industry. Harsh labour practices, ecological impact and corruption can happen in any type of mining. But the geography and high-risk/high-reward nature of precious metals mining have made it a magnet for controversy. 

One gold miner that's stirring a lot of interest right now is Acacia Mining

Solid gold 

Acacia Mining was launched in 2000 to operate the Tanzanian gold mining interest of gold giant Barrick Gold. Tanzania now has the 4th largest gold production in Africa and Acacia's mines are largely responsible for that. [https://www.tanzaniainvest.com/gold]

In 2010, Barrick listed Acacia as a separate business on the London Stock Exchange, raising new funds for exploration and expansion through the IPO. But Barrick Gold remained the majority owner, with 64% of the shares. 

However, independence hasn't proved a bold new dawn for Acacia, For over two years they've been engaged in a bitter stand-off with the Tanzanian government, led by President Joseph Magufuli. 

Not as genial as this photo implies

In 2017, Magufuli banned unrefined gold ore exports on the basis that it was too difficult to assess its value and to encourage more of the value creation to remain in Tanzania. Acacia is accused of flouting this ban, effectively hiding the amount of gold it mined.

For this, as well as multiple environmental allegations, they've been charged with a $190B tax bill. That, to be fair, is more tax than all gold miners have collectively paid since 2000 so it seems on the high side.

Now, the allegations have neither been proven or disproven and mining companies are hardly paragons of virtue. In 2019, The Guardian reported terrible atrocities at Acacia's North Mara mine. But it's also possible that this is more a power-grab and muscle flexing by an authoritarian leader than a drive for ethical business.

In any case, with no political support, Acacia has floundered and their share price has declined sharply from 2016.

The tussle 🤼‍♀️

For the last few weeks, Barrick and Acacia have grappled over the future, as the former owner wants to take back control. Barrick insisted that the only route forward was cooperation, while the latter insisted that Acacia was grossly undervalued in the proposed offer.

Magufuli is much closer to Barrick Gold. He's been sighted in meetings with their executives and the company reported that they had come to an agreement with the government over the back taxes. 

Last week, Barrick and Acacia reached an agreement on the merger. By the terms of the pact Barrick will acquire Acacia and the shareholders will get 0.168 shares of Barrick for each share of Acacia. This would value Acacia shares at roughly £2.32/share: roughly half where it was before the ban.

The agreement still has to win a vote, but it looks like Barrick has won the day.

Regardless of the justification of the exports ban, for Acacia's minority shareholders it looks like a political intervention has basically cut their investment in half. However, in the turbulent world of mining, maybe that's just another risk. 

[Castlevania]

3 hours ago, dgul said:

 

That's kind-of the point.

It is a sum of money that would get instantly spent (that part is important*) and so add to the economy, but not large enough to actually change any behaviours.  I'd say it would add perhaps 1% to GDP.

[* it really is important that it isn't 'saved' -- that wouldn't be helpful.  So it could be in the form of vouchers, say.  This is exactly why they've aimed stimulus money where they have -- pensioners spend because they've 'done the savings bit', while the welfare addicts spend because they're feckless.  They've not really given any to nice private sector upper middle class folk -- they'd just shove it in their pension]

Or spend it on a foreign holiday, which defeats the point of the stimulus.

[Castlevania]

47 minutes ago, Ma2 said:

Another interesting email from Freetrade, this time on mining. No link I’m afraid -

Did you ever play Red Alert or Starcraft?

If so, your first impression of how the economy works might have been: "Well you dig ore out of the ground and turn it into everything else."

<img alt="H13uS0iDi3aTZdNiUVC60eKbkgKRZrIVClCUBQKuPK5Mx5Y3KL7ovOCrOZZW18PaIGG-U9y6vS-3jE56dMl4bKVaiZabgSMrs-aIwLsq9rXmJER7Sp58mvKt5hoLYTDQxHICmbEl" data-imageproxy-source="https://lh5.googleusercontent.com/H13uS0iDi3aTZdNiUVC60eKbkgKRZrIVClCUBQKuPK5Mx5Y3KL7ovOCrOZZW18PaIGG-U9y6vS-3jE56dMl4bKVaiZabgSMrs-aIwLsq9rXmJER7Sp58mvKt5hoLYTDQxHICmbEl" data-ratio="56.25" style="border:0px;padding-top:0px;padding-right:0px;padding-left:0px;height:auto;" width="1200" data-src="https://www.dosbods.co.uk/applications/core/interface/imageproxy/imageproxy.php?img=https://lh5.googleusercontent.com/H13uS0iDi3aTZdNiUVC60eKbkgKRZrIVClCUBQKuPK5Mx5Y3KL7ovOCrOZZW18PaIGG-U9y6vS-3jE56dMl4bKVaiZabgSMrs-aIwLsq9rXmJER7Sp58mvKt5hoLYTDQxHICmbEl&key=cf9bcc9a3b88e2eb59b75bd3c94cf9e4ee4d203ab05ce481d3a76cc243c597a8" src="https://www.dosbods.co.uk/applications/core/interface/js/spacer.png" />

 Like generic blue ore. You can make almost anything out of that. 

The crazy thing is that it’s almost true. Sure there are a million types of businesses but the actual physical stuff we all use daily? It's mostly just rock that's been dug up and refined. 

Iron and aluminium for construction and vehicles. Copper for electronics and wiring. An iPhone alone contains over 60 metals.

On that point, fun fact, a tonne of iPhones contains more gold than a tonne of gold ore.

Mining is one of the most ancient industries and still one of the most powerful and consequential. And the companies who make it happen have some of the craziest stories around. 

That's so metal 🤘

<img alt="S_Fu_uYjKzCqLeOGLf6az640nfTl9mM6oj_Kp1E1bsIh9XE8EutWoFp5j_orp0qmKI9QG-kW-8ct1Y8pX8BSrDu_5haZSrYSo6-sMzKfq1Zi5VgGli_PfCuskTimTYwcj9CgVoFl" data-imageproxy-source="https://lh5.googleusercontent.com/S_Fu_uYjKzCqLeOGLf6az640nfTl9mM6oj_Kp1E1bsIh9XE8EutWoFp5j_orp0qmKI9QG-kW-8ct1Y8pX8BSrDu_5haZSrYSo6-sMzKfq1Zi5VgGli_PfCuskTimTYwcj9CgVoFl" data-ratio="56.30" style="border:0px;padding-top:0px;padding-right:0px;padding-left:0px;height:auto;" width="1080" data-src="https://www.dosbods.co.uk/applications/core/interface/imageproxy/imageproxy.php?img=https://lh5.googleusercontent.com/S_Fu_uYjKzCqLeOGLf6az640nfTl9mM6oj_Kp1E1bsIh9XE8EutWoFp5j_orp0qmKI9QG-kW-8ct1Y8pX8BSrDu_5haZSrYSo6-sMzKfq1Zi5VgGli_PfCuskTimTYwcj9CgVoFl&key=1199377e82f1f3e7d309731f474caae22ae6f3b0a3ed87511ef03175b64c8780" src="https://www.dosbods.co.uk/applications/core/interface/js/spacer.png" />

While mining generally means digging something out of the ground, there's a lot of diversity among different miners: what they mine, what impacts them and how they operate. 

Sirius Minerals, for instance, is completely focused on developing a not yet operational mine in Yorkshire to unearth potash and polyhalite, potassium-rich minerals used for fertiliser. 

So it's pretty hard to establish broad patterns among miners and there are a few different ways to slice it. However, in the commodities market, there is a loose distinction between base metals and precious metals. 

Base metals are abundant, inexpensive ones widely used in manufacturing and construction. Stuff like aluminium, zinc, copper and tungsten. On the commodities market, iron isn't included in the base metals for historic reasons but it has similar characteristics: common, relatively cheap and widely used. 

Precious metals are rare, non-reactive metals like gold, silver and platinum. There are some industrial uses for precious metals (gold is in lots of electronics, for instance) but their demand is largely driven by their use in jewellery and as financial assets. 

Precious metal miners operate a bit like prospectors and a bit like asset managers. It's incredibly important for miners to manage their balance sheets so that price declines don't render the mines loss-making. 

In fact in the 1980s, a bubble in silver prices actually harmed silver miners more than it helped because their short hedging contracts (derivatives that pay out when a price declines) were costing them more on a daily basis than the extra value of the silver they were mining.

Still though, not all miners hedge. 

Mining, in general, is a contentious industry. Harsh labour practices, ecological impact and corruption can happen in any type of mining. But the geography and high-risk/high-reward nature of precious metals mining have made it a magnet for controversy. 

One gold miner that's stirring a lot of interest right now is Acacia Mining

Solid gold  <img alt="trophy" data-imageproxy-source="https://freetrade.intercom-mail.com/images/emojis/32x32/1f3c6.png" data-ratio="100.00" height="16" style="border:0px;padding-top:0px;padding-right:0px;padding-left:0px;height:auto;" width="16" data-src="https://www.dosbods.co.uk/applications/core/interface/imageproxy/imageproxy.php?img=https://freetrade.intercom-mail.com/images/emojis/32x32/1f3c6.png&key=7e4e307ea45ccee81070a8ee296a5c51a4ba56598933cc593576023417e94ea8" src="https://www.dosbods.co.uk/applications/core/interface/js/spacer.png" />

<img alt="SCQj3WWaklR4U2ZFGVV_DuzL04WTCDZ03zqz9VpBH1ta4PcXYvDybkFi2AV7mLDoptSLYrh_ASQdkUgRf9xx5F93NWYekyM7t_LsJFeC3fr52DdO12a7x65UsEksvLcsDSlKbV7b" data-imageproxy-source="https://lh4.googleusercontent.com/SCQj3WWaklR4U2ZFGVV_DuzL04WTCDZ03zqz9VpBH1ta4PcXYvDybkFi2AV7mLDoptSLYrh_ASQdkUgRf9xx5F93NWYekyM7t_LsJFeC3fr52DdO12a7x65UsEksvLcsDSlKbV7b" data-ratio="76.45" style="border:0px;padding-top:0px;padding-right:0px;padding-left:0px;height:auto;" width="688" data-src="https://www.dosbods.co.uk/applications/core/interface/imageproxy/imageproxy.php?img=https://lh4.googleusercontent.com/SCQj3WWaklR4U2ZFGVV_DuzL04WTCDZ03zqz9VpBH1ta4PcXYvDybkFi2AV7mLDoptSLYrh_ASQdkUgRf9xx5F93NWYekyM7t_LsJFeC3fr52DdO12a7x65UsEksvLcsDSlKbV7b&key=ca388c85278f06712513bd636d9c026b923ed3a1ce077f331e1305c4dc3910c3" src="https://www.dosbods.co.uk/applications/core/interface/js/spacer.png" />

Acacia Mining was launched in 2000 to operate the Tanzanian gold mining interest of gold giant Barrick Gold. Tanzania now has the 4th largest gold production in Africa and Acacia's mines are largely responsible for that. [https://www.tanzaniainvest.com/gold]

In 2010, Barrick listed Acacia as a separate business on the London Stock Exchange, raising new funds for exploration and expansion through the IPO. But Barrick Gold remained the majority owner, with 64% of the shares. 

However, independence hasn't proved a bold new dawn for Acacia, For over two years they've been engaged in a bitter stand-off with the Tanzanian government, led by President Joseph Magufuli. 

<img alt="Xy65hQPc3JKIq51HxJTLBSH5h3z3f-cOsaXbB--p1SNpoS779292vv0TN49QWwaddnjuQqVV4DBf49nvpfQU1EkPGASr4iSgPvTQwrP0cf9ao13-X3nHVON_upvIayROr1sWK4J5" data-imageproxy-source="https://lh3.googleusercontent.com/Xy65hQPc3JKIq51HxJTLBSH5h3z3f-cOsaXbB--p1SNpoS779292vv0TN49QWwaddnjuQqVV4DBf49nvpfQU1EkPGASr4iSgPvTQwrP0cf9ao13-X3nHVON_upvIayROr1sWK4J5" data-ratio="136.36" style="border:0px;padding-top:0px;padding-right:0px;padding-left:0px;height:auto;" width="220" data-src="https://www.dosbods.co.uk/applications/core/interface/imageproxy/imageproxy.php?img=https://lh3.googleusercontent.com/Xy65hQPc3JKIq51HxJTLBSH5h3z3f-cOsaXbB--p1SNpoS779292vv0TN49QWwaddnjuQqVV4DBf49nvpfQU1EkPGASr4iSgPvTQwrP0cf9ao13-X3nHVON_upvIayROr1sWK4J5&key=9b824e259d6a956f5d3fef814cadfda7fd36c51d2b4b18a685c2b8e83e3ebf9c" src="https://www.dosbods.co.uk/applications/core/interface/js/spacer.png" />

Not as genial as this photo implies

In 2017, Magufuli banned unrefined gold ore exports on the basis that it was too difficult to assess its value and to encourage more of the value creation to remain in Tanzania. Acacia is accused of flouting this ban, effectively hiding the amount of gold it mined.

For this, as well as multiple environmental allegations, they've been charged with a $190B tax bill. That, to be fair, is more tax than all gold miners have collectively paid since 2000 so it seems on the high side.

Now, the allegations have neither been proven or disproven and mining companies are hardly paragons of virtue. In 2019, The Guardian reported terrible atrocities at Acacia's North Mara mine. But it's also possible that this is more a power-grab and muscle flexing by an authoritarian leader than a drive for ethical business.

In any case, with no political support, Acacia has floundered and their share price has declined sharply from 2016.

The tussle 🤼‍♀️

For the last few weeks, Barrick and Acacia have grappled over the future, as the former owner wants to take back control. Barrick insisted that the only route forward was cooperation, while the latter insisted that Acacia was grossly undervalued in the proposed offer.

Magufuli is much closer to Barrick Gold. He's been sighted in meetings with their executives and the company reported that they had come to an agreement with the government over the back taxes. 

Last week, Barrick and Acacia reached an agreement on the merger. By the terms of the pact Barrick will acquire Acacia and the shareholders will get 0.168 shares of Barrick for each share of Acacia. This would value Acacia shares at roughly £2.32/share: roughly half where it was before the ban.

The agreement still has to win a vote, but it looks like Barrick has won the day.

Regardless of the justification of the exports ban, for Acacia's minority shareholders it looks like a political intervention has basically cut their investment in half. However, in the turbulent world of mining, maybe that's just another risk. 

I think it’s a good deal for Barrick.

[Lavalas]

2 hours ago, Ma2 said:

Another interesting email from Freetrade, this time on mining. No link I’m afraid -

Did you ever play Red Alert or Starcraft?

If so, your first impression of how the economy works might have been: "Well you dig ore out of the ground and turn it into everything else."

 Like generic blue ore. You can make almost anything out of that. 

The crazy thing is that it’s almost true. Sure there are a million types of businesses but the actual physical stuff we all use daily? It's mostly just rock that's been dug up and refined. 

Iron and aluminium for construction and vehicles. Copper for electronics and wiring. An iPhone alone contains over 60 metals.

On that point, fun fact, a tonne of iPhones contains more gold than a tonne of gold ore.

Mining is one of the most ancient industries and still one of the most powerful and consequential. And the companies who make it happen have some of the craziest stories around. 

That's so metal 🤘

While mining generally means digging something out of the ground, there's a lot of diversity among different miners: what they mine, what impacts them and how they operate. 

Sirius Minerals, for instance, is completely focused on developing a not yet operational mine in Yorkshire to unearth potash and polyhalite, potassium-rich minerals used for fertiliser. 

So it's pretty hard to establish broad patterns among miners and there are a few different ways to slice it. However, in the commodities market, there is a loose distinction between base metals and precious metals. 

Base metals are abundant, inexpensive ones widely used in manufacturing and construction. Stuff like aluminium, zinc, copper and tungsten. On the commodities market, iron isn't included in the base metals for historic reasons but it has similar characteristics: common, relatively cheap and widely used. 

Precious metals are rare, non-reactive metals like gold, silver and platinum. There are some industrial uses for precious metals (gold is in lots of electronics, for instance) but their demand is largely driven by their use in jewellery and as financial assets. 

Precious metal miners operate a bit like prospectors and a bit like asset managers. It's incredibly important for miners to manage their balance sheets so that price declines don't render the mines loss-making. 

In fact in the 1980s, a bubble in silver prices actually harmed silver miners more than it helped because their short hedging contracts (derivatives that pay out when a price declines) were costing them more on a daily basis than the extra value of the silver they were mining.

Still though, not all miners hedge. 

Mining, in general, is a contentious industry. Harsh labour practices, ecological impact and corruption can happen in any type of mining. But the geography and high-risk/high-reward nature of precious metals mining have made it a magnet for controversy. 

One gold miner that's stirring a lot of interest right now is Acacia Mining

Solid gold 

Acacia Mining was launched in 2000 to operate the Tanzanian gold mining interest of gold giant Barrick Gold. Tanzania now has the 4th largest gold production in Africa and Acacia's mines are largely responsible for that. [https://www.tanzaniainvest.com/gold]

In 2010, Barrick listed Acacia as a separate business on the London Stock Exchange, raising new funds for exploration and expansion through the IPO. But Barrick Gold remained the majority owner, with 64% of the shares. 

However, independence hasn't proved a bold new dawn for Acacia, For over two years they've been engaged in a bitter stand-off with the Tanzanian government, led by President Joseph Magufuli. 

Not as genial as this photo implies

In 2017, Magufuli banned unrefined gold ore exports on the basis that it was too difficult to assess its value and to encourage more of the value creation to remain in Tanzania. Acacia is accused of flouting this ban, effectively hiding the amount of gold it mined.

For this, as well as multiple environmental allegations, they've been charged with a $190B tax bill. That, to be fair, is more tax than all gold miners have collectively paid since 2000 so it seems on the high side.

Now, the allegations have neither been proven or disproven and mining companies are hardly paragons of virtue. In 2019, The Guardian reported terrible atrocities at Acacia's North Mara mine. But it's also possible that this is more a power-grab and muscle flexing by an authoritarian leader than a drive for ethical business.

In any case, with no political support, Acacia has floundered and their share price has declined sharply from 2016.

The tussle 🤼‍♀️

For the last few weeks, Barrick and Acacia have grappled over the future, as the former owner wants to take back control. Barrick insisted that the only route forward was cooperation, while the latter insisted that Acacia was grossly undervalued in the proposed offer.

Magufuli is much closer to Barrick Gold. He's been sighted in meetings with their executives and the company reported that they had come to an agreement with the government over the back taxes. 

Last week, Barrick and Acacia reached an agreement on the merger. By the terms of the pact Barrick will acquire Acacia and the shareholders will get 0.168 shares of Barrick for each share of Acacia. This would value Acacia shares at roughly £2.32/share: roughly half where it was before the ban.

The agreement still has to win a vote, but it looks like Barrick has won the day.

Regardless of the justification of the exports ban, for Acacia's minority shareholders it looks like a political intervention has basically cut their investment in half. However, in the turbulent world of mining, maybe that's just another risk. 

Would be nice if they had more miners available on Freetrade. You can vote for GDXJ to be included here...

https://community.freetrade.io/t/vaneck-vectors-jnr-gold-miners-gdxj/10202

[dgul]

1 hour ago, Castlevania said:

Or spend it on a foreign holiday, which defeats the point of the stimulus.

Quite.  They've got to be very careful -- even if they gave out some kind of voucher that only allowed them to spend on UK sourced food (say), then this would free up £500 that they could then spend on a foreign holiday or Chinese electronics etc etc.

It has to be £500 injected into the UK economy.  

I'm not sure how they could do it.  Perhaps everyone would now spunk their £500 on a few more high-street coffees and some microbrewery beer, but I'm sure that too many (for the stimulus to work) would offshore the cash instantly.

1 hour ago, Castlevania said:

I think it’s a good deal for Barrick.

I made £20k on ACA (my Dosbods Christmas trade, albeit I had to hold for a bit more than I'd planned).  But there's no real read-across into the greater gold-miner market.

[And it is a good deal for Barrick]

[Stuffed]

Are banks set up to be able to verify what you spend £500 on?  Can they decline a transaction if it’s not spent on (say) food?

I doubt it.

So how realistic is it to dictate what it’s spent on?

[dgul]

16 minutes ago, Stuffed said:

Are banks set up to be able to verify what you spend £500 on?  Can they decline a transaction if it’s not spent on (say) food?

I doubt it.

So how realistic is it to dictate what it’s spent on?

As I mentioned above, it is worse than that.

They could make the stimulus a £500 voucher for your council tax -- that would then definitely be spent within the UK.

But the consequence would be that it would free up £500 in an individual's budget to be spent on holidays, gadgets, etc.

I have a feeling that the stimulus of choice will be miras -- sure, individuals could spent the money saved on anything, but historical analysis suggests that it would be spent on increasing (or not decreasing so much) the price of assets, which has other GDP +ve* knock-on effects.

[* obviously it isn't good for the common-man, particularly in the long term, but I don't think TPTB care]

[Castlevania]

1 hour ago, dgul said:

Quite.  They've got to be very careful -- even if they gave out some kind of voucher that only allowed them to spend on UK sourced food (say), then this would free up £500 that they could then spend on a foreign holiday or Chinese electronics etc etc.

It has to be £500 injected into the UK economy.  

I'm not sure how they could do it.  Perhaps everyone would now spunk their £500 on a few more high-street coffees and some microbrewery beer, but I'm sure that too many (for the stimulus to work) would offshore the cash instantly.

I made £20k on ACA (my Dosbods Christmas trade, albeit I had to hold for a bit more than I'd planned).  But there's no real read-across into the greater gold-miner market.

[And it is a good deal for Barrick]

£20k? Wow. Well played. Agreed, I just think the article does a good job of highlighting some of the political risks that can arise when operating in a developing country.

with regards to helicopter money didn’t President Bush give every tax payer a one off $1000 dollars just before he left office? Or am I imagining that?

Edit: Yes he did. $300 to $600 rebate sent as a cheque by the looks of things.

https://en.m.wikipedia.org/wiki/Economic_Stimulus_Act_of_2008

[Bricks & Mortar]

1 hour ago, Castlevania said:

https://en.m.wikipedia.org/wiki/Economic_Stimulus_Act_of_2008

Wow!  I didn't know about this.  There was a lot going on at that time.  Not least my own sudden unemployment.

I loved this bit: " Another study investigated hospital visits in the 23 weeks following the stimulus payments and found the payments raised the probability of an adult emergency department visit by an average of 1.1 percent. The study authors suggest that need for care may have been increased by additional spending on alcohol and narcotics.^[14]"

[Talking Monkey]

10 hours ago, Majorpain said:

Yes, it keeps things ticking over.  There are 60,000 critical people in the country who need to go to work or the economy starts to completely shut down, various people are looking into civil resilience which hasnt been a thing since the Berlin wall came down.

Interesting stuff Major have you any more on this