Jim Rogers: This is the Land of Milk and Honey by Capitalist Exploits
A couple of weeks ago I said Jim Rogers has been wrong. I promised a follow up to that article and here it is. Truthfully, I was being a bit hard on him. Jim is an intelligent investor who has long railed against the revolving door between our political and financial systems which should be clear to all but the dimmest amongst us.
It is ironically this hideous system which Jim despises almost as much as we do, that is the cause as to why Jim Rogers got it wrong. Not wrong on being bullish agriculture but rather wrong in expecting bankers to be handed their just dues. I explained briefly why this is the case a few weeks ago.
Perhaps, like us, he wishes for a world where justice is served via a free market capitalist system. Where failed businesses, built on the back of taking obscene risks with other peoples money by ever increasingly arrogant CEOs (yes, you Blankfein and Dimon, you obnoxious goats) enjoy the brutal but honest reality of a market based system instead of bailout capital, and where hard working entrepreneurs are rewarded, not by crony capitalism but by their value they bring to society.
I know, I know… Unicorns, bunnies and rainbows, right. It’s just not the world we live in.
Successful investing involves determining risk and reward and further identifying opportunities skewed in the investors favour. Let me be clear – I don’t want to invest in a “fair” market. I do wish for a world that involves a “free” market. Fair markets don’t and will never exist. Not because bureaucrats will screw things up which they most certainly will, but because human nature ensures that the perception of risk and reward swings wildly. This will never change.
Agriculture provides a favourable risk reward setup for investors for all the reasons that Jim Rogers has many times so eloquently pointed out. While agriculture has been doing well, the guys providing services to this sector have been making a killing. As is often the case those selling the picks and shovels make more than the gold miners themselves. To highlight my point I’ll share with you correspondence I had with Brad Farquhar CEO of Input Capital who I mentioned many times previously.
“On a note related to your note which mentioned us, over the last 5 years, during some very good times in Saskatchewan agriculture, we got our first Porsche dealership, Mercedes expanded, and the local Audi dealership split off from its shared space with VW to have its own stand-alone dealership. The number of luxury cars is accelerating, and the guy who own the pizza place near my house has two Lamborghini’s.
Every farm equipment dealership has built massive new facilities, and the owner of Brandt Tractor (the largest privately owned John Deere heavy equipment dealership in the world), which is based here, built a $25 million house north of town. He’s still not done building the golf course (Google Maps)
So there’s an extent to which Jim Rogers was right. The town is booming, and we still have no investment bankers here!”
One of the reasons that Jim Rogers was wrong about bankers earning less than farmers is due to the fact our current monetary system is built on a foundation of crony capitalism. This system has been pushing the envelope on all fronts and this cannot last forever. In that respect, I suspect Jim may yet be proven correct.
All good things come to an end… And so do all bad things. A reset is coming. In fact, it’s already begun.
Case in point: the bedfellow of absurdly low interest rates is historically high levels of government incompetence, corruption and interference. The de-pegging of the Swiss franc from the euro is one cog in the machine which has been removed increasing the likelihood that this unstable and unsustainable house of cards comes toppling down.
The cards are lining up to fall as expected. In Europe we have a rapidly deteriorating situation whereby those that are “in the room” are scuttling to get out. The Swiss, now the Greeks. Who’s next? The “confidence” holding this together is unwinding and with nothing but smoke and mirrors to keep it glued together we’re in for a massive USD rally.
Asteroids aren’t meant to strike us, kebabs at 2 AM are not meant to be healthy, or even edible, and currencies are not meant to move as they now are.
Many years ago I worked on a project for JPMorgan with a bunch of guys who called themselves the “6 sigma team”. These quants’ job was to figure out all the risk metrics for the hundreds of products, currency crosses and so forth that the bank was engaged in. The name 6 sigma stemmed from 6 standard deviations from the norm, being an extreme event. It was thought that if contingencies were in place 6 sigma event risk then the bank was pretty damn safe. How safe? Well, by definition a 6 sigma event takes place every 1.4 million years!
The CHF move we all just witnessed shattered the event risk red line odometer by clocking in at over 20+ standard deviations to the norm. FX moves of this nature are the sort of thing that takes place in illiquid currencies managed by tinpot dictatorships, where such moves are ostensibly NOT 6 sigma since one expects this of tinpot dictatorships and as such market participants trade accordingly.
The swissie, on the other hand, is not run by a tinpot dictatorship, is not illiquid, and is not prone to violent volatility. It is the 6th largest currency unit by volume and it got there by behaving itself. Very few saw this coming. It’s like finding that little Johny who’s been getting straight As, winning the debating contest, coming first in recorder, harp, and guitar classes, has been cooking meth in the garage, gang-raping the convent girls down the road after music lessons, and has buried the missing bus driver in the back garden after beheading him at a satanic ritual. Surprising!
When you get moves like this, stuff blows up. Right now risk models everywhere are blowing out. That I can guarantee you. This is akin to finding out that your 2 AM kebab from the dodgy diner is actually prime Kobe beef on a bed of organic rocket instead of roadkill or some mixture of horse, goat and whatever was at the bottom of the freezer. It’s basically never meant to happen which is why nobody believes it until it actually does. A black swan in Taleb’s world.
“Confidence” is the only remaining reason that anybody uses fiat currency, and maintaining that confidence at all costs is absolutely critical. This confidence is slipping inch by inch.
THIS could be the straw breaking the camels back!
The recent happenings in the European bond market should come as a red flag. Post the CHF decoupling the results of the Bundesbank’s EUR2B 8/46 tap are now out and it was a complete disaster. The Troika must be wringing their teeth and gnashing their hands and so