Regarding… Vol 3 no 22 – Going Long

Copper and oil are key commodities. Both are crucial in the energy economy, copper for infrastructure and oil for energy generation. As I say so often around here, energy is life. So, the price action of these commodities tells us a lot about our lives. Are our economies growing or shrinking? Is the cost of goods going up or down?

It’s said that copper is the only commodity with a doctorate in economics. The price of copper is a good indicator of economic activity, as it is ubiquitous in general infrastructure projects. So, what is Dr. Copper telling us?

The price of copper is on a gentle uptrend, rising from about $2,25 per pound ten years ago to nearly $5 per pound. The doctor says everything looks fine.

Because oil is a crucial input in the energy sector, which in turn is a vital input into just about everything, the price of oil serves as a good indicator of inflationary pressure.

So, what is its price telling us?

The price of oil has remained almost flat over 10 years, which indicates little inflationary pressure in economies generally. There was a brief post-COVID surge in 2022, but that momentum seems to have dissipated.

Finally, gold is a stable store of value. Unlike a dollar bill – or gasp! – a R20 note – an ounce of gold can buy roughly the same amount as it could a century or even 500 years ago. You can trust in the purchasing power of gold. It follows that the gold price reflects trust in the broader system – political, economic, and business. So, what’s the gold price telling us?

The high and increasing gold price tells me people are losing trust in the systems around them.

My take: In his book “The Fourth Turning is Here”, Neil Howe describes how the world faces a generation of wrenching change. He says we are about a third to halfway through this process. Although economies are doing okay and there is little inflation, trust is breaking down. This breakdown can cause or even accelerate change. I give a more detailed review of this book (and its shortcomings) further down.

Coinbase is the leading cryptocurrency exchange in the United States, with a dominant 66% market share and a strong reputation for security and regulatory compliance in an industry known for fraud. It made a $2.5 billion net profit last year.

Recently, the US Senate approved the GENIUS Act, a bipartisan bill regulating and promoting stablecoins. Stablecoins are potentially disruptive to the financial services sector. If successful, increased trading of various cryptocurrencies is likely. This is the lifeblood of any exchange, and Coinbase is no different. No wonder its share price is breaking out to new highs:

Circle Internet Group is the issuer of a stablecoin called USDC, the second biggest USD stablecoin by market cap. It recently IPO’d at US$31 per share. Let’s check in and see how it’s doing:

$210 per share!

Of course, the business model prints money – customers hand over dollars, and Circle issues a “stablecoin” or USDC of the same value in return. Circle then uses the dollars to buy T-Bills and other securities to back the stablecoin. Circle pays the “depositor” no interest but earns interest on the bills and other securities it holds. A great business model, for as long as it lasts, which I don’t think will be that long. In the meantime, Circle is on a 150 P/E.

My take: In the USA, the regulatory environment is becoming increasingly receptive to cryptocurrencies. I firmly believe they will be a disruptive force, but there will also be a lot of fraud. So, I have two words of advice: Caveat Emptor.

Naspers is proof that management matters. Under previous management, the only winners were their investment bankers, tasked with assembling increasingly complicated structures to manipulate the share price, which the market discounted. The business itself received almost no attention.

Fortunately, its controlling shareholder, Koos Bekker, realised this and made changes. He dismissed the previous CEO and appointed an entrepreneur. Fabricio Bloisi has been a breath of fresh air. Under his leadership, Naspers earned a profit for the first time in a very long time, made almost $1bn of free cash flow, and increased its dividend by 100%.

After all this, it’s on a historical P/E of 10 times.

The share price likes what Bloisi is doing a lot, up 34% this year:

My take: Some time ago, Naspers was trading at a significant discount to its underlying asset value, mainly consisting of Tencent, the excellent Chinese internet business. The MWI Value fund capitalised on this discount and new management to establish a position in one of the few South African companies providing direct exposure to China. So far, so good.

As you know, I travelled to the UK to watch the ICC World Test Championship final two weeks ago. In my rush to get away, I forgot my wallet at home, which meant I had no cash and no way of drawing money in the UK. A few years ago, this would have been disastrous.

But I had my phone with me, so I could tap away and not have to use cash anywhere. However, this is not only the case in the UK. Here in South Africa, I can’t remember the last time I drew cash from an ATM (which is probably why I forgot my wallet in the first place).

So, it’s no surprise that cash is being used less around the world:

My take: People complain when fund managers charge 1% to manage a fund, a complex undertaking. However, they are silent when their ATM charges them 3% to disburse some notes. So I say good riddance. Carrying cash around is dangerous in any case. Also, the only people who really have a use for cash are tax dodgers and drug dealers.

I’m at the age and stage of life where I’m experiencing two extremes. Firstly, many of my friends are becoming grandparents. It’s wonderful to see the wheel of life turn, bringing these new young ones into the world, fresh and fearless. But, at the same time, I am seeing a lot more people dying, which can be scary, mainly because it’s something so few of us want to talk about.

In this podcast, Attia interviews two experts in palliative care, end-of-life issues, and death. They discuss many issues that should be considered much earlier than we usually do – that is, when we are just about to reach the end of the line.

They make the point that we begin dying the day we are born, so why not address the issue in good time? Especially seeing – to paraphrase the speakers – dying is the one thing all human beings are 100% successful at.

This episode explores what we don’t want to discuss – what the dying can teach the living, both physiologically and emotionally. These are important lessons if one aims to have a high-quality “marginal decade”, as Attia calls it – the last decade of one’s life.

You can listen to the podcast here.

My take: Our cultural aversion to talking about death and all the issues surrounding it can lead to unnecessary suffering. Acknowledging mortality early can also be empowering. Hopefully, this podcast gives us something to discuss with our friends and family.

Over the last few years, many people have become “specialists” on the Middle East and all the issues between (certain) Muslim sects and Jews. But I think you have to live there and experience firsthand the place’s dynamics to know what you are talking about. The rest of us should hold our opinions lightly.

Haviv Rettig Gur is a veteran Israeli journalist who has covered Israel’s politics, foreign policy relationship with the USA, and the Jewish diaspora since 2005. In this podcast, Sam Harris, who holds some strong opinions, does a good job of extracting some realities.

Harris spells out the fundamental issue in Israel succinctly when he says: “If Palestinians lay down their weapons tomorrow, there would be peace, but if Israel lay down its weapons, they would be completely eradicated.” This is one of the things that has always puzzled me, and Gur does a good job of explaining why this is the case.

He doesn’t sugarcoat everything the Israelis are doing. After all, any country in a war situation makes mistakes.

You can listen to the podcast here.

My take: The relationship between the Israelis and the Palestinians is fraught. Gur and Harris do not pretend to have any neat answers, but the talk does a good job of highlighting and explaining some of the significant issues.

Neil Howe is an historian, economist, and demographer. In 1997, he and William Strauss wrote the book “The Fourth Turning”. In that book, he argued that Anglo-American history follows a recurring cycle, lasting roughly 80–100 years and divided into four “Turnings” or eras, each marked by a distinct societal mood and generational archetype.

The four “turnings” and their current archetype are:

• High, characterised by an optimistic and unified mood. Baby Boomers.
• Awakening, characterised by a defiant and questioning mood. Generation X.
• Unravelling, characterised by an individualistic, fragmented and pessimistic mood. Millennials.
• Crisis, characterised by an urgent, unified and transformative mood. “still to be named” – Gen Z?

According to this book, the fourth turning – the crisis – has arrived. Howe postulates that the current polarisation, growing global conflicts, and war will culminate in the early 2030s. This climax could be a dangerous time, but according to Howe, it can also hold great promise.

This theory contains more than a dollop of truth. I have always thought history is cyclical because human desires, ambitions, and needs drive it. These do not change over time. As a result, we somehow never seem to learn from the past and are doomed to repeat it. The 100-year or four-generation cycle also makes a lot of sense, as it takes roughly that amount of time to forget people and things. As I discussed with my friend Jako the other day, when we are gone, our children will remember us; their children will have some recollection of us; and their children, in turn, the fourth generation, will have no idea at all of who we were.

I have a problem with Howe’s book: he ascribes seemingly random historical events to mark the end of one turning and the beginning of another. If you aren’t a history buff, you quickly lose track of all the “significant” events. According to his timeline, we are now deep into a crisis – or fourth – turning. But it’s hard to define this properly, as it seems to have gradually evolved over the past 15 years, according to his timeline. So my question is – are we 15 years into the turning, or have we just started? I think he didn’t want to sound too pessimistic, mainly because it’s hard to sell a book based on pessimism.

My take: Here’s my admission – I couldn’t finish the book. I got too confused by his historical analogies. Although the book offers fascinating historical insights, I found it hard to keep track of what he was saying and hard to read as a result. But I gave it my best shot, and halfway through the year, the good news is I’m eight books in. So far, there’s a nice balance – two classics, three novels, and three non-fiction.

Yesterday, there was much joy in our house. The “Yuppie Syndicate” is a horse racing syndicate put together by my enterprising stepson, Zac. Other members include his friends Raphie Rubin, Cam Braun, Shannon Stokes, Ryan Murray, Cailyn Shelly, Maxine Gray, Alyssa Viljoen and his step-brother Nic Viljoen.

Together, they own one horse: a filly called Rainbow Lorikeet that has won many races. Here are some of the syndicate members, leading her in after a win:

Here she is, winning a race – by a nose, as they call it in the horse racing fraternity:

The big news is that she has been chosen to run in the Durban July! You cannot believe the excitement in the house when Zac heard the news. At 66 to 1, you have to put some money on it. After all, fillies have a good track record at the July – or so they say.

Whatever the outcome next Saturday, there has been tremendous joy in the house this week. Which is always a good thing.

So, until next week, be very, very careful out there.

Piet Viljoen
RECM