Happy New Year. This is my annual reflections article, which is my chance to write with less structure and formality, share my thoughts and look back over a busy year. This is an informal, unstructured, and personal post.
Let me start by sharing a bit of my story. In January, the Nortel bankruptcy estate finally paid a debt Nortel owed since 2010. Let me provide a little bit of history. In 1994, I started a software company called DiamondWare. Over 14 years, I poured in my blood, and sweat, and grew the business. I did that without a penny of outside capital. In August 2008, I sold it to Nortel Networks. It was a cash deal, but there was an escrow and other holdbacks. Nortel filed for bankruptcy a few months later. Needless to say, bankruptcy called into question which debts they would pay, and at what discount. I am glad they settled up on this one.
The point of this is not my personal finances, but this story is archetypical of our era. Everyone (including my advisors and me!) thought Nortel was a stable company even in 2008. Nortel had been a massive company, and was once the largest company listed on the Toronto Stock Exchange. Its bankruptcy is, so far as I know, the largest in corporate history.
And what was the cause? Using short-term borrowing to fund long-term and illiquid assets. When the credit markets froze in 2008, Nortel had some big bond payments that were coming due. With no way to sell new bonds to pay the old ones, it was forced to default.
Good thing the corporate and banking world has learned this lesson, and now no one uses short-term bonds. Indeed, everyone has income to amortize their debts… </sarcasm>
There are two ways to look at the world. One is to cry. I know people who have become bitter and depressed. They seem paralyzed, and they often lash out at their friends and family. The other is to laugh. Find the irony, poke at it, and tell your friends—nothing will change unless enough people care—but don’t take it personally. Remember a lesson from Professor J.R.R. Tolkien. No one knows the future. Despair is not only a sin in traditional religion, it is also a mistake. All is not lost, not yet, not by a long shot!
In February, I began writing regularly for Forbes. They had published half a dozen of my articles previously, including my most widely read and one of my favorites on how wages have been falling since at least 1965. But now I have my own page as a regular Forbes Contributor. It is a lot of work, and takes tons of discipline to put out a quality article every week. It is also gratifying, and a great way to learn a lot about your topic and yourself. I am honored that Steve Forbes, and my editors John Tamny and Avik Roy trust me with this responsibility. Steve himself has long been a gold standard advocate, and he made it a plank in his presidential campaign.
In the spring, a major project of Monetary Metals came to the end, and not in a good way. We had drafted a patent application, raised capital, assembled a team, developed software, designed and built a website, planned a marketing campaign, and were putting together the legal docs. What was it? I can’t disclose the details as I am working on a plan B, but it was a consumer offering. I was pretty excited.. Unfortunately, the lawyers determined that we would be under a major area of regulation. Initial compliance could have cost near a million bucks, and there would be ongoing compliance costs too. There was no way for a startup to go there. Project nixed. Time and money lost. What a bummer.
Partly due to this, my business partner wanted to move on to other opportunities. I bought him out this summer, and now I am the sole proprietor of Monetary Metals. This lets me pursue my vision: offering investors a gold yield on their gold. If gold is money, then it should be possible to invest it to earn more money. Well, gold is money…
In June, I got my new 2014 911 turbo. It has better balance, more power, a stiffer frame, less overhang in front and rear, and more gears (dual clutch computer-controlled 7-speed gearbox). And WOW is it fast. Pull the skin off your face fast. 0 to 60 in 2.9s fast. It has a built-in G force meter in the dash. The car has achieved 1.09g both braking and accelerating. This is so the right car for me, I am still grinning ear to ear and this is 6 months later!
What does this have to do with economics? How does anyone pay for something like a high end sports car? I sold a business that I spent a decade and a half building. This is part added value, and part credit boom (which is how the valuation got to be as high as it did). Today, I trade markets. The volatility that makes trading possible is inherent to fiat money. Trading gains are a wealth transfer.
Hate the game, not the players.
For a long time, I have been saying silver will go down in gold terms (i.e. a rising gold to silver ratio) and likely dollar terms. When the ratio was 50, the gold bugs said another leg up was coming and the ratio would fall back to 31 (its low in spring 2011). I said nothing doing. I said it will go to 60 and maybe 70. Later I extended that, and said 70 and maybe 80. For a long time, it just didn’t seem to want to go higher but in September, the silver price broke down and the ratio spiked up. It has closed over 76 (not counting one Sunday even when it briefly hit over 80). It is 75.5 as I write this. My prediction was big, highly contrarian—I don’t know anyone else in the gold community who took this position—and right. That got a lot of people following my work. Now I am sure they are all wondering if I will call the turn when it happens. To which I can offer lots of economics, theory, model, analysis, blah blah blah. Or I can just say keep reading. 😉
This fall, translations of my articles and publication in European media accelerated. I am super excited that they went up on the site of Formiche (Italy) in Italian, onto the front page of the print edition of L’Agefi (France) in French, finews.ch (Switzerland) and goldseiten.de (Germany) in German, the blog of the Swiss National Bank in English, and Quamnet (China) in English. The Truman Factor continued to publish some of my articles in Spanish. I do not think it is pretentious to say that there is a serious worldwide movement to recognize gold as money.
On a rainy day in November, the Gold Standard Institute sponsored its first event. In New York City, Andy Bernstein spoke about capitalism and I spoke about our failing dollar. From a content and number of attendees perspective, it was a big success.
This year, I have had the opportunity to develop many great and mutually beneficial relationships. One, which started to bear fruit in December, is the Cobden Centre in the UK. Named for Richard Cobden, a noted 19th century industrialist and free trade advocate, its mission is to promote freedom, private property rights, and honest money.
Finally, over my holiday “break” I began putting keyboard to word processor (or alternatively, electrons to file) on my book. My working title is: The Dollar Cancer and the Gold Cure. More soon…
I hope you have a great year in 2015!