Permanent Risks

At a time when it seems that the world has never before been so overwhelmed by events, phenomena and information, the belief that some processes in the world of money are taking place for the first time is often heard, but that is not the kind of theory we should accept.

The notion that we are the first generation, even in a few centuries, to perceive market phenomena not seen before borders on something between narcissistic manipulation and non-acceptance of the laws of nature.

The cause is, among other things, a value system that sets things up in a chaotic way, which leads to the belief that everyone can take the risk they want. To make matters more complicated, the wind in the back of accepting such a distorted truth is given by the central banks, especially those in whose hands is the fate of the world’s leading currencies – Fed and ECB.

There are many rules that, when we notice, we can use to make predictions, literally unaware of the duration of this phenomenon. In this way, much more than the usual method was created to determine whether something had already happened or not.

In the discrepancy between the claims and beliefs, capital market participants are encouraged to believe that it is possible to buy all the securities they want, in the quantities they want, without a negative result.

This further promotes the view that all instruments actually arose from the need to call all financial instruments, whatever they may be, “fake money”. This belief takes as its premise the assessment that financial assets are always easy to exchange for central bank money.

Such a belief in the continuous growth of property value causes the feeling that money is always financially lost in the markets and that the only “risk” that can happen to it is to be replaced, e.g. for gold, digital money or shares of the company being traded.

Initially, some kind of “disinterest” of the outside world of money, which does not require a replacement as such, could make it difficult to understand any transaction with it and separate it from banking activities and bringing them to the global financial market.

Everything in the bank can be placed on the market, transferring the risk to others, because there is always one of the leading central banks ready to accept this type of risk and, with small losses in the beginning, eventually increase the balance sheet.

The money is now within a system that has provided support to banks when they do not have enough balance sheet capacity. All banking risks are transferred to large central bank systems, which explains the reasons why its value stabilizes, because almost without any examples, which would serve to convince otherwise, like a wizard, there are central banks that find interest in this type of activity.

Belief in rising real estate prices could ensure the cult structure of loans, creating an opportunity for them to always easily find a buyer.

The transformation of money was made possible by the trust that existed in it until the moment when it became superfluous when liquidity became something that was “taken for granted”.

Of all the changes that have taken place in the last few centuries, the key one is that we now clearly see what has always happened in some form, and is now taking place artificially and for the needs of long-term investments.

Such a relationship of elements in this or any system always finds sources of resources. The problem, then, is not in the scarcity of resources, but in some inexplicable, unnatural idea that the value of everything should constantly grow.

The article is the part of the series of research into post-pandemic economic recovery 2021

Silver Rush

While in the advanced phase of digitalization, in which everything becomes electronic and as the part of the population is still being accustomed to its features, there are those who approach all phenomena and processes that seem less close to them with a dose of distrust or simply lack of information to relieve worries whether something they could touch and what they saw on the screen actually had the same purpose.

While some say they can’t imagine reading a book that hasn’t been printed (and therefore remain deprived of so many editions whose authors have decided not to cut down any tree to get their words down on paper) others still understand the notion of electronic money that can be used to pay for more than a decade with “real” banknotes.

To check and determine whether, for example, cryptocurrencies have the features of money, it is not necessary to make a test that would have the characteristics of what is in the spirit of the times, because the way Aristotle spoke about money may be the best way to understand how and why it became the means of exchange. As early as the fourth century BC, five basic characteristics of what should define the means of exchange were established.

According to Aristotle, the ideal currency had five basic features – stability, divisibility, coherence, practicality and intrinsic value. If we were to compile a matrix with these characteristics and assign them to everything that is considered a more significant asset, we would see that money is not really what fits the description of its essential characteristics.

Money, either physical or digital, has only slightly more of these properties than, for example, land ownership. On the other hand, precious metals are those that meet all the properties listed within this definition, because only real goods contribute to the growth of the usefulness of individuals, since money is not able to meet the basic needs of man, but only serve to pay for what has these characteristics.

If we try to apply these five features to everything that comes to mind as we enumerate what can be considered wealth – real estate, oil, artwork, securities and precious metals, we will come to the conclusion that only the latter corresponds more to the properties that were analyzed by Aristotle and the current moment in monetary policy and the obsessive reprinting of money may be the best way to illustrate why this is so.

Precious metals fit more precisely into the definition of money than – money itself. As we think of bank gold reserves and gold bars as custodians of values, silver coexists almost unnoticed in our definitions and matrices – a precious metal whose time is yet to come.

Unlike gold, which is more expensive and more often mentioned in the story of wealth, silver, although on the market about eight times cheaper, is important not only when it comes to stock exchanges and investment, but also when it comes to industrial production, especially the technologically advanced world is looking for. The unique features of silver, which make it an indispensable raw material in production, rank it among the most important elements of sophisticated technological devices, from telephones and computers, through cars to photovoltaic cells of solar panels.

The use of this precious metal in production could be doubled in the short term as soon as the introduction of the 5G network becomes more intensive. It will find special application in electric vehicles and their battery charging mechanisms, as well as in water purification systems.

Despite that, the amount of silver extracted from the mine has been gradually decreasing for several consecutive years, regardless the pandemic, during which there was a general slowdown in production, because this trend appeared earlier. All this leads to a weakening of global silver stocks, but also new challenges, not only the industry, but also in the supply chain. This is the reason why silver production must rely on other mines, because less than one third of this precious metal is extracted from silver mines, and the rest from mines that extract other metals, such as gold, copper, lead or zinc.

This means that even in the event of a new rise in the price of silver, mines like these, from which extraction of silver is not the primary activity, will not be forced to increase silver production, as it is not their main source of income, but fits them perfectly reimburse the cost of production of their primary metals.

Another specificity of this metal is that it is recycled to a very small extent – approximately one sixth of silver comes from recycling. In addition to the pandemic, stocks over the past two years have barely been sufficient to meet production’s growing market demands for all those devices that require the use of silver. In order to store silver, expressed in the amount of gold, about 70 times more space is needed for the same stock market value.

Orders of silver as a raw material this year only for the production of several leading technology companies have increased to such an extent that, if this trend continues, there could be a time when we will start hearing news about the dizzying jump in prices of this precious metal as a commodity. Growing demand with declining, limited supply creates the potential for a major market turnaround when it comes to investor interest.

For some, trading silver this year will be perhaps the most interesting move so far, although this precious metal is usually less attractive than anything else that can be traded, mostly because of sudden price changes, much larger than those that gold has. For others, at least the news that the price of silver is growing faster and higher than before should not come as a surprise.

The article is the part of the series of research into post-pandemic economic recovery 2021

Saga of Expensive Fuel

The harmfulness of using fossil fuels is a topic that we hear from time to time, like an evergreen, always at the right moment and just to let the elimination system make one think about what seems to be the perfect alternative.

The 21st century, which only a few decades before its beginning was expected to bring flying cars and vacations in outer space, has been talked about in some, reasonably, most acceptable option, as the moment when the use of oil will end, with the inevitable sequel story of extinguishing the splendor of Middle Eastern luxury and wealth.

If we take a look at the evolution of the oil sector, as well as the numerous and increasingly frequent challenges of the new age, we can clearly see the processes that the tobacco industry went through not so long ago, as it has undergone significant transformation over the past few years, that was significant in terms of changing the business model, but not the results it gave in reducing the percentage of smokers in the total population.

Most tobacco companies have not made significant progress in eliminating cigarettes and other risky products, but in switching smokers to alternatives where the health risk is somewhat lower. However, in such phases of transformation, with the significant funds invested and monitored, there is too little space left to draw logical conclusions.

At a time when climate change and global warming are the two biggest reasons for concern when it comes to environmental protection, the story of the use of petroleum products turned into a factor within the equation that calculates the number of deaths associated with these events simply does not support healthy logic, nor basic arithmetic.

If we just add the creation of jobs conditioned by exponential productivity growth in numerous areas, especially during the past decade, which are related to the use of petroleum products, and each life saved in this way, it is an additional “plus” in mathematical expression whose result is persistently trying to be negative.

The reason for this comparison is not to justify the unwanted effects of the oil industry, just as it is not the case with the tobacco industry as well, but to emphasize the nature of insisting on alternatives when everything seems to announce a complete revolution in this area and to remind how reactionary they are and how much the idea of renewable energy for a long time cannot be realized broadly.

When the governments of countries that make money from the oil industry in any part of the production chain are included in this story, it is almost impossible to hide the elements of attempts to protect the interests of those who will present themselves hiding from showing that they are tightly connected with the alternative.

Just because there are good reasons to criticize, especially the excessive use of something, in this case fossil fuels, it does not mean that it is necessarily a harmful or useless investment.

From this point of view, it doesn’t matter whether you are an angry opponent of fuel use except in really necessary situations, or you see the oil industry as a whole, it is clear that investing in “black gold” has never ceased to be one of the most attractive investment moves.

Oil and gas can, not only, at least occasionally, bring investors a profit on price changes, but they are increasingly relying on oil trading to protect themselves from the inflation.

As in the tobacco industry, which was banned from advertising and spreading smoke in public spaces, the focus on the type and mode of making of tobacco products was much smaller, so leading players managed to find an alternative in a short time, therefore many investors from the world of oil in eras of forcing alternative energy sources have fewer motivation to invest money in new oil platforms, thus gaining an additional value for their invested capital.

Being demotivated to invest in this area also leads to a reduction in supply. In a post-pandemic world, where one cannot be motivated by an additional competitiveness in this area, oil companies will have the opportunity to be more profitable than ever before, regardless the fact that this is not a lasting phase.

The formula is simple – in the post-pandemic world, where the desire for green energy will be further awakened, the volume of fuel production will not be able to grow, but the demand will increase with each new recovery, which will result in further price growth.

So, the price of fuel has only started to move upwards at the beginning of this year, and this trend will continue for some time, with minor fluctuations, even when the use of petroleum products returns to the level that existed before the pandemic, as in some markets it is already the case.

Interest in oil futures has grown sharply since the beginning of the year, because investors hope that the time of expensive energy is yet to come, and such investments are especially motivated by inflation and the need of big players to protect themselves from its consequences.

For those who do not belong to the group of big players, this simply means that almost everything they buy will be more expensive for a while – not necessarily because of rising prices, but because the value of the money they have at their disposal, will decrease as a consequence of quantitative easing programs.

The article is the part of the series of research into post-pandemic economic recovery 2021