Show Notes
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Never mind the dodgy mortgages, oil spiking to $150/barrel in July, 2008, just before the panic set in, was as big a cause of the Global Financial Crisis. The price rise was like a sudden, unexpected liquidity drain on the economy. The US economy is built on oil. Costs suddenly rose across every supply chain. Disposable income was sucked out of households. Corporate margins got squeezed and inflation expectations rose effectively tightening financial conditions, just as the system needed liquidity. Funding costs then rose and collateral quality deteriorated. In a system already stretched with cheap credit and thin margins, highly leveraged institutions and ordinary borrowers were simultaneously pushed over the edge. The structure was fragile and it only worked in a low energy, low rate world. Subprime may have been the trigger, but the energy shock had already destabilised the foundations. The oil price tightened financial conditions before central banks did This is not a one-off As Charlie Morris points out in his piece What Happened in 1974, there have been three major oil shocks - in 1973/4, 1980 and 2008. In 1973 the US was dependent on Arab nations for most of its oil, and shortly after the Egypt-Syria alliance suddenly declared war on Israel, oil-producing Arab nations imposed an embargo on any nation that supported Israel. “You can support Israel or have cheap oil, but you can’t have both,” the Saudi Arabian king had said on US TV. The oil price went from $3.50 to $10. It would eventually peak at $39.50 in 1980. I was only a little boy in the 1970s but we lived in South Kensington and I remember how many Arabs suddenly moved to the area, many of them with a great deal of money. My step-father ran a business in Belgravia selling modern Italian furniture and his clientele changed almost overnight. Hundreds of billions of dollars, previously in Western bank accounts, now made their way to the Gulf in a transfer of wealth like no other. Next came the Rolls Royces, the racehorses, the Harrods shopping sprees (indeed Harrods itself), the mansions, the public school educations, the City petro-dollar recycling trade and yes the over-priced, glitzy, Valentino furniture. London would never be the same. And what impact did those years have on bond and equity markets more generally? The 1970s were horrible, unless you were long commodities. The low reached in 1982 was so extreme that it marked one of the greatest long-term buying opportunities ever known, perhaps the greatest. While 2008 had its own consequences, not least the end of the City as a leading player in the global financial system (thanks to the regulation which followed), followed by the general decline of London. Each of these episodes follows a similar pattern: an energy shock tightens conditions, exposes leverage and forces a reset. It might not feel that way today with oil at $100, but we are still a long way from the extremes of 1974, 1980 or 2008. A lot of commentary is saying the investment world is too complacent and has not factored in what is coming. What is 2008’s $150 oil in today’s money? I’m not going to give you the CPI numbers because I consider CPI a bogus measure. Using money supply instead (M2), the equivalents look like this * 1974: $10 oil ≈ $120-150 * 1980: $40 oil ≈ $360-440 * 2008: $150 oil ≈ $375-450 In the context of those extremes $100 oil does not look unreasonable The sub-$60 prices with which we began this year now look extraordinarily cheap. I don’t think we are going back to them any time soon. I’m also not saying we are going to those comparable numbers above. I merely show them for context. In terms of where we are going, I think Charlie has it right when he says, “We should assume that $100 oil implies a slowdown, $150 a recession, and $200 a depression”. $200 is not impossible if this was carries on. What to do? Let’s take a quick look at how to po
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Something a little different this week. On Monday I gave a talk for UK Finance called Making Sense of It All, about the multiple contradictions at work int he economy: rising bond yields yet equity markets grinding higher, huge investment in AI despite limited profit, and the growing squeeze on the materials needed to build AI infrastructure. (Many thanks to Duncan and Rhiannon for inviting me to speak). I’ve taken the deck and put together an online version - the first time I’ve ever attempted such a thing - I hope you will find it useful. The transcript is available above. Until next time, Dominic If you live in a third world country such as the UK, I urge you to own gold or silver. The pound will be further devalued, as will the euro and dollar. The bullion dealer I use and recommend is The Pure Gold Company. They deliver to the UK, the US, Canada and Europe. More here.
After an extraordinary run which started in 2022 below US$20/oz and ended in January this year at US$122, silver has been working its way downwards. We have had a correction of almost 50%. Today we’re at $58/oz having been as low as $55 in July. We are almost certainly going to go back and retest that low, I would say, and silver is very much in a downtrend. $50 has been a huge line in the sand that goes all the way back to 1980 and for decades silver could not get above that number. Then, late last year, it cut through it like butter. What was resistance becomes support is one of the technical analysts’ guiding mantras, and there is every chance $50 will do just that. However, if there is one thing I have learnt about silver over the years it is that has an unrivalled propensity to let you down, which is I suppose my way of saying it could quite easily go a lot lower. It’s silver after all. However, the fundamentals favour silver. The market remains in deficit. The Silver Institute’s latest World Silver Survey forecasts a 46.3 million ounce deficit in 2026, which would be the sixth consecutive annual deficit. Never mind jewellery and investment demand, silver finds an enormous amount of industrial demand (~60% of annual demand), especially in electronics, because it is such a good conductor of electricity. The sudden increase from solar panel demand a few years back is thought to have triggered the recent run, although manufacturers are reducing the amount of silver used in each panel. Bear markets are a time to build. As an investor, you research the companies you might want to buy - there is no need necessarily to rush out and buy them - start building positions when nobody else wants them, make the purchases on your own terms. There is no need to rush. With that in mind, I am going to tell you about my largest silver position today. I even have an interview with the boss. It was a big winner for readers in the last cycle going from below 30c north of C$3, rising more than 1,000%. With the falls in the silver price it has now come back more than 50%, and I think it is worth taking a look. Its CEO is both young and competent and he is growing the company in an admirable way so that in 3 to 5 years time you are going to see something much bigger.
It’s my pleasure to sit down with with the man who “gold pilled” me back in the day with his book, The Collapse of the Dollar. James Turk, founder of GoldMoney, has spent five decades working in banking, finance and investments, making the case that gold is not an investment or another commodity, but money in its purest form. We discuss why he believes the US can no longer repeat the Volcker rescue of the 1980s, the relationship between sound money and liberty, and why he expects gold eventually to return to the centre of global commerce as technology changes the way money moves. James’ latest book is Money and Liberty and you can find his IEA paper here. This interview was brought to you by The Pure Gold Company If you live in a third world country such as the UK, I urge you to own gold or silver. The pound will be further devalued, as will the euro and dollar. The bullion dealer I use and recommend is The Pure Gold Company. They deliver to the UK, the US, Canada and Europe. More here.
Good Sunday to you, We have a fantastic interview for you today. I sit down with legendary Canadian investor Frank Giustra to discuss gold, government debt and why he believes the world is entering the most dangerous geopolitical period of our lifetime. You can either watch the video or listen as a podcast via Spotify et al.Frank made his fortune in mining and natural resources, before founding Lionsgate Films, the world’s biggest independent film studio. His track record as a businessman and investor is superlative. We discuss why he believes this is no ordinary metals bull market, the accelerating shift by central banks from government debt into physical gold, the risk that another round of quantitative easing could trigger a dollar crisis, and whether gold may ultimately need to be revalued higher, dramaticically higher. We also touch on China, financial repression, critical minerals and why, of everything Frank owns today, gold remains the asset he is most excited about. Money Markets & More is the interview series from Dominic Frisby, exploring money, markets, gold, economics and the ideas shaping the world.🥇 The programme is brought to you by The Pure Gold Company If you live in a third world country such as the UK, I urge you to own gold or silver. The pound will be further devalued, as will the euro and dollar. The bullion dealer I use and recommend is The Pure Gold Company. They deliver to the UK, the US, Canada and Europe. More here.
This is a free preview of a paid episode. To hear more, visit www.theflyingfrisby.com