Category Archives: Uncategorized


Mintos interest rates explained

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Mentos? No, Mintos.

For the short time being, Mintos has become a household name in the P2P loan marketplace. I will spare the introduction as you probably already know what they do or if you don’t there is plenty of information already. The business model is quite simple. The innovative part is the exposure of that market to the mom and pop investors. This is all possible due to the technology advancement and change of people’s mindset to participate in this market.

How did i find interest rates confusing at the start?

The interface of the platform is quite lean so you quickly find out what you are looking for. The search is also very powerful. One of the most important pieces of information on a single loan is the interest rate. We are all here for that, right? However, i found the interest rate a bit confusing and think that it is fair to bring in some clarification for new investors. Strangely, Mintos is quite open and transparent but there is a lack of information specifically on that topic especially with examples.

My way of thinking is like this:

If i invest 1000E in a 12 month 10% loan i would expect to have 1100E at the and of the year.

That’s how traditional banking works but not Mintos (and probably the other similar platforms).

Interest rates seem lower than advertised. Consider this loan:

Mintos loan example

It is a 800E loan for ~5 months carrying 9.5% interest. I would expect to get 9.5% * 800 * 153/360 ~ 32E interest for the 5 months and few days if i were to buy the whole loan. That’s the formula that Mintos uses actually. 153 is 5 months and 3 days remaining to the end and the calculation is a rough one.

Looking at the payment schedule, it didn’t look like that:

Mintos loan payment schedule

If you add up all the interest, it comes to ~ 18E! Ouch. So i was confused. If i were to buy the 800E loan i would get 18 bucks and that seemes low compared to the promised 9.5% annually. So i contacted support. I must say support is absolutely top notch and after a few emails i started to grasp the idea.

So why this discrepancy in what i expected and what i saw in terms of interest rates?

The way Mintos is different than banking, is in paying out your investment (a.k.a. deposit in banking terms) month by month and banks hold your deposit until the end period. Let’s look at an example:

With traditional banking if you put up 1000E in a 5% 1 year deposit, you will get 1050E at the end of the period. However, you wont be able to have your money until the end. None of it. And that’t the huge difference. With Mintos you get repaid principal and interest every month until the period is over.

Your payday will look like that in both scenarios (1000E , 1 year, 5%):

  • Mintos

Month 1 ~ 85E

Month 2 ~ 85E


  • Traditional Bank

Month 1 – 0E

Month 2 – 0E


Month 12 – 1050E

What makes the huge difference here is the time value of money. With Mintos you get part of your investment back every month and with banks you don’t. With banks you wait for the end to get even a single penny out.  So every month you get 85 bucks in your pocket back that you can invest in other loans. If you don’t do that, your money will still earn the promised interest BUT now you have less money in the game and you earn interest only on them. So after a month you will earn interest not on 1000E but on ~ 917E (principal of 83.33E and 1-2E interest repaid).

The big question is how you get the advertised interest rate with Mintos?

Answer is simple – you have to constantly reinvest everything that you get back in new loans with comparable terms. That has a few implications:

  • You have to use the auto invest or otherwise you would be overwhelmed to reinvest every time you get a payback. If you have many loans schedule may be very erratic


  • The first point implies you will probably have to stay away from the secondary market as the auto invest is not available there. So you will miss higher rates (at least now the situation is like that). Of course, you can do it on your own, but you would be overwhelmed as i said


  • If you want to get high returns you will have to embrace longer term loans. Reinvest monthly paybacks in same term loans, remember? The longer the loan the better interest rate.


  • When you decide to cash out and exit the platform, you will realize poor returns in your last period (be it 3 months, 6 months etc). This is very important so lets look at an example: if you invest only in 12m, 10% loans and reinvest everything you get for 5 years, you will get 10% interest for 5 years. Let’s say that you decide that the 6th year is your last. So you stop reinvesting. Month by month Mintos will repay part of your investment so every next month, you get more money in your pocket and less invested. And you earn money only on the invested part. Toward the end of the 6th year, you will be earning very few money on your whole capital (although still 10% on the money invested). That’s fair and how it works, but i don’t think many people realize it and may be a bit disappointed when that happens

When you decide to exit the platform, you may migrate from longer term loans to shorter term so that you employ all your capital to work till the end. That’s key concept – employ all capital to work at any time. However, short term loans bear less interest than longer ones. Still i believe that is the way to go. If you do 1 year loans and decide to exit at the end of the year, reinvest all paybacks in shorter and shorter loans so that final big payday matches your deadline. Once again, the less capital on the sidelines, the better.

I hope that brings some clarification to a topic that i personally found a bit confusing at the start. I might be not 100% punctual with this blog post. The intention is to shed some light in how things work generally so excuse me for any little miscalculations.


2017 stock portfolio recap

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My stock portfolio returned 33% vs 19.42% for SP500

2017 was a very successful year for stocks worldwide, especially European and US ones. The economy seems buoyant and people have jobs. At the same time credit is super cheap due to low interest rates across the board which additionally gives a boost. This is actually a big reason for the economy and jobs good news. Cheap money creates growth. So this was a year where passive investing looks like a winner strategy. Just buy the broad index and reap close to 20% return. Not bad at all.

Although I like passive investing and recommend it to everyone who wants to start investing, I always try to beat the market and so had to go the extra mile again and cherry-pick individual names. I am mostly involved in the Canadian and Australian junior mining sector and consider the metals my specialty. I try to keep my portfolio small with less than 10 names.

My largest holdings. Most of them appreciated nicely.

  • Critical Elements (CRE.V) – lithium explorer in Canada. I am a huge believer in the company and this stock has performed quite well in 2017. I believe that 2018 will be even better as they are marching through financing, mine build, and production. Lithium is very hot right now with the EV revolution and coming supply crunch.
  • Ardea Resources (ARL.AX) – cobalt explorer in Australia. Biggest undeveloped deposit outside Congo (Congo supplies 80% of world cobalt from shady ‘mines’ and currently raised NSRs of mining). These guys have a very nice deposit, good management, and execution. Since the IPO in 2017, this stock returned close to 1000%. Although I didn’t ride it all the way up, I made good gains here as well. Cobalt is hot and will remain hot in 2018. I expect this one to at least double in 2018  – a lot of catalysts lined up.
  • Tinka Resources (TK.V) – one of the emerging zinc producers with a decent size deposit in Peru. Zinc is one of the hype metals atm as we are steadily heading to supply shortage. I am in Tinka for a takeout by a bigger company speculation. I think that is what management wants too and believe that will be taken out for $1.5-2 CAD in the next year (70 cents CAD atm).
  • Excelsior Mining (MIN.TO) – a copper explorer in Arizona. Copper is in a good bull trend and will remain so in the following years as the green revolution needs lots of it and all major deposits are like ‘old ladies waiting to die’. This one has very low CAPEX and will be like an ATM once in production. It is a bit more speculative than the other plays as the mining method is a bit different than how copper is usually mined. They have huge backers (50% of the company) that I respect (Greenstone) a lot so that helped me choose this one also.
  • Alexandria Minerals (AZX.V) – pretty much flat throughout the year but I think the major catalyst here is resource upgrade this year. I think that can bring interest from the majors to take this company out for at least a double as the resource is in Quebec which is a prime location so 1.5-2 million oz of Gold deposit can cost a lot.
  • Cornerstone capital (CGP.V) – copper play in Ecuador. A massive deposit with 1km mineralized holes. That stayed hidden so far as Ecuador was very mining unfriendly but opened up recently. They are being free carried through PFS so it is their partners that spend money exploring the deposit which is good. Cornerstone was able to secure good properties in Ecuador due to first mover advantage.

And to be fair – my bad picks that got cut.

  • Bitterroot resources (BTT.V) – bought at 25 cents and is now 14. Ouch. Didn’t deliver on expectations. Haven’t sold already as I believe in the potential and this is tiny pure speculative position.
  • Resource capital gold (RCG.V) – got burned by management that does not deliver. Sold on the way down with a limited loss.
  • GoldQuest mining (GQC.V) – a company in which I believe. What is more Agnico Eagle believes in them too. However, Dominican has turned to a shitty jurisdiction so I had to sell at a loss again.
  • Aurvista Gold (AVA.V) – a cheap company with bad management IMO. Sold at breakeven as soon as I reevaluated management.
  • Columbus Gold (CGT.TO) – probably a good company but terrible trade by me. Lost money here. Got scared that the mine wont permit in French Guinea (which may be the case).
  • Nevsun Resources (NSU.TO) – a company i bought without too much due diligence (bad bad bad) and sold when i dug deeper and found out some flaws (concentrate recovery rates). May turn out to be a good bet but risk reward is not favorable. Sold at a small loss.
  • Mariana Resources (MARL.L) – bad timing on my side. Got taken out by Sandstorm at a good premium that i missed. Let the winners roll. I didn’t.
  • Silver Bear Resources (SBR.V) – lesson learned, stay away from Russia. Got taken out by some local oligarchs with gruesome financing. Lost money here.
  • Avnel Gold (AVK.TO) – bad timing on my side. Sold too early and it got taken out for more shortly after that. Emotions took hold. Didn’t lose money, only lost opportunity.

As you see I have a decent amount of bad calls but still managed to get 13% over SP500. How come? 2017 was a turning year for my investing mindset as one idea grew really strong with me and namely – Does not matter if you are right. All it matters is to make money. Simple one but takes years to truly embrace. Ego is a very detrimental to performance so we have to cut it. We are here for the money and not to prove that our analysis is superior to everybody else’s. This idea involves many moving parts. Here are some of them in order of importance:

  • Cut losses early. This is an absolute must-have. Only this way you may have 20 losing bets and 1 winning and still be positive. My biggest mistake so far is not being decisive enough when cutting losses.
  • Average up is better than average down. Counter-intuitive but it is better to pay up when your conviction grows than to catch falling knives and be contrarian.
  • Charts matter. I was the first naysayer of technical analyses but chart matter a lot. Trends are very persistent. The trend is your friend no matter what your inner conviction. Nobody can say when a trend will turn so unless having the technical indicators (support break, SMA break etc) ride the trend and forget about your opinion and analysis. If you want to be the contrarian that bets against the crowd, be my guest. Most of the money is made not when you call turning points but when you ride the trend. I ignored charts for the past 2 years with silver and although I believe I will be right at the very end, I am sitting on losses in that position so far.
  • As a follow up on the previous one, let the winners run. Don’t sell when you think something went up a lot and probably overpriced. Wait for the market to tell you that. How? Look at the charts. A lot of money is left on the table by selling too early. This is a huge penalty for performance I can tell you that.

Another idea that grew also very strong is the risk-reward perspective. What is the downside risk and what is the upside potential? If you can lose 20% but make a double, that is a good risk-reward, when you can lose 50% but make 20%, that is bad. I always knew about RR but now is the time when I started applying it to every aspect of my investing. And not only.

Metals outlook for 2018

The buzz words for the next 2-3 years will be green revolution, EVs, clean energy etc. Pollution is a critical issue worldwide (yes Mr. Trump, it is) and some countries are getting desperate to fight that. Look at China, they swallow whatever green metal supply available. Their pockets know no end and they are everywhere. So green revolution will drive lithium, cobalt, nickel, and copper up. Batteries consume huge amounts of these metals and most of the supply is very problematic. I expect supply shocks to start hitting soon.

Zinc is getting to the point of no return where supply crunch will strike sooner rather than later so zinc will be hot too. LME Zinc inventories are less than 10 days worth of demand which is the line in the sand that causes havoc.

I believe that gold and silver will finally start a second leg up from what started as a cautious bull run in 2016. Some insecurity builds upon the economic and political scene and charts look favorable.

No idea for uranium. This a weird market that I don’t quite understand. It has a place in the green energy mix as wind and solar won’t be able to supply the energy for all the Teslas out there but the supply/demand dynamics are not easily graspable with uranium. Also, we have the constant risk of Chernobyl or Fukushima around the world which will depress prices for a few more years.

Where will I be positioned?

I will stick with my holdings and probably add a couple more from the following list. I have a really high conviction with Critical Elements and Tinka but let’s see. Either will be genius or a fool by the end of 2018.

  • NexGen Energy (NXE.TO) – uranium explorer in Canada. Uranium is a very depressed space since Fukushima (just look at uranium price). BUT this deposit is something special. It is so rich that even at today’s price, it is crazy profitable and it is so big that it can provide 20% of world’s uranium. That’s a so-called Tier 1 deposit in a prime jurisdiction with outstanding management and backers (Warren Irwin – an outstanding guy in the space, check him out). Price is a bit high but Tier 1 deposits deserve a premium. Risk reward is very favorable.
  • Barsele Minerals  (BME.V) – a gold explorer in Sweden with Agnico Eagle as a partner. Simply think they will get taken out by Agnico for a double. Simple as that.
  • Australian Mines (AUZ.AX) – cobalt explorer in Australia. Much like Ardea from above but ahead in the process of mine development.
  • Sama Resources (SME.V) – these guys might be on something big in Africa. When you see Robert Friedland (check this guy out) involved somewhere, you know he is not involved for a 100-200 million potential. He is chasing deposits in the billions. Very speculative but only 20 million USD enterprise value so risk reward is very very favorable.

Happy investing!


Chase of Short-term Growth

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What is the problem anyway?

If you have watched or read anything business related these days, you probably have heard the buzz word growth. Economy grows by this much, corporate earnings grow by that much etc. It looks like anyone in business is fanatically obsessed with growth. The problem is that the growth that they talk about is short term and not long term and this is very destructive.

Being myopic is a standard these days. The average attention span of an investor is 1-2 quarters away. I feel that we will start splitting financial years into months and not quarters pretty soon. Of course that push from investors, has led to big pressure to business people and officials. In a world of capitalism, the investor is on top of the food chain and sets the pace.

Focusing on the numbers quarter by quarter is harmful and always has bad consequences in the long term. This pressure sometimes makes you even break the law.

Show me the evidence

I recently came across the case where Fiat Chrysler forfeit sales in USA. They pumped sales through the dealers by making them “buy” vehicles in this quarter and return them the next one. They did it because investors wanted…growth. And while Fiat is only one case, the other example shows the big picture in markets. We have witnessed record stock buybacks this year. Corporations are faced with flat earnings but the stock price must go up. So they borrow cheap money and buyback their own stock, while demand/supply dynamics start to kick in and stocks start to go up. This is one of the most devastating deployments of capital. Instead of spending on R&D, human development, technology, ecology, corporations borrow money only to buyback their own stocks. I hope you find this absurd.

The picture is no different in the public sector. Central banks have been on a printing money spree to boost growth. Officials do society wide changes to boost economic growth for the next quarter. With economy in sight, they disregard all other aspects of public life – culture, education, ecology, health care etc. Nothing gets that much energy and attention as the growth of economy.

Is there a solution?

The truth is that i don’t know, but am rather pessimistic. Greed has always been on the surface of most peoples’ actions. In the past we didn’t have the means to self destruct so fast but now we do. We have global markets where capital flows with stunning speed, we have the technology to destruct nature and extract resources in a matter of few years. You can study the case of Nauru (and not only) to see where my pessimism lyes. In order to prevent that, we need: new economic system which no one knows what to be, we need new ethics, we need to remove old elites that clinch to their riches, we need a new global mindset of what is sustainably right and what is not. Even if this is possible, this would take decades at best. The other solution is to conquer new planets so that we may expand as much as we want with disregard of sustainability. That, however, might be also decades away (hope i am wrong). Not all stories have a happy end, unfortunately. This is one of those.


Why commodity investing is so hard

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They teach you in finance classes in university that it is uniform how you value assets – just look at demand, supply and current price and figure it out. It is rarely the case – especially with commodities.
Commodities are such an important thing from our every day life (you can live without twitter but cannot go without wheat) that they are hardly left to the market to figure out the price.
In order to invest in commodities you have to drop most of your finance/economics knowledge and start looking into politics.
Take oil as example. At the moment Saudis just let the oil pour from the ground no matter what the price, aiming to harm US shale producers and punish US for supporting Iran. They also aim at the economy of their long standing local rival – Iran and also Russia’s economy as Russia supports Assad’s regime which Saudis don’t like. So it pays the Saudis to sell under production cost just to gain more political power and influence in the middle east.
Another example are gold and silver. Except their industrial use, they are considered by many as money and counteract fiat money and central bankers. That’s why gold and silver are so hated by bankers. They are ready to manipulate markets even though they might lose money just to suppress sound money and promote fiat ones, keeping monetary world order at it is. That’s exactly what happens every day with silver market – banks manipulate it through the instrument of derivatives. Deutsche Bank got busted but they are just the tip of the iceberg.
For some commodities, a huge problem is their high concentration in a few countries. For example, palladium and platinum are 80% mined in South Africa and Russia. Russia is one of the most insecure mining jurisdictions, SA not so much but having huge problems in the sector also. So any political distress, strike etc can move prices in a grand way for long period of time. Russia can easily destroy the market with a political decision to stop exporting or nationalize mines.
Some commodities are very tiny markets which makes them an easy target for manipulation. For example only 20$ bln of physical silver changes  hands for an year. For example Apple stocks trade with a pace of 4$ bln A DAY. So small markets make them easy to manipulate. That was the case with JP Morgan, Goldman Sachs and Morgan Stanley and the aluminium market, the Hunt brothers and the silver market and many more.
So far to even touch most of the commodities, you have to be an expert in politics, power plays, monetary policy and a couple of other things before even reaching out to the supply and demand stuff. 
When you get to demand and supply economics, you will learn that figuring them out is not easier than the previous part. Just as an example from the silver market, consider the following: you need to know the prospects for the zinc and lead industries as most of the silver comes as a by product; you need to know industrial uses so that you can figure out how much silver industry will need and what may drive ups and downs there (more than half of the silver goes for industrial uses); you need to know investor sentiment as investment use is a huge factor also (many times decisive); you need to know mine economics to figure out what prospects are there for the world mines to increase or decrease output (finding and developing a profitable and large scale mine is like finding a specific grain on the beach).
Getting very negative already? Lets advocate a little for the positive side. It is not all frogs at the end of the day.
First and foremost reason to invest in commodities is that you can get excessive returns. Nothing in the stocks world compares to the commodities’ bull market gains. The fact that prices are manipulated a lot means that huge deviations occur from the normal. So if you learn cycles you will outperform. At the end, fundamentals always play out and things balance. ALWAYS. So hard thing about commodities is being right, being disciplined and being patient. Having that, 50 – 100 bagger returns would be the norm for you.
Commodities’ market keeps general public aside. That is very good – popular investments among the public are bad investments as a rule of thumb. Being hard to figure out it also gives great pleasure if you happen to be right.
Another reason is that commodities are interesting. To even start investing there, you need to learn many things from various domains – for example you will learn that silver is the best insulator, palladium is good to clean diesel emissions and platinum is good for the gasoline ones etc.
As a conclusion, i would say that if you want exceptional returns, are curious, patient, disciplined and ready to be competing in one of the harshest markets out there – fear not and go with the commodities.

Gloomy economic 2016 ahead

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2015 was a very mixed year – however, in the plethora of news and events i think that global economy starts to top up and probably will enter a recession very soon. Consider the following:

  •  Commodities and oil are down in a big way. From metals to soybeans situation is harsh. That is very worrisome and probably signals that world economy is on its way down already no matter what the official statistics say. You can’t have a growth with commodities’ prices falling. These are the building blocks of all economies.
  • BRICs is no bright spot – these are the biggest developing countries (China, Brazil, Russia and India) and that’s where you expect the growth to come. Nah. Brazil is on the verge of collapse – Real is plunging, companies are failing, state bonds are with junk status already and some social unrest starts to surface up. Russia is on the downfall also with economic sanctions in place and cheap oil that is a drag on state finances. China starts to crack – we see the massive levels of debts accumulated there in the years start to cause trouble and the stock market is mirror of that. (especially in summer 2015 and yesterday when stock market in China crashed with close to 7%). Only India hasn’t gone through a rout last year.
  • Chances are high that US will follow. Last year SP500 was almost at 0%. But problems are starting to surface. SP500 is calculated not on an average basis but on a size distribution – that means that bigger companies have more representation in the index. Out of the biggest 15 in SP500, 4 went up big (Google – the second largest company went up 50%+, Microsoft, Amazon and Facebook) while only 2 went down in a bigger way – Exxon and Wal-Mart. The other 9 are kind of the same. So big companies might have skewed statistics to the upside and still SP500 went no where. Average P/E ratios are higher than historical values and the bull run spans longer than average. These are all red signals.
  • Political situation is gloomy. With Russia in the war in Syria, situation there goes from bad to worse. Saudi-Iranian cold war is heating up. Europe faces tough situation handling the millions of emigrants from the middle east which puts a greater strain on the fragile economic growth.
  • Officials are long ago known for bad economic predictions. Now they start to face downgrades AGAIN. IMF lowers its outlook for the global growth. I even doubt the 3.1% figure for 2015 but at least they confess for being wrong.
  • Gold and silver eagles sales had a very solid year – it was even record for silver eagles with 47 million peaces sold. That means that average Joe is  very worried about economic prospects (gold and silver are hedges against inflation and stagnation).
  • Real estate prices’ increase in US west coast are far outweighs the increase in incomes. It was in 2007-2009 when that last happened.
  • World debt levels are at all time highs – so the root cause for the last financial crisis has gone nowhere. No country/company/individual survived 286% of debt level without going bankrupt. It is not a matter of if but of when.
  • Incomes stagnate and unemployment stays high. US reports unemployment going down but they don’t account for the people outside of the labor force. These people are almost 100 million so far and continue growing.


I am not a gloomy person by nature but when facts speak it must be true. I think that 2016-2017 will be a cornerstone for world economy with most of the developing countries feeling prolonged pain. The US stock market bull run will end and real estate will start to crack. Europe will face stagnation and will return to the printing press in a big way. Japan will print even more as things deteriorate there also no matter the state interventions.  Australia will probably have a real estate bubble pop – real estate prices are at record highs while main exports (it is a resource export economy) prices’ go down.

Gold and Silver Uncategorized

Why you should care about silver

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If you neglected silver as an asset or thought of it only in terms of silverware so far, think twice. Silver is one of the rarest and extremely valuable metals out there. It is also the single metal that has a dual nature – it is used heavily in industry but is also highly valued as an investment tool.

Quick facts for silver used in industry:

  • Silver is the best electric conductor of all times. That’s why it is used in pretty much every electrical appliance. Moreover, with the rise of the solar energy, silver is in high demand. Around 20 grams of silver are needed for a panel that produces 1kWh energy from the sun.
  • Silver is one of the best thermal insulators also. All the thermally insulating glasses have a coating that contains silver. Some high thermally performing clothes contain silver for insulation.
  • Silver has one of the best anti-bacterial properties. It makes bacteria cells fall apart literally. You may have heard that silver is used in water purification technology. The rich in the past started using silverware partly because of the anti-bacterial properties. Silver makes antibiotics much stronger.

Quick facts for silver as an investment/financial asset:

  • Silver has served as money for thousands of years due to its characteristics. Even american coins up to 1971 contained a fair amount of silver in them.  Any United States dime, quarter, half dollar or dollar that is dated 1964 or earlier is made of 90% silver.
  • Silver is used heavily for jewelry and all sorts of “schmuck”. Especially in the east – India, China, Bangladesh etc.
  • Silver is one of the best hedges (gold being its big brother) in times of turmoil, distress, inflation, wars etc. And it has been like that for centuries – over and over again. Who kept gold and silver during hard times, came out as a winner at the end.

Can you think of any other asset with such characteristics?

Gold and Silver Uncategorized

First Majestic CEO Slams CFTC Chairman on silver market rigging

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If you know how commodities are traded on the world markets, you will already know that what was meant to serve as a hedge mechanism for producers is now a platform to rig prices of underlying commodities by speculators. Physical markets and futures price discovery process have diverged a lot.

Futures markets were meant for the producers to sell future produce so that they hedge the price of future business. However, speculators have become the major crowd in those markets and logically the major factor in price setting. Some commodities’ world annual production is now traded in a singe day. In some record days for example (19.2.2013), 2.5 years of world production of silver is traded in a single day. So you can imagine speculators’ role in the markets is quite high. And that goes on like forever. The bad thing is that real producers should sell real products to real consumers for a price set by speculators that flip contracts all day long and never take or give delivery. This is quite different from stocks for example where everybody trades expectations and promises. Here we are talking real labor, knowhow and products – silver, crude oil, wheat, corn etc.

Silver market is one of the most rigged throughout the years as it is a relatively small market ($20 bln. worth of annual production). For my sweet surprise it seems that producers are fed up with this game and start at least publicly to condemn the whole thing. First Majestic Silver’s (one of the biggest silver producers) CEO slams Commodity futures trading  commission with the following letter:

first majestic silver

What the silver producers argue about is that the market has stopped serving the purpose of an honestly price discovery mechanism as the producers are not represented there. His discontent stems from the fact that large positions are opened (163 days worth of annual production) short despite the low prices and  those positions are from speculators and not real hedgers.

I personally hope that others will follow.

Currency Wars Fiat Currencies Uncategorized

New war in town – currency war

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Currency wars was something unheard of as a term in the mass media just 5 years ago. Now if you search through news paper , you will find that the most usages of the word war is related to currency.

Things are getting really serious recently as all parties are trying to outsmart the others and s most things in finance this is a zero sum game and somebody has to lose for you to win. When playing parties are countries and law makers it gets serious to make others lose for you to win.

This game is really simple – you (as a country) don’t want your currency to be very strong as costs for domestic businesses will be high compared to other countries and that brings a whole lot of problems – no foreign investors (they will go to China right?) , weak domestic companies, low exports, high unemployment etc. That brings in a lot of discontent and you don’t get elected at the next poll – simple as that. So strong currency is bad, looked at country level. Here comes the printing press – countries print money to debase currency and thus give a hand to business (make domestic costs lower). But who suffers here? The savers. If you hold money in the bank – that’s bad news. Current monetary policy favors borrowing and not saving. That’s why Germans are against running the printing press and Italians and Spaniards are in favor.

I don’t know if a little monetary policy is good here and there but one thing i know for sure that is very bad – when monetary policy substitutes reforms.

Our policy makers have run out of ideas (or don’t want to push them as our world as we know it needs very painful restart of the financial system and that’s bad for ratings) so bad since the start of the crisis that they have substituted all sound (but painful) policies with one thing and that is known under many names: monetary policy, QE or simply money printing. However, that always ends bad. 100%, no exceptions here in human history. If you are a net borrower, you don’t need to worry to much – you can only benefit. If you are net saver, start looking at the time as your worst enemy as money in the bank will eventually end up bad.

That is valid for all major currencies – dollar, yen. euro, etc. US printed three times the money supply for 5 years, Japan has never stopped to print large amounts of money, ECB just announced very ambitious plans for printing. On the other hand, all these parties are stuck in their financial reforms and that can be seen easily – GDP growth is hardly hitting 2%, unemployment stays high (especially youth figures), bureaucracy is high, taxes are high etc. So even though they try to solve all heir problems with the printing press results are not there because printing can help but can’t substitute sound policies.

As a conclusion, remember that history repeats itself. Every non gold backed currency (fiat currency) has failed in human history.No exceptions. Time span is usually 40 years. All world currencies are fiat since Nixon made them such in 1971. It may not be in the next year or two but if it happens in your life span and you are not prepared, 10-20-30 years of your labor may just disappear in a matter of days.


Investment advice that turned out to be most valuable for me

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A lot of people consider trading or investing as a game and you can hear a lot of people say “I play on the stock market”. That’s so wrong. Investing with real money (moreover your money)  is serious stuff and that’s why it should be taken with great consideration and discipline. What is more important on the stock market than knowledge in my opinion, is discipline. I would split the discipline-knowledge skill set as 80%-20%. Discipline requires to abide by some rules and advice (by people that you trust). These are the ones that i consider most important:

1. Always invest the amount that you are ready to lose. Investing in stocks, bonds, commodities etc is a highly risky business. If someone tells you that this stock is sure thing – walk away. Each company, currency etc can go to zero in 1 day. When things get nasty, you can’t even sell – they stop the trading and eventually tell you something like “We don’t know how we allowed that to happen.” Remember Enron?

2. Don’t look at your investments every day – big distraction. If you need to see how much money you made or lost yesterday, you could not do it more wrong.

3. Set goals and follow them. If you did your homework and are looking for a 20% return on an investment, sell it when it gets to 20% – don’t wait for it to make you 30%. Same with losses- set stop losses.

4. You compete with one of the smartest people and the best technology on the planet. Face it – you can’t beat them with knowledge or algorithms that you found. You can beat them with patience and discipline. Most people trade super-often and try to catch the trend. You can’t do that in the long run. It is a lose game for you. However, if you did your homework and keep your investments long enough, that will pay out. If your holding period is shorter than 3-5 years, you are not an investor but a speculator.

5. Technical analysis is good only in two moments of time – when to enter and when to exit an investment. Technical analysis can’t predict prices and trends in the long run, no matter what they tell you.

6. Don’t trust analysts. As i said above, you compete alone against one of the smartest people on the planet and all of them want you to lose. It is zero sum game – if one loses, another one wins. So it is mathematically impossible for everyone to win. If anybody out there knows that  stock X is going up, he wont share it with the public but make all the money in the world. Don’t be fooled by shiny hedge fund managers – 99% of them lose money for their clients.

7. Investing is super simple – don’t bother study long formulas etc. Most of the time, what you have to figure out are fundamentals, demand-supply balance, management/leadership (if you invest in stocks) skills, politics (forex and bonds), common trends. Those things drive prices in the long run and no, you don’t need special education to figure them out.

8. If you make 20% return over 10 years, that’s huge success – you are doing better than 99% of the crowd. Most people think that to be super investor, you have to make 100% an year. Wrong, nobody on this planet does that over the long run.

9. Stay in your area of competence. Don’t invest in insurance stocks if you don’t know anything about insurance business, if you are not super smart in politics – stay away from forex. Simple as that.

10. If you win, you attribute it to yourself , if you lose – you blame other factors. Avoid that. It is all your fault. One more point here – don’t look back and blame yourself that you didn’t spot the next killer stock earlier. Early investors in killer stocks didn’t know that the stock will skyrocket. They just invest in a 1000 stocks and 2 of them turn out to be so successful that pay out for the others.

11. If you are not prepared for at least 30% drop in the price, don’t use margins. Otherwise, you will learn what a margin call is faster than you think.

12. As with everything, history repeats itself. Study the financial balloons and crisis for the last 200-300 years (what caused them, what happened etc.) and you will know better what is going to happen than 99% of the ivy league educated folks out there.

13. Last but not least – be a contrarian – only then you have a chance to win (even though not for sure, but at least you have a chance). Be greedy when others are fearful and fearful when others are greedy. And if you don’t trust me – remember who said that. A rule of thumb here is – if you hear your waiter advise you on stocks, it is probably a good time to sell. Sounds simple but that is probably the hardest of all.