I voted!

No, not politics but Otto’s survey. Just go to IKN and look for the “WHICH WILL BE WORTH MORE AT END 2015?” poll on top of the page.

Before you vote, here’s my thoughts on each option:

1) AAPL: Not sure how much upside there is left after the past few years or what the margins are on mobile devices now that they are ubiquitous. Any monkey could have told you that but did you know that the proliferation of mobile devices gave birth to something called big data? Put simply: everything you do is recorded and analyzed. Your mood, location, places you’ve shopped at, relationships, etc. Feeling stressed out? Don’t be surprised to see a coupon for your local day spa on your smartphone. Walk into a bar? Expect an ad for a “get you home safely” taxi service on your trusty device. Ended a relationship on a social network? Book a comfort-sex trip to Kenya with any of our preferred travel partner sites. AAPL doesn’t really use “big data” in their business plan but their devices make it possible for others to do so. Did you know there are private, for-profit companies who will sell your current and recent location to anyone based on GPS data embedded in publicly available social-media posts? George Orwell was wrong about one thing only: the date was off by 30 years.

2) Bitcoin: I don’t understand it being used as a currency but you may be surprised to know that Bitcoin has serious implications for online security. Bitcoin is based on “mining” computer hashes, similar what is used in cryptography. As a result, cryptography that was considered secure only a few years ago is now trivial to break because Bitcoin miners have learned how to exponentially increase the speed of hashing (particularly by applying graphic processors or GPUs instead of CPUs). It used to be if a company like Target, Home Depot or JP Morgan got hacked, encrypted data on their servers such as passwords was relatively safe. Now this data is exposed and sold in no time. This combined with the existence of a shadowy industry where you can sell computer vulnerabilities to the highest bidder (ie. governments and businesses) means there is a tremendous incentive for hacking.

3) Gold: It’s shiny. For more wisdom, ask Otto because I don’t know.

IKN Chart of the Day

I caught a glimpse of Otto’s chart of the day over at IKN and shamelessly swiped the same:

gold_jun2013

Remember when gold was $1,200 and going up? The gold nuts said it was never ever gonna end? Of course neither was the real estate bubble, the internet bubble, RCA in the 1920s and 30s or tulip mania long before that.

Gold is a fickle thingy and I have no earthly idea where it’s going next. Maybe all the retail investors are dumping gold to jump in the big DOW / S&P500 comeback? If that’s the case surely we should call a top in the DOW / S&P500 in the next 24 months or so?

Hey Otto: special request, how about an S&P500 chart expressed in ounces of gold? See if that tells us anything.

I’m sure far more intelligent commentary could be scribbled here but a double shot of Jamaican rum and some fine music will do:

PS: On a serious note, I haven’t seen main street Peru react to the lower gold prices, there is still this “party will never end” attitude and that could be trouble: with the good macro numbers that Peru had been posting on the back of rising mining revenue also came an increase in consumer credit, imported consumer goods, declining trade balance, etc. Not saying end of the world is coming but I doubt Peru’s internal economy is as strong as many have come to believe.

PPS: Even I had something to say about gold going up at $12 something.

Look for the blue rock

I got together with a couple of guys who are in mining a few days ago. Mining is a big part of the economy here in Peru: copper, gold, zinc, you name it. I don’t know much about mining, my father worked in the coal mines in Belgium when he was young but those mines are long gone now. As you might expect, since we’re talking Peru, a good bit of the mining here is informal and badly organized. Peru tends to be that way in many respects, the economy in general is very informal and with poor or little organization. Outside of a few foreign companies (LAN, Telefonica, Saga Falabella, …) the only large and well organized organizations are the police, military and churches, that’s just part of the culture here I guess.

Cuzco is the nearest somewhat big city to the region of Madre de Dios, where a lot of the informal mining takes place. “Informal” is the politically correct term for illegal mines, small mines that have no license and no environmental controls.

My accountant has quite a few informal mining customers and he regularly tries to get me involved with them. Cuzco is one of the most traditional areas of Peru and there is still this weird idea out here that foreigners (so called first world people) are all-knowing and can do anything Peruvians can’t. In the case of my accountant, his “informal” mining customers are always looking for ways to sell their illegal gold. So they ask me if I can make a trip a month to Switzerland with a case full of gold and sell their gold to the Swiss banks. Seriously, just because I’m tall and white they think I can do that, and that it would be OK if I did that. I don’t know what they get in towns like Puerto Maldonado for their illegal gold but I’m sure it’s much below the market price. It’s sad really, because I don’t think those people fully realize the damage they’re doing to the environment but on the other hand, how can you expect somebody who would otherwise be living on $200 a month to turn down a chance to make $30,000 a month?

Anyway, the guys I had a beer with are stand-up people, they’re the guys that do apply for environmental permits and all that good jazz. But I forgot to tell them a secret I got from these local “informal” miners: if you want to find the gold, all you have to do is look at the color of the rock. The blue rock is where the gold is.

I don’t know diddly about geology and drill holes and mineral resource classification but just look for the blue rock if you want to find the gold. So say the locals.

River Madre De Dios

Looking for gold? Nah, just waiting for the boat on the river Madre de Dios.

Priceless jungle Peru

Priceless jungle

$1202

The current price of gold, one of Peru’s 2 main exports (the other is copper).

Here in the Empire of blood and gold the effects of the run-up in gold prices are decidedly mixed. While gold certainly has been good for Peru’s macro-economic numbers, the current gold rush in places such as the pristine jungle of Madre-de-Dios has undeniably had a significant environmental and social impact.

Gold mining in the jungle of Madre-de-Dios, Peru

Gold mining in the jungle of Madre-de-Dios, Peru

On the purely financial aspect, I tend to agree that gold will likely do no better than protect your purchasing power in the long run. Gold has no intrinsic value and I’d say the current run-up is largely due to lack of faith in paper currencies, since central banks are printing them up like Monopoly(tm) money, but you can’t expect artisan miners in Peru or the suits at the TSX to give 2 hoots about that.

Here’s to Peru’s Ministerio de Energia y Minas.

Funny printed paper

2 cool charts I copied from Rolfe Winkler at Reuters. To illustrate my point that money’s just funny printed paper.

US public debt outstanding

US public debt outstanding

US public debt, doesn’t include unfunded healthcare and Social Security oblications. Original here.

Dow Jones historical chart valued in gold

Dow Jones historical chart valued in gold

Dow Jones historical chart as valued in gold. Original here.

Peruvians should pay attention to these, since Peru historically has very close ties to the US and gold is a major part of Peru’s foreign exports. To stay up to date on all things gold and Peruvian economy, head over to IKN.