Category Archives: History

Condemned to Repeat the Mistakes of the Past

Here We Go Again……..

Financial bubbles are not accidents but rather inevitable outcomes of our asset-backed banking system. To illustrate: imagine a homeowner who owns a $1 million house free and clear. He goes to a bank and borrows $800,000 against the house. This credit money springs into existence as an accounting entry of a private bank—it is the creation of credit out of nothing. The borrower goes out into the market with these newly created funds and starts purchasing other assets: stocks, perhaps, or a weekend house. The new money drives prices higher, including those of the assets that form the collateral of the banking system. Since its collateral value has increased, the banking system is happy to increase its loans to borrowers, which pushes prices yet higher, and so on in a positive feedback loop. Price signals then prompt over-development, which
eventually lowers rents, which causes borrowers to default, the fractional reserve
process goes into reverse, and the banking system collapses.

Irving Fisher, whom Milton Freidman anointed “the greatest economist the
United States has ever produced,” described it thus:

In boom times, the expansion of circulating medium accelerates the
pace by raising prices, and creating speculative profits. Thus, with new
money raising prices and rising prices conjuring up new money, the
inflation proceeds in an upward spiral till a collapse occurs, after which
the contraction of our supply of money and credit, with falling prices
and losses in place of profits, produces a downward spiral generating
bankruptcy, unemployment, and all the other evils of depression.


Performance_Update_2018_04 (1)

Speculation during the Great Crash of 1929

This 1931 article written in the aftermath of the Great Crash of October 1929 and in the teeth of the Great Depression illustrates the pattern of human emotions in the boom/bust cycle. This should be read alongside Murray Rothbard’s excellent work, America’s Great Depression which analyzes in detail the causes of the depression.

But can speculation be fettered? Are we dealing with human emotions which defy control? Certainly, we cannot fetter speculation by our naïve American tendency immediately to enact a law. Making short selling—a that bête noire of the amateur economist—a crime or attempting to forbid speculation in securities by imposing a heavy tax upon the resale of stock recently purchased, would obviously be impractical as well as futile in a democratic state. So, too, an effort to distort and distend the functions of the Federal Reserve System, by charging it with the power and duty to ration supplies of credit to the stock market, would be an unworkable and paternalistic venture.

A Great Depression_Rothbard

Lecture on Studying Financial History (Russell Napier)

Russell Napier’s Lecture

on Financial History   (60 minutes)

A good lecture on integrating past lessons into today’s current conditions.

A CFA composite book on Financial History: Financial History CFA Institute

If you do study financial history like the period of the Internet Boom then collect books and articles from many perspectives AND look at supply as well as demand. Also, incentives rule.

For example, read several books from different perspectives and the history of interest rates, the history of commodity prices, other equities, interest rate spreads, etc.
















CFA Seminar on Financial History; Bubble Studies; Advanced Study in Human Action

Seminar of Financial History

In an age when an algorithm is the main competitor for many fund managers, what can we know that they don’t? Algos understand the data trail of history, but this trail provides only limited insight into the key lessons of financial history for investors. In this talk, first provided at the 62nd Annual CFA Institute Financial Analysts Seminar, Russell Napier discusses those 21 most important lessons from financial history that allow human beings to profit at the expense of the machines.    1 Hour on-line seminar Feb. 1, 2018. Register ( I believe it is free:

Regardless of whether you can attend, read relentlessly about financial, economic, and common history.   Note what Jim Grant of Grant’s Interest Rate Observer says:

But our main goal is to tell you the next important event in the markets. And sometimes we succeed.

– As with the tech bubble in 1999
– The 2008 mortgage crash
– The 2009 recovery in financials
– And the 2012-13 rise in house prices

How have we been so prescient over the years?
We don’t have fancy, financial computer models or a team of MBAs and Ph.D.’s to help us make these predictions. And we don’t have access to any kind of special information.

But we have been immersed in the markets for over 30 years. And we’ve studied the financial history of the past 200 years. None of which guarantees clairvoyance—nothing does. What we do claim is the capacity to see the present in the context of the helpful lessons of the past.

Like when we warned about the mortgage debt bubble in September 2006.

From the Sept. 8, 2006 Grant’s:
“Overvalued,” we, in fact, judge trillions of dollars of asset-backed securities and collateralized debt obligations to be, and we are bearish on them. Housing-related stocks may or may not be prospectively cheap; they at least look historically cheap. But housing-related debt is cheap by no standard of value. For institutional investors equipped to deal in credit default swaps, there’s an opportunity to lay down a low-cost bearish bet.

Bubble Studies

368353935-GMOMeltUp   J. Grantham says that the current market does not YET show the characteristics of a bubble despite being highly valued.

Referenced study in the article: Bubbles for Fama 2017 and gmo-quarterly-letter

and more of interest: faang-schmaang-don-t-blame-the-over-valuation-of-the-s-p-solely-on-information-technology


Update (1/10/2018) Runaway Train – Dec 2018

Advanced Seminar in Human Action

12/06/2017  Mises Institute
Arguably one of the greatest thinkers of the twentieth century, Ludwig von Mises created a framework for all of economic science beginning with the simple axiom that individuals act. In his magnum opus, Human Action, he described economics as a branch of the theory of human action and stressed how broadly it spans, far beyond a discussion of mere money and prices. Mises said, “Economics must not be relegated to classrooms and statistical offices and must not be left to esoteric circles. It is the philosophy of human life and action and concerns everybody and everything. It is the pith of civilization and of man’s human existence.” For Mises, it was imperative that everyone learns economics, calling it “the main and proper study of every citizen.”

Human Action is a challenging read. With over 800 pages of dense material, study tools are very helpful. The course, Advanced Seminar in Human Action, is a useful addition to other materials like the Human Action Study Guide.
In this course, leading Austrian economists walk the student through Human Action a chapter at a time.

If you’ve ever wanted a push to help you get through the book or if you’ve wondered about your own reading of the material, here is your opportunity to study Human Action with David Gordon, Joe Salerno, Jeffery Herbener, Peter Klein, Guido Hülsmann, and Mark Thornton.

Human Action by Ludwig von Mises is available for free on and for purchase as a paperback and hardcover in the Mises Bookstore.


The teachers are excellent and Human Action is the Magnum Opus of Ludwig von Mises.  The book is a DIFFICULT read but there is a study guide, lecture videos, and lecture slides for all the chapters of the book.  You will have a strong grounding in economics and improve your reading and critical thinking skills, but if you are a beginner, I would opt for

The Experts Are Wrong Again

Bloomberg December 2015: But Societe Generale predicts gold will be a casualty of the rate hike, falling below $US1000 an ounce, to $US955 by the end of next year.

Head of global asset allocation Alain Bokobza says looking at the 2016 panorama, in which US interest rates tighten and the economy fares reasonably well, “that does not argue for a higher gold price.”

“Gold will be a casualty.”

CSInvesting: The purpose of this post is to remind you of ignoring expert advice and to do your own analysis.  The above comment by Bokobza is meaningless blather.   He is simply spouting the consensus view that rising rates mean a declining gold price since gold has no yield.    Beware of simple narratives.

The assumption “Fed rate hikes equal a falling gold price” is not supported by a shred of empirical evidence. On the contrary, all that is revealed by the empirical record in this context is that there seems to be absolutely no discernible correlation between gold and FF rate. If anything, gold and the FF rate exhibit a positive correlation rather more frequently than a negative one!    Source:

And today:

More here: Gold and the Federal Funds Rate and Gold and gold stocks Dec 26 2017

UPDATE: Interesting Read

  1. Update: David Collum’s 2017-Year-In-Review-PeakProsperity-final
  2. david_collum-30_years_investing
  3. 2016-Year-In-Review-PeakProsperity

Interview of David Collum:



A WWII Soldier Writes Home 1944

Happy Veterans Day

Two letters from a WWII veteran who won the Silver Star (disturbing descriptions of war) Letter 5 Silver Star Letter Feb 24th 1944

February 1, 1944 Letter rpc to Dash and Mother Flame Thrower

Facing Death

Charts: Every Picture Tells a Story Don’t It? –Rolling Stones

Above is a chart of the Barrons Gold Mining Index, the oldest mining index available.

Above are chart analogs of past bear markets in gold-mining stocks. Rather than using charts to PREDICT the next “Head and Shoulders Bottom” or the next ROUNDING BOTTOM (How about I show you MY bottom?) what can charts tell you about this PARTICULAR industry?   How is that information useful? Or is it?

Note the hedged comments of the publisher of the above charts.

Charts have never shown (based on my research) to have any statistical predictive value because of the subjective nature of interpretation–there are always two sides to a chart. Buffett stopped charting when he could flip the chart over and get the same answer.   Note this article

Now onto the bull market analogs.

Bull Market Analogs Article

Notice the difference with these charts of housing and banks.

What might account for the difference in the chart patterns?  What do the charts tell you about the mining industry?  IF–god forbid–you did wish to invest in precious metals miners, how might you adapt your strategy?  What explains (mostly) the shape of the above charts?  It is perfectly rational to avoid the industry but what do the charts tell you about the structure of the industry? Whip out your competitive analysis books or and post your thoughts.


A Review: The Bre-X Scandal

The Peak
It was touted by media and banks as the “richest gold deposit ever”
In December 1996, Lehman Brothers Inc. strongly recommended a buy on “the gold discovery of the century.”

Bre-X’s salted samples were never checked by a third party, people wanted to believe so they never questioned the rising price of the stock. Do not ignore the warning signs.

Patience is paying off in

Case Study on Natural Gas/Shale Industry; Buffett Reads

Shale gas is not a revolution. It’s just another play with a somewhat higher cost structure but larger resource base than conventional gas.

The marginal cost of shale gas production is $4/mmBtu despite popular but incorrect narratives that it is lower. The average spot price of  gas has been $3.77 since shale gas became the sustaining factor in U.S. supply (2009-2017). Medium-term prices should logically average about $4/mmBtu.

A crucial consideration going forward, however, will be the availability of capital. Credit markets have been willing to support unprofitable shale gas drilling since the 2008 Financial Collapse.  If that support continues, medium-term prices for gas may be lower, perhaps in the $3.25/mmBtu range. The average spot price for the last 7 months has been $3.13.

Gas supply models over the last 50 years have been consistently wrong. Over that period, experts all agreed that existing conditions of abundance or scarcity would define the foreseeable future. That led to billions of dollars of wasted investment on LNG import facilities.

Today, most experts assume that gas abundance and low price will define the next several decades because of shale gas. This had led to massive investment in LNG export facilities.

(CSInvesting: You should read Mr. Berman’s full report at the link below.  He uses history to debunk long-term prediction models and shows the common sense of looking at markets through the long lens of history.  The assumption of abundant natural gas could be wrong–many “experts” are not even thinking of vastly different outcomes to their models.)

Excellent interview:


Excellent investment letters from Moran Creek

Are these sustainable competitive advantages ?

A great read on investing:

The World is Cyclical; Valuation in a World of Zero Interest Rates

Cyclical Markets











The NASDAQ bubble showed the highest P/E ratios in stock market history due to low or no earnings technology companies.

Kopernik 1Q 2017 – Conference Call – Final  Worth a read–note high and low market cap sectors of the market (see page 9)–a proxy for expensive and cheap.  A search strategy.

Time in a Bottle – Final A good discussion of valuation methods in an era of distorted interest rates.

Join  A discussion of how to understand interest rates and gold.  Note the analysis using data going back 90 years.   Do not use a small smaple size.

Also, see ETF Weapons of mass destruction FPA 1Q2017 Commentary   Recent Greenblatt talk at Google.