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20 December 2017

2017 Passes



Time to look back on the year just coming to an end. On a personal level, it’s been a horrible year, but that’s not really a subject for this column. For the metals markets, it’s actually brought something of a revival, as commodities generally, and metals specifically, have begun to move again towards the mainstream after a tough few years relegated to the outer darkness of the investment universe. I’m not going to list specific returns here - that will be for later, when the year has actually closed  - but it’s pretty clear that metals have had a good year, some more than others, and that there is largely one dominant cause of that improvement in sentiment. 

That one cause is the seemingly unstoppable surge of enthusiasm for electric vehicles. The overall number so far is pretty small, but what’s getting the metal markets excited is the rate of growth. At this year’s Lord Copper Lunch, the question I posed to the guests was to estimate the second quarter 2018 production of Tesla. The reason for that is that the Model 3 - Tesla’s mass market, $30000-odd offering, should be in full production by then. If it is, then the  production which has been running at give or take 25000 units per quarter should increase to more like 50000 units. That’s going to make a lot of copper, cobalt, nickel and lithium producers and traders very happy. Of course, that production increase has already been delayed by well over six months, so one should treat the numbers with a degree of caution, but it is very easy to understand why this technological change is fuelling such enthusiasm in the metals business.

I’m not going to write again about EVs (regular readers will know I have done that several times this year, and will no doubt do again as 2018 unfolds), but here I’m really looking at market trends during the year. So as well as the EV surge, what has dominated financial headlines, particularly in the last quarter, has been the inexorable rise of Bitcoin (and indeed other crypto-currencies). Now, I would claim to have been near the front of the pack when talking about EVs, but when it comes to cryptos, I have to confess to lagging well behind. Indeed, I frankly still struggle with the idea. I understand - at least the principle of - the blockchain technology and why it is of serious interest to the banking industry, but when it comes to the Bitcoin itself, I struggle to see it as any more than another fad blown out of all proportion and riding for a fall. However, if I’m honest, I would have said the same this time last year; so I  completely missed the the profit opportunity others have taken. There are two areas that particularly concern me: first, what is it for, and then, how secure is it in reality?

I have friends who excitedly assure me that Bitcoin is an answer to the corrupt way the elite have rigged the global financial system for their own benefit. Well, yes, in a year where populist soundbites have commanded far more airtime than they are worth, I get what they are saying. I don’t agree with it, though; you can use Bitcoin in a few - a very few - places to buy things, and (apparently) on the dark web you can use it to buy drugs, guns and people, but that’s about it. It’s rallied from around $700 at the beginning of the year to around $17000 now; I honestly can’t see that as anything but a speculation-fuelled irrationality. Just compare the chart of tulips in the seventeenth century. 

Still, what I think is irrelevant; it’s definitely been one of the big stories of the year. And as for security? Well, yes, it can sit in an electronic wallet, which is well and good as long as it doesn’t get lost, or you don’t forget the password (see all the news stories in recent months suggesting that a disturbingly large percentage of Bitcoins have been lost); but I can also think of the reports of exchanges being hacked or collapsing, with customers losing their assets. I suppose the only thing to say here is that it’s not a real profit until it’s converted back to dollars or sterling or euros or whatever; or is that statement just showing my prejudice?

Stepping back a little from the financial markets, what else has been going on in the world, aside from the seemingly constant death, famine, pestilence and war (will those four guys never put their horses in the stable, even to give us just a brief respite  of peace)? 

Well, UK politics are in a pretty febrile state, with a government committed to a policy in which many of its members do not believe; a prime minister showing spectacularly bad electoral judgement; and a (just about) governing party that seems determined to plant its foot down firmly in every cowpat anywhere near it. 

But it’s actually the state of the opposition that is probably more interesting. Although it’s led by a couple of old men, the main opposition party has worked out how to maximise the impact of modern social media. They are the ones who have worked out how to create the thirty-second soundbite, the 140 character Tweet or the Facebook post. Further than that, they have understood that truth doesn’t matter in this context. They have worked out that in this instant information world, the old saw that a lie is halfway round the world before the truth has got its boots on is true in spades. All that matters is the immediate impact. Let me give one very small, possibly trivial, example of this. Before the last election, McDonnell announced that he would abolish car parking charges at NHS hospitals. Now, I don’t know anybody who doesn’t think this is a good idea - charging the sick and their visitors to park their cars is an outrage against decency. What McDonnell didn’t bother to add (until days later, in a very small voice) was that the policy is in a majority of cases impossible; the last time his party was in power, they committed the car park income stream to their PFI partners; legally, you can’t stop it. But, and it’s a big but, the immediate statement, untruth that it is, is the one generally remembered at the ballot box. 

So my high(?)lights of the year are all about advancing technology - positively, in terms of EVs, incomprehensibly (to me) in the case of crypto-currencies and, sadly, in the way it can be abused by unscrupulous power-seekers in the political field. Still, I’ve always been convinced that technology - even if at first it’s not obvious - generally proves beneficial. It’s the people who misuse it we should shun…….Merry Christmas. 

    

   

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