Forest Developed Country - Guy Oppenheim

 

There is an old saying that “There is no beggar who never had a king in his family and no king who never had a beggar in his family. “ The saying is very much valid in the present times as far as the conditions that are prevalent in the developing countries are concerned. The history of the developed world and the ways and means that they used in order to get rich is known to everybody. Till a century back the majority of the western countries had colonized the rest of the world and gained wealth through the unfair means of plunder and booty. The countries like the Great Britain, France and to some extent the Portugal and Spain had colonized the majority of the nations in the continents of Asia, Africa and the America. The plunder of the natural resources of these nations by their rulers led to a complete imbalance between the wealth of the rulers and the ones that were being ruled. The irony is that the imperialists did not use the wealth that they amassed from the countries they ruled to develop these countries. Rather they used this wealth in order to make sure that their coffers would keep flowing with wealth.

The result of all this is that the now in the present times there is a huge financial chasm between the developed and the developing world. While the developed world is fighting to shake off the financial problems that they are facing that are of their own making the developing countries are still struggling to get their fundamentals right. The countries like the India, China, and Brazil are going through a phase where although they are financially stable but they still have to overcome the debacles that they faced during the times of the colonization. The things like poverty, bad infrastructure, and poor health care systems are the issues that they are still struggling with.

The other major negative result of the colonization is the disputed boundaries of the developing nations. As long as the colonizers were ruling these countries they were only interested in aggrandizing their territory. But after the collapse of the imperialism, the nations that were being ruled by them are still struggling to get their boundaries right. The nations like India and Pakistan have already fought three wars over the disputed lands, the perennial conflict that we see in the Middle East between the Arab world and the Israel is still unresolved, and the war strife countries in Africa have receded into the ancient times of extreme poverty and barbarism. All of these territorial conflicts are a legacy of the times of colonization. The result is that these nations invest heavily on their defense while condoning the other important sectors like the health and education.

The problems that the developing countries and the underdeveloped countries are facing are the ones that are the progeny of the times of colonization and imperialism. But the question that the world is asking is that how can the situation be improved in the developing countries. They cannot get rich in the manner the so called developed countries did. The only way in which the developing countries can grow and sustain a healthy finance is through investing their budget positively and constructively. They have to make sure that the old disputes are resolved without the use of arms that would lead to bigger investment in the other sectors like the education.

The methods that the countries like India and China are using can be seen as a way forward. They are striving to improve their financial situation by becoming the service economies. The rise of the Information technology and the concept of globalization have come as a blessing for these countries. All that they need to do is to make sure that in order to rub shoulders with the other powerful economies in the world they would have to invest wisely and think constructively.

People like Guy Oppenheim have realized this fact and already have big plans for improving the economies of the developing world. Guy Oppenheim is the Chairman of the Oppenheim Group with over 25 years’ experience as a portfolio manager, investing globally in all asset classes. He has a vision for the world of finance that is constructive and creative in tenor.

 

By Guy Oppenheim & Toby Birch

Oppenheim & Co. Limited

Given that this is the inaugural issue of HEIR magazine it would be appropriate to highlight the theme of inheritance from one generation to the next and examine the legacy bequeathed by the baby boomers. They are the bulge bracket born from 1946 -1964 who are fortunate enough to be retiring, having enjoyed unprecedented access to free education, healthcare and guaranteed pension schemes, be they public or private.

 

While an entire generation cannot be blamed for the world’s financial and environmental woes they were ultimately the group that voted-in decade after decade of extravagant political policies. The party was funded by never-ending fountains of credit created out of thin air by banks, lacking both regulatory restraint and stewardship. Why should endless credit be a big deal? The reason is threefold: first, the process is inflationary making food, energy and house prices escalate, second, the next generation is forced to take out greater mortgages simply for a place to live, thereby exacerbating the problem and third, it leads to a widespread debasement of currencies which inevitably end in trade wars and military conflict. Our banking system is much like a casino, not because of the outrageous speculation conducted by its dealers and high frequency trading systems, but because the house always wins. Credit creation quite literally comes at a price, which in this case is the interest bill. By creating more credit than exists in the money supply the interest charged by banks will suck the lifeblood out the economy. Bankruptcy is inevitable and financial crises are the end-product of a highly leveraged and volatile market.

 

There is paradoxically a plus side to the on-going crash and credit crunch. What we are seeing are the death throws of a failed financial system. Whether it is through familiarity or fear of the unknown we continue to cling to this lousy mechanism, not least because its lobby groups are so endemic and the propaganda oft-repeated. To achieve reformation we must first have deformation which is why the current transition feels so painful. It is nevertheless a natural and necessary metamorphosis which like any birthing process entails an inevitable agony. Sustainable behaviour be it financial, commercial or personal, is not simple, nor can it be coerced through yet another round of legislation. It is a process that is learned out of necessity and adaptation to reality. The combination of ethical and environmental investing is of course a familiar theme of recent years. However, the unspoken association with green investing is that of underperformance, high volatility or at best one that carries an opportunity cost. In extreme cases, such as the Chinese company Sino Forest, it may even encompass deception leaving the world’s greatest investors shame-faced following its stock market suspension.

 

Since abandoning the Gold Exchange Standard forty years ago we have pursued a futile philosophy of chasing infinite growth on a planet with finite resources. Few in the investment community comprehend that exponential activity is not a panacea but pre-cursor to collapse, as evidenced in nature by yeast and cancer cells. The so-called credit crisis may prove a blessing in disguise as we are yanked from danger like a disorderly dog on a leash. We strain against restraint without recognising the ultimate benefit. Many green investment products carry overtones of guilt, with the emphasis on obligation rather than satisfaction. Human beings may well be motivated by noble deeds and duty but the pursuit of gain is

undeniable and it is disingenuous to ignore one of our foremost emotions. While it is fashionable to flagellate banks, they do at least know a thing or two about marketing. Through credit cards, loans and speculative products they are tapping into our desires for the accomplishment of dreams and aspirations. While we are not endorsing principles that promote selfishness and consumption there is nothing to stop investment being lucrative, fulfilling and fascinating. New funds are emerging that are not just about sustainability can offset risks that are endemic in this post-bubble economy. They provide leadership by example through investment in areas that are beneficial to humankind today and more importantly for generations to follow. This need not be sentimental or socialist; it is using a key component of capitalism whereby price changes spawn solutions that can rarely be achieved politically. Rising energy prices will act as a catalyst for alternative energy, like a flash flood in a desert; technology that once seemed barren and hopeless will be given life.

 

While ‘Peak Oil’ is hotly debated it appears unlikely that we will run out of black gold any time soon; it will just be far more expensive to extract, process and distribute fossil fuels in future. Commodity protectionism is already with us only it is taking the form of local taxes on multinationals rather than outright trade tariffs. Nationalism has most clearly been shown with last summer’s wheat shortages in Russia when exports were banned as the fires blazed. This is a clear dress-rehearsal of things to come when national interests are put before an out-dated ideology of globalisation and liberalisation, so aggressively promoted by the World Bank and supposedly respectable institutions designed to promote America’s self-interest. This is one of the most overlooked aspects of climate change, population growth and resource scarcity which when combined creates a highly inflationary cocktail.

 

Most green funds invest heavily in equities related to specific topics such as solar energy or in illiquid (albeit vital) private equity projects. These can be very volatile areas of the market leaving investors with positions that are too concentrated. They should also be holding natural resources that offer long-term protection against inflation and currency debasement; namely precious metals and commodities. While mining may not be the cleanest activity on the planet, investors have little choice in protecting their wealth other than buying bullion. It is one of the many dilemmas of living and investing in modernity; no one is entirely innocent and no solution is perfect. The past few decades have been all about high leverage and management fees that have haemorrhaged investors’ assets. Modern money management will evolve into one of balance and equity that shares risk and reward. This is not a touchy-feely philosophy but one that meets two natural human desires as the yin and yang of investment activity. The first is to endow the fruits of one’s labour into new ventures to yield greater returns. The second is to act communally which has been repeatedly witnessed in studies of behavioural finance. Investing in earth-related activities enhances the positive aspects of trade that rewards measured risk-taking while combining it with our innate sense of stewardship.

 

This may sound noble in theory but one could still be accused of hypocrisy by died-in-the-wool capitalists or ecologists alike. This is a small price to pay to benefit future generations who may judge us with disgust in decades to come, should we choose the default option of doing nothing. The topic of climate change is one that generates fierce debate and disunity on both sides of the divide. There is an overtone of the Spanish Inquisition for scientists who dare to challenge the accepted dogma of a direct correlation between atmospheric carbon concentrations and temperature change. Many vested interests and research budgets rest on this hypothesis. Likewise the pro-growth camp and capitalists believe that the whole movement is a left-wing scam and conspiracy. They would still not believe in climate change even if the Thames was flooding their City offices twice daily. The trick here is to step back and look for commonality. While we can disagree about the cause and effect of the climate’s activity we can all agree on one thing; weather patterns are changing. If one cannot accept that then it must be a case of sensory depravation or obstinacy or both. If in doubt just ask a farmer for their opinion as they experience the elements first hand. The so-what of this argument is simple; if the weather is changing then food production will be affected. This has huge implications for inflation, potential unrest or even revolution. If we can all agree on this one point then that would be true progress. If we can channel capital to the right areas to help with food production then that would be a significant result. It is a highly fragmented industry where farming is a labour of love and is desperately short of funding. For those in the agnostic or sceptical school of thought they can simply view the themes as a way to make money. Either way a beneficial result is the end product for all. For those in the latter camp this is the sales pitch for investing in the interconnected themes related to climate change and inflation:

 

  • Natural Resources: commodities, rare earth metals, forestry, water
  • Food Chain Disruption: fertiliser, agriculture, soft commodities, infrastructure
  • Population Growth: healthcare, biotech, waste management, emerging markets
  • Currency Devaluation: precious metals & mining stocks to offset currency dilution
  • Green Revolution: clean technology, renewable energy and strategic assets

 

If you believe that climate change has a financial element within the cause and effect then one can propose that the problem is also the solution. What we need across this range of industries is long-term capital investment. This will not come from governments (other than China) but from financial markets. After all, this used to be the whole point of stock markets; to match entrepreneurs with money. This ‘wisdom of crowds’ generates the most efficient form of pricing and allocation of resources. Now that half of share transactions are sourced from High Frequency Trading it is clear that markets have mutated with their decade-long lame performance; evidence that money is generated for investment banks rather than investors. Nevertheless they are not beyond repair. In an environment of sound money backed by precious metals, equities became dividend machines and show their worth through compounding, like the fable of the tortoise and the hare. It is still possible, even preferable, to aim for stability over growth as equity investment offers transparency and sustainability over the falsehood of interest-bearing leverage.

 

Money managers could do themselves a favour as role models of philanthropy. Instead of hoarding profits they can recycle capital by investing a significant portion of management fee into sustainable communities, especially in those countries that will suffer further from climate change in future. After all it is better to help people in their own backyard than be faced with mass migration through resource scarcity. At the risk of sounding naïve, this is no marketing ploy but a genuine attempt to prove that financiers can be positive contributors and not simply profiteers. This can be achieved through interest-free loans to stimulate work and self-sufficiency rather than microfinance and charity. In summary, the solution to climate change lies in correct allocation of capital away from speculation, consumption and debt-fuelled ‘growth’ to useful production and economic equilibrium. Government intervention and regulation is a poor substitute for the wonders of the price mechanism that draws investment to areas that are profitable. A sustained rise in the oil price will be the tipping point for better things to come. In the meantime investors will seek protection from the continued dilution of paper money which will in turn impoverish many through inflation.

 

Guy Oppenheim is the Chairman of the Oppenheim Group with over 25 years experience as a portfolio manager, investing globally in all asset classes. Guy Oppenheim has managed assets well in excess of $1 billion for institutional clients, sovereign wealth funds, and private families. Guy Oppenheim has been registered and authorized by Financial Services Authorities and served also as Compliance and MLRO Officer.

Guy Oppenhiem was educated in Geneva and holds a BA in Business Administration majoring in Finance from the University of Geneva.

 

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By Guy Oppenheim & Toby Birch
Oppenheim & Co. Limited
Given that this is the inaugural issue of HEIR magazine it would be appropriate to highlight the theme of inheritance from one generation to the next and examine the legacy bequeathed by the baby boomers. They are the bulge bracket born from 1946 -1964 who are fortunate enough to be retiring, having enjoyed unprecedented access to free education, healthcare and guaranteed pension schemes, be they public or private.

While an entire generation cannot be blamed for the world’s financial and environmental woes they were ultimately the group that voted-in decade after decade of extravagant political policies. The party was funded by never-ending fountains of credit created out of thin air by banks, lacking both regulatory restraint and stewardship. Why should endless credit be a big deal? The reason is threefold: first, the process is inflationary making food, energy and house prices escalate, second, the next generation is forced to take out greater mortgages simply for a place to live, thereby exacerbating the problem and third, it leads to a widespread debasement of currencies which inevitably end in trade wars and military conflict. Our banking system is much like a casino, not because of the outrageous speculation conducted by its dealers and high frequency trading systems, but because the house always wins. Credit creation quite literally comes at a price, which in this case is the interest bill. By creating more credit than exists in the money supply the interest charged by banks will suck the lifeblood out the economy. Bankruptcy is inevitable and financial crises are the end-product of a highly leveraged and volatile market.

There is paradoxically a plus side to the on-going crash and credit crunch. What we are seeing are the death throws of a failed financial system. Whether it is through familiarity or fear of the unknown we continue to cling to this lousy mechanism, not least because its lobby groups are so endemic and the propaganda oft-repeated. To achieve reformation we must first have deformation which is why the current transition feels so painful. It is nevertheless a natural and necessary metamorphosis which like any birthing process entails an inevitable agony. Sustainable behaviour be it financial, commercial or personal, is not simple, nor can it be coerced through yet another round of legislation. It is a process that is learned out of necessity and adaptation to reality. The combination of ethical and environmental investing is of course a familiar theme of recent years. However, the unspoken association with green investing is that of underperformance, high volatility or at best one that carries an opportunity cost. In extreme cases, such as the Chinese company Sino Forest, it may even encompass deception leaving the world’s greatest investors shame-faced following its stock market suspension.

Since abandoning the Gold Exchange Standard forty years ago we have pursued a futile philosophy of chasing infinite growth on a planet with finite resources. Few in the investment community comprehend that exponential activity is not a panacea but pre-cursor to collapse, as evidenced in nature by yeast and cancer cells. The so-called credit crisis may prove a blessing in disguise as we are yanked from danger like a disorderly dog on a leash. We strain against restraint without recognising the ultimate benefit. Many green investment products carry overtones of guilt, with the emphasis on obligation rather than satisfaction. Human beings may well be motivated by noble deeds and duty but the pursuit of gain is
undeniable and it is disingenuous to ignore one of our foremost emotions. While it is fashionable to flagellate banks, they do at least know a thing or two about marketing. Through credit cards, loans and speculative products they are tapping into our desires for the accomplishment of dreams and aspirations. While we are not endorsing principles that promote selfishness and consumption there is nothing to stop investment being lucrative, fulfilling and fascinating. New funds are emerging that are not just about sustainability can offset risks that are endemic in this post-bubble economy. They provide leadership by example through investment in areas that are beneficial to humankind today and more importantly for generations to follow. This need not be sentimental or socialist; it is using a key component of capitalism whereby price changes spawn solutions that can rarely be achieved politically. Rising energy prices will act as a catalyst for alternative energy, like a flash flood in a desert; technology that once seemed barren and hopeless will be given life.

While ‘Peak Oil’ is hotly debated it appears unlikely that we will run out of black gold any time soon; it will just be far more expensive to extract, process and distribute fossil fuels in future. Commodity protectionism is already with us only it is taking the form of local taxes on multinationals rather than outright trade tariffs. Nationalism has most clearly been shown with last summer’s wheat shortages in Russia when exports were banned as the fires blazed. This is a clear dress-rehearsal of things to come when national interests are put before an out-dated ideology of globalisation and liberalisation, so aggressively promoted by the World Bank and supposedly respectable institutions designed to promote America’s self-interest. This is one of the most overlooked aspects of climate change, population growth and resource scarcity which when combined creates a highly inflationary cocktail.

Most green funds invest heavily in equities related to specific topics such as solar energy or in illiquid (albeit vital) private equity projects. These can be very volatile areas of the market leaving investors with positions that are too concentrated. They should also be holding natural resources that offer long-term protection against inflation and currency debasement; namely precious metals and commodities. While mining may not be the cleanest activity on the planet, investors have little choice in protecting their wealth other than buying bullion. It is one of the many dilemmas of living and investing in modernity; no one is entirely innocent and no solution is perfect. The past few decades have been all about high leverage and management fees that have haemorrhaged investors’ assets. Modern money management will evolve into one of balance and equity that shares risk and reward. This is not a touchy-feely philosophy but one that meets two natural human desires as the yin and yang of investment activity. The first is to endow the fruits of one’s labour into new ventures to yield greater returns. The second is to act communally which has been repeatedly witnessed in studies of behavioural finance. Investing in earth-related activities enhances the positive aspects of trade that rewards measured risk-taking while combining it with our innate sense of stewardship.

This may sound noble in theory but one could still be accused of hypocrisy by died-in-the-wool capitalists or ecologists alike. This is a small price to pay to benefit future generations who may judge us with disgust in decades to come, should we choose the default option of doing nothing. The topic of climate change is one that generates fierce debate and disunity on both sides of the divide. There is an overtone of the Spanish Inquisition for scientists who dare to challenge the accepted dogma of a direct correlation between atmospheric carbon concentrations and temperature change. Many vested interests and research budgets rest on this hypothesis. Likewise the pro-growth camp and capitalists believe that the whole movement is a left-wing scam and conspiracy. They would still not believe in climate change even if the Thames was flooding their City offices twice daily. The trick here is to step back and look for commonality. While we can disagree about the cause and effect of the climate’s activity we can all agree on one thing; weather patterns are changing. If one cannot accept that then it must be a case of sensory depravation or obstinacy or both. If in doubt just ask a farmer for their opinion as they experience the elements first hand. The so-what of this argument is simple; if the weather is changing then food production will be affected. This has huge implications for inflation, potential unrest or even revolution. If we can all agree on this one point then that would be true progress. If we can channel capital to the right areas to help with food production then that would be a significant result. It is a highly fragmented industry where farming is a labour of love and is desperately short of funding. For those in the agnostic or sceptical school of thought they can simply view the themes as a way to make money. Either way a beneficial result is the end product for all. For those in the latter camp this is the sales pitch for investing in the interconnected themes related to climate change and inflation:

Natural Resources: commodities, rare earth metals, forestry, water
Food Chain Disruption: fertiliser, agriculture, soft commodities, infrastructure
Population Growth: healthcare, biotech, waste management, emerging markets
Currency Devaluation: precious metals & mining stocks to offset currency dilution
Green Revolution: clean technology, renewable energy and strategic assets

If you believe that climate change has a financial element within the cause and effect then one can propose that the problem is also the solution. What we need across this range of industries is long-term capital investment. This will not come from governments (other than China) but from financial markets. After all, this used to be the whole point of stock markets; to match entrepreneurs with money. This ‘wisdom of crowds’ generates the most efficient form of pricing and allocation of resources. Now that half of share transactions are sourced from High Frequency Trading it is clear that markets have mutated with their decade-long lame performance; evidence that money is generated for investment banks rather than investors. Nevertheless they are not beyond repair. In an environment of sound money backed by precious metals, equities became dividend machines and show their worth through compounding, like the fable of the tortoise and the hare. It is still possible, even preferable, to aim for stability over growth as equity investment offers transparency and sustainability over the falsehood of interest-bearing leverage.

Money managers could do themselves a favour as role models of philanthropy. Instead of hoarding profits they can recycle capital by investing a significant portion of management fee into sustainable communities, especially in those countries that will suffer further from climate change in future. After all it is better to help people in their own backyard than be faced with mass migration through resource scarcity. At the risk of sounding naïve, this is no marketing ploy but a genuine attempt to prove that financiers can be positive contributors and not simply profiteers. This can be achieved through interest-free loans to stimulate work and self-sufficiency rather than microfinance and charity. In summary, the solution to climate change lies in correct allocation of capital away from speculation, consumption and debt-fuelled ‘growth’ to useful production and economic equilibrium. Government intervention and regulation is a poor substitute for the wonders of the price mechanism that draws investment to areas that are profitable. A sustained rise in the oil price will be the tipping point for better things to come. In the meantime investors will seek protection from the continued dilution of paper money which will in turn impoverish many through inflation.

Guy Oppenheim is the Chairman of the Oppenheim Group with over 25 years experience as a portfolio manager, investing globally in all asset classes. Guy Oppenheim has managed assets well in excess of $1 billion for institutional clients, sovereign wealth funds, and private families. Guy Oppenheim has been registered and authorized by Financial Services Authorities and served also as Compliance and MLRO Officer.
Guy Oppenhiem was educated in Geneva and holds a BA in Business Administration majoring in Finance from the University of Geneva.

Path:

By Guy Oppenheim & Toby Birch

 

In the nursery tale of Chicken-licken, a panic-stricken pullet asserts that the sky is falling when an acorn falls upon its head. Repetition of the rumour to adjacent poultry spreads fear and confusion in the process. This is very much the case for the rollercoaster commentary churned out in 2010 on the pros and cons of precious metals. Whenever gold prices fall we are subjected to banners headlines’ declaring that the bubble has burst; yet when they rise the sense of euphoria is overwhelming. Perhaps editors are selectively timing what they publish or observers are reacting to price swings rather than sticking to their convictions. Either way we are lacking in definitive, credible commentary.

 

It is ironic to witness pundits’ proclamations of a precious metals mania yet the same scribblers were unable to spot the tech, credit or property bubbles of the last decade. This may have been because their employers had a vested interest to promote the positives of speculative, paper-based products. To be fair to these much-maligned analysts, full-blown crashes were relatively rare before the credit crisis so it is perhaps forgivable that so few forecasters saw it coming. For example, in the 30 years prior to 2005 there had been 24 boom markets across 15 different economies but only a minority of episodes ended in a serious slump. To cut through the clucking we can go straight to the point of assessing whether gold is in a bubble. This need not entail dreary academia but can be based on empirical and practical evidence of what has happened time and again.

 

Looking at the evolution of bubbles, the first phase is furtive as the asset compounds covertly; only extreme contrarians and insiders are involved. As institutions get wise, the price gathers momentum and wealthy private banking clients get an early allocation. By the time it hits the headlines the asset has trebled from the lows, marking the half-way stage and a healthy correction usually ensues. Ownership soon spreads throughout the social strata and by the final stage prices double exponentially, spiking up the page in a matter of months. Such unsustainable growth carries the seeds of its own destruction like multiplying yeast poisoned by its own by-product. On a purely human level, the behavioural blueprint of bubbles start with cynicism, gain traction, foster acceptance and end in feverish accumulation. When the proverbial taxi driver says you’re a fool not to follow fashion, the pin drops and the bubble pops.

 

We may well be at the mid-point of a major bull market in bullion. The pattern of tech stock prices from 1990 – 95 bear more than a passing resemblance to gold over the last 5 years. If the subsequent price explosion in the NASDAQ from 1995 – 2000 is mimicked in precious metals then apparently outrageous forecasts of $6,000/oz no longer seem far-fetched. Such trends are also backed by historical precedent: when interest rates are suppressed below inflation, gold prices tend to appreciate in excess of 25% per annum. If rates are kept too low for too long then the compound effect could lead to the same parabolic path that hallmarks every mania. Investors should ask themselves some basic questions as to whether a final-phase bubble is already in place. Is gold widely owned by the public, is it a common topic of dinner party patter, are people re-mortgaging to invest and – most telling – are institutions and insiders offloading? The answer to these questions appears to be ‘no’. One must also be aware of the contrary view. Interest rate rises or surging bond yields could easily deflate prices of assets generating no income.

 

Nevertheless, like the naive fowl of our fable, one should be sceptical of Chicken-Licken commentators guiding us from the refuge of real assets into the lair of liabilities and leverage. Various endings of the children’s fable may unfold, depending on the sensibility of one’s offspring. In some versions the scheming Foxy Loxy devours the easily-fooled flock while in others they flee. Instead of trailing precious metal pessimists we should be gathering, not selling, our golden eggs for the future.

 

Guy Oppenheim is the Chairman of the Oppenheim Group with over 25 years experience as a portfolio manager, investing globally in all asset classes. Guy Oppenheim has managed assets well in excess of $1 billion for institutional clients, sovereign wealth funds, and private families. Guy Oppenheim has been registered and authorized by Financial Services Authorities and served also as Compliance and MLRO Officer.

Guy Oppenhiem was educated in Geneva and holds a BA in Business Administration majoring in Finance from the University of Geneva.


By Toby Birch, Guy Oppenheim and Vladimir Lekovski

Oppenheim & Co. Limited

As human beings our brains are hard-wired to pigeonhole data for ease of storage and subsequent recall. Perhaps this compartmentalisation is why many find it hard to see the big picture and seem shocked by black swan events. Free-thinking entrepreneurs are different because they observe opportunities and connections that others fail to appreciate (known as ‘joining the dots’). It may also explain why academics are so specialised and focused on narrow remits, albeit hidebound by budget constraints and pressure to publish their research quota. As someone from an academic family I am often struck by the seemingly irreconcilable differences between the likes of financiers and scientists. This is especially the case where environmental issues are concerned. For many sharp-suited City types, any mention of climate change conjures up images of killjoy bearded lefties; just another impediment to endless earnings growth from an unlimited money supply. To be fair to financial folk no ‘green’ solution ever seems to satisfy the scientific community, apparently beset by internal turmoil and point-scoring counter-claims that confuse rather than clarify.

 

As someone with sympathies in both camps allow me to put these issues into perspective in five simple, empirical points: the climate is changing, the population is growing, resource scarcity is escalating, currencies are devaluing and prices are rising. It would be terribly neat and in the finest traditions of silo thinking to treat these topics as separate, discreet entities. Instead, we believe that unbridled credit creation, environmental degradation and population growth are tightly coupled and correlated. Many investors do not yet appreciate the necessity for protection against this wide range of natural and man-made threats. The typical reaction is to (a) deny there’s a problem (b) hope for the best or (c) ignore it altogether. We are witnessing an unprecedented confluence of factors contributing to climate change and commodity scarcity, exacerbated by currency devaluation. Investors face severe inflationary pressures from diminishing supplies of raw materials combined with the dilution of mainstream currencies. Worse still, rampant price rises are increasing the speed and scale of resource extraction and subsequent destruction of the environment. In one-dimensional economist models the supply should eventually increase to match demand courtesy of the pricing mechanism. This is the ultimate clash between theory and reality; where infinite money creation meets finite supplies of natural resources.

 

While impossible to prove, it seems more than coincidental that concentrations of atmospheric carbon dioxide began to intensify when the Gold Exchange Standard unravelled in the early 1970’s. In other words there appears to be a link between the freedom to fuel false growth through deficits and the escalation of greenhouse gases. Statisticians will no doubt jump on this comment as being a classic case of correlation without causation. Nevertheless it is a striking pattern, especially when population growth has been exhibiting similar exponential behaviour. Politicians and portfolio managers love these seemingly positive charts that feed directly into the tax-take and corporate profitability, creating apparent prosperity for all concerned. By now we should have all realised that this path has led to technical bankruptcy for many western countries and penury for the public through loss of purchasing power. For anyone with a scientific bent, exponential or parabolic charts induce fear rather than fervour. Be they yeast cells or cancer cells, pandemics or populations, high growth rates carry the seeds of their own destruction by over-consumption of the host’s supplies and substrates followed by terminal self-pollution.

 

It is typical for those with revolutionary resolve to overturn ‘the system’ little knowing how to replace it with any viable alternative. A far more subtle and successful method is to utilise what we already have and modify it. This is not the cue for yet more pointless and unworkable legislation. If anything it is the rise of endless procedures that has exacerbated risk through greater complexity, creating a financial and legal industry hell-bent on wriggling around the rules. We must first address the philosophy from which the mechanisms follow. A Biblical phrase springs to mind which encapsulates this approach with the quote ‘swords to ploughshares’. In other words we can convert our existing infrastructure for constructive rather than destructive use. This is all well and good in theory and noble-sounding. One can be accused by both sides of hypocrisy or deception but this is a small price to pay to benefit future generations who will no doubt judge us with disgust in decades to come, should we choose the default option of doing nothing. The trick here is to emphasise that climate change is a way to make money for those from the agnostic or sceptical school of thought. So for those in the latter camp this is the sales pitch for investing in the interconnecting themes related to climate change and inflation, catered for by the forthcoming launch of the Gaia Opportunities Fund, managed by Oppenheim & Co.

 

  • Natural Resources: commodities, rare earth metals, forestry, water
  • Food Chain Disruption: fertiliser, agriculture, soft commodities, infrastructure
  • Population Growth: healthcare, biotech, waste management, emerging markets
  • Currency Devaluation: precious metals & mining stocks to offset currency dilution
  • Green Revolution: clean technology, renewable energy and strategic assets

 

If, like us, you believe that climate change has a financial element within the cause and effect then one can propose that the problem is also the solution. What we need across this range of industries is long-term capital investment. This will not come from governments (other than China) but from financial markets. After all, this used to be the whole point of stock markets; to match entrepreneurs with money. This ‘wisdom of crowds’ generates the most efficient form of pricing and allocation of resources. In the past speculators were a necessary evil for liquidity. Now that volume is dominated by High Frequency Trading it is clear that markets have mutated with their decade-long lame performance. Nevertheless they are not beyond repair. In an environment of sound money backed by precious metals, equities became dividend machines and show their worth through compounding, like the fable of the tortoise and the hare. It is still possible, even preferable, to aim for stability over growth as equity investment offers transparency and sustainability over the falsehood of interest-bearing credit.

 

There still remains a credibility problem when investing in these areas as one could potentially be ramping up prices, albeit indirectly. There are three aspects to this (a) investors have to hold real assets including food and fuel to protect their capital from inflation (b) in the field of renewable energy with limitless supplies the price mechanism still has a role to play as spiralling oil prices foster innovation (c) one needs to show leadership by backing the right companies. One could still be accused of profiteering so we have decided to act as a role model. Instead of hoarding profits we will recycle capital by investing a significant portion of the management fee into sustainable communities, especially in those countries that will suffer further from climate change in future. At the risk of sounding naïve, this is no marketing ploy but a genuine attempt to prove that financiers can be positive contributors and not simply profiteers.

Guy Oppenheim is the Chairman of the Oppenheim Group with over 25 years experience as a portfolio manager, investing globally in all asset classes. Guy Oppenheim has managed assets well in excess of $1 billion for institutional clients, sovereign wealth funds, and private families. Guy Oppenheim has been registered and authorized by Financial Services Authorities and served also as Compliance and MLRO Officer.

Guy Oppenhiem was educated in Geneva and holds a BA in Business Administration majoring in Finance from the University of Geneva.

 

 

By Toby Birch & Guy Oppenheim

Oppenheim & Co. Limited

“It is a mistake to look too far ahead. Only one link in the chain of destiny can be handled at a time”.

 

This quote from Sir Winston Churchill is something of a surprise given that he was a lone voice opposing the appeasement of Germany prior to WWII. He did have a point about forecasting though. Few leaders seem capable of considering the consequences of their actions – especially the unintended variety. Reaction rather than action appears prevalent. While we are not all blessed with investment insight or prophetic visions, we can at least take time to look at the past. Comparisons with the 1930s are highly valid but there is little reason to expect an exact repetition. A domino-effect is too neat and orderly a description for events over the last 5 years that resemble a slow-motion motorway pile-up.

 

Others have kindly described our book as one of the most prescient predictions of the credit crisis when it was published in 2007 (The Final Crash: Addictive Debt and the Deformation of the World Economy). It compared the build up of debt to drug dependency, dividing the phases into three parts, namely Party Time, Hangover then Detox and Rehab. With a little knowledge of history it was straightforward to run through a dress rehearsal of how the crash would evolve and escalate into other crises. At the time it was understandable to be belittled by doubters or worse still, ignored. At least one can hope that the author has credibility to make some comment on the future. The chapter entitled 2020 Vision ran through a scenario where a crash led to higher taxes, inflation and greater protectionism. It made the case that in times of economic distress politics will tend to swing to the far left and right and of course a common enemy must be pin-pointed and persecuted. Leaders down the ages have used such tricks to crush dissent and unite the populace through scaremongering. Little has changed.

 

While President Roosevelt may justifiably be criticised for banning the public ownership of gold before devaluing the dollar during the Great Depression, he was at least correct in implementing banking reform, following the Wall Street Crash of 1929. Modern investigative committees appear to be a pale imitation of interrogators of the day like Ferdinand Pecora who exposed the double-speak of financiers with utter determination. The subsequent implementation of the 1933 Glass-Steagall Act clearly delineated retail banking from its much riskier investment banking cousin. After many attempts this was repealed in 1999 with the naive tech-bubble view that modern folk were far more sophisticated than their ancestors. We can now appreciate the shallowness of this philosophy as banks once more mutated into speculative monsters. The lending mechanism is now broken; why should banks bother to lend money to real businesses when they can borrow cheaply from the central bank (a right not extended to governments) and use funds to buy bonds for a risk-free ride, funded by the tax payer.

 

History shows us that the very act of allowing reckless financial institutions to collapse is far healthier than allowing zombie banks to drag down the rest of the economy. Whether by lobby group pressure, Party funding or a simple lack of knowledge, politicians of all hues have fallen for the mantra that saving the banks will save the economy. This is best illustrated through humour than vitriol. In one episode of BBC’s ‘Blackadder’, an Elizabethan quack doctor recommends continued bleeding by leeches for a pallid patient. The doctor cites counsel from the highest medical authority; who just happens own the largest leech farm in Europe. A similar quality of financial advice has been provided for the last 5 years by a clique of central banks, regulators and ‘industry experts’ from the same stable. Interestingly, one of the best success stories of bypassing the banking system occurred in Guernsey, transforming the island from debt-trap penury into a model of prosperity. The States committee consisted neither of lawyers nor bankers but entrepreneurial merchants who used interest-free finance for the benefit of the Bailiwick.

 

Other echoes of the Great Depression centre on the emergence of trade tariffs and nationalistic behaviour. With the break-up of the Gold Standard, free-floating currencies caused chaos as every country adopted beggar-thy-neighbour policies of devaluation to gain a competitive pricing edge. Now, as then, the race to the bottom for currency weakness will eventually generate significant inflation; temporarily masked by a lack of credit creation in the banking system. World trade thrives on currency and financial stability which is what the Gold Standard delivered for much of the Victorian Age, albeit with some crises along the way. So why is this relevant today? If you mix the same ingredients together you will usually get a similar-tasting cake. In other words, by combining protectionist policies with political polarisation, tension and commodity-driven conflict are the likely end-result.

 

Many would argue that the lessons have been learned and that the prospect of totalitarian era is incomprehensible. After all, our children seem to study little else apart from Hitler in history lessons. While it is all well and good to analyse at the end result of tyranny, unless one understands its cause then dictatorship it is destined to be repeated. If anything we are in a worse position than the 1930’s as we have the perfect infrastructure to control, monitor and isolate individuals both financially and physically. The one-way extradition flow of Britons to America is a good example of such injustice where anti-terror legislation is routinely abused and applied to alleged financial, corporate or cyber crime. Our freedoms have been utterly subsumed with reams of legislation justified by the War on Terror. Just as regulatory institutions are riddled with conflicted financiers, politics is dominated by the legal fraternity determined to legislate ad infinitum to the detriment of the law-abiding and entrepreneurial class. Where it gets really scary is when one imagines a scenario under severe economic duress. This is when nationalist parties come to the fore of popularity and the apparatus of the state is hijacked and used to target whatever or whoever the common enemy happens to be.

 

The economic and social implications are likely to herald a period of greater self-sufficiency and isolation along national and lingual lines. The emphasis will be on job creation through major infrastructure projects and a return to domestically-driven industries. The inflationary implications of a de-globalised world are substantial from the physical aspect of scarcity and delivery plus the financial side from money-printing to fund such projects. This is where the Chinese and Russians have been so smart in dealing with resource-rich countries over the last decade in return for funding infrastructure development. The western model has for many years centred on military dominance or a debt-dumping exercise, forcing countries to export their raw materials to pay usurious interest bills. It doesn’t take a genius to work out whom developing countries would prefer to supply in future.

 

It will be fascinating to see what imagery will be paraded by future dictators. The word for fascism stems from a symbol of Roman power; a bundle of rods wrapped around a magistrate’s axe designed for punishment. The illiterate Ghengis Khan was likewise famous for demonstrating that one arrow could be snapped whereas a combination of several was unbreakable. The message in both cases is clear; unity is strength. In an era of government spin and media euphemism, we should be truly terrified at the prospect of despotic rule. While there is little any one of us can do in an age where demonstration has been sanitised by aggressive policing, we can at least take out some personal insurance. Not in the form of a policy from your friendly broker but by way of precious metals, offering a hedge against inflation, currency crises and catastrophe that is portable and globally acceptable.

 

Guy Oppenheim is the Chairman of the Oppenheim Group with over 25 years experience as a portfolio manager, investing globally in all asset classes. Guy Oppenheim has managed assets well in excess of $1 billion for institutional clients, sovereign wealth funds, and private families. Guy Oppenheim has been registered and authorized by Financial Services Authorities and served also as Compliance and MLRO Officer.

Guy Oppenhiem was educated in Geneva and holds a BA in Business Administration majoring in Finance from the University of Geneva.

 

By Toby Birch & Guy Oppenheim

Oppenheim & Co. Limited

This term is used to describe destructive economic actions of countries pursuing national self-interest at the expense of others. This was particularly prevalent during the Great Depression where protectionist tariffs favoured domestic producers in tandem with currency devaluation. Such tension-inducing tactics soured relations and damaged international trade. Attempts to slice a bigger piece of a smaller pie inevitably led to a clash of knives. The Bretton Woods agreement of 1944 was visionary in that the Allies had learned the lesson of WWI; that defeated countries must be encouraged, not crushed, and that exchange rates must be stabilised to prevent the escalation of such economic behaviour in future. Given that America held the bulk of the world’s gold then it made sense to use a Gold Exchange Standard where the US Dollar became “as good as gold”. The system of fixed exchange rates worked wonderfully with Japan and Germany nurtured into industrial giants. Even when the Standard broke down with excessive printing of dollars during the Vietnam War, Japan and Germany were still able to power ahead in spite of their soaring currencies. A lesson we have failed to learn is that high savings and strong currencies are more than a match for the perceived solution of ‘growth’ via debt-fuelled consumption.

 

Many financiers consider Ben Bernanke (chairman of the US Federal Reserve) to be a hero for his actions in recent years. Others are dubious and fail to understand how dumping debt on future generations can ever be beneficial, leading to a remorseless dilution of the dollar. This is forcing food and energy prices to soar with enormous social consequences, as we are just beginning to witness. As long as oil and commodities are priced in dollars there is an in-built demand for America’s currency. This works well with good stewardship but if devaluation becomes the unspoken intention then it plays havoc with other countries. This is especially the case for emerging economies that are now enduring imported inflation. Through the magic of statistics these ‘volatile’ figures disappear from western indices such that anaemic inflation figures bear little relation to our daily experience with household necessities. Nevertheless, the numbers do not lie in North Africa where food and energy typically make up half of consumers’ expenditure. When such items double then vast swathes of the population have nothing to live on and have nothing to lose through revolution and revolt. As ever, historical precedents abound. While it is highly unlikely that Marie-Antoinette ever uttered the words ‘let them eat cake’ when faced with starving peasants demanding bread, the sentiment is symptomatic of out-of-touch leaders. Any single component of inequality, injustice and inflation is bearable but the combination of all three will see the undoing of any despotic or democratic regime. It is no coincidence that the US Constitution was written in 1789, the same year as the French Revolution. While ‘Madame Guillotine’ no doubt induced fear among many monarchs, America’s Founding Fathers shared a vision of doing the right thing for generations to come. As a new financial feudalism ensnares our offspring with student loans we will see how they cope with our legacy of higher taxes and inflation. Meanwhile some supposedly developing countries are sowing the seeds for prosperity with young populations, a skilled industrial base, access to raw materials and a surplus of cash rather than debt.

 

There is much debate about America’s right to hold Reserve Currency status and as yet there a few feasible alternatives in the short-term. Nevertheless, the likes of China should have nothing to fear from disentangling from a diluting dollar, to counter the disingenuous accusation that they are ‘manipulating’ their currency. The main downside for China is the fact that they hold so much junk paper in the form of US Treasuries whose price will inevitably plummet. Needless to say they are in a race against time to diversify into real assets while pretending that they are content with the status quo by mopping up the haemorrhage caused by Quantitative Easing. Given Japan’s recent tragedy and China’s reluctance to engorge yet more paper, it is no surprise that the Federal Reserve continues to amass billions of dollars of bonds in an attempt to stave off the inevitable surge in yields.

 

 

In the meantime we will no doubt be subject to yet more rounds of Quantitative Easing and Basel regulations that fail to counter the core problem; that of banks using customer deposits for their own speculative use, monopolising credit creation and charging interest for the privilege. We need to restore faith in our currencies to avoid a re-run of the 1930’s with its inevitable conclusion in the 1940’s. It may seem retrograde to resort to old money in the form of a Gold Standard to regain stability. In any case, it is not a long-term solution as mining companies only have ten years of proven reserves. Given that 2 billion people will be added to the world population by 2050 then there is no way the dwindling supply of such an asset can match the monetary needs of the future. Nevertheless, financial systems function on trust so perhaps a wider Precious Metals Standard could be considered, combining gold, silver and platinum in an attempt to match the vast sums of money created in recent decades. Historically, the money supply of the 19th Century was never fully backed by gold so a modern version need not differ. How this would work in practice in an environment of protectionism and polarisation into new trading blocks is another matter. Either way we desperately need financial stewards who will benefit rather than beggar our neighbours as the world’s power and population shifts inexorably from West to East.

Guy Oppenheim is the Chairman of the Oppenheim Group with over 25 years experience as a portfolio manager, investing globally in all asset classes. Guy Oppenheim has managed assets well in excess of $1 billion for institutional clients, sovereign wealth funds, and private families. Guy Oppenheim has been registered and authorized by Financial Services Authorities and served also as Compliance and MLRO Officer.

Guy Oppenhiem was educated in Geneva and holds a BA in Business Administration majoring in Finance from the University of Geneva.

By Guy Oppenheim & Toby Birch

Oppenheim & Co. Limited
26th September 2011

The last week has witnessed one of the greatest tests in living memory for investors in precious metals. Gold endured its worst two-day slump since 1983. Silver likewise took its biggest tumble in 31 years. To put this into context, 1980 witnessed a spectacular price collapse once the Hunt Brothers’ plan to corner the physical silver market was thwarted.

As one who had accurately predicted the credit crisis (at least to the correct year) and had been promoting the accumulation of precious metals since 2002, it is incumbent on us to make a statement on where we go next. While it looked like some dollar strength was on the cards and commodities might be squeezed, even I was caught out by this plunge in prices. Allow us to go on record in saying that that the current sell-off has set up the sale of the century for precious metals. This is not just a price factor, after all, the market only fell to levels that were first encountered at the end of April this year This time we have the fundamentals on the side of precious metals like never before, yet a dash for dollars and cash has hammered the very market that is traditionally a safe haven against inflation, banking crises and global tension.

It should be remembered that precious metals are not an immediate hedge against danger and do not behave like an options contract that is highly sensitive to volatility. Instead they are a long-term form of protection but can suffer in the short-term as we have just experienced. Having seen a plunge of almost 8% this morning from peak to trough, it looks like gold has completed its climactic sell-off. It fell just shy of a key Fibonacci level and also bounced straight back from the 200-day moving average. This does not mean that we will see a rally back to previous highs though. No matter what the market or asset, when you have a disorderly decline like we have witnessed over the course of just a few trading sessions, there will be lots of sellers on the way back up so progress will be slow. While it is good to shake out the weak investors it will take time to recover, even for the faithful who have been flabbergasted by the move. Nevertheless, this now forms a significant base for a more substantial up-leg.

Many echoes of 2008 are apparent with mainstream banks reducing their exposure to each other and cutting the maturities of fiduciary deposits. Much like that year, every asset bar government bonds was sold in a panic move to liquidity yet this proved to be a great time to buy gold. True connoisseurs will be eyeing the expansion of the silver/gold ratio and will be switching gold for silver but mainstream investors can simply buy silver with fresh cash to re-balance the precious metal element of the portfolios.

Many who purchased precious metals in the last 6 months may well be feeling dazed and confused this morning, but for those willing to learn the lessons of the past, it is time to accumulate rather than ditch those lustrous bars.

Guy Oppenheim is the Chairman of the Oppenheim Group with over 25 years experience as a portfolio manager, investing globally in all asset classes. Guy Oppenheim has managed assets well in excess of $1 billion for institutional clients, sovereign wealth funds, and private families. Guy Oppenheim has been registered and authorized by Financial Services Authorities and served also as Compliance and MLRO Officer.

Guy Oppenhiem was educated in Geneva and holds a BA in Business Administration majoring in Finance from the University of Geneva.

 

 

 

 

 

Green, Gold and Edible

By Toby Birch and Guy Oppenheim

 

As 2010 draws to a close and pundits peddle insipid predictions for the year to come, it seems incredible how little has been learned over the last few years. There is huge relief among asset managers who have generated positive returns, albeit from a passive policy of investing and hoping for the best. Few seem to care about the cause or consequence of what made markets defy gravity. Their jobs are safe for now and with a bit of luck their bonuses will be locked-in. While share prices have undergone a roller-coaster ride and commentators have squandered every simile in relating it, certain things remain immovable. The first is the attitude of alpha male portfolio managers that don’t do apologies as well as they do arrogance. To admit an error of judgement, conflict of interest or plain bad luck is the ultimate corporate and financial faux pas. The second is the committee-driven and consensual structure of model portfolios that look just the same as they did 5 years ago.

 

The reason why many investment portfolios appear so similar is that they cling to core theories of managing money, such as the Efficient Market Hypothesis and the now-discredited Value-at-Risk measures. Like all hypotheses they are built with certain assumptions that academics accept but market players forget. They are not designed to accommodate human foibles, including those that led to leviathan levels of leverage. There is much controversy over their viability, as some believe them to be redundant post-2008. This navel-gazing is missing the point, as pending developments will sweep aside such intellectual niceties. This scholarly deliberation is reminiscent of Roman Senators who continued to debate trivia as the Barbarian hordes headed for the Metropolis. Few have modified their methodology and cling to the old mantras of money management. While distressing to discard what has been learned over one’s entire career, accepting reality is the essence of evolution where the smartest survive and will eventually prosper. These changes will be as painful as they are colossal but will, paradoxically, benefit future generations albeit at our expense.

 

With apologies to the literary fraternity that abhors the first person singular, allow us to make some observations in this article that go beyond the convenience of the next calendar year. As a result of such mental role-play, there are certain points in life where one’s sanity is questioned; either by oneself or by others. The last time this happened we wrote a book called The Final Crash to warn the public that a market meltdown was imminent. This time round it will be more than financial woes to worry about should our fears prove to be well founded. The penultimate chapter of the book is called “2020 vision”; a happy coincidence with the name of this publication. It highlighted the shift of power and wealth from West to East restoring the equilibrium that existed prior to the Industrial Revolution. Such extreme forecasts are fretful for the investment community that occupies a supposedly safe middle ground. Fear of change is the enemy of innovation and typical of dying industries that cling to dysfunctional habits through familiarity rather than observation of reality.

 

It is one thing to write text and tell people what to do; it is another to lead by example and provide a mechanism for change. To do so, Oppenheim & Co is designing a fund called Gaia Opportunities. After launch in 2011 it will only be open to professional investors. While the motivation is of course financial it nevertheless provides a practical platform for progress that is more powerful than mere words.

Given the dominance of High Frequency Trading one may question whether an investment fund is the right vehicle to effect reform in the real world. Just because markets are being artificially moulded does not mean they have mutated for good. They will undergo a transformation of ‘swords to ploughshares’ but for now are swelled by printed money and the erroneous assumption that the US Federal Reserve will prevent prices falling too far. While recognising that financial markets are prone to manipulation by central banks and institutions alike, we should not forget that the price mechanism is essential for drawing money to the right place in the most timely, efficient manner. The flow of capital is far more powerful than another round of stilted statute. With the best will in the world, projects don’t progress without finance so we must use market mechanisms that for once will benefit the real economy rather than the banking sector.

 

Before offering solutions we must first identify the signs and symptoms of what is to come. There is an old saying that history does not repeat but it does rhyme. The similarities with the 1930’s are becoming more disturbing by the day and leave one convinced that few of our leaders have any notion of historical precedent. Like the Seven Seals in the Book of Revelations key events are unfolding that appear pre-determined and obvious to those with understanding. They can be summarised as follows; money printing, currency debasement, capital controls, trade wars, protectionism, commodity price inflation and conflict at home and abroad. They need not follow in a neat consequential order and can easily run concurrently. Just as markets correlate closely during a crash, seemingly unrelated factors get sucked into the political and financial maelstrom. These include climate change, population growth and scarcity of resources. One-dimensional analysts and economists struggle to incorporate big-picture developments outside of the latest earnings figures or neutered inflation numbers. This is why so few could see the latest crash coming and cannot now comprehend what is going on under their noses.

 

While a fund cannot pretend to play a part in peaceful negotiations or prevent the accumulation of greenhouse gases, it can at least help to cope with some of the consequences. It may also offer a partial hedge against the ‘Seven Seal’ risks highlighted above. Many investment products are sold on the back of fear and greed or ethics and obligation but the fulfilment factor is often overlooked. The benefit stems from the symbiosis that rewards investors and the companies associated with combatting climate change. It means that making money and making a difference need not be mutually exclusive. More importantly it could leave a legacy for the next generation, short-changed with the prospect of higher taxes, mega-mortgages and permanent pollution. The growth of the green sector and alternative energy will flourish as the oil price spirals with dollar debasement; like the aftermath of a flash flood in what was seemingly a barren desert. The Gaia Opportunities Fund will focus on green investments and companies that provide solutions for climate change and key megatrends to come. It will also include real, earth-related assets such as precious metals and commodities – especially those related to agriculture, fertilisers and the food chain – hence the title of ‘Green, Gold and Edible’.

 

 

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By Guy Oppenheim & Toby Birch

Oppenheim & Co. Limited

As author of The Final Crash; Addictive Debt and the Deformation of the World Economy (published 2007), one is often asked for further forecasts. The customary response to investors is to re-read the book with reference to the section ‘2020 Vision’. There was of course a chapter on precious metals, not along the usual hysterical lines of ‘Become a Bullion Billionaire’ but the more moderately entitled ‘Antidote’. Some seem disappointed with such conservatism in the context of gold and silver which have been the best buy of the last decade and likely this one too. However, they are missing the point. An antidote’s role is a remedy against a poison; not the cure for the underlying cause of toxicity.

The escalation of gold is simply a measure of the malaise of money, like mercury in a thermometer. Other than boosting the profitability of mining companies and bullion dealers, there is little benefit to humankind, let alone the environment, when prices surge. Commodity appreciation is feeding a frenzy of resource depletion and associated pollution we will later come to regret. Swathes of capital are being allocated to passive lumps of metal locked underground. It does not fund industries starved of finance in the wake of counter-productive bank bail-outs. This is where the Islamic approach is spot-on. The hoarding of wealth (in the form gold and silver in the time of the Prophet Mohammed) is viewed as communally destructive. Scholars liken money to water; only useful when flowing, otherwise stagnating if uncirculated. Muslims must pay a charity tax on liquid assets that are not invested in productive ventures, acting as a form of negative interest rate; a case of use it or lose it.

Many call for a return to financial discipline by way of a Gold Standard given that fiat currencies have inflated house prices, food and energy beyond affordability. The evidence favours such an approach as the greatest debt over-hangs in history (post-Napoleonic and WWII) were countered by the resumption of gold-backed currencies. These periods brought about prosperity as a natural by-product of competition and efficiency in a sound money environment.

Nevertheless, it is easy to be rose-tinted when promoting precious metals as money; after all every Gold Standard has eventually buckled thanks to war-related expenditure. Likewise the constraints or surplus of mining supply in the Victorian era triggered several boom and bust episodes. It ultimately comes down to stewardship, a commodity that is sadly lacking in this modern era. The institutions designed to protect the public are riddled with lobbyists determined to protect the status quo. This can be seen with recent moves to raise margin requirements for precious metal futures contracts designed to contain prices. Artificial manipulation seldom works, especially when trends reflect reality. Rather than curing the disease, we see how the symptoms are suppressed by fiddling with the thermometer. Only when gold forms parabolic chart patterns and taxi drivers are telling you to buy, will it be time to exit.

Guy Oppenheim is the Chairman of the Oppenheim Group with over 25 years experience as a portfolio manager, investing globally in all asset classes. Guy Oppenheim has managed assets well in excess of $1 billion for institutional clients, sovereign wealth funds, and private families. Guy Oppenheim has been registered and authorized by Financial Services Authorities and served also as Compliance and MLRO Officer.

Guy Oppenhiem was educated in Geneva and holds a BA in Business Administration majoring in Finance from the University of Geneva.