I've added a little more gold and the SJB inverse ETF into my portfolio.
Mid-to-Long-term portfolio (In USD):
-Long physical gold from $950
-Long physical silver from $14
-Long paper silver from $15
-Short US 30-year bond futures from $150
-Long sugar from 16.50 cents
-Long north korean gold coins
-Long chinese yuan against sgd from SGD:RMB of 1:5
-Long RSX at $13.18
-Long GDX at $18.95
-Long SLV at $15.25
-Long RMB vs SGD at 5:1
-Long ruble vs USD at about 65:1 (or ruble vs SGD at about 45:1)
-Long GLD at $111.20 (Well, I do anticipate gold going down further, even below $1000. But I can't help myself. The long-term fundamentals for gold are too much to resist)
-Long SJB at $27.48 (A play on shorting US junk corporate bonds. Let's see how this plays out in the next 1-3 years)
Still Looking to:
-Long north korean silver coins (A play on North Korea opening up/collapsing)
-Long South Korean airlines (A play on North Korea opening up/collapsing)
-Long RJA (Agriculture has taken a beating in recent years, and given my long-term bullish view on agriculture, this could be a good chance to accumulate some. Well, let's wait till later in the year).
Thursday, March 19, 2015
A few months of bad US data
US data has been largely below expectations for the past few months, ever since the end of QE3. Maybe economists will start to REALLY lower expectations and we can get some "above expectations" data in the weeks/months ahead.
The only "bright" spot in the data has been the payrolls data. I've watched analysts conclude that the economy is improving based on this data alone, and they're just waiting for the rest of the bad data (housing, manufacturing, sales, etc.) to catch up with the good payrolls data. In their mind, the payrolls data is correct, and the rest of the bad data are outliers.
There are several factors that pad the payrolls data. I am not an expert in this data because I've not studied it deeply, but here's what I know:
1. The government counts the underemployed - those working part-time or having low-quality jobs relative to their qualifications - as full-time jobs.
2. A person having 2 or more jobs is not counted as just 1 job. Eg. A person having 2 part-time jobs adds 2 jobs to the jobs data.
3. BLS has not subtracted the jobs lost in the energy sector sufficiently. According to them, only a handful of people lost jobs in the sector, whereas other independent research organisations reported much higher jobs losses.
4. BLS uses the birth-death model and make assumptions about job gains/losses. The numbers may be adjusted downwards months later, but by that time, the market is probably not paying as much attention to it.
Doesn't it make more sense that all the bad data are correct, and that the payrolls data is an outlier?
The only "bright" spot in the data has been the payrolls data. I've watched analysts conclude that the economy is improving based on this data alone, and they're just waiting for the rest of the bad data (housing, manufacturing, sales, etc.) to catch up with the good payrolls data. In their mind, the payrolls data is correct, and the rest of the bad data are outliers.
There are several factors that pad the payrolls data. I am not an expert in this data because I've not studied it deeply, but here's what I know:
1. The government counts the underemployed - those working part-time or having low-quality jobs relative to their qualifications - as full-time jobs.
2. A person having 2 or more jobs is not counted as just 1 job. Eg. A person having 2 part-time jobs adds 2 jobs to the jobs data.
3. BLS has not subtracted the jobs lost in the energy sector sufficiently. According to them, only a handful of people lost jobs in the sector, whereas other independent research organisations reported much higher jobs losses.
4. BLS uses the birth-death model and make assumptions about job gains/losses. The numbers may be adjusted downwards months later, but by that time, the market is probably not paying as much attention to it.
Doesn't it make more sense that all the bad data are correct, and that the payrolls data is an outlier?
Market is surprised?
Fed finally drops the word "patience"
http://www.bloomberg.com/news/articles/2015-03-18/fed-drops-patient-stance-opening-door-to-june-rate-increase
They dropped the word 'patience' because they've been driven into a corner... by themselves. They may raise rates a little just to maintain some credibility. Will they do that, when the economy is almost in recession territory? Doesn't matter. Watch out for QE4 (or whatever colourful terms they wish to use to name it). That's the only tool they have, and they'll use it even though this tool has never worked in the long run. It is about time that the people who criticised Fed QE policies right from its inception gain some recognition. And no, not the Krugmans who criticised QEs for not being big enough, but the Austrians who criticised the QEs' implementation in the first place. Economic lift-off? Escape velocity? No such result after 6 years. Meanwhile the imbalances in the economy have grown to gigantic proportions.
They dropped the word 'patience' because they've been driven into a corner... by themselves. They may raise rates a little just to maintain some credibility. Will they do that, when the economy is almost in recession territory? Doesn't matter. Watch out for QE4 (or whatever colourful terms they wish to use to name it). That's the only tool they have, and they'll use it even though this tool has never worked in the long run. It is about time that the people who criticised Fed QE policies right from its inception gain some recognition. And no, not the Krugmans who criticised QEs for not being big enough, but the Austrians who criticised the QEs' implementation in the first place. Economic lift-off? Escape velocity? No such result after 6 years. Meanwhile the imbalances in the economy have grown to gigantic proportions.
Friday, March 6, 2015
US crisis soon? Shorting corporate/government bonds. Plus some reflections.
As I've mentioned last year, the US experiences a recession every 5-6 years on average in the 20th and 21st century. The last crisis was in 2008 and supposedly ended soon after that. If history is of any indication, the US should be overdue for a recession soon. I do not know in what form the crisis will take shape. Maybe it will be carnage in the corporate bond market. Maybe it will be a loss of confidence in the Fed. Maybe it will be a loss of confidence in the economy. Maybe it will be a crisis in the financial sector again, where banks have accumulated more than $2 trillion of bonds - ticking-time bombs.
Whatever it is, my game plan is to short US corporate bonds. I am currently looking to long the SJB, which is an inverse ETF based on the HYG, another ETF that tracks US junk corporate bonds. SJB moves in the opposite direction to HYG. If I am right, the US junk bond sector should be one of the most - if not the most - vulnerable part of the financial market. 6 years of zero interest rates have pushed speculators looking for yields. They are attracted to these questionable bonds because of the high yields. HYG holds about 1020 junk corporate bonds. My initial research has provided evidence that there is too much hot air in this area. I should start shorting these bonds (by buying an inverse ETF) pretty soon - possibly within this month or the next - once I've done enough research. I should be holding this ETF for a few years, or at least until the bubble bursts.
What about US government bond? Amusingly, this bubble has stayed inflated for quite some time. It has been built up over 30 years. It is crazy that in recent years, people will lend money to the US government for 1-3 decades for a tiny amount of interest, when the Fed is printing money like crazy and the USD is losing value against real goods so fast. I've shorted the US 30-year bonds around March/April 2013 (http://silvernjin.blogspot.sg/2013/03/sell-us-long-term-bonds.html). As luck would have it, I shorted right at the top. Till today, even though it has rallied somewhat, it is still some percentage points below where I first shorted it. I've covered this particular position some time last year. It was quite apparent that the market has not come around to perceiving US government bonds as being dangerous. In fact, people are still throwing the word "risk-free" and "safest asset" around with regards to these bonds.
My guess is that people will continue to have this perception for some time to come. So what I will do is to wait for the next crisis to hit the US. The US government bonds will probably rally as investors flock to "safety". These bonds will probably stay high for a number of months as the crisis unfolds, during which I plan to accumulate a sizeable amount of short positions on them.
Exciting times lies ahead for myself. This will not be the case for a lot of market participants because they will never see this coming. They have learnt nothing much from history. Or as Jim Rogers says, right now there is a bunch of fresh college graduates who think that the situation now is normal. But it is not. It is artificial. A huge bubble pumped up by years of profligate spending and money printing. These policies never worked in history. They always give a temporary short-term boost to the financial markets, while the underlying economy rots. The most unfortunate part of this debacle is that the middle class and the poor in America lose out. This is also the case for most parts of the world.
I have tried in the past few years to bring this to people's attention. I knew I am not going to change things, which is why I started this as an informal blog and had no intention to show this to the world other than the people around me. Not many people will listen. This blog is just an avenue to put down my thoughts. I have nothing against people who do not listen. What I am unhappy with are those investors and traders whom I've argued against over the years (and I've done a ton of arguments. Sometimes an argument on youtube runs to 150 comments, for example), who have advanced the flawed theories that the media feeds us. It is a detriment to society and possibly the people around them. People who trusted them. It is fine if it is an honest mistake. But what irks me is their stubbornness to ideas that they've never heard before. it is very hard to change their way of thinking. It is hard to show them that these economic policies will prove to be disastrous. It is hard to show them that there isn't only one way to invest. A lot of people I've argued with think only in terms of weeks and months ahead in terms of their trading, which is fine. But it becomes a problem when they then apply their own ideas (about how trading/investing ought to be done) onto serious, long-term investors like myself. And worst of all - and this is always the case - my arguments against them don't last long, because they always resort to personal insults and name-callings. In truth, they have very little material to argue against me. I stick to making proper arguments though. It always works. They will disappear from the comments section after a while.
I've once been guilty of putting down short-term trading too. But I learnt fast and changed tack quickly. I accept that trading can make (and lose) one tons of money in the short-term, but whether most (not all) people can sustain a good run for the long-term or even the medium term remains very questionable. I myself am looking to set up an "opportunity fund" to be used for short-term trading (or rather, speculation for me) - although I suspect that the way I will trade will be very different from others. We will see whether that works out for me.
My exasperation with people not being open-minded to these ideas probably made me more aggressive in my arguments, and increasingly, my style of argument puts people very much on the defensive, which makes them even more resistant to receiving new ideas. I've learnt a lot from Jim Rogers in the way he presents himself and his case. Maybe age has made him more mellow, for I am sure that he was just as "hot-headed" when he was younger. But what a fabulously smart investor. I have a ton of respect for him.
In any case, I've long ago decided that I will just enjoy myself arguing with people as I do my research and wait for my investments to come to fruition. It has been a very fine journey, and I have no doubt that it will get way more exciting in the years to come!
Whatever it is, my game plan is to short US corporate bonds. I am currently looking to long the SJB, which is an inverse ETF based on the HYG, another ETF that tracks US junk corporate bonds. SJB moves in the opposite direction to HYG. If I am right, the US junk bond sector should be one of the most - if not the most - vulnerable part of the financial market. 6 years of zero interest rates have pushed speculators looking for yields. They are attracted to these questionable bonds because of the high yields. HYG holds about 1020 junk corporate bonds. My initial research has provided evidence that there is too much hot air in this area. I should start shorting these bonds (by buying an inverse ETF) pretty soon - possibly within this month or the next - once I've done enough research. I should be holding this ETF for a few years, or at least until the bubble bursts.
What about US government bond? Amusingly, this bubble has stayed inflated for quite some time. It has been built up over 30 years. It is crazy that in recent years, people will lend money to the US government for 1-3 decades for a tiny amount of interest, when the Fed is printing money like crazy and the USD is losing value against real goods so fast. I've shorted the US 30-year bonds around March/April 2013 (http://silvernjin.blogspot.sg/2013/03/sell-us-long-term-bonds.html). As luck would have it, I shorted right at the top. Till today, even though it has rallied somewhat, it is still some percentage points below where I first shorted it. I've covered this particular position some time last year. It was quite apparent that the market has not come around to perceiving US government bonds as being dangerous. In fact, people are still throwing the word "risk-free" and "safest asset" around with regards to these bonds.
My guess is that people will continue to have this perception for some time to come. So what I will do is to wait for the next crisis to hit the US. The US government bonds will probably rally as investors flock to "safety". These bonds will probably stay high for a number of months as the crisis unfolds, during which I plan to accumulate a sizeable amount of short positions on them.
Exciting times lies ahead for myself. This will not be the case for a lot of market participants because they will never see this coming. They have learnt nothing much from history. Or as Jim Rogers says, right now there is a bunch of fresh college graduates who think that the situation now is normal. But it is not. It is artificial. A huge bubble pumped up by years of profligate spending and money printing. These policies never worked in history. They always give a temporary short-term boost to the financial markets, while the underlying economy rots. The most unfortunate part of this debacle is that the middle class and the poor in America lose out. This is also the case for most parts of the world.
I have tried in the past few years to bring this to people's attention. I knew I am not going to change things, which is why I started this as an informal blog and had no intention to show this to the world other than the people around me. Not many people will listen. This blog is just an avenue to put down my thoughts. I have nothing against people who do not listen. What I am unhappy with are those investors and traders whom I've argued against over the years (and I've done a ton of arguments. Sometimes an argument on youtube runs to 150 comments, for example), who have advanced the flawed theories that the media feeds us. It is a detriment to society and possibly the people around them. People who trusted them. It is fine if it is an honest mistake. But what irks me is their stubbornness to ideas that they've never heard before. it is very hard to change their way of thinking. It is hard to show them that these economic policies will prove to be disastrous. It is hard to show them that there isn't only one way to invest. A lot of people I've argued with think only in terms of weeks and months ahead in terms of their trading, which is fine. But it becomes a problem when they then apply their own ideas (about how trading/investing ought to be done) onto serious, long-term investors like myself. And worst of all - and this is always the case - my arguments against them don't last long, because they always resort to personal insults and name-callings. In truth, they have very little material to argue against me. I stick to making proper arguments though. It always works. They will disappear from the comments section after a while.
I've once been guilty of putting down short-term trading too. But I learnt fast and changed tack quickly. I accept that trading can make (and lose) one tons of money in the short-term, but whether most (not all) people can sustain a good run for the long-term or even the medium term remains very questionable. I myself am looking to set up an "opportunity fund" to be used for short-term trading (or rather, speculation for me) - although I suspect that the way I will trade will be very different from others. We will see whether that works out for me.
My exasperation with people not being open-minded to these ideas probably made me more aggressive in my arguments, and increasingly, my style of argument puts people very much on the defensive, which makes them even more resistant to receiving new ideas. I've learnt a lot from Jim Rogers in the way he presents himself and his case. Maybe age has made him more mellow, for I am sure that he was just as "hot-headed" when he was younger. But what a fabulously smart investor. I have a ton of respect for him.
In any case, I've long ago decided that I will just enjoy myself arguing with people as I do my research and wait for my investments to come to fruition. It has been a very fine journey, and I have no doubt that it will get way more exciting in the years to come!
Thursday, March 5, 2015
Thoughts on North Korea
The more I look into the changes occurring in North Korea in the past few years, the more exciting it looks. A lot of people on the internet are criticising the North Korean leader. But here's the problem. They make too many assumptions, as usual. They assume that the young leader is like his predecessors. They assume that he is evil and out of his mind. He is fat, dumb and is the son of a dictator.
He is the son of a dictator. But that does not make him the same as his father. I will list out some changes I am seeing in the country. But this is in no way my endorsement of the leader. I just LOVE to point out things that people miss. Smash their expectations and assumptions. It is fine to be ignorant of a subject. I am ignorant on things like sewing and golf too. But it is NOT fine to not question your assumptions. To not always look at BOTH sides of the argument. To not always look for other perspectives. It is fine to be ignorant about North Korea, but it is not fine to make assumptions about it. We know all about the negative stuff about North Korea, so I shall not mention them. I will point out other positive things that are not obvious. Ok, so here goes. I will summarise what I've found out from various sources. I may miss some things. There are just so many things I've learnt and I am trying to recall them off the cuff:
-The young leader grew up wanting to improve the lives of his people.
-He wanted to emulate Deng Xiaoping.
-He studied in Switzerland, studied western culture and democracy.
-Like Deng Xiaoping, he has loosened control on agriculture and created special economic zones. One of the first thing China did in agriculture was to lift controls on watermelon produce. Prices shot up right away, but this spurred enterprising farmers to produce more watermelon. The price fell and watermelon flooded the market. In North Korea, Kim Jong Un is allowing farmers to keep more of their produces, allowing them to sell them in the market.
-He has given managers more flexibility to control production, purchases and sales, wages, and the firing/hiring of workers. This is a big change in a communist state.
-There is a huge underground economy in the country that started in his father's era, and ever since he took office, he has left it untouched. Some estimates put this black market economy to be as large as 50% of the entire North Korean economy.
-There are markets with hundreds of stalls and thousands of visitors. You have sellers peddling their produces and wares, and buyers making bargains.
-There have been international trade shows in North Korea, and international marathons in North Korea.
-The leader is encouraging more tourists to visit the country, in part because the government needs more foreign currencies.
-Technically, foreign currencies are not allowed to be used in the country, but the government allows it to be used in some special economic zones.
-The Russians and Chinese are pouring into the country. The Chinese want their resources. The Russians are building railways and ports. North Korea has the northern-most ice-free port in Asia. This port will probably become very important in the near future. The Artic ice has been melting and shrinking in the past decade or two, and more and more ships are traversing it to get from Europe to Asia. It cuts down shipping time by a tremendous amount compared to if they were to go through the Malacca Straits.
-The leader is trying to bring technology into the country. Bring internet into the country. Internet is already allowed in some special economic zones.
Could the young leader have done more? Definitely. But one also has to consider the fact that there is politics involved. As a leader he must be concerned about his own life as well. He has to placate the powerful military. He has to make sure there is no peasant uprising against him. He has to make sure that he does not tarnish his predecessors' reputations. He has to get allies in politics. He has to do all these while being only in his late 20s.
Could the world have done more to open up North Korea? Definitely. For instance, what are the US and South Korea doing with their military drills each year? They know that this has always drawn a strong reaction from the north. Do they really need these drills after having done it for decades?
Could the media have done more? Most definitely. How much of the information shown here does one observe in the mainstream media? Almost ZERO. And unfortunately that is the place where most people get their information from, and make assumptions based on that. To be fair, there is some coverage recently about the "Choco Pie" phenomenon in North Korea. Choco pie originated from the South, and made its way into the Kaesong Industrial Zone, a joint project between the North and the South. The snack is rewarded to North Korean workers. These snacks fetch a high value in the black market, and enterprising workers have collected and snuck them out of the industrial zone to sell them in the market. The media did cover this story last year. But they were a few years late. Other than that, I don't see much coming from the media other than negative things. And as a long-term investor, this is great for me. I love to see things earlier than the market. But it frustrates me to read comments on the internet that are full of assumptions.
What's next? It looks like the young leader has been consolidating his power well. His generals have lived in Moscow and Beijing in the past. They too, knew what is going on in the outside world. They see the differences between other nations and theirs. They want a better standard of living. The leader is definitely trying to reform the economy, and he has some support from his close aides. Actions speak louder than words. Will he succeed? There are interest groups that don't want to see this happen. They want to protect their luxurious way of life. So it remains to be seen whether he succeeds or not.
But what excites me is the black market. As the great investor Jim Roger says, the black market provides a lot of information about the state of a country. As I've mentioned earlier, some estimates put this market at as high as 50% of the overall economy. As people get exposed to profits and better lives, they will demand for more. There will be more murmurs of unrest in the society. There had already been unrest in the society under the father's reign. Reportedly, there were a few assassination attempts on him. He had also made people really angry when he tried to control the black market through currency controls. People literally lost their life savings overnight. I even read about protests in a university, and about people creating demeaning graffiti against that leader.
Last year, I started placing my bet on the direction that the country will go. I bought some North Korean gold coins. I figure that North Korea will open up further economically. I figure that the two Koreans will finally unite, and these gold coins will become more valuable as a collectors' item. I am also looking to buy South Korean or Chinese companies that will benefit from this. South Korean airlines come to my mind, for example. Reunification seems almost impossible if we were to judge from the media's reports. Maybe I will be wrong. Maybe not. Who knows. We'll see.
The reunification of West and East Germany seems like a distant memory. But I will bet that one will be quite surprised when he/she learns that it happened as recent as 1990. As the East opens up its borders, more and more East Germans poured into the West. Similar things are happening in the Korean peninsula now. The East Germans saw that they had been living under a lie, that their neighbours were way more prosperous than they were. They admired the shiny Mercedes and BMWs driven by the West Germans into the territory. The North Koreans are getting more informed about the outside world as time goes on. They have an increasing awareness of how rich their neighbours are. Some are repulsed by the differences in values and moralities (for example, when North Koreans watch foreign movies, they are shocked by the use of guns and the seemingly lawlessness in foreign lands - in contrast to their relatively crime-free society). However, I think that the rising tide of expectations for better lives will prove too hard to stop.
If and when the Koreans finally unite, it will be one of the greatest economic stories of our time. The North has a cheap and relatively educated labour. The South has managerial experience and capital. Many analysts say that reunification will cost the South tons of money. Maybe that is true. But unlike the unification of the Germans, the North Koreans have already attracted a lot of investments from other nations. That will mitigate the costs for sure. I look forward to that day, both for the betterment of humanity and for my investment.
He is the son of a dictator. But that does not make him the same as his father. I will list out some changes I am seeing in the country. But this is in no way my endorsement of the leader. I just LOVE to point out things that people miss. Smash their expectations and assumptions. It is fine to be ignorant of a subject. I am ignorant on things like sewing and golf too. But it is NOT fine to not question your assumptions. To not always look at BOTH sides of the argument. To not always look for other perspectives. It is fine to be ignorant about North Korea, but it is not fine to make assumptions about it. We know all about the negative stuff about North Korea, so I shall not mention them. I will point out other positive things that are not obvious. Ok, so here goes. I will summarise what I've found out from various sources. I may miss some things. There are just so many things I've learnt and I am trying to recall them off the cuff:
-The young leader grew up wanting to improve the lives of his people.
-He wanted to emulate Deng Xiaoping.
-He studied in Switzerland, studied western culture and democracy.
-Like Deng Xiaoping, he has loosened control on agriculture and created special economic zones. One of the first thing China did in agriculture was to lift controls on watermelon produce. Prices shot up right away, but this spurred enterprising farmers to produce more watermelon. The price fell and watermelon flooded the market. In North Korea, Kim Jong Un is allowing farmers to keep more of their produces, allowing them to sell them in the market.
-He has given managers more flexibility to control production, purchases and sales, wages, and the firing/hiring of workers. This is a big change in a communist state.
-There is a huge underground economy in the country that started in his father's era, and ever since he took office, he has left it untouched. Some estimates put this black market economy to be as large as 50% of the entire North Korean economy.
-There are markets with hundreds of stalls and thousands of visitors. You have sellers peddling their produces and wares, and buyers making bargains.
-There have been international trade shows in North Korea, and international marathons in North Korea.
-The leader is encouraging more tourists to visit the country, in part because the government needs more foreign currencies.
-Technically, foreign currencies are not allowed to be used in the country, but the government allows it to be used in some special economic zones.
-The Russians and Chinese are pouring into the country. The Chinese want their resources. The Russians are building railways and ports. North Korea has the northern-most ice-free port in Asia. This port will probably become very important in the near future. The Artic ice has been melting and shrinking in the past decade or two, and more and more ships are traversing it to get from Europe to Asia. It cuts down shipping time by a tremendous amount compared to if they were to go through the Malacca Straits.
-The leader is trying to bring technology into the country. Bring internet into the country. Internet is already allowed in some special economic zones.
Could the young leader have done more? Definitely. But one also has to consider the fact that there is politics involved. As a leader he must be concerned about his own life as well. He has to placate the powerful military. He has to make sure there is no peasant uprising against him. He has to make sure that he does not tarnish his predecessors' reputations. He has to get allies in politics. He has to do all these while being only in his late 20s.
Could the world have done more to open up North Korea? Definitely. For instance, what are the US and South Korea doing with their military drills each year? They know that this has always drawn a strong reaction from the north. Do they really need these drills after having done it for decades?
Could the media have done more? Most definitely. How much of the information shown here does one observe in the mainstream media? Almost ZERO. And unfortunately that is the place where most people get their information from, and make assumptions based on that. To be fair, there is some coverage recently about the "Choco Pie" phenomenon in North Korea. Choco pie originated from the South, and made its way into the Kaesong Industrial Zone, a joint project between the North and the South. The snack is rewarded to North Korean workers. These snacks fetch a high value in the black market, and enterprising workers have collected and snuck them out of the industrial zone to sell them in the market. The media did cover this story last year. But they were a few years late. Other than that, I don't see much coming from the media other than negative things. And as a long-term investor, this is great for me. I love to see things earlier than the market. But it frustrates me to read comments on the internet that are full of assumptions.
What's next? It looks like the young leader has been consolidating his power well. His generals have lived in Moscow and Beijing in the past. They too, knew what is going on in the outside world. They see the differences between other nations and theirs. They want a better standard of living. The leader is definitely trying to reform the economy, and he has some support from his close aides. Actions speak louder than words. Will he succeed? There are interest groups that don't want to see this happen. They want to protect their luxurious way of life. So it remains to be seen whether he succeeds or not.
But what excites me is the black market. As the great investor Jim Roger says, the black market provides a lot of information about the state of a country. As I've mentioned earlier, some estimates put this market at as high as 50% of the overall economy. As people get exposed to profits and better lives, they will demand for more. There will be more murmurs of unrest in the society. There had already been unrest in the society under the father's reign. Reportedly, there were a few assassination attempts on him. He had also made people really angry when he tried to control the black market through currency controls. People literally lost their life savings overnight. I even read about protests in a university, and about people creating demeaning graffiti against that leader.
Last year, I started placing my bet on the direction that the country will go. I bought some North Korean gold coins. I figure that North Korea will open up further economically. I figure that the two Koreans will finally unite, and these gold coins will become more valuable as a collectors' item. I am also looking to buy South Korean or Chinese companies that will benefit from this. South Korean airlines come to my mind, for example. Reunification seems almost impossible if we were to judge from the media's reports. Maybe I will be wrong. Maybe not. Who knows. We'll see.
The reunification of West and East Germany seems like a distant memory. But I will bet that one will be quite surprised when he/she learns that it happened as recent as 1990. As the East opens up its borders, more and more East Germans poured into the West. Similar things are happening in the Korean peninsula now. The East Germans saw that they had been living under a lie, that their neighbours were way more prosperous than they were. They admired the shiny Mercedes and BMWs driven by the West Germans into the territory. The North Koreans are getting more informed about the outside world as time goes on. They have an increasing awareness of how rich their neighbours are. Some are repulsed by the differences in values and moralities (for example, when North Koreans watch foreign movies, they are shocked by the use of guns and the seemingly lawlessness in foreign lands - in contrast to their relatively crime-free society). However, I think that the rising tide of expectations for better lives will prove too hard to stop.
If and when the Koreans finally unite, it will be one of the greatest economic stories of our time. The North has a cheap and relatively educated labour. The South has managerial experience and capital. Many analysts say that reunification will cost the South tons of money. Maybe that is true. But unlike the unification of the Germans, the North Koreans have already attracted a lot of investments from other nations. That will mitigate the costs for sure. I look forward to that day, both for the betterment of humanity and for my investment.
Long-term vs short-term investing, and football
In investing, long-term predictions can be made with more certainty than short-term ones. It is like football. I see a team with a great manager, players and billionaire backing the club, so I can confidently predict that this team will be in the top 3 some time in the next 5 seasons. It is much harder to predict which game the team will win in a particular season or which players will score in a particular game. But then there's no market for such long-term betting in football. Maybe it should be created. Maybe it will make some fans think longer-term. Maybe it will make them reconsider their assumptions and expectations. Each time after a "poor" game (by the fans' definitions), I see lots of fans suddenly become pro managers. Blaming the players, blaming the formation, blaming the manager's tactics etc. Although they have a right to do that for sure. It's a free world. But when everyone is thinking the same way, someone is definitely not thinking.
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