Bitten on the bum by a Black Swan
15 December 2011
I DON’T have a creative bone in my body. I did once try to paint, but that was really just an excuse to perve and I can’t play anything more musical than a radio. Yes I do write a bit but I can’t imagine that even my most ardent fans would for one second mistake any of it for literature. I still cling vainly to the dream that I have a book in me somewhere, but as the years roll on I fear I am coming to the realisation that it will have to be surgically removed if it is to ever see the light of day.
Life is like that I suppose, dream when we are young before we get smacked about the head with the reality stick. I am cool with it, however, life is good and in the meantime, I do what all mediocre people the world over have done for thousands of years, live vicariously through my children and hang out with others cooler and more talented than me.
This isn’t always as easy as it sounds mind you. The kids seem to have twigged to this and are starting to arc up at piano lessons and swimming training. As the teen years loom on the horizon, my dreams of Olympic gold are looking a little shaky. Finding cool people in London is not a problem as this is after all one of the global cities; it is impossible to kick over a cigarette butt without finding some scruffy anarchist or dewy eyed poet prepared to take on the world. No, finding them is easy, it’s getting them to want to be seen in public with a middle aged cardigan-wearing, Honda-driving Tory like me that is the trick – I am not cool.
"It is not a terribly long bow to draw to suggest that we are in fact more prone to Black Swans, due to the inherent exploration and discovery process of which we are so fond."
Fortunately, however, demographics always wins in the end, and even the hardest of hard core, lefty bohemians will eventually get old and settle down and decide that despite their fierce defence of the comprehensive school system, they would prefer their own kids didn’t get knifed in class quite so often and so they drift to the burbs. Scratch us, and we are all middle class it seems.
I live in a part of London that is rather leafy, twee and full of Volvos, with very good schools, but close enough to town to be still considered a little hip, and so we do get quite a mixed crowd. We may all want our kids to grow up to be bankers, but on the sidelines at Saturday morning under 8s rugby training, the conversations can roam widely across the political landscape.
One chum writes music. He has been at it for a while and by all accounts he is pretty good at it although he does admit he had no particular talent for it when he was young, but was simply attracted to the thought of a life spent in smoky Soho bars with scruffy rockers in various states of altered consciousness. I have heard of worse reasons for a career choice. It seems he fell in with the right crowd, and managed occasionally to produce something involving lots of loud guitars and drums and so life for a while was rather jolly – or at least as far as he can recall, he admits there are some worryingly large gaps.
But then he bemoans, it all changed in the late 80s. Sausage factory Boy Bands starting to appear and Kylie flounced onto on the scene. The product was now largely visual, the onstage gyrations of some puffy lipped manikin. The music was now secondary and written to order – it had to be safe with no swear words, it had to involve few real instruments as the stars couldn’t play any, it had to be high pitched as most hadn’t reached puberty yet, and it had to be based on a simple mindless melody so that the simple mindless stars and their simple mindless fans could dance to it – head butting the speakers until your ears bled seemed no longer to be the definition of a good night out.
My friend had to change, and change he did. He sobered up and washed more regularly, and then rather surprisingly and indeed rather fortunately found he was rather good at churning out such tat. He didn’t enjoy it much, but he was of an age where pragmatism had started to kick in and skiing trips to Zermatt made up for a lot.
But then it changed again – badly. Up until the naughties, it was the music itself that evolved, and while it may have at times evolved rather violently, it was all part of the game. It kept things vibrant and allowed everybody to find a niche and make a living. But then the era of digital downloads suddenly appeared and killed the whole circus as surely as a crowbar to the back of the head. All of a sudden the fans stopped actually paying for the music and without that commercial basis underpinning everything, it crumbled. Record stores closed in their thousands, recording studios wound up, the Rolling Stones hobbled out for another show as touring was now the only way Keith Richards could fund his smack habit, and song writers … became consultants.
My friend last year wrote a song that made it into the top 10 on the charts for a well-known artist – years ago that would have set him up for quite a while, but now it was done on contract and made him the grand sum of £2000. The only way a writer makes a buck these days is if the tune gets picked up as the theme song to the next Bond film. He now spends his days writing ad jingles, but most of his peers are unemployed.
Evolution is like that, in life as in science as in business – or in market speak “the trend is your friend, until it isn’t”. We spend much of our time in the comfort zone of making incremental improvements to what we know and what we do, and then all of sudden something happens that we are not prepared for and we are upended. Fluffy little ground dwelling birds can spend millions of years happily scuttling about their tropical island – but then a cat jumps off a passing ship and wham, before you know it the birds are lunch.
We know this happens, because it always has, but we rarely prepare for the simple reason, that by definition such events are unpredictable – extrapolation is easier, it’s just normally wrong. Buggy whips were probably magnificent things before the internal combustion engine did for them, typewriters went without a whimper in the face of PCs and the Newtonians have probably still not forgiven Einstein.
These Black Swans are now part of our vernacular and resources are not immune, despite the fact we think we are dull reliable plodders; things often change suddenly both in terms of supply and demand. Locally and globally, technologically, politically or geographically. In fact it is not a terribly long bow to draw to suggest that we are in fact more prone to Black Swans, due to the inherent exploration and discovery process of which we are so fond.
Silver was money in the old days when it was quite rare, but then some idiot discovered new types of deposits such as Mount Isa and Broken Hill and suddenly we are swimming in the stuff. Things could have got ugly until someone else discovered how it could be used in photography and its bacon was saved. But then of course nothing is permanent, and as Kodak knows only too well, what science giveth, science can taketh away. Once the financial fuss dies down in a few years I fear we will be flattening it into foil and wrapping our kids’ sandwiches in it.
European empires fought tooth and nail to control the nitrate deposits of northern Chile as the only large, reliable source of the vital ingredient of gunpowder – but one can almost still see tools laying about where they were abandoned literally overnight when boffins discovered how to extract nitrogen from air.
Old duffers may recall Australian prime minister Joe Lyons banning the export of iron ore in 1938, on the grounds that we didn’t have enough for our own domestic requirements. Who knows how long that ban may have lasted had Lang Hangcock not had to fly below that storm in the Hamersley Ranges in 1952. The market for boganned up V8 utes would never have come to pass.
The Boar farmers of the Witwatersrand were undoubtedly quite happy with their quiet, pious, agrarian existence, and probably took no notice when a smelly, drunken Australian prospector started muttering about gold.
And of course 100 years ago, one can only imagine what the nomads of the Arabian Peninsula had planned for the new 20th century – presumably more goat stew, camel shit and flies, not fleets of Ferraris and the towers of Dubai.
Our history is littered with such events, and I fear that as we stand here and now, we often make two errors of judgement – first, that such upheavals are a thing of the past, and secondly, that when they happen, we actually recognise them at the time. Timeframes contract when viewed through the blurred lens of hindsight. A decade-long period of change and transition 100 years ago can be condensed to a couple of sentences in a textbook, but it is most instructive to at least attempt to put oneself in the shoes of those who were there at the time and try to imagine the upheaval, stress and crisis they must have experienced. It’s never as easy as it looks.
Minerals ain’t minerals and every commodity faces its own challenges and risks of redundancy or resurgence – it is impossible to predict what may happen next and foolhardy to bet the farm on it, but that doesn’t mean we can’t sit back in a comfy chair with a bottle of good red and have a go.
At the risk of extrapolating, one rule of thumb perhaps is that tried and trusted old commodities remain tried and trusted for a reason, and often that reason is simply that it worked so well at such a good price, no one could be bothered finding an alternative. Iron perhaps falls into this category – there are lots of materials that are better, stronger, lighter, etc, but nothing has yet been found that can do the job for the cost and in the volumes required. But volume has its risks – hearts were all a flutter two weeks ago as Vale’s new 400,000t tonne iron super tanker sprang a leak while fully loaded in port. They managed to drag it away, but had it gone down in the port as it risked doing at one point, 10% of the world’s seaborne capacity would have gone with it.
Copper perhaps, but it was not always thus. In the old days, copper had three primary functions – communications cables, electrical cables, and ghastly flower pots from Copper Art. The first is being outdone by optical fibre, the last was undone as the chavs moved into cane baskets, while the second at least for the moment remains and indeed is thriving on the back of Chinese demand. Nothing yet compares for power transmission, but as the price increases, the boffins are heads down in their labs looking for options. How long will it be?
King Coal remains the mainstay of global power generation but then someone found shale gas. Shale gas production has increased twelvefold in the US in the past 10 years and now makes up 25% of total US supply and they haven’t even made a dent yet. Apparently there are about a squillion million terra thingies (or whatever you measure gas in) locked up in these shales. Europe has just found that it may have as much and now everyone is poking holes into every shale they can find. Is the end nigh?
The stalwarts are prone to shocks, so what of the new kids on the block?
Rare earths were all the rage last year when the Chinese, in what may yet be recorded as the dopiest decision for some centuries, decided to clamp down on its export quotas. Sky rocketing prices and fear of being slaves to Beijing bureaucrats saw the R&D labs dusted off and the question of REE-free batteries and magnets is I suspect a matter of when rather than if.
And lithium? Well for all the fuss about those lithium ion batteries that will save us, I remain wary. If memory serves, not that many moons ago, it was Ni-metal hydride batteries that would save us, and nickel cadmium before that, and lead acid before that. A quick Google search and it seems sodium sulphur or antimony magnesium may be the next type that will save us. Damned if I know if they will or they won’t, but best not to bet the pension on it.
According the Theory of Rational Markets, every market participant knows everything and acts rationally on the basis of that information so that markets wander calmly about some equilibrium level. By this theory, the odds of a 20 standard deviation daily move in the stock index is about one in 2 trillion and so should not have happened yet in the history of the universe – but in the last few years they seemed to occur every second week, so something else is clearly happening here.
I can explain this as I know that half the market participants don’t know anything and the other half are psychopaths but this does not help my forecasts.
We live in interesting times, next year I think will be fun, but uncertainty and volatility will still be with us – as we Western Australians know, Black Swans are not that uncommon, and while I don’t know what it will be, I would bet there will be a mining one next year.
There are just too many edgy things happening for there not to be.
Also in the December 15 - 21, 2011 edition
- AFRICA
- Eritrea risk narrows Zara field
- ASIA DESK
- Not all good as gold in China
- AUSTMINE
- MST buys Nixon Communications
- BREAKING NEWS
- Abenab progress for Avonlea
- Alara advances
- Alcoa declares divi
- Alcyone search boost
- Better news for St Barb
- Black Fire complies
- Bu Dun Hua copper
- Chief sees higher rating for Endeavour
- Cockatoo extension
- Impala sacks drillers
- Industrea win
- Kingston shines
- Maiden Rosie resource
- More Bass trouble
- More concerns on uranium supply
- Nany option exercised
- Newcrest output up
- Palito reassessment
- Pegasus finds copper
- PGM output up
- Radar on track
- Redhill expands holding
- Rio in control
- River attraction for Silver Lake
- Southern Cross ready to move forward
- Stonehenge sets sights high
- Straits gain
- Strategic permit
- Tanoyan update for Reliance
- Trafford's exploration boost
- Two Rivers death
- Ventnor copper hits
- WA uranium policy
- West Rand mines to merge
- Windfall at lake
- Winmar attracts investor
- Yellowhead on track
- CENTRAL ASIA
- Can miners really side-step a war?
- COAL
- Mardon's new year wish
- CONSULTING
- Consultants see room to grow in 2012
- Lory leads SKM mining into new growth phase
- CONTRACTING
- Contracting briefs: Redpath, Thiess, Decmil
- FINANCE
- A golden path to Dubbo development
- Copper deficit a fixture for the future
- Kagara opts for safety first
- Money’s almost too tight to mention
- Terramin view expected to become clearer
- FORUM
- How the JORC and Valmin codes work
- More must buy into JORC discussion
- FROM THE CAPITAL
- Capital management will be key 2012 theme
- GOLD
- Loyal to the cause
- Upside seen despite Teranga downslide
- HEAVY METAL
- Atlas Copco expands mining range
- ISSUES
- State-run miners: best of a bad bunch
- MINING
- Independence gloom unwarranted
- MINING INTELLIGENCE
- 'tis the season (still) to be wary
- MINING IT
- Auto-money changes everything
- Innovation is the new black
- IT notebook: ARANZ Geo, Immersive Technologies
- IT notebook: Devex receives certification
- IT optimists
- Mining IT: 2011 rebooted
- Mining IT: product releases to fill 2012 calendar
- XPAC to lead dynamic software revival
- PEOPLE
- People on the move: Gindalbie Metals, Abcourt Mines, Carbon Energy
- SOUTH AMERICA
- Chili backers like its prospects
