Faith

It is the Christmas season, and I feel like giving someone a lump of coal.

Among the paeans delivered in honour of Pope Francis last week, there was a quote attributed to Richard Dawkins, to the effect that the pope was dangerous because he was nice. "We don't want nice men in the Vatican." I don't know why anyone wouldn't like that. We should have nice people everywhere. But I digress.

Dawkins is famous as an atheist. Here is a sample quote:

I think the effect of all religious faith is negative . . . I think that faith teaches you  to believe something without evidence, and that shuts your mind off.

It certainly sounds like he thinks religious people are irrational. But he overlooks a couple of key points. The first point is that people are irrational--it's part of the human condition. The second is an idea that really seems to be endemic to the field of evolutionary biology.

(As an aside, here's how I heard this. More than 20 years ago, as a grad student, I helped organize a series of seminars on evolution. The speakers included a biologist, but we also arranged other speakers including an anthropologist and a philosopher--there may have been a mathematician as well, but I don't remember. The anthropologist gave (IMO) a real eye-opening lecture about cultural development amongst the primates. The evolutionary biologists were extremely huffy about it--animals, they said, do not have culture. They do not develop new behaviours, and then propogate them to other individuals. It is impossible. Their every behaviour is hard-wired into them and all expressed behaviours have a survival benefit, even if we can't figure out what it is.)

The evolutionary biologist's view of faith, considering that it is endemic to nearly all human cultures, must be that it confers an evolutionary benefit, even if we don't immediately know what it is. We can guess, however. Humans are social animals. We need to survive as part of a group--not many can wander off into the woods by themselves and make all the tools needed to survive in isolation. A shared religion is one way for a group to maintain cohesion, and so faith may enhance the survivability of the group.

Faith may help the individual as well. Faith may be a small flickering candle next to the sun of reason; and in today's world, it certainly seems that the sun of reason is forever in the ascendant. It was not always thus, and in the past there were times when we would find ourselves in spiritual darkness. Perhaps the plague burned through my village, leaving me the sole survivor. Perhaps you and a young cousin managed to flee into woods before the neighbouring tribe massacred yours. Faith then is the sputtering candle that allows us to continue on through the darkness--to give us the resilience to go on when otherwise we may not.

I would question Dr. Dawkins's motives. Why should he care if people behave irrationally? What makes it his business? I rather suspect Dr. Dawkins believes that by promoting atheism he is Improving the World. If so, I believe this to be a big mistake on Dr. Dawkins part. For instance, Messrs. Hitler, Stalin, and Mao were all attempting to Improve the World. Moreover, many of the inventions that really did improve the world were developed by people who were not trying to Improve the World, but merely trying to Improve their Own Lives, which turned out to be not only a good idea, but a lot safer for everybody else.

Instead of improving the world, I think you are much better off trying to improve your own life, as well as those of your friends and family. It limits the damage. It is easy to see other peoples' irrationalities; harder to see your own. Naturally, I do not suggest this to Dr. Dawkins. He is free to do as he wills, just as I am free to award him a lump of coal this Christmas season. Perhaps he can use it to warm his heart.

Merry Christmas

More commentary on NI 43-101 regulations

There have been a few discussions on NI 43-101 regulations at different sites the past couple of weeks.

I’m not as well-known as the other commentators on this topic—I probably don’t smell as nice either. But I’ll throw in my two cents.

The NI 43-101 reports fill a vital role in shareholder communication. That being said, there are some problems in that way that they are handled. My comments below are directed more at early-stage technical reports, not resource estimates.

A lot of weight is placed on the QP, and I think that the system should have more trust in them. Geology is not a precise science, and there are times when the QP could make a statement which may not be completely supported by hard data, but which represents an interpretation based on past experience in similar (and possibly even genetically related) projects. These sorts of judgement calls are frowned on under the current rules, but I think they may convey valuable information to the market, provided they are properly qualified. The guiding principle should be whether this is a reasonable inference to make based on the sum of available data and the knowledge of the QP. Remember, we are not talking about resource definition—we are answering the question, “Is it reasonable for a company to raise money on the market to invest in this property?”

For example, I wrote a technical report on a property in which there was a considerable amount of artisanal gold mining activity. The local villagers had carved a sluice 500 m long into the side of a mountain; then tore off the top of the mountain and sent it down the sluice into the river, where more sluices had been set up to further process the fines. The mountain was a greenschist, with the more resistant layers acting as the riffles. The river had been reduced to a sad stream choked by immense piles of detritus. I could see the same process underway at all the surrounding mountains. All of this work was being done by hand, so I inferred that it would be reasonable to spend a little money further exploring the property. The report was rejected—and one of the comments was that the artisanal mining operations were irrelevant, and I was to remove all mention of them from the report.

Irrelevant? It is probably the single most reliable indicator of gold on a property, next to digging a hole and pulling out a nugget. I could see it being considered irrelevant were I presenting a resource estimate, as I could not provide an adequate estimate of the volume of rock removed, and had no production figures for the operations. But in terms of addressing the question, “Is it reasonable to raise money on the public market to investigate this property?”, I felt that the operations were relevant.

I should add that the artisanal operations were not the only line of evidence I had—there were numerous soil geochemistry and geophysical surveys over the property, adits, and about 30 boreholes, all suggesting it would be reasonable to explore the property—some of these reports dated back over 60 years. But the artisanal mining operations were deemed irrelevant. This is the type of judgement in which the QP should not be second-guessed by a lawyer who has never left his desk in Toronto.

On the same project, the company ran into a problem with their spending requirements. They had supplied a list of expenses that totaled well over $100k, but someone at the OSC disallowed several items, leaving a total of a little over $98k. The report was rejected on the basis that the company had failed to spend at least $100k on the property. My first thought was to object over the arbitrary nature of disallowing some expenses, but as I thought more about it, I began to question the validity of having a fixed number at all.

I understand that the reason for having some sort of limit is to prevent me from staking my backyard, sending a dozen samples to the local lab (say, $600 in analyses) and then floating a company. But I think the decision as to whether the company has spent enough money should be made by the QP.

If you were lucky enough to get a nice property in Mexico that had been mined continuously from the days of the conquistadors until 1998, when it closed down due to low gold prices—and you proposed to investigate the mountains of tailings from 400+ years of operations—I daresay you could successfully answer the question “Is it reasonable to raise public money to explore the feasibility of this idea?” in the affirmative while spending a good deal less than $100k. At the same time, you could spend well over $100k on a singularly remote property in the Yukon and know little more than fuck-all about it. So this is another case where the honest judgement of the QP should be respected, and not second-guessed by a desk-jockey in Toronto.

To which I would add this, and I have already made the comment that the regs are not intended to protect the retail investor--they are there to provide benefit to: institutional investors at the expense of the retail investor; major consulting firms at the expense of the individual practitioner; and large companies at the expense of the juniors.

Why are you here on Christmas Eve?

Winter

This is what it looks like. Sometimes.

Another song for holders of junior explorecos

As you contemplate your portfolios this tax-loss season . . .

Gold-USDX breaks down

Last time we looked at a chart showing the decline of both gold and the US dollar in tandem. Today we consider their product (that is, USDX x gold price) as a possible driving factor for the performance of gold equities. For a gold producer outside the US, this product reflects the value of its product.

And there are a surprising number number of countries in which the US dollar is not the official currency.

If, as is commonly thought, the US dollar and gold are inversely correlated, there will be no major change in this product through time. This chart shows us otherwise.

Gold-USDX rose from lows in late 2008 to gold's spike top of over $1800 in late 2011, remained consistently high until late 2012 then dropped off a cliff in April, bouncing off the bottom in July and October.

GDX, which I am using as a proxy for gold producers, rose in tandem with Gold-USDX from late 2008 until early 2011, slowly declined to late 2012 (when gold-USDX was stable), and fell quite sharply until the bounce in gold-USDX in mid 2013.

One note about the bounce--I'm not a big fan of simple TA, but will note that the level at which the bounces occurred is exactly 1000. And unfortunately, as of last week, the gold-USDX penetrated the 1000 level to the downside. Merry Christmas!

Gold's decline is doubly painful

Once again we compare gold to the USDX for the last year, and we will see why the last seven months have been especially painful for gold investors. You might also consider its effect on the companies that mine the stuff.

We can divide the chart into roughly half at Mother's Day. Prior to Mother's Day, gold declined as the USDX rose, but since Mother's Day the trend has been for both to fall.

This second trend is doubly painful for gold holders. Not only are you getting fewer US dollars per ounce, but your US dollars are themselves losing value. This is precisely the opposite of what happened from late 2009 to mid 2010. Back in those halcyon days, it was a great thing to be long gold.

On the bright side, the gold/USDX state still lies along the advance line it took a couple of years ago that carried it to $1800+. On the down side, I still own some, so WTFDIK?

The rise of the virtual economy, part 2--retail consumption indicators

I recently received some publications from Dr. Ray Huffaker, who studies reconstructed phase space portraits from agricultural cycles. There are some interesting data sets presented in these papers which echo some of the themes I've argued in earlier postings.

The above figure shows retail beef consumption per capita. Data comes from the USDA, the figure is snipped from McCullough et al. (2012). Notice the large decline in the late 1970s. Perhaps you think that decline was due to changing preferences in meat--perhaps more Americans chose to eat pork instead.

Data and figure as above--notice there is also a decline in per capita pork consumption at the same time. Not as marked as the decline in beef, but still present.

Comparison of metal usage to global GDP. Chart from 

Handselbanken Capital Markets.

As posted before, something appears to have happened to the economy in the late 1970s, which puts the lie to the reported GDP growth figures. Would the government exaggerate these numbers? Perhaps to tell you that the economy is doing fine, and if you happen to be experiencing a drop in your standard of living, well, you just need to work harder. Or go buy something with no money down and no payments for three years.

One last figure. Perhaps the decline in beef consumption was due to the "cholesterol scare".

In this figure from McCullough et al. (2013), we see that the cholesterol scare happened after the major decline in beef consumption. Furthermore, the major declines in beef consumption both correlate to increases in the relative price of beef (the beef/chicken ratio on the right axis).

Some comments on previous articles suggested that the decline in copper and zinc production was due to replacement with plastics or aluminum. My counter to that was that copper cannot be replaced in most of its applications, and the decline in copper consumption speaks to a real decline in economic activity--one which was not reflected in reported GDP numbers. The simultaneous per-capita decline in beef and pork consumption supports this conclusion.

References:

McCullough, M. P., Huffaker, R., and Marsh, T. L., 2012. Endogenously determined cycles: Empirical evidence from livestock industries. Nonlinear Dynamics, Psychology, and Life Sciences, 16: 205-231.

McCullough, M. P., Marsh, T. L., and Huffaker, R., 2013. Reconstructing market reactions to consumption harms. Applied Economics Letters, 20: 173-179. doi: 10.1080/13504851.2012.687091.

There's no terror like state terror

. . . we study the frequency and severity of terrorist attacks since 1968. We show that these events are uniformly characterized by the phenomenon of scale invariance, i.e., the frequency scales as an inverse power of the severity, . . .

                                             Clauset et al., 2007 (pdf)

As we enter this season of peace, I find myself reflecting on war. And scale invariance.

The work cited above is old, and has been digested for some time. To recap, the frequency of terrorist events varies inversely as the square of the severity (typically measured in casualties)--and this relationship is independent of time selected, targets, weapon type, or responsible group. Even massive attacks, such as the September 11 attacks do not represent outliers, but form part of the statistical continuum of "normal" terrorism.

I've extended this graph to include a few other events.

In this chart, D represents recent estimates of the deaths during the Dresden firebombing, N1 represents deaths from the nuclear bombing at Nagasaki, T represents deaths during one particular firebombing raid of Tokyo, H represents deaths from the nuclear attack of Hiroshima, and N represents deaths during the massacre of Nanking.

We commonly carry out similar analyses for the purposes of risk assessments for natural hazards such as earthquakes. If we know the recurrence interval for small events, we can estimate the recurrence interval of very large events, provided the size-frequency distribution is characterized by scale invariance. We can carry out a similar assessment here. Unfortunately, we don't really know the recurrence interval of an event like the September 11 attack--but let us assume here that September 11 represents the largest terror attack one would expect in any 25-year period.

If so, then the recurrence interval for a Dresden would be 2500 years; for Nagasaki, it would be about 7500 years; for Tokyo, about 10,000 years, Hiroshima 15,000 years; and Nanking, about 50,000 years. I note that all of these events happened in the last century.

It seems likely that these state-sponsored events happen on their own frequency curve, which goes to show that nobody can do terror like the modern State.

December