I’m at a truck stop in Coober Pedy eating my second spaghetti on toast in less than a week. I thought I had sworn off canned spaghetti at age 8, but the alternative is overcooked mystery meat of a questionable vintage. The outback is slowly making sense to me. Practicality trumps most other impulses. As I get ready for the drive to Uluru, I want to keep that lesson in mind.
Kupa Piti is the Aboriginal term for white man in a hole and I think that’s a pretty apt description of the town of Coober Pedy. In 1915, opals were discovered here and sparked yet another Australian mining boom. Coober Pedy now produces nearly 80% of the world’s opals. The town is situated in a desert, hundreds of miles from civilization. The earliest miners learned to burrow into the ground to escape the wind, dust and extreme heat which is frequently over 120 degrees. Hence, most of the homes, restaurants, hotels and even churches look like rabbit warrens. You almost have to wonder what the Aborigines thought when they came upon these white men digging tiny rocks out of the earth. Heck, I understand the monetary impulse, and even I’m a bit baffled.
Most mines produce products for industry. Even the most ornate products mined, like diamonds, have a dual purpose—besides jewelry, they’re needed for cutting tools in heavy industry. Gold has electrical functions. The Opal? It does nothing. At best, it shimmers? I guess that’s useful if you want to shimmer? Not exactly my thing. It does make you wonder, what are the odds of the first prospectors actually finding opals here? What other massive economic deposits exist in the outback that no one has yet discovered? Why are people paying tens of thousands of dollars for rocks that are dug out of the ground by men living like Hobbits? Maybe I’m in the wrong business.
I had to see it myself. I’ve been to plenty of mines. This is unique. A vertical shaft leads to a working face where an excavator machine chews at the rock wall. Attached to this machine is a giant suction hose which winds through the mine until it exits to a vertical shaft above ground. This hose is attached to a giant vacuum which ultimately empties the waste rock above ground. Opals glow in a blacklight, so the whole mine is black-lit. The excavator churns for a few seconds, and then is turned off so that the operator can pick out the opals uncovered before the waste rock is sucked above ground. This process finds some opals. It cannot do too good of a job, because my girlfriend found dozens of opals just by sitting on top of one of these waste heaps sifting through the dirt. An opal mine is like no other mine I’ve ever seen—but then again, so is the town.
Our hotel was an old mine and the rooms were the various working faces. Charming place really. The wall is pink sandstone with vertical striations and gypsum where it faults. It’s quite beautiful actually, unless you touch the walls, which immediately begin to crumble. It’s hard to stay clean when living underground—no wonder the Taliban always appear so disheveled. It’s something I had to see once—but I’ll leave the locals to their opals. I bought a pin for my mom—it may be the only opal purchase of my life. It sure is amazing what capitalism will convince people to do. Plenty of them have hit it rich too—so they must be doing something right. Meanwhile, the desert around town has something like 2.5 million mine-shafts sunk into it. As you drive around town, all you see are ten foot high piles of dirt sucked out of former mines. God bless capitalism—I wonder if the ladies wearing these opals have any conception of where they came from?
Investment implications from the opal fields? I have no intention of investing in opal mining. Sometimes you just need to take a field trip to broaden your experiences. It was interesting to hear the miners complain about their costs increasing faster than the price of opals. In the past decade, fuel is up 5-fold. Dynamite prices are up 10-fold. The miners are all in their sixties, they cannot entice younger people to take up opal mining—wages for employees are up huge. Meanwhile, the price of opals hasn’t gone up much. Margins are getting squeezed. What an awful business mining is. Even father and son mining operations—which is what opal mining is—cannot make much money.
On getting splattered… Yes, this past week has been frustrating. In a week, I have watched very sizable gains for the month become moderate losses. There are so many cross-currents. I couldn’t make sense of them from Miami. I certainly will not be able to decipher them from unreliable internet in the outback. I’m here because I want to be escaping the next data point. I didn’t realize there would be quite this much noise though.
I have investments in smaller companies that I have had for years, I sometimes trade around these positions, but I usually intend to keep them for years. I also have more liquid positions like the GLD and VXX which I have written about. I trade around these—frequently. I use these at certain moments when I think there’s an opportunity for low risk gains. I view them as a place to park capital as I wait for the next small company to invest in. I am mentally committed to these liquid positions, but I frequently trade around them, cutting them back or pressing them depending on the setup.
I cut my liquid positions back significantly before I left for Australia—I didn’t want to be babysitting them from the road. Over the past few days, I’ve cut them back even more. I think they’re winning investments over the next few years, but the rule is to only take low risk set-ups with my liquid positions. I use my smaller companies as the long term investment plays for the big upside. We’re in crazy land in the markets—margin calls and volatility now rule the investment landscape—not sound logic. When I cannot read the tea-leaves, I get smaller. I hate to take losses—especially when I had sizable gains just a few days earlier. Sometimes your first loss is your best loss though. I don’t let these things go against me much. I’m actively looking for a spot to really add to my GLD and short some VXX again. Along with others, I think they’re winning plays over the next few years. What happens in the next few days? I’d rather not have much money at play as I find out.
I normally focus my energies on finding smaller companies that can go up significantly over the next few years. You may find it strange that I am focusing so much attention on the macro world. Unfortunately, over the past few years, the macro has ruled the universe of investing. There are so many problems out there. We periodically go through these collapses as politicians cannot find the right band-aid for the current crisis. These collapses present opportunities. However, as the world lurches from crisis to crisis, I see more trading opportunities, and fewer investment opportunities. Everything is just becoming a piece of paper that you buy on panic and sell on euphoria. This is far easier with more liquid assets—hence my current focus on those assets. I dream of a time when the world is more normal and you can invest in sound businesses for the long haul again. In the interim, I am waiting for this current collapse to run its course. There are a number of great investments I’m looking at—but I want to wait for lower prices. Right now, most equities just aren’t cheap enough to compensate you for the risks of investing in very uncertain times.