About the Structure of the book

The Anti-Bubbles: Opportunities heading into Lehman Squared and Gold’s Perfect Storm is a contrarian framework that challenges the complacency of global markets as Central Banks, Governments, and Market Participants continue to inflate the largest financial bubble in history.

I have coined the concept of anti-bubble with a double meaning and objective.

First, an anti-bubble describes the process by which asset valuations are artificially deflated, in stark contrast to traditional financial bubbles, the process by which asset valuations are artificially inflated. In other words, anti-bubbles described are the exact opposite, the inverse, of traditional financial bubbles.

Second, an anti-bubble describes a defense mechanism against bubbles, just like an antimissile may be a valuable defense against missiles.

Based on this simple idea, this book presents a contrarian forward-looking framework that I hope will help investors identify the bubbles and anti-bubbles in the system so they can, first and foremost, avoid the enormous risks they may be inadvertently taking, and second, take advantage of the opportunities these misconceptions create.

Whilst the exact timing is unknown, and it may be a long time before the bubbles eventually burst and the anti-bubbles reprice sharply higher, but this process in my view “a matter of when, not a matter of if.” The exact timing is unknown, but there are plenty of catalysts that could trigger and accelerate very sudden and violent market moves, so we should better prepare.

I believe that we are already in the twilight phase, where the false-beliefs that have artificially inflated and deflated bubbles and anti-bubbles are starting to be challenged and will eventually be proven to be misconceptions.

The Flattening of the Energy World Investment Thesis

I am very familiar with contrarian frameworks.

Early 2014, crude oil was comfortable trading above $110/bbl when, together with my co-author Daniel Lacalle, I finished writing my first book: The Energy World is Flat: Opportunities from the end of Peak Oil, a transformational framework that challenged many core fundamental beliefs prevailing in the energy market at the time.

The collapse of crude oil prices, the end of crude oil’s monopoly in transportation demand, the end of the Organization of the Petroleum Exporting Countries (OPEC)’s oligopoly, the collapse in liquefied natural gas (LNG) prices, the emergence of a natural gas glut, the emergence of the “energy broadband” (a term we coined to describe the global network of land and “floating pipelines” in the form of LNG infrastructure), were among some of our contrarian and controversial views.

Quotes such as “the last barrel of oil will be worth zero, not millions” sounded like science fiction to many people at the time. Not anymore.

The chapter “the Btu that broke OPEC’s back” (an adaptation of “the straw that broke the camel’s back”) challenged the belief that the “Central Bank of Oil” was in full control, and described how the transformational framework was leading to a highly unstable equilibrium.

The timing was very uncertain, but in our view “a matter of when, not a matter of if.”

It only took a few months for some of those misconceptions to abruptly disappear. On November 29, 2014, a few months after my book was published, Saudi Arabia surprised the world “letting market forces determine the price,” proving some beliefs to be misconceptions, and leading to a sharp and painful correction across energy and global markets.

To our credit, the contrarian framework and investment thesis of the Flattening of the Energy World we presented in our book has not only survived the passage of time, but it has also been reinforced. Today, there is a better understanding and wider acceptance of the relentless power of technology, the battle for supply, the battle for demand, and many other factors that in our view would contribute to a Flatter Energy World with abundant, cheaper, cleaner, and more reliable energy.

The transformational framework has disrupted global and energy markets, producing major winners and losers in the process, and still continues today. As Heraclito reminded us, “the only permanent thing in life is change.”

Lehman Squared and Gold’s Perfect Storm
Investment Thesis

The contrarian framework and investment thesis of this book are as controversial—if not more—than the Flattening of the Energy World was at the time of publishing in 2014.

As of writing, the markets remain very complacent with monetary expansion without limits and credit expansion without limits, the two “magic wands” that Central Banks and Governments are using every time they face a crisis and/or unsatisfactory growth.

As a result, the markets continue to inflate the greatest financial bubble in history: a wave of parallel synchronous bubbles across government bonds, duration, credit, high yield, emerging markets, and equities, based on the belief (in my view misconception) that Central Banks are infallible and in full control and will always be able and willing to step-in and protect investors.

There are clear parallels between my two books. The bubble in energy markets was partially fueled by the complacent belief (now confirmed misconception) that OPEC (the “Central Bank of Oil”) was infallible and in full control. Today, the bubbles across current markets are partially fueled by the complacent belief that Central Banks are infallible and in full control. Wishful thinking. Time will tell.

Structure of the Book

There are also clear parallels between the structure of my first book The Energy World is Flat and The Anti-Bubbles.

Both books follow a deductive structure, presenting the concepts and ideas first and the conclusions and implementation recommendations later.

The first sections of the book present key concepts such as the “Anti-Bubbles,” the investment thesis of “Lehman Squared” and “Gold’s Perfect Storm,” which are analyzed and broken down into their main building blocks: First, “testing the limits of monetary policy,” which is leading to the greatest bubble in duration in history. Second, “testing the limits of credit markets” driven by the “desperate search for yield.” And third, “testing the limits of fiat currencies,” which describes the reset of the system and the monetary supercycle in gold prices.

Quotes such as “gold has a few hundred dollars of downside and a few thousand dollars of upside” may sound like science fiction to many people, and will remind the readers of the first book of our provocative quotes such as “the last barrel of oil won’t be worth millions… It will be worth zero.” Time will tell.

In the meantime, I hope the ideas and framework of this book will become a helpful roadmap to avoid the extraordinary risks and opportunities ahead of us.

Good luck and enjoy the reading!