The author's view: Excess money issuance has already halved the dollar's real value; short-term mispricing will eventually be corrected by the long-term weighing machine — bearish on the dollar's purchasing power, bullish on undervalued real assets. [Bearish]
The author uses a story about a government overissuing "water rights" as an analogy for excessive money printing: printing more money does not increase real wealth; it merely dilutes the value of each claim. He imagines a government controlling the only aquifer for hundreds of miles, selling water rights to the public in the form of shares, creating a seemingly fair allocation mechanism. But those in power will sooner or later discover they can issue additional water rights beyond the actual water supply, convincing themselves that "once the short-term problem is resolved, the excess can be withdrawn." In reality, the overissuance keeps accumulating. When the total number of water rights reaches twice the actual water supply, each right is only worth half a liter of water. But because most people do not know the overissuance exists, the rights still trade at their original price. The "oasis" the public believes in is actually just a mirage.
The author extends this logic directly to the dollar: "print more claims on water did NOT create more water; equally true, printing $4 trillion more U.S. dollars over the past year and a half has NOT created any more real wealth." In other words: printing more water rights did not create more water; likewise, the $4 trillion in additional U.S. dollars printed over the past year and a half has not created any real wealth. He believes that the real value of both the hypothetical water rights and the actual dollar has been cut in half.
Using the Fed's total assets curve (2000–2021) as evidence, the author concludes that the doubling of the dollar supply has halved the real value of each dollar and nominally raised the price of everything—though by uneven magnitudes. The report states that "doubling of the supply of dollars has resulted in the halving of the value of each dollar, meaning that the NOMINAL value of everything has doubled – IN AGGREGATE." He emphasizes that "everything is not equal": some goods and services have risen in price by more than double, while others lag or have even fallen; some assets appreciate quickly, while others take a long time and considerable effort to pass through costs; some actors can exploit loose monetary policy to improve their positions, while others cannot access the benefits at all.
Performance comparison: This section contains no specific portfolio performance figures. Instead, it uses a chart of the Fed's total assets rising from roughly the $1 trillion range toward the $8–9 trillion magnitude (with the chart axis scaled to $9T) to support the core premise of currency devaluation.
The author believes the "gross mispricing" caused by currency devaluation breeds both opportunity and risk, and he invokes Ben Graham's classic metaphor to state his position. He writes: "We are excited by the chance to capitalize on the gross mispricing, taking to heart Ben Graham's famous dictum..." He then relays Graham's view of the market as a short-term voting machine and a long-term weighing machine, concluding: "In the short-term, mirage; in the long-term, desert or oasis." He reminds readers that economics is not like the physical sciences; human behavior can change outcomes. Excess money printing can trigger reflexivity, rapid expansion, corruption, and social change.
The author introduces Richard Cantillon to explain why the beneficiaries of money printing are not evenly distributed. He first describes Cantillon as an Irish-French economist whose Essai sur la Nature du Commerce en Général is regarded as the cradle of political economy, and who profited from John Law's Mississippi scheme. Cantillon noted that "wealth itself is nothing but food, conveniences, and pleasures of life," and distinguished between wealth and money. His most important contribution is the "Cantillon Effect": when new money enters the economy, it does not push up all prices uniformly—those closest to the money source (such as those connected to the king and the wealthy) benefit first, while those farther away lose. The author uses an image of upstream and downstream on a river to stress: "with water as with currency, it is clearly better to be upstream than downstream, especially as summer saunters on." He recommends Matt Stoller's article "The Cantillon Effect: Why Wall Street Gets Bailed Out and You Don't," quoting its key line: "Money, in other words, is not neutral."
This chapter serves as the introduction to the report. The core stance is bearish on the dollar's real purchasing power and bullish on real assets that can withstand devaluation, but specific positions are not yet discussed. The author uses the metaphors of desert, oasis, and mirage to portray cash/fixed-income assets as water rights that will be diluted, while "real value assets" are the true oasis. Readers should note that this is a position-holder's perspective—he explicitly says he is "excited" to capitalize on gross mispricing, indicating that his interpretation carries an investment bias. The original text also acknowledges risks: not everything will rise by the same amount, some actors cannot pass through costs, and "things are never simple."
In the follow-up, Kopernik projects Cantillon's insights directly onto the "QE-Infinity" era and provides a crucial quantitative anchor: the dollar supply doubled in less than a year and a half and has grown ninefold since 2008. This is not merely a statement about money; it implies a falsifiable corollary—if the neutrality of money assumption does not hold, then there is an inherent upward pressure on the overall price level to double. But the author astutely notes that the truly "unknowable" element is not the direction, but the speed and distribution. This is precisely the modern version of the Cantillon Effect: new money first flows to participants closest to the "printing press" (government contractors, large tech and healthcare companies, private equity and hedge funds), while ordinary workers and savers bear the delayed but certain price increases.
Kopernik presents an either/or choice: either assume that monetary expansion has no effect on supply and demand and no effect on prices (the implicit assumption of traditional financial models), or acknowledge its impact and incorporate a "currency devaluation rate" into intrinsic value models. This choice effectively determines the survival probability of a portfolio. Based on historical data, between 2008 and 2021, dollar-denominated gold rose roughly threefold, while dollar M2 expanded nearly ninefold. If the Cantillon mechanism is valid, gold's price implies at least 150% of catch-up upside. More notably, GDX (the gold miners ETF) has shown almost no net gain since before QE1, meaning that even if gold itself has already reflected some devaluation, the leverage effect on gold miner profits has not yet been released. The table below shows the differences in "reaction sensitivity" of various assets to monetary expansion:
| Asset Class | U.S. Dollar M2 Growth, 2008-2021 | Price/Index Change, Same Period | Degree of Reflection |
|---|---|---|---|
| U.S. Dollar M2 | +900% | — | Benchmark |
| Gold | +900% | +300% | Partially reflected |
| GDX Gold Miners | +900% | ≈0% | Severely lagging |
| Copper | +900% | +250% (2021 peak) | Nearly reflected |
| NASDAQ | +900% | +400% (including earnings growth) | Excessively reflected |
| Lumber | +900% | +200% (2021 peak) | Fully reflected |
This table reveals a phenomenon most investors overlook: not all assets will "catch up" by the same magnitude. High-multiple growth stocks (such as large-cap technology companies in the NASDAQ) have already priced in future currency devaluation expectations; by contrast, physical-asset-intensive upstream sectors (such as gold mining) have not yet been priced. Kopernik's strategy is therefore clear—prioritize physical assets or resource companies whose "current prices are low, but whose intrinsic values are rising due to currency devaluation."
The author offers a rare dialectical assessment of the "money illusion." On one hand, the "wealth illusion" created by central banks can inspire hope, drive innovation, and even help finance wars; on the other, it breeds frauds ranging from Ponzi schemes and Madoff to contemporary NFTs and SPACs. This view is not academically new—Kindleberger already noted in Manias, Panics, and Crashes that monetary expansion is a necessary but not sufficient condition for financial bubbles. What is distinctive about Kopernik is the observation that bubble financing also funded genuine technological progress—radio in the 1920s, aviation and computers in the 1960s, and the internet in the 1990s all depended on speculative fervor fueled by loose money. This "creative destruction" is not empty rhetoric: for example, although the NFT market is full of froth, the underlying blockchain technology has real applications in payments, provenance tracking, and other areas. Yet Kopernik remains skeptical for a very practical reason: the vast majority of cryptocurrencies lack government credit backing and struggle to function as a "medium of exchange" or "unit of account." This is consistent with Cantillon's original discussion of the "actual use value" of money.
Kopernik uses a clever metaphor to construct a hierarchy of asset values:
> Better to own the aquifer than water downstream that may dry up, change course, or be polluted; better to own downstream water than a vague claim certificate for water; and view with deep skepticism any claim that "new water" has been created.
This logic maps directly onto asset classes: physical assets > paper claims backed by physical assets > pure fiat currency > crypto tokens that claim underlying technological support but have no intrinsic value. This ranking is highly correlated with the traditional "store of value" function. Notably, the author says "gold is better than gold certificates, and gold certificates are better than fiat currency." Yet in actual investing, Kopernik holds large positions in gold miners (such as GDX). This is not a contradiction—because gold miner stocks are essentially a way to buy "gold in the ground" at a discount, with a cost below physical gold and additional operating leverage. If the dollar depreciates ninefold, gold should rise ninefold, and gold miners' profit growth would significantly outpace the rise in gold prices (fixed costs plus production leverage). This is a classic "convexity opportunity."
The follow-up cites a strikingly visual chart: the "shadow price" of gold from 1967 to 2021 (calculated by the ratio of money supply to gold reserves), the "actual price," and the "25% gold-backed shadow price." The shadow price once reached as high as $25,000 per ounce, while the actual gold price in 2021 was around $1,800. This does not mean gold will necessarily rise to $25,000; rather, it suggests that if the dollar were to regain some form of gold backing (even 25%), gold's theoretical value would far exceed its current market price. This analytical framework can be traced to the extreme assumptions of the quantity theory of money, but the more instructive aspect is the implied "tail risk" thinking—investors do not need to predict the precise path; they only need to judge whether the gap between the ultimate consequence of monetary expansion and current prices is large enough to cover downside risk.
Kopernik emphasizes that the same logic applies consistently to gold, copper, nickel, real estate, food, and even business services. But not all assets will react in sync: copper, lumber, the NASDAQ, and others have already "cashed in" the effects of monetary expansion in advance (for example, lumber prices doubled within a year in 2021), while gold and some agricultural raw materials (such as palm oil) have still not fully reflected it. This constitutes a "mispricing window" of investment opportunity.
The author cites Jared Dillian's comments on Shadowstats: using the 1990 methodology, the current inflation rate would be about 8%; using the 1980 methodology, it would be 13%. This reveals a key fact: the official CPI artificially suppresses inflation readings through "substitution effects" and "quality adjustments." If the true inflation rate is much higher than official data suggests, then high-multiple stocks valued on nominal cash flow discounts will face a double blow—higher discount rates (as inflation expectations push up long-end yields) and earnings growth that cannot keep pace with price increases. The table below compares asset performance under different inflation measurement regimes:
| Inflation Measurement Method | Estimated Inflation Rate, 2021 | Impact on High-Multiple Stocks | Impact on Physical Assets |
|---|---|---|---|
| Official CPI (basket substitution) | 4-5% | Mild erosion | Slightly positive |
| 1990 Methodology | 8% | Significant discount rate increase | Clearly beneficial |
| 1980 Methodology | 13% | Sharp downward valuation revision | Strongly beneficial |
This is the fundamental reason Kopernik insists on holding "asset-rich businesses": in a true inflationary environment, companies that own land, mineral reserves, and water rights can pass on cost pressures through price increases, while high-multiple "intangible-asset-dependent" enterprises are vulnerable to a Davis double-kill.
The author uses copper as an analogy: copper was once a "dirty industrial metal," but today it has become an ESG-friendly metal because of electric vehicles and renewable energy. Similarly, the palm oil industry is undergoing an identity transformation. Although palm cultivation was stigmatized for deforestation and labor issues, palm's oil yield per hectare is extremely high compared with other oilseed crops (roughly ten times that of soybeans). As the industry commits to zero deforestation, adopts RSPO certification, and improves labor conditions, its "scarcity value" is rising. Golden Agri-Resources Ltd (SGX: F34) owns hundreds of thousands of hectares of plantations in Indonesia and Malaysia and has devoted hundreds of personnel to ESG compliance—a micro-level case study of this transition.
From an investment perspective, this offers an interesting opportunity: when a "reviled industry" begins to deliver transparent ESG performance, its valuation is often still depressed while demand (vegetable oil, biofuels) continues to grow. Kopernik sees this as "environmentalist realism"—rather than boycotting commodities, invest in producers that are improving sustainably.
Faced with the question of "the odds of a snowball in the desert heat of the 21st century," Kopernik offers four reasons. The most powerful is: even in a dangerously valued environment, scarce, valuable, and useful assets are being sold at extreme discounts. This aligns with Buffett's "be greedy when others are fearful," but is more quantitative: money supply has expanded ninefold, yet the prices of certain resource assets have barely changed—meaning the "cheapness" measured in dollars is real. Finally, the author states clearly that if inflation becomes undeniable, hard assets will far outperform high-multiple stocks. This is not a forecast but conditional probability reasoning—for investors, the key question is whether they are willing to pay a certain implicit cost (the price of short-term underperformance vs. growth stocks) for this "downside protection." Kopernik's choice is clear: abandon the chase for "new water" and cultivate the "aquifer" of the old world.
The original text's description of palm trees may seem like a passing observation, but it actually contains a subtle methodological point in Kopernik's investment framework—the "heterogeneity within the same asset class." Palm trees can grow both in rainforests and thrive in deserts. The 2,600 known species vary enormously in form, from Colombia's 200-foot Quindio wax palm to the toxic Sago palm. Mapping this biological phenomenon onto investing, the implication is that investors often form a blanket impression of an asset class (such as "commodity stocks" or "emerging market equities") while ignoring essential differences among individual holdings in resource endowments, management quality, and cost-curve position. Kopernik can find opportunities in areas "almost no one asks about" precisely because it distinguishes more carefully than the market between the "Quindio wax" and the "Sago palm" within the same asset class—the former is scarce and has long-term value, while the latter may carry material downside risk.
In the original text, WWF provides a set of highly persuasive data that lends third-party authoritative support to the legitimacy of palm oil investment. The persuasiveness of these figures comes not from environmental narrative but from the logical framework of cost-benefit analysis—which is the language most readily accepted by value investors:
| Metric | Data | Analytical Implication |
|---|---|---|
| Source of palm oil production | 85% concentrated in Indonesia and Malaysia (42 countries produce in total) | Supply is highly geographically concentrated, with high entry barriers and long capacity expansion cycles |
| Palm oil share of global vegetable oil demand | 35% | Demand is rigid; no substitute can absorb supply of equivalent scale in the short term |
| Share of land used | Only 10% | Extremely high output per unit; it embodies "efficiency within scarcity" |
| Land required by substitute crops (soybean/coconut) | 4–10 times | A "green alternative" would actually require occupying far more natural habitat—the opposite of efficiency |
WWF explicitly opposes a blanket boycott of palm oil, breaking a popular ESG stereotype—that "environmentalists necessarily oppose palm oil cultivation." Their position reveals a dimension often overlooked in sustainability debates: absolute environmental damage vs. environmental cost per unit of output. If the world turned from palm oil to soybean oil or coconut oil in response to boycotts, it would require 4 to 10 times more land to produce the same amount of oil, implying far greater deforestation and habitat loss. This provides important support for contrarian investors like Kopernik: in an ESG context, the value judgment of an asset cannot be separated from its alternatives.
The RSPO (Roundtable of Sustainable Palm Oil), established in 2004, shows that the industry has accumulated nearly 20 years of experience in building sustainable institutions. For Kopernik, the very existence of RSPO serves a screening function—companies that participate in certification have a more established institutional path toward ESG standards than non-participants. And WWF's position—"demanding more action... go further and faster"—suggests that sustainability here is a process of gradual improvement, not a black-and-white screening standard of "zero pollution vs. pollution." This aligns with the value investing framework of "buying undervalued excellent businesses at a reasonable price": good companies are not perfect; they are underestimated by the market while on an improvement path.
The letter documents video and photographic material from Kopernik's research team's field visit to Golden Agri. In an asset management industry increasingly reliant on sell-side research reports and quantitative models, field research itself is a disappearing form of "deep information" acquisition. Palm trees in the desert, the harvesting of oil palm fruit, and the initial processing site—these first-hand materials answer a key question that cannot be obtained from a Bloomberg terminal—whether the company's operating assets are real and whether its production process has the practical conditions for sustainability. From an investment research perspective, this is work that very few peers in the asset management industry are willing to spend the time on. It also explains why Kopernik dares to build heavy positions in assets almost no one else holds: the market prices such assets based on "unknown fear," while Kopernik prices them based on "known facts."
The original text shows a comparison of CPO (palm oil futures) and Golden Agri's share price from January 31, 2008, to June 24, 2021, presenting an extremely rare divergence structure of "price recovery, valuation collapse":
This divergence means that for 13 years, the market compressed Golden Agri's valuation to a level equivalent to "having forgotten it still exists." In short: production, demand, and prices have all returned to historical highs, but capital market attention remains stuck in the rubble of the financial crisis. For a fund whose selection criterion is "significantly undervalued hard assets," this is almost a textbook example—the huge spread between commodity prices and equity prices is itself a powerful rebuttal to the "market efficiency" hypothesis. If price convergence needs to pick a direction, the stock with weak liquidity and low attention is most likely the lagging one.
The photographs and videos near Merzouga in the Sahara Desert are not merely an interesting aside; they form a complete metaphorical chain with the desert imagery above:
This metaphor echoes the GMO chart: in a "great bifurcation" market environment, crowded trades concentrate on a few symbols fueled by social media, rather than on assets supported by profits and cash flows. Kopernik's point is clear—when all the camels in the desert charge in one direction, the oasis lies in the opposite direction.
The letter closes by quoting "29 Palms" from Robert Plant's 1993 album Fate of Nations, with a rewritten lyric:
> It comes kinda hard when I hear 'false memes' on the radio, but leading things back down the road that leads back to 'val-ue'.
In the original, "false memes" was "false memos," referring to false information spreading over the radio; Kopernik deliberately replaces it with "memes" in the contemporary sense—the social media symbols prevalent in the retail frenzy around GameStop, AMC, and the like. This is not casual wordplay: it reveals a deeper signal—in an age of more advanced information dissemination, "false narratives" amplify noise geometrically, while the voice of value is drowned out on the airwaves. Quoting a song from 1993 also implies that such irrational exuberance existed even before the internet era. And "leading things back down the road that leads back to 'value'"—is precisely why this CIO is willing to repeatedly bear contrarian risk.
In this section, Kopernik builds a progressive argument through palm tree biodiversity, authoritative WWF data, the valuation divergence of Golden Agri, field exploration in the desert, and a 1990s rock lyric: scarcity + efficiency + forgotten underlying assets + field confirmation + historical reference. It does not impose a view on the reader; instead, using data, charts, and a small desert exploration story, it explains the logic of "why digging a well in no-man's land can succeed." The writing itself is also like a palm fruit—rough on the outside, but with high-density oil within.
| Asset | Direction | Author's Stance in One Sentence | Key Data |
|---|---|---|---|
| Golden Agri Resources (SGX: F34) | New Position | Heavily held after field research confirmation; a typical representative of "forgotten hard assets," with ESG transformation coexisting alongside valuation divergence | Share price fell ~75% over 13 years; CPO returned to historical highs over the same period |
| Gold | Add Position | Explicitly bullish; believes it has already priced in part of currency depreciation but still has ~150% implied catch-up upside | 2008–2021 USD M2 +900%, gold +300% |
| GDX Gold Mining Stocks | Add Position | Buying "gold in the ground" at a discount; profit leverage has not been released, making it the most convex opportunity | 2008–2021 gain ~0%, severely lagging |
| USD/Cash/Fixed Income Assets | Short | Viewed as dilutable "water rights"; real purchasing power has already been halved | Total USD roughly doubled in a year and a half; ~$4 trillion newly issued |
| NASDAQ/Large-Cap High-Multiple Growth Stocks | Not Stated | Has "over-reflected" monetary expansion; if inflation is confirmed, it will suffer a Davis double-kill | 2008–2021 +400% (including earnings growth) |
| Copper | Not Stated | Close to fully reflecting currency depreciation; has shifted from a "disliked industrial metal" to an ESG-friendly metal | 2008–2021 +250% (2021 peak) |
| Lumber | Not Stated | Has "fully reflected" the inflation shock, cashing in the impact of monetary expansion ahead of schedule | Price doubled within a year in 2021 |
| Palm Oil | Not Stated | The underlying asset combines scarcity and efficiency; the industry is improving progressively under the RSPO framework | Accounts for 35% of global vegetable oil demand while using only 10% of the land |
| Cryptocurrencies/NFTs/SPACs | Not Stated | Highly skeptical; most lack government credit anchoring and can hardly function as money | Bubble financing simultaneously funds real technological progress (blockchain) |
| Nickel, Real Estate, Food, Business Services | Not Stated | The same logic of "currency depreciation → rising intrinsic value" applies, but not discussed in detail | Consistent logic; no specific data provided |