Be More like Churchill to Win the Battle against Bubbles

Sir Winston Churchill was a strategic mastermind. His ability to see the long game is renowned in military strategy. It was in fact his decisive calls during the Second World War that helped stave off the Axis powers and ultimately helped in tipping the war towards the allies.

But Churchill’s real stroke of genius came well before the Second World War was at its end. In fact, it came around 32 years before the Second World War even started and a few years even before the First World War kicked off.

John McCain explains some of Churchill’s strategic mind in excerpts from his book, Hard Call: Great Decisions and the Extraordinary People Who Made Them:

When Churchill was made First Lord of the Admiralty in 1911 he was already deeply concerned about German militarism, in particular Kaiser Wilhelm’s determination to build a powerful navy.

From the moment he arrived at the Admiralty, a young man of destiny, Churchill started to prepare the fleet for the Battle of Armageddon he believed was inevitable.

Now around this time it’s important to note that most British naval ships operated on coal. Coal was abundant, relatively cheap and created sufficient steam to power the engines. However, at the turn of the century plans had been put in place to replace coal power with oil power.

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According to Historic England’s ‘Ships and Boats: 1840-1950’:

The naval armaments race leading up to the First World War led to both Britain and Germany (as well as the US, France, Italy and Japan) building warships of previously unknown size and power. For the British, the race culminated in the Dreadnought, launched in February 1906, which was the first large warship to be turbine driven.

Churchill got his way

This armament race was a vital part of how Churchill would approach his naval strategy and his deep concerns about the German growing powers.

Churchill was integral in the conversion of the entire British fleet into oil-power. This was expensive, and risky. And there was pushback from the British parliament.

But Churchill eventually got his way. This led to the British finding their way into the Middle East in the early parts of the 1900s to secure themselves a stake in the world’s major oil production fields.

By this point in 1913 the British had also taken a controlling stake in the Iranian located Anglo-Persian Oil Company.

APOC also ended up signing a 30-year supply agreement to the British Navy (thanks to Churchill) in 1914. And then in 1916, the British, French (with assent from Russia) formed the secretive Sykes-Picot agreement. This effectively carved up the Middle East into spheres of influence.

Another way to read into that is control of the world’s largest oil fields.

Churchill knew from a very early stage, that if you control the power source of armament — you have the power. By having control of major oil fields and supply, the British would retain the upper hand against the Germans and any potential naval threat.

This idea of controlling significant commodities in periods of war is a slam dunk in military strategy.

During the First World War and into the second it was also becoming understood that weight was also a major issue with military machinery.

Part of the reason Churchill moved to oil power was the power of combustion compared to coal. A stronger combustible energy source could power increasingly heavier armoured ships. Bigger guns, more armour equaled more weight.

Over these decades steel was being combined with what was previously thought to be a useless metal, nickel. This steel-nickel alloy was a superior armour. It was lighter than steel, cheaper to produce and impressively strong in its primary role.

Off the back of the Second World War, it was clear that war was becoming increasingly high-tech. It was the German’s strength in aerial combat by this stage that tipped the scales in their favour for large chunks of the war.

However, with Axis forces ultimately defeated, the world realised that in order to fight the wars of the future, all aspects of the military would need improved strength. Ships, planes, tanks and armour all needed to be lighter, stronger and easier to manufacture at high volume.

This led to an ever-increasing use of nickel in the process of creating armour for everything from ships to planes and tanks.

You can fast forward to the Vietnam War in the 50s, 60s and 70s, and the thirst for nickel in the ‘war machine’ became near fever pitch.

A column originally published in Northern Life, Greater Sudbury’s community newspaper (on February 23, 2007) explains:

A 1954 U.S. Department of Defense report stated that nickel was, “the closest to being a true ‘war metal.’ It deserves first priority among materials receiving conservation attention.

By 1969 the price of nickel had skyrocketed. And was fetching as much as £7,000 per ton in London markets. This of course had a flow on effect. Any company that even had a sniff of nickel was soaring in value. 

Big discoveries started flowing

Of note, was an Australian Mining company known as Poseidon Mining. Now we should also note that this was a period where all kinds of Australian mining companies were on a tear. Big discoveries of gold, iron ore, uranium all started flowing.

The Reserve Bank of Australia notes:

The growth of the ASX All Mining Index reflected the overall effect of these major discoveries on the market. The index grew by 25 per cent per annum, on average, over the 11 years from 1958 to 1968.’

However, the mania around nickel was palpable. And then Poseidon Mining announced a big old find in their tenements in September 1969. It was a huge nickel find. And the company’s stock price went bananas.

Before the find, the stock was trading as low as 80 cents. By October it was at $12.30. Come February 1970 the stock hit an all-time high of $280.

The stock became expensive for people to own. And so, they looked to other nickel miners to invest their money in. This continued the speculative bubble pushing the prices of some of these tiny miner tens of thousands of percent higher.

But it did eventually come crashing down. The RBA notes there wasn’t a definitive reason why it all came crashing down, other than, it just did.

Poseidon delisted by 1976 the mine closed, and the stock became worthless. This had a flow on effect seeing other miners fall significantly in value. For example, in early 1969 BHP stock was trading up around $20. By the time the metal index had plummeted in 1976 BHP stock was trading well below $7.

Now while others were casualties there were plenty of great companies that would go on past the ‘Poseidon Bubble’ to deliver incredible returns to shareholders. While Poseidon failed, others succeeded. But there was something that Poseidon delivered to markets that way ultimately bigger than the company itself.

As the RBA explains:

The Rae Committee report, handed down in 1974, documented the abuses that had gone on during the Poseidon boom.The report highlighted how the stock market had been poorly regulated and that much of the information relied upon by investors was uncorroborated rumour. It recommended a number of changes to financial regulation and the regulation of stock markets which would, presumably, prevent the sort of abuses that occurred during the Poseidon boom from happening again.

How does this relate?

The markets became more sophisticated from that point forward. It took a bubble to create a market that developed over the subsequent 40 years to become one of the most revered investment opportunities in Australian history.

The reason the Poseidon Bubble is so important, is that it’s the roadmap for what we’re seeing in crypto markets today. The rampant speculation, and many of the abuses that exist within the crypto markets do need to be ironed out. The market overall needs to become more sophisticated.

While crypto might not necessarily be a metal of war, it is the armour for society against the threat of centralised control. It’s a weapon to fight again the financial abuses of power that we’ve endured throughout history.

The market itself is going to develop and become a friendlier place to exist for everyone. And it’s going to usher in a golden age of crypto investing off the back of it. Bubbles aren’t friendly when you live through them. But if you can see the ultimate benefit and play the long game, we believe it has the potential to create the kind of wealth we’ve only previously seen from the early investors in oil that Churchill sparked over 100 years ago.

The important takeaway here — be more like Churchill. Perhaps play the strategic long game when it comes to crypto. And if you do, you have a fair chance of winning the war.


Sam Volkering,
Editor, Secret Crypto Network

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Sam Volkering is an Editor for Money Morning and is small-cap, cryptocurrency and technology expert.

He’s not interested in boring blue chip stocks. He’s after explosive investments; companies whose shares trade for cents on the dollar, cryptocurrencies that can deliver life-changing returns. He looks for the ‘edge of the bell curve’ opportunities that are often shunned by those in the financial services industry.

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