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“People always ask me why are you so busy”….🤣🤣🤣

I starting writing this a few weeks ago in Japan and in between then and now lots is happening…🤯🤯🤯 and here is some food for thought.

Looking backwards we all see too much data and I find myself sitting around worrying my pants off about the current state of our geopolitical relationships, the economic cycle or how can we cope as the world’s turmoil turns to a new way of life. Some of the most notable differences in our way of life revolve around the concepts of “individualism” and “collectivism” and or social behaviour.

The rise of LGBGTQ and i and more and whether you consider yourself to be independent and self-contained, or interconnected with the other people around you, valuing a group over yourself as an individual – it has a rather complex out come, and it churns the blood of many.

A breakdown in basics, the fundamentals developed over the past century are all now being questioned. The social behaviour of this generation is going to be just one of the factors we are challenged by. More importantly, facing growing energy needs to keep us cool, as global warming is a real thing. We are fossil dependant and even when we try hard to move away from it, we still rely oh fossils.

Either way we are living on thin air – and the air we breath is as important as our social thoughts. The increased global warming is without a doubt more serious as we see historical temperature levels. It doesn’t matter if you believe it or not, we will all pay more for energy. Rising costs, I start to wonder when consumers will face shortages and swallow the immense increase in rising costs across the board.

Remember wealthy countries like Switzerland buy almost 60% of their energy and while they have the glory of being a small island within the European setting, there will be a cost. Even though many argue we have enough energy and others really don’t care as they reap the benefits. The winners in this energy war is Russia, Saudi and the USA. Countries like Czech, Slovakia and other smaller states will suffer. Luckily Japan finally announces a wise stance and is re-starting nuclear energy – a move we would have said 5-years ago is quite unlikely.

Crucially, our “social orientation” appears to spill over into more fundamental aspects of reasoning. People in more collectivist societies tend to be more ‘holistic’ in the way they think about problems, focusing more on the relationships and the context of the situation at hand, while people in individualistic societies (Europe,USA, etc.) tend to focus on separate elements, and to consider situations as fixed and unchanging.

As a westerner we categorise inanimate objects and when asked to name two related items in a list of words such as “train, bus, or track” I would pick Tain and bus. In contrast, in the east they would say “train” and “track”, since they are focusing on the functional relationship between the two – one item is essential for the other’s job.

It is this very behaviour that drives investors and I am deeply concerned given the signs of what can be a severe breakdown in the world economy— and social fabric, anyone with exposure to the markets could result in dramatic losses —coupled without any real signs of a real recovery in sight and as I keep saying “go out of the markets and sit on the sidelines” or risk taking a severe beating (!!!) and lose your 👖— and hold your breath until there is a recovery.

Consider the USA, the most individualistic of all Western countries. The problem is most investors cannot walk away from markets and watch from the sidelines becoming more anxious and hold more hope. Many argue staying invested is the best way to ride the economic wave, a common strategy practiced by many experienced investors especially Warren Buffet. I too believe buying quality is what counts however the pain could be extreme and cause a wave of losses we haven’t seen since a long time.

We all know now the pain is looming, it seems tremendous and as we know economic cycles show in time investors who stayed invested were the ultimate winners. I ask the question, “how long will it take until the structural aspects are fixed by governments” whereby we see a stabilisation. And are interest rates the root cause of all our problems? The answer is no, but interest rates will help re-balance the economic imbalances of governments over spending and a quick and sudden attempt to move money back into their coffers. Obviously, all governments created debts way beyond their means and adding liquidity and false hopes of recovery didn’t pan out. Governments were politically motivated as usual and now we all are going to pay the price.

The USA is out for themselves and leadership is at the poorest levels, and markets are declining, while China (the world’s factory) has its own agenda and will become self dependant, and never underestimate their agenda. China is steaming ahead and ask yourself how can we compete with a global force who has over 1 billion homogeneous citizens and a middle class which is developing their own economy.

Most other countries are watching the world super powers fight over territory, energy, and supply chains as we enter new territory.

Look at 2008 and not as a mirror image but as an example of what can happen: a decline in overall economic activity was modest at first, but it steepened sharply in the fall of 2008 as stresses in financial markets reached their climax. From peak to trough, US gross domestic product fell by 4.3 percent, making this the deepest recession since World War II. Lack of investor confidence in bank solvency and declines in credit availability led to plummeting stock and commodity prices in late 2008 and early 2009. The crisis rapidly spread into a global economic shock, resulting in several bank failures.

All economical cycles are man made and usually last a few years at best until stability begins to happen and investors can find their footings, including governmental changes and strategic policies to help revive the economy: We all learn from our mistakes or do we ….

One of the main issues is the cost of most things in the past 5 years have multiplied 2 or more times and the economy absorbed these increases and companies profited. As I see it, it could take 2/3 years for a recovery and in between lots of fallout — and it’s my opinion as rates rise it will attract investors to depart the markets and seek a safer haven until the storm passes — it can be deadly consequences (!!!) and real property can start to have significant readjustments, and real estate under pressure with rising rates— and a loss of appetite for investors and a dip in GDP, housing, etc.

The bottom line is now we are going to face a possible recession 😱😱😱 and Q2 earnings will set the stage as investors hang on in hope – coming this week and the following weeks. Maybe it won’t be so bad but as I see it, the writing is on the wall and perhaps my doom and gloom outlook will be changed by some positive news.

But when I look at the stock charts I see March 2020 levels, I take into consideration where we were then (in a pandemic) and where we are now, I see much lower levels coming —and if companies miss their earnings and talk about growth as limited in 2022 you can run for cover.

Despite this, China is a growing issue, and at the same time, China is sowing the seeds of their own economic future as they focuses on the control over distribution; ports, airports, resources and global manufacturing. They will and do own and control numerous important resources and manufacturing of many important items we rely on. They are still our World Factory as most goods proclaim “Made in China.” It has gone in the past 20 years from being a poor quality producer to becoming a reliable quality manufacturing base for all suppliers around the globe.

How can we compete with China when wages are so low, no employment regulations and a government which has no accountability. Can we in the west expect to compete with these modern dictatorships we see in Russia and China – and no we cannot so we sanction them, isolate them and try to starve them into think our way. Is this possible…..

The divide between the west and the east is now a matter of political perspective and so many things have happened and will continue to happen it scares me to think what is next. Where can we run and hide if Russia decides to throw a missile, even if it is unlikely to happen. It was just an idle threat by Putin to get global leaders away from his borders. And at the same time, China is developing a strategy to become a global leader as the world crumbles. They own lots of US government debt and so with a strong dollar it is time to cash in as they grow their military and ships, not to mention satellites and more importantly AI technology.

Not only, the Chinese are hacking and using this opportunity to steal data and the race is on. This race is probably the single most important race going and watch out as we all rely on data security – and Ai learning is certainly going to change the way we live. Those digerati who once led the world will continue to do so but too pay the price, and the likes of Elon Musk are the examples of American society. People of influence have the wrong ideas and should spend more time with Warren Buffet, a grass roots person.

The word contraction and words like stagflation start to seem real; rising inflation and the economy is potentially contracting. Either way we have interest rates hikes— which will impact real estate, and the way we think and act – and we cannot compare what happened during other economic crisis but we know one thing for sure, investors rarely charge their social behaviour and eventaully run for cover. All this gets written up later on, and Phd’s show us charts and tell us about what happened in the past.

I see basic fundamentals damaged, over spending by governments, rising debt, poor leadership in the free world, greed and aggression coupled with a Covid hang over and more to come. The supply chains are damaged and under repair, and finding staff in many services industry business is now a problem – what does this tell us.

Continued global political tensions and the divide of global energy, once again in my life time a greater focus on more spending for military coupled with a possible Covid resurgence, or Monkey Pod disease. Now add in the onset of a recession coupled with a shrinking economy and so what can be done to make things better – not much given the magnitude of the global strife.

No doubt there are enough examples of people who lost their shirt out of fear selling their portfolios as the market collapse in March 2020. But we now face the consequences of Government stepping in and offering liquidity which supported the market greatly and gave it a significant boost. Now bask yourself the question are they sustainable.

It would help if energy prices stabilised – and that takes some time, inflation subsides as governments put on the brakes —war stops, and supply chains begin to be repaired and demand for services and goods picks up — essentially an economy rebound, and investors sentiment improves – dream on.

As I look back to earlier this year it collapsed like a ton of bricks, and right now I cannot see in the foreseeable future of any notable events from happening in the near term. In 2023 will be focused on recovery mode and of course there will be a narrower field. I hope the supply chain recovers and business goes back to a kind of new normal whereby we have some economic stability. In the meantime it will likely get worse before it gets better. The US employment rate seems stable but if companies start to see rising costs of operations and profitability decreasing business, watch out.

When I look back to March 16, 2020 and I’ll see where we went which was from 9000 on the New York stock exchange to a high of 17’300 and now we land at 14’487. I am not an economist so I cannot evaluate all the data thrown at me but fundamentals speak for themselves. After all stocks bonds and other instruments are traded by humans and yes machines.

Everyone will tell you all the bad news is built into the market people and markets look forward and that’s probably true but given there are so many economic factors at the same time, it makes it even more difficult for a short-term recovery. Just think as people lose money they spend less and start to worry more.

We have never seen something quite like this as investors are trying to stay calm and talk themselves into the idea that things will get better so don’t react. Reacting never looks good overtime because the longer the time horizon the better the performance outcome. But what do you do when you see so many fundamentals sliding down the hill all coinciding at the same time.

Charlie Munger whom I admire (not his eating habits) would tell you it is all about reading and Buffet will tell you buy value and quality and companies which can stand the test of time.

“The history of the world is one of progress, and as a congenital optimist, I believe in equities. Fundamentally, in the long run, you want to be an owner, not a lender. However, you always have to bear in mind that this time truly may be different as Reinhart and Rogoff so eloquently preach. Remember the 1930s, Japan in the late 1990s, and then, of course, as Rogoff said once with a sly smile, there is that period of human history known as ‘The Dark Ages and it lasted three hundred years” Barton Biggs

  • Supply chain issues
  • Energy costs rising
  • Sentiment 
  • Political Tensions
  • Earnings
  • Inflation 
  • Stagnation Economy 
  • Government Debt
  • China Agenda
  • Countries failings
  • Leaders quitting
  • Poor leadership in USA
  • Currency disparities

“At the bottom of a panic, the news doesn’t have to be good for stocks to rally, it just has to be less bad than what has already been discounted. I want the markets to stop going down on bad corporate and macro-economic news. The fact that it still does shows the bad news has not yet been fully discounted. I have no idea when the next bull market starts, but I do think we are setting up for the mother of all bear market rallies”

Quantitatively based solutions and asset-allocation equations invariably fail as they are designed to capture what would have worked in the previous cycle whereas the next one remains unknown. Investing is the challenge of guessing and being right and hindsight is always 20/20.

Understanding Purchase Power Parity (without currency exchange) is notable when you start to look at the cost of the same goods in different parts of the globe. So what does your money buy you at the end of the day. I used to say I will live in Japan because the quality/cost performance is #1 on the planet earth as the US slides. No doubt it is all extraordinary and consider in Tokyo an inexpensive lunch meal is average ¥900 is equivalent to $7 and in New York an inexpensive meal is 25$, in Zürich sfr. 25 and in Milan €18 and so on.

If I take McDonald’s as a simple example; a New York City McDonalds hamburger which weighs less than the hamburger served in Japan is three times the price. That’s without taking any currency exchange because if you would imply the currency exchange you would have a 35% discount which would make it significantly less. The American burger costs 3 x more for the same burger in Japan. Now get this, a hamburger in the USA is 45grams and in Japan the same patty in the hamburger is 104grams.

Many talk about leaning towards the Japanese currency ¥ – stability and inflation at 2.5% in comparison to the US at 9.1%. There are many arguing about the merits of a lower ¥ but it doesn’t help Japan’s exports as much as people think given their global manufacturing is well organised outside of Japan.

What I notice in Japan is the importance of being a socially responsible country, something the rest of the world needs to learn. That means when times get tough Japanese companies respect their consumer communities and reduce costs, not rise costs. These are not subsidies but decisions made to maintain consumer confidence. There is something to learn from Japan, or let’s say many things. One is trust, something we all need to value and practice in order to survive as the compression of growth is imploding from under our feet.

If we are going to all co-exist on planet earth, we need to consider our social responsibility towards one another. The importance of cultural differences and the need to have one common goal, respecting each other and our planet. The time has come whether we like it or not, the worlds economy is more than imperfect, a kind way to describe it.

Hold onto your pants, the instability will calm as the storm passes and the worlds economy shifts and governments attempt to control debt, spending and re-balance the global portfolio. It will be rough seas and we pray China doesn’t see this as an opportunity to attack Taiwan, or North Korea to launch a missile to Japan.

This is one aspect of global turmoil we cannot underestimate and looking forward the bet is China works hard to take more and more control of supply chains – we cannot defeat communism because it doesn’t exist, it is capitalism with window dressings – and those leaders who think very differently than we do in the west.

Westerners tend to value success and self-improvement whereas easterners focus more on group achievements. Westerners also value personal choice and freedom more than easterners. This style of thinking has crucial influences on how one thinks and acts.

I like the example of Japan’s Northern Territory Hokkaido and its history. Fearing Russian invasion, the Japanese government decided to reclaim the country’s northland, recruiting former Samurai to settle Hokkaido. Soon others followed suit, with farms, ports, roads, and railways sprouting up across the island. American agriculturists like Capron:

He was advised the new settlers on the best ways to farm the land, and within 70 years the population blossomed from a few thousand to more than two million. By the new millennium, it numbered nearly six million. Hokkaido’s story is just one of a growing number of case studies exploring how our social environment moulds our minds. From the broad differences between East and West, to subtle variation between US states, it is becoming increasingly clear that history, geography and culture can change how we all think in subtle and surprising ways – right down to our visual perception. Our thinking may have even been shaped by the kinds of crops our ancestors used to farm, and a single river may mark the boundaries between two different cognitive styles. 

Growing rice requires far greater cooperation: it is labour-intensive and requires complex irrigation systems spanning many different farms. Wheat farming, by contrast, takes about a fraction of the work and mostly depends on rainfall rather than irrigation, meaning that farmers don’t need to collaborate with their neighbours and can focus on tending their own crops. 

At the end of the day: we all need some degree of healthcare and certainly food to sustain ourselves and we are a great civilisation of creating, inventing and propagating ideas for the future such as Ai. While we create, we consume, and while we consume we tend to enjoy the fruits of our labor but somehow we all fail each other to see the importance of sustainable systems. We destroy the very nature of what is important – a vicious circle-cycle and it doesn’t help we have misguided value systems, governments thinking unilaterally and alienating people to gain their own interests. 🤪🤪🤪

Categories: Cycles

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