Leading A Double Life

, Herman's, South Africa

I just spent an exhausting time hiking up and down the beaches and cliffs of the costal town called Hermanus, 90 minutes outside of Cape Town and famous for whale spotting and shark diving. I think it was originally established on fishing and as place of recuperation and healing.  In reading about many British aristocrats it wasn’t uncommon for people to travel to heal themselves under the African sun. It was said that Cecil Rhodes, the influential pioneer who established Rhodesia and had a huge impact on South Africa, went to South Africa for recuperation.  However, I am currently reading a biography of his now and it would seem that he was more interested in diamonds and power.

I love going to bookstores, especially second hand bookstores in little towns around the world. You never know what gems you might encounter. Today I managed to buy the first book “Anastasia” in a Russian book series that was recommended to me several years ago [Thanks Joan Holman]. I also picked up a book about the Zulu sanyasan (wise or medicine man) Credo Mutwa. If you look at the books I am carrying around with me in South Africa you might think I had multiple personalities all in need of feeding from time to time: I have several books about the future of technology, an organizational development  books by Otto Sharma, the Tao Te Ching by Lao Tzu, an autobiography of Cecil Rhodes and now these new additions. In fact, in my writing here I want to discuss all of them. I feel that I want to just write about my experiences of life and forget the genre and segmentation. But my education and training suggest I should have a website for ‘serious’ matters like economics, finance and geopolitics and then a totally separate forum for my musings on ancient Chinese philosophy or on what an African medicine man had to say about aliens. But this might be me just wanting to fit in…

Leading A Double Life

For some years of my I felt that I was leading a double life. I had a dark secret I needed to keep in the shadows. I hated myself and the life I was leading so  every so often I would drink myself to black out. I stopped a number of times for periods of months or years. But the blessing was that if forced me to go very deep. This all came to a crescendo recently where I wrote I went to a rehab in Africa. Now I feel totally free , partly because of what happened and partly because I decided to tell all.

In fact, it seems that I am not the only one with double lives. I think many of us have double or triple lives. How many of us have different masks for different occasions? There’s the family mask, the professional mask, the soccer team mask and perhaps the Church or spiritual mask. IT gets rather tiring, if not totally repressive.

I am going to run an experiment. I am going to see what happens when I just totally write freely about everything – from the ups and downs of stock markets, the future of bitcoin, where to live during extreme climate change, Zulu medicine men and aliens. I want to write things that are interesting and also helpful to peoples’ lives. And the reality is that everything is linked. These silos and disciplines we create might be useful at university for creating specialisations but in the real world you cannot separate the chemistry of a plant with its biology. And if you ask me about the history of South Africa you have to understand the Zulu medicine man, the unique biodiversity that attracted Charles Darwin so much he made his longest stop here on the Beagle, the diamond trade, as well as Cecil Rhodes and his secret societies.

So there you have it. You’ll have to excuse my pontifications about all manner of subjects. But if you persevere they might shed light on various decisions you might have to make. An investor might find them useful as I will certainly reveal what assets are appealing in quite a contrarian manner. But the head of a household might also find them useful in making life decisions such as where to live.

Davos World Economic Forum

 Davos was struck by record-breaking snow at the onset of the Forum and in recent weeks we have seen extreme cold across the Northern Hemisphere, including snow in the Sahara desert. I have been discussing the possibility of a mini ice age throughout 2017 and I think we might be nearer.

 This week I mentioned the possibility that stock markets have a last blow out top which is common at the end of bubbles. That doesn’t mean I think everything is ok. William White, who was the smart ex Chief Ecomomist at the BIS, made some pretty punchy comments this week

“All the market indicators right now look very similar to what we saw before the Lehman crisis, but the lesson has somehow been forgotten”

Journalist Ambose Pritchard Evans followed up White’s comments:

“Professor White said disturbing evidence of credit degradation is emerging almost daily. The latest is the disclosure that distressed UK construction group Carillion quietly raised £112 million ($195 million) through German Schuldschein bonds. South African retailer Steinhoff also tapped this obscure market, borrowing €730 million ($1.11 billion).

……Professor White said there was an intoxicating optimism at the top of every unstable boom when people convince themselves that risk is fading, but that is when the worst mistakes are made. Stress indicators were equally depressed in 2007 just before the storm broke.

This time central banks are holding a particularly ferocious tiger by the tail. Global debt ratios have surged by a further 51 percentage points of GDP since the Lehman crisis, reaching a record 327 per cent (IIF data).”

One major risk is interest rates:

“At best, the implication is that yields on 10-year Treasuries – the world’s benchmark price of money – will spike enough to send tremors through credit markets.

The edifice of inflated equity and asset markets is built on the premise that interest rates will remain pinned to the floor. The latest stability report by the US Treasury’s Office of Financial Research warned that a 100 basis point rate rise would slash $US1.2 trillion of value from the Barclays US Aggregate Bond Index, with further losses once junk bonds, fixed-rate mortgages, and derivatives are included.”

Then he goes on to discuss the global supply shock which has helped  keep inflation at bay, and thereby contributed to a benign bond market:

“The great disinflation of the last three decades was essentially a global “supply shock”. The opening-up of China and the fall of the Berlin Wall added 800m workers to the traded economy, depressing wages and unleashing a tsunami of cheap goods. The “Amazon effect” of digital technology capped price rises. The demographics of the baby boom era played its part by boosting the global savings glut.

But there was another feature that is often neglected. Central banks intervened “asymmetrically” with each cycle, letting booms run but stepping in with stimulus to cushion busts. The BIS says one result was to keep insolvent “zombie” companies alive and block the creative destruction that leads to rising productivity.

“Everything could now go into reverse: the baby boomers are gone; China’s working age population is falling; and zombie companies are going to be forced out of business at last as borrowing costs rise,” said Prof White.”

As I said, things could get even more euphoric as more cash gets sucked into markets but we have to be vigilant and look at the bigger picture. We always thought that the most challenging period would be 2018 to about 2020 or so.  If this is indeed the case, one would have to expect economic and financial stress. When the short term indicators are in place I will be sure to highlight, although its not always easy to spot the turning points with precision.

Of course short term things seem a little extended as the US markets have barely had any corrections recently:

Trump and American First

I am quite excited about what havoc Trump might wreak at Davos. But I guess we already know the underlying message. Nonetheless the way in which he delivers it will be interesting if not insightful. Just before he left the US he spoke to a group of City Mayors about his plans for a trillion dollar infrastructure project.

But Mnuchin, the Treasury Secretary, has caused some uproar by not following the strong dollar tradition.

Ray Dalio, the astute hedge fund manager I mentioned earlier in the week, doesn’t think shifting to a weak dollar poicy will be a good thing. On linkedin he writes:

“Regarding Treasury Secretary Mnuchin’s comments about the administration’s weak dollar policy, I want to make sure that you understand what having currency weakness means – most importantly, it is a hidden tax on people who are holding dollar-denominated assets and a benefit to those who have dollar-denominated liabilities.

More precisely, a weak currency:

  1. Reduces the currency holder’s buying power in the rest of the world (e.g. dollar weakness reduces Americans’ buying power relative to foreigners’ buying power)
  2. Devalues the debt denominated in the weakening currency, which hurts the foreign holder of that debt
  3. Supports prices of assets denominated in that currency (because of the currency weakness), giving the illusion of increasing wealth
  4. Raises a country’s inflation rate
  5. Stimulates domestic activity

None of this is what the U.S. economy needs now.

While it’s described as a desirable and intended thing, it might not be a choice.

The size of dollar holdings of reserves (in dollar-denominated debt) and the dollar’s role as the dominant world currency are anachronisms and large relative to what one would want to hold to be balanced, so rebalancings should be expected over time, especially when U.S. dollar bonds look unattractive and trade tensions with dollar creditors intensify.

This Week

The rest of the week I will be hanging out in Hermanus but I have a couple of visitors including a former head of research of one of the investment banks. And on Sunday I plan to spend some time with Dean Liprini who has been researching the ancient and sacred sites of South Africa.  There is so much we are learning about ancient South Africa now. I also hope to go through some of the material coming out of Davos to see if there are any gems. I could try and speak with people on the ground but I guess they are all gong to be busy in meetings and/or partying at the Belvedere Hotel so that will have to wait until afterwards.





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