Winter Is Coming II

, London

Last week in a piece focused on investment but inspired by Game of Thrones, we suggested that “Winter Is Coming.” It might not be here but now is the time to act in order not to be caught out. [And very short term we would expect some turbulence as well.]

From a broad perspective, the system has already started to break down for those that are looking clearly. 2 major milestones last year were the Brexit vote in the UK and the voting in of Donald Trump in the US Presidential election. This is why we called our opening piece of the year  “The Die is Cast.” ( We have already already passed the Rubicon.

Last week’s vote by Congress for further sanctions against Russia might well have marked another milestone, a manifestation that the system is panicking. We are seeing an almost unprecedented attack on a new President – from both the GOP, the Democrats, bureaucrats inside the system, the intelligence agencies and the heads of state of many other Western nations.

Rather than get caught up too much in the personalities, I am looking at the bigger trends. I think Isaac Asimov in his Foundation series is correct about the world. The key figures are merely manifestations of bigger forces at work. What he calls psychohistory is what I call futurism.

The media are suggesting that its merely the US and UK thats having problems. The US is being led by a dysfunctional President and the UK went backwards in to xenophobia with Brexit. So other nations will pick up the mantle of globalism and the liberal consensus. But I think the narrative is wrong. Passing the baton from the US to China would merely perpetuate the old system. And besides, although the Chinese are doing many good things I don’t think they are ready yet anyway. What’s really happening is that the Empire is breaking down. Its capitals were Washington DC and London so of course  stress manifested there. But  all nations are connected to this dying system. The new world that is emerging is a decentralised one and its embodied by blockchain, localised 3D printing, new forms of governance at the local level and self organising systems.

You can see it in the behaviour of financial assets as well. The new currencies will be the crypto currencies, and they are soaring again after the technical issues have been resolved (the Bitcoin fork) earlier this month. A new crypto system is being built alongside the existing financial system which is decentralised and outside the remit of the central banks.


And I am fairly sure that gold and silver, which are trading near to mining costs (so I am told) have much further upside. The serious rally in the metals might wait until the end of the year and in to 2018. I think silver is very exciting given its industrial properties in addition to its function as a store of value – I expect it to be a key part of the new energy revolution. More on that another day.

I continue to be asked “when will the crash start?” In a way, it has already started. If you are looking at the traditional places you might not see it. If you look at how people are changing their lives and decision-making you can already see it.

I see the more difficult period – the “Winter” – as commencing next year,  possibly earlier. There will be geopolitical and social events and also a deflationary crash in stock markets in all likelihood.

Nearer term I expect a sharp pull back. It might happen at the next bout of gridlock and fighting around the debt ceiling in Washington DC.   But it might be difficult to make it that far.  I suspect its earlier.

Then markets might surge higher as the likelihood of a tax deal gets done and somehow there is some agreement on cutting corporate taxes along with legislation to repatriate the overseas corporate cash reserves.  Currently investors are very skeptical that anything like this can be done. But as Steve Forbes recently said, nothing focuses the mind so much as the prospect of a public hanging! And I think that whilst Congress and the establishment will continue to fight with Trump, the GOP might at least agree on tax cuts so they don’t get kicked out in the next elections.

Anther tail wind could be that if the Fed does indeed tighten a little more we will see some yield curve steepening as they are not so active buyers in the markets, and this might be misinterpreted by less knowledgeable players that all is well with the economy. As we wrote last week, the short term cyclical data has been good around the world although the immense structural problems remain.


Shorter term, I would buy put options on the S&P500. Just to reiterate:  this is because I am bullish on volatility but not necessarily bearish on markets at this stage. There is too much short term euphoria and some of the charts are showing signs that a pullback is inevitable.





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