Sign of the times
For today's blog commentary we will use a slew of different outtakes from various people to underline our macro stance and also why crypto despite (an overdue?) clean out ia nything but dead. Let's start with Gavekal 3 founders discussing the implications of the new trends and globalization reversal at the Mauldin SIC: "We were extraordinarily privileged to have a panel of Gavekal’s three co-founders: Charles Gave, Louis Gave, and Anatole Kaletsky. All three are brilliant and still active in the business, but they rarely appear together this way. The interaction among them is fun to watch, on top of everything you learn. Another point about Gavekal: They freely and frequently disagree with each other. Unlike many research groups, they don’t have a “company line.” I find this extremely valuable. It’s a bit like the adversary process in a criminal trial. Vigorously arguing different viewpoints is a great way to reveal the facts. What they are uncovering now isn’t great news. Ahead of the Ukraine war, they still held out hope the pre-COVID trends would resume. Those trends were going to bring big changes, but in a slow, manageable way. Now they have a different outlook with a bearish bent. Remember, inflation was already a growing problem by late 2021, long before Russia moved into Ukraine. Anatole called that the result of COVID-driven monetary expansion, and previous policies dating back to 2008. The additional war-driven increases in food and energy prices turned preexisting inflation into a hard-to-control bonfire. Anatole has been an enormous bull since 2009. He turned bearish less than a month ago which was quite a shock to some of us. Charles Gave emphasized how passive management is dying. Decades of generally (though not always) positive market conditions trained generations of money managers in a certain worldview that is now gone. Managers will have to adapt, and some will adapt slowly. You could get by without tactical asset allocation in the non-inflationary times. Not anymore. Another problem is globalization’s reversal. This was already underway, but the pace is increasing. While we usually think of it in terms of physical supply chains, Louis stressed it includes financial flows, too. Trade policies, sanctions, and security concerns are all constraining capital into regional boxes. US money increasingly stays in the US instead of going to China, for instance. There may be good reason for those policies, but they will have side effects. Charles said we are in the beginning stages of a major liquidity crisis. He thinks the panic stage is getting closer." So the above certainly speaks to the secular investment regime change that Russell Napier speaks to. It's not mainstream, no longer a bonfire of the vanities, as there is a growing acceptance that this outcome is becoming more likely - entrenched inflation, financial repression, de-globalisation, etc. Renè Aninao (Corbu founder and macro analyst) mentioned last year, pre Ukraine conflict, that national security would drive markets. Barriers would rise against what had been an age of globalization and relatively free movement. Since he was so right on that prediction, the following slide shows where he sees the world changing over the next 30 years:
David Rosenberg reckons we are already in the third inning of a bear market and should remain defensive from an investment standpoint. "We can certainly hope for a soft landing, writes David Rosenberg, but hope is rarely an effective investment strategy." And so in a world that will constrict and control the movement of capital, repress and direct as governments desire (the pendulum swings more to command economics), where does that leave us. Beyond seeking active management of our own funds, rather than the dumbed-down (and highly controllable) world of passive management (ETFs etc), what should we do? Seek shelter and potential. As Baille Gifford recently retired uber successful PM James Anderson, aka the god of growth, put it "innovation is still the key to returns". And so we come to crypto, and despite the joyous dancing on its grave by many a naysayer given its recent comeuppance still represents an innovative hub, a source of growth with an almost unimaginable wide scope:
While the endless war of words between BTC zealots and naysayers dominates the crypto conversation and the furor over stablecoins (though truly warranted) it is missing not only the point but what is occurring - the gamechanger. As we have outlined, the tool offering the necessary interoperability is NFTs (as Meta/Instagram move to embrace that field highlights), and why is that important. As ever we turn to Prof Scott Galloway to explain (again): "One of the keys to NFTs will be portability across mediums. A Twitter blue check can’t exist on Instagram, but the NFT equivalent of a Twitter blue check can — and deliver credible authenticity, thanks to that NFT deed. This is the metaverse vision of interoperability that could help make digital belongings feel similar to physical belongings. ******* NFTs offer the promise of scarcity and authenticity for digital goods. NFTs aren’t the only way to create scarcity and authenticity online — trusted, centralized entities such as banks (and platforms such as Twitter and Apple) do it within their verticals, and blockchain tech is evolving to address myriad environmental and security concerns. So the current implementation of NFTs may not be the best way, or even a good way (many reasons to be skeptical). But they’re … a way. A potentially widespread, inexpensive way to offer credible scarcity and authenticity online, opening up new vistas of digital commerce. Prospectors are rushing in. ******** Amidst the scams and bubbles, credible scarcity and authenticity will unlock real value in digital markets." To that point, Andreessen Horowitz and Paradigm, two of the largest cryptocurrency venture fund managers, have begun investing directly in NFTs. There is more of that coming as the NFT market expands its horizons and its interoperability expands. So what can you do, how do you protect against this and growing restrictions on your money/business and savings? Such situations lend themselves to arbitrage, dancing around restrictions and portable assets. Working outside the system - collectibles have been, historically (and successfully) a way to do that and the cryptoverse offers that opportunity too. So the protection you seek, that store of value, that noncorrelating hedge --- is encapsulated in digital fashion on a network outside of real-world restrictions, it is our (effectively asset-backed) collectible F-NFTs. All aboard the freedom express!
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