GUERRA Y POLÍTICA INDUSTRIAL (ZOLTAN POZSAR, 24-08-2022 (III) CRISIS DEL "SISTEMA-MUNDO")

#GUERRA Y #POLITICAINDUSTRIAL#ZoltanPozsar https://t.co/CFjdS9WH9M
(2)

in Germany, $2 trillion of value added depends on $20 billion of gas from Russia…
…that’s 100-times leverage (see the last chart here) – more than Lehman’s. https://t.co/wx4bUppejR

— Guillermo Ruiz Zapatero (@ruiz_zapatero) August 31, 2022

GUERRA Y POLÍTICA INDUSTRIAL (ZOLTAN POZSAR (24-08-2022, (II))

GUERRA Y POLÍTICA INDUSTRIAL (ZOLTAN POZSAR (24-08-2022), (I))

 

 But when trust is gone, everything is gone, which is the scary conclusion from Dale Copeland’s book:

Economic Interdependence and War

Reviewing 200 years of history, including the Napoleonic and Crimean wars, the book explains that “when great powers have positive expectations of the future trade environment, they want to remain at peace in order to secure the economic benefits that enhance long-term economic power. When, however, these expectations turn negative, leaders are likely to fear a loss of access to raw materials and markets, giving them an incentive to initiate crises to protect their commercial interests”. This “theory of trade expectations” holds lessons for understanding not only today’s conflict between the U.S. on the one hand, and Russia and China on the other, but also the outlook for inflation. Put simply…

…if there is trust, trade works. If trust is gone, it doesn’t. Today, trust is gone: Chimerica does not work anymore and Eurussia does not work either. Instead, we have a special relationship between Russia and China, the core economies of the BRICS block and the “king” and the “queen” on the Eurasian chessboard – a new “heavenly match”, forged from the divorce of Chimerica and Eurussia…

 

(….)

 

Energy transition was the only big item on the to-do-list before the war and was a formidable economic challenge to begin with. After the war, the list got longer and so the challenge became even more formidable.

I think that the above four themes (re-arm, re-shore, re-stock, and re-wire the electric grid) will be the defining aims of industrial policy over the next five years. How much the G7 will spend on these items is an open question, but given that the global order is at stake, they will likely not be penny pinching. If Tim Geithner were in charge, he’d put “a lot of money in the window” to show who’s in charge.

And hopefully it will be like that…

…and if so, any investor will have to be mindful that the above to-do-list is:

(1) commodity intensive

(2) capital intensive

(3) interest rate insensitive

(4) uninvestable for the East

Commodity intensity means that inflation will be a nagging problem as the West executes on the above list. Re-arming, re-shoring, re-stocking, and re-wiring need a lot of commodities – it’s a demand shock. It’s a demand shock in a macro environment in which the commodities sector is woefully underinvested – a legacy of a decade of ESG policies. Underinvestment means supply constraints, and geopolitics means even more supply constraints: resource nationalism – see Russia’s stance or Mexico’s recent decision to nationalize lithium mines – means that the supply you think is there to meet the surge in demand isn’t there: prices can thus surge. Executing on the to-do-list can easily drive another commodity super cycle, like the one we had after China joined the WTO in 2000. But that super cycle happened in the context of a peaceful, unipolar world order in which great powers had positive expectations of the future trade environment (see the “theory of trade expectations” above). But that’s not the case anymore.

Capital intensity means that governments and also the private sector will have to borrow long-term to execute the to-dos. Re-arming and re-stocking are the domains of the government, and re-shoring and re-wiring the grid will involve public-private partnerships. Private firms will have to issue debt and raise equity to build things: ships, F-35s, factories, commodity warehouses, and wind turbines.

Insensitivity to interest rates means that the to-do-list will have to be executed regardless of whether the Fed hikes rates to 3.5% or 7%. Hell or high water, executing on the to-do-list is imperative. Industrial sovereignty depends on it. On the other hand, private equity is sensitive to interest rates, and industrial policy done right, with overwhelming force, will eventually “crowd out” private equity. Finance is about multi-decade cycles. Private equity rode the “lowflation” cycle and the cycle of globalization that, post-GFC, enabled decades of money printing.

That cycle is over…

…it broke like FX pegs broke in 1997 and like private money broke in 2008.

Finally, uninvestability means that for certain large countries in the global East, it makes absolutely and categorically no logical sense to roll their investments in G7 debt claims. Not just because of what happened to Russia’s FX reserves, but also because rolling a $1 trillion portfolio of U.S. Treasury securities means that you will fund the West’s effort to re-arm, re-shore, re-stock, and re-wire…

…against the East.

And we are back to where we started on the cover page: Dale Copeland’s theory of trade expectations is the right frame to think about world from here, and sadly things make no sense to continue like they used to, be either from a real (trade/production) perspective or a financial (FX reserves) perspective…

…which is why Bretton Woods III is destined to happen. It’s already happening, and we will explore the Bretton Woods III topic in detail in our upcoming dispatch:

War and Currency Statecraft.

 

ZOLTAN POZSAR (WAR AND INDUSTRIAL POLICY, 24-08-2022)

 

https://plus2.credit-suisse.com/shorturlpdf.html?v=5amR-YP34-V&t=-1e4y7st99l5d0a0be21hgr5ht

 

 

WOLFGANG STREECK: EL FINAL DEL IMPERIO ALEMAN Y LA CRISIS DE EUROPA

EL EXCESO DE MUERTES EN ESPAÑA EN EL PERÍODO MAYO-JUNIO 2022 (NÚMERO DE DESVIACIONES ESTÁNDAR, JOSE GEFAELL)

Using the z-scores (number of standard deviations) calculated by EuroMoMo, we can also see how extraordinary the May-July 2022 period is in terms of excess deaths. Note that the July 2022 deviation is almost as high as that of January 2021. https://t.co/7R03wkGe9X pic.twitter.com/a94zjEOVAD

— JOSE GEFAELL (@ChGefaell) August 1, 2022

ESPAÑA ES UN SIGMA 15 EN FALLECIMIENTOS

TAIWAN FUE UN SIGMA 26 EN LA CAÍDA EN LA TASA DE NACIMIENTOS

SIGMAS EN EL  S&P 500

JUNE 24, 2016