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A Few Things: Energy Policy, What's Next For Markets, Diamandis & Robbins on Longevity, Dalio on Changing World Order, Broken Markets, Cyber Warfare
March 12, 2022
I am sharing this weekly email with you because I count you in the group of people I learn from and enjoy being around.
“The heresy of one age becomes the orthodoxy of the next.”
- Helen Keller
“The first principle is that you must not fool yourself—and you are the easiest person to fool.”
- Richard Feynman
“Facts do not cease to exist because they are ignored.”
- Aldous Huxley
A. A Few Things Worth Checking Out:
1. If we really are going to get US Energy Policy right, this piece by Doomberg is a good place to start.
2. How did Germany become so reliant on Russian Gas? Matt Klein was on the Bloomberg Odd Lots discussing Ostpolitik (I didn’t know this term till this week) and how Germany wound up so dependent on Russian Gas.
Bottom line: misplaced priorities led to years of underinvestment.
3. Peter Zeihan is one of my favourite strategists (apart from Marko Papic). He was on Real Vision giving his updated thoughts on world events last Friday. He’s got a great overarching thesis here.
Bottom line: Putin keeps going, NATO splinters, food crisis imminent, decline of Russian Oil production.
His new book is out too.
4. James Aitken is the Founder of Aitken Advisors, a one-man macroeconomic consultancy based in Wimbledon, England that works with approximately one hundred of the most influential pools of capital in the world.
He was on the Capital Allocators show to discuss the shift in risk tolerance, friction in the plumbing of the financial system, interaction of energy markets and ESG, inflation and interest rates, reserve currencies and crypto.
Botton line: Inflation will be with us for a long time, plan accordingly.
5. Tony Robbins, Peter Diamandis and Robert Hariri, have written a new book titled: Life Force: How New Breakthroughs in Precision Medicine Can Transform the Quality of Your Life & Those You Love.
My regimen: 8 hours sleep, less sugar & meat, more fruit and vegetables, daily movement and strength training. Take supplements such as Turmeric, Omega-3, Vitamin D, Magnesium and Metformin occasionally.
6. Ray Dalio has a new book: Principles for Dealing with the Changing World Order.
He believes the world is changing in big ways that haven’t happened before in our lifetimes but have many times in history.
In the first 18 minutes, you’ll get the gist of what drives the “Big Cycle” of rise and decline of nations through time and where we now are in that cycle. The rest of it shows you how the big cycle worked across the last 500 years of history—and what the current world leading power, the United States, needs to do to remain strong.
Thank you Arif for sharing.
B. What’s Happening In Markets?
Markets seem strained and unhealthy right now.
Exhibit A: Nickel just went absolutely wacky this week. 250% increase in prices! And Russia produces about 16% of all nickel, so it’s not that.
What happened was a short squeeze. A lot of traders are short nickel to hedge against their physical positions - and one Chinese tycoon named Xiang Guangda was ridiculously short.
As the price of nickel rose on Russia uncertainty, and then it rose more as people covered their shorts, more and more collateral to pay margin calls, boom, the price of nickel exploded upwards.
Guangda had BILLIONS in losses, but the London Metal Exchange shut down trading and then parties on both sides of Nickel had their trades cancelled.
Which seems highly questionable.
As the WSJ wrote:
This is… a trend that is undermining free markets and creating all the wrong incentives: A growing reluctance by the authorities to let financial groups go bust, even when they aren’t too big to fail… the danger to free markets is that governments, regulators and, in the case of nickel, the exchange itself are setting the bar for bail-outs lower in every crisis.
And Guangda is going back for more.
To me, all this circles back into the “weaponisation of the dollar and the current financial system” question - what does it mean when an exchange actually steps in and cancels… those trades?
If you just delete the dollars from Russia’s reserves, what does that mean for the credibility of the dollar?
If you just delete trades, what does that mean for the credibility of LME?
Zooming out, what we have done is removed a G-8 country from the financial system and global trade.
What are the repercussions of this?
What is clear is that we are still very reliant on carbon as an energy source. This won’t change anytime soon. At the same time, we are removing one of the biggest global producer of a whole range of commodities from the system.
What comes next?
This chart in a recent Gavekal piece highlighted that since we are reliant on energy everything we do in the modern economy, whom ever has the cheapest source of energy wins.
Who will have the cheapest source of energy in the next decade?
C. This Is How They Tell Me It Ends
Twenty two years ago I graduated with a computer science degree and have been a techie since. Technology has come a long way. It permeates everything we do and our lives are increasingly online and digital.
This comes with a huge risk.
Let me give you a thought experiment. Imagine that the lights went out tomorrow. Anything powered by electricity or connected to the internet stopped working.
This is not an impossibility. Whether in Texas in 2021 or in New York in 2003, this can occur easily.
What would happen if this occurred? How would your life, your family, your finances be impacted? What would you do?
Now imagine that the lights didn’t come back for a few days, even the New York blackout lasted four days.
Now imagine that this occurred because of a cyber attack where we were targeted by another country, rather than just an accident.
What would cyber war with Russia actually look like? The Bloomberg Odd Lots team spoke with Matt Suiche, a famous hacker and co-founder of Comae Technologies, about what a cyber war between Russia and the West may actually look like.
I went back to Nicole Perlroth’s 2021 book: This Is How They Tell Me The World Ends, it’s a history of the cyber weapons arms and the status of the cyber war (mostly silently and daily).
Nicole covers cybersecurity and digital espionage for The New York Times. She has covered Russian hacks of nuclear plants, airports, and elections, North Korea's cyberattacks against movie studios, banks and hospitals, Iranian attacks on oil companies, banks and the Trump campaign and hundreds of Chinese cyberattacks, including a months-long hack of The Times.
The core ideas worth knowing from Nicole’s book on cyber warfare:
Software code has flaws and glitches, after all it’s written by groups of humans. The most dangerous of these digital flaws are the unknown ones, or “zero days”, meaning that a) the clock has not even started ticking on measures to deal with them and b) the flaws are so serious that if the software provider knew of the glitch, they would have zero days to patch it. Zero day — pronounced “oh day”
The US government initially and now many others, have been accumulating these zero days to break into “our enemies” computers. By outbidding everyone else, they have stoked a huge criminal market in computer insecurity and made us all less safe. The bidding war creates inflation, where a previously unknown flaw in an iPhone or commonly used browser such as Safari can go for hundreds of thousands of dollars.
But the sellers’ market that government cash creates is only the beginning of the problem. Because the flaws are not fixed, they risk being exploited by anyone. The spies have tried to rely on “NOBUS”, short for “nobody but us” meaning that only government spy agencies such as America’s National Security Agency (NSA) or Britain’s GCHQ could access the most complex zero-day exploits.
The risks, conflicts of interest and moral hazard endemic in this approach were never discussed publicly. It now seems like NSA’s trove of hacking tools - one of the most closely guarded secrets in American intelligence - was stolen or leaked in the summer of 2016. A group called the Shadow Brokers repeatedly taunted the NSA on Twitter before releasing the details.
While all this cyber warfare is going on behind the scenes, as a society we have been plugging in more and more devices and data into the internet.
If you’d like to dive deeper into the world of cyber weapons, I highly recommend Nicole’s (500 page) book, for those shorter on time, check her out on the Hidden Forces podcast. She also wrote this great NYT article: How the US Lost to Hackers.
Use 2-factor authentication
Use much stronger passwords
Connect fewer devices to the internet - unplug Alexa, Siri….
Update software and install patches asap
Great 30-min interview with her:
Poet May Sarton on the importance of rest:
"I always forget how important the empty days are, how important it may be sometimes not to expect to produce anything, even a few lines in a journal. A day when one has not pushed oneself to the limit seems a damaged, damaging day, a sinful day. Not so! The most valuable thing one can do for the psyche, occasionally, is to let it rest, wander, live in the changing light of a room."
Have a great weekend.