A Few Things: What Is China Thinking?, How High Could Oil Go?, Bretton Woods 3.0, Geopolitical Alpha, The Science of Aging
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A Few Things: What Is China Thinking?, How High Could Oil Go?, Bretton Woods 3.0, Geopolitical Alpha, The Science of Aging
March 18, 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.
Today’s email is a day early, but happily I’m on a train to Venice, so thought I’d use the time productively.
Have a great weekend.
A. A Few Things Worth Checking Out:
1. How is China thinking about Ukraine & Russia. This translated piece from a China insider is great. Thank you Mark E for sharing.
2. Oil broke through $100 / barrel. Some think it could get to $200. Here is well known trader Pierre Andurand on the Bloomberg Odd Lots podcast discussing on How We Might Get To $200.
3. Marko Papic was on Invest Like the Best Podcast discussing what to expect in geopolitics and markets in a multi-polar world. Lots of big ideas here from my favourite strategist.
4. Luke Gromen runs the macroeconomic research firm FFTT. He was on the Grant Williams show discussing how and why we might transition from Bretton Woods 2.0 and the petrodollar system to Bretton Woods 3.0 given the weaponisation of the current financial system. Lots of great history here and more importantly how to make money in this market.
B. Geopolitical Alpha
Given all that is happening in the world, I thought it was time to re-read Marko Papic’s book Geopolitical Alpha. Marko is currently the Chief Strategist at Clocktower Group, and was previously at BCA Research and Stratfor.
The reason Marko wrote this book is because he believes that “we aren’t in Kansas anymore”. The world is undergoing paradigm shifts on multiple fronts: political, geopolitical, generational, and technological.
For centuries, success in business and investing required the skills of both long division and sensitivity to political and geopolitical change, but recently for the last quarter century, elections made little difference to the price of assets or company earnings.
Since the mid-80’s, the twin tailwinds of laissez-faire economics and American geopolitical hegemony created the ultimate Goldilocks scenario for investors.
But hegemony sows the seeds of it’s own decline, and after the Great Recession and COVID-19, a messy & multi-polar world has replaced American hegemony.
To quote Marko’s book:
Multi-polarity is a concept from political science that describes a world in which no single entity (unipolarity) - and no two entities (bipolarity) - possess a preponderance of power with which to impose order in an otherwise anarchic system. Instead multiple countries pursue their national interests independently, an arrangement that forecasters know - from history and political science theory- produces high geopolitical volatility.
Without a single hegemonies to enforce rules of behaviour, globalisation reached its apex in the past decade. This sequence of events did not require the election of a populist to divine. Deglobalization is structural and thus difficult to reverse. For globalisation to persist, one or more states need to bear the high cost of global public goofs, such as defence of trade routes, global economic policy coordination, the role of a consumer of last resort, and the continued dense of rules of behaviour, such as state sovereignty and noninterference.
Finally, the Great Recession of 2008 and rising income inequality in the developed world undermined the laissez-faire economic system. While globalisation lifted billions out off poverty across the world, it also expanded the global supply of labour, weighing on wages for the middle class across the developed world.
The chart below from Christopher Lakner and Branko Milanovic, paper: Global Income Distribution: From the Fall of the Berlin Wall to the Great Recession”
In my opinion, this is why Chinese don’t want democracy and why the West wants socialism or populism. The developed middle class has been left behind by democracy and globalisation and COVID only accelerated this.
Once you see the potential catalysts for geopolitical change ahead of us. You realise that the financial industry of today is likely ill prepared for the geopolitical paradigm shifts ahead for three reasons:
Focus on quantitative data - if it ain’t in excel it doesn’t matter
Self-selection - finance is now full of engineers and optimisers of mathematical rules. But what if the rules aren’t fixed and liable to change.
Ideology - current investment professionals are all Economist & FT readers believing in laissez-faire economics and associated disdain for government and politics.
There is huge potential for geopolitical change ahead and the current system is likely not well prepared, this creates the opportunity for alpha generation.
Marko’s framework for understanding Geopolitical change can be summarised into this sentence:
Preferences are optional and subject to constraints, where as constraints are neither optional nor subject to preferences.
This is the Constraint Framework and rests on Three Pillars.
A. Understand what the real constraints of the actors & parties. Not on what some ex-politician is telling you is being discussed.
B. Focus on data that is concrete and iterative, rather than ephemeral data. Always hard and especially in the fog of war.
C. When context and situation collide with personal preference, the context and the situation drive human behaviour not personal preference.
Diving deeper, one of the most important constraints Marko identities is Politics, with a focus on the Median Voter Theorem (MVT).
Developed in the 1950s, MVT is one of the few codified theories of political science. It posits that to win an election or stay in power, parties and politicians approximate the policy choices of the median voter.
The theory posits that, to win and maintain power, policy makers should follow a three step process:
1. Identify the central issue of the day
2. Ascertain the median voters position on that issue
3. Asymptotically approach the median voter’s position, outflanking opponents in the process.
What are the central issues of the day and what is the median voters position on them?
Marko summarises this concept with: The media voter is the price maker in the political marketplace. Politicians are price takers.
There are four other constraints that Marko would have us focus on (I’m generalising chapters into sentences):
Economic - countries and economies are more intertwined and inter-connected than most people understand. Politicians will need to account for this in their decisions.
Geography - you can have a foreign policy preference, but much of what is possible is dependent on your geographic constraints .
Constitutional and Legal - do not matter as much as you think. Where there is political will there is a way. Think TARP, ESF, CARES act as examples of things that were impossible until they were done.
Time - Is the constraint that can break or disable the other constraints. If median voters believe that COVID-19 will kill them and their children, that belief is a material constraint. Policymakers have to respond to such a fear with measures that may cause an economic depression. The mass hysteria of voters is an imminent constraint, but an economic depression is further afield, further down the risk curve. As such, even a rational policy maker, grounded in material reality, can be forced to pursue polices that may have disastrous long-term implications.
Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
C. The Science of Aging:
I recently re-read David Sinclair’s book Lifespan.
Aging is something I have been geeking out on for a while and David’s book is one of the best. Another good one is Juvenescence by Jim Mellon and a more practical one is How Not To Die by Dr. Michael Greger.
One amazing statistic on longevity by the way: our bodies are in a state of continuous regeneration. On an annual basis, 95-98% of our bodies are completely new.
And one of the great charts:
What it shows is that:
It turns out that the United States spends hundreds of billions of dollars each year fighting cardiovascular disease. But if we could stop all cardiovascular disease - every single case, all at once - we wouldn’t add many years to the average lifespan; the gain would be just 1.5 years. The same is true for cancer; stopping all forms of that scourge would give us just 2.1 more years of life on average, because all other causes of death still increase exponentially. We’re still aging, after all.
Aging in it’s final stages is like a fast sprint over an ever-higher and ever-closer set of hurdles. One of the hurdles will eventually send you for a tumble. Take away one hurdle, and the path forward is really no less precarious. That’s why the current solutions, which are focused on curing individual diseases, are both very expensive and very ineffective when it comes to making big advance in prolonging our healthspans. What we need are medicines that knock down all the hurdles.
David’s thesis combines the latest in genetics and epigenetic work with Claude Shannon’s original Information Theory (that the internet is built on top of) to arrive at the Information Theory of Aging.
To simplify something complex into a few sentences, here’s how it goes: We all start with our cells having ‘perfect’ information. Over time, you can think of the data in your cells being like a CD that has gotten scratched or covered in dust (a process called methylation).
At this point the information or instructions that was meant to be conveyed to your cells is corrupted, which leads to small mistakes, noise, differences between what the CD had on it versus then data being read. This leads to entropy and incorrect expression of genetic data.
But, we are now finding processes by which we can go clean up that CD, to wipe away the dust and return it back to it’s original state. So the instructions look like when you were younger.
They have already been able to reverse ageing and restore blindness in mice.
Key terms to know:
Horvath clock - your body’s epigenetic clock
Yamanaka factors - ability to take our cells to their original pluripotent stem cell state.
Great 18-min talk:
One of the best resources I found was a podcast with Peter Attia and David Sinclair - it’s a bit heavy on the science.
In terms of just simple stuff to do if you’d like to live longer, if you don’t want to take supplements like Resveratrol, Rapamycin, NAD+ boosters or Metformin (I have tried the last two), and are already eating well and sleeping well (and not smoking or drinking much), then you can try intermittent fasting and some amount of caloric restriction.
Here are the big ones to extend / maximise your life:
No. 1: SLEEP: Sleep is when the brain turns on a ‘washing machine’ type mechanism, where the fluid that bathes the brain is washed away and replaced. Sleep is also when short-term memory (things you learned that day) are converted into long-term crystallized memory. Poor sleep is one of the major risk factors for ALL age-related diseases, particularly Alzheimer’s and dementia!
Make sure you get eight hours ideally. If you have trouble sleeping, highly recommend you read Matthew Walker’s Book: Why We Sleep or check out podcast notes here.
No. 2: DIET: Sugar is the worst. Ideally NO sugar at all. Ideally NO “cheap” carbs like pasta, rice, bread. There is low micronutrient value to these ‘filler’ foods. Most people require some carbs, so focus on low-glycemic index carbs such as lentils/beans (well cooked, if you are not sensitive to plant lectins), tubers, vegetables, and oats. Minimise very sugary, high glycemic index fruits such as bananas or melons. If you must eat something sweet, eat it at the end of your meal, after a salad. The rate of absorption will be slower.
Best diet: High unsaturated fats, low glycemic index carbs, less than 20% calories from protein.
Definitely try intermittent fasting or calorie restriction of some kind.
No. 3: EXERCISE: Good mix of high intensity interval training (HIIT), weight training and stretching is best. Make time for 60-90 mins of physical activity daily - even a brisk walk helps.
No. 4: STATE OF MIND: Preserve and maintain a positive mindset, practice yoga, mindfulness, meditation. Have purpose and love in your life.
No. 5: SUPPLEMENTS: A handful key supplements do help, but focus on No. 1-4 before you take any supplements. I take Metformin, NR, Magnesium Citrate, Vitamin B12 and D. Note: Please consult your healthcare professional, I’m not a doctor and don’t intend to play one on the internet.
This quote by writer Doris Lessing summarises well how I approach reading:
"There is only one way to read, which is to browse in libraries and bookshops, picking up books that attract you, reading only those, dropping them when they bore you, skipping the parts that drag – and never, never reading anything because you feel you ought, or because it is part of a trend or a movement. Remember that the book which bores you when you are twenty or thirty will open doors for you when you are forty or fifty-and vise versa. Don’t read a book out of its right time for you."