Question Marks, New World Order, Beware The Bear Market Rally....

March 31, 2020

“In all affairs it's a healthy thing now and then to hang a question mark on the things you have long taken for granted.”

- Bertrand Russell

​“In order to seek truth, it is necessary once in the course of our life, to doubt, as far as possible, of all things.”

- René Descartes

A. The Question Marks

I’m an optimist who usually only sees good scenarios, but I’ve tried to deeply think about the quotes above and try to put a question mark on all things and to doubt all things.

Some things I worry about when it comes to the Coronavirus:

  1. The Second Wave - will we lose focus too early, will there be a rush to go back to work, leading to a bigger, worse 2nd wave ? (Source Alan Brazil, SOM). We are already talking about being back to normal in May ? It took China almost six months with much harsher quarantines…..

  1. Are we too hopeful for a vaccine, that will take much longer to reach everyone ?

  2. Are our societies still too connected ? You can still fly across the US, you can still drive across Europe.

  3. How soon before it spreads in the penal system and to those much more exposed and vulnerable ?

  4. Does the lack of preparedness by global leaders and governments lead to revolutions ?

  5. Are our political systems too leveraged to exactly the sorts of people that are most exposed / vulnerable to this ?

Am I asking the wrong questions ?

Am I worried about the wrong things ?

A book I’ve found helpful to think about some of these issues is Max Brooks’ World War Z (book much better and very different than the movie).

B. What Could The New Global Order Look Like:

Just finished Dis-United Nations by Peter Zeihan. Highly recommend it.

It’s important to start thinking about what sort of lasting implications the coronavirus shock is going to have on the broader geopolitical environment, since it could be the catalyst for risks that had been there.

Highly recommend you check out the recent presentation he made:

The book makes three big points:

1. The global “Order” created after WWII by the US, is unravelling and has been since the end of the Cold War. Every president since Clinton have really not cared about the global order nor have they had a real foreign policy. The US created “Order” consisted of a powerful (omnipotent) US Navy, US Dollar, US backed international entities (UN, WHO, IMF, NATO…..). The US cares less and less about protecting the “Order”.

2. The “Order” meant that a country’s geography, size, demography didn’t matter anymore. The US leveled the playing field. There are three big things required to be a “successful” country: Geography (crunchy on the outside, soft in the middle), Demographics, Natural Resources.

3. What comes next is - US policies continue to be more insular, countries that had benefited from US protecting sea lanes (think China or Germany), or reducing volatility (think Middle East) have real problems since US cares less and less about being involved globally. US military capabilities keep moving towards special forces and digital. US foreign policy looks more and mercantilist, led by it’s global businesses. Close allies will include: UK, Mexico, Germany.

C. Beware The Bear Market Rally:

Between September and December 2008, the S&P 500 experienced six distinct 1-6 trading day bounces of 9% or more, with some rallies as large as 19%. However, the actual market bottom did not occur until March 2009.

D. A Few Things Worth Checking Out:

1. Probably the single best article I have read on Coronavirus and what we need to do - The Hammer and the Dance.

2. New Yorker on “How Does the Coronavirus Behave Inside a Patient?”

3. Great Atlantic Monthly article on “How Will the Coronavirus End?” - making the case that the U.S. may end up with the worst COVID-19 outbreak in the industrialized world.

4. James Montier at GMO shared a memo to the Investment Committee - Fear and the Psychology of Bear Markets.

5. Good slide deck from Paolo Surico and Andres Galeotti at London Business School on the macroeconomic impacts of Covid-19.

6. New Ray Dalio blog on The Changing World Order.

7. Hidden Forces had a great discussion with Ben Hubbard, of the New York Times on the Saudi Oil Price War.

8. According to Wired - Malware hidden inside of DNA can now hijack computers that analyze gene sequences. Researchers at the University of Washington showed that you can now encode malicious software into physical strands of DNA. Then, when a gene sequencer analyzes it, the gene-sequencing software corrupts the computer and takes control of the underlying computer.

9. I’m told one of the best trades on the back of the global Oil glut is Tankers. Super contango means storage is being bid up. This article does a good job and you can watch the video here.

Quotes I’ve been thinking about:

An old Jewish joke sums up our times.

It’s the contents of a telegram one Jew sends to another:

“Start worrying. Details to follow.”

I leave you with a story relayed by Abraham Lincoln:

It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, which should be true and appropriate in all times and situations. They presented him with the words:

“And this, too, shall pass away.”

P.S. Could you do me a favor ? This email takes many hours to put together, including hours of sourcing, curating and writing. If it is helpful to you, then do me a favor and hit the “heart” button so I know it’s useful to you.

Thank you