Investing & Macro (Thursday Thoughts)
I spend much time on investing and thinking about how the world can unfold. Despite this, I have not written much about it. As I have previously explained, our understanding can live in different frames. If the understanding framed in language, it is easy to write about it, but framed as concepts, it is difficult to express. Because my understanding of investing is mostly framed in concepts, it has been more difficult to write about. I will try, nonetheless.
I want to start with the bolding of the word “can”. When talking about the future, there is a huge difference between using the word “will” and “can”. This relates to the aphorism “Planning is everything, the plan is nothing” which can be restated, in the investing version, as “Understanding is everything, the thesis is nothing”. Crucially, while the word “will” elevates the importance of the thesis, the word “can” reduces it. Thus, the focus must be on updating the understanding, while simultaneously exploiting the “thesis” as a temporary approximation along the way.
Further, on the large scale, the world will most likely stay more or less the same. Yet, looking at history, there are periods and areas of great change. Acknowledging that it is impossible to prepare for all potential scenarios, the focus should instead be on scenarios, where, if they materialize, it is extremely valuable to be prepared. And, crucially, to avoid unnecessary risk, it is not always necessary to bet on scenarios before they materialize, but rather as they materialize.
Now, after providing some clarifications on the word “can”, I will share five macro topics I am following.
Globalization is the integration of the developing world into the economy of the developed world. The result is higher asset-prices & lower wages. This is bad for the working class, leading to populism, but, favorable to the rich. Europe’s focus on diversity and including everyone is at the expense of the middle class, and thus, as long as immigration policy remains loose, populism will probably grow stronger.
Inflation in the US will rise caused by 1) historically low unemployment and 2) putting trade tariffs on the world. (From November 2018 to 2019, the lowest-class salary grew by 4,9%) When inflation comes, the US will raise interest rates. Countries and institutions with dollar-debt will be crushed.
Pensions own most of the wealth in the world. At some time, the wealth needs to either be spent or inherited. If it is being spent, the question is on what. If it is being inherited, the question is by whom, and how it will be invested or spent. Also, in both cases, this will be a flow of money out of low-volatility assets.
War and peace are replaced by constant conflict. The China/US-trade dispute will be a constant conflict between escalation and de-escalation. The US has by far the most leverage; Military power, demographics, the dollar, energy independence.
EU is strategically incentivized to exaggerate the human impact on global warming. Top oil producers in the world are the US, Saudi, and Russia. Top coal producers are China, India, and the US. European political focus on climate change is likely to remain. (This is not a commentary on the effect of human-made emissions on climate change, but rather a commentary that Europe is incentivized to exaggerate it).
In addition to following some macro themes, I also do the same for more investment-specific themes. In 2019 I spent the most time on IMO2020 and the tank-sector, and E&P-companies in the oil sector. I will follow these themes through 2020 as well. In addition, I am now looking into the LNG-market.
Happy new years,
Erlend