Blain’s Morning Porridge – March 15th 2022: The Future is Long Term Energy, Defence, CyberSecurity and Agri
“How does one get a Starfighter? Buy a field in Germany and wait….”
This morning – The World is Utterly Changed. The new imperatives are: Energy and Food Security, Defence and Cybersecurity. Climate Change will become a point of Western Friction. New Geopolitical Lines are being drawn.
The sun is shining on a cloudless spring morning, the air is still, the birds are on the wing and building nests, the river looks beautiful, and the world has never felt such a dangerous place. The Royal Navy’s Portsmouth base is just a few miles round the coast… and we’re in the LD100 zone if it happens.
Among the degree subjects I studied were Russian History and Soviet Economic History. It was still the USSR back then. On my bookshelves are Professor John Erickson’s fantastic histories; “The Road to Stalingrad” and “The Road to Berlin”, alongside Vasily Grossman’s memoire of the Red Army. Perestroika (signed copy) is up there somewhere. Simon Sebag-Montefiore’s Stalin is on the shelf. I’ve enjoyed them all, but they don’t give me any clues on what happens next. Except that Russians are capable of immense suffering and are very comfortable with “strong” leaders long on cruelty.
The pessimists and war-hawks are warning me Putin may use nerve gas to “neutralise” Ukraine’s besieged hold-out cities. Their theory is Putin’s game plan is to intimidate the west by escalating the conflict, in the hope he can then de-escalate by giving the West the unpalatable choice of full intervention with the unimaginable consequences that would entail, or to step back and let Russia achieve its’ war-aims unhindered.
The hawks think we should be instituting a no-fly zone now, suppling aircraft, and putting Iron-Dome defences in place, as clear signals the West will let Russia go no further – effectively intervening and calling Putin’s bluff.
I’m a sanctions hawk but a war dove. I’m hoping Russia has badly miscalculated, and will realise a negotiated peace where they get Crimea and a no-Nato commitment is the best they can now realistically achieve.
Caveat all the above with “Hope is Never a Good Strategy.”
The reality is Ukraine will just be a footnote in global history, but a moment the economic history changed tracks. As a result, it’s time for a major investment rethink – acknowledging how the World has changed and changed utterly.
A trending theme has now emerged; the most recent Age of Mammon cycle – where it was all about how rich tech overlords could become, and what fantabulous wealth new ideas promised – is very much over. We’re back to a brutal realisation it’s about the basic functions of the Nation State: Energy, Sustenance, Supply Chains, Defence and Internal Security.
If you are looking for investment themes for the next five years – these are the ones to focus on. Power, Energy, Weapons, Cybersecurity and the Power of the State to deliver security. That has major consequences across society – and a lot of Trumptard Libertarians are going to be very unhappy to find themselves irrelevant.
Let’s start by trying to figure out what the headlines mean this morning – they look anything but positive:
- iPhone production stopped in China due to rising Covid infections. Major Chinese manufacturing hives in full lockdown. Clue – supply chains break down.
- Energy crisis across Europe. Clue – Energy security.. how do you drill a gas field? and explain fracking?
- Russian Sovereign default as early as tomorrow – no surprise foreign creditors will not accept Roubles. Clue – lend to people most likely to pay you back..
- Tsunami of Moscow corporate debt defaults expected, and potential knock on into wider EM markets. Clue – see above.
- Germany buying F-35s. Clue – They might be better and quicker to fire up the Typhoon production line.
- EU bans Russian steel and iron. Clue – whose idea was it to ban mining for metallurgical coal in the UK? (answer: Tory politicians…)
- China says it wants to avoid US sanctions – meaning what? Clue – letting someone else weaken the US before they may act.
What does it all mean?
As always it’s about how waves of consequence spread across the global economy. How a silly political decision causes an economic catastrophe years later. For want a nail the shoe was lost… etc..
The degree to which the globalised economy was intimately connected through just-in-time supply chains and stable commodity links depended on stable and aligned political objectives. These have broken down and the globalised economy has juddered – and juddered violently. The current global economic model may even have completely seized up – we just don’t know it yet!
I’m guessing a new geopolitical order will emerge. China, North-America and Europe will likely become the separate economic powers – becoming what George Orwell imagined as Oceania, EastAsia and Euroasia in 1984. Orwell’s vision looks a scarily close parallel for what may become the future. Perhaps Japan, Australasia and the UK will play the parts of Oceania’s Airstrips 1 through 3?
The role of the Gulf as dominant global oil brokers will be fascinating – do they work with the West and China? Or will holding them to ransom simply force the speedy adoption of alternative energy in pursuit of Energy Security? This is why this week’s meeting between Saudi MBS and Boris will be so interesting.. And China has gone in fast with Foxconn offering to put manufacturing capacity in Saudi.
Post-Ukraine, (and even that’s a question – maybe Ukraine is just the Sarajevo moment of something much bigger?), there will be considerable economic reinvention around the critical state-interest themes of Energy, Security, Growth, and Defence. If you haven’t already pivoted your portfolios – time to set it up. Cybersecurity is going to be even more massive – and I’d welcome investment ideas.
Climate Change? Many fear rising temperatures will be somewhere well down the priority list, but we might get a surprise. China is concerned about its environment. Europe’s green lobby will want quid pro quo for increased fossil and nuclear power.
America will likely be the environmental hold out – notice how the Democrat Republican Joe Manchin just stymied the appointment of Sarah Bloom Raskin to head the Fed’s banking regulation – because of her green and climate change credentials. Post the 2025 election, a right-wing US government may find its isolationism accelerated by an exit from climate accords and pressure to cut emissions.
Whatever, the coming years are going to be very different.. Prepare for them now…
Five Things to panic about this morning….
New Yorker – The Weakness of the Despot
Out of time and back to the day job…
Strategist – Shard Capital