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….
BBerg – Ukraine War Gives Egypt a Wheat Crisis Only China Can Solve
Thunderer – Russian debt default on the cards after Kremlin issues warning
FT – Germany to buy US F-35 jets in first big deal since defence budget boost
WSJ – Apple Supplier Foxconn in Talks to Build $9 Billion Factory in Saudi Arabia
New Yorker – The Weakness of the Despot
Out of time and back to the day job…
Strategist – Shard Capital
I’d highly recommend ‘Peter the Great’ by RK Massie, assuming of course you haven’t already read it.
Simon Sebag-Montefiore was in the Evil knievel articl ethe other day.. some listed book shop in London
Thank you for sharing your thoughts. From cybersecurity side of things, most companies use datadog, splunk,prisma cloud from Paulo alto networks, zacalar. I like paloalto networks, datadog in that order as they are big on cloud side. Splunk is good tool with large established client base, but they have been having issues with transitioning to cloud based subscriptions model
Re Apple in China above, could the continuing high rate of Covid infections and hospitalisations in China and surrounding areas be due to a slightly different DNA balance to peple in places where the crisis appears less aggressive?
I am told the China new cases are the omicron varient, which is more infexious but less dangerous to fully vaxed populations. Thats a win for China if their vaccines are upto it. Or they will suffer a longer lockdown – the implication being longer supply chain shutdown. Understnad it is hitting Apple, VW and all kinds of western firms…
“Judder” – What a great and perfect word to define the situation. And again, great insights. The problem is, who to forward this article to? It is hard to imagine where this is all headed, or find someone with sufficiant imagination or concern to actually do something about it. Like a mortally wounded bomber in WWII, everyone is ensconsed in their nook and everything is functioning except what is needed to keep the machine in the air. But the juddering and the slow roll are unmistakable. Who gets out and who is affected on the ground when it . . . lands? My guess is, if you haven’t already invested in the countryside, away from centers of population, nor bought supplies and trading goods enough for the people you expect to show up at your doorstep, you are probably in trouble. If you are sitting at your desk, chewing the end of your pencil, and staring, well . . .
I know it’s not truly cybersecurity, but routers, switches and cables will always be needed for network viability. Presently there are at least two contractors digging up the front yards of our town to install fiber. Also cell site upgrades are a regular permit at the City. Not sure how this is progressing elsewhere.
Russia doesn’t want Ukraine, it just wants a buffer zone as promised back in 1990/91 when Germany reunified.
I might also suggest that the exact opposite is true about the focus going back to the Nation State, especially when one casts one’s gaze at the Davos crowd.
And might not the seizing up of the global economic model actually be deliberate? How else are they going to dampen inflation and the looking debt crisis?
The Davos crowd does not exist. Its a conspiracy theory for nerds and nerdowells to excuse their ineffectiveness. I think we shift to three nationstates or powerblocks – and the fact Europe could be the energised one is going to be fascinating..
Peter Zeihan has written extensively on this subject. His latest book “Disunited Nations” talks about the regionalism you outline. He has a new book due out in June titled “The End Of The World Is Only The Beginning”. Should be good.
FWIW, Zeihan believes that Putin / Russia want all of Ukraine and then some, but longer term (assuming we get there) both Russia and China are stuffed due to demographics.
I am also seeing headlines re moves against the Petrodollar – India / Russia (Rupees), Turkey / Russia (Rubles, gold), KSA / China (yuan), Russia / China (yuan). Do you make anything of that, and do you think the SWIFT exclusion / foreign reserves being frozen will have an impact on various Nation’s views re where / how to hold their national wealth?
You say the Davos crowd doesn’t exist. Fair enough, it may not.
It depends on the definition being used (and there is no evidence you and Mark settled to an agreed to definition of “Davos Crowd”). Did you ever attempt to clarify what Mark meant by the term or did you simply use YOUR definition and then dismiss the existence?
Seems like you are playing word games – so take a crack at these…
Does such a thing as “neocon” exist?
Does the “international community” and “rules based order” exist?
Is there such a thing as a “war monger” or “war profiteer”?
As to the personal attack on Mark (“conspiracy theory” here is code for hey, bud shut because you are a nutter whereas “nerdowells” and their “inneffectiveness” is a clever by half passive aggressive manner of saying hey, bud you’re stupid and bad at it as well).
Anyone paying attention with eyes, mind and heart open has at least the inkling that the power of the “conspiracy theory” epithet is more of a joke than anything else (a joke at the expense of the one hurling it). Guess you haven’t seen the meme/joke that “conspiracy theory” is now renamed “coming attractions” … lmao
Easier to dismiss than to entertain any doubt and engage I guess.
Either you have an angle, a dog in the hunt so to speak (i.e. a rooting position on the matter) or you are covering for blind spots and avoiding uncomfortable doubts that may arise.
Your analysis of the likely future outcome seems spot on (unfortunate though that may be) … geopolitical realignments and so forth.
Just reminded of the Voltaire quote “Doubt is an uncomfortable condition but certainty is a ridiculous one” … even on that, I have my doubts:-)
Soldier on – your insights are appreciated … you do me a service by keeping my own “certainty” in check … and that’s a good thing:-)
Here is what is so infuriating about Ukraine. The Biden administration spent most of 2021 warning about the Russian troop buildup. Did it speed up arms shipments? No, mustn’t provoke Putin. Need a ”no fly zone” (and Ukraines lack of airpower/defenses was obvious) ? You need to put your aircraft in before hostilities break out. Then you have options. Call it ”joint exercises” of the sort Air forces door we could have trained Ukrainian pilots to fly A-10s and then declared them surplus to Air Force requirements. The USAF has been trying to do this themselves for years. The 25 or 30 Russian jets in Syria has complicated the vastly larger and more sophisticated Israeli Air Force’s operations over that country since they showed up in 2015. The Biden Administration did nothing until it was too late to do anything.
Like your post,a lot. … in today’s … the para starting “ I’ a sanctions hawk…” you said…”where they get Ukraine…” did you mean that? If so, please explain a bit… thanks, keep writing…
I meant to say
“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.”
“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 Ukraine and a no-Nato commitment is the best they can now realistically achieve.”
It seems like that was the choice in negotiations before the invasion. It seems like a lot of human suffering and loss to give them that after the fact, unless of course you feel that the Russians wouldn’t have lived up to the bargain.
“And China has gone in fast with Foxconn offering to put manufacturing capacity in Saudi.”
As someone who has worked in the Middle East (not Saudi Arabia but in Dubai and Kuwait), my experience in the oilfields is that most natives (Emirati and Kuwaiti) almost felt like work was demeaning. Almost all of the productive work from laborers up to engineers and management was done by immigrants and foreigners. Saudi Arabia doesn’t have a great like for immigration. I can’t see it becoming a huge manufacturing center without a change in attitude.
Regarding cybersecurity investments I like CrowdStrike, Zscaler, and Palo Alto Networks.
THere was a typo in my sentence:
it should read: 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.”
Anyone now making a prediction on how the Ukraine War will turn out is guessing way to early. It is still possible for Russia to achieve all her aims. Geopolitically Russia is winning because she is getting support not only from China but also India. The developing world, especially the BRICS, is not only refusing to condemn Russia, but also continuing to keep their economic relations with her. North Atlantic Treaty Organisation nations, and Asian Tiger nations support the States/Ukraine, but that was always going to be the case. Despite all the (western) media hype the situation is not so dire for Russia.
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