You can’t save the planet with a short-term mindset

Blain’s Morning Porridge, September 16^th 2022: You can’t save the planet with a short-term mindset

“A bad review is even less important than whether it is raining in Patagonia.”

This morning– Stock and Bond markets having been going up and down since year dot. Get used to it. But we do have long-term problems that won’t be solved effectively by short-term political and market objectives, or by the contradictions that lie at the heart of the human psyche.

What a week! So much for the mid-summer rally. Stock market wobbles, bond worries, flight-to-quality, geopolitical concerns and the UK adapting to the new in our usual confused-look-at-how-much-better-the-past-was way. So much to think about – and to work out what others are missing.

I’ve come to a significant conclusion: being a strategist doesn’t mean much if all I do is regurgitate what others are thinking and serving it up in compliance-approved word-bites – like the market might do this, but maybe that…

Nope – my form of Strategizing is about upsetting apple-carts, unravelling accepted narratives, and providing irreverent insights and ideas into what might be going on. My aim is to make people think. And, in order to do so I shall continue to use the Oxford Comma, whenever the opportunity presents itself.

Being a strategist is not about predictions, but unravelling consequences. It doesn’t mean I have to be on the nail every time – but that would be a bonus! Based on the numbers of folk I am apparently p*ssing off, I have high hopes I’m doing my job right.

• There are over 500 furious comments on Zerohedge this week telling me I’m an idiot and CIA Shill for writing about how economically Russia crushed is going to end up as a consequence of Putin’s War in the Ukraine.
• I’m told by London clients my view that Europe is more resilient than we think flies in the face of accepted reason.
• I’ve been “urged” to take a less hostile perspective on the new Truss government by a well-connected chum. (I have nothing against them, and its in my interest they do well.)
• I’ve been told by folk elected by the good people of this country the UK should have no problem funding the energy price cap bill. (Right, so the Tories have a £170 bln money tree growing in the Downing St yard we didn’t know about?)
• I’ve also been told by innumerable readers who are financial professionals I am spot on right about the potential crisis coming to the Gilt market.

What’s the point in being nice? If you want nice and reasonable commentary.. give all your money to Goldman.. hah!

I am never going to be considered for Gerald Lyon’s job of agreeing with whatever it is Liz Truss is passing off as economics. I explained to one earnest conservative how I’d voted for the Tories at the last three opportunities to do so: Brexit, May and Boris, and I was not going to do the same thing again in the expectation the result will be any better. Doing the same thing and expecting a different result? Please.

And, yes, Angela Rayner may be scary – but have you ever been in a room with Kwasi Kwarteng? The temperature drops 10 degrees….  (No, it doesn’t…. but… you just think it did..)

Anyway…

This week I went into Daunt Books in the City (top place) and came out with two new tomes to read. I joked with the very helpful bookseller: “I want to read this one, but I have to read this..”

The first was a book about Fly Fishing for Salmon on the Rio Tweed, the soon-to-be-disputed border water betwixt Scotland and our southern neighbour. (Wall, Wall, Wall!) Back in the glory days of 1990’s investment banking I learnt the tau of Rod and Fly and was hosted for days of glorious idling by the banks of rivers and burns, while not unduly bothering the fish. Unless I win the lottery (or get the big deal over the wall), reading about it is as close as I’ll ever get again, I expect.

The second book is Sixty Harvests Left by agri-writer Philip Lumbery. It’s a sobering assessment of the damage big farming is doing to the global food ecosystem. If you crave an almond-latte – don’t read it. It’s not your standard eco-terror diatribe, but a reasoned outline of what could be done to avoid global catastrophe, starvation and provide for a stable nature-friendly future. More to the point – if we follow it, I will survive the end-of-times, and still be able to have the occasional steak!

Sixty Harvests Left is an encouraging book. It supports the idea we can still transition our global economy by being smarter, more aware, and doing the right thing for the long-term, rather than allowing the fundamental contradictions that lie right at the centre of the modern Occidental Western Economy to sink us:

• Saving society from changing environmental conditions (including climate change, soil degradation, resource depletion, or the need to feed expanding populations) requires Long-Term policies and transition strategies. (And these are independent on whether changing conditions are caused by natural factors or are human-made.)
• Politics work on a short-term 4-5 year electoral cycle – long-term planning does not get politicians re-elected. State planning is anathema to the Right-Wing.
• Finance is now dominated by short-term return considerations. I have repeatedly raised the issue of wind-farms vs tidal energy. Wind-farms are easy and cheap, and unreliable. Tidal energy is utterly reliable, but is expensive and difficult. Investors therefore favour wind farms, even though tidal is massively more effective long-term solution. (And will get cheaper, generating higher returns as it is more widely innovated.)

All of which leads us to Patagonia – but not the delightful part of wild Argentina where they speak Welsh, a result of Welsh miners attracted to the area in the late 19^th Century.

Patagonia Inc is a famed outdoor clothing company worn as a style statement on Silicon Valley. The founder, climber Yvon Chouinard has given away 98% of the $4 bln company to save the Earth by using its $100mm annual profits to fight environmental crisis while defending nature! Lots of talk about stakeholder capitalism, environmental purity and woke do-goodery, and the benefits it brings.

In fact, the deal he has put together is also something of tax-dodge. It lets the Chouinard family retain control of the brand though the 2% voting stock now vested in a trust. The other 98% is in a non-profit, avoiding income tax as it directs revenues to support environmentally sound policies. Which means playing and driving environmental politics.

Had the company been sold – as was considered – it could have attracted a $1 billion capital gains tax to government. The structure of the 2% trust vs 98% non-profit means the gift-tax the family has had to pay, apparently falls to $17 million from $1.6 bln – or thereabouts. The family does lose the $3bln they could have received from a sale of the company, but effectively retains control of the firm.

Apparently, such schemes are not uncommon in the US – Bloomberg reports an electronics billionaire doing a similar trade, but then selling the firm saving a massive tax bill. The non-profit was used to support conservative dominance of the US supreme court, while countering abortion rights, voting rules, and climate policy. (Note use of Oxford comma.)

What does it all mean?

I wrote above about the dichotomy between long-term transition goals, and short-term financial and political objectives, but we also have to factor in the human side of the equation – the desire to create and own something, basic greed and our assumption we can do what we like, and someone else will sort out the mess.

How do we sort it so everyone is aligned on saving the planet, and paying taxes?  Tough one – Successful businessmen are often psychopathic narcissists. Politians are something similar. Strategists, on the other hand, are comparitively lazy, but are more likely to be punched for telling it like it is…

Five Things to Read this Morning

Torygraph – Billionaire Founder of Patagonia gives the outdoor brand away

BBerg – US Yield Curve Set to Invert by Most in 40 Years, Allspring Says

FT – Putin acknowledges Chinese “concerns” over Ukraine

WSJ – US Mortgage Rates Top 6% for the First Time Since 2008 Crisis

CAPEX – Truss is right to tear up the Treasury Rule Book – Patrick Minford

Out of time, off for a swim and then back to the day job!

Bill Blain

Strategist – Shard Capital