When I began studying economics in the late 1960s, my first teacher- Mr Nussey- gave us the definition that economics was the rational application of scarce resources.
The factors of production were defined as CELL- Capital Enterprise Labour and Land. The object of the exercise was to eliminate waste, which could occur as IDLE FACTORS or because FACTORS ARE UNRELATED TO WANTS.
I went on to learn much more, including that Professor Marshall’s ‘rational economic man’ does not exist, and that Keynes’ pretty theories can’t withstand lying ego mad politicians like Margaret Thatcher and Sir Keith Joseph. So I never really took economics seriously as an academic subject- I would be much richer if I had.
Robert Cook August 25th 2019
Latest Red Rumour: They’ll Nuke Moon Posted September 16th 2019
As the US’s fresh batch of hypersonic weapons approaches the flight-testing phase…
As a nuclear-powered missile test in Russia goes horribly awry…
And as an Australian MP compares his country’s obliviousness to the threat of China as the French were to the rise of Nazi Germany…
We sit back and wonder just how wild this Cold War needs to get before mainstream investors realise it’s going on…
In 1958, the US developed a plan to detonate a thermonuclear device on the moon: Project A119.
The top-secret project was developed after the Soviets launched Sputnik, to boost the US’s street cred after it’d lost the race to space. In a game of one-upmanship, the US would show the Soviets who was boss by lighting up the moon above Moscow.
Interestingly, nobody actually knows why the project was cancelled. Vince Houghton, the historian that brought the project to light, doesn’t believe it was to preserve the moon’s beauty:
The mission was scrapped seemingly out of a worry that the best-
laid PR plans of the Air Force would be thwarted when the public saw
this as an abhorrent defacement of the moon’s beauty instead of a
demonstration of American scientific prowess. Maybe we realized landing a man on the moon was possible, and more impressive?|
… Are you convinced the US Air Force, at the height of the Cold War, in the wake of the shocking launch of Sputnik and the fear left in its wake, scrapped A119 because it might muss up the moon a little bit?
Neither am I.
Included in the planning was, believe it or not, a young Carl Sagan, who would go on to break the rules and put his involvement in the project on his CV. Sagan would go on to happily take credit for writing such papers as Radiological Contamination of the Moon by Nuclear Weapons Detonations and Possible Contribution of Lunar Weapons Detonations to the Solution of Some Problems in Planetary Astronomy when applying for a scholarship at the University of California in 1959 (as great excuses go, “solving some problems in planetary astronomy” has to be up there).
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The fact that such an idea was kicked around for eight months by the US military establishment is indicative of the time. This was a period of all-out competition between the two powers; a period totally opposite to the global order we’ve experienced since the Berlin Wall fell… but one to which we are rapidly returning to as the US recognises China as a great power competitor.
Project A119 was spurred on in part because the US thought the Soviets would nuke the moon too. But of course, back then American investors had zero capital in Chinese markets. Nor did the Soviet Union have a currency that was pegged to the USD, as China effectively has today.
Imagine how the stock, bond and FX markets would react today if this headline made it to print. Swap out “Russians” for “Chinese Communist Party”:
This was printed on Friday 1 November 1957 in the Pittsburgh Press. 7 November was supposedly the date at which the Soviets would nuke the moon to celebrate the fortieth anniversary of the Bolshevik Revolution.
This rumour was completely unfounded, though incidentally the Soviets would develop such a plan soon afterwards. They cancelled their programme as they were afraid the missile wouldn’t launch correctly, and fall back to earth, nuking either themselves or a foreign country. The Soviets concluded in a gloriously understated fashion, that this would create “a highly undesirable international incident”.
Such schemes appear ludicrous now, but I strongly suspect the great power competition of the Second Cold War will produce some equally mad and dangerous ideas. But this time around, Western investors will feel the impact of them in their portfolios – passive investors especially.
By the end of this year, MSCI (which creates indices or stocks and other assets) will have quadrupled the weighting of mainland Chinese stocks in its global indices (a significant increase happens just this month, with another boost in November). Investment managers which offer passive products – like Blackrock or Vanguard offering low-cost ETFs – use those MSCI indices as a guide to where that money should be invested.
The greater inclusion of China in the indices will direct billions of dollars from pension funds and passive investors into Chinese companies… right as Cold War II ramps up, and geopolitical risk returns to markets in ways we haven’t seen in decades.
The inclusion of China in such benchmarks has made MSCI a geopolitical actor. I anticipate it shan’t be long before the US administration begins to target such inclusions (and starve China of dollars), just as the US has begun to crack down on Chinese investment in the US.
Not all fund managers are oblivious to what’s going on of course. I spoke to an investment manager recently on the subject, who describes the gradual disintegration of US/China relations similarly – as a “New World Disorder”. He views the deterioration of post-Berlin Wall order as a “Black Swan Factory” (I wish I’d thought of that line), which he’s been developing some strategies to defend against, and profit from.
While Nick Hubble and I have outlined a few ways to play the Second Cold War in Zero Hour Alert,
my colleague James Allen has identified another, playing on Russia’s
role in all this. He’ll be publishing his research on the matter shortly
– keep an eye out.
Enforced property sales September 8th 2019
Dear Reader, Do you own any property other than your main home? If so, how does the idea of selling it, enforced, for far below the market value sound to you? I’m guessing the answer is unappealing, to say the least. Well, it’s just one of the many ways your wealth is being sized up. Here’s what Britain’s potential shadow chancellor says: “You’d want to establish what is a reasonable price, you can establish that and then that becomes the right to buy.”“You [the government] set the criteria.”“I don’t think it’s complicated.” In a sense, he’s right. It’s not complicated. It’s socialism. And it doesn’t stop at your property. If you want to know where else your wealth could be harvested should an election be triggered this year… Click here now to read Nickolai Hubble’s analysis. Best,
Nick O’Connor Publisher, Southbank Investment Research
What led to Hitler? Posted September 1st 2019
Force people to live under extreme conditions, and they’ll be more open to extreme solutions. In the 1930s depression, people’s savings were wiped out overnight, through no fault of their own. They couldn’t afford to warm their houses or feed themselves. So people marched for jobs. And then, when it became plain no jobs were coming, they started marching for food. They were desperate… and starving… And soon, they became bitter and angry. If you know your history, you know where they turned: Towards Hitler… towards Mussolini… And eventually, towards war. Did you know that the current economic crisis in Europe has actually been more damaging than the great depression of the 1930s? You won’t see that reported in the media. People are growing angry… and desperate… Mirroring the past. Click here to find out what I think will happen next.
Howzat, America? September 1st 2019
I only found out how the scoring worked in cricket about a month ago.
Cricket isn’t taught much in Scotland for reasons which may have something to do with the weather. I think the only time I was ever taught anything about it in school was in a gym class when I was nine, and that was purely because a South African teacher was visiting.
Suffice to say, rugby was more my thing, and the Ashes and Cricket World Cup routinely passed me by. But Kit Winder, research analyst and resident cricket nut (one of several in this office), thought it was time to give me a crash course over beers after work one Friday.
Now I’ve finally been introduced to “the game of empire”. And what a great game it is, with all the nuances and tactics you could ever hope for as an observer. Not to mention terms like “Yorker”, “full toss”, and the suggestively visceral “bodyline” (a ruthless cricketing strategy invented by a Scotsman, funnily enough).
You’re probably wondering (quite rightly) where today’s letter is going. Kit made a parallel between cricket and investing in this letter a while back when I was away (Two types of cuts – 19 July). But in light of recent events, I’d like to make a more overt comparison.
The dollar’s dismissal
Jerome Powell of the Federal Reserve (left) and Mark Carney of the Bank of England (right) at Jackson Hole Though the pound fell from grace as the world’s reserve currency many decades ago, the City of London remains the world’s favourite financial cricket ground, where every major bank on the planet goes to play. And while those banks can play a lot dirtier in the City than in their home countries, with far fewer rules and regulations… they still fall under the Bank of England’s domain.
In this way, Mark Carney, governor of the Bank of England, is in some respects an umpire of the entire global financial system.
When a cricket umpire raises his index finger to a batsman, it’s time for him to leave the field. The opposing team may have outfoxed him, or maybe he made an error. Whatever the case, it’s time for him to withdraw: he has been dismissed.
Last week at Jackson Hole, Mark Carney called upon the world to dismiss the US dollar. A bold move, almost perfectly reflected in the image above, taken there as he addressed Jerome Powell, the man batting for the US and the USD at the Federal Reserve.
“In the new world order, a reliance on keeping one’s house in order is no longer sufficient. The neighbourhood too must change,” Carney declared in his speech. Umpire indeed.
Creating a “Synthetic Hegemonic Currency”
Carney’s speech, imaginatively titled “The Growing Challenges for Monetary Policy in the current International Monetary and Financial System”, calls upon the financial policymakers elite to not only drastically reduce their use of the dollar, but to replace it with a global digital currency, which he likens to Facebook’s new Libra project.
His case against the US dollar is relatively simple, in that the US’s currency is much larger than the US’s economy, and as a result, problems in the US which should be small on a global scale, end up having massive global impact, especially in emerging markets, where it is much easier to borrow in dollars.
Source: Bank of England John Connally, US Treasury secretary during the Nixon era (trivia: he was also in the car with JFK when he was assassinated), famously declared that the USD was “our currency, but your problem” to his foreign counterparts at a G10 meeting after the US went off the gold standard.
Boris Johnson: Central Banker of the Year 2019
Boaz Shoshan Posted August 29th 2019
There’s nothing quite like a nice suspension of Parliament to weaken a currency.
If you’ve been trading the pound, I hope you made the right call this morning.
The strength of the pound relative to the dollar from late last night until 11am today, in ten-minute candles. While £1 was worth $1.2280 around midnight, by 8.30am it was around $1.2155. May seem small, but the currency market is the largest in the world, and large moves in mature currencies require significant volume. Chart courtesy of FXStreet. Boris Johnson really has been doing his bit to create inflation in this country.
Central bankers should take note – Lord knows they’ve been trying their damnedest to bring it about in the developed world, but to no avail.
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For over a decade they unceasingly strive devalue the currencies, and inflate away the debt burdens which hang heavy on their nations. But their successes are limited. The only thing that seems to have meaningfully inflated in line with their efforts is the net worth of bond investors… the price of property downtown… and the number of Rolls-Royces purring through Mayfair.
But the currencies of developed nations on a trade-weighted basis (TWI) have not got any cheaper.
(TWI = the value of a currency when measured against the currencies of the other nations they trade with most often. The higher the trade weighted index, the stronger the currency.)
The almighty dollar has never been stronger…
Though the crushingly indebted Italy cries out for a weaker euro, the FX market is not nearly so kind.
And though the masters of the yen in the Bank of Japan have been playing this game of devaluation, they continue to fail.
But lo, Boris Johnson, taking macroprudential matters into his own hands, continues to deliver sterling results. Literally.
Bear witness to Britannia, the international exception:
We’ve discussed some of the more imaginative ways in which a central banker may try to devalue their currency in a pinch. Mark Carney strutting around the City with a naked sword in his belt (as is his right as a Freeman of the City of London) and not explaining it to anybody was one such approach.
But Boris Johnson has proved that while central banks are tasked with generating inflation, in reality this is a politician’s game and we can comfortably rely on the government to unceasingly deliver it, whether we like it or not.
It’s no surprise considering the above that the price of gold in pounds is once again hitting new all-time highs.
A 1 troy ounce gold Britannia, which for so long cost a grand, will now set you back over £1,300. Britannia, former ruler of the waves, has since become a leader of British investment performance in retirement.
While central bankers may fail to meet their mandate, politicians stand ever willing to step into the breach. Which is why I hereby nominate Boris Johnson as Central Banker of the Year 2019.
God Save the Queen.
All the best,
Editor, Capital & Conflict
A Look into Nestle’s Controversial Water Bottling Business in Canada Posted August 29th 2019
The company’s Canadian subsidiary is currently in dispute with an Ontario town that was experiencing a drought.
Photo via Flickr user Wilson Hui
With about 0.5 percent of the world’s population, Canada has a disproportionate share of global water supply with seven percent of the globe’s renewable water and roughly half of the world’s lakes. Groundwater is just one of the many water sources in Canada, but the lack of federal and provincial regulation with regards to groundwater extraction has made it very easy for big companies like Nestle to swoop in and monopolize groundwater resources.
In fact, Nestle Waters Canada—a subsidiary of the multi-billion dollar Swiss company Nestle Group actually has a pretty long history of extracting clean groundwater from all across Canada, specifically British Columbia. Nestle Waters has two plants in Canada—one in Hope, BC, the other in Aberfoyle, near the city of Guelph, Ontario. There have been ongoing water disputes between the community and Nestle in both those regions.
Kawkawa Lake, District of Hope, BC
Nestle and the residents of the District of Hope have been at loggerheads over water supply from the Kawkawa Lake since 2000, when Nestle opened a water-bottling facility in Hope, using water from only one source, the Kawkawa Lake. Nestle vehemently defends its operations, stating that they withdraw less than 1 percent of the available groundwater in the Kawkawa Lake aquifer. But the issue arises when a drought hits and the residents of Hope are forced to restrict water use, while Nestle is allowed to continue the same pace of production.
Nestle bottles approximately 265 million litres of water from BC. Up until the beginning of this year, Nestle paid absolutely nothing for water it took from Kawkawa Lake. It was only in 2016 after much pressure primarily from the residents of Hope, that the province instituted regulations requiring any company extracting clean drinking water to pay $2.25 per million litres of water. According to activist group The Council of Canadians, the $2.25 rate is low compared to other provinces. In Ontario, for instance, companies have to pay up to $15 to extract a million litres of clean drinking water. In 2011, as a gesture of appreciation of sorts, Nestle donated $45,000 to the District of Hope for the construction of a playground.
The BC government takes a different stance on the issue of payment. They say charging a fee for water could have the potential of raising legal questions over who owns that water. In addition, they claim that Nestle is hardly affected by a small fee for water, but many smaller bottling companies would be priced out of the market. Until the Water Sustainability Act was instituted in 2016, BC’s only water regulation related to ensuring groundwater extraction techniques were environmentally safe. Clean groundwater is up for bids in most of BC, with corporations like Nestle often having the upper hand because of their scale of production, and ability to ensure that extraction methods do not hurt the environment. Now however, the provincial government has the authority to step in with mandatory restrictions in the case of a drought.
In 2005, the former CEO of Nestle, Peter Brabeck was quoted as saying that water should not be considered a human right and be instead treated as a “foodstuff commodity.” That video was leaked and went viral in 2013—the same year that Nestle was in the middle of another dispute with the town of Hillsburgh, Ontario, near Guelph. Nestle withdraws as much as 1.1 million litres of water daily from a well in Hillsburgh, which has suffered three major droughts since 2007.
2013 was one of the driest years in Hillsburgh, yet Nestle continued to extract the same amount of water from that one well. Public pressure caused the province to intervene, and when it renewed Nestle’s contract on the Hillsburgh Well, it made it mandatory for Nestle to reduce the amount of groundwater it extracts during times of drought. The story didn’t end there, unfortunately. Nestle aggressively appealed the new permit’s restrictions and a few months later, the Ontario’s Environment Ministry agreed to remove the restrictions.
Just a couple of days ago, Nestle outbid the Township of Centre Wellington, Ontario, for it’s only new source of clean drinking water—a local well. The Township sits entirely on what is called glacial moraine, an unconsolidated accumulation of soil and rock that once used to be a glacier. This unique geological formation makes it particularly difficult for residents of the town to have access to a safe supply of drinking water. In fact, there is only one new source of clean drinking water in Centre Wellington—the local well that Nestle now owns.
The same activist group that was involved in getting Nestle to pay for water in BC put out a petition last week calling for the boycott of Nestle, which actually already owns a large bottling plant in nearby Aberfoyle, Ontario. According to the petition, Nestle pays less than $15 a day for clean groundwater from this particular well, and “ships it out of the community in hundreds of millions of single use plastic bottles for sale all over North America—at an astronomical markup.”
However, according to Andreanne Simard, Nestle’s Natural Resource Manager at its plant near Guelph, the Township of Centre Wellington is “lucky to have a company that monitors and manages a resource like water so well.”
“We’re very particular that there is no adverse, negative impact on the surrounding ecosystem.”
Simard claims that in August this year, at the height of the drought in Centre Wellington, Nestle voluntarily reduced their water extraction by 20 percent. “One thing we have in common with the community is our shared passion for water,” Simard said.
But the declaration from the Council of Canadians is asking for more than just a boycott of Nestle because of its activities in the Township of Central Wellington, it’s calling for Nestle to “stop profiting from water altogether.”
“Wasting our limited groundwater on frivolous and consumptive uses such as bottled water is madness,” it said.
However, Ontario’s government has come to the defence of Nestle. Treasury Board President Liz Sandals, who reps Guelph, says the public often has the wrong facts about the company.
“There’s no doubt that there is a lot of concern, but my point to you is that many of the things that people will express a concern about actually turn out to be based on misinformation,” she said, according to the Canadian Press.
Follow Vanmala Subramaniam on Twitter.
Nick Hubble August 26th 2019
Force people to live under extreme conditions, and they’ll be more open to extreme solutions. In the 1930s depression, people’s savings were wiped out overnight, through no fault of their own. They couldn’t afford to warm their houses or feed themselves.
So people marched for jobs. And then, when it became plain no jobs were coming, they started marching for food. They were desperate… and starving… And soon, they became bitter and angry. If you know your history, you know where they turned: Towards Hitler… towards Mussolini… And eventually, towards war.
Did you know that the current economic crisis in Europe has actually been more damaging than the great depression of the 1930s? You won’t see that reported in the media. People are growing angry… and desperate… Mirroring the past. Click here to find out what I think will happen next. Best wishes,
Nick Hubble Capital & Conflict
Dear Reader, Are you sick of it yet? Everyone won’t stop talking about Brexit. I do… sometimes. But it never leads anywhere. It’s always a waste of time, in the end. I spend most of my time thinking about something else instead. Something I consider to be the most important turn of events for British investors. Something completely under the radar. If you have money in the financial system, you need to know about this. It’s an obscure secret hidden in Europe’s monetary system.
Think of it as a ticking timebomb. It could explode soon, and when it does it’ll make Brexit look like a sideshow. To be honest, it could be big enough to put Brexit on hold altogether. You need to know when things go “bang”. Because, I believe, the blast is likely to impact Britain in a big way. It could impact you, your family and your savings.
That’s why I chose to write a book about THIS secret and not about Brexit. People were telling me to write a book about Brexit. It would sell more. Sales are important for a writer. But telling the truth is more important for a writer with a conscience. Don’t get me wrong… Brexit is important… but this secret is way more important for British investors. I can guarantee you this: The secret is not something you will want to hear… … yet it is something you MUST hear if you want a chance at protecting everything you’ve worked so hard to build. Before we get to that, let me show you what some fellow investors who read the book are saying:
“Very informative on how the system works, and how it will fail.” – Malcom Campbell “Read it! Deny what he says if you can. Ignore it at your peril.” – David Gahan “It is essential that you know what is coming in Europe.” – Jim Whitelaw “The book dares to expose what the mainstream commentators avoid and fear to admit.” – Mark Mellor I won’t go on – though I could… You can grab your copy of my book below. I believe you already know that you need to do so… >> Get your copy here << Best wishes,
Nick Hubble Editor, Southbank Investment Research