Market Rhymes, Geopolitical Reality, Importing 19th Century Russian Populism, and the Irreversibility of a Reverse Categorical Imperative: Investment Options, Part III
Market Rhymes, Geopolitical Reality, Importing 19th Century Russian Populism, and the Irreversibility of a Reverse Categorical Imperative: Investment Options, Part III
Several questions are surfacing following the weekend’s geopolitical developments. Here are a few of them:
Has the paradigm of the Middle East conflict been shifted, and if yes, can it be contained?
Is the era of disproportional responses upon us?
Are we going through a transition from cold war to hot wars?
What would happen if the Dome of Rock is destroyed by an intentional or accidental missile or even by a deliberate provocateur?
Is the path of strategic disengagement bearing desirable fruits?
Will the Iranian attack divert the West’s necessary attention to the derailment/guard railing and containment of the forming alliance by autocratic states?
Was the Iranian attack a lifeline to Netanyahu’s unpopularity?
Will the Israeli response be limited, or will it bring the conflict to a level not seen since the 1967 or the 1973 Middle East conflicts?
Will the world forget the humanitarian catastrophe unfolding in Gaza?
I am afraid that only the first question can be answered with certainty: Yes, the conflict paradigm has shifted given Iran’s direct attack on Israel. As for the rest of the questions, for a number of years now we have been arguing that the engine of finance, a.k.a. war, will manifest itself upon us, and unfortunately, we’ve been living through that reality for more than two years now. On top of this, the West failed to create a strategy of preventive care (similarly to preventive medical care) that would have emphasized development and could have avoided the conflicts born by focusing on those weapons of mass deception. By ignoring the lessons of history, we lose the virtues of good strategies while we rejoice in the vices of bad strategies. Strategy design and execution is an instrumental pursuit and that applies to both statecraft and portfolios.
Market turmoil continued last week due to higher inflationary pressures, geopolitical fears, and the fact that reported bank earnings were not that impressive. Gold prices continued rising while the dollar continued its rally against the euro and the yen. Consequently, volatility rose and with little doubt, we could say (as the following graph shows) that volatility, global tensions, and inflationary expectations are positively correlated.
In last week’s commentary, we continued our discussion that reality is found when three parallel lines (market developments, geopolitical tensions, and Karl Barth’s writings on creation) eventually intersect. When an interaction approaches, asset classes with intrinsic value (such as precious metals and oil) appreciate in value, while other asset classes may take a backseat. Of course, and as we discussed last week, this kind of unraveling has effects on the portfolios’ alpha and beta. We closed that commentary discussing what we perceived as the immediate dual geopolitical risks, that is an Iranian attack on Israel followed by an attack ordered by Kim Jong Un on South Korea, while our medium-term fears were discussed to be an alliance by autocrats for the purpose of replacing the liberal world order led by the US, which could coincide with nuclear threats.
Is this the time for a refiner’s fire in the sense that it represents such a radical reversal and shift in the conflict paradigm that we should be preparing for major escalations and changes?
As our forthcoming readings of Geopolitics & the Day After on April 18th will discuss, the Ukrainian War is also at an inflection point, and a continuous failure to support Ukraine could advance the irreversibility of a reverse categorical reality where people are means rather than ends. We briefly discussed the concept of a categorical Imperative in a commentary last July. According to this concept – advanced by Immanuel Kant whose tercentenary birth anniversary is on April 22nd – we cannot allow situational and amoral ethics to guide our policies. Rather, rational options and moral principles should frame priorities and policies. Unfortunately, Russian radical populism – which started in the 1830s by Herzen and Belinsky but actually flared up by the likes of Bakunin, Speshnev, and Chernyshevsky in the 1840s and 1850s, and later on advocated and preached by the likes of Zaichnevsky, the Jacobins of ‘Young Russia’, and Lavrov in the 1860s and 1870s – fertilized the ground for the Lenin totalitarianism at the beginning of the 20th century, and which manifests itself nowadays through Putin’s totalitarianism, adopted and endorsed by the likes of him.
What was the argument of those populists? They believed in conspiracies that the state and the government represent a moral and political monstrosity (“obsolete, barbarous, stupid, and odious”) that is out to destroy their lives. The modern version of that is PutXism where the enemy is the world order led by the US. It’s interesting to note that those radical populists phrased their rhetoric in theological terms. Should we say then, “Hello Christian nationalism?” As Isaiah Berlin notes: “Its heart is the pattern of sin and death and resurrection – of the road to the earthly paradise, the gates of which will only open if men find the one true way and follow it.” (For an excellent review of 19th century Russian Populism we recommend the book by Isaiah Berlin titled Russian Thinkers).
Our fear is that such beliefs have penetrated our own political system and are shaping our reasoning, imputing delusionary goals and ideals, affecting the means used, influencing priorities, philosophy, practices, and policies, and this is very dangerous. Such penetration of radical populism into our politics, our culture, and our investment practices represents the reversal of the principle of Categorical Imperative, and such reversal could have irreversible consequences.
Bubbles are reflections of such reversals. Meme stocks are another example. The recent period of negative real interest rates policy (NIRP) represents the spirit of such reversal. The bankruptcies of Silicon Valley Bank, Signature Bank, and First Republic Bank last year, are all irreversible and the direct outcome of NIRP.
Is this the time for a refiner’s fire in the sense that it might represent a shift in the attractiveness of different investment sectors which so far are lacking the returns of tech and large (growth-oriented) US equities?
The loose monetary conditions since 2008 have elevated asset, debt, and equity prices, and keep stimulating global activity, as shown below by the rising PMIs (Purchasing Managers Index in the manufacturing sector). Such loose monetary conditions for more than 15 years now, coupled with myopic geopolitical choices have reversed the trajectory of the Categorical Imperative, as pointed out by the fact that norms have become mere conventions, and if that is the case, then there is no limit as to what market players (including institutions such as central banks) can and will do.
Having said that and assuming that the worst geopolitical scenarios are avoided in the coming weeks, what could we say about the attractiveness of the investment landscape? As the next graph shows us, small caps, value-oriented equities, and international stocks may be more attractive than large and growth-oriented US-based stocks, at least for those who desire to avoid the traps represented by the reversal of the investment landscape’s Categorical Imperative.
Market Rhymes, Geopolitical Reality, Importing 19th Century Russian Populism, and the Irreversibility of a Reverse Categorical Imperative: Investment Options, Part III
Author : John E. Charalambakis
Date : April 15, 2024
Several questions are surfacing following the weekend’s geopolitical developments. Here are a few of them:
I am afraid that only the first question can be answered with certainty: Yes, the conflict paradigm has shifted given Iran’s direct attack on Israel. As for the rest of the questions, for a number of years now we have been arguing that the engine of finance, a.k.a. war, will manifest itself upon us, and unfortunately, we’ve been living through that reality for more than two years now. On top of this, the West failed to create a strategy of preventive care (similarly to preventive medical care) that would have emphasized development and could have avoided the conflicts born by focusing on those weapons of mass deception. By ignoring the lessons of history, we lose the virtues of good strategies while we rejoice in the vices of bad strategies. Strategy design and execution is an instrumental pursuit and that applies to both statecraft and portfolios.
Market turmoil continued last week due to higher inflationary pressures, geopolitical fears, and the fact that reported bank earnings were not that impressive. Gold prices continued rising while the dollar continued its rally against the euro and the yen. Consequently, volatility rose and with little doubt, we could say (as the following graph shows) that volatility, global tensions, and inflationary expectations are positively correlated.
In last week’s commentary, we continued our discussion that reality is found when three parallel lines (market developments, geopolitical tensions, and Karl Barth’s writings on creation) eventually intersect. When an interaction approaches, asset classes with intrinsic value (such as precious metals and oil) appreciate in value, while other asset classes may take a backseat. Of course, and as we discussed last week, this kind of unraveling has effects on the portfolios’ alpha and beta. We closed that commentary discussing what we perceived as the immediate dual geopolitical risks, that is an Iranian attack on Israel followed by an attack ordered by Kim Jong Un on South Korea, while our medium-term fears were discussed to be an alliance by autocrats for the purpose of replacing the liberal world order led by the US, which could coincide with nuclear threats.
Is this the time for a refiner’s fire in the sense that it represents such a radical reversal and shift in the conflict paradigm that we should be preparing for major escalations and changes?
As our forthcoming readings of Geopolitics & the Day After on April 18th will discuss, the Ukrainian War is also at an inflection point, and a continuous failure to support Ukraine could advance the irreversibility of a reverse categorical reality where people are means rather than ends. We briefly discussed the concept of a categorical Imperative in a commentary last July. According to this concept – advanced by Immanuel Kant whose tercentenary birth anniversary is on April 22nd – we cannot allow situational and amoral ethics to guide our policies. Rather, rational options and moral principles should frame priorities and policies. Unfortunately, Russian radical populism – which started in the 1830s by Herzen and Belinsky but actually flared up by the likes of Bakunin, Speshnev, and Chernyshevsky in the 1840s and 1850s, and later on advocated and preached by the likes of Zaichnevsky, the Jacobins of ‘Young Russia’, and Lavrov in the 1860s and 1870s – fertilized the ground for the Lenin totalitarianism at the beginning of the 20th century, and which manifests itself nowadays through Putin’s totalitarianism, adopted and endorsed by the likes of him.
What was the argument of those populists? They believed in conspiracies that the state and the government represent a moral and political monstrosity (“obsolete, barbarous, stupid, and odious”) that is out to destroy their lives. The modern version of that is PutXism where the enemy is the world order led by the US. It’s interesting to note that those radical populists phrased their rhetoric in theological terms. Should we say then, “Hello Christian nationalism?” As Isaiah Berlin notes: “Its heart is the pattern of sin and death and resurrection – of the road to the earthly paradise, the gates of which will only open if men find the one true way and follow it.” (For an excellent review of 19th century Russian Populism we recommend the book by Isaiah Berlin titled Russian Thinkers).
Our fear is that such beliefs have penetrated our own political system and are shaping our reasoning, imputing delusionary goals and ideals, affecting the means used, influencing priorities, philosophy, practices, and policies, and this is very dangerous. Such penetration of radical populism into our politics, our culture, and our investment practices represents the reversal of the principle of Categorical Imperative, and such reversal could have irreversible consequences.
Bubbles are reflections of such reversals. Meme stocks are another example. The recent period of negative real interest rates policy (NIRP) represents the spirit of such reversal. The bankruptcies of Silicon Valley Bank, Signature Bank, and First Republic Bank last year, are all irreversible and the direct outcome of NIRP.
Is this the time for a refiner’s fire in the sense that it might represent a shift in the attractiveness of different investment sectors which so far are lacking the returns of tech and large (growth-oriented) US equities?
The loose monetary conditions since 2008 have elevated asset, debt, and equity prices, and keep stimulating global activity, as shown below by the rising PMIs (Purchasing Managers Index in the manufacturing sector). Such loose monetary conditions for more than 15 years now, coupled with myopic geopolitical choices have reversed the trajectory of the Categorical Imperative, as pointed out by the fact that norms have become mere conventions, and if that is the case, then there is no limit as to what market players (including institutions such as central banks) can and will do.
Having said that and assuming that the worst geopolitical scenarios are avoided in the coming weeks, what could we say about the attractiveness of the investment landscape? As the next graph shows us, small caps, value-oriented equities, and international stocks may be more attractive than large and growth-oriented US-based stocks, at least for those who desire to avoid the traps represented by the reversal of the investment landscape’s Categorical Imperative.