By 1556 AD, King Charles V had abdicated the Spanish throne to his son Philip II. The Habsburg dynasty was well into its way of dominating European (and not only) affairs for the next three and a half centuries. Twenty years later, King Philip II had adopted a motto from the days of Alexander the Great: “Non Sufficit Orbis”, “The World is not Enough”. However, the pain remained, and it was that same pain that forced Charles V to abdicate the throne: Too much debt. The way out? Activate the engine of finance, a.k.a. war, and seek expansion through conquer and/or acquisition via mergers (known in those days as marriages among the royals).
A quarter of a century later (1600 AD), in “The Tragedy of Hamlet”, William Shakespeare will teach us the importance of the keyword “and”, signifying that success requires the presence of a lion and a fox, a serpent and a dove.As we are hopefully entering the last phase of the pandemic and are facing the “Day After”, the fact is that several things are changing, and new waves and structures are formulated, all which mandate that investment strategies require pivoting, Machiavellian maneuvering, and a hendiadys way of thinking and acting.
In the Day After, economic, financial, and political realities tied to China need to be confronted. Chinese developers carry more than $5 trillion in debt. Defaults are to be expected. Financial institutions (like Citic, China Construction Bank, Agricultural Bank of China and others) could be shaken, especially after it has become known that a financial crackdown is in the works, similar to the one that is taking place in the tech sector. Bond investors may be in for unpleasant surprises. Already, Asian bonds are trading at yields of over 20%, signifying rising risks of default. Borrowing will be slashed and so will Chinese growth. The Chinese middle class will shrink, and a good number may lose the down payments for unbuilt housing units (Chinese couples have paid prices that reach as high as 40 times their annual incomes!). Local governments’ finances will experience tremors (since their revenues depend on land sales which are dropping, and because they have also guaranteed developers’ debt). Reverberations will be felt from Asia and Europe to North and South America, while African countries may be facing the harsh calls of repaying debts they accumulated through the Belt & Road Initiative. Even the notoriously unstable Chinese stock market may take some time to recover (based on past experiences, the drop of 50% this year should be followed by a rally). Historians have claimed that one of the failures of King Philip II was his inability to delegate. President Xi seems to be behaving like King Philip II: a lion not comprehending the need to also behave like a fox. King Philip II was a ruler of megastate who micromanaged, and that turned out to have dire consequences for his empire.
During the times of King Philip II, Elizabeth Tudor the Queen of England was setting the stage for England’s supremacy. Queen Elizabeth will prove to be a lioness and a fox. Even after ordering the execution of her cousin Mary Queen of Scotts, she gave a masterful performance of weeping and protesting of deception by her counselors. Queen Elizabeth was the epitome of a ruler of a microstate (when she became a Queen) who knew how to macromanage in order to defeat her enemies and become the Queen of a megastate. One is venerating (Philip II), the other is calculating (Elizabeth). One inherited a bankrupt empire and continued accumulating debts while declaring bankruptcy a few times (Philip II). The other had to unite and advance a divided country after following in the throne her kin, Mary Tudor (a.k.a. Bloody Mary due to the executions she ordered of her religious Protestant opponents). One was a big spender and never had enough (Philip II). The other strived for thriftiness and, for the grand majority of her reign, she ran surpluses (Elizabeth). One knew what she wanted (Elizabeth). The other was constantly suffering from an existential crisis (Philip II). One was conquering by marrying (Philip II even proposed to Elizabeth), securing funding without loyalty. The other knew how tall she needed to stand to overcome the conspiracies against her by Philip II and the Pope. One failed to plan with a view to pivoting (Philip II), the other pivoted as needed, being brave or risk averse, canny or childlike, forthright or evasive, forgiving or vindictive, volcanic or serene (Elizabeth). One was taking away the wealth of the Americas (Philip II), the other advanced the strategic role of mischief by attacking Philip’s II ships – as they were returning with gold and silver from the Americas – and blaming pirates for it!
A gyroscope is mandatory for investment pivoting, especially when inflationary pressures can undermine financial stability. In a gyroscope, the axis of rotation is free to assume any orientation by itself. The Day After requires an investment strategy that frightens wolves while detecting snares. But isn’t it what Machiavelli advised his Prince, to be a lion and a fox? The Day After is characterized by Net Zero environmental policies. Could that possibly mean investing in carbon trading and in conventional energy due to higher oil and gas prices? Could that translate to higher carbon prices (the European offset prices have gained about 160% so far this year) and higher profits for conventional energy companies which, in turn, translates to higher prices for the pertinent stocks? (On average oil companies have gained 50% so far this year).
The dysfunctionalities observed in Washington DC nowadays, remind me of the days of Philip II. Religion was undermining diplomacy and patriotism during the days of Philip II and Queen Elizabeth. Philip II was no longer interested in crusades. His aim was to liberate Cantenbury, by killing European Christians who had rejected Rome’s authority. Pope Pius V licensed, in effect, the killing of Elizabeth by excommunicating her (1570). Elizabeth’s reaction? The appointment of Francis Walsingham as Secretary of State who established an unprecedented system of counterespionage throughout Europe. The result? Elizabeth’s forces and strategy worked. The lioness knew how to pivot and behaved also like a fox.
So, where does the serpent and the dove fit into all of this? “Behold, I am sending you out like sheep among wolves. Therefore, be as shrewd as serpents and as innocent as doves”, Matthew 10:16, NIV.
The Hendiadys Way of Investment Pivoting: A Lion AND a Fox; a Serpent AND a Dove
Author : John E. Charalambakis
Date : October 12, 2021
By 1556 AD, King Charles V had abdicated the Spanish throne to his son Philip II. The Habsburg dynasty was well into its way of dominating European (and not only) affairs for the next three and a half centuries. Twenty years later, King Philip II had adopted a motto from the days of Alexander the Great: “Non Sufficit Orbis”, “The World is not Enough”. However, the pain remained, and it was that same pain that forced Charles V to abdicate the throne: Too much debt. The way out? Activate the engine of finance, a.k.a. war, and seek expansion through conquer and/or acquisition via mergers (known in those days as marriages among the royals).
A quarter of a century later (1600 AD), in “The Tragedy of Hamlet”, William Shakespeare will teach us the importance of the keyword “and”, signifying that success requires the presence of a lion and a fox, a serpent and a dove.As we are hopefully entering the last phase of the pandemic and are facing the “Day After”, the fact is that several things are changing, and new waves and structures are formulated, all which mandate that investment strategies require pivoting, Machiavellian maneuvering, and a hendiadys way of thinking and acting.
In the Day After, economic, financial, and political realities tied to China need to be confronted. Chinese developers carry more than $5 trillion in debt. Defaults are to be expected. Financial institutions (like Citic, China Construction Bank, Agricultural Bank of China and others) could be shaken, especially after it has become known that a financial crackdown is in the works, similar to the one that is taking place in the tech sector. Bond investors may be in for unpleasant surprises. Already, Asian bonds are trading at yields of over 20%, signifying rising risks of default. Borrowing will be slashed and so will Chinese growth. The Chinese middle class will shrink, and a good number may lose the down payments for unbuilt housing units (Chinese couples have paid prices that reach as high as 40 times their annual incomes!). Local governments’ finances will experience tremors (since their revenues depend on land sales which are dropping, and because they have also guaranteed developers’ debt). Reverberations will be felt from Asia and Europe to North and South America, while African countries may be facing the harsh calls of repaying debts they accumulated through the Belt & Road Initiative. Even the notoriously unstable Chinese stock market may take some time to recover (based on past experiences, the drop of 50% this year should be followed by a rally). Historians have claimed that one of the failures of King Philip II was his inability to delegate. President Xi seems to be behaving like King Philip II: a lion not comprehending the need to also behave like a fox. King Philip II was a ruler of megastate who micromanaged, and that turned out to have dire consequences for his empire.
During the times of King Philip II, Elizabeth Tudor the Queen of England was setting the stage for England’s supremacy. Queen Elizabeth will prove to be a lioness and a fox. Even after ordering the execution of her cousin Mary Queen of Scotts, she gave a masterful performance of weeping and protesting of deception by her counselors. Queen Elizabeth was the epitome of a ruler of a microstate (when she became a Queen) who knew how to macromanage in order to defeat her enemies and become the Queen of a megastate. One is venerating (Philip II), the other is calculating (Elizabeth). One inherited a bankrupt empire and continued accumulating debts while declaring bankruptcy a few times (Philip II). The other had to unite and advance a divided country after following in the throne her kin, Mary Tudor (a.k.a. Bloody Mary due to the executions she ordered of her religious Protestant opponents). One was a big spender and never had enough (Philip II). The other strived for thriftiness and, for the grand majority of her reign, she ran surpluses (Elizabeth). One knew what she wanted (Elizabeth). The other was constantly suffering from an existential crisis (Philip II). One was conquering by marrying (Philip II even proposed to Elizabeth), securing funding without loyalty. The other knew how tall she needed to stand to overcome the conspiracies against her by Philip II and the Pope. One failed to plan with a view to pivoting (Philip II), the other pivoted as needed, being brave or risk averse, canny or childlike, forthright or evasive, forgiving or vindictive, volcanic or serene (Elizabeth). One was taking away the wealth of the Americas (Philip II), the other advanced the strategic role of mischief by attacking Philip’s II ships – as they were returning with gold and silver from the Americas – and blaming pirates for it!
A gyroscope is mandatory for investment pivoting, especially when inflationary pressures can undermine financial stability. In a gyroscope, the axis of rotation is free to assume any orientation by itself. The Day After requires an investment strategy that frightens wolves while detecting snares. But isn’t it what Machiavelli advised his Prince, to be a lion and a fox? The Day After is characterized by Net Zero environmental policies. Could that possibly mean investing in carbon trading and in conventional energy due to higher oil and gas prices? Could that translate to higher carbon prices (the European offset prices have gained about 160% so far this year) and higher profits for conventional energy companies which, in turn, translates to higher prices for the pertinent stocks? (On average oil companies have gained 50% so far this year).
The dysfunctionalities observed in Washington DC nowadays, remind me of the days of Philip II. Religion was undermining diplomacy and patriotism during the days of Philip II and Queen Elizabeth. Philip II was no longer interested in crusades. His aim was to liberate Cantenbury, by killing European Christians who had rejected Rome’s authority. Pope Pius V licensed, in effect, the killing of Elizabeth by excommunicating her (1570). Elizabeth’s reaction? The appointment of Francis Walsingham as Secretary of State who established an unprecedented system of counterespionage throughout Europe. The result? Elizabeth’s forces and strategy worked. The lioness knew how to pivot and behaved also like a fox.
So, where does the serpent and the dove fit into all of this? “Behold, I am sending you out like sheep among wolves. Therefore, be as shrewd as serpents and as innocent as doves”, Matthew 10:16, NIV.