Digest 9: Subterranean London, Russell Napier, tech optimism
Subterranean London
I happened across this video with Dr Bradley Garrett (first 5 mins):
I’m past the age of being daring enough to break into things, so settled for a London Transport Museum ‘Hidden London’ tour of Down Street and Aldwych stations – both of which were very good.
It’s fascinating to discover how extensive a network of (little-known) tunnelling exists beneath London.
Over towards Holborn…
I don’t think the MI6 bit is accurate, but intriguing the Cold War ‘Hot Line’ between Washington and Moscow routed through here.
Whitehall itself has – from readily published material – an extensive underground network. From Wikipedia:
The name Pindar is taken from the ancient Greek poet, whose house alone was left standing after Thebes was razed in 335 BC.
Bradley’s book has many incredible photos. There’s much more I could share here, but I will refrain!
Russell Napier, financial repression
I recently came across a very smart Northern Irish financial historian, Russell Napier, whom I have listened to many excellent interviews with.
To preface this: I’ve become engrossed with this subject not because I’m investing obsessed, but because I think investment analysts have the best incentive structure actually to try and understand the world and what’s happening.
My understanding of Russell’s present thesis, distilled (not direct quotes, but a general summary):
What we are living through is not just another business cycle.
We are, globally, in the ‘age of debt’. (China is not doing any better here than the West.)
Those who say we had debt levels roughly this high post-WWII, or any debt-to-GDP level cited for panic is arbitrary are missing several things (1 minute):
This leaves five conceivable ways for governments to proceed:
1) Austerity (governments cutting spending to less than they collect in tax revenue)
2) Hyperinflation (technically defined as +60% per month)
3) Very high real growth (which would be terrific)
4) Financial repression (a prolonged period of inflation higher than interest rates; high taxes, capital controls)
5) Default#3 is in large part in private sector hands. Leaving the most politically palatable thing governments can do being #4, financial repression.
Debt levels are sufficiently high it’s foreseeable governments will have to force savers to own an asset they don’t want (to buy government bonds), even when it is a virtually guaranteed loss-making proposition.
This requires export/exchange controls (to prevent people taking money abroad). And windfall taxes/rent controls, to make other types of investment less attractive relative to holding government bonds. This is further deleterious to equities.
It’s difficult to summarise Russell, as there are so many things I’ve learned. A few favourite time-stamps…
- The Office of Price Controls under Nixon. (Price controls do not require a left-leaning government to be implemented!) For ~2 minutes:
- A 2016 interview – incentives made it such that inflation was coming (~2 minutes):
- A false narrative: a country doing well economically does not mean its stock market will boom, and vice versa (~2 minutes):
More I will just link here:
- Passive investments (index funds, etc) are bad for society/the allocation of capital
- This on equities I thought really good
- Pay attention to what the locals are doing (in this case referring to China)
- Companies should block out half a day a week and encourage employees to read history
And Russell quoting James Grant: ‘Progress is cumulative in science and engineering, but cyclical in finance.’ [Because we seem incapable of retaining learnings.]
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What can you actually do if you think this future likely?
Advice ranges from…
- Find jurisdictions where the government isn’t going to tell you what to do with your savings (marked by low debt-to-GDP levels).
- Have money in countries you want to spend time in (so it doesn’t matter if you can’t get your money out).
- Have investments in your own name, not in mutual funds / pension funds, which are more likely to be mandated towards enforced bond buying.
- Physical gold – a small enough asset class the government wouldn’t likely come after it today (unlike the 1930s).
- Commodities – Russell thinks there’s going to be a capital expenditure boom in the coming years (both towards renewables, and weaning dependence off China), that will be a boost here.
- Crypto – though Russell is personally skeptical here.
Capital controls, Ray Dalio
Russell’s thesis is corroborated by Ray Dalio, writing last month on LinkedIn:
in times of war all economies become command economies de facto run by their governments rather than run independently in pursuit of profits. That is because the profit-making system doesn’t get the resources directed to where they are needed most in order to fight the war.
...some countries greatly restricted the ability to buy and sell assets, access savings abroad, and flat out confiscated earnings/profits above a certain level. For instance, many countries simply closed their stock markets, meaning many people couldn’t access their savings held in equities at all.
...wealth confiscations are relatively common in history, ranging from forced selling of gold to wholesale confiscations of real and financial assets.
...severe capital controls were commonplace (until relatively recently)
It was common for rising geopolitical tensions to usher in these sorts of controls, making it harder for investors to access their savings.
Dalio has briefly mentioned capital controls in interviews (10 seconds), too:
Dalio further explains:
Looking ahead, most governments’ fiscal spending will remain much greater than the tax money taken in, which will require governments to sell a lot of debt... which will be met with inadequate demand [for their bonds].
The demand will be inadequate because investors are losing their taste for owning debt assets [bonds] that... are still failing to compensate them for inflation.
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When taking the (above mentioned) ‘Hidden London’ tour of Aldwych station – which is used today for filming any period drama on the Underground – it was interesting to see the following poster!
John Cochrane – a heretical thought on China’s lockdowns
Click into YouTube to see it. ~1 minute.
As unenviable a spot as China is in right now, is it better prepared to meet a potentially more lethal future pandemic – while in the West we’ve over-learned ‘lockdowns don’t work’?
Thatcher on appeasement
I like finding good counterarguments to things I’ve written.
My last update was all about world peace.
Here, for ~2 minutes, is Margaret Thatcher on her total unwillingness to negotiate during the Falklands:
Of course, Argentina didn’t have nukes. But worth considering a full spectrum of opinion.
Tech optimism, Steve Hsu
From Twitter:
If AI / transhumanist things happen this stuff about slowdown will seem kind of silly in retrospect.
Will GDP or human-centric utils calculus mean anything IF
1. We achieve AGI?
2. We genetically engineer superhumans with 200+ year lifespan and 200+ IQ?
Some of us think science and technology are getting close to these breakthroughs.
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