Geopolitical Compass #34
The investment implications of global turmoil.
This Week:
Australian bureaucrats in mourning while taxes raid your retirement
Poland; time to move on?
War; what is it good for?
Volatility ≠ Risk.
Australia
Last week I mentioned the lost referendum which the majority of the nation was happy about, but obviously for government bureaucrat virtue signalers it was a crushing blow.
Fear not, they’ll take care of themselves with five days of leave to mourn, courtesy of the tax payer.
Higher Taxes
Still in Australia, the federal government is pushing ahead with changes to the nations pension (superannuation) funds including taxing unrealised gains. The threshold will also not be indexed to inflation.
The Albanese government has dug in on its controversial plan to tax unrealised gains on earnings from superannuation balances over $3 million, with industry experts and the opposition slamming Labor for failing to take on stakeholder feedback.
This will cause havoc for people holding large assets such as property in their retirement accounts once the assets rise in value.
More than one in 10 self-managed super funds hit by Labor’s controversial plan to tax unrealised gains in $3 million-plus superannuation accounts do not have enough cash to pay the tax, a study shows, triggering warnings of forced asset sell-downs.
Politicians retirement funds will not be subject to the new tax changes. Their retirement accounts are classed as “defined benefit schemes” in which the taxes can be deferred. Shocker.
Introducing unfair taxes like this is what leads to the downfall of previously wealthy (in a financial and human resources sense) states as people migrate to places that treat them fairly. It takes generations, but brain drains are a real thing and detrimental to the future prospects of any nation.
Poland
After last weeks election, it looks like former EUSSR council president Donald Tusk’s party will take over government from PiS, forming a coalition despite garnering less votes than the incumbent government.
Opposition parties have secured enough votes in Poland's general election to oust the ruling right-wing populist Law and Justice (PiS) party, results have confirmed.
PiS won the vote with 35.38%, ahead of Donald Tusk's centrist opposition Civic Coalition with 30.7%.
But Mr Tusk is now most likely to be able to form a broad coalition.
That’s Democracy™ at work for you.
No surprise there, it’s the way politics work in a West falling apart (ok I know we’re talking Poland, but it’s Western control moving in). Seldom do many parties/leaders receive enough support in their own right to form government - looking at you Macron with you’re astounding 27.9% in the first round 💪🏼🙄.
Instead they resort to rag tag coalitions of numerous parties cobbled together that inevitably get bogged down in infighting before the governments eventually collapse. In the case of Europe, that’s exactly what the unelected officials in Brussels want - basket case nations with no strong local leadership, eager to fall into line with big brother. In the last two years alone, we’ve seen coalition governments collapse in Netherlands, Slovakia, Estonia, Bulgaria, Italy, and Germany…. any month now.
Fortunately for Hungary, the same opposition tactic didn’t work earlier this year when they tried to oust Orban. But thanks most likely to the Polish PiS parties ardent support of Ukraine, the Zelensky curse looks to have claimed yet another scalp.
What does a change of government mean for investments in an until now economically strong and independent minded Poland within the EUSSR? After an initial influx of funds that have been held back by Brussels, I doubt many good things.
It may take a while to bring down what has been built and bring the country to heel, but that is the role Tusk has been tasked with, like Draghi in Italy before him. Above all else these people are loyal to Brussels, not their own nations.
Assuming Tusk does take the reigns of Polish government in the months ahead, expect to see over the next year and beyond:
More EUSSR flags
Much more ESG talk
Less independence and opposition to EU policies and budgets
A judiciary that will bend the knee to Brussels
Industry having more virtue signalling and less sensible economic policy thrust upon them
Even more anti-Russian sentiment than usual, which for the home of Russophobia would be some feat
Keep in mind a large number of industries including energy in Poland are still dominated by majority state controlled enterprises, so industry will fall into line.
Maybe it won’t be as bad as the above, or perhaps it will all take longer to implement than we can expect? The EUSSR government offices are full of useful idiots inept bureaucrats so it likely will.
But as Poland is made to fall in line with the rest of the EUSSR zombie constituents, it’s not a place I’m thrilled to keep investment dollars any longer. I’ve exited my investment in Orlen - there are energy players just as cheap that aren’t handing the reigns over to the clinically moronic Brussels pencil pushers.
For now, I’ll hold onto my JSW stock which - as the EUSSR’s largest producer of met coal and coke - is producing a product that is readily exportable to the rest of Europe, India and Asia and is chronically undervalued compared to US met names. But otherwise for now Poland is off my investment radar.
For further on the ground perspective on the Polish election result and potential ramifications, check out Modern Investing’s take:
War & Investment Implications
While I believe a lot of this is bluff and the Ukraine project will be abandoned in short order, the bluster in the United States is that it can afford two wars - both Ukraine and Israel, while still poking the Chinese over Taiwan to potentially foment a third front.
It’s very telling that the Treasury Secretary is out beating the war drum. Wars cost money, and lots of it. The US has the exorbitant privilege of controlling the world’s reserve currency. Without this power, it would be harder to continue paying for endless wars. (Fun Fact: The US has been at war for 230 of the 247 years since it’s founding.)
It’s a very simple equation; Money Printing = War
If you can print money out of thin air and have it accepted by your populace and other nations, you can carry on endless wars. Thankfully there is hope on the horizon. Bitcoin - and to a lesser extent Gold - will remove the privilege of money printing from nations states, and while we are likely still a couple decades away from it taking over that roll, with each passing year - more people and more nations are waking up to the reality of the equation above. In the interim, many non-western aligned nations are already ramping up gold purchases.
Once a critical mass of people truly understand the change a hard money brings, wars will still occur, human nature being what it is. But these conflicts will be much shorter lived when people are given the choice; fight this war, or build these bridges and railways. Go to war with this nation and spend billions, or reach a diplomatic compromise and continue to trade and not destroy your economy.
Middle East
So what happens if those intent on increasing current tensions and conflict in the Middle East succeed? One consequence of heightened tensions in the region could lead to a closure of the Strait of Hormuz, a vital shipping route for supply of energy.
What happens if conflict in the region where a large amount of the world’s oil supply ramps up? Energy prices skyrocket.
What happens to shipping routes if vessels are delayed in the region, or need to avoid the region, taking longer routes? Ton mile demand growth rises and shipping rates skyrocket. Meanwhile, tanker construction is at a decade low of 4% of the fleet. So limited supply and growing demand - the perfect storm for shippers.
All this is good for energy producers and transporters, especially those outside the Middle East region including in South America, the North Sea or Norwegian Sea. It’s also good for shipping companies who’ll see day rates for oil and product tankers soar.
It seems today politicians are intent on causing trouble, whether outright war or just simple trade wars, embargoes and sanctions. This suits their own interests, whether it be because they are beholden to ‘hidden’ benefactors like the Military Industrial Complex, ideologues following idiotic globalist agenda’s, or they simply want to distract their populations for other reasons. Choose your poison, it doesn’t really matter, the results are the same; the current chaos we see worldwide.
This chaos leads to inefficient markets, restrictions in supply, rising costs of everything and it all starts with higher energy prices.
So if you can see the reality we’re facing brought about by our leaders, either through intention, sheer ignorance or pigheaded stupidity of the ruling class, what can you do about it?
I’ll leave ‘writing your congressman’ or local member to others, meanwhile I’ll be over here…
Volatility ≠ risk.
In my research I’m always on the lookout for undervalued stocks, particularly those with high dividends that pay me while I wait for a re-rate of the sector.
With increasing frequency I see banks popping up on screeners and a lot of people proclaiming how cheap they are.
One of my investment rules is I don’t invest in banks. They’re black boxes able to hide all manner of surprises and evil deep within (or off) their books.
There’s a reason so many banks around the world look ‘cheap’ now. The entire financial system is on a precipice and it’s going over the edge in the next year or three. I’m not delusional that my chosen investments will be immune when that happens and realise there will be wider implications for many industries. That’s one of the reasons I favour companies with low and manageable debt levels.
But I’ll be damned if I’m going to fall for the allure of the ‘cheap dividends’ being offered by banks around the world. The only allocation I make to a financial vehicle is Bitcoin.
Many will think I’m the crazy one investing in high-risk and volatile Bitcoin over large, safe banks. But remember, Volatility ≠ Risk. If a good investment is too volatile for you, drop your exposure to the point you don’t wet your pants with market gyrations.
I have investments in a Brazilian fertilizer company and a South Asian (wannabe) coal miner, both dropped 30% within weeks of my entry. I don’t care because I sized the positions appropriately. If they go to zero, I’ll happily move on with my life.
Volatility scares people away from potentially life changing investments like Bitcoin which is unfortunate. The next 12-18 months will shock a lot of people, on both the precarious nature of our financial system, and the real risk of not investing in Bitcoin.
I don’t know what the right allocation is for you, but I do know zero is the wrong one. Bitcoin is insurance against a financial system teetering on the edge. Insurance is there for a reason.