How to Win the Ukraine War (without firing a shot)
I had a chance conversation with a Ukrainian scientist today, with whom I shared my reasoning as to why the Ukrainian war is being fought and how it can be resolved. My views are unconventional and quite contrary to the prevailing winds, but as she liked them so much, and as they may be helpful to unwind a dangerous and contentious problem, I made a video to walk you through my ideas.
How to Fix ESG in Impact Alpha
To read the opinion piece on how to fix ESG in Impact Alpha: ESG data is a public good. Let’s open it up.
Full Market Disclosure is the Key to ESG Price Discovery and ESG Market Leadership
I’ve spent the past five months working hard to solve the ESG data and standards problem.
It turns out that the key is to ask the question, “How does one generate ESG price discovery?” And the only way that this problem can be solved is through a radical rethink of how ESG disclosure should work in markets along with a deep consideration of ESG ethics.
The result is blending together a 13F filing with the SOFR (Secured Overnight Financing Rate) price construction and the right mix for ESG price discovery comes together. Oh, and making ESG ratings free for individuals and small organizations.
Ideas – Buy Deep Out of the Money One Year Puts in Size on US Equity Indices, Delta Variant Risk Up
The Australian government initiated a strict two-week lockdown in Sydney this week and its news service laid bare the significant risks of the Delta Variant, implying a much higher risk than is being made clear by governments in Western Europe or the US. We believe the Australian report to be solid as they have a very open, cohesive society.
The exceptionally transmissible Delta Variant is likely to infect everyone until communities hit a population immunity threshold of vaccinated or previously infected. In the United States, 54% of all Americans have had one dose and 46% are fully vaccinated; worryingly, 17 states have first-dose vaccination rates below 50% among 18-year old’s and up. Globally, only 39 countries report having vaccinated more than 40% of their population.
The uneven, slow roll-out of vaccinations in the United States and across the world mean that people are going to have to get sick to achieve herd immunity in their communities or they will have to lockdown and wait to get vaccinated. The result is that large parts of America and entire countries will likely have lock downs from the Delta Variant, surges of illness, or mixes of both. The more people the virus infects in different settings, the greater the chance that dangerous new variants arise which current immunities are not effective against.
Governments, central banks, and markets will find anticipating and managing these rolling crises problematic. These and other risks described in earlier Macro ESG pieces are quite likely to overwhelm monetarily stimulated stock markets.
Consequently, Macro ESG went inordinately short US equities today (June 29th) through large purchases of deep out of the money one-year puts in the Leveraged Aggressive Model Portfolio.
SOCIAL MEDIA SHORT UPDATE
NB: This is an update to the January 11, 2021 piece “Social Media is a Solid Short.”
When Tim Cook, CEO of Apple, called out Facebook’s business model as being a social liability for humanity, he put a cap on the stock price.
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Trade location: Facebook shorts should be made against the high of this day. While the market power is so substantial now, FB is gently listing along.
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As the US congress and President Biden are tied up with vaccinating America and getting the stimulus program into law, this has kept the hammer of the government from coming down yet on social media while Australia led the challenge of the social media revenue model. If this were to happen across the world, Facebook’s near 40% profit margin on about $80 billion in revenue would shrink.
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Jeff Bezos confirmed the negative outlook for mega-tech when he announced that he is stepping down as CEO to become Executive Chairman of Amazon, in a move almost certainly tied to the fact that the top job will become about managing regulatory risks like anti-trust, labor unions, and consumer privacy.
SOCIAL MEDIA IS A SOLID SHORT
The time has come to short social media which means Facebook and Twitter as they’ve been the engines of the political controversy.
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After last week’s attack on Capitol Hill, the Congress has impeached the President for a record second time and will certainly reign in his tool of power - social media.
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The Russell 2000 Small Cap index is up ~20% since the election of Joe Biden on November 10th, indicating a change in stock market leadership.
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As Facebook has been riding a wave of good will for a long time that has allowed the company to remain exceptionally profitable – that good will is totally over, and the pendulum will swing the other way. Facebook may be broken up on anti-trust grounds and long investigations and hearings will be burdensome to the company.
Blue Wave is Complete With Historic Diversity
Blue Wave is Complete
The election of Raphael Warnock and Jon Ossoff in the Georgia Senate run-off elections has completed the Blue Wave.
Macro ESG Called It Months Ago
Macro ESG called on July 23 in “Macro ESG Daily: We Are At an Inflection Point” that "...the Senate is going to fall to the Democrats too. It’s going to be a political Armageddon."
And this is exactly what happened today.
Historic Diversity From Georgia
Raphael Warnock is the first African American Senator to win an election in the Deep South without being an incumbent since Reconstruction (the period following the Civil War).
Similarly, Jon Ossoff is the first Jewish Senator from the Deep South to be elected to the Senate since Benjamin Jonas, a Democrat, who was elected in 1879 from Louisiana.
“Macro ESG is calling the election definitively for Biden” 14 June 2020
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Macro ESG made a high conviction call on June 14th that Joe Biden would win the election with clear, sensible reasons (hence, the bullseye graphic above).
Macro ESG then went on to lay out an investment plan that would work in a Biden administration and beyond.
Macro ESG has taken the liberty to simply duplicate the original piece from June 14, 2020 below.
Please click this link to the Wayback Machine at Internet Archive to verify.
The Break Up of the Tech Platforms is Here
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For long-only investors, exit the platform tech names that now account for about one-fifth of the S&P500’s market cap.
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For long-short investors, time to think about which pairs make sense in the new world that is coming with the Trump loss. I’ll put a few ideas together and roll them out when I’ve conviction in them.
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The next bull market will not be about GOOG, FB, AAPL, AMZN.
Macro ESG - New Developments
I just spent a month using a Bloomberg intensively to see if it could do the trick to help with Macro ESG.
And it didn’t work.
Why? Specifically, the data sets that are required to think about Macro ESG are varied and intense. For example, I was doing an analysis of Angela Merkel’s refugee policy decisions which - inevitably - leads one to study German demographics. While the Bloomberg had each country’s population, it did not have fertility data (this to be published soon - I’ve legal pads and Word files full of ideas from the hiatus).
And that is exactly the opportunity. The Macro ESG business is for polymaths to support specialists. And it is desperately needed.
Biden Will Decarbonize the World
Update to June 14th “Global Investing Post Trump”
The Macro ESG forecast on June 14th in “Global Investing Post Trump” was that Joe Biden would win the presidency, “oil would become a stranded asset,” and the “move to renewable energy becomes a global goal.”
The Financial Times reports today in The Big Read article “Biden gambles on placing climate change at heart of US energy policy” that Mr. Biden is delivering on this promise to go big on climate change with a plan to decarbonize the US electrical grid by 2035.
Clearly, Joe Biden is going to go very big on this.
New China-US Detente Based on Reciprocity & US Mega Tech
President Trump just this evening ordered that US firms stop doing business with TikTok and WeChat in 45 days.
This is not a surprising development. As Macro ESG has been writing this week, US mega tech (as there really isn’t a comparable entity in the EU or developed Asia) are going to become the interlocutor and guarantor of Chinese tech and media operating outside of China, particularly with respect to users’ privacy and data.
Moreover, this fits with the earlier piece on reciprocity becoming the standard and the hitch here is really with China – China will never open up its domestic market to foreign technology companies, let alone American, because the Chinese Communist Party can’t retain power without overwhelming 1984 Orwellian social control.
China’s free pass to the West is over. Reciprocity is now becoming the standard of the game.
Is U.S. Mega Tech the Détente Bridge to Chinese Tech?
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US mega tech only gets stronger from mediating the China - US technology fight.
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Chinese bonds are going to drive capital flows to China - a win in the beginning.
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Privacy and data issues are going to become even more seriously regulated because of the China affair.
Review of Macro ESG Forecasts
Macro ESG is back from break and thought that we would start with a review of the calls to date.
In How China and the EU Come Out on Top in the US versus Russia and Saudi Arabia Crude Oil Battle, the best call so far is long China. The Chinese equity market is on fire. And likely to make a big move higher. But it is a closed market and so is the currency. So, it’s really hard to say just exactly what this means to the global markets – it’s sort of living in its own little world, market speaking….
Global Investing Post-Trump
Macro ESG is calling the election definitively for Biden. While this is a clarion call for the US, its equity market leadership echos throughout the world and will shape corporate and national priorities for the next three decades.
What is the investment opportunity?
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Growth will be in renewables, public health, technology privacy, education, infrastructure, basic materials, micro-agriculture, and affordable housing.
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Decline will be in military spending, corporate jets, ultra-luxury brands, financials, hydrocarbons, consumer finance, social media, online shopping, and cellular services.
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Markets will be positive post 2021, but as interest rates have hit bottom, it will be real growth, not empty liquidity-driven growth.
Clearly, Chinese Shares Will be Delisted in the US – Alibaba?
Given that the US government is unifying politically against China in a way that will likely stay unified, I believe that the Chinese companies will be delisted in the end.
American elites are starting to feel threatened by China, in part because of the coronavirus pandemic, so they are joining together in a solid coalition to take on China.
How Mike Pompeo Sparked the Oil Collapse and Changed Russian and Saudi Politics
When Secretary of State Mike Pompeo met the President of Belarus on February 2nd (the first SecState visit in 28 years) and offered him unlimited energy supplies at a “fair market price,” I believe this statement initiated the collapse in crude oil prices. His offer to a former Soviet vassal state forced Russia into a cooperative relationship with Saudi Arabia to drive the US shale oil producers out of business because Russia is a vast land power with enormous borders and uses energy supplies to influence its neighbors - it needs to maintain this leverage. Saudi would benefit from higher energy prices for its newly public company, Aramco, the largest listing of all time.
What is Macro ESG?
Macro ESG analyzes the global power dynamics of markets, politics, and technology interacting within the tightening constraint of a sustainable future.
I believe this process will have, by far, the single greatest impact on asset prices for decades.
Macro ESG is the synthesis of systemic and exogenous.
Is President Trump Delaying Coronavirus Infection Reports? (repost from futureblog.org)
Originally published on futureblog.org on February 12, 2020: Is President Trump Delaying Coronavirus Infection Reports? America’s Coronavirus Infection Rate is Oddly Low. CDC Coronavirus Testing Process is Slow and Bureaucratic. Trump’s Incentives to Delay Facts: Impeachment and Election. Is Trump Repeating China’s Mistake? One Million Students Left Wuhan, China’s Biggest College Town. Could Boston be the Next Wuhan? President Sanders? Trump’s 2nd Impeachment. Could Boston be the Next Wuhan? President Sanders? Policy Recommendation. Market Outlook.
The Saudi Oil Refinery Shut Down Impact on Oil Prices Will Tell Us If the World Is In an Extreme Oil Glut, the IPO of Aramco, and the Future of Electric Cars (repost from futureblog.org)
Originally published on futureblog.org on September 15, 2019: The expected rally in the price of oil when global markets open on Monday as a result of the attacks this weekend impacting Saudi Arabia which produces 10% of the world’s oil supply and news reports indicating that as much as half of Saudi equaling 5% of world supply will be immediately taken offline will tell us whether the the oil market is in a profound glut or not - I suspect it is in a state of substantial oversupply, the IPO of Aramco, and what this means for future of electric vehicles.