Trade Alert: The New Global Economic Paradigm Means New Risks (And Eventual Rewards)

I got back from Austin late last night after a very productive and even fun trip so Amaris could do five days of intensive neuromovement therapy. Here’s a shot of her at work learning to sit up on her own and otherwise figure out new movements.

Now let’s move onto all this other stuff….

This war is shameful and crazy. Pretty much all wars are.

And there’s no telling what this terrorist, Putin dude, is going to do next.

What I do know is that the globalized world economy is not going back to what it was. As if the Coronavirus Crisis and The Supply Chain Crisis is helped cause weren’t enough of a reminder, having a superpower violently invade another country and the ripple effects it is having on the supply chains and financial systems around the world is going to make every country move towards domesticating all supply chains. We’ve seen the US government making moves to help Intel someday make chips for other companies and that is probably the playbook for lots of industries. Do you want to source your supply of plastic or textiles or even more finished goods from China when the fragility of such a dependence is now again on full display?

For years, it’s always amazed me how we can buy a weird fruit from China at the local Albertson’s in Ruidoso as we can an apple from El Paso. The cost of shipping and moving goods around the world has been incredibly subsidized with the protection and wars and investments our government has channeled towards the Middle East in order to help keep the price of oil down (I guess that’s why we’ve been in there for all these decades, right?).

This model, this paradigm, this entire globalized economy is changing. I’m not sure yet what that means. It will probably mean yet more inflationary forces for the next few years but longer-term it will probably be amazing for the US economy as we will unleash new robotics, software, app and other technological revolutions that will make our domestic supply chains and distribution chains and retail business models ever more efficient and profitable. But that new secular trend will take at least a year or two to kick in. And it will take another two or five years to start affecting the economy in good ways.

Which brings me to the market set up analysis here. Obviously the Russian/Ukraine war and the blackhole of vacuum that it seems to be as it sucks in ever more of the world’s attention and resources is the single biggest near-term factor for the markets.

But even looking past that, I continue to be worried that the US economy has some recessionary tendencies to it as we work through the unwinding of the now-over twelve year-long Bubble-Blowing Bull Market that culminated with the SPAC and Speculative Crappy Stock Bubble popping last February before these stocks almost all crashed 80-99%. There was a lot of excess out there that’s still being worked through and the trickle down effects of that crash is starting to be felt in many tech-centric cities like San Francisco and Miami. Crypto geniuses who bought cars, boats, computers and/or the best smartphones on credit in the last two years while their crypto and speculative stock accounts were through the roof are now trying to figure out how to unwind all of this mess. People who bought extra houses to put on AirBnb and giant funds who bought real estate around the country en masse could be next.

And I’ve talked a lot over the last year about how crowded it felt to be a Revolution Investor, as everybody was suddenly saying that they focus on finding the best technological revolutions and holding on for the long-term. It’s less crowded out here now as so many people and money managers are dealing with huge losses and are moving on to cash or defensive stocks or value investing or just paying off debt. But it’s still crowded in crypto and it’s not exactly lonely out here being a tech-centric investor right now. Maybe we’re halfway or 2/3 of the way of churning through those weak-handed investors and the crappy stocks that still have to go lower and/or go all the way to zero before the cycle turns. I don’t know, but I do think there will be better times to buy most tech stocks (other than Intel and maybe a handful of others like FB, UBER and RKLB) than right now.

Let’s get back to looking at the Russian/Ukraine war and then I get definitely start leaning towards being cautious and careful and avoiding greed right now. See, unless China somehow decides to join the rest of the developed world in isolating and shaming Putin and/or unless his generals and the public of Russia somehow rise up to overthrow this dude and end this war, I’m not sure how this war ends quickly. Regardless, I am struggling to get my head around how the new less-globalized economy is going to work.

For years, my entire career in fact, my baseline economic thesis has been that the Internet combined with a globalized economy, for all its many faults, was going to make trillion dollar economies abound as it brought billions of people out of poverty and into the consumer class. The openness of the system, while not as transparent or open as it could be, would allow companies based in the US, which obviously can out innovate anyone, to become trillion dollar businesses. That’s what happened. That’s not the set up any more.

That doesn’t mean what’s coming next won’t be even better at creating trillion dollar valuations and improving the lives of billions around the world — in fact, dollars to donuts, I fully expect that whatever paradigm comes next will indeed be better. But there are new risks to the earnings power over the next five years for most of the companies in our portfolio that weren’t there two weeks ago before the outbreak of this war in Europe.

I’m going to err on the side of caution right now and raise a little cash into this rally off the lows last week. In both my personal account and in the hedge fund, I’m doing a some trimming today across the board (about 10-20% of most of my positions) and in the hedge fund, I’m adding to my short hedges and will continue to do so if the markets continue to rally near-term. I’m also selling my SKLZ and taking the loss, mea culpa.

I’m not outright short or bearish or anything like that, but I want to step back from things here a little bit while the fog of war is heavy but stocks have bounced. I’ll obviously be open to buying or adding to great companies’ stocks on weakness too, but for now I’m raising some cash and getting even a bit more defensive than I have been for the last year.