Free Weekly Email 12.18.24
We Are Headed Towards a System of National Capitalism
Market strategist and historian Russell Napier outlines a future in which governments mandate where investors should deploy their capital. The global monetary system that has existed since 1994 is being radically restructured.
When we last spoke, you said that governments had found the magic money tree: That by guaranteeing bank loans, they could create money at will, paving the way to financial repression and inflating away their debt. Is that still your view?
In the long term, yes. Financial repression and inflating away bloated debt levels will be with us for years, even decades. But I think we’re experiencing a hiatus first. Governments did exactly what I said in 2021. They created money on a massive scale. Their actions, quite predictably, led to inflation. But then they panicked. So they handed the ball back to the central bankers and said do something about this. In my opinion, central banks have done too much, they hit the brakes too hard. Hence my fear that we might be facing a deflation shock in the short term.
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I say we are headed towards a system of national capitalism. Interestingly, the term ‹national capitalism› has been used before, by a man who used to live in Zurich for a while: his name was Lenin. In a system of national capitalism, governments direct national savings towards national purposes. And our purposes today are investments, as outlined by Macron or Draghi and also by industrial policy initiatives in the US: Investments in energy infrastructure, in defense, in new productive capacity in order to de-risk from China. If we get into a bad Cold War with China, this will have a high national priority.
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It has to be a system that permits everybody to inflate away their debt. It has to be a system that allows inflation and a suppression of domestic interest rates through the use of national savings. Which means there will have to be forms of capital controls. In today’s world, where most financial assets are held by institutions, capital controls can take the form of regulation. Think of your government regulator mandating all pension funds to buy a certain amount of government debt or other domestic financial assets. That’s what national capitalism will look like.
I agree that the West will have to enter a period of financial repression to address its debts. This will create opportunities as well as pitfalls. For example, fixed income is dead, and bonds will be renamed certificates of confiscation as they were in the 1970s. Hard assets, gold, etc.. will be the place to be.
What If We Run It Hot…?
Following up on the Russel Napier interview above, Kuppy has some interesting points in a similar vein. He also addresses the reasons I am becoming more bullish on Latin America.
America often leads the rest of the world. After a month of listening to Trump, and those whom he has appointed to various cabinet roles, it’s difficult to discern what his economic policy platforms actually are. In fact, most of his best articulated plans are contradictory. It’s as if there’s no plan. So, let’s go to First Principles here—what do we know about Trump?? He wants to cut taxes, cut regulations, and hopes that DOGE can find enough savings so that they don’t have a Liz Truss moment. He plans to run it hot. White hot. Trump wants nominal GDP growth, and he doesn’t care if our fiscal situation looks like Brazil’s. Everything else, from tariffs, to the Dollar exchange rate are secondary. He just wants it hot.
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Now go to South America, who are the leaders that are most respected?? Bukele and Milei. Who does everyone want to replace their current leaders with?? Strong-willed guys, who are doing stuff. Those two inherited terrible hands, but they’re doing the best they can. What happens when Brazil, Chile, Colombia and Peru all swing hard-right in the coming elections over the next 2 years?? Have you seen the approval ratings for Lula, Boric and Petro?? South America is done with the Socialists. What if pro-growth candidates take over??
This is a good article about running things hot and not just in the US.
OPEC, Oil Demand, and Canada’s Role: Expert Insights from Eric Nuttall & Amrita Sen
Dive deep into the complexities of global energy markets in this captivating conversation between Eric Nuttall, Senior Portfolio Manager at Ninepoint Partners, and Amrita Sen, Founder and Director of Research at Energy Aspects. Explore critical topics such as the future of US shale production, OPEC's strategy, the impact of geopolitical factors on oil prices, and the strategic importance of Canadian oil in the global energy landscape. Amrita's in-depth analysis and Eric's thought-provoking questions make this a must-watch for investors, energy enthusiasts, and market analysts.
$100 Oil In 2025? | Josh Young and Jimmy Connor
Josh Young, Founder of Bison Interests, discusses what a Trump Administration means for the oil and gas price in 2025.
Millionaire boomers less likely to share their wealth: Study
Millionaires Millennials and Gen X are more than twice as likely as baby boomers to prioritize sharing their wealth with the next generation, according to a new study from financial services company Charles Schwab.
Data revealed that baby boomers, born from 1946 to 1964, plan to spend most of their wealth rather than reserve it for future generations.
The survey analyzed 1,000 high net worth Americans, those with more than $1 million in investable assets. It revealed that younger wealthy Americans plan to break from tradition and transfer their wealth rather than waiting until after death.
The boomers strike again. This isn’t about sharing their wealth with strangers; this is their own children and grandchildren. Boomers are the worst generation ever.
Crescat Capital: December 2024 Update
The US is overvalued versus the rest of the world in terms of price-to-book measurement.
I pointed this out in one of the videos, and someone commented that the price to book is not a good measure for valuations. I hope they are correct because if this mean reverts, we are in for a big fall at some point. I prefer to find value in the rest of the world.
"It’s almost ironic that some interpret the recent shift in political leadership as a fresh chapter of American exceptionalism, when in reality, we have already experienced an extraordinarily extreme period. While this trend could persist for some time, it is difficult to argue against the notion that it is becoming increasingly long in the tooth. A reallocation of capital from these highly valued assets to those that have been largely ignored seems not only plausible but overdue." Tavi Costa Crescat Capital
That’s it for this week.
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Regards,
John Polomny