Asset Ownership Past the Event Horizon

How to Own Something & Be Happy

The revolution will not be televised, Gil Scott-Heron

Keir Starmer said the quiet bit out loud last week. Some months ago, he confirmed his preference for agreeable Davos over Westminster's shouty tribalism. His admission this week that those who own assets are not “working people” frees his Chancellor to engage in a trolley dash, grab all you can among the ISAs, SIPPs, nest eggs, inheritances and small businesses collectively representing the hopes and dreams of this country’s aspiring citizens.

In so doing, Keir from Legal and Rachel from Accounts can execute the World Economic Forum’s ambition for its wage slaves, “you shall own nothing and be happy.” It is not advisable to be old or own assets. Furthermore, in the future, expect the noose of financial repression to tighten around other socially unacceptable behaviours and attributes.

All Western governments are searching for the ever-diminishing peaks of dry land threatened by the inexorable rising tide of sovereign debt. Veteran investment strategist Ed Yardeni said last week that the bond vigilantes voted early, driving US 10-year yields over 4.25%, an almost equal and opposite move mandated by the Fed at the shorter end of the curve just a month ago. Many column inches have been expended, explaining this counterintuitive move. As Yardeni implies, it reflects the increasing likelihood of a Trump victory (a revolutionary president of memes and podcasts, not of TV) and the wider set of possible economic outcomes this event preludes.

Paul Tudor-Jones told CNBC he is long gold and Bitcoin and avoiding government bonds in what he described as the imminent macro Super Bowl for hedge funds. He broadly agrees with Stan Druckenmiller and Bill Ackman that a Trump victory is odds-on, but he feels that regardless of who wins, all roads lead to inflation.

Reeves and Starmer have made much of the black hole between £22bn and £40bn facing them on the eve of their first Budget Speech. However, the Peruvian Bull Substack recently demonstrated that the UK is a grain of sand in a cosmic-scale global problem of sovereign debt. In his analysis, the US is now past the event horizon of financial stability. He described it as,

The financial point of no return- where the financial gravity of the debt grows so large that not even the powerful U.S. Treasury can escape. Functionally, there can be multiple event horizons: the point at which annual debt growth exceeds GDP growth or when debt to GDP exceeds 120% or when interest on the debt exceeds tax receipts.

What this means is that the United States is quickly hurtling past the point of no return, with debt levels quickly going parabolic due to the debt ratcheting effect. This trend is EXPONENTIAL, with no signs of slowing down. In fact, we’ve added over $2.7T of debt in just the last year.

The economic reality of a world past its event horizon is overwhelming its politicians in this year of elections. Japan’s election over the weekend has notched up another blow to incumbent party power as recently appointed PM Ishiba is now facing an uphill struggle for survival. Jeffrey Tucker of the Brownstone Institute sees this as a trend in the ongoing collapse of the neo-liberal consensus.

The problem of migration plus pandemic planning are only two of the latest data points but they both suggest an ominous reality of which many people in the world are newly aware. The nation-states that have dominated the political landscape since the Renaissance, and even back in some cases to the ancient world, had given way to a form of government we can call globalism. It doesn’t refer only to trade across borders. It is about political control, away from citizens in countries toward something else that citizens cannot control or influence.

Some of the most high-status intellectuals for centuries have dreamed of global government as a solution to the diversity of policies of nation-states. It’s the go-to idea for scientists and ethicists who are so convinced of the correctness of their ideas that they dream up some worldwide imposition of their favored solution. Humanity has by and large been wise enough not to attempt such a thing beyond military alliances and mechanisms to improve trade flows.

Many of us have long predicted a backlash to the lockdowns and all that was associated with them. The full scale of it none of us could have imagined. The drama of our times is as intense as any of history’s great epochs: the fall of Rome, the Great Schism, the Reformation, the Enlightenment, and the fall of the multinational empires. The only question now is whether this ends like America 1776 or France 1790. 

While Tucker explains the depleted foundations of the established world of nations, economies, and financial markets, which rest upon supranational bodies and conventions, there are signs that many remain blissfully unaware.

A Sunday Times article by a leading investment strategist illustrates this most clearly in a piece comparing the strong performance of gold compared to bonds in recent times. For a leading financial institution, discussing this vital topic without mentioning the growth in sovereign debt or any demonstrable understanding of the currency debasement risk illustrates how early we are in this looming financial crisis. (Memo to self: Own more real assets.)

Finally, if you invest time into watching or listening to one thing this week, make this the one. If you want to understand the real nature of risk inherent in the world and attempt to preserve capital.

As Duncan MacInnes told me of this beautifully counter-intuitive masterclass on the nature of risk,

The idea of buying protection that others don't want is a good framing. I like the idea that earthquake insurance is cheapest just before the earthquake even though risk is highest; and then most expensive after the event when the risk has dissipated. 

My favourites were:

Banks don't go bust by taking too much risk. They go bust by leveraging assets they classify as riskless.

The power law that negatively skews returns is determined by leverage.

These are valuable lessons for us all as we strive to own something, however hard the globalists make it; hopefully, we can be happy, too. My impending visit to Argentina might hold some hopeful clues; let’s see.