Buy the Umbrella: Issue #1
Hi there!
This is the first issue of "Buy the Umbrella", a short list of interesting things I’ve been reading and thinking about during the week.
Book of the month
I recently started reading Anti-Fragile by Nassim Taleb and so far, I have found it thought-provoking.
A teaser:
“Wind extinguishes a candle and energizes fire.
Likewise with randomness, uncertainty, chaos: you want to use them, not hide from them. You want to be the fire and wish for the wind […].
We don’t want to just survive uncertainty, to just about make it. We want to survive uncertainty and, in addition have the last word.”
Given how highly indebted governments, companies and households are around the world, society is becoming increasingly more fragile to shocks. This results in reliance on low interest rates, money printing and bailouts. The risks of reversing these "emergency measures" are becoming too painful for the system to handle.
The question to ask: how likely is it that this is sustainable in the long-term? After all, fiscal deficits have historically proven to be a prime source of fragility in social and economic systems.
This resonates with the idea of ‘buying an umbrella’, precisely to make us less fragile in the face of unforeseen crisis. During a storm, the “umbrella” enables us to take advantage of opportunities that would otherwise not exist. Importantly, this results in us exiting the period stronger than if it had not occurred. This is what Taleb refers to as being "anti-fragile".
Tweet
The International Energy Agency chief is finally sounding the alarm on the collapse of capital investment within the oil & gas industry, which frankly is a little too late given the recent global energy shortages.
The recent price shocks are serving as a reminder of the world’s continued dependency on fossil fuels, even amid efforts to shift to renewable sources of energy. Are we certain we can transition to renewable energy fast enough to justify starving the oil and gas industry of capital starting now?
Quote
"In my opinion, the key to dealing with the future lies in knowing where you are, even if you can’t know precisely where you’re going. Knowing where you are in a cycle and what that implies for the future is very different from predicting the timing, extent, and shape of the next cyclical move. And so, we’d better understand all we can about cycles and their behavior."
Charts
Copper
Copper prices recently hit a new all-time high as supply/demand imbalances are becoming more pronounced, with stockpiles hitting a 47-year low and backwardation at its highest since 2014. Could there be investment opportunities here?
Bitcoin
This Google Trends chart of US interest in Bitcoin is noteworthy. Note the first major spike was just before Bitcoin's price collapsed nearly 85%. Sentiment levels, at least by this measure, are no where near as elevated. This could be explained by the fact that there are now hundreds of cryptocurrencies.
Interest in Bitcoin continues to be global, with a surprising top five:
Article
After decades of stagnation, the space race is back on and for the time being, SpaceX is at the front of the pack. The company's valuation has sky-rocketed to $100bn and Morgan Stanley believes it could "transform investor expectations around the space industry".
While we can debate whether the valuation is reasonable, it is incredible how fast the company is innovating in what was once an industry exclusive to the wealthiest governments. The FT has a great read (pay wall) on what SpaceX is trying to accomplish. Check out the size of Starship, SpaceX's largest rocket which is currently in development:
Thank you for reading this weeks issue. If you found this interesting, please consider forwarding it to a like-minded friend or family member 😊.
If you have any questions/comments or general feedback, please reach out!
Until next time… have a great week.
Why ‘Buy the Umbrella’?
Individuals, many of whom also run businesses and governments, tend to not think of the downside when the present is stable, and the future is looking positive (usually when we feel most in control).
Just because it is sunny today, does not suggest it will never rain. We need to buy the umbrella before it rains. Otherwise, by the time we are running around looking for an umbrella in the middle of the storm, they tend to be in short supply.
At the same time, we cannot allow our awareness of risk to make us fearful, pessimistic, or paranoid, as this too works against us over the long-term.
Having the right mindset in advance is critical. The challenge is getting the right balance between being optimistic about the future and being able to not only withstand future crisis, but in fact grow stronger due to the opportunities they tend to present. It is not enough just to be conservative. You need to be willing to put cash to work when others feel least comfortable doing it. To do that with confidence, we need to have a foundational understanding of business and markets.
Our mission is to learn as much about the world as possible, and in doing so, to try to find investment opportunities with favorable risk/reward characteristics. These should, over the long term, help build sustainable wealth and enable financial freedom.