'Buy the Umbrella' - Issue #22
Hi there!
Here is your latest dose of “Buy the Umbrella”, a short list of interesting things I’ve been reading and thinking about during the week.
Quote
"If you judge your worth by your achievements, you feel worthless whenever you feel short of a goal. Stable self-confidence comes from learning to separate your performance from your self-esteem. Excellence is a reflection of effort, skill and luck - not your value as a person."
— Adam Grant
“The time to repair the roof is when the sun is shining.”
— John. F. Kennedy
Charts
Africa's dependence on Russian and Ukrainian wheat
With the Russia/Ukraine conflict now into its 43rd day, Africa's dependence on wheat imported from the two countries is in the spotlight. Food prices continue to rise globally, risking increased food insecurity and escalating poverty for some people on the continent according to the U.N.’s International Fund for Agricultural Development.
The U.N. Conference on Trade and Development figures show Africa imported $5.1 billion of wheat from the two countries between 2018-2020.
Germany braces itself for gas shortages
The German government has taken the first formal step towards gas rationing as it braces itself for a potential halt in deliveries from Russia because of a dispute over payments.
On Wednesday 30th March, Robert Habeck, economics minister, activated the “early warning phase” of an existing gas emergency law put in place to deal with acute energy shortages, illustrated by the blue and red lines in the chart below.
It is worth highlighting that Germany has been struggling with gas supply for over a year now, therefore its troubles precede the Russia/Ukraine crisis.
Articles
Putin's rubles for Russian gas demand is a "security threat"
The International Energy Agency Executive Director, Fatih Birol, believes that Russia's recent demands to be paid in rubles for its energy exports amounts to a "security threat".
The ruble, meanwhile, has recovered to levels where it was before the invasion of Ukraine. After plunging to around 140 to the dollar in early March, the Russian currency is now back around 80.
Separately, China has paid for Russian coal and oil in yuan. Russia was China’s No. 2 coal supplier last year, filling the gap left by Beijing’s trade tussle with Australia. This comes at a major junction for the petrodollar system, as Saudi Arabia continues talks with Beijing to price some of its crude in yuan too.
‘Farms Are Failing’ as Fertilizer Prices Drive Up Cost of Food
High fertilizer prices combined with shortages are weighing on farmers across the world, making it much costlier to cultivate and forcing many to cut back on production. This suggests that grocery bills are likely to go up even further in 2022, following a year in which global food prices rose to decade highs. An uptick would add to central banker's difficulty in taming inflation.
Florida just became the largest state to mandate personal finance education in high school
Florida announced it will start requiring schools teach a financial literacy course. The state's governor Ron DeSantis stated that "this will provide a foundation for the students to learn the basics of money management, understanding debt, understanding how to balance a check book, understanding the fundamentals of investing".
The new law will apply to students entering ninth grade in the 2023-2024 school year, and require that they take a half-credit course in personal finance before they graduate.
Technology
Driverless Cars
Both Waymo, owned by Google's parent company Alphabet, and Cruise, owned by General Motors, have recently made strides in their autonomous technologies.
Waymo has been offering paid public rides for over a year. This Twitter thread describes one rider's experience.
Separately, Cruise recently announced their fully driverless vehicles are ready for public rides. You can watch a video of riders onboard here.
Crypto
Another Bitcoin ETF proposal, this time led by Cathie Wood, the founder and CEO of ARK Invest, was recently denied. In the SEC's 55-page order rejecting the application, it went into detail on the reasons behind its decision. Here’s an important passage that begins on page 22 (emphasis added):
“… does not sufficiently contest the presence of possible sources of fraud and manipulation in the bitcoin spot market generally that the Commission has raised in previous orders. Such possible sources have included (1) ‘wash’ trading, (2) persons with a dominant position in bitcoin manipulating bitcoin pricing, (3) hacking of the bitcoin network and trading platforms, (4) malicious control of the bitcoin network, (5) trading based on material, non-public information, including the dissemination of false and misleading information, (6) manipulative activity involving the purported “stablecoin” Tether (USDT), and (7) fraud and manipulation at bitcoin trading platforms.”
Gary Gensler, the SEC Chairperson is far from ignorant on how the crypto markets work, and in fact used to teach a class at MIT’s Sloan School of Business called "Blockchain and Money". Gensler understands what is really driving the price of Bitcoin; the need for a constant supply of new fiat currency.
Video
Nurturing creativity
Back in February 2006, Sir Ken Robinson who passed away in August 2020, had put together an entertaining TED talk back and is still as relevant today as ever, questioning the way the education system is currently designed and how schools currently undermine children's creativity.
Robinson makes a profoundly moving case for creating an education system that nurtures creativity.
Until next time...
Thank you for reading this week’s issue. If you found it interesting, please consider sharing it with a like-minded friend or family member.
If you have any questions or feedback, please feel free to reach out!
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 currently sunny, does not mean it will never rain. If we are not prepared, once it does begin to rain, we will end up running around looking for an umbrella in the middle of a storm, when they tend to be in short supply. We therefore need to buy the umbrella before it rains.
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 crises, but in fact grow stronger due to the opportunities they tend to present. It is not enough just to be conservative. One needs to be willing to put our cash to work when others feel least comfortable doing it. To do that with confidence, we need to have a foundational understanding of history, business, markets and human psychology.
Our mission at BTU is to learn as much about the world as possible, and in doing so, to try to find investment opportunities with favourable risk/reward characteristics. These should, over the long term, help build sustainable wealth.