alt-think.com

CORONA PANIC

Mar
11

Dear all!

Who would have thought that a small virus from a wild animal market in China could lead us rapidly into a global health, economic and political crisis? Not so many.

This is a crisis of uncertainty and fear, the unknown that ordinary people in the streets fear the same as global financial markets. While first ones go for a toilet paper shopping frenzy, the second go for an equity sell-off. Promising not to bore you with another instruction how to wash hands effectively or what the required physical distance should be to avoid infection, here are some observations from the tumultuous beginning of 2020 (btw the year of the rat, remember which animals brought the plague …):

  • CHINA did the right thing to lock down rigorously the region where the epidemic started and spread. It saved the country and the World from a much larger scale infection rate by sacrificing an entire region and risking its economy. It was also able to provide medical support with a unique ramp-up of medical infrastructure, including building new hospitals and reorganizing health workers with speed and efficiency unheard of so far. By doing this, China also granted the rest of the World a preparation time of ca. 6 weeks. Sadly, this time was not used efficiently by most of the countries. Current new infection and death rates seem to confirm the success of China’s strategy and emergency management. The Chinese victory lap would be justified, but will not be granted.

  • The second wave hit Korea, Japan and a little bit later Iran. While Korea was hit by a master spreading event, it was able to contain the consequences for the country, again through hard lockdown, control, and mass-testing of the population in the affected area. The numbers are going down, finally. Japan was less hit and showed one of the lowest growth rates of new cases and one of the lowest mortality ratios. Might it be the notorious fear of microbes and viruses in Japan or the good health management (hopefully not fake numbers), they must have done something right. To be seen. Finally, Iran. A classical example of how denying facts and truth, a lack of resources, determination and transparency to avoid political backlashes are backfiring badly in a health crisis. Late, for too many people too late, also Iran and the surrounding countries have finally started to attack the epidemic. Success not guaranteed.

  • Comes Italy. The Corona Virus (ironically corona means crown in Italian) does not love Italy. Yesterday there was a number of 10,149 confirmed Corona cases and a fatality number of 631. That is a mortality rate of 6,2 %. There was no other epidemic in Europe since the Spanish Flu in 1918 that had a similar mortality rate. That is frightening numbers. What is more frightening: nobody knows why the mortality rate is so high in Italy. Since yesterday Italy is in total lock-down. Probably much too late, and much too porous. Other countries should learn from this failure rapidly.

  • Germany, France, Spain, and the UK: Numbers are rising fast. An analysis of infection numbers and clusters (most originated from Italy) from the University of London shows that Germany and France are probably 9 days behind Italy in the spread of the virus, Spain 10,5 days, USA 11,5 days and Switzerland and UK approximately 13 days. The lock-down of these countries is a matter of days.

  • US: The big virus deniers will be hit hard. Much too late US authorities started to take the potential spread in the US seriously. Even today there are not enough testing kits and the process seems to be in chaos. Yesterday more than 1.000 cases have been reported, but the real number must be significantly higher. And we are still 11,5 days behind Italy. 

So big-time for doomsters and gloomsters. And this time they might be right. We face the following situation and potential outlook:

  1. Nobody knows where the future spread of the virus will lead. We still do not know with certainty where the virus originated. We have no idea why the mortality rate in Italy is currently above 6% while below 1% in South Korea or Germany.
  2. Vaccines are a minimum of 12 months away from us. There is no certainty on how fast the virus is mutating and to what degree.
  3. Hopes that the virus will spread less with spring and summer season are based on comparison with flu waves, but not based on any scientific proof or evidence. In any case, it would come back to us in autumn.
  4. Comparisons with flu are completely out of logic. First, it is a different type of virus, second for flu we have both vaccines, medicines and decades of proven therapies. Third, we have a much higher mortality rate with Corona, only matched by the famous Spanish flu 1918. And last, but not least, numbers show that up to 10 % of the Corona cases need treatment in ICU units. That is why the medical system in the countries with high infection numbers are collapsing, and that is why it is so important to contain or stop the spread of the virus in its early stage. And, not every country is able to build new hospitals in 10 days.

The consequences:

  • All countries who are not yet hit hard, should go as early as possible into lock-down, take the economic hit early, but contain the spread. Do not wait until the virus is spread too much and containment no longer an option. Italy and Iran show the result of that strategy. Follow Israel’s lead, be smarter.
  • Recession will hit most countries, at least those who have high infection rates.
  • Forget V Shape theories of economy and stock exchanges. This is an overdue correction of an overvalued, monetary policy-induced asset bubble, that was in urgent need of an event like Corona to get back in touch with reality. Unfortunately, brutal corrections like we are facing now, do always lead to distortions in both debt and equity markets (and we have high volumes of doubtful assets in circulation) and to collateral damage in many areas.
  • IT Industry, Media and Video conferencing, Online and Automated Sales to profit.
  • Fear and panic in the population will rise and questions on more strict measures will have to be discussed. The next 12-18 months will be turbulent and painful.
  • Managed democracies seem capable of dealing much better with this emergency than open societies.
  • Trump will soon be in quarantine and/or political history.
  • The good news: Mankind will survive, we are much faster today to develop vaccines and therapies than at any time before, our innovation power will beat the virus soon.

Ironically, a little virus has proven more effective to start a re-think of global value chains, national sovereignty, need for an independent supply of the population with critical goods, transportation and travel overkill than any of the Trumpian tariffs, impeachment processes or anti-globalization and climate change movements. And it might prove more effective to bring down regimes than the CIA who tried for decades.

Get prepared for rough times and stay away from Corona.

Best

Dr. Marc-Milo Lube
Managing Partner

Investment Company VI2PARTNERS
Goldenes Quartier, Tuchlauben 7
A-1010 Wien

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Corbynism is Dead – Long Live King BoJo

Dec
14

Finally, a clear sign from the other side of the Channel. Britain has overwhelmingly voted for Boris Johnson and his promise to Get Brexit Done. It has essentially run an overdue referendum on Brexit, based on the transparent, oven-ready deal negotiated between Johnson and the EU. The Remain camp is in shatters and nobody can claim anymore that the population would lean to staying in the EU if they would only know the details of the deal. The unofficial people’s vote on Brexit is loud and clear and King BoJo will deliver. The tiring Brexit limbo will soon be history, as will be the membership of the UK in the European Union. Without the stubborn Scots and the looming risk to the Union, the election triumph would have been unmatched. Whether UK, EU or US: all will be relieved that after nearly 4 years of confusing holding patterns there is a clear path forward to landing a British exit from the EU on January 31, 2020. But the UK election result is also good news for Donald Trump on the other side of the Atlantic. Next to a welcome distraction from nasty impeachment headlines, he can definitely laud himself for being one of the early promotors of Boris Johnson and for having acquired a new member of the chaotic brotherhood of narcissist world leaders.

While the next steps in the Brexit process seem to be clear for now and welcome, it has to be seen how the British public will cope in the coming months with a Prime Minister whose character did not change with the election and whose personal flaws have been widely discussed. It can be assumed that emboldened by the election victory and copying the success pattern of the big brother from the US, Johnson will rather double down on his views, enslave the Conservative party and celebrate his personal eccentricity. Integrity, truthfulness, and decency have been thrown under the bus a long time ago and the coercion of the GOP by Trump shows the way forward. Although, this must not be to the disadvantage of the economy, as proven in the US.

Looking beyond the election day and Brexit, we see the following underlying bigger picture and developments ahead, that will be with us for the coming years:

  • UK Development: The UK is embarking on one of the biggest economic adventures in recent European history. Having avoided a socialist trap, it will now practice real-time surgery on a living organism, which will fill economic textbooks for many generations to come and set an interesting benchmark for other countries in their national economic strategies. With his successful power grab, it is now Johnson’s task to prove the doomsters and gloomsters wrong and lead the UK to new economic glory. Our prediction is that he can succeed, but only if and when he goes the reform path to the end with radical liberalization, free-market extremism, and competitive taxation. He has the character and power to do it. But it will be exactly the way the European Union does not want the UK to take, so further massive clashes with the EU are coming. If played smart, Dutch, Scandinavians, Germans and Eastern Europeans will use the British liberalization movement to put some liberalization issues on the EU agenda, too and more importantly, to counter French ambitions of further EU centralization and transfer of sovereign power to Brussels 

  • US Elections: President Trump can rightfully open a box of champagne to celebrate the UK election results (it can be assumed that he will find a way to circumvent his new import duties on French champagne). Next to his sponsorship to Johnson, it shows clearly that the modern electorate does value Trump’s key strengths – a clear and simple message, a focus on the economy and prioritizing a national agenda – more than his flaws – integrity, transparency, truth, and fairness. It should also be a clear and loud warning to the Democrats, that a leftist agenda and candidate will not win them an election, in the US even less than in the UK. Impeachment alone paired with negativism and without a credible economic story and message of hope will fail brutally, Corbynism is dead – for now. 

  • European Union: For the EU, a moment of truth will arrive, that was postponed by unexpected unanimousness and solidarity during the Brexit negotiation. No envy for Mrs. von der Leyen’s job to keep together centrifugal forces between North and South and East and West of the EU. It has yet to be proven that the newly found sexiness of the EU with Governments and citizens will survive a next economic downturn and a potential Brexit success story, as national agendas gain ground in many member states.

  • Russia: Chapeau. The winning streak for Putin and his team seems to continue. The full implementation of Brexit (to which the Russians can claim some helpful contribution) will weaken the EU, take out a big opponent to Russia from the EU governing bodies, and further deteriorate EU support to keep sanctions against Russia in place. After Merkel’s foreseeable departure, more Russia friendly forces can be expected to take power in Germany which will unite with Macron to normalize relations with the biggest Eastern neighbor.

  • New Conservatism: The UK elections confirm the trend in Western societies to a New Conservatism. The center of the population has moved to the right and quite significantly. Whether caused by an overreach of egalitarian ideas and concepts, too fast and deep globalization, the rapid change of the work environment, the uncertainty of future job and economic safety, or the information overflow, people cry for strong and simple messages, leadership instead of endless discussions, resurrection of national values and symbols and messages of hope and glory. A New Conservatism is gaining rapidly ground that puts the Nation-State and national interests first. Simultaneously social democratic parties are losing voters at an incredible pace. It is too obvious, that their recipes of the past, which focus on re-distribution of wealth and taxation of the rich, fail to give answers to new challenges in the skills and labor market, the erosion of pension and other social security systems and the flexibility of capital flows in globalised financial markets. Without radical re-invention and new answers, social democrats will fall into complete insignificance.

  • How to Win Elections: Last, but not least the UK elections should be used as a textbook for winning elections in modern times: Winning Ugly as a guideline has been successfully practiced by many populist leaders over the past years and has proven to be for the moment the one and only path to winning majorities. marieMain specs of this strategy can be found in all of the election campaigns:
    provide a simple and clear message and focus everything on this message, do not answer any other content related questions or provide detailed political concepts, avoid at all cost scrutiny of media, concentrate on friendly media, provoke and dominate, train your memory to be short and lie extensively and repeatedly, create and promote your own fan club and direct access to the electorate.

With these reflections, we wish you a relaxing and peaceful 2019 endgame and a pleasant start into a successful and enriching year 2020.

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Why Brexit Matters

Oct
29

Our Partner Dr. Marc-Milo Lube was invited by Taras Shevchenko National University of Kyiv to discuss the development of the European idea.

He spoke about the European idea, its development, and the current development surrounding the Brexit.

Did the Brexit show the first cracks in the EU success story? Will the EU become more German centric and less Atlantic?

OR will there be new dynamics within the EU towards a stronger integration, which will also open up opportunities for candidates in Eastern and Central Europe?

See yourself in the presentation:

Why Brexit Matters - Dr. Marc-Milo Lube at Taras Shevchenko National University of Kyiv
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ETON MESS – King BoJo is Eating the Cake and Having it – Or Not?

Jul
25

Finally, we are, where we could have been 3 years ago, would the then panicking Brexiteers not have fled from the responsibility of executing a Brexit being fought and won on massive lies, false promises and probably Russian support. King BoJo has entered Downing Street, and he has a mere 100 days to fulfill his Do-Or-Die Promise of leaving the European Union by October 31. And he will deliver. Another notorious liar, narcissist, and racist at the top of an atomic power, G7 country and permanent member of the UNSC. Another ruthless populist at the top of a should be guiding torch for democratic values and honest discourse. Inspired by President Trump in the US.

Should we be afraid? Not really. Having survived the Tariff Man in the White House, the Clown in Downing Street will be easy stuff to swallow. After three years of endless negotiations and complete stalemate, both Macron and Johnson are right in claiming that No Deal is not the end of the World. On the contrary, it could prove healthy to make a clear, fast and ugly break instead of dragging on for years. The German smallest denominator biggest compromise way would only lead to a slow, but steady decline and national humiliation and frustration of the UK. The Eton(ian) Mess that has been amassed since Cameron entered the kitchen is beating the German Bratwurst, as long as it is ruthlessly prepared and eaten fast. BoJo has fully understood this dynamic and will drive the British tanker full steam into No Deal while pretending to have his eyes set on an improved Brexit Deal. The composition of his new cabinet underlines his willingness for a fast and brutal implementation of Vote Leave. He has assembled a very gifted, dynamic team and the best campaigners in the country, preparing for an election if need be. We are assuming to see the following developments:

  • Brexit will happen on October 31 with No Deal or a largely stripped-down deal. The EU will be blamed for failure. The Tories will ultimately follow BoJo to avoid an election, the dissolution of the Conservative Party and complete chaos. Theresa May as Brexit Don Quijote with Philipp Hammond as her Sancho Panza will be forgotten fast.
  • The Brexit war cabinet will restore trust and confidence in the UK and Tory leadership, Nigel Farage might join the forces soon.
  • BoJo will imitate the success of Trump’s weaponization of social media and use a direct and intense link to voters and followers to chase Parliament and force MPs support.
  • The EU, led by Macron and Barnier, will not blink in the last minute. Disgust for BoJo, unwillingness to grant him any success, self-protection and complete Brexit Fatigue will guarantee this result.
  • After short term collapse and disruptions in some areas, recovery could be faster than expected and the country might profit from a new liberalization boom, fired by an economic policy of low taxes, no customs/tariffs, and less regulation. An economic head-on collision course with the EU. The London property market will go further down with the fear of No Deal consequences and a looming sterling crash, a perfect buying opportunity.
  • The Real Donald and BoJo will become the BFF couple of the year, cheering achievements of each other and booing opponents.
  • The Iran Nuclear Deal will be thrown under the bus by BoJo for the relationship with Trump, as will be the prospects of Huawei to supply 5G networks in the UK. 

Turbulent times ahead in the UK. But finally, things are moving. Every end is a beginning! Hopefully, a wakeup-call for continental leaders to step out of the Merkel area lethargy.

God Save the Queen and good luck for all our British friends on the bumpy ride ahead.

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SHORT, SHORTER, SHORTEST – THE TURBO ROLLERCOASTER DEMOCRACY

May
28

The power of established parties is eroding fast. So is the political lifespan of politicians. We are on the verge to a dynamic rollercoaster Turbo Democracy.

The name of the latest Austrian ex-chancellor is Kurz or translated into English Short. Today his government collapsed after the shortest period of office for a post-war chancellor in Austria. And while this can be attributed to a purely local phenomenon – a boozed far-right politician promised to sell out Austria to a self-declared niece of a Russian oligarch – the situation is simultaneously characteristic for the current political breeding ground. It took only ten days from the publication of a compromising video to the successful no-confidence vote on a highly popular Austrian Government, which was the first successful no-confidence vote in the post-war Austrian republic (and they tried 185 times before).

Political changes today happen fast and dramatically, the instant public discussion and reaction on all issues is chasing politicians and few are mastering to combine riding the ultimate populist wave with staying in office. Take some numbers of the results of EU parliament elections as a reference point:

  • The only six weeks old Brexit Party of Nigel Farage crushed all established parties and achieved instantly more than 30% of the votes in the UK in EU elections, while the Conservatives did not even come close to 10 % of the vote.
  • Salvini’s Lega Nord in Italy increased their share five-fold from 6 % in 2014 to an estimated 34% in 2019. Noteworthy that in 2014 Social democrats had still achieved 40% of the vote, while in today’s political landscape in Italy they are irrelevant.
  • The left and liberal hate figure Orban is one of the very few who can win an absolute majority of votes in Hungary.
  • Once a shooting star, who was himself able to storm into the Presidency in France, Macron has only received 20 % of support in the EU elections.
  • Social democrat and conservative parties get beaten up in nearly all European countries and in big numbers, they lose together more than 20% of their seats and do not control together – for the first time in history – a majority of seats in the European Parliament.

We are experiencing the rapid transformation of stable Western party-oriented democracies into instantaneous direct voting platforms on leaders and hot topics of the day. Welcome to the rollercoaster turbo democracy. And it promises to be exciting, turbulent and fast. Gone are the times when parties mattered more than people, when believes and values were the foundation of political parties, when people or families, or even whole quarters voted identically over decades for one party. All this has become meaningless. The very same instruments, that can be cornerstones of a fast, livid and direct democratic involvement of the citizens, can also act as the grave digger for stable and democratic societies. Different sides of the very same coin, the old law of polarity. We have an unprecedented level of communication, information, understanding, and exchange and yet we are more controlled, watched and influenced than ever. The ultimate political Instagram show.

Attributes of the rollercoaster turbo democracy are starting to materialize. They are all based on unlimited reach and direct access to people through internet and social media, the mental overflow of citizens through information overload, the speed of events and the immediate global journalistic processing, and the difficulty to differentiate true from fake:

  • From programs and parties to slogans and leaders: in times of rapid changes, parties and programs have proven to be too slow and rigid to adapt to the reality on the ground. Egocentric leaders feel the mood of the day and ride the populist wave. They are not interested in any kid of manifesto, only in approval ratings, media comments and likes from followers. They know how to reduce a message to a simple slogan that is penetrated thousands of times, whether true or false.

  • Short life span of politicians: what goes up, must come down. As the decade long march through party hierarchies is no more necessary for the rise of a politician, the new type of leader is often missing strong and loyal political armies. They are easily and fast recruited while the star is ascending, but support is dwindling once approval rates are going down. As the personal lifecycle of this new type of politician is shortened, naturally there is no interest in any long-term reforms or investments into the country.

  • Rapid rise and fall of political movements: Gifted leaders bypass lengthy party discussions to push their agenda with a direct link to citizens. They board a party or election platform for infrastructure and legitimacy reasons and transform these instantly into a personal election machinery, centered around a common cause and themselves. Failing in delivering the promised results, these movements disappear often faster than they come up.

  • Strong leaders and a trend to authoritarian leadership: in times of perceived insecurity and rapid change, people long for strong leaders to give them orientation. They give themselves an aura of above-the-law, gift-of-god vibe with the respective authoritarian rights to rule and dictate. 

  • Propaganda reigns: The new leaders recognize the importance of direct and robust contact with their constituencies to avoid parliamentary discussion and/or media scrutiny. They build their own communication platform and channels. Once in office, they will avoid all critical discussions with media, the opposition or other critical voices. As demonstrated from Washington to Paris to Vienna, communication with media is then downgraded to a one-way street of personal propaganda and message control. Governmental agencies are abused and transformed into a personal propaganda apparatus, penetrating success stories to the believers.

  • Massive influencing: As the party system is fading as a stabilizer, foreign Governments, NGOs and other players are globally entering the arena to influence massively and directly the political discourse and public opinion on critical issues, and subsequently the outcome of elections. The Russian hoax and Ibiza-Gate in Austria are just the beginning.

  • Truth has no value: From the famous NHS lie during the Brexit campaign to the uncountable proven lies of the stable genius in the White House, leaders are exploiting the fact that people lose interest in political issues fast and are not able to memorize and control past messages. Holding the Guinness world record of lying in office, is no more an obstacle to running the most powerful nation in the World, but in the contrary a tool to retain power.

  • Brutalization of political communication: Avoiding any content-oriented discussion on political objectives and strategies, all communication is personalized. Political opponents and critical journalists are ridiculed and badmouthed. Everything is reduced to a with-me or against-me. Gifted politicians understand the need for entertainment and produce a Game of Thrones narrative for their audience.

With the exception of the global climate movement, this rollercoaster is so far better mastered by the nationalist, right-wing political forces from Trump to Bolsonaro, Duterte and Salvini. This is the main reason for their success! Until we will see a societal shift to more stability, a return to values and integrity, a stronger focus on community than on individuals and a longing for more social justice and cohesion, it can be assumed that it will stay like this. And yet, we should not take our current democratic system for granted. It will need a substantial overhaul and it has to be seen, whether an open, transparent and liberal democratic order can survive the turbo rollercoaster; and whether the parliamentary party system can cope with the post millennial age of ultra-rapid change, robotization and short-termism. Otherwise it will become obsolete. At this very moment, it looks more probable that managed democracies like Singapore or China will perform better and take the lead.

Enjoy the Show.

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SPECIAL UKRAINE: THE SERVANT OF THE PEOPLE TURNS KING

Apr
22

Volodymyr Zelensky has been elected President of Ukraine in crushing defeat to incumbent Petro Poroshenko

Now it is official. The comedian Volodymyr Zelensky is the next President of Ukraine. While many observers and foreign experts are still astonished about the political experiment and public courage to put an unexperienced TV Star into the highest and most powerful political office in the country, it is first and foremost a demonstration of a powerful, energetic and lively democracy. That is good news. Neither the money, nor the political power or the control of the media, nor the patriotic staging could stop the crushing and deserved defeat of Petro Poroshenko. It is a message of great hope for a country who deserves a better leadership and future. Zelensky was right when he turned to other former Soviet Republics after the victory yesterday by telling them that indeed everything is possible. Accordingly, this election could turn into a harbinger for other countries alike.

 

As is with all dreams, the morning after a transformation of blurring pictures of hope and glory into purpose and hard work needs to start. And it will crucially depend on the next months, whether the dreams of so many supporters can be turned into a better reality of their lives. By appointing a truly forward-looking Government, by preparing elections to turn Parliament into an arena of trust and commitment and to dis-own it from oligarchs, and by selecting people for key positions in the country gifted and willing to energetically move the country forward.

 

After the Maidan protests and the ousting of President Yanukovich, Poroschenko had five years to prove that he understood what the people of Ukraine needed and were longing for and to act accordingly. He did not. As a result of his and his Government’s failure, the country today and its inhabitants are poorer, the territory is smaller, the conflict in the East has not ended, the Oligarchy is still in full power, and a selected group of people have amassed more wealth on foreign bank accounts. Another loss of time and betrayal of simple Ukrainians. Zelensky’s rise to power is the shameful sentence of complete failure on Poroschenko’s term.

 

The US, the European Union, and the international institutions would do well to listen carefully to the messages of the people, too. It is not wise nor efficient to only aim at stabilizing a counterpole and political bulwark against Russia. It is not the artificial language topic that keeps the Ukrainians awake at night, in a country where Russian is a dear mother tongue to many. It is also not the creation of an independent church that advances a country, where many have a decade long relation to their priests and parishes and the proximity to the Russian church is a century-long tradition. It is not even the fighting in the East and the annexation of Crimea by Russia or the demonization of President Putin and the Russian people in a country, where most have family ties to Russia and the Russian culture and traditions are embedded in everyday life. It is also not the accession to the EU or NATO that can rally people behind a common purpose or keep the young and energetic in the country.

 

No. It is like so often the economy, stupid. The harsh reality of money in the pocket and sheer survival at the end of the month. To get closer to European living standards is what people are dreaming about, and that students and young workers can stay in Ukraine with a perspective of development and modest wealth, and do not have to leave the country in millions to Poland, Canada or other countries to realize a decent life. The things that need to be done, are clear for thirty years, and it will depend on the political will of Zelensky and his key management team of Ukraine, whether they finally take the necessary steps and transform a country of endless potential into a country with a better future for the many and not bigger cash stacks for the few:

 

  • Bring in politicians who think first about their country
  • Simplify rules and regulations in all areas of society
  • Reduce state administration and bureaucracy on all levels
  • Build an independent judiciary
  • Ensure property rights
  • Stop corruption
  • Break up Oligarchy
  • Clawback unjust profits from corruption and bring criminals to justice
  • Normalize relations with Russia
  • Build the economic and societal foundation prior to a discussion of EU or NATO membership

 

The first twelve months for Zelensky will be crucial and he will need to be brutal to bring this change to his country against enormous, powerful, well organized and wealthy resistance. The necessary political will and perseverance for such an undertaking cannot and should not be underestimated, as well as the necessary luck and foresight he will need to choose the right people for his team from the many advisors who will come forward now. As a reward and result, Ukraine has the prospect to become more European, with young Ukrainians wanting to build their personal future in this country, and separatists in the East getting under pressure to reunite with a booming Ukraine. In that case, Ukraine can turn into one of the hottest global investment locations for many years to come, and the coming Easter week a herald for the resurrection of the country.

 

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The BIG Short: Fast Forward Into Recession

Dec
15

Dear Friends,

 

The very dynamic year 2018 comes to an end and the events of this year will shape the coming decade and beyond. We are witnessing a rapid transformation and disruption of our global word order, and the end-game of the domination of Western-style democracies.

 

Main events of the past 12 months

 

  • TARIFF MAN hits the Chinese Dragon: The self-proclaimed tariff man has started a full-scale trade war with China. However, the ultimate USG goal is to weaken or at least slowdown China on its path to become a dominant world power, which has started to flex its muscles not only in the South China Sea but also in Cyber Space. More than 90% of all DOJ followed economic espionage cases and 2/3 of all economic theft cases in the US are linked to China, which is accused of a sophisticated “rob, replicate, replace” strategy. The damage of these activities is much bigger than from any unfair trade practice – and the US not willing to tolerate this any longer. Therefore, any wishful thinking of a quick resolution of the trade dispute is an illusion. EU naively watching at the sidelines.
  • The Great Populist Revolution: After the US and France, Italy and Brazil have followed the sweet seduction of populist leaders, more countries will follow. Be attentive – this happened during an economic upturn! Western democratic systems seem to have reached their limits in a largely trend-based, social media-driven society, and we might have reached the end-phase of this form of governance with the renaissance of managed democracies and authoritarian leaders. Assuming an economic downturn in 2019, this development will accelerate. Yellow vests in France are just the beginning.
  • The Fake Avalanche: Led by the US President, the general public and every individual has been filled up with a mountain of fake news, misleading information and lies. The post-truth age is reality and it plays into the hands of government and corporate manipulators. It will lead to an identity crisis of traditional, social media and all types of electronic publications. There is an urgent need for credible answers and the build-up of a quality check/stamp by this industry.
  • The End of the Rules-Based World Order: UNSC Members have finally driven the UN into meaninglessness. Today, the UN has lost all ambition to act as an international body to manage, calm or solve global conflicts. We are completely dependent on the power-based boots on the ground politics of the dominant nations, who deliberately destroy rules-based global systems and processes. UN useless, WTO obsolete, Climate Agreement dead, EU disintegrating – and the results start to materialize: unchained cyber-attacks and warfare, technology and energy used as a power instrument, open chemical attacks, and state-sponsored murders, journalists killed or in prisons, international contracts dumped, resistant superbugs and viruses on the rise. We are entering a truly Darwinian world order.

 

Other important events in 2018 included the (official) start of Genetically Modified Humans (GMH) in China, the Mueller investigation and economic and reputational cracks in technology giants like Apple, Google, and Facebook.

 

Review Forecast 2018

 

We had dared to make a series of forecasts for 2018 at the end of last year – some in stark contrast to banks and other analysts. Without going into the details and the reasoning, the review shows as follows:

 

  • The Return of the Dollar: Correct
  • US turning against China: Correct
  • Energy Price Surge: Wrong
  • Inflation Reloaded: Neutral
  • Cryptocurrency Breakdown: Correct
  • Bears go Hunting: Correct
  • King BoJo plays Hamlet: Correct
  • French Renaissance: Wrong

 

 

Forecast 2019

 

Now to the more important look into the crystal ball of 2019 developments:

 

  • The Ugly R-Word on the Wall: US and parts of Europe will move into recession area in the 2nd half of 2019. Trade wars, rising interest rates in USD and EUR, fast de-leveraging, end of quantitative easing, fiscal tightening of many G20 states and the end of the China boom will all happen more or less simultaneously and lead to a contraction of global output and consumption.
  • Continued Confrontation Between US and China: The battle has only started. The US will try to further harm the economic, technological and military rise of China. Interim negotiation results will be celebrated publicly, but not last long.
  • China Economy Faltering: China will not be able to compensate for the abrupt barriers to the US market and the hostile environment for their leading technology companies. We expect the first real and painful contraction in China, with a massive impact on the employment and housing market. New markets, that are currently opened, will not be able to compensate in time. How a generation, which has experienced nothing but double-digit growth will cope with this situation, is yet to be seen.
  • Fake Trump Bubble Bursts: Congress will start impeachment procedures against Donald Trump for alleged criminal behavior. The biggest fake bubble with more than 6.000 officially counted lies and grossly misleading statements, that were published by POTUS while in office, will start to burst and haunt him. And many knives are prepared, both in the US and abroad.
  • The End of Germany’s Golden Decade: Welcome to reality, Germany’s export-oriented engineering, car and machine building industries have driven an employment and tax revenue boom in Germany over the last ten years. With a capex contraction in China and mounting barriers to international trade, Germany will be one of the countries to suffer the most. It will backfire now, that over the past ten years, critical investments into infrastructure, education, and future technologies have not happened, and that necessary structural reforms were neglected.
  • To Brexit or Not to Brexit: The biggest ever national humiliation continues. The most probable scenario is: Theresa May will not bring her Brexit deal through parliament. The UK will ask the EU for a delay/suspension of Article 50 for 6-12 months. A cross-party coalition will agree on a much softer Brexit, with the UK staying in the customs union. Labour will achieve new elections as a bargain price for agreeing to this deal. The Tory party might split.
  • EU under Fire: 2019 will be a year of truth for the EU. Parliamentary elections and the quest for a new Head of the Commission as well as the ECB will bring the big topics to the center stage: austerity vs. free spending, the role of the ECB, liberalism vs. nationalism, depth of integration, solidarity on the borders, budget 2020 without the UK as a payer. A lot will depend on the direction France will take in 2019 and the willingness of net payers to shoulder additional costs in order to contain disintegrative forces.
  • Ukraine and Russia: both the Russian and the Ukrainian leadership might profit from a re-ignited frozen conflict, that turns into open fighting, a real war in Ukraine is close to reality. Putin might use the tiredness of EU member states of going against Russia and the political bombshell of an impeachment process against Trump to test the resilience of the West with a further landgrab in Ukraine. The current schism between Ukrainian and Russian Orthodox church would deliver a perfect pretext for action.
  • Energy Prices: Recession ahead, and Chinese production on the brakes, we expect a further downturn in energy prices towards the 30 USD/barrel price range. Only a middle east war would be a real game changer to this trend.
  • USD: in contrast to this year, we see the USD weakening in the coming 12 months: a fast deteriorating US economy, together with a weakened US President, and international trading partners who try to get at least partially independent from the USD, will lead to less demand for USD. However, an un-orderly no deal Brexit and a new Euro crisis originating in Italian and/or French spending fantasies have the potential to reverse this macro trend.
  • Inflation and Interest Rates: Interest rates will go up, both in the US and Europe – and in our opinion faster and stronger than many believe. Central banks will only stop monetary tightening once the economy has moved into recession at the end of 2019. Until then, tariffs and tight labor markets will lead to a pick-up in inflation.
  • Bear Party: This time bulls will wait in vain for a market rebound. Profound corrections into bearish spheres on all major stock markets in the making, biggest losses in Germany and UK.
  • Cyber Attacks: Prepare for new waves of aggressive cyber attacks. While the US and the UK will be in retaliation mode against China and Russia, respectively, we might see a new dimension of attacks both on the government and corporate level.

 

The good news: (1) there are many ways to invest successfully during recessions, every risk is an opportunity; (2) nobody can claim that there were no warnings; (3) the catharsis is needed prior to any new lasting and healthy upswing.

 

Preferred Sectors:

 

And finally, the sectors on which we are bullish for 2019:

 

  • Emerging Markets, i.e. Brazil, Argentina, and Turkey
  • Agricultural Goods
  • Gold
  • Selected Real Estate
  • Military and Defense
  • Alternative Energies
  • Robotics
  • Genetic Engineering and Health
  • AI and Cyber

 

We wish you a great, successful and healthy start into 2019!

 

 

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The New Pre-Fascist World Order

Aug
05

Mind September/October for a serious stock market correction

 

The World is developing fast from a post WW2 liberal world order into a Nationalist Pre-Fascist World Order. Unfortunately, the President of the United States has hijacked the GOP and is leading this movement with an evil determination; the US has effectively stopped to be an advocate of human rights, a liberal world order, free speech, and media, strengthening of the rule of law.

 

This changing US role in the World will have dramatic consequences in the coming years and decades, and we should be prepared that we are heading into a post-democratic age. It gives an excellent pretext for other political leaders/movements to abolish inconvenient democratic standards. And it will have a significant impact on global trade and investment flows. These developments happen slowly but steadily while being blurred by the amount and speed of new scandals and while societies wrongly and dangerously get accustomed to the new normal.

 

Typical signs of a Pre-Fascist political order (and recent examples) are:

  • Undermining the Rule of Law and Independence of Courts
    Mueller investigation is a witch hunt, Judges against immigration orders are a shame
  • Abuse of Immigrants/Foreigners as Scapegoats
    Walls shall be built to friendly neighbors, Mexicans are labeled as drug dealers and rapists
  • Use of Aggressive Language and Threats
    Un-cooperative nations shall be erased, former allies are labeled as foes
  • Bashing of Media/Press
    Unpleasant facts become Fake News, Reputable media institutions are the Enemies of the People, journalists are singled out and publicly insulted or humiliated
  • Incriminating/Criminalization of Political Opponents
    Lock her up chants against Hillary Clinton and other opponents
  • Authoritarian Leadership
    Promotion of North Korean Public Administration Culture as the new benchmark for the White House
  • Promotion of Nationalist Framework
    Mega MAGA, US First and Only, Cancellation of Multinational Agreements/Contracts, Undermining WTO, NATO, EU, G7
  • Jeopardizing Due Political Processes
    Governing by Decrees, Inciting Public Pressure via Twitter
  • Direct Communication with Masses
    Using agitation of masses to avoid parliamentary/political discourse

 

This erosion of global democratic norms and safeguards takes place, while the economy is booming – watch out for the looming recession. On a populist foundation, where masses have smelled blood and have been whipped for aggression against media, foreigners, political opponents, worse developments might happen. Pre-Fascist World Order implies that we are on the verge to a Fascist World Order. Unfortunately, the next recession is written on the wall:

  • We are approaching the end of a nearly decade-long economic and financial market boom-cycle, fueled by excess liquidity from central banks and historically low interests rates;
  • Interest rates are rising across the globe and will pose a real-life stress test to many business and investment models, the liquidity bubble might burst;
  • The US has started an extended trade war with China out of a long-term strategic interest to dominate future core technologies;
  • Energy prices have risen fast over the last 12 months and might continue to rise on the basis of a potential escalation with Iran;
  • Decreasing risk appetite on the basis of stronger US dollar and higher interest rates will deepen a beginning emerging market crisis;
  • Record debt levels on Government, corporate and private level might prove unsustainable;
  • Energy prices, Tariffs, interest rates will start an inflation cycle, that will require an even faster increase in interests5 rates;

 

Mind September/October for a serious financial market correction. Cash is king. An un-orderly Brexit caused by an incompetent UK Government and a reckless Tory party will only be an additional footnote in this scenario.

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Professore Nebuloso – A comment on the Italian Political Drama

May
27

or How to Realize Fast that You Cannot Eat the Pasta and Have It.

The Trumpist revolution of narcissism, denial of reality, national egocentrism, and pre-dominance of lies has reached a new climax in Italy – although admittedly briefly outshined by Trump’s letter to cancel the nuclear summit with North Korea. It looks like Italy did not study the Greek adventures of Professor Varoufakis, another case where a self-declared expert wanted to save the country by denying basic economic laws. Alas, we will take front seats in the Colosseum, watching how Professor Conte – whom a French magazine already attested to show all characteristics of a professional crook – will explain, how Italy can avoid bankruptcy while spending additional billions of Euros on the back of an already bursting deficit and debt status of its public finances. While the German Hausfrau is developing an immediate allergic reaction, even the French are scared big time now. Given this situation, the political life of the Professor might be as short-lived as his academic visits to the US.

 

Following bigger footsteps from across the Atlantic, the Italy First Movement wants to eat the Pasta and make the World (first Europe) pay for it. This undertaking is doomed to fail dramatically. Obviously, the Italians do not have the USD, the strongest military in the World and also not the consumption power of the US. The bullying potential is limited in this case. Remember the Greek experience of trying to enforce on Europe and the Euro-System a carte blanche spending spree for Greece. It ended in an economic disaster that left the Greeks with a prolonged crisis, a humiliated Government, stronger controls, more unemployment and additional lost years. They had to swallow the savings dictate from Brussels and Frankfurt.

 

The real choices for Italy are very simple. Restructure profoundly or leave the Euro and devaluate. All else is another aria, that nobody wants to listen to anymore: the French have to look for themselves, the Brits are no more interested, the Germans do not want to pay, and the Spanish have run through the painful experience, why spare the Italians the same? And all Governments face at home the identical outcries of Germany, France, England, Dutch, Whoever First. Nobody is willing or able to come to the rescue. Perhaps the Italian drama will finally enforce on the EU to have the discussion that Macron started, but nobody wanted to lead and decide on: further integration or looser association.

 

The real scary part of the story is, that the Italian voters wanted to have exactly the Government, that they have received now, implementing the very same agenda, that is now promoted. This is contrary to Brexit, where one could argue, whether voters were just tricked by BoJo and alike. No, this time, all was clear and stated during the campaign, and the announced political program reflects a soft version of the election promises. Here are the main reasons for this situation:

 

  • The political bunga bunga elite failed completely over the last 20 years to reform the country and work for the long-term success of Italy. This has led to a lost generation of 18/35-year-old people without job, experience, and perspective. A perfect breeding ground for the extremists.
  • The credibility level of traditional parties and established politicians after 20 years of complete mismanagement was below zero. Many Italians preferred to vote for a journey into the unknown than to live on with their un-performing status quo system leading to a slow but steady decline. And they were right.
  • The EU showed no(!) solidarity with Italy to control and manage the refugee invasion on Italian coasts. Colorful declarations to strengthen European maritime commandos or threats to close down the Brenner border, the over-arching symbol of European free movement, have not helped, but have been taken understandably as cynical in Italy.
  • The Italians have a top-line mentality and a tendency to bend rules (in a positive way!), they are revenue, not cost-driven. In this mentality, the system and philosophy of a common, strictly rule-based currency with frugal Dutch and German Protestants, is completely counter-productive; austerity not compatible with Italian lifestyle and drama.

 

All this has led to a profound change of the political landscape, the Government will stay longer than many expect and implement the will of the voter. However, Italians cannot expect other nations to pay for this emotional overreaction and the following political experiment. What does this all mean for the EU and Italy in specific:

 

  • ECB directors get nervous in Frankfurt. Their overly relaxed willingness to buy Italian bonds without guarantees for sound state finances is in severe danger of backfiring, it has rendered the ECB too dependent on national Governments and prone to financial blackmailing. The falcons have started to take off their hoods. In case that the situation with Italy would escalate, it could herald an inglorious departure of Mr. Draghi.
  • The new Italian Government will start to implement their program and raise spending levels, putting huge pressure on both the EU Commission and the ECB to relax budget restrictions and grant debt relief/write-offs. Finally, we will see a show-down on the Euro. And while Greece had to surrender, Italy has a much stronger bargaining position: they are a founding member of the EU, they are the third strongest European economy and the ECB has an Italian debt stock-pile on its books. Nevertheless, it is inconceivable that other countries, the commission and the ECB would open the Pandora box of further softening debt ceilings and/or financing Italy through ECB debt write-offs.
  • This situation has all potential for big drama with only two potential outcomes: Italy leaves the Euro or faces new elections very fast. Renzi and Berlusconi could celebrate a surprise comeback in the latter case.

Italians voted for change. They are sick of their political elites. They are sick of the most inefficient public service in Europe. But they lack the strength and perseverance to go through radical reform programs. Spending the way out of this crisis does not work within the Euro System. The departure from this system is, therefore, the only credible, viable and productive way forward. Everything else is a lie and illusion. A devaluated Italy leads to a restructuring of the country through lower standards of living for a certain period (less German cars), a relative reduction of wealth and pain for the old and poor in the country. But after this period of pain and the revaluation of the Italian asset base, it would also lead to much stronger competitiveness, an orientation towards the future and attract big streams of foreign investment into the country, which would, in turn, reduce unemployment.

Other Governments and the ECB need to wake up to this new political reality. If not now, at a certain point in the near future, the economic development of Italy and/or financial markets will force a decision on them. As Turkey and President Erdogan are currently realizing: economic laws cannot be denied ad infinitum. Professore Nebuloso and his masters will soon have to decide, whether they surrender, lead the EU to an institutional crisis or their country out of the Euro. We bet they will first try with the crisis.

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Why Europe will Shine in a Robot Future

Apr
25

Investment Climate and Opportunities in Good Old (New) Europe

This analysis was presented and discussed in a different format by VI2 Partners at the

NUS (National University of Singapore) Medicine International Council Berlin Conference: New Europe and Germany on April 23, 2018

 

Many political and financial analysts believe, that Europe is doomed to fall behind in the competition with the new economic and technological powerhouse China and the massive talent hoover and technology breeding ground US. We want to argue in a different direction and explain why we believe more in a next level European Renaissance than in Europe turning into a Museum for the World. The reasoning will start on a global level, move on to European developments and give an outlook, on which industries we are particularly bullish for the future.

 

The Global Arena – War is in the Air

 

The World is moving fast into diverse armed conflicts, without any power showing significant interest or activity to stop or contain these developments. The political post WWII order is trembling and shuttering and will ultimately make room for a new world order following a big earthquake. War is in the Air everywhere and in multiple dimensions:

 

  • Twitterman versus Rocketman Saga: Do not trust the fog bombs that both parties are throwing around. While Trump has changed the quality of the North Korean leader from insane to honorable in a minute, and Kim Jong Un is reflecting on de-nuclearization, both players are lying big time. Hangover more probable, than honeymoon (Macron might also be jealous, in case that Trump would start to kiss Kim during their encounter). In any case: good marketing show for both actors.
  • Isolation and Radicalization of Russia: Russia has overplayed his hand and gets punished for this on all levels. Pushed into the corner of the ill-mannered child, more chaos and disruptions in Europe and the Middle East will be targeted. Alienation between NATO and Turkey, sowing disaccord in the EU, conflict between Israel and Iran, and escalation in Syria. The resulting side effect of higher oil prices will over compensate for the sanctions of the West.
  • Iran, Israel and the JCPOA: It is only a question of time, when the Syrian mess will also lead to a bigger clash between Israel and Iran. Israel in this case can be expected to also inflict material damage to the ballistic and nuclear program of Iran. On the JCPOA, we believe that Netanjahu, Pompeo, Bolton and the conservative establishment will win over the European attempt to save the Iran nuclear deal. If not in May, the plan might soon be history.
  • Trade War: As we have discussed in earlier contributions, China will be punished by the US. It is in the long-term economic, political and military interest of the US, to weaken or at least decelerate the economic rise of China. Trade war is coming.
  • Cyber War: is already taking place. All capable countries are increasing their defensive and attack capabilities. More battles to be seen soon.
  • Authoritarian Tendencies: In times of fundamental global and societal changes, people are voting for authoritarian leaders. This can be observed around the globe. With the free press being in recline, political parties as power buffers dissolving, war memories of the population fading and the nation state back in fashion, water temperature is rising in the risk pot of leaders going wild or rogue.

 

Europe – Renaissance or Museum?

 

To Europe. Given the global percussions, Europe feels like a safe haven of stability, which will be rewarded. There are signs, that Europe can stay a main player in the future and enjoy a bright economic future:

 

  • Broad based recovery: finally, after nearly 10 years of disappointing growth, all major EU economies have started last year a broad-based recovery. We will experience over the next 24 months stronger wage growth, decreasing unemployment, reduction of budget deficits, and rise in inflation in all major EU economies.
  • Diversity and Innovation are elements that mutually support each other. Mixed with a tradition and culture of sciences and invention, Europe has the best natural breeding biotope for game changing technologies and research. And the countries in Eastern Europe from Poland to Romania and Ukraine are only starting to join the game by returning to their roots of scientific excellence in engineering, mathematics, information technology, aviation and others. A young generation of scientists and entrepreneurs take over and will lead Europe to a new level of innovation. Check out where the game changing innovations in most natural sciences and technology areas originated over the last 50 years. No wonder the Chinese are out hunting.
  • Re-industrialization: The peak globalization is behind us and the big move of production to Asia is over. Many companies in Europe are considering to re-locate at least parts of the production back to Central Europe. Automatization and robotisation favor excellent skills, rule of law, IP protection. Labor cost becomes close to irrelevant. Increased protectionism, changing tax regimes, and the political will to re-industrialize are increasing this trend.
  • New social models: Europe will be the first region to test new social models of general income and/or general pension. As certain professions will soon become obsolete on a large scale and faster than many can imagine, new social models and contracts will be a necessity, and Europe will profit from its lead.
  • Quality of Life: Europe is the place to be. In a world of robots, VR and constant information and communication, people will long for a place of serenity, nature and pleasure. To offer quality of life will be key to attracting talent in the global arena in the future. Top talent will choose to live in the best places. From the top 10 cities in the world in the latest Mercer Report on Quality of life, eight cities are located in Europe.

 

Certainly, there are risks around. Brexit, Catalonia secession and traditional Italian political chaos will keep the European capitals and Brussels busy. But in our view the economic impact of Brexit will only be short lived (on the EU side of the Channel), and in the mid-term already prove beneficial to the continent. The constant aging of the population is cause for concern and will require a massive overhaul of social security systems and massive attraction of qualified foreign immigrants against the general mood in the population. Alone in Germany 500.000 qualified immigrants will be needed per year, to keep the pension age at its current level. Europe is falling back in patent applications and industrial production in comparison to Asia, but do not mix up quantity and quality of patents and innovations.

 

Key Investment Areas – Go and No-Go Zones

Looking to the key investment sectors in Europe for future investments and why we have chosen those:

 

  • Fashion, Design and Luxury FMCG: The world wants to consume European and mirror European taste. Wherever you travel in the World these days, luxury brands are dominated by European players. The new affluent population and middle classes of the world want to drive Mercedes, wear Prada and Gucci and drink Bordeaux wines. Rising global wealth in China, Russia, the Middle East and other regions will lead to higher demand.
  • Defense: Higher independence from the US, the growing insight that European governments allowed the run-down of their military, the accepted NATO doctrine of 2%-defense spending relative to the GDP, and new global threats, lead to significant modernization and increase of defense spending of all major European countries. Gone are the times, when it was en vogue to decrease the national defense budgets.
  • IT/Cyber: Corporates, Governments and Privates are waking up to the cyber threat in all areas. Huge need to catch up with reality leads to an investment wave into devices, services and processes. No trust into US, Israeli or Russian solutions. Big chance for European players.
  • Clean/Blue/Green Tech: It is the continent of environment freaks, where train tracks and motorways are not built because of rare species, the population turns maniac about nuclear, GMO, pesticides and any type of emission. Innovation in this area will be developed and tested here.
  • MedTech: The fusing of medical technology, IT, robotics and nano engines and machines will prove to be a key sector of European development, bringing together historical key strengths and skills of the continent.
  • Agriculture and Bio-Food: The westernization of eating patterns, increase in wealth and concentration of population in the cities lead to increased demand of animal farming as well as traditional crops, while at the same time fertile agricultural land is shrinking globally. Central Europe from France to Germany via Poland, Russia, Romania and Ukraine has by far the largest black soil agricultural surfaces in the world, and the potential in some Eastern European countries in terms of professional agro management, output efficiency and logistics is by far not fully utilized. We believe in strong price growth both in agro products and land in the near future, especially in the high-end segments of non-GMO food and low pesticide and bioorganic production processes.

 

NO-GO: Banking (weak capital base and legacy systems in a fintech world) and car Industry (emission scandals, new ownership models, electric vehicles).

 

COUNTRIES: We would overweigh France, Netherlands, Germany, Austria, Poland and Romania. The risk-takers should have a look into Albania, Serbia and Ukraine.

 

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