alt-think.com

Dear Partners and Friends,

How nice life could be? After two Christmas parties in a row spoiled by Covid, health officials around the World have declared Covid to be history and all preventive measures obsolete. The Christmas turkey is roasting like never before despite sky-high gas prices. The Russian army seems to be running out of steam, losing not only more and more of the lands they grabbed after the brutal 24 February invasion of Ukraine but also at an increased economic and political cost. And the private bankers are already calling the end of a global stock market decline. Even winter feels more normal this year with cold snaps all over the Northern hemisphere. But who is interested in climate change anyway in times when fossil fuels are scarce goods and coal is celebrating a new renaissance? Luckily, it is also too cold for doomsayers to glue themselves onto roads or to famous artifacts. All around the World political clowns have been thrown out of office. Human rights movements have easily been turned into a running joke during the world cup in Qatar in an impressive win of big money. So, is the crisis of that not-so-easy year 2022 already over?? We tend to believe the contrary: that we are only at the beginning of a larger wave-shaped downturn with intense disruption to our societies, economies, and lifestyles. Global fault lines are breaking up, erupting violently, and raining down on us in a global shitshow before humanity can depart to a brighter future. Outcome unclear. Maybe a protracted crisis until 2025- 2026. Where things will get much worse, before they get better, where established ways of thinking and incumbent business need to go down with a new global equilibrium on the horizon before we will see the dawn of a new, better age arriving. 

From baby boomers to baby busters.

The famous baby boomers have abused their time in power since the end of the Cold War by concentrating solely on their own economic well-being. More buster than boomer, they have led our World in the last thirty years to enormous political and military threats, unprecedented environmental emergency, dangerous financial instability, and a loss of values and beliefs. There is an urgent need to exchange these leaders for a new generation willing to change their countries and the World for the better. Shying away from any value-based discussion both in the political and economic arena, the meaningless compromise of hurting nobody and turning the back on any disruption, led to twenty years of covering any political crisis with endless multinational talks leading to nowhere and covering any financial crisis with more public and more central bank money. Both bubbles have started to burst simultaneously in 2022, with the worst not over, but yet to materialize in 2023.

Political Bubble: Appeasement at any price

For nearly three decades, we have lulled ourselves into a bubble of appeasement against the ugly truth of land grabs, human rights abuses on an industrial scale, utilization of banned weapons, and the use of energy supplies for blackmail. Caesar’s rule of preparing for war to preserve peace had been abolished, we saved on defense and gave the leadership of our defense to the most unsuited. The price that we pay today and in the future for this negligence is high. Ukraine is paying for this with the lives of its citizens and soldiers and the massive destruction of its civil infrastructure. The World is paying for this with energy markets in total turmoil, the UN being driven into insignificance, an unacceptable increase and banalization of the nuclear option, and of course national resources (your tax money) being hectically and unsystematically used for armament and energy bills instead of infrastructure and education.

Economic Bubble: The Globalization Scam and the Whatever It Takes Safeguard

With the rise of China and the fall of the Soviet Union, the total globalization of products and production lines arrived. Value chains were moved to China, greater Asia, and Eastern Europe. Global production prices declined and with strong competition between global employment markets, wages and product price inflation saw modest increases if at all. Next to strong deflationary tendencies, we experienced a massive enrichment of global elites through the inflation of stock prices, real estate, and the values of other luxury goods. All this is on the back of the American and European workers and employees. Despite increasing national wealth, their access to house ownership, in-time and state-of-the-art medical services, and other advanced social services deteriorated enormously over the last thirty years. As a result, we have experienced the most massive shift of global wealth in living memory. An outrageous globalization scam. Whenever there was a risk of an economic downturn or asset deflation, central banks together with governments shielded global elites with ever cheaper money and infinite liquidity injections into the financial markets. Governments, corporations, banks, and investors became addicted to the sweet drug of a perpetual mobile of rising markets and comfortable safety nets. Global corporations and the most wealthy effectively stopped paying taxes to any country that provided infrastructure and resources to them. Everybody was aware that this did not provide a stable and productive growth model. It generated a heavy burden on future generations and taxpayers once the party would come to an end. And voila, here we stand today. Welcome to this end.

The turbo dissolution of the prevailing business models of the past decades, the de-globalization, the re-inflation, the new competitiveness of labor and the re-orientation of global alliances will keep us all busy for the coming years. Hopes for a rapid recovery in 2023 to business-as-usual and to markets-as-usual, to presumed political stability, will prove to be costly bulls’ traps. Self-deception is powerful booze, and like cheap vodka, it gets sweeter the higher your intake.

Here come the main developments that we are expecting for 2023:

1. Military confrontation and escalation: The world has moved scaringly close to a large-scale global conflict. Russia as a permanent member of the UN security council is threatening the World with nuclear attacks. Hostilities between North and South Korea and between China and Taiwan are getting hotter, and the Iran talks are history since its active armament of Russia with drones and ballistic missiles, while the accumulation of nuclear material in Iran is breaking all records. The current Western military doctrine of keeping NATO out of direct confrontation and instead arming Ukraine but only to a level where it can defend itself against escalating aggressions from Russia and not more will lead to a multi-year ugly conflict. But the margin of error of this strategy is very narrow. Any battlefield mistake, false flag, or rogue operation risks an immediate escalation. For now, an escalation even with a limited nuclear event is not likely, but for the first time, it can also not be excluded. Combine this with potential military intentions of a new ultra-conservative government in Israel and a Chinese leader being weakened by a COVID disaster at home. At least in Europe, both citizens and governments remain shockingly unprepared for any escalation.
2. Energy volatility: Energy prices will show further violent swings. European oil and gas markets are in full restructuring and the full impact of this situation and physical energy shortage will only be felt from summer 2023 onwards. Sanctions and hectic price regulations on the market together with European regulations might add further to this volatility and increase market turmoil.
3. Financial market recalibration: Go with the Fed. As long as main interest rates are way lower than inflation rates, the main central banks will stay hawkish. As we expect inflation to stay high if not very high in the foreseeable future (re: wage developments, de-globalization of value chains, energy volatility), we see further massive increases in interest rates and in parallel a reduction of surplus liquidity/tapering. A complete reverse gear to 2009/2010 and the following. Next to bearish equity markets, a bloodbath in certain real estate markets and segments can be expected, where investors and developers are confronted with the double whammy of exploding credit cost (bear in mind this is one of the most leveraged industries) and fewer buyers who will be able to afford the current price levels in the new financing reality.
4. Looming wealth distribution battles: The last year has confronted workers and employees with the biggest net income loss for decades. As energy bills and mortgage payments are biting, the cost-of-living crisis is hitting hard. Many families will be forced to make hard choices in 2023, from holidays to cars, to other exceptional items, consumers will reduce their spending to make ends meet and to prepare for potentially worse to come. The UK is already confronted with strike waves in critical sectors. A just distribution of national wealth and welfare will be high on the political agenda in most countries with new attacks on wealth, property, and global tax evasion models. Modern social democrats who understand the work and life reality of generations Y and Z and get rid of industrialization-age mental models could see an upswing in their political fortunes.
5. Covid reloaded: The outbreak is back where it started. Surrendering to the reality on the ground, the Chinese government has opened the floodgates to a total endemic contamination of its population. What a humiliating disaster and a public showcase of total failure. First, everybody was locked and blocked, even if healthy, now even the seriously sick show up for work. It will be interesting to watch how long the Chinese government can withstand the pressure of rapidly rising fatalities and overcrowded hospitals. You do not need to be a WHO expert to see enormous risks of new and potentially worse virus variants that could develop once this infection wave will hit the more rural and distant areas of China with its low hygiene standards and wild animal markets.
6. Rapid Deglobalization: The reverse globalization mode is gaining traction. Governments around the World are realizing that not only gas and oil, but also antibiotics, semiconductors, special machinery, and software products can and will be used in situations of international confrontations. Major countries intend to bring back critical products and critical production to their countries. At the same time jammed supply chains and a new euphoria for duties and customs force global corporations to rethink their production, warehousing, and sourcing strategies. In combination with higher energy and transportation costs, and consumers who exercise climate and social shaming on producers, the case for a large Going Local drive is striking. This will also be a long-term endemic driver to keep inflation up.
7. Lack of leadership: Unfortunately, the current global landscape is not spoiled with great political leaders or political leadership. Both in the US and Europe, the political class has failed to find responses to the profound changes in military threats (Russia, China), societal changes (new life and work models), climate change, and health dangers and driven the World into a situation of financial instability and bigger confrontations on the horizon. Still stuck in mental models of the past, we observe a mere containment of problems and avoidance of true and honest societal discourse. Three unrelated but typical newsflashes from the past weeks: (1) Already up to November 2022, in the US there was more Fentanyl seized than is necessary to kill every American with an overdose (and that after the opioid crisis), (2) In Germany, at a high-level armed forces event, 18 out of 18 latest generation BTR PUMA proved to be not ready for operation (not mind that there is a war raging at the front door, or that this BTR should be a showcase for German arms technology), (3) in Korea, the reproduction rate fell to a new historical low of 0.8 (while at the same time the import ban on sex dolls was lifted). Are all these governments vastly asleep? Systematically unimportant media nonsense and pseudo-discussions on negligible topics are dumped on us, while our governments are administrating the status quo. There is no guarantee, that the political system of Western democracies will survive in that working mode. Currently, our hope rests on young leaders and democracies, from the Baltic states to Scandinavia to demonstrate that bold and brave decisions can and will be taken and consistently executed.

The next twelve months will be most turbulent, dynamic, and interesting. These are the times when new businesses, political systems, leaders and are born. Everything new is based on the demolition of the past. The countries that will find their way into the new realities the fastest, will be the winners in the global race for political and economic clout.

With these thoughts, we want to wish you an excellent start to a sparkling, turbulent, and most-interesting year 2023 with lots of success.

Stay safe and healthy.

Best

Marc and the whole Smartcom Team

Dear Friends and Partners,

Some quick and unstructured thoughts, while the ugly reality is unfolding on the ground in Ukraine, and many consequences are still vague

Up to the end, most of us hoped, that US and UK intelligence warnings of the imminent Russian invasion, would prove exaggerated. Now we are witnessing in shock how the Ukrainian people are left to themselves to face the brutality of Russian rape and murder. Left on their own to defend the fault line between freedom and slavery, democracy and dictatorship, free speech, and imprisoned or killed journalists. This surrender to Russian hegemonism and revanchism, which was looming since 2008, and the inconceivable human suffering that comes along with it, will be a bloody stain on the collective conscience of the free world. Hopefully, the heroes of Snake Island, the brave soldiers, and all who will be killed in the coming days and weeks will not have died in vain. The World has changed profoundly in the last 24 hours and is waking up to a new reality, that will stay with us for the next decades. A new and severe cold war has started and will abruptly halt the free movement of goods, services, people, capital between Russian and NATO dominated countries for a generation to come:

• Ukraine: While fighting bravely, it has to be feared that the Russians will take control, will try to exchange the Government, and put Ukraine tightly back into their sphere and under their control. However protracted the conflict will be, the West needs to be prepared to take in incoming Ukrainian and Belorussian refugees generously and with an open heart and to support the lengthy fightback of the Ukrainian army and eventually partisans.
• Russia: The price for the assumed re-incarnation of the Russian empire and Soviet area influence and intimidation, will be enormous for Russia and the Russians. The sweet times of sending kids to UK schools and partying in Italy and France for the Russian elites and their families will be over. Many corporations will struggle to sustain their operations amid the cut-off from Western product supplies and financial flows. Even the filled treasure chests of the Russian Government and rising energy prices will not be able to replace urgently needed high-tech products and advanced services. Quality of life, freedom of movement, and international reputation will decrease sharply for Russians, in addition to even stronger suppression of any opposition, civil liberties, and diversity. Welcome to Soviet Union 2.0. Russian parents will see their kids grow up in a society, that they wanted to escape from at the end of Soviet Union 1.0
• Europe: Time to take sides. Time to shut down UK laundromats for Russian money, time to stop Russian bribery to political parties and sports organizations, time to shoulder the costs and prepare the populations to pay for defense, to develop energy independence, and time to stop being naive. Europe is brutally thrown back into the past. It will cost dearly and bring disruptions to many businesses and institutions, hopefully, it will also be taken as an opportunity to rethink and engage in European security. Sadly, the current discussion on Russia’s exclusion from SWIFT does not raise our hopes for a continued unity in Europe to face the enemy.
• United States: Time to stop partisan fights and come together as the leader of the free world. Isolationism would be a disastrous choice. America First and Only will be the most expensive choice of the American people in the long term. Outpace, outsmart, outpower the bad guys. Relearn the honorable and bipartisan leadership of defending freedom in this world as a defining aspect of America.
• China: is taking sides for now with Russia, not least because of the Taiwan issue. But this might change when China will see the cost Russia will need to shoulder. If not, China might come under grave economic pressure from Europe and US.
• Global Economy and Society: Be prepared for another significant push in inflation due to increases in food and energy prices, rapid re-nationalization of value chains and significant increases in interest rates as the decreasing effects on inflation and interest by peace and globalization will come to an end. Europe will have a lasting negative effect on growth, and stability will be at question.

Our prayers and thoughts are with the brave Ukrainians and Belorussians who are fighting for their freedom and lives right now. February 24 will be remembered as a day of shame for Russia for their aggression and as a brutal bill for the US and Europe for looking away over the last 14 years, shying away from defending freedom, and schmoozing to dictators and autocrats.

Turbulent times ahead. Unfortunately, the world has become significantly less stable, safe, and free.

More to follow.

Marc

PS: please donate generously to the expected Ukrainian diaspora and refugees.

Dear Friends and Partners,

Many of you might enter the 2021 end-of-season festivities with mixed feelings. Bank accounts are loaded, profits from the never-ending investment boom got harvested and secured, black Friday shopping has pleased your loved ones and booster shots make you feel invincible. Only weaklings would care about the cough and sneeze around the corner with a triple Pfizer defense line in their bodies. Despite all the doomsters, scaremongers, and conspiracy preachers we can summarize, that traveling is once again possible, stock markets have not crashed, Governments have not gone bankrupt, Boris Johnson has not yet sunk the United Kingdom in the Irish Sea, Joe Biden is still alive and, believe it or not, even your Swiss banker produced this year more profits than fees. The Rolex well-being index of the rich and pretty, measured by the time and premium you have to swallow to get your hands on a Daytona, Batman, or Patek Nautilus is at an all-time high. Your neighbors and friends are boasting with the fortune they have spent for a plane ticket and a water bungalow to escape from lockdowns to a six-star Maldives beach resort. Yet, somehow between the Omicron déjà-vu, the saber-rattling of the US-China-Russia magic triangle and inflation rates of our forefathers, it also feels like the dance on a volcano, like a foreboding of a tectonic shift in the economic fault lines, like a devilish party without a moral foundation, responsibility, empathy, and heartfelt joy. Where will this lead us?

Whether 2022 will bring a continuation of the sweet song of need and greed or an abrupt end to the party, nobody knows. However, history and Newton tell us, that what goes up must come down. Here we are to share with you the areas of risk, concern, and hope for the coming months, the potential sparks to light the fire. We feel the pressure in the global kettle is rising:

• Covid Reloaded: While we are writing this, countries are closing up again to a rising Omicron mutant risk and people ask themselves whether the covid shit show will ever end. Tired from lockdowns, travel restrictions, closure of our favorite waterholes, and the stubborn failures of governments to prepare better for the next wave of infections, we rub our eyes in disbelief. Get prepared for worse than expected forecasts in case that Omicron will break our vaccine defense perimeters with all the consequences and be sure that the taxman’s hand grabbing into your pockets will grow much bigger to finance the government goodies for the covid tired population and businesses. 
  
• The Eco Revolution: It is the economy, stupid! 2021 has shown us, that the business world will save us from ecological disaster on this planet. Forget the COP and Greta song and dance shows. TESLA today is valued higher than all big traditional car companies together – with a fraction of their production and assets. Big finance and business are investing heavily into new green and blue tec, logistics, and transportation will revolutionize in the coming decade, healthy food is everywhere. And the consumers are asking for more and faster. Savings through energy efficiency, energy recycling, and decentral management systems are just starting. Investments in this area (next to space) will be one of the huge growth, innovation, and wealth drivers of the next 10 years.
  
• Space Race: The space cowboy contest between Musk, Bezos, and Branson has initiated a global space race, that will bring not only humanity to a new level of interstellar reach but also set the foundation for the future trillionaires. The take-off reminds us of the first big issues of shares in Anglo and Dutch trading, shipping, and rail companies during the colonialization. The speed of the colonialization of space that has started will attract billions of investments from private and government entities. Mining of comets and asteroids by robots will create unseen wealth, next-generation weapons and spacecraft, housing and infrastructure, energy production and transport to Earth, space engineering, space services, and tourism, you name it. Get prepared to participate in the space boom and business. And do not forget: The nation that controls space and commands the biggest space armada will logically dominate our home planet.
  
• Inflation, Wage Growth, and the End of Free Money: Finally, inflation has arrived. Whoever believes this is temporary, will be proven wrong. The time for holding back inflation has long passed for central banks and most governments will silently welcome it to deflate their legacy debt mountains. Whether it is big wage rises, shortage of labor, supply crunches: everywhere prices are rising, and the famous inflationary spiral has started. The overlaying developments of a) the de-globalization of value chains and end of deflationary effects through cheap China production, b) the abrupt end of the peace yield after the collapse of the Soviet Union, c) the additional eco premiums for clean and healthy production and living conditions, they all add up to a systemic return of substantial inflation. Interest rates might rise much faster than everybody believes now and will finally bring back sound investment reflections and herald the exit of zombie businesses. Change your mortgages for fixed rates now.
  
• The Big China Experiment: In a surprise move and not really noticed by many China has started a huge re-distribution experiment of wealth and business power, aimed at achieving a broader distribution of wealth, limiting the influences of individual tycoons, communicating a clear message that there is no alternative to total obedience and China First & Only doctrine, and to cement the power and authority of the communist party for the coming decades. Anything unclear, look at the fate of the Hongkong opposition. Whether this experiment will work, and business and innovation continue to prosper in this setting, will be seen. If not, China will lead the global economy into a serious downturn with a further significant revaluation of Chinese property and financial assets and major turmoil in the corporate landscape. Next to geopolitical risk, further motivation to be defensive with China engagements in 2022.
  
• End Game of Unchained Capitalism (on Earth): The golden trio of cheap and excess money, massive tax loopholes/free capital flows, and cheap labor have led to an enormous redistribution of global wealth to the top 1% earners and investors, to the emersion of a rapidly growing and crowded group of billionaires, who grow – sustained by national banks in any crisis – richer by the hour. The wealth and health gap (measured with life expectancy) between the poorest and richest of our countries is wider than at any time since WW2 and reminds us of the 1920s. Societies pay for this development with the erosion and destruction of their middle classes, polarization/anger/hate, hopelessness for many, exploitation of nature and infrastructure, sub-potential growth. The end of this unchained capitalism has come. Inflation is putting an end to cheap money, Governments are rediscovering taxation to finance infrastructure rejuvenation and ecological reforms, tax loopholes are addressed or closed, labor shortages will lead to significant pay rises.

On the political side, unfortunately, things have turned ugly in 2021 and the risk of a severe political crisis or even armed conflict with the involvement of major military powers is higher than ever since the end of the cold war. We are witnesses to the launch of an epic battle between the US and China for the future dominance of the world order. Russia, though out of the game, is trying with shady means to secure as much influence or control on its neighbors, for now trending more towards China than the US. The main inflection points for a potential eruption are:

• Eastern Europe: Russia has amassed assault troops on the Eastern border of Ukraine, in Donbas and Crimea, and in Belorussia. The ambition to re-integrate large parts of Ukraine into a larger Russian empire is well known and clearly directed against any self-determination of the Ukrainian state and people. Aggression will start the very moment, any weakness in the Western alliance to stand by Ukraine is shown and tips the balance of the risk/reward calculation of the Kremlin. With North Stream 2 getting operational and the resulting control of the European gas market Russia has already acquired a powerful economic weapon. The resulting self-confidence of Russia with continued hybrid and cyber-attacks and constant escalation of red lines in its communication does not bode well in that regard. Any aggression will turn bloody this time as Ukraine is much better prepared than in 2014. But in the end, neither the US, NATO, or the EU is ready or able to block any aggression by military means.  Also, watch out for developments in Belorussia – will Lukachenko repeat the survival miracle of Assad in Syria or go down? – and in the Balkans, where political heat in the relation between Serbia, Bosnia, and Kosovo has gone up to levels close to armed escalation.
  
• China/US: With the open support of Taiwan by the US and the stubborn defense of the South China Sea by the US and its allies against Chinese hegemony, the reality of an Asian Pacific cold war has arrived. An enormous arms race between Korea, Japan, and Taiwan on the one hand and China, on the other hand, will be with us over the coming years. Too late did the West and its Asian allies wake up to the enormous economic powerhouse they helped to build with the rise of China, which will even dwarf the economic size of the United States in the near future. Now, the containment might be too little and too late. Any global disruption or show of weakness might tip the balance for China to think that the golden moment for a Taiwan grab has come. Generals already stare in disbelief at the speed, size, and capabilities of new generations of arms in China and the political leverage on third countries that have been built over the last decade. Technological innovation and winning the space race will be key for the West to stay relevant in this competition.
  
• Iran: The coming months will show, whether any revival of the JCPOA is possible or not. While severely hit by sanctions and covid, the regime has used the absence of international unity due to the unilateral cancellation of the JCPOA by the Trump administration to increase its nuclear and ballistic capabilities and to escape from international oversight and control. Very soon the World will see a North Korea scenario in case that there is no success of the rebooted talks in Vienna. The options are clear: peaceful settlement or pre-emptive strikes of Israel and potentially the UAE against Iranian nuclear and military facilities with all the ugly consequences of a regional war involving Iran, Iraq, Lebanon, Syria, Jordan, and Israel – and more migration to come.

• Cyber: We continue to believe that one of the biggest global escalation risks stems from attacks on critical IT infrastructure, both on national assets or on business players with critical importance for a country through sabotage, disruption, piracy, data theft, and blackmail. First, most countries have no experience in handling and reacting to these kinds of attacks, and there are no clear chains of command and de-escalation between countries. Often, attacks are too late identified, and the originator cannot be proven. Second, and driven by this feeling of not being held responsible, players could overplay their hand and provoke harsh and asymmetrical reactions, and third, countries in many cases utilize hackers and assets outside of government structures to be able to deny any responsibility for any attack (the Wagner factor), but these hackers and assets might develop separate and additional activities, often greed-driven and outside of any government control, which again can lead to unwanted damage and reactions. The IT attacks and demands for ransom payments on businesses and influential or famous individuals are exploding. It is shocking to see how many companies are entirely relying on their external IT providers and naively approach this mission-critical issue, while a critical data leak can upend the strongest business, especially in trust-based industries.
  
• Migration: Last, but not least, images from the border between Belarus and Poland, and heated discussions between France and the UK on Channel crossings have brought back the urgency of migration from poverty and crisis regions. It is obvious that thanks to climate change and political chaos in post-war regions from Iraq to Afghanistan, Syria, Africa, South, and Middle America migration levels will once again rise. The border wall lobby is cheering, yet next to the human tragedy, there is no systematic and convincing answer drafted or even in the discussion. The distribution of covid vaccines in the world demonstrates strongly that solidarity and global thinking are non-existent. It is therefore inevitable, that very soon we will see the same or bigger refugee streams than in 2015, probably with more casualties, more ugly scenes, and more conflicts between nations and within societies of how to cope with the streams. Be prepared for more polarization, hate, and right-wing propaganda.

2022 is promising to be a dynamic and super volatile year with lots of opportunities and strong risks to watch out for. Be strong.

We wish you and your loved ones wisdom, health, and luck for the coming months and a joyful start into the hugely successful Year 2022

Very best

Marc

Dr. Marc-Milo Lube

Partner

Smartcom Holding GmbH

Dear Friends,

“komm lieber Mai und mache die Bäume wieder grün” or in English “come, dear May, and turn the trees back green again” is a world-famous classical folk song from Mozart. While markets are fully embracing these spring feelings, we might soon enter into more of a Wagner’s Götterdämmerung scenario both in economic and political spheres. A truly dramatic scenery is evolving. Do you remember the times when fundamentals counted? When did you need to read a balance sheet to understand a business? When analysts were driving stock prices and not influencers? When people bought Krugerrands and not Dogcoins?

Welcome to a global economy driven by central bank steroids and magic fiscal spending mushrooms, where the Elons and Robin Hoods are creating stock market frenzies in epileptic trips, where interest rates are non-existent, strong inflation reserved for Turkey, an economy dominated by millions of legacy zombies and tech billionaires who start to make the Vatican look pale on their inquisition track record. Welcome to a world in which billionaires are made overnight and billions of hard workers have no chance to ever afford homeownership. The mother of all bubbles is expanding until it will explode in a non-woke cancel-culture cataclysm. The simple business rule is still (hopefully) holding: when the economic facts are engineered and bent to explain the euphoria, and the euphoria is not nurtured by the facts, the correction is close. And when the societal gap is too big and widening too fast, a paradigm shift is looming with the pendulum swinging to the opposite.

Be prepared for a hot May, and digest the following food for thought:

1. The Global Economy in the Covid-19 Endgame
   

The global narrative and reason for hyper-bullish markets is a bet on a repeat of the golden 1920s after the end of the Spanish flu. Economies that are on a nitro-boost from big-time Government spending, cheap central bank money, huge and accelerated digitalization thanks to Covid, spending spree from consumers and corporations to catch up on the forced lock-down breaks, and a relief and freedom rally that joyful life is back after Covid restrictions. And of course, an inherent belief with market players that both central banks and key Governments cannot let markets go down and interest rates up for the sake of their very own balance sheets. A little party never hurt anybody! But watch out for persistent party poopers. The moment of truth will come soon and bring heyday or mayday in May. Out top-ranked party poopers are:

• Covid Help Programs including generous subsidies and support payments, furlough schemes and insolvency protection are running out in parallel to the progress of the vaccination levels. This is nothing else than a fiscal tapering which will happen simultaneously in all major economies. Job markets and consumer spending might suffer more than expected.
• The corporate real estate market is in for a major setback with high-street retail, hotels, and office space segments heading for revaluation. This might turn ugly and critical for over exposed lenders and funds and put severe pressure on the loan market.
• The US China economic cold war is expanding. It might lead to further distortions of global value chains, and for sure result in price increases and reduced competition/productivity. Many players might also be forced into a “Us” or “Them” decision.
• Corporate earnings might be worse than expected and the economic recovery slower than expected. Despite many positive signs, the world is far away from pre-corona output and consumption.
• We are still waiting for the first real China recession, which will rattle the World, once it occurs, as more and more countries are over-dependent from the Chinese market.
• And finally, the forgotten Brexit. While buses are burning again in Belfast, and trade relations between EU and US are down in double-digits, the new trade agreements of the UK have yet to materialize. The Tory dreams of a soft-power superpower might be short-lived with the narcissist boy group from Trump to Bolsonaro out of office or reality check.

2. The Potential Black Swans in May

While there is ample reason to believe in an ongoing party as into the beginning of a market downturn, it might be again the black swans forcing the hands and pockets of investors, governments and central banks. The new US administration will get seriously tested soon with an EU in complete disarray after a failed vaccine campaign, a lame-duck government in Germany, and humiliated by Russia and Turkey in foreign policy. 

• Russia is saber rattling and turning up the heat on Ukraine with massive military pressure at its border. Escalation can happen any day. Belorussia, Armenia, and Georgia will watch closely.
• China is continuing to build up its military presence and pressure in the South China Sea, Taiwan is still on the wish list. Neighbours get more and more nervous.
• Iran/US talks have restarted around the JCPOA revival. Serious sabotage to these talks can be expected from Israel (as seen in Natanz yesterday), Saudi Arabia, and the Republicans. Revenge actions will swiftly follow and we have lately seen in the Suez canal the consequences of blocked waterways.
• A US cyber-attack and retaliation for Russia’s involvement in the US elections and SolarWinds intrusion is imminent. Depending on the target area and scale, there is a clear potential for escalation.
• The golden capitalist era comes to an end. Reaganomics has brought us an incredible shift of power and wealth from citizens and governments to corporates and the top 1 % of wealth holders. The Biden administration is leading the world to a major paradigm shift. Taxes will rise and significantly, both for corporations and individuals on value gains, high personal income, and wealth. This will ultimately lead to lower corporate earnings, positive interest rates, and higher inflation. And a full revaluation of all asset classes. Turmoil insight.
• And what about Covid? Thanks to failed containment in the beginning and the current egoistic national vaccination strategies, the World has created a perfect breeding and mutation ground for the virus. It has yet to be seen, whether the current vaccines will be stronger and smarter than the mutation dynamics of the virus, and there could still be a rough awakening in the winter season 2021/22.

3. Will FOMO turn into GOMO?

As in politics, markets are also experiencing their post-truth investment reality. Trend and mood-driven markets, that are much more impacted by influencers than fundamentals. Events are digested instantly and compressed in very short time windows. In this environment, forecasts are naturally suicidal. Mayday or Heyday?

We believe in strong long-term growth, driven by technology, breakthroughs in health and aging solutions, an eco-boom, the restructuring of global value chains back to the consumer, and a redistribution of wealth to the middle classes. But we also believe, that a market correction and catharsis is over-due and might show up in May, with markets having fully anticipated and priced in an enormous post-covid boom of major economies, and the full defeat of covid. This mindset is very sensitive to any setback. The time for Zombies might run out.

So, if you are FOMO on booming stock markets, cryptos, or other assets, you might soon be GOMO.

And, if you have gained a lot in the covid crisis, we would definitely recommend going for the extra hedge.

Watch out for May. Stay liquid.

Best

Marc

Dear all,

what a most astonishing year is behind us, and what an exciting one has started. Deaf from all the corona noise around us, distorted from the constant media attention on Trump tantrums, and feeling imprisoned from the restrictions and admonishments by our governments with a profound impact on our daily routines, we tend to lose focus, while the financial markets are telling us, that all is great, and the party has just started. It is still unclear who will have to shoulder the corona bill which handed out trillions of helicopter dollars to citizens and corporations, the famous bazooka but this time on steroids, and loaded with the global “whatever it takes” bullets. All this additional cash will stay in the system, waiting to fuel an economic boom once the World will resume the play mode after the forced corona break, but will we really just go back to the past normal? Does it not already feel like nostalgia seeing movies where people party in restaurants without masks or travel around the world, and how banal is it to go to an office for work?

If 2020 was the year of pandemic firefighting, 2021 will show whether we (or who) will rise from ashes or whether we will simply rebuild old legacies. The world and all the main players and everyone will stand in front of a crossroad leading to a rapid boom or a descent into a painful recession. Arguments can be found for both directions, and luckily, we are not yet in auto-drive mode. While we tend to lean to the optimistic scenario, it might be wishful thinking too long for a 1920s style revival pushed by the astrological start of the Age of Aquarius or the ox taking over from the infamous pandemic rat with the Chinese New Year.

We have decided to abstain from bone reading and predicting the unpredictable, but to look into some of the factors and developments to watch out for in 2021, the factors that will play a decisive role in the global well-being:

• New Marx on the Block: very soon in 2021 discussions will start who will have to shoulder the corona bill, especially in the case that the economy turns sour and we will no fast outgrow the additional pandemic debt burden. The current spending spree of politicians will be difficult to reign in, so governments’ share in spending will stay high, in some countries above 50% of GDP. Together with the rapid redistribution and concentration of global wealth in the hands of a combination of old-boys networks and tech billionaires, the nasty erosion of the middle classes, and the growing barrier for the many to afford homeownership, we have a perfect cocktail for new socialism to rise with less freedom for the individual, intense government control and unseen levels of taxation. The targets are already clear: real estate, big tech, wealth and inheritance, CO2, imports. Luckily, so far there is no charismatic leader of the radical left around yet but watch out for the New Marx to come.

• Bad Debt Avalanche: In 2020 government aid programs, furlough schemes and state-ordered bankruptcy breaks were holding back a large wave of corporate insolvencies. All of these barriers will end in the late spring of this year. Next to the real business hit that many companies had to take, especially in the services industries, the pandemic led to turbocharged changes in industrial value chains, consumption patterns, and the digitalization of service offerings. Weak and slow competitors, zombie corporations that could survive so far in a negative interest rate environment will go down in a necessary wash-out of evolution, but the sheer amount will drive the financial system to its limits. This is in our view not sufficiently accounted for in current market sentiment and the existing amounts and level of corporate borrowing has all the potential to trigger a bad debt avalanche. In our view the biggest threat to economic development in the coming 12 months. Watch out for banks and lenders, commercial real estate developers and investors in retail/office/hotel, travel, and tourism, entertainment, on-premises retail, emerging markets.

• Techfrenzy: Rocket fuelled by a huge global liquidity surplus, accelerated digitalization in sectors from education to sports and the zooming of the professional work environment, and driven by a new generation of entrepreneurs, we might experience a huge wave of innovation and another shift of big money from old industries into technology. Academic and school education that experienced only marginal changes in their processes and systems are prone to see tectonic shifts in business models, curricula, and access or participation modes. The re-inflamed blockchain and crypto boom might be a leading indicator for things to come.

• Chinaphobia and the Wuhan Factor: For now, it looks like China is the big winner of the corona pandemic. First one out of the corona woods, infections under control, provider of support and vaccines to poor countries, and most important – economy already back on track; with Trump out of office, China is projected to become even faster and within this decade the economic leader of the world. But hold on. Will the rest of the world really just get back to normal and forget the virus lab in Wuhan. We don’t believe so. Once, the emergency state is passed, more citizens, states, and governments will want to investigate responsibilities and seek a scapegoat for the billions of dollars spent and apparent own mismanagement of the corona crisis. Combine this with a profound anti-China stance in the US, that will not pass away with the incoming Biden administration, but on the contrary, might be re-enforced by a joint US-EU axis. This axis will try to slow down China’s ascent, aggressively seek the truth on the virus origin, and ask for corona reparations. For sure, China’s appeal to the Western world has suffered.

• Climate Change Cartel: One of the first executive acts of the Biden administration will be a reversal of Trump’s exit from the Paris accords on climate change. In order to cement the progress in the environment and climate-oriented processes, we expect the pendulum to massively swing in the opposite direction of Trumpism, leading to intense rules, regulation, and taxation regime with the objective to change profoundly and permanently corporate and consumer choices for the sake of the climate. The EU, which has just voted to put climate on the top of its seven-year planning period, will greet this political agenda with open doors. And this newly formed climate cartel might soon agree on new corporate reporting standards, auditing, enforcement, policing, and even spying. The times of pollution go easy are definitely gone.

• RIP UN: Unfortunately, the UN bears more and more likeness to the League of Nations in the late 1920s. Ineffective, without impact, toothless, hugely politicized. From the covid crisis to the JCPOA on IRAN and Trump’s sanctions warfare on the world, and from climate change to the recent Karabakh conflict, the UN in 2020 had no say whatsoever in the resolution of any major global conflict. It is very unlikely that the UN will regain its post-WW2 position and influence. This unfortunately in a time of rising needs for conflict resolution and de-escalation.

• The Empire Strikes Back: One of the most interesting things to watch in 2021 will be the US response to the SolarWinds hack into US federal systems and Microsoft by assumed Russian cyber forces. In order to stay credible in the global cyber battle, the US will need to show the strength of the force and this even publicly. We expect a massive cyber attack on Russia by the US and its five eyes allies in the coming months.

• Game of Drones: The Karabakh conflict between Armenia and Azerbaijan has put the potential of drone and unmanned warfare into the spotlight beyond the known lethal surveillance and anti-terror operations of the US and Israel. Next to an unseen boom of the development and sale of weaponized drones and drone control systems, we expect this decade to be the final turning point from manned to un-manned military and lethal combat. The real-world Tony Starks (from Avengers) and their governments will hurry to develop, produce and market advanced drones, self-driving tanks and armored vehicles, underwater drones and androids, and the accompanying steering systems. An enormous industry on the rise. The succeeding nations might find themselves in similar strong political positions as the nuclear powers today.
  

Many additional and other things will be fruitfully watching this year, from the UK enjoying its new liberties as the not so hot single in the global village, the progress of the vegan food revolution, the post-Trump development of the GOP in the US, China’s military build-up or the development of the new halal-kosher friendship. Last but not least we will miss the Twitter tirades of @Potus, and it will be interesting to watch media outlets fill the sudden content vacuum. Luckily, there is hope for some political gossip in 2021: Paparazzi should most concentrate on a) Boris, as he needs to find a new best buddy and might soon post his profile in the political tinder game, b) on Ivanka preparing her senate run in Florida as NYC has turned sour on the Trumps and Kushners, c) on Vladimir’s successor following the granted lifetime immunity for himself and his friends and family (something Donald is craving for), and d) the inheritance battle in Germany to succeed Angela and become the most powerful leader in Europe.

We start this year with many positive vibes, hoping that the financial markets got it right, and see currently clearly more of the early 1920s than of 1929. But beware, we are also living through turbo times, so parties and hangovers might be time-wise closer tied to each other than ever before, and potential black swans there are many.

VI2 stands ready to support you and your organizations in profiting from these trends in 2021.

To all of you, a cheerful, successful, and healthy year 2021 with fewer masks, more freedom, and huge cashflows.

Very best,

Dr. Marc-Milo Lube

OMG. Four years of the White House show on steroids are coming to an end. No season 2, no prolongation. At least we are promised to have a spectacular last episode, a finale furioso with a crescendo of Presidential tantrums, pardons of criminal friends, calls to the arms of the Proud Boys, financial benefits for family and friends, humiliating firings, and an all-time high of a sitting US President arguing that a putsch might be reasonable to defend his stolen big win. The openly stated dream of installing the Trump dynasty for life in Washington following the shining example of the KIM dynasty in Pyongyang has to be put on the shoulders of the next generation.

For all of his personal defects, the one and only RealDonald will soon be missed, when the Gerontocracy has taken over. No more tweets in BOLD LETTERS, no scandalous press conferences, no mafia talk, no more love letters from the shady dictator club, no Trump merchandising, no more public shaming, no viral rants – and how will we miss the great nicknames. How boring will political life be without these big emotions and personal feuds? We will all feel like traveling back in time, twenty years or more, and like moving in slow motion.

And then the Schadenfreude. The bitter revenge of people who have been called morons, human scum, rats, and disgrace; or of countries labeled as shitholes, rapists, and others. No pity for the Narcissist-in-Chief, trapped in his “me, myself and I” corner. Yet, it is pitiful and sad for the great American nation. Once, the winds and waters of this ferocious election have calmed, the afterpains of malicious transfer of power have faded, and the battle cries of the Squad grow louder, we will be able to get a real picture of Trump’s legacy and the prospect of the Biden/Harris Presidency.

Trump Tribute

Thanks to his defects in character and hyper-charged ego, his joy in disruption and destruction, all real achievements of the Trump Presidency have been blurred by countless lies, exaggerations, and the immediate anti-allergic reactions of a hurt, offended and truly biased media world. Looking back one day in the not so distant future, we will have to pay tribute to the Trump Presidency among others for

• Breaking up the Middle East deadlock and opening new chapters of peace between Israel and at least early movers in the Arabic world. Other leaders would have received the Noble Price of Peace for brokering this breakthrough;
• Liberating economic forces and strengthening the US economy and business landscape with wide-ranging deregulation and tax decreasing efforts;
• Questioning and partially reversing unchained globalization;
• Establishing a conservative majority in the Supreme Court for the foreseeable future;
• Taking on and challenging China, its military ambitions and unfair business practices like no other world leader dared to do;
• Jolting the Europeans from their comfortable and everlasting political and strategic hibernation and forcing them to rethink their future priorities;
• And probably most profoundly: making people interested in politics again through personalizing discussion, adding entertainment elements, polarizing topics, and destroying political correctness. Political debate has changed enormously, millions of people engaged in discussing the future of their country and constituency, historic voter turnout. Blind and deaf pollsters, who never understood how to model the power of emotions, will have to re-invent their methodologies.

The Rude Awakening of Biden/Harris

After the post-election euphoria and the celebrations in the streets are cleaned up, and with a challenging transition and handover of power digested, the Biden/Harris team will face a rude awakening to reality. Expectations of the radical left wing are high, spending desires unlimited while public accounts are empty, unpopular and large-scale tax increases will sour the party mood. All attention will be put on Senate elections in Georgia to conquer a majority and with it the political power for profound changes. Someone will need to carry McConnell and Pelosi out of their office to make space for younger and fresh politicians who can reboot bipartisan initiatives in Washington. International relations are in shatters and while the team will be met open-hearted and welcoming by all the leaders who had suffered from Trump’s bashing, the World has profoundly changed and will not give anything for granted to the US. The elections were a welcome distraction, yet there is a nasty and merciless pandemic raging with dark and depressing wintertime ahead. Political and economic consequences of this election will soon be seen, and we will have a clear picture after the first decisions on key Government positions and after determining Senate elections in January.

Challenging tasks and challenging times ahead. Expect a distribution of responsibilities with Joe Biden acting as Chief Healer and Kamala Harris as Chief Innovator. The new team deserves full of national and international support. The World needs a strong, prosperous, and reliable US to weather present and upcoming global turbulences.

For now, it is recommended to lean back and to enjoy the final episode of Trump leaving the White House. Be mild to Donald, he deserves more credit than he is currently given. And relax in the soothing effect of the new normalcy, which will hopefully bring down hate, aggression, and verbal abuse. I would take bets that Kamala Harris will be the first female President of the United States by 2022, preparing for re-election in 2024.

God bless the United States of America