The Wednesday Letter 196 – 29 November 2023

THIS WEEK: Our Perfect Son of a Bitch; Meanwhile in Ukraine; Southwest Border; The Market in 2024; Money Men and Sports; Some Events in 2024.



“He may be a son of a bitch, but he’s our son of a bitch” is a well-known saying that explains, among other things, our government occasionally cozying up to a dictator in another country for proximate national security reasons. Its origins and uses are uncertain. FDR may have said it in reference to Nicaragua’s Anastasio Somoza Debayle or the Dominican Republic’s Rafael Trujillo. Others may have said it with regards to unsavory one-time allies of convenience such as Augusto Pinochet or Saddam Hussein.

Today, it is sometimes used or implied by people around the world in reference to their own leader. For example this week, Serbian Foreign Minister Ivica Dacic said that former president Slobodan Milosevic had “set an example of how to love and defend one’s homeland”. That is the same Milosevic who, in a rare win for an international court, was indicted for war crimes in the Yugoslav wars of the 1990s (Bosnia, Croatia and Kosovo) and was extradited to The Hague where he died in custody before the end of the trial.

Diarmaid MacCulloch, professor at Oxford University, did not see much love in Milosevic’s leadership. He wrote in 2019:

“Slobodan Milosevic had […] charisma: one person at a vulnerable moment in a society’s history can seize a mood and crystallise it, so that decent folk discover that they can behave in thoroughly reprehensible ways and, while the spell lasts, glory in their vicious folly. Such examples tempt one to modify the Big Beast [or Great Man] concept [of history] into the ‘Right Bastard’ theory of history.”

“Right Bastard Theory” is an amended version of “Great Man Theory” (or “Big Beast concept” per MacCulloch) which holds that a small number of unusually gifted men and women shape the course of history through their benevolent or nefarious actions. British historian Antony Beevor writes this month that “we’re still in love with the idea that ‘Great Men’ shape history” but he agrees with MacCulloch that “Right Bastard” may be a better suited appellation in our time:

“All populist authoritarians have fomented hate, which is now so easy to do through social media where intellectual honesty is the first casualty of moral outrage. When weaponised, it becomes an extension of war by other means. Sadly for humanity, any witness to the past few decades of history must recognise that the Great Man is still alive and well.” 

Recently, ‘Right Bastard theory’ was invoked in French as “parfait salaud” (perfect son of a bitch) in reference to Napoleon Bonaparte whose rule is being reexamined in the wake of Ridley Scott’s new biopic.

This is where we are now. There are many more autocrats in the world today than a few years ago and they are all pushing a message of ethnic or religious purity, a proven effective way to consolidate their hold on power. The Great Man Theory remains valid, albeit in a modified version.

READ MORE > > > Why we’re still in love with the idea that ‘Great Men’ shape history.



The Hamas attack and ensuing war in Gaza have taken attention away from the Ukraine war. It is now entering its 22nd month and continues to grind ahead with no measurable progress on the ground for either side. The Ukrainian counter-offensive led some to believe in a military victory a few months ago. But few people today are banking on such an outcome.

As to the latest developments on the ground, both Moscow and Kyiv were targeted by swarms of drones over the weekend. And on Monday, Putin stated that “it is obvious that the model of globalization, which was formed largely by Western states — naturally, in their own interests — has outlived its usefulness and is in a deep crisis.” Putin is waging war on that model as much as, or more than, he is on Ukraine.

The lack of movement is taking on a World War One appearance with each side registering small gains that are then offset by losses elsewhere.

On the diplomatic front, Putin has expressed more than once his willingness to negotiate a resolution. And now, in the wake of the Gaza war, there are reports that Germany and the US are both pushing Zelenskyy toward a negotiated settlement. From a US electoral perspective, Biden (or whoever is the Democratic nominee) would not want in 2024 the sour optics of an unresolved foreign war.

Yet there is also fear that a negotiated peace now will lead to more trouble down the road. All in, our bet is that some type of negotiation will begin within a few months, but that settlement may not be achieved until late 2024 or 2025, if at all. From Putin’s perspective, it is preferable to wait for a possible return of Trump to the White House.



The number of “encounters” of illegal migrants on the Southwest border of the US in fiscal 2023 (which ended in September) was 2,475,669, nearly 100,000 more than in fiscal 2022 and a new all-time high. As shown in the chart, 1,514,322 of them in 2023 (grey bars) were single adults, mostly men, and 821,537 were FMUA (individuals in a family unit). Unaccompanied children (UC) were 137,275 (click this link for more data).

These are very elevated numbers and they do not even represent the full number of migrants who have entered the country illegally. A tentative rule of thumb based on empirical evidence is that 1) an annual influx of immigrants, both legal and illegal, between 0.2% and 0.5% of the existing population is probably manageable but that 2) an influx approaching 1% can be problematic and could challenge a country’s ability to absorb and assimilate the newcomers. For the US, the manageable range therefore would be about 700,000 to 1.7 million new immigrants annually, and the problematic would be any number near 3.3 million per year. Given that legal immigrants (green card recipients and other) are approximately one million per year, the manageable maximum of illegals is 700,000 and the problematic is 2.3 million.

In addition, immigration is local to a great extent. Immigrants come to the country but their impact is felt locally. A million people arriving in Los Angeles would be big for Los Angeles but would have little consequence in for example Chicago.

The New York Times says that 140,000 migrants have arrived in New York City since the spring of 2022. With NYC’s total population at 8.5 million, the new arrivals are over 1.5% the size of the existing population. NYC is the only city in the US to have a right to shelter law that requires the City to provide housing to anyone who requests it. But the City does not have the needed budget and is having difficulty providing new migrants with suitable housing and employment. Many are opting to leave for other locations in the US, or even to return to their home countries.

MORE > > > [VIDEO] Migrants Refuse NYC’s New Tent Shelters.



The dominant market story of 2023 has been the wide divergence between the stock and bond markets. US Treasuries sold off hard between May and October, while major stock indices rallied to regain nearly all of their 2022 losses. True, a big part of this surge has been in the technology sector and in particular in the Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla) but other parts of the market have also held up better than one would have expected from the action in bonds.

We expect this divergence to be resolved in 2024. This would mean either lower Treasury yields (they have fallen in the past month) or lower stock prices, or both in case of recession. Although we cannot prove it at present, we believe that a big increase in AI-related spending was pulled forward from future years and that the spike will be followed by a period of lower investments by corporations. Such a period can be relatively brief, say 12 to 18 months, before the AI story resumes, but this would be long enough to temporarily depress several of the tech names that have flown high in 2023.



There are no rebuilding seasons in the fund management industry. If a new portfolio manager or analyst is hired, they are expected to hit the ground running and to generate profits in their first year, or their first month, or at some shops their first week. Should they fail to do so, they are summarily dismissed and replaced by others from the pool of hundreds of annual applicants.

A friend of ours was once employed at a multi-strategy hedge fund that had a rule that you were out if you lost 5% of your portfolio in any given month. Our friend managed to avoid this axe for eight years but was finally cut when he hit the fateful limit. No loyalty, no reprieve for longevity, no ifs or buts, no additional chances.

That is all good and fine if the firm in question is delivering results for its clients. Managing money for others is a privilege and no one is entitled to stick around if they are not adding value on a consistent basis. However, this philosophy does not seem to translate well to the world of sports where there are in fact rebuilding years and where esprit de corps can make the difference between a great season and a mediocre one. Some wealthy hedge funders who have purchased sports teams are finding out that managing them is unlike managing a team of fund managers.

One example is investment pro Ted Boehly who owns (through a company) and controls the UK’s Chelsea football club. Boehly has owned Chelsea for less than two years and the club has already had five head coaches. His first blunder was to fire star coach Thomas Tuchel, ostensibly over a disagreement on player purchases. Since then, Chelsea has spent an enormous amount of money acquiring players but is languishing at number 10 (out of 20) in this season’s standings. Although it managed to tie 2nd-ranked Manchester City 4-4 three weeks ago, it lost 4-1 to 7th ranked Newcastle last weekend. This return on investment is, to say the least, erratic.

Another example is taking place stateside with hedge fund manager David Tepper’s ownership of the North Carolina Panthers. Tepper has just dismissed a Panthers’ head coach for the third time in four years, a rapid-fire reshuffle that is common in the hedge fund world but is unusual in sports. The Panthers are dead last in this season’s NFL standings.

Player psychology plays a role here. A head coach is less effective in building up a team if his tenure is perceived to be very temporary, or if the owner is perceived to be too impatient.



Here are some electoral and other events that are already calendared for 2024. We cannot list the most impactful events because those are not known. The most important event of any year is usually a surprise, in its incidence or in its scale. For example in 2023, it was the October 7th Hamas terror attack. In 2022, it was Russia’s war on Ukraine. In 2021, it was inflation or the January 6th Capitol riot. In 2020, it was Covid. And so on.

But here are some the main events of 2024 that are already known, with a brief comment on each.

January 1: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates will join the BRIC group. The question is whether India will remain in.

January 13: Taiwan presidential and legislative elections. The incumbent Tsai Ing-wen is not running. Candidate Lai Ching-te of the ruling Democratic Progressive Party (also Tsai Ing-wen’s party) is leading in the latest polls. He says that Taiwan’s sovereign status is “a fact”. His chosen running mate is Taiwan’s envoy to the US.

February 14: Indonesia general election. The incumbent Joko Widodo is not running. Defense Minister Parbowo Subianto has named Widodo’s son as his running mate and has widened his lead in the polls.

March 17: Russia presidential election. No points for guessing who will win.

March 31: Ukraine presidential election. Highly uncertain as even Zelenskyy is not yet confirmed as a candidate.

April 10: South Korea legislative election. A recent by-election shows that the ruling People Power Party (a conservative party despite its name) may lose ground in the general election.

April-May: India general election. The outcome in the Lok Sabha (the lower house) will determine whether prime minister Narendra Modi remains for a third term. Upcoming local elections in five states this December will provide some insight into the voters’ mood.

June 2: Mexico general election. Former Mexico City Mayor Claudia Sheinbaum is far ahead in the polls and has the blessing of the incumbent Andrés Manuel López Obrador who belongs to the same coalition (source for this chart).

July 26 – August 11: Paris Olympics. Paris will look its best. There seems to be a leadership vacancy in pan-European affairs, but this event may bolster President Macron’s international stature.

November 5: US presidential, Congressional and state and local elections. Gavin Newsom, Joe Manchin and others may yet enter the race.


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China After the Dividend

This article was first published at Exante Data’s Money Inside and Out.

Will it overcome its demographic decline?

In a recent post, we described China’s unprecedented success at realizing a demographic dividend starting in the 1990s until around 2010. We discussed the confluence of factors that made this dividend possible. In this post, we look at present conditions and try to discern what is in store for the future. We use our usual approach and look at the three main pillars of wealth creation: Demographics & HealthInnovation & ProductivitySociety & Governance.

Demographics & Health

The first thing that is evident is that demographics is no longer a positive vector of economic growth. 

The tailwinds created by a falling dependency ratio have died down and are now expected to turn into headwinds (see chart in our first post). The dependency ratio fell between 1970 and 2010 and was a key driver in the country’s GDP acceleration in that it opened a window of opportunity to realize a demographic dividend. China was able to realize that dividend because 1) it had liberalized its economy and opened up to trading with the world, and 2) it had improved its levels of education and infrastructure. As things stand today, the dividend has been fully realized and is behind us. There is instead a risk of a reverse demographic dividend, in which deteriorating demographics create a drag on growth, if China is unable to implement counteracting measures.

This risk is illustrated in the first chart below which shows the Chinese population by age groups. The population aged 15 to 64, aka the working-age population, soared between 1965 and 2015 and is now set to decline, slowly for the next decade but more rapidly thereafter. Meanwhile the population aged 65 and over will more than double between now and 2055. Finally, the youngest group aged 0-14 will taper off for decades to come.

Using the same data, the next chart shows the difference between the number of workers (those aged 15 to 64) and the number of dependents (those aged less than 15 and more than 64). The coming decline is as dramatic as the rise was in past decades. In 2015, there were 636 million more workers than dependents. But by 2055, this figure will fall to 189 million, or about the same as in 1980. Yet during this period, 1980-2055, the total Chinese population will have grown from 1 billion to 1.37 billion. (See in this article how the working-age population of other countries will have evolved between 1960 and 2050).

In addition to the longer term rise in the dependency ratio, China is seeing more recently a decline in its birth rate. China’s total fertility rate (TFR) fell to 1.09 children per woman in 2022, a new low in a recent downtrend that started after 2017. The next chart shows the evolution of the TFR since 1950. Note that it had fallen from over 6.0 to 2.75 before China enacted its one-child policy in 1980. Between 1991 and 2019, the TFR hovered between 1.5 and 2.0 but it fell below 1.5 in 2020 and fell again in 2021 and 2022.

Read more

How China Realized a Demographic Dividend

This article was first published at Exante Data’s Money Inside and Out.

China was ready for its historic opportunity.

Although a widely used aphorism, “demographics is destiny” is not strictly true in the modern era. Long gone are the days when troop size could on its own determine the outcome of a war, or when deploying manpower on a massive scale could result in a decisive economic advantage. Brute force just isn’t what it used to be. Today, thanks to advanced technology, small groups can inflict enormous damage in war, and a handful of software programmers can create billions in new wealth.

That said, demographics remains an important part of destiny in combination with other non-demographic factors.

Some of these factors can mitigate, or even completely counteract, a deteriorating demographic picture. Others can multiply the positive effects of demographics. This distinction—between demographics as a leading determinant of national stature vs. demographics as merely one of several components —can be illustrated by the following two opinions.

The first is a view promoted among others by Fareed Zakaria in his book The Post-American World (2008). Here is Zakaria in a 2008 Newsweek column The Rise of the Restrepeating the theme of his book:

It is an accident of history that for the last several centuries, the richest countries in the world have all been very small in terms of population. Denmark has 5.5 million people, the Netherlands has 16.6 million. The United States is the biggest of the bunch and has dominated the advanced industrial world. But the real giants—China, India, Brazil—have been sleeping, unable or unwilling to join the world of functioning economies. Now they are on the move and naturally, given their size, they will have a large footprint on the map of the future.

The second is from Winston Churchill’s speech Fifty Years Hence. It is from 1931 but remains as pertinent as ever:

When we look back beyond a hundred years over the long trails of history, we see immediately why the age we live in differs from all other ages in human annals. Mankind has sometimes traveled forwards and sometimes backwards, or has stood still even for hundreds of years. It remained stationary in India and in China for thousands of years. What is it that has produced this new prodigious speed of man? Science is the cause. Her once feeble vanguards, often trampled down, often perishing in isolation, have now become a vast organized united class-conscious army marching forward upon all the fronts towards objectives none may measure or define. It is a proud, ambitious army which cares nothing for all the laws that men have made; nothing for their most time-honoured customs, or most dearly cherished beliefs, or deepest instincts. It is this power called Science which has laid hold of us, conscripted us into its regiments and batteries, set us to work upon its highways and in its arsenals; rewarded us for our services, healed us when we were wounded, trained us when we were young, pensioned us when we were worn out. None of the generations of men before the last two or three were ever gripped for good or ill and handled like this.

Zakaria was not wrong about the growth of China, India, Brazil and others (he was after all writing in 2008 when that growth was already evident) but he gave demographics more weight than it deserves. Zakaria saw the overwhelming success of the less populous West as an “accident of history” while “the real giants – China, India, Brazil – have been sleeping, unable or unwilling to join the world of functioning economies.”

By contrast, Churchill saw the West’s advance as no accident and as the logical result of scientific progress. Note in the excerpt Churchill’s mention of India and China, to emphasize that demographics had been overtaken by science.

Read more

Demographic Dividend: Which Countries Are Next?

Sub-Saharan Africa is nearing a historic opportunity, but most of its nations are not ready.

Published on Africa Day 2023.

The population of India will have surpassed that of China by the end of this year, with each country counting 1.43 to 1.45 billion people. This milestone has led several observers to wonder whether the Indian economy can achieve a demographic dividend in the same way that China did after 1990. There is however widespread misunderstanding around the question of what constitutes a demographic dividend. This recent statement from a leading Indian daily is typical but inaccurate:

“A high population, especially in a younger age cohort, is generally seen as an asset rather than a liability for the economic fortunes of a country. The simple reason for this is that more people also means more working hands.”

The Financial Times similarly published “Can India Unlock the Potential of its Youth?” in which it discussed India’s prospects of deriving a demographic dividend from its youth bulge.

“More people” or a “youth bulge” could in theory mean “more working hands” but only if there is a sufficient number of jobs being created. The fact that tens of millions of new young cohorts will come of age every year and will need to take jobs to make a living does not automatically mean that those jobs will be there for the taking. A benign economic outcome cannot be taken for granted merely because of a shift in demographics. If for example investment is weak or if literacy is low, having more people may result instead in greater poverty and other deteriorating conditions. In addition if there is a too-large “younger age cohort”, there may be new headwinds slowing the economy in cases where the number of dependents (the young and elderly) overwhelms the number of workers. All of this is to say that while the sheer total number of citizens is important, it is less important than the age distribution of the population and other non-demographic factors.

Read more

On Oil and Energy into 2023

This post, the second in a series on the energy sector, was first published at Exante Data’s Money: Inside and Out.

In an earlier post we recalled the recovery of the energy sector in 2022. Here we look ahead to prospects for the oil market in 2023. In particular: 

  • Will we see more of the same, upside for energy stocks? 
  • Or will the energy sector subside again? Or mostly flatline? 

In previous times, we could offer some answers to these questions by focusing on market supply and demand for oil and gas products. Today, these market forces are made more complicated by factors that are not solely economic, but also political and geopolitical. 

Let us consider the key variables and some scenarios.

Key Factors to Watch in 2023

  1. Inventories

Inventories of crude oil and of some oil products now stand near historic lows in the US. This decline was exacerbated by the Biden administration’s sale of oil from the Strategic Petroleum Reserve (SPR) at a rate of about one million barrels per day. These sales have depleted the SPR from a total of over 600 million barrels in March to less than 400 million today, the lowest level since the early 1980s when the SPR was being filled. 

Read more

The Great Energy Recovery of 2022

This post, the first in a series on the energy sector, was first published at Exante Data’s Money: Inside and Out.

The energy sector outperformed in the past year, and not only because of Russia-Ukraine.

“By the fall of __, it was clear that a nation’s prosperity, even its very survival, depended on securing a safe, abundant supply of cheap oil.” 

When Albert Marrin penned this sentence in his book Black Gold: The Story of Oil in Our Lives, he was looking back nearly a century and referring to the fall of 1918. But we can agree now, looking at the wreckage suffered by the European economy and at severe disruptions elsewhere, that it applies just as well to the fall of 2022. The six months since the start of the Ukraine war have shown like no other recent period that the global economy in the 21st Century is still very much predicated, as it was in the 20th Century, on the story of oil (and natural gas), of nations searching for it, competing for it, trading it or withholding it.

This realization is not quite what we expected. 

On the contrary, rich economies had been for over a decade moving slowly but methodically to reduce their dependence on fossil fuels. As a result of climate change concerns, investors were pouring money into renewables and curtailing fresh outlays to oil, gas and coal projects. Natural gas was previously seen as the cleaner source of energy but it was now deemed as only marginally better than oil. There was a spreading consensus in some quarters that fossil fuels were on their way out, sooner or later but preferably sooner.

University endowments and other large institutions were scrubbing their portfolios free of fossil fuel holdings and were doing so with fanfare and as proof (in their view) of good responsible citizenship and of adherence to ESG standards. Their timing was good because, starting in late 2014, a surge in shale oil production in the United States depressed the price of oil and with it the price of energy stocks. From late 2014 to early 2020, the mere avoidance or diminution of fossil fuel holdings allowed many endowments and funds to deliver significant outperformance vs. the major equity indices. Their returns were further boosted by their generous allocations to the technology sector where stocks rose smartly year after year.

Consider that from its peak in June 2014 to the end of 2019, the XLE energy ETF declined by 40% while, during the same period, the XLK technology ETF rose by 142% and the S&P 500 by 92%. It is easy to see how many “clean” or “green” funds outperformed the S&P 500 in 2014-19, in particular if they overweighted the technology sector.

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The Wednesday Briefs – Evaluation Update 1

In our August 2021 evaluation of The Wednesday Briefs under the headline Are The Wednesday Briefs Worth Reading?, we concluded that The Wednesday Briefs made a large number of accurate predictions. Separating the survey by topic, we included excerpts from previous issues that had proved prescient. We encourage you to read or re-read the first evaluation. We include those excerpts below again.

We also accepted that not everything had been perfect. For example, we were too optimistic about the pandemic. We thought and hoped that the numbers of cases and deaths would be far lower than they turned out to be, and that the pandemic would fade faster than it did. We had little precedent to go on and hoped for the best.

The other place where we stumbled or thought that we had stumbled, in the issues preceding that August 2021 evaluation, was on the question of inflation. Here we quote from our post back then: “We called it right but overworried a bit about inflation”. As we all know now, we had not in fact overworried about inflation, but were unfortunately correct to worry. It just took longer for inflation to show up in the official numbers.

Net net therefore, our main miss before August 2021 was about the pandemic. Not a negligible miss, but again one with little precedent in our collective experience.

Let us now examine the record since August 2021, using the same template of topics (POLITICS, MARKETS, ECONOMY) that we used in the first post and substituting “GEOPOLITICS” for “PANDEMIC”. The first is heating up while the second is subsiding.

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2022 French Elections with Axel Gyldén, 16 April 2022

Between the two rounds of the French Presidential election (last Sunday and next Sunday), Sami J. Karam speaks to Axel Gyldén, veteran reporter at France’s leading weekly L’Express. Topics include analysis of the first round results, President Emmanuel Macron’s popularity, Marine Le Pen’s probability of winning and what such a victory would mean for France and for Europe.


Twitter Punished

The following opinion first appeared in The Wednesday Briefs 110 – 6 April 2022. Access to The Wednesday Briefs is free but requires a password. Subscribe to populyst for access.

Tesla does not advertise in the media. That is true if you ignore the free advertising that Elon Musk gets by tweeting daily on Twitter. Musk in addition to everything else is a cult leader not only of the Tesla cult but also of the cult of Musk. In fact, the cult of Musk is the primary reason why Tesla is valued more highly than all other automakers combined. Musk sells electric vehicles and space rockets, but he sells first and foremost the public persona of Elon Musk. His purchase of 9.2% of Twitter therefore can be seen as an integral extension of his efforts.

Twitter has become vital to Musk, as vital as it had become to President Trump. Both Musk and Trump have (or had, in Trump’s case) tens of millions of followers and were able to reach them every day at a cost of exactly zero. We noted in the past the absurdity of this “free lunch” anomaly and have long argued that Twitter should invoice certain categories of users, not only in order to generate revenues but also in order to enforce a code of conduct.

We included this graph in The Wednesday Briefs 073 and 046. The x-axis refers to a user’s frequency of tweeting. And the-y axis to whether Twitter is indispensable to him. In our view, Twitter should charge users who fall in the green box, as well as some of the more prominent bloggers (the chart is from 2017 when there were few prominent bloggers; that bubble should extend to the right).

However, Twitter has remained free to all users, bypassing normal market forces and their necessary disciplining effects. Now as tends to occur with all free services, it has been ambushed by reality on two fronts: rogue users and low revenues.

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With Eduardo Mufarej, Founder of Renova, 17 March 2022

What makes an effective politician? Politicians come from all walks of life but the vast majority of them do not have any formal training in political science or in government or in the tasks and tools of being a politician. Renova, an innovative non-partisan non-profit organization in Brazil, seeks to change that and to also improve governance, by training aspiring political candidates. In this podcast, Sami J. Karam speaks to founder and chairman Eduardo Mufarej about Renova’s mission, its training curriculum and its prospects.