OUR PERFECT SON OF A BITCH
“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.
MEANWHILE IN UKRAINE
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 MARKET IN 2024
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.
MONEY MEN AND SPORTS
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.
SOME EVENTS IN 2024
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.
The Wednesday Letter is not investment advice. Please do your own work and discuss with professional advisors before committing capital.
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