Entry 7 – War (second phase)

As always, I begin with my particular press summary, in which I try to reflect what has caught my attention since I wrote the previous note, whether or not it has been part of the media news.

I anticipate that, after the press summary, I will move on to the topics I want to talk about today. I will start with the trends of the new times, to which we have to adapt. And I will talk, at the end, about something that I have found to be a discovery in terms of historical forecasting of economic cycles (Benner). I will end with readings and videos that I recommend.

The European Union has agreed to cap the price of Russian oil at $60 per barrel. The decision includes prohibiting European shipping companies and insurers from dealing in oil at higher prices, even if the buyer is a non-signatory country. That hurts Russia somewhat (less than it might seem).

Russia has counterattacked by cutting off oil supplies to Europe. That is really going to hurt Europe. News here.

Russia has postponed a planned meeting with the USA to discuss nuclear weapons (news here). The news leaves nothing clear about reasons and objectives (normal, these things are not communicated). However, the matter smells a lot like a “trick”. Let’s hope that this is not the prelude to the use of these weapons.

A big issue is opening inside twitter. It is about the censorship they applied, before the American elections, to avoid much information about Biden’s son’s business with Ukraine (and Russia).

It comes on the heels of Musk’s acquisition of Twitter.

The thing is, this news doesn’t sit well with Biden.

Bad business for Ukraine, which, if it loses American aid, cannot continue its defense. It is one more argument to force peace agreements.

You can see the news here.

Rishi Sunak, who is the new British Prime Minister, has made some relevant statements (you can see them here). He comes to say that he has changed the UK’s relationship with China, which he defines as a “challenge to our values and interests” (he avoids calling it a “threat”, but he does not want it to resemble the “appeasement” stance that the UK had at the beginning with Hitler).

UK has long since lost its former importance, but its words are still heard.

Blackstone, the big American financial group, has done something similar to a “corralito”. It has banned withdrawals from its real estate fund (news here, and here).

The news, for now, downplays its importance, or gives logical arguments to justify the decision. But, if in a “financialized” economy, such as the one we have, something like this happens (not being able to withdraw your investment in one of the large and most reliable funds), it is a very big sign of serious problems.

What they tell us about our economy doing well, and the Russians’ doing badly, is more than doubtful.

In my previous entry 6 I talked about historical climate changes. I recalled that several of them have been much more severe than the one we are suffering now (supposedly due to human development). The fact is that the Mauna Loa volcano in Hawaii has recently erupted. It is the largest volcano in the world. If the eruption is “normal”, as it seems to be, nothing serious will happen (the neighbors who lose their houses will not think so).

But, if it were to erupt at full capacity, we could have a major climate change, and we could forget about living on Earth. That is a climate change beyond our strength. You can see the news here.

We should take it as a warning. And learn to force climate change to our liking, so that the Earth does not change, even if it wants to. Or, to “terraform” other planets, as Elon Musk talks about doing with Mars.

It has nothing to do with what we have been commenting about the War, but it has to do with the deep motives, which are based on the way humans are. The fact is that Elon Musk (him again) has announced that he is going to connect the human brain with computers (news here).

If he succeeds in making that connection (technically it is feasible), and if he succeeds in the next one, which is the total connection of the brain of one human with that of another, and the ultimate connection, which is that of all human brains, … the result would be that the concept of the individual will disappear. If we all share the same large interconnected brain, and have no secrets from each other, we will no longer be independent persons, but part of a larger organism. It would be like Assimov’s Gaia.

It’s not going to happen this afternoon, but the trend is there, and the repercussions will be very large.

Very curious that Elon Musk (whoever likes him) is behind everything important that happens (from the defense of Ukraine with its communication satellites, the conquest of Mars, the politics of Twitter, …). It is becoming much more important than governments for the evolution of the world.

As for cryptocurrencies, they are already being talked about (albeit badly) in all the important forums. They are no longer ignored. Even an American senator recognizes them as commodities, which is a way of making them official (news here).

New World Order: new trends.

Where are we?

I have already said in previous entries that I take it for granted that the war will end, relatively soon, in a provisional and botched peace, something they will call a ceasefire, or a low intensity war. This should not surprise us, since the tensions between what today is called Ukraine and what today is called Russia have existed for centuries, long before the places were called that, and … they will continue to simmer.

Perhaps this peace will be reached after a nuclear bombing by Russia in Ukraine. Or, after a bombing of a nuclear power plant, which would be something equivalent. Or by simple exhaustion of the parties. What is certain is that Ukraine will have to surrender as soon as the USA withdraws its support (which is about to happen), and Russia will do what China (which seeks peace) says.

After this peace, the world will be divided into two blocs of countries, not completely incommunicado, but on the way to it.

We are going to witness a time, not less than a decade, when these worlds will coexist. The West is dying and China is growing.

Truths are what they are, even if we don’t like it. The world we know is sinking.

Pedro has summed it up very well in a graphic from one of his lectures.

Summarizing as much as possible what has been analyzed in previous notes, the characteristics of the New World Order would be:

There is no longer a single hegemonic power. It is a time of transition in which the one that has not yet lost coexists with the one that has not yet won. A long time.

Each of them will have its bloc of more or less associated countries, which will be something similar to what was seen with the UN Human Rights Commission vote to expel Russia, although there will be negotiations to “sign up” dubious countries for each bloc.

As the powers are balanced, and as China is not in a hurry, change is likely to be slow, without a major war. China will accept the balance in the meantime, before seeking total hegemony. It will let the West suffocate little by little.

The middle classes of the West will drop in quality of life, while the lower classes of the world close to China will become lower-middle classes. That will be the convergence, and when it is reached, the Global Order can be sought and decided who leads it.

This means that the social order in the West will be very altered, due to the anger of its population losing quality of life, while the opposite will occur in the other bloc.

In this intermediate time, there will be trade between blocs, but it will be very limited. It will be highly dependent on issues other than classic price and marketing competition, and more based on lobbies and specific needs.

In fact, a good bargaining chip for the West is that the Chinese-controlled world has energy, and access to mineral resources (the West does not), but China is deficient in food for its people. We should exploit that, even if it is hard for most Westerners to understand that their strength is not in factories, not in finance, but in agriculture.

In the meantime, Europe will be completely powerless and irrelevant in major geopolitical decisions. It may be the place where adaptation is most needed.

The “financialized” economy will end. The dollar, the banks, and the financial structures will lose a lot of power.

We will once again give the power back to those who control production, who will not be the manufacturers, but those who have the data to know what to sell, and to convince buyers. In other words, the technology companies.

Faced with this situation, it is up to each of us to choose our strategy for adapting to the New World Order. It is up to governments, companies and individuals to do so.

There are many variants of these strategies. Everyone will have his own. It will depend on his current position, as well as on his knowledge. The same strategy does not apply to an old and somewhat established person as to a young one, nor to a company with a lot of current trade with countries of the opposite block, as to another one that does not have them, …

Talking about these strategies will take me a lot of notes (as well as many risks of being wrong, especially in applications to particular cases). But we have to try, and we have to start somewhere.

Today I am going to start with the first approach to potential business decisions.

What companies should consider

Companies, in addition to listening to their usual consultants for accounting, financial, tax, human resources, etc., must incorporate new criteria, and give them almost more weight than the aspects I have just mentioned.

The new criteria are those relating to country blocs, energy and climate. In addition, there are variants of old criteria, such as technological competence and the purchasing power of your customers.

Country blocks.

Regarding the blocs of countries, each business will know if it is one of the few that will be able to maintain its dealings with the other bloc. This is something they should study a lot, because it is not as obvious as it may seem.

In addition, they have to hypothesize which country will end up in which block. There are many countries with an obvious answer, but many others are not so clear.

The best thing would be to make a kind of very separate accounting, with which you can know in depth the percentages of your purchases, your sales, and your profits in each block of countries. This is not the same as they have always done (they know in which country they have their profits). Now it is a mass equation between blocks of countries, thinking about the possibility of being forced to leave a block completely. In other words, they must study the costs of disengaging from that bloc. This will give you very useful information for your decision making.

And, if it decides to continue trading with the opposing bloc, it must seek lobbying support from one of the two blocs. It is not going to be a very transparent business, nor an easy one. It is certainly not going to be the classic pricing and marketing system.

Also, if you have chosen to continue trading with the other block, you must prepare a plan B in case that becomes impossible due to political issues. You have to hedge the risk of your position.

Energy.

Companies have to do something very similar with regard to energy. Classic internal controls are not enough.

On the one hand, in each block of countries the energy will change its source and costs, as well as investment needs. Moreover, if the energy used by the company comes from the other block, the problems increase.

And, when I talk about energy, I am not referring to the energy that feeds the company’s factory, but to all the energy involved in obtaining the product that is finally sold. That is, the energy of the suppliers’ factories, the energy of mining and transporting the suppliers’ raw materials, the energy used by their workers in transportation and in living at home, … All the energy incorporated into the final product.

They must have full “energy accounting”. And they have to do sensitivity analyses of their energy price changes to their selling prices, and to their viability of selling at a profit.

They should study the possibility of changing their energy source, but including the whole chain. It should be remembered that it is not a solution to change the energy of your own factory, but not be able to produce because your supplier depends on an energy to which you have lost access (which would lead you to have no supplies, i.e. not being able to sell).

As with country blocks, if they decide not to switch for now, they should investigate their plan B, and find a way to hedge.

Weather.

Regardless of whether climate change is natural or human-induced, the reality is that it exists.

The company must study its climate risks and opportunities.

For example, if you are engaged in (or dependent on) agriculture, you should consider whether to move your crops a few miles north because the future climate will be more suitable for your product there. Or, whether you should move to another location where access to water is more feasible.

Agriculture may be the paradigmatic example, but it is not the only one. If you sell products intended for the cold, and it disappears in your area, you are going to have problems. Or, if you are in tourism, which depends a lot on the climate, … Or, if the sea level rises and floods your large hotel investment on the beach (as in the case of Venice).

Technology.

This is nothing new, but, as the technological revolution goes faster and faster, you always have to be on the lookout for a change in technology that makes your product unnecessary, or much cheaper to produce in another way by a competitor.

Great care will have to be taken with new investments to ensure that there is sufficient time to amortize them before the technological changes.

Clients.

As I said, the general rule in the Western bloc of countries is that the middle classes are going to lower their quality of life (as opposed to the other bloc).

So if your customers are middle class, you should be prepared to sell less. Or, to change the quality of your product so that it is affordable for this new public. Or, to sell to the other block of countries, which will not be so easy, unless they have a clear deficit of your product (which will be a temporary issue, until they fix that deficit).

Collaborators.

I am referring to partners, shareholders, suppliers, banks … They must be studied very well.

The truth is that many will fall, for not adapting well to the trends.

You have to cut relations as soon as possible with those who are going to fall, so that they do not drag you down. Or, you have to find a way to help them so that they do not fall, and obtain their loyalty in return.

Samuel Benner.

My friend Adrian (https://www.adrianbernabeu.com/) has sent me information about Samuel Benner.

Benner, was a complete unknown to me, a matter that I regret very much, because I consider him a find of the highest level.

Readers of these notes will know that I am almost obsessed with Kondratiev’s long wave business cycle theories. Well, the fact is that Benner came to very similar conclusions, but much earlier, and with less training.

Samuel Benner was an American farmer in the 19th century. The fact is that, after going bankrupt, he devoted himself to studying economic cycles. He did it based on what he knew, which were pigs, corn, and steel (he also worked in that sector).

He came to the conclusion that everything was strongly influenced by climate (mind you, he was saying this in the 19th century). And he realized that the climate has 11-year cycles, which he did by observation, without scientific knowledge.

Today it is well known in the scientific world that solar cycles are 11 years long. And that this affects the periods of droughts, harvests, tides, …

The fact is that Benner made historical tables of prices and productions of the different products, … and ended up deducing some general rules, based on the logic that the climate affects production, and supply affects price, …

He wrote a beautiful book, which can be seen here, and constructed a future cycle forecast table, which is as follows.

The table is built in 1872!

As you can see in that table, looking at the upper peaks, which he points to as “A”, and which are the predictable times of financial panic, he got almost everything right (within a very few years of each other in each case).

For our time, their forecast was panic in 2019 (we had it in 2020, with Covid), and hard times in 2023. Impressive.

I am trying to study more about him and his theories, but I wanted to share it immediately.

Of course, his theories have to be filtered out because they are tailored to the US economy and climate in the 19th century, but they still fit very well.

I recommend watching or reading.

I end the note with articles or videos that I liked, and that are not exactly news (so I do not put them at the beginning of the note), but they are closely related to the topics of these notes.

I find it highly recommended to read or watch them.

Pedro has sent me a very interesting interview with Ivo Sarjanovic, who is one of the most relevant people in the Agro world. He says many things to take into account, but, for those who do not have the time to read it (I recommend you to look for it), I would say that my concentrated summary is that we have a negotiation opportunity with China. Today, they are better than the West in energy and mining, but they are not better than the West in agriculture.

In addition, we must optimize the agro world, as we can produce more (if the politicians just understand it), and we have to avoid the 30% losses in the whole system.

You can watch the interview here.

In the previous entry 6 I said that changes in energy sources forced us to think about changes in mining. This recent article explains it well. And they don’t come to pretty ends.

A good friend (thank you, Tito) has sent me a video of Jose Maria Treviño (admiral of the Spanish Navy) which is very good. He makes a great historical and military analysis of the Ukrainian War, and comes to the conclusion that the victims of all this, besides the Ukrainian population, are Europe and the prestige of NATO. I highly recommend watching it here.

I also recommend another conference (a bit older – 2018), where Emilio Lamo de Espinosa explained what was happening in terms of economics and sociology between China and the West. I consider it a great insight of his to talk about “demographic divergence” (China and other countries in its orbit are growing a lot, and the West is not) versus “technological convergence” (we are all starting to have the same technology). He sums it up by saying that the world’s center of gravity has changed. In addition, the problem of raw material resources between blocs was already emerging.

He talks about US “imperial fatigue”, China’s growth, the world pivoting to Asia-Pacific, and Europe standing alone. The summary is very good.

It is funny that if you call the headquarters of the world no one picks you up, because the USA has left and China has not arrived.

It can be seen here.

That’s as far as I go for today. I will continue soon with what I have been coming up with, and with more things about trends for adapting to changes, in particular, about the alternatives that we individuals can have.