Por Benjamin Butler
Muito extenso o artigo mas vale a pena ler
To see a world in a grain of sand and heaven in a wild flower, hold infinity in the palms of your hand and eternity in an hour.
William Blake
As William Blake so beautifully put it, one can actually see the world in a grain of sand. This refers to the holographic nature of the universe. If one looks at a part very carefully, one can glean insight about the whole, just like a hologram. Each hologram that is projected onto a screen is actually the same. This is something that the ancient sages have been talking about for thousands of years and modern science has begun to discuss. I have taken this approach to finance for a long time. Sometimes one can glean remarkable insights about the global economy and capital flows by looking at small international places. For example, I think there is a lot to learn about the world in the small Island of Jeju, the “Hawaii of South Korea,” where I stopped again on my way back to the UK for the summer.
I am considering making this a base for my family to live, whilst I maintain my company in Hong Kong and travel back to London frequently. I think that humanity is moving towards collective insanity and I would like my daughter to experience living somewhere that has natural beauty and has a chance of avoiding some of the worst of what I think is to come.
So back to the holographic universe. First, the population of Jeju Island is rising. It’s roughly half a million and the government expects it to double. I think that the migration from Seoul to Jeju is a reflection of society there. Stresses are building, as they are elsewhere in the world, with the slow erosion of the middle class, partly as a result of central bank policy. Costs are high, jobs are difficult to get, and there is something innately unhealthy about the materialistic society. With Jeju being named an ecological biosphere and promoting eco healing, it’s not surprising that people want to move here.
I have met many people from Seoul – young and old – who have relocated here. One thing that has helped establish Jeju’s name is the building of an eco hiking trail here, mirrored off of Spain’s world-renowned Camino de Santiago, the subject of Paolo Coehlo’s best seller, The Pilgrimage. I was fortunate enough to meet So Myong Sok, the founder of the trail, one day for dinner. She was a burnt out journalist in Seoul many years ago, and then had a spiritual experience whilst walking the trial in Spain, and thought that Korea needed its own trail. She now talks to countries around the world who are trying to build their own eco hiking trails.
A number of months ago I highlighted in a column that young Koreans would prefer a “reset” of society rather than a continuation of the status quo. Trust is breaking down slowly – trust in government and trust by the youth in their elders and institutions. A number of incidents here, such as the sinking of the Sewol Ferry last year, and the bombing of the Cheonan Navy ship, have accelerated this (many South Koreans don’t believe the official government story that it was committed by a small North Korean submarine). I wouldn’t say it’s at a boiling point, but it’s fascinating that this seems to mirror what is transpiring in other societies across the world. Korean society is quite homogenous, and so the tipping point is probably further away than for many Western nations that have many immigrants and different nationalities.
Second, there has been a large influx of Chinese investors. In my hotel two days ago, I had breakfast next to some investors from Hainan Island. They seem to be insatiably gobbling up land and entire hotels here. Some of the hotels are not even operating – they are just empty – as the Chinese are buying them for capital appreciation. They intend to flip them to other Chinese in a short space of time, so they appear to have no interest in running a business. I think this is another example of the hologram. Wherever I go in the world – from Europe to the US – I see the same phenomenon. Wealthy Chinese just want to get their money out. This was always another reason in the back of my head that I didn’t want to stay involved in Chinese stocks for long. See below for more insights on China.
Third, related to entrepreneurship: the Jeju government is hoping that entrepreneurs will increasingly relocate here. I met with a newly formed government Center in Jeju City. They are hoping to see people move here to establish and run companies like Bali. I think this is a reflection of a global trend: as one can run many businesses remotely, lifestyle becomes very important again. I think that these entrepreneurs can also contribute to the local economies as well. It used to be that many creative types and artists wanted to live in cities, such as Hemmingway, who loved Paris, but I feel that these very sensitive people now want to be out in nature and away from the insanity.
Finally, I would say one other holographic insight is the building of a naval base on this Island. The locals are up in arms about this. Jeju Island actually used to be the Tamma Kingdom, and has quite an independent spirit. They are also very peace loving, and the island has recently been holding an annual forum called the Jeju Forum, which used to be hailed as the “Peace Forum.” So it’s a little ironic that marines will soon be moved here. Strategically, it’s right between China, Japan and Korea, so it’s no wonder military planners want it. This is all a reflection of the arms race in Asia. Just this week, the US and allies complained about another large scale exercise by the Chinese military in the South China Sea. The US, though, has been quite aggressive in its actions in the last five years or so, establishing bases or rights for naval ships to dock in many countries here.
Hong Kong and China
My last few days in Hong Kong were quite action-packed dealing with logistics and moving out of my apartment. But just before I left I had some urgent last minute requests to see me. I ended up having some vey insightful conversations with a number of senior business leaders.
In Dow Theory Letters I quite clearly advised that one should sell any Chinese equities very close to the peak in June. The basic rationale was that the market was over-heating, with margin positions at an extreme, and the underlying economy could not justify it. I did not, however, forecast such a full blown crash, although it was probably obvious, had I been monitoring the market more closely. Some of my friends in investment in Hong Kong have dismissed this event as painful for some retail investors who treated the market as a casino but not reflective of anything else.
The H Share market (Chinese stocks listed on the Hong Kong stock exchange) is now at just 7x P/E. But the political system is possibly more fragile than I thought. President Xi Jinping has upset a lot of people with his purge on corruption, and there is tension with Xiang Zemin’s camp, which I am told is still powerful. The CEO of a Hong Kong financial institution told me that there was chatter that there have been countless assassination attempts on Xi. A good friend of mine who is well-connected in Beijing and is a highly pro-Chinese Hong Kong businessman (promoting both Chinese culture and business) shocked me when he said that this could all be the beginning of the end for the Communist Party. I have been told by a number of Korean diplomats over the years that China was in danger of breaking into pieces at some point. I wonder what kind of regime might follow a communist one? Anyway, the point I want to make is that this market crash could actually herald something much more serious, and we should at least be aware of it.
International Financial Markets
With Greece “resolved” and the Chinese government massively intervening in the Chinese markets, one could be forgiven for thinking that another risk rally could be sparked. But the internals of the largest capital market in the world – the US – continue to worsen. The S&P has almost miraculously bounced of its 200- day moving average time and time again. But the number of 52-day lows is rising and market dynamics do not look healthy.
Readers know that I like the analogy of the avalanche. I still see the snowpack as inherently quite unstable, and there is a long list of potential snow drops that could spark off a more serious sell-off in the major markets. One of the many risks is energy high-yield debt. Remember when US housing peaked out years before the Global Financial Crisis. Financial pundits kept saying that it was already priced into equity markets – those that even remembered, that is, for many just pretended that the housing market didn’t even exist. The Black Swan event in the oil markets could be a similar event, slowly feeding through to the high yield market and ultimately other parts of the financial system. Like housing, some have forgotten about it. But the headlines again today are of layoffs in the energy sector.
And whilst I am in Korea I should note the lackluster exports – again something indicative of global trends. Global trade is very weak, and this is indicative of the deflationary pressures we face.