One compelling theory is the growing influence of South Korean retail investors. Over the past year, evidence suggests that the U.S. stock market is not only mirroring certain speculative behaviors seen in Korea but also experiencing direct participation from Korean investors. This influx of capital has fueled speculative trading, leading to dramatic price movements in select sectors.

The Wild West of Trading

The current market resembles the unregulated, high-risk environment of the Wild West—where speculative bets dominate, fortunes are made and lost overnight, and volatility is the only constant. Several key characteristics define this phenomenon:

1. A surge in Korean retail investment in U.S. stocks.
2. A high-risk, high-reward approach in pursuit of rapid financial gains.
3. Unpredictable and extreme price swings in targeted stocks.
4. A potentially unfavorable outcome for many participants.

The Data Behind the Trend

The influx of South Korean retail investors into U.S. equities has been significant. According to the Korea Securities Depository, their holdings in U.S. stocks reached an all-time high of $112.1 billion by the end of 2024, reflecting a 65% increase year-over-year. While this remains a small fraction of the total U.S. market capitalization of $62 trillion (approximately 0.2%), these investors have become dominant players in certain niche markets.

For instance, Korean retail investors now own 31% of a leading quantum computing stock and 17% of another in the same sector. They also hold 19% of an AI-related small modular reactor company and frequently own 20% or more of shares outstanding in leveraged ETFs. Notably, among their top 50 U.S. holdings, eight are leveraged ETFs, including one where they control 40% of the total shares.

High-Risk Strategies and Market Distortions

South Korea imposes strict regulations on financial speculation. Leveraged single-stock ETFs are banned, and most forms of gambling are heavily restricted. As a result, risk-seeking Korean investors have turned to the U.S. market to access speculative financial instruments.

One striking example occurred in December 2024, when a major quantum computing breakthrough was announced. Korean retail investors poured $111 million into a stock that had a market capitalization of just $12 million in November, driving a 1,400% price increase within a month.

Additionally, Korean investors have demonstrated a strong preference for crypto-related stocks and companies that pivot toward AI or nuclear power. Another trend is their attraction to stock splits, as evidenced by the sharp increase in Korean buying activity following Nvidia’s stock split in 2024.

The Historical Pattern of Retail Investing Losses

Research consistently shows that retail investors tend to underperform due to poor timing and speculative tendencies. Studies have highlighted how individual traders often exhibit “anti-skill”—a tendency to select stocks that subsequently decline in value. Examples include:

• Robinhood traders in 2021, who frequently bought stocks that later underperformed.
• Retail options traders, who, on average, incur losses due to excessive trading and poor execution.
• Korean retail investors, who have historically underperformed in their domestic market and are now mirroring similar behaviors in the U.S.

Retail Investors and Market Downturns

A review of past financial crises suggests that Korean retail investors have a tendency to buy into stocks just before major collapses. Table 1 highlights instances where they were heavily invested in securities that suffered significant declines:

This pattern suggests that Korean retail investors have a history of investing in companies or financial instruments just before catastrophic declines. Whether it was Lehman Brothers in 2008, highly leveraged oil ETFs in 2020, or speculative tech plays in 2024, these investors have frequently been on the losing side of major market downturns.

The Future of Korean Retail Investing in the U.S.

The speculative nature of Korean retail investors yielded strong returns in 2024, largely because the broader market was rising, and their high-risk selections outperformed. However, history suggests that such strategies are unsustainable over the long term.

If Korean investors today mirror the behavior of 2021 Robinhood traders, their speculative frenzy may serve as a contrarian indicator. When retail investors become a dominant force in small, speculative corners of the market, it often signals that a bubble is forming and may be nearing its peak.

At present, their top investments include AI, quantum computing, nuclear power, and cryptocurrencies. While these sectors have strong long-term potential, short-term speculative buying can drive unsustainable price increases, leading to subsequent corrections.

Conclusion: Should Investors Participate in This Market?

Korean retail investors have introduced a new layer of volatility to the U.S. stock market. Their speculative approach has propelled certain stocks and ETFs to extreme levels, creating opportunities for short-term traders but raising concerns about long-term sustainability.

History suggests that retail investors—regardless of nationality—tend to underperform when engaging in high-risk, speculative bets. For individual investors observing these trends, the prudent approach is to avoid overly aggressive strategies and instead focus on diversified, long-term investments.

Much like the Wild West, where fortunes were won and lost in a matter of days, today’s speculative trading environment offers high rewards but even greater risks. For investors, the best approach may not be to chase short-term gains but to be cautious and seek stability and sustainability in an otherwise unpredictable market.

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The Surge in Gold Demand

According to the World Gold Council, gold demand in 2024 grew by 1% compared to 2023, with total annual demand reaching an unprecedented level. However, global gold production, at approximately 106.1 million ounces, still falls significantly short of demand, leaving a persistent gap that must be filled from existing reserves and secondary markets.

But what is truly fascinating about this shift in gold markets is not just the increase in demand but where the demand is coming from and where the gold is moving. Historically, gold has been dispersed across various financial centers, but the last several months have seen an extraordinary shift—huge quantities of physical gold have been flowing into U.S. vaults, particularly those of COMEX.

A Political Influence: The Tariff Effect

One of the key drivers behind this trend is tariff uncertainty. The possibility of new trade tariffs, particularly under former President Trump’s rhetoric about imposing 10%, 20%, or even 25% tariffs on imported goods, has led to speculation that gold may also be affected. This has sparked a rush among investors and institutions to bring as much gold as possible into the U.S. before potential tariff changes take effect.

Philip Smith, Group Chief Executive of StoneX, recently pointed out an alarming development: a significant price divergence between New York’s COMEX gold futures contracts and the London over-the-counter (OTC) physical gold market. While December saw the gap widen to nearly $60 per ounce, more recent fluctuations remain between $25 and $30. This discrepancy suggests inefficiencies and uncertainties in the global gold supply chain, reinforcing the urgency for physical gold ownership within U.S. borders.

Smith further revealed that over 2,000 metric tons of gold have been moved into the U.S. in just the past two months, an astonishing figure considering the total annual demand.

The Fort Knox Conspiracy and London’s Alleged Shortage

As with any significant financial movement, speculation and conspiracy theories are running rampant. The surge in gold demand in the U.S. has fueled rumors about Fort Knox, with some questioning whether the U.S. truly possesses the gold reserves it claims. This speculation has been amplified by certain political narratives, though the truth is far less sensational—Fort Knox’s gold reserves undergo regular audits, with the last full physical verification conducted in 2008 and annual paper audits completed each year.

Meanwhile, another popular theory among gold investors is that London is running out of gold, prompting urgent deliveries to the U.S. The reality, however, is more nuanced. While it is true that lease rates for gold in London spiked to over 5% in early 2025, this was a temporary bottleneck rather than a long-term supply crisis. Data from the London Bullion Market Association (LBMA) confirms that while 151 metric tons of gold left London in January alone, total vault stocks still hover around 8,535 metric tons, a level consistent with recent years.

Separating Hype from Reality

Financial markets thrive on narratives, and gold has always been a focal point for extreme theories, from global economic collapse to hyperinflationary panic. However, while it is true that physical gold demand has increased, particularly in the U.S., it does not signal a breakdown of the global financial system.

What this trend does indicate is:

• A continued strong interest in gold as a hedge against economic and political instability.
• The potential for higher gold prices as demand remains strong, particularly if supply constraints persist.
• A shift in investor preference from paper gold (futures contracts, ETFs) to physical gold, suggesting a more cautious approach from institutional buyers.

The Outlook for Gold Prices

Despite the waves of speculation, the fundamental case for gold remains robust. As long as economic uncertainty looms and central banks continue accumulating reserves, gold is unlikely to lose its appeal. Furthermore, the increased mainstream media coverage of gold, partially due to political influences, is likely to keep demand elevated.

For investors, this means gold is no longer just a historical store of value—it is becoming a key asset in global trade and geopolitical strategy. While doom-and-gloom predictions about the financial system collapsing should be taken with skepticism, there is no denying that gold’s role in global finance is evolving rapidly.

As the markets navigate a highly politicized gold landscape, one thing is clear: gold is no longer a “barbarous relic” but a crucial financial instrument in an increasingly uncertain world.

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The High Price of Continued Conflict

Ongoing warfare threatens to gradually erode the strength of the Ukrainian armed forces and further devastate the nation’s already fragile infrastructure. Whether through attrition or total collapse, prolonged fighting may leave Ukraine in a far worse state than if it had sought a negotiated settlement early on.

The Reconstruction Funding Conundrum

A major stumbling block is the issue of reconstruction financing. The United States has made clear it will not foot the bill, and there is little sign that other nations are prepared to step in. While Europe might consider redirecting frozen Russian assets—a move that would violate international law—to aid Ukraine, this appears more like a political gesture than a genuine commitment to the massive task ahead. Moreover, if European cash becomes the primary lifeline, American policymakers might prefer this arrangement, as it shifts the financial burden away from the U.S. and its own taxpayers.

NATO and the Reluctance to Commit Troops

A critical concern is the unsolvable problem of troop support. No European country is likely to risk sending soldiers into a conflict with Russia. If any NATO member does, it could provoke severe consequences—potentially undermining the alliance or even prompting the withdrawal of U.S. troops from Europe. Such a scenario would dramatically alter the balance of power in the region and weaken the collective defense framework that has underpinned European security for decades.

Strategic Leverage: Intelligence and Arms Sales

Ukraine’s military edge has partially depended on U.S. satellite intelligence and SpaceX communications. The potential withdrawal—or monetization—of these vital services could leave Ukraine vulnerable at a critical juncture. In a calculated move, U.S. leadership might even slow or restrict arms sales if Ukraine’s performance, bolstered by European funds, starts to challenge broader geopolitical interests.

The Geopolitical Chessboard: U.S., China, and a Shifting Balance

Key U.S. figures, notably former President Trump, have long argued that China stands to benefit from this protracted conflict. A weakened Russia, or one forced to cede influence, could eventually become a mere satellite under Chinese dominance. The prospect of China combining its technological prowess and vast manpower with Russian raw materials represents a formidable threat to U.S. interests. In this context, any effective Ukrainian resistance might prompt the U.S. to pull back on its support—limiting arms and intelligence—to strategically counterbalance China’s rising influence.

Leadership, Expectations, and European Responsibility

Criticism has mounted regarding Ukrainian leadership, with claims that President Zelensky has profited immensely from U.S. aid while offering few realistic war aims. European leaders, meanwhile, appear to expect the United States to “pay whatever it takes” to sustain Ukraine’s military effort—a demand that many in Washington find increasingly untenable. The frustration isn’t solely with Ukraine; there is also a growing sentiment in the U.S. against what is seen as European freeloading and mismanagement in handling post-Soviet conflicts. This dynamic further complicates any potential for a robust, coordinated international response.

A Stark Warning for Ukraine’s Future

In the final analysis, Ukraine risks becoming a shell of its former self—possibly reduced to a wasteland—unless it recalibrates its strategy and secures more sustainable support. Even if European financial backing transforms Ukraine into a more effective fighting force, the broader geopolitical reality suggests that the nation may ultimately pay a heavy price. Investors and observers should take heed: the current trajectory poses significant risks, and exposure to Ukrainian assets may soon be a perilous proposition.

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Gucci branded items always appear at TJ Maxx. Was not long ago that demand was so high prices were raised aggressively. Pendulum has swung. When it comes to shows and bags, I recall my Dad’s saying: When is enough, enough? Food has shot up, especially if you’re trying to eat healthy. Strawberries, $5.99 a package. Gas is more expensive. Clothing is not crucial, eating is.

It seems to be that the race to the bottom in terms of lower prices for everything is now finally affecting the luxury brands. There are only so many people with money to afford expensive brands and too many vendors offering these items. Something has to give with name brand junk that most people cannot afford or on which to waste their hard earned money. The law of supply and demand is alive and well!

Luxury fashion to me has always seemed like the silliest market because it’s just a bunch of people collectively agreeing to overpay, by an incredibly high margin!

The Evolution of Luxury: Shifting Trends and Consumer Realities

The traditional allure of luxury brands is undergoing a transformation as the relentless pursuit of lower prices begins to impact even the most exclusive names in the industry. The market is oversaturated with vendors vying for the attention of the limited pool of consumers who can afford high-end products. The dynamics of supply and demand are starting to dictate a new narrative.

The perception of luxury has been challenged by the realization that many of these so-called “luxury goods” offer little substantive superiority over more moderately priced alternatives. While quality often correlates with price, there comes a point where consumers are essentially paying for a label rather than a tangible difference in craftsmanship or materials. A successful career, as demonstrated over decades, can be navigated without succumbing to the pressure of investing in exorbitantly priced fashion.

Retailer Dilemma: Managing Excess Stock Amidst the Slowdown

Surprisingly, it’s not just luxury brands feeling the pinch. The changing landscape of work attire, moving away from formal dressing and toward casual wear, has impacted retailers like Nordstrom and Macy’s. The reduced need for professional attire has led to a decline in spending, redirecting consumers to off-price stores like Ross and even second-hand options like Goodwill. Quality items are available at a fraction of the cost, challenging the notion that expensive brands are synonymous with superior quality.

Who is surprised? Until just a few years ago, you’d purchase a luxury product for, among other reasons, to be associated with that brand and all that comes with it. The brands themselves were associated with beauty, style, wealth, confidence, and sometimes, opulence. Great!

But then the woke revolution came. Now, these brands advertise ordinary, dishevelled, and sometimes, outright ugly models. Presumably this is because of “diversity”. The thing is, why would a consumer spend a lot of money to have their image associated with that of other ordinary people? The goal of luxury is to separate you from your peers. If instead the luxury puts you back with the mundanes, with the hoi polloi, with the proletariat, why bother spending all that money purchasing these items?

Furthermore, the recent trend in luxury advertising has added another layer to the evolving narrative. Once associated with beauty, style, and opulence, luxury brands now feature ordinary and sometimes unconventional models, ostensibly in the name of diversity. This departure from the traditional imagery raises questions about the fundamental appeal of luxury. If the aspiration is to stand out and elevate oneself, the current approach seems to blend consumers back into the ordinary crowd.

As economic challenges persist, consumers are becoming increasingly discerning, focusing on essentials rather than indulging in unnecessary expenditures. Rising costs of food and fuel contribute to a shifting mindset where spending priorities align with immediate needs. Traditional retail giants like JCPenney are grappling with declining foot traffic, confusing pricing strategies, and online shopping challenges, further highlighting the complex landscape of consumer behavior.

In this evolving landscape, the definition of luxury is being rewritten, urging both brands and consumers to reconsider their expectations and redefine what holds true value in a rapidly changing world.

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When Giants Fall: The Long-Term Outlook for Market Leaders

Research conducted by the investment firm Research Affiliates, under the leadership of Robert Arnott, examined the performance of the 10 largest-cap companies at the beginning of each decade since 1980. The findings revealed that, on average, eight of these top 10 companies were no longer on the list by the decade’s end. Furthermore, their 10-year performance consistently lagged behind that of the overall U.S. market.

Tesla and Nvidia are almost a certainty. That these stocks / market caps will be MUCH lower in 2033 than today. They won’t be in the top 10. The valuation today makes it likely. $AMZN still won’t earn money in 2033 and valuation is a problem.

Investor’s Dilemma: Will Today’s Titans Remain Tomorrow’s Leaders?

Why do the largest-cap companies tend to lose their dominant status? Several factors contribute to this phenomenon:

1. Overvaluation: It’s highly likely that the largest-cap stocks are, on average, overvalued. Their prominence is often driven by investor sentiment and enthusiasm. Overvaluation is more common among favored stocks than those out of favor.
2. Competition: As observed in a 2012 study titled “The Winners Curse,” companies that are at the top often face intense competition, scrutiny, and challenges from governments, customers, and rivals. In a world where underdogs are cheered for, few outside the organization root for continued dominance.
3. Law of Diminishing Returns: Many of the largest companies are expected to maintain impossibly rapid growth rates, even though they are already substantial. Achieving such growth becomes increasingly difficult as a company’s size expands. Moreover, it’s mathematically improbable for all of them to grow at that pace without surpassing the entire economy.

In summary, while the Magnificent Seven stocks may exhibit strong performance in the short term, their long-term prospects appear mediocre at best. Robert Arnott aptly noted, “Whoever coined the expression ‘Magnificent Seven’ for these companies presumably didn’t see the movie, where four of the seven are dead by the end of the film

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The State of Israel

The state of Israel (which was carved out of Palestine and did not exist until 1948) is unique in regarding the God of their national religion as a real estate agent and the arbiter of national boundaries. In fact, the state of Israel was created, and its borders were determined by international treaty. The assertion that ‘God gave us this land’ really is enough to make a cat laugh. Moreover, it is striking that the original Zionists of the late 19th and early 20th century readily accepted Jerusalem as sacred to a number of religions and a place which should be open to all of them. They pressed for a Jewish homeland but not necessarily where ancient Israel existed in biblical times. Africa was seriously considered, anywhere in fact where land was lightly populated and could be purchased for a modest price.

Israel was created and its borders declared by international treaty, rather than the childish conceit that the land of Israel was given to the Jews by God, and that actual possession, control, and private ownership rights that came into being during the 2000 years prior to 1948 can be ignored as contrary to the terms of God’s gift. And even so that was 2000 years ago. two millennia passed during which the state of Israel did not exist, and the land in question was owned and occupied by others. Until about a mere 70 years ago most of the present Israeli population and its forbears were citizens of a variety of European states.

Now let’s look into the following additional facts:

1. That the 1948 treaty did NOT abrogate the private property rights of the owners of any of the land within the newly created state but merely made them subjects of that state (and incidentally, entitled to the protection of their property rights by that state and its courts).
2. Israel is and has been for many decades blatantly and as a matter of policy violating international law by permitting and encouraging its own citizens to acquire (frequently by simple theft) land within the occupied territories, to evict the Arab private owners of that land, and to colonize the occupied territories. That does not sound to me like a state that respects and upholds international law.
3. Under much respectable jurisprudential theory, violent resistance and ‘self-help’ is lawful where the person or persons acting violently are denied recourse to a lawful remedy through the courts, or the civil authority fails in its duty to them to uphold and protect their rights, in breach of law binding upon that civil authority, and under more extreme jurisprudential theory, where the person exercising such self-help has been denied his ‘human rights’ (which include the right to be safe and to the security of his personal property).

The Hamas attack on October 7 was never going to be anything other than suicide, it wasn’t an attempt to wipe Israel off the map. HAMAS don’t have the means to defeat Israel and neither do Hezbollah, even if they combined.

The attack was merely death throw from a dying nation, a bit like the little big horn during the Indian wars. In fact the plight of Palestine is very similar to the plight of American indigenous peoples… The most HAMAS could hope for was a brief moment of success, then maybe negotiations and concessions from Israel for security and to get the hostages back.

But Israel totally lost the plot, accepted the invitation to make a huge mistake, and kill tens of thousands of civilians. On hundreds of hours of news footage I’ve not seen a single Hamas fighter or weapon.

The Israeli mask has slipped, the far right religious bigotry has been revealed for the entire world to see, and with it the total hypocrisy of US foreign policy. Israel and the US may defeat Hamas militarily but they have already lost all credibility, or at least the Bibbi/Biden regime has.

Is Netanyahu in the pay of Moscow, or Hamas?

The Hamas attack on October 7 was never going to be anything other than suicide, it wasn’t an attempt to wipe Israel off the map. HAMAS don’t have the means to defeat Israel and neither do Hezbollah, even if they combined. The attack was merely a death throw from a dying nation, a bit like the little big horn during the Indian wars. In fact the plight of Palestine is very similar to the plight of American indigenous peoples…

So far, the conflict has been a total strategic victory for Hamas. Hamas presses Netanyahu’s buttons, and he responds exactly as they hope and expect he will to set the region aflame and force Arabs and Muslims to choose between Israel and the Palestinians, and to make it impossible for Arab and Muslim states to ignore public opinion and force them to criticise Israel and to back the Palestinians:-

1. The object of the Hamas raid was to provoke an extreme reaction from Israel, including heavy loss of civilian life (Hamas does not care about Palestinian civilian lives where the losses serve its purpose in showing Israel in a bad light and make even tacit support for Israel by Arab states impossible). Nor in an armed conflict, is there any chance that Palestinian support for Hamas will be reduced, because there are only two choices , support for Hamas or for Israel.
2. Israel has obliged by reprisals on a scale and of a type which put an end to any chance of a Saudi – Israel treaty (or a treaty between any other Arab nation and Israel) which would have cut financial support for Hamas or Hezbollah or made intervention against Israel by Arab states in support of the Palestinians less likely.
3. The scale and nature of the reprisals and in particular cutting off water, fuel, food and medical supplies to the civilian population of Gaza has eclipsed the barbaric Hamas raid from minds around the world, and Israel is now seen as the barbaric party, at best on a moral par with Hamas.
4. The USA is becoming concerned that its unconditional support for Israel is doing it huge reputational damage around the Muslim, and much of the non-Muslim, world. The USA is now back-pedalling, and calling for Israel to conduct its operations within the requirements of international law.
5. Israel may yet push its reprisals to the point where other Arab states feel obliged by public opinion at home to intervene militarily in support of the Palestinians. even if they do not, they will certainly give diplomatic and financial support to the Palestinian cause.
6. No doubt plenty of terrorists will be killed, but within a couple of years a new, probably more efficient, generation of terrorists will have grown up.

Israel has made the desert bloom, by stealing all the water!

Power corrupts, and absolute power corrupts absolutely.

Israel hold all of the aces, and they increasingly persecute the indigenous peoples.

When Israel sees demonstrations against them and in favour of the Palestinians around the world, and Jews around the world hanging their heads in shame and keeping a low profile, what does it think the prospects are for normalising relations with neighbouring Arab states and gradually marginalising the support for the Palestinian cause, and causing the supplies of money and weapons Hamas currently enjoys to dry up? What a mess….

A Propoganda War

One thing is absolutely clear, though: the gratuitous slaughter of civilians is a criminal act whoever commits that slaughter, and the Semitic code, shared by both Hebrews and Arabs (both being Semitic races) of ‘an eye for an eye, a tooth for a tooth,’ (all too often applied in terms of ‘many eyes for an eye, many teeth for a tooth’) provides no way forward. Two wrongs do not make a right; they just perpetuate and exacerbate the cycle.

The conflict itself is also a propaganda war. No casualty numbers should be accepted without verification, which the Palestinians are now supplying.  One murder is one too many, but 1400 dead is a huge number and would suggest at least that number wounded, and I have seen no evidence of 1400 funerals, nor huge numbers of wounded. Where are the interviews with wounded survivors or pictures of crowded hospital wards?

Frankly, and at the risk of being accused of inappropriate levity, I also wonder how many truck loads of ammunition a bunch of Palestinian irregulars would need to inflict 1400 fatal gunshots. Some casualties will have been inflicted by rockets, but they certainly would not have inflicted a 100% fatality rate – statistically more likely about 3 wounded (perhaps more for Fred Carno rockets) for every death.

As I say though, even one murder is one too many, and in a confused situation with a lot of shooting at least SOME blue on blues are inevitable, though highly regrettable, and not something any army publicises. That said, a figure of 50% of the death toll seems far too high to be credible. Even 5 or 10% would be surprisingly high.

A Two-State Solution

I heard someone mentioning that from his experience Arabs and Jews do not stick to their bargains. That is not my experience.  In my experience, Arabs and Jews tend to bargain long and hard but stick to a deal after it is struck and expect exact adherence on the other side too.

How can the Israeli action end the problem ‘once and for all’? At best, it will leave a political vacuum, in which another and probably more extreme organisation than Hamas will spring up and prosper. Just as Hamas filled the void when lat this ‘solution’ was attempted. A ‘one state’ solution is impossible because (a) a mixed population of settlors and Palestinians would be a recipe for civil war and (b) Israel would not allow Palestinians to vote in elections because they might actually win seats, by reason of numbers.

To create a viable Palestinian state huge numbers of settlors would have to be removed, and would resist… Moreover, would any Israeli government get elected on a mandate to return stolen land? I also think the Jordanians might be more than a little concerned at the prospect of placing their border security exclusively in the hands of the Palestinians! I expect they would be only too happy to ship out their numerous Palestinian refugees to the new Palestinian state on the West Bank, but would wish to maintain tight border security to ensure that none of them came back! Lebanon too would doubtless be happy to provide further Palestinian citizens to populate the new Palestine, and would be equally keen to make sure they did not return.

And as for the Israelis relocated to the Gaza strip, the Egyptians would probably find them more congenial neighbours than the Palestinians they replaced, but it would not be long before the Palestinians wanted it back, because the new Israeli owners would in no time at all transform it to a place of hitherto unknown prosperity! Too cynical? Perhaps the Palestinians, generous minded folk that they are, would feel admiration, and satisfaction that the Gaza strip was in good Jewish hands and its true potential being realised.

So what will happen? Gaza will continue as an open air concentration camp, Israel will continue to settle the west bank and to evict the arabs living there. Israel no doubt hopes that in the end other arab states will take in all the Palestinians, leaving all the land for the Israelis. I don’t see that happening. Eventually the USA will grow weary of paying for Israeli oppression, and seeing Israel trash the reputation of the USA in the process.Then Israel will have to accept a two state solution, but the process will be very traumatic with far more settlors to shift than there are today. Israel is its own worst enemy.

In conclusion, the ongoing Israeli-Palestinian conflict remains a deeply complex and multifaceted issue with no easy solutions. While both sides have legitimate concerns and grievances, the recent escalations have once again highlighted the tragic loss of innocent lives and the need for a peaceful resolution. The international community’s role in promoting dialogue, upholding international law, and working towards a two-state solution is crucial. It is imperative that all parties involved prioritize diplomacy and empathy over violence and retribution, as the cycle of suffering and conflict only perpetuates a tragic status quo.

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Absent successful ground offensives, how do the Ukrainians push the Russians back? That suggests to me that the Russians will be content with a protracted stalemate, waiting for western enthusiasm for funding the war to fade., and the Ukrainians will be unable to dislodge the Russians if they go on the defensive.

It’s doubtful that either side will continue with WW1-style attacks for much longer without successful ground offensives. The Ukrainians may find it challenging to push the Russians back in the absence of such offensives, potentially leading to a protracted stalemate. The Russians might be content with such a situation, waiting for Western enthusiasm for funding the war to wane, while the Ukrainians may be unable to dislodge the Russians if they adopt a defensive posture.

Sanctions often lose their effectiveness over time as ways to circumvent them are discovered, and new trading patterns emerge. It appears improbable that Russia will be forced to withdraw due to economic pressures, particularly while Putin remains in control. Accepting a peace deal that results in the lifting of sanctions might endanger his regime.

There are also concerns about Ukrainian enthusiasm. Both military and civilian casualties have been high, and the grain farming industry is suffering. With significant foreign money and hardware influx, corruption opportunities are considerable. Many may feel that they bear the brunt of casualties and economic losses while others benefit from the war.

If US willingness to fund the war wanes, financial support for Ukraine may dwindle. Times could become even more financially challenging in Ukraine if the war ends or winds down. It’s challenging to envision a settlement acceptable to all parties, and a decisive victory by either side seems unlikely. A resolution might become possible if the USA and China can agree on a ‘solution,’ as both the Russians and Ukrainians rely on their main sponsors. However, the prospects of the USA and China reaching an agreement currently seem remote, making the situation rather disheartening.

<h2>Conclusion</h2>

In the evolving conflict in Ukraine, a protracted stalemate appears increasingly likely due to the challenges facing both sides. While the Russian military’s capabilities may be underreported, successful ground offensives remain elusive, and Ukraine’s resources are stretched. Economic sanctions may not force Russia’s withdrawal, and a diplomatic solution is elusive. Sustaining international support, addressing public disillusionment and corruption, and exploring potential geopolitical shifts are vital for Ukraine’s long-term stability and the prospect of a peaceful resolution to the conflict.

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The Inevitability of Change: When Coups Become the Only Option

Corrupt Dictators and Faux Democracy

This scenario parallels the ‘Arab Spring,’ reminiscent of a positive wave of ‘democracy.’ Yet, when generals depose corrupt politicians, we label it as ‘bad.’ Though non-interference in another nation’s internal matters is ideal, the significant global implications in terms of security, natural resource supply (particularly for the electric vehicle industry), and the refugee crisis can’t be ignored. There are no straightforward answers, and relying on empty rhetoric and inertia seems to be the likely path ahead.

We cannot confirm whether Ali Bongo (now ousted president of Gabon) manipulated the recent elections, as he barred any scrutiny. However, we do have evidence that he rigged the 2016 presidential elections and the 2017 parliamentary elections. Even the African Union, rarely critical of member elections, censured these actions. Genuine elections grant legitimacy to political leaders worldwide. By rigging these elections, Ali Bongo lacked legitimacy.

External Influence: Colonial Powers and Puppet Regimes

In 1967, the fervently pro-French Gabonese president, Leon Mba, passed away. Mba had even wanted to put the French tricolor in the canton of the Gabonese flag, but had to be dissuaded by Paris from doing so (he accused Jacques Foccart of a lack of patriotism!). Jacques Foccart and de Gaulle faced the challenge of Gabon’s future. Among Gabonese cabinet ministers, they identified Omar Bongo, chief of staff, as a potential leader. Bongo underwent an interview with de Gaulle and took the reins. He remained Gabon’s president for life, passing the position to his son. The Bongo family, like the dos Santos family in Angola and the Obiang family in Equatorial Guinea, amassed vast oil revenues. Recent developments like Gabon’s entry into the Commonwealth possibly stem from strained relations between certain West and Central African Francophone leaders and Macron, aiming to leverage Paris, although with limited success. A coup against a key figure like the younger Bongo would have likely been reversed in the past, but the future of Françafrique hangs in the balance.

The era of FranceAfrique is ending – a positive development. Macron endeavored to normalize relations, conducting numerous visits to Africa. However, undoing decades of FranceAfrique, characterized by paternalism, complicity, and advancing French interests, proved challenging. France should immediately discontinue the Franc CFA – tied to the Euro but controlled by African nations (former French colonies) for currency stability. Even Mali, which harbors animosity toward France, cautiously maintains the FCFA.

It’s worth noting that the argument encompassing “all former French colonies” is biased. The map shows coups in former British colonies like Sudan and Zimbabwe. Gabon recently shifted allegiance to the British sphere via the Commonwealth. Africa demonstrates that one strongman often replaces another, particularly when weaknesses surface. The dichotomy between the rule of law and democratic support becomes apparent through the population’s backing of coup leaders.

Awakening Africa: A Call to Action

If citizens wish to oust corrupt leaders, it’s their prerogative – especially considering the history of former colonial powers causing death and suffering. Disheartening are the ignorant comments hinting at a return to institutionalized racism, slavery, torture, and poverty. Ali Bongo and his father, Omar, were agents of Francafrique, part of the Grand National French Lodge. They favored former colonial powers over domestic poverty and development. The Middle East’s corrupt regimes survive through police states, armed and trained by external forces. Africa, lacking substantial oil reserves, receives less commitment. Whether we like it or not, we’re intertwined in this situation.

These countries will undergo struggles until they find equilibrium. As unappealing as it sounds, they need to navigate this path independently. Consider South Korea, Taiwan, or China – they developed under dictators who compelled progress. The West should offer access to markets, commercial investment, and technological innovation. Some countries will flourish; others won’t. It’s not our duty or fault; they make their choices now. Aid should enhance life in these nations, curbing the need for asylum. Education, vital for combating ignorance and populist manipulation, should improve. A robust middle class invested in their nation is pivotal. There are no easy solutions.

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Last week Wall St had a party after Nvidia gave guidance for 50% revenue growth for 2023. Everyone on Wall St has jumped on the AI trade, including buying the mega-tech stocks that everyone loves to hold. About ten stocks now make up all the growth this year in the S&P. The rest are flat, with dismal earnings and dismal guidance. Wall St is cherrypicking the data and expecting AI to be the savior. Well, guess what? AI isn’t even a product yet. And once it is, the economy will be on its back.

What Wall St has wrong is that this is not a normal business cycle. The thinking is that Q3 and Q4 will see a resumption of earnings growth, and we will get a soft landing. This is fantasyland. Why? The Fed has removed the punch bowl of low interest rates and QE, and has no intention of refilling it until something breaks. In fact, the lag effect of higher rates is just now starting to take effect.

The Achilles heel of Modern Monetary Theory is inflation. The Fed thought that since Japan (who invented MMT) didn’t have inflation, we wouldn’t either. Remember when Janet Yellen said we would never have a financial crisis again in her lifetime? That comment was from MMT craziness. She thought MMT was the secret sauce for economic growth forever.

The Fed refuses to admit it, but they have adopted MMT. And once you go down the Modern Monetary Theory rabbit hole, there is no way back. All you can do from that point forward is expand the debt bubble. It becomes impossible to attain fiscal responsibility. This has become obvious as debt grows and grows. Next week, Congress intends to raise the debt ceiling by $4T, and only a few Republicans are voicing outrage. In fact, most of the Democrats are angry that spending will not be higher. They have become oblivious to debt, as MMT has numbed everyone to its dangers.

The Ukraine war spelled the end of US global hegemony. It also spelled the end of an era. No longer can the US print money at will. The current debt ceiling issue points that out. Why is Congress fighting over the debt ceiling? Our interest expense is too high! Do you think Congress would care about the debt ceiling if interest rates were at zero? I doubt it. Our interest expense has risen from around $300B to $800B since 2020. That’s a big move! And not something you can ignore. Suddenly, we can no longer print at will.

To make matters worse, the Ukraine war has disrupted international trade relationships, something the USA has dominated since the end of WW2. This is huge! Yet, Wall St acts like it’s no big deal. China, Russia, India, and Iran have all partnered up with the intent of expanding the BRICS economic alliance. This will lead to de-dollarization as these countries switch from using dollars for international trade to other currencies. In fact, I expect a new BRICS+ currency to be announced in August at their next big meeting. It’s likely that this currency will be both a digital blockchain cryptocurrency and backed by both commodities and currencies.

So, the international trade system is changing. Any change will be bad for the US, which has dominated the international trade system, with the dollar currently dominating all international transactions. This is about to change in a big way going forward. What impact will that have on the dollar and US bonds? My guess is that it clearly won’t be beneficial. What impact will that have on gold? Likely positive.

So, we have a looming recession during a period of high debt, high interest rates, and high inflation. Plus, in the background, the international trade system is undergoing changes that are undermining the dollar. What could possibly go wrong? Yet, the stock market continues to behave as if nothing bad is on the horizon.

Is the USA Debt Problem Really Resolved?

“Of course, on the surface the US debt impasse is now over, but as usual it’s a case of “kicking the can down the road” – yet again. The mammoth debt built up in the US now stands at $31.2 trillion – and press reports from the White House indicate a “deal has been reached”. So, okay you’d think they could now borrow say another trillion or two until 2025 (debt deals and recalibration occur on a rolling two year basis), but no. This is a deal reached to actually suspend the debt ceiling, in other words for all the fluffery surrounding the press release wording, the USA government via the Federal Reserve are now free to borrow exactly what they want for the next two years, precisely until the next US elections.

This frightening scenario brings into focus just how much money $31.2 trillion really is – as we loom in on the magical $40 trilion mark. Why is $40 trillion so important? Because once the cumulative debt reaches that stage, the interest repayments actually exceed the amount borrowed, in other words for every $1 borrowed the eventual interest will be around $1.01. In the big scheme of things one cent does not sound and is not a lot – but multiply that forty thousand million million times and you get the picture.

This impending disaster now means two things. Firstly the Fed will undertake massive money printing again as their constant desire to raise the Fed funds rate to try to kill off inflation leads to a looming recession, which could be categorised as “severe”. You will witness the spectre, maybe within less than two years of a fed being forced to then cut rates to ease the recession, but without inflation returning to their supposed target of 2%. This will then set off a new and unstoppable wave of inflation going forward which will further debase the $ and lead to the debt ceiling being raised yet again. The only answer to all this is to attempt to back what is left of the paper dollar with something of intrinsic value.

And there is only thing.

Gold.

Despite repeated attempts to rein in the gold price by the Fed and the rigged trading by the bullion banks worldwide, this time the economic forces of nature will overwhelm all of them and the true price of gold (and by implication silver) will eventually show through. Don’t be surprised to see $3500 gold and $75 silver within the next few years.

Don’t worry too much about the US debt though, so long as the US$ remains the currency of world trade (which it will for quite some while). The USA creates dollars for nothing and sells them to the rest of the world for face value. It is the best business on earth. And if the $ does cease to be the currency of world trade, the rest of the world finds itself holding stacks of dollars worth a lot less than it paid for them, while the US debt denominated in dollars shrinks with the decreasing value of the dollar. US economics is designed to stuff the rest of the world, not Uncle Sam’s boys! Americans may not be great at foreign policy, but they are pretty good at international trade and finance.

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A rapidly growing bank stores most of its capital in government bills. The market price of its shares soars while the money supply expands rapidly. Inflation rages. The bank’s depositors ask for their money back, but the bank can’t easily satisfy the requests. A bank run ensues, and the bank fails spectacularly. Silicon Valley Bank in 2023? No, this is the 1720 fate of Banque Royale, the engine of John Law’s Mississippi Bubble. Law’s money printing scheme to drive down interest rates was conducted on behalf of the financially desperate French government. At the height of the bubble, Law was the richest and most powerful man in Europe—quite a promotion since he was exiled and condemned to be hanged a quarter century earlier.

The difference between 1720 and now is that in the years following the Mississippi Bubble, an uncontrolled explosion of fiat currency was widely recognized as the culprit for the mess. Today, money creation and haphazard government guarantees are irresponsibly viewed as the solution to our crises. Abe Lincoln said, “Whoever can change public opinion, can change the government, practically just so much.” Thomas Paine we’re not, but we’ll still preach that it’s just common sense to end the country’s longstanding love affair with money printing.

As the fire of the Mississippi and South Sea Bubbles were igniting in the early eighteenth century, another villainous flame was extinguished. Ned Teach, better known as Blackbeard, the world’s most famous pirate, met his violent end off the coast of North Carolina at the hands of British navy soldiers in 1718. He perished by a combination of cutlass slashes and bullets. The Governor of Virginia had Blackbeard’s head hung from a pole along the edge of the James River as a grisly warning to those who might consider piracy. However, public opinion in the colonies regarding pirates was not always negative. From the book Black Flags, Blue Waters: The Epic History of America’s Most Notorious Pirates:

“In the late 1600s, pirates were usually welcomed by the colonies because they brought things of great value that colonists desired and needed; and, better yet, they got them by ransacking Mughal ships sailed by “infidels” in a faraway ocean, or by plundering the hated Spanish in the Caribbean. This meant that, from the colonists’ perspective, piracy was typically seen as a beneficial activity that had little or no downside…The years after the end of the War of the Spanish Succession, however, were an entirely different situation…The days of plundering Mughal ships in the Indian Ocean, and returning to American ports flush with treasure, were long over. Instead, the vast majority of pirates were attacking American vessels off the coast…Rather than supplementing the local economy, pirates were now damaging it. No longer were the pirates the much-beloved fathers, brothers, and friends of colonists who enriched their communities, but rather they were outsiders who, for the most part, brought nothing but strife. Formerly embraced by the colonies, pirates were now seen primarily as a threat.”

Is it farfetched to think that Americans once enriched by the actions of the Federal Reserve and U.S. government in plundering “faraway” people (i.e., future generations) will revolt against these institutions when voters suffer presently? Decisions made in 2020-2021 and prior years contributed to the inflationary upsurge of 2022. Gratifyingly, Fed members finally experienced dealing with a semi-hostile audience.

Today, there are numerous signs of an impending recession and an incipient loss of confidence in the financial system, as the higher interest rates required to quash inflation are exposing deep cracks in the economy. While these fissures can be temporarily mended with emergency stopgap measures, this will only compound the severity of ultimate reset, in our opinion. And don’t forget, almost any disruption to the financial machine has been treated as an emergency requiring a rescue. Like any authentic pirate, regulators would rather go out with a bang than suffer the humiliation of surrendering their wrongheaded policies. Argh, matey, cannons have blown holes in our ship, and we’re sinking into the briny deep. Grab ye a bucket and begin to bail out!

March 19, 2023 Statement by Secretary of the Treasury Janet L. Yellen and Federal Reserve Board Chair Jerome H. Powell: “The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient.”

Some folks have claimed there was no bailout associated with Silicon Valley and Signature Banks because certain executives lost their jobs (after cashing out millions) and stockholders were zeroed. Of course there was a bailout, and we’re not talking about the depositors of these failed lenders. The Fed stepped in immediately with the Bank Term Funding Program to relieve other lenders’ liquidity stress, ensuring the banks would not have to sell assets for, well, what they’re currently worth. Moreover, it didn’t take much pleading from legions of other bank executives before regulators promised, then unpromised, then re-promised to support the depositors of all U.S. banks to stem fears of more runs. Since the FDIC’s reserve fund was a mere 0.7% of the total U.S. deposit base, before recent failures, pledges of support hinge of the power of the printing press.

We have no desire to see unsuspecting depositors lose their shirts due to either banker greed, short-sightedness, or (if you’re feeling charitable) bank runs that cannot be avoided under a fractional reserve system. However, we’re exhausted by “hair of the dog” solutions that perpetuate this cycle of recklessness. The Fed, the Treasury Department, politicians—they’re a bunch of can kickers who act as if any present benefit from their actions outweighs potentially devastating long-term consequences. They’ll hide behind the refrain of supporting jobs that put food on the table tonight, and who could argue with that? They’ll warn, “If we don’t act, we’ll be in another Great Depression.” On the contrary: the situation becomes more combustible with each bailout, as evidenced by the strain already placed on the banking system by 4% interest rates. None of this ever gets better without broad public ire.

Silvergate…Silicon Valley…Signature. If there’s a lesson to be learned, it’s to not start your bank name with “Si”! Encompassing the second and third largest U.S. bank failures ever, many investors are hoping the downfall of these lenders can be pinned on cryptocurrency or venture capital exposure, an abnormally high percentage of uninsured (and therefore uncomfortable) deposits, or unique asset/liability mismatches. The March distress spread to First Republic Bank, another West Coast lender with significant uninsured deposits, then Credit Suisse, a once-venerable institution that had been foundering in recent years. Credit Suisse was taken over by UBS during a hectic weekend in a rush job arranged by the Swiss government.

While it was hard to keep up with the pace of developments in the sector, it should be clear that banks are opaque businesses. As one example, over the last decade, the percentage of domestic bank assets represented by held-tomaturity (HTM) securities increased significantly. This phenomenon obscures measures of shareholders’ equity in volatile rate environments, since HTM securities are carried at cost. Although the fair value of these securities can be ascertained by reading financial statements, it’s much harder to know the true value of bank assets with credit risk. Loans, as Level 3 assets, are assigned a fair value based on management’s assumptions about the assumptions that market participants would use in pricing an asset or liability. Shiver me timbers!

Historically, we have generally only purchased banks trading below book value. We must believe shareholders’ equity is reasonably solid and unlikely to suffer a material impairment in an economic downturn. Given the significant increase in small cap bank exposure to commercial real estate during this market cycle, we believe balance sheet risk has increased considerably. As a result of our criteria, we haven’t owned many small cap banks. Even now, after a threatened banking crisis, the median Price to Book (P/B) multiple for banks in the S&P SmallCap 600 Index is 1.5x. If we adjust book value to account for unrealized losses on held to-maturity securities and loans, the median P/B ratio grows to 2.1x.

Commercial real estate, including multifamily and construction loans, represents almost 5x the equity of the average small cap bank! The Blackstone REIT (BREIT) drama is another recent example of the friction that can occur when you combine an illiquid asset class (real estate) with investors who want their money back immediately. Delinquencies on commercial property loans, as reported by the Fed, were still at record lows in the fourth quarter of 2022 but have begun to creep higher. Several high-profile investors have defaulted on office properties in major cities, a consequence of pandemic work from home trends that never fully reversed. Over $1.4 trillion of commercial real estate (CRE) debt will mature by the end of 2024 (Mortgage Bankers Association), more than 30% of outstanding loans, prompting at least one real estate CEO to shamelessly request an industry lifeline from regulators. We think the smooth sailing is finished. First Republic Bank and Signature Bank have/had the 9th and 10th largest CRE loan portfolios, respectively (Trepp).

More than half of S&P SmallCap 600 banks reported a decline in net income in 2022, but the median decrease was only 2%. Small cap bank earnings are still up more than twofold, on average, over the past five years. The current 10x P/E for the typical small bank is deceptive, since it is predicated on low-cost deposits that are now seeking higher yields and/or safer homes. U.S. banks began losing deposits at the fastest pace ever beginning in the second quarter of 2022. Several of those low P/E lenders have no shareholder’s equity at all when assets are marked to fair value (Level 2 and Level 3 accounting basis). Whether or not banks work out as an investment from here, based on our experience, banking is an extremely leveraged business model reliant on government backstops.

Determining normalized profitability is sometimes more art than science, but we believe it’s still a critical task for absolute return investors. It’s perfectly acceptable to use trailing earnings as a starting point for normalization, since it has the advantage of inflation baked in. Yet, stopping there would often be a mistake. During our diligence, we ask why the past year may not be reflective of typical economic conditions and earnings power for a business. From our perspective, 2021-2022 is an unambiguous outlier of excess profitability driven by record deficit spending. Even management teams do not appear to be buying the sustainability of trailing profits, as average small cap dividend payout ratios are at the lowest levels of the last decade.

The normalization exercise gets trickier when rewinding further. We believe this entire economic cycle has been distorted by low interest rates, debt, and overall financialization. Even so, the further back one goes to search for a so-called normal economy, the more disconnected the business under review might be relative to its present status. Has the company acquired, lost a major customer, developed a new product or service line, etc.? It can help to focus on operating margins over time instead of nominal earnings. We will determine the average full cycle operating margin for a business and apply this to our best estimate of normalized revenue. For many businesses, including some in our Fund, we project normalized sales below what has been achieved for the past twelve months. This may seem noteworthy given the inflation experienced throughout this period and reflects our views on sustainable demand.

Although we spend a significant amount of time dissecting any company we consider purchasing for the Fund, for the purposes of these letters, we tend to generalize to simplify communication. A crude attempt to normalize operating profits could be to take a five-year average. Honestly, this seems overly generous for many businesses, but it at least includes a temporary dip in earnings in 2020. On those grounds, we submit that higher quality small caps are still far from cheap. The median small cap is trading for 25x its five-year average operating profit (S&P 600). Reported small cap earnings have fallen 7% from their 2022 peak, in contrast to large cap earnings (S&P 500), which may be cresting, but haven’t reversed yet.

We heard for many years that there was no alternative to owning equities. It’s been harder to make that argument recently with rising short-term risk-free yields, which peaked above 5% in early March before collapsing to below 4% on bank contagion fears (2-year Treasury). Despite telegraphed rate increases from the Fed throughout 2022 and year-to-date, most investors stayed faithful to their equity allocations. Dance with the one that brought you, right? Their core belief is that lower rates are the elixir for all that ails capital markets, and that the alchemists at the Fed will not withhold their magical potion for much longer. Rate cuts could fix bank balance sheets and bring back deposits. ZIRP is manna for equities, bonds, and real estate. Many in Congress are already demanding monetary easing in the name of supporting employment. Concerns about inflation have been displaced by fears of bank runs and economic instability. Meanwhile, the Fed is assuring us it will finish the job on inflation before reversing policy.

At the end of the day, we believe asset prices are the tail that wags the dog of Fed decisions. Indefatigable equities have not yet exhibited the same volatility as interest rates. We see no credible reason why this business cycle won’t conclude with the decline in corporate profits and the low valuations we’ve seen time and again over history. Batten down the hatches, something has got to give.

On the one hand, tighter monetary policy has caused a reduction in speculative activity. Trading on the online broker Robinhood has fallen precipitously since the pandemic. The number of IPOs is down 90% from 2021. Certain meme stocks, like Bed Bath & Beyond, are approaching the dustbin. On the other hand, investors remain emboldened by strong corporate profits, and equity prices are still fanciful versus most historical comparisons. In 2023, despite interest rate volatility and fears of a brewing banking crisis, speculators are entranced by newish playthings like 0DTE options, which accounted for over 40% of total options activity in March (Bank of America). Bitcoin is up over 70% in 2023 after tanking last year. The NASDAQ has gained 17% year-to-date.

During the Golden Age of Piracy, which lasted from 1650 to 1730, convicted buccaneers were hanged in a public square. To maximize suffering for heinous offenders, a short rope was sometimes used so the criminal’s neck wasn’t snapped instantly when the scaffold dropped. They would instead slowly asphyxiate. “Dancing to the four winds,” also known as “dancing the Tyburn jig,” was a colloquialism for the brief period when the condemned pirate remained conscious and their legs would desperately kick. Many investors are praying that bank rescues, a rapid re-expansion of the Fed’s balance sheet, and a rush of inflows back to big tech stocks are embers that can stoke a renewed bull run. Not us. We’re out seeking justice in the town square, hoping we’re watching the final convulsions of the Everything Bubble. The crowd is sparse but growing. For everyone’s sake, we hope the eventual carcass of this market cycle, whose orchestrators have plundered repeatedly from the future, will serve as a lesson that lasts for generations. Dead bubbles do tell tales.

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