Category Archives: Trade

Understanding the Geopolitical Landscape in 2023… What It Means for Your Portfolio, by Chris MacIntosh

Buy companies that make ships. From Chris MacIntosh at

Global Geopolitical Landscape

Howard Marks of Oaktree Capital put out a note to clients sometime ago, “I Beg to Differ” and the below paragraph in particular resonated with me.

First-level thinking is simplistic and superficial, and just about everyone can do it (a bad sign for anything involving an attempt at superiority). All the first-level thinker needs is an opinion about the future, as in “The outlook for the company is favorable, meaning the stock will go up.”

Second-level thinking is deep, complex, and convoluted. The second-level thinker takes a great many things into account:

  • What is the range of likely future outcomes?
  • What outcome do I think will occur?
  • What’s the probability I’m right?
  • What does the consensus think?
  • How does my expectation differ from the consensus?
  • How does the current price for the asset compare with the consensus view of the future, and with mine?
  • Is the consensus psychology that’s incorporated in the price too bullish or bearish?
  • What will happen to the asset price if the consensus turns out to be right, and what if I’m right?

The difference in workload between the first-level and second-level thinking is clearly massive, and the number of people capable of the latter is tiny compared to the number capable of the former.

First-level thinkers look for simple formulas and easy answers. Second-level thinkers know that success in investing is the antithesis of simple.

Here is a brief example of how to employ second-order thinking with Taiwan

It is worth considering a lesson from World War 2 because it’s vitally important, and — as far as I can tell — not only do most Americans not know it, but the current bunch of podium donuts in the US don’t appear to either.

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Why BRI Is Back with a Bang in 2023, by Pepe Escobar

The Eurasian axis the U.S. is trying to thwart becomes increasingly interconnected and increasingly strong. From Pepe Escobar at

The year 2022 ended with a Zoom call to end all Zoom calls: Presidents Vladimir Putin and Xi Jinping discussing all aspects of the Russia-China strategic partnership in an exclusive video call.

Putin told Xi how “Russia and China managed to ensure record high growth rates of mutual trade,” meaning “we will be able to reach our target of $200 billion by 2024 ahead of schedule.”

On their coordination to “form a just world order based on international law,” Putin emphasized how “we share the same views on the causes, course, and logic of the ongoing transformation of the global geopolitical landscape.”

Facing “unprecedented pressure and provocations from the west,” Putin noted how Russia-China are not only defending their own interests “but also all those who stand for a truly democratic world order and the right of countries to freely determine their own destiny.”

Earlier, Xi had announced that Beijing will hold the 3rd Belt and Road Forum in 2023. This has been confirmed, off the record, by diplomatic sources. The forum was initially designed to be bi-annual, first held in 2017 and then 2019. 2021 didn’t happen because of Covid-19.

The return of the forum signals not only a renewed drive but an extremely significant landmark as the Belt and Road Initiative (BRI), launched in Astana and then Jakarta in 2013, will be celebrating its 10th anniversary.

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Why We Shouldn’t Underestimate China’s Petro-Yuan Ambitions, by Alex Kimani

It’s not clear if China wants a petro-yuan to further its own geopolitical designs or out of disgust with the U.S. and the dollar. Probably some of both. From Alex Kimani at

  • Credit Suisse’s Zoltan Pozsar: the de-dollarization of the global oil industry is in full swing–even if we can’t see the final end game from here.
  • Some 40% of proven oil reserves belonging to OPEC+ members is owned by Russia, Iran and Venezuela–all of whom are selling to China at major discounts.
  • Chinese President Xi Jinping has pledged to ramp up efforts to promote the use of the yuan in energy deals.

The de-dollarization of the global oil industry is in a treacherous mission creep phase. Things like this don’t happen quickly, but determinedly and gradually, not exactly fitting into today’s media headline game that only considers instant developments. But it is happening and the tide will not be turned based on current and near and medium-term geopolitical developments.  Credit Suisse’s Zoltan Pozsar recently warned clients, in essence, that the de-dollarization of the global oil industry is in full swing–even if we can’t see the final end game from here.

And it’s all about China, of course. Pozsar does the OPEC math for us.

Some 40% of proven oil reserves belonging to OPEC+ members is owned by Russia, Iran and Venezuela–all of whom are selling to China at major discounts, and all of whom are on board with Beijing’s petro-yuan plan.

The countries of the Gulf Cooperation Council (GCC)–most notably Saudi Arabia and the UAE–account for another 40% of proven oil reserves, and they are increasingly cozying up to China.

The remaining 20% is also accessible to China, and China is already the largest importer of crude in the world.

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The Petrodollar’s Long Goodbye, by Vijay Prashad

The dollar’s reserve currency status has allowed the U.S. the privilege of paying for goods and service with debt instruments it can create at will. The rest of the world is tired of this unfair arrangement. From Vijay Prashad at

As part of their concern about “currency power,” many countries in the Global South are eager to develop non-dollar trade and investment systems, writes Vijay Prashad.

Xi Jinping and King Salman bin Abdulaziz Al Saud, Dec. 9. (CCTV/Wikimedia Commons)

On Dec. 9, China’s President Xi Jinping met with the leaders of the Gulf Cooperation Council (GCC) in Riyadh, Saudi Arabia, to discuss deepening ties between the Gulf countries and China.

At the top of the agenda was increased trade between China and the GCC, with the former pledging to “import crude oil in a consistent manner and in large quantities from the GCC” as well to increase imports of natural gas.

In 1993, China became a net importer of oil, surpassing the United States as the largest importer of crude oil by 2017. Half of that oil comes from the Arabian Peninsula, and more than a quarter of Saudi Arabia’s oil exports go to China. Despite being a major importer of oil, China has reduced its carbon emissions.

A few days before he arrived in Riyadh, Xi published an article in al-Riyadh that announced greater strategic and commercial partnerships with the region, including “cooperation in high-tech sectors including 5G communications, new energy, space, and digital economy.”

Saudi Arabia and China signed commercial deals worth $30 billion, including in areas that would strengthen the Belt and Road Initiative (BRI). Xi’s visit to Riyadh is one of his few overseas trips since the Covid-19 pandemic.

His first was to Central Asia for the summit of the Shanghai Cooperation Organisation (SCO) in September, where the nine member states (which represent 40 percent of the world’s population) agreed to increase trade with each other using their local currencies.

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The Black Market For Oil Is Booming, by Tsvetana Paraskova

Black markets are inevitable when governments introduce price caps and sanctions into legitimate markets. From Tsvetana Paraskova at

  • Sanctions on key oil exporters have given rise to a lucrative black market for crude.
  • The EU embargo on Russian crude oil imports and the price cap on Russian crude are set to further increase illicit shipments of oil.
  • Russia is already thought to be amassing a “dark fleet” of tankers to ship its oil outside the price cap regime.

The sanctions on the oil exports of Venezuela and Iran, and now Russia, have given rise to a lucrative under-the-radar oil trade in which less scrupulous vessel owners, shipping firms, and traders continue to sell sanctioned oil to those willing to take the risk to buy it.

The EU embargo on Russian crude oil imports and the price cap on Russian crude – in force since December 5 – are set to further increase illicit shipments of oil to countries outside the EU and the G7 that haven’t joined the so-called Price Cap Coalition.  

Russia is already thought to be amassing a “dark fleet” of tankers to ship its oil outside the price cap regime and it has the playbooks of Iran and Venezuela to take a leaf out of and continue exporting large volumes of its crude and products. Russia could be using tried-and-tested tactics of labeling the oil as sourced from elsewhere, turning off tanker transponders, and even falsifying the positions of tankers via the Automatic Identification System (AIS) data to hide activity taking place hundreds of miles away from the false positioning data.

By using various spoofing tactics, producers and sellers of sanctioned oil still get to place their products with buyers who are happy to get heavily discounted crude.

But not all buyers, especially those in jurisdictions with strict controls and checks such as the U.S., are tempted to discard concerns and red flags about a cargo’s origin. Other buyers, especially independent Chinese refiners, are unfazed as their priority is to buy low-priced crude and make good profits refining it. China, the world’s top oil importer, continues to buy Iranian and Venezuelan crude, often masked as crude from Malaysia or Oman, various analysis and investigative reports have found over the past few years.

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The US Chip Blockade against China Is Creating Unplanned Consequences, by Mihai Macovei

Without fail, when governments interfere in private market, things don’t turn out as planned. From Mihai Macovei at

The US trade and tech wars against China continued under President Joe Biden, who escalated export controls related to technology. The US wants to cut China’s access to advanced semiconductors and the equipment used to manufacture them in order to prevent their use for military purposes. The restrictions follow the CHIPS and Science Act, passed in August 2022 which showers $52 billion in subsidies on the US chip industry and grants over $200 billion in additional research and development (R&D) and science funding.

The alleged purpose of the US protectionist moves is to strengthen “national security” as revealed by the recent strategy, which singles out China as the main challenger to the world order upheld by the US. President Biden warned that the US faces a “decisive decade” in its rivalry with China in order to preserve a long-term competitive edge. Yet, a deeper analysis shows that the US policy is rather meant to contain China’s overall technological and economic progress. It also reveals the US government intentions to depart further from free-market solutions to bolster its economy, which reduces economic welfare and stokes the risk of military confrontation down the road.

US Dominates the Global Semiconductor Value Chains

Alarmist views that the US semiconductor industry is in need of subsidies and trade protection are not supported by facts. The US has remained the global semiconductor market leader, with almost 50 percent of annual sales since the late 1990s, despite a gradual decline in its share of chips manufacturing (graph 1). Most important, manufacturing represents less than one fifth of the semiconductor production chain and the US dominates the top end of the overall supply chain.

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The Uncertainty in China Is Kryptonite to Global Markets, by Charles Hugh Smith

When things go wrong in China it has a global impact. From Charles Hugh Smith at

Few seem alive to the potentially consequential financial risks arising from uncertainties evolving in China.

One thing we know rather definitively is that markets don’t like uncertainty: uncertainty is Kryptonite to markets.

Another thing we know is that the events unfolding in China are generating uncertainty on multiple levels. Whatever policy decisions are made, the potential consequences generate waves of profound uncertainty.

Should authorities respond to exploding Covid caseloads with heavy-handed lockdowns, that will trigger production and shipping consequences for global trade. If restrictions are relaxed, the healthcare consequences are also uncertain, as China lacks the facilities such as ICU beds in sufficient quantities to deal with a contagious virus spreading in a populace with very little immunity.

The reactions of both authorities and the people generate an entirely different level of uncertainty. Authoritarian regimes are trapped: if their response is increasingly brutal repression, punishment and lockdowns, this risks changing the populace’s understanding of the social contract in a destabilizing dynamic.

But offering concessions opens the door to demands for further concessions, and this path is an equally destabilizing dynamic.

There are no positives for global markets in any of these developments, as each potential outcome has difficult-to-predict and control second order effects. Covid lockdowns have the potential to topple various supply-chain dominoes, and by weakening economic activity, they also have the potential to topple dominoes in the populace’s understanding of the social contract between citizens and the state.

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The Bipartisan Race to be Tough on China, by Ted Galen Carpenter

Not content to pick a fight with Russia, the American foreign policy establishment is also going after China. From Ted Galen Carpenter at

The 2022 midterm congressional elections in the United States have been characterized by stark, sometimes shrill, partisan disputes on an array of issues, both foreign and domestic.  One area that has not featured such a division, however, is policy toward the People’s Republic of China (PRC). Instead, there has been a growing consensus regarding that issue; the only contest appears to be about which party can and will take the harder line toward Beijing. Indeed, within the Republican Party hard liners are even bashing fellow members who advocate restoring the traditional GOP stance that favored a policy of engagement with China. 

The strength of the anti-China trend is evident on multiple issues, including trade policy, human rights, Taiwan, and the extent of the security threat that the PRC now supposedly poses to the United States. Going forward, it matters little whether Republicans or Democrats are the majority party in Congress; the days of bipartisan support for a policy of cooperation with China are over. 

Hostility toward the PRC has been building for several years in both Congress and the American public. Beijing’s imposition of an uncompromising national security law on Hong Kong in June 2020 both broadened and deepened that hostility. The PRC’s tightened restrictions on Hong Kong followed on the heels of growing anger and suspicions in the United States about the Chinese government’s handling of the Covid-19 outbreak. Even moderate American critics condemned PRC authorities for their apparent failure to provide timely information about the onset of the virus and its rapid spread. Hawks on China policy openly charged that the virus originated in the Wuhan Institute of Virology, not in nature. Public opinion surveys taken in 2020 showed a surge of negative opinion about the PRC on multiple issues, and that the growing hostility was strikingly bipartisan

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World Dollar Hegemony Is Ending (and That May Be a Good Thing), by Patrick Barron

The reserve currency status of the fiat dollar allows the U.S. to get a lot of something with a lot of nothing. The world has grown tired of that. From Patrick Barron at

The end of world dollar hegemony is coming and hardly anyone in government is taking notice or even understands what this means. Since the Bretton Woods Conference in 1944, the dollar has been the only currency accepted throughout the world for settlement of international trade accounts among nations.

Prior to 1944, physical gold was used for international settlement. When an exporter in country A sold goods to an importer in country B, country B would pay with its own currency. But country A would have no interest in allowing country B’s currency to build up in its vaults beyond an amount required to settle its own importers’ needs. Thus, country A would demand that country B redeem its own currency in gold. Sometimes country B would ship physical gold to country A. Or perhaps gold held in safekeeping in a third country would be designated as now belonging to country A, a book entry transaction that is more convenient than physical movement.

The Bretton Woods Agreement and Its Demise

The Bretton Woods Agreement added the dollar as tantamount to physical gold at $35 per ounce. The reason was simple: at the end of World War II the United States had accumulated a preponderance of gold, due primarily to its role as the “arsenal of democracy.” Thus, central banks could exchange dollars for settlement rather than moving or redesignating the ownership of physical gold. The weakness of this system was that the world had to trust the USA not to create more dollars than it could redeem for gold at $35 per ounce. But central banks always had the option to demand physical gold from the USA and hence ensure that their trust in the measure of $35 per ounce was fully supported.

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The Petrodollar-Saudi Axis Is Why Washington Hates Iran, by Gary Richied

Iran is committing the unforgivable sin: allowing payment for its oil in currencies other than dollars. From Gary Richied at

Kish, since you are wondering, is an Iranian island in the Persian Gulf famed for its tourist and shopping attractions. It is becoming a serious rival to other nearby vacation hubs in Doha and Dubai.

Along with pristine beaches and extensive malls, Kish is—or rather ought to be—known more widely for another feature and institution which the Iranian mullahs established there way back in 2003; namely, the Kish Bourse (i.e., Kish Stock Exchange). بورس کیش if you prefer the Farsi.

Think of it as the Chicago Mercantile Exchange of Iran, a country stacked with natural resources, a relatively well-educated and sophisticated population (the literacy rate is 97 percent among young adults, which, if you consider the deplorable state of secondary education in the United States, means that Iranian youth are most assuredly smarter than your average young American adult), and an economy burdened by mismanagement of their own Islamic theocracy and crippling, long-duration sanctions from the American secular theocracy.

That American secular theocracy has considered it a dogmatic rite of passage into the state and corporate media (their temples) that one must, at the very least, excuse the economic, cultural, and political warfare against Iran as necessary for a variety of spurious reasons. Who really has enough free time to investigate and then suggest otherwise? After all, Iran is plagued by terroristic Islamic fundamentalists who have pledged—like their former president, Mahmoud Ahmadinejad—“to wipe Israel off the face of the earth.”

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