How COVID sparked a fire, revealing a world of cracks papered over.

Let’s try to set the scene. 2019 was drawing to a close, and the mood was universally joyous. One could almost taste the jubilation in the air. Everything was perfect, at least almost. Barriers, both geographical or personal, seemed to have little interest in exerting their rightful resistance.We jumped on planes with little consideration, flying across continents for meetings, all trivial enough to warrant an in-person conversation.Wanted to know something esoteric? To get hired? To try a new career on for size? No problem, jump online and if you find that you still have any queries, maybe Siri or Alexa might be of help.

The FIFA World Cup in Russia was played the year before. An international football tournament contested by men's national teams that took place between 14 June and 15 July 2018. 64 matches were played, with 3,000,000 in attendance over the whole tournament. Russia estimates that 7.7million visitors travelled for the games, with Moscow alone attracting 4.5 million tourists.

4.5 million human beings. That is a large number. Let’s see.. The Airbus A380 is the world’s largest passenger airliner. It is able to carry about 800 passengers and has a range of 14,800km. Say we managed to do all that hauling somewhat efficiently. We would need about 6,000 of these bad boys just to get our fans to Moscow and another 6,000 to get them home again. A pretty astounding logistical feat, done in the glorious name of sport. The romans would have been proud. We definitely did what we had to, and paid tribute to our gladiators in those modern Russian colosseums.

If you look closely (I am that dude in the middle), I guess you could say I had an inkling that this couldn’t last.

The stoics say that philosophy has to be truly lived, and that we had to all strive to distinguish ourselves as practising philosophers.I am not sure if Aurelius or Seneca had Epicurus in mind, but that batch of pre 2020 human beings were definitely a gang of determined scholars, schooled in the fine sensual arts of consumption.

The signs were all around us. We should have seen it coming. There had to be a cost to this outlandish lifestyle we were all pursuing. That level of comfort and expectation that we had gotten used to over the years was ludicrous by any historical metric. Man did we have a long way to fall. They say Karma is a bitch? Well, reversion to the mean isn’t any kinder.

I remember a slight sour anxiety starting to permeate through the sweet crisp bubbly mood of the time. Less than optimistic conversations started sprouting up, with close friends, loved ones and acquaintances more than occasionally chiming in. “Could it really be this good?"

BOOM! Welcome to 2021

The COVID crisis has come and has not yet gone. Variants are threatening to test the depth of the greek alphabet, and no one really knows if we are in the eye of the storm, or sailing under a blue sky clearing. As we survey the world around us, vaccine passports in hand, what do we see? If the landscape before us is uncertain, how do we proceed?

The COVID crisis has come and has not yet gone. Variants are threatening to test the depth of the greek alphabet, and no one really knows if we are in the eye of the storm, or sailing under a blue sky clearing. As we survey the world around us, vaccine passports in hand, what do we see? If the landscape before us is uncertain, how do we proceed?

Using a dramatic analogy, we could say the situation we currently face is somewhat akin to that of imaginary air crash survivors. Everyone on board has survived, but instead of partying jet lagged on a beach somewhere in South East Asia, they now find ourselves bogged down in a very unfamiliar rainforest. What now? Will they stay shellshocked or reorient themselves?

Back to real life. How do we navigate (invest) our resources, time and energy going forward? Where is it that we now want to go to, and what is it that we will need to get there? As the world sifts through the pieces, smoke still in the air, a few different impulses still affect the group at large:

• Can we go back to normal? Should we try?

• Is there a new normal? How does that look like? Do we fight to shape this new normal?

• To hunker down and be defensive, or go all out attack to seize advantage in the chaos?

It seems that decisions now carry more weight. I won’t mention vaccines, and will try to stay in the realm of financial investing. Some points to ponder:

Shall we save our surplus in a currency that is rapidly getting debased? Do I jump on the rocket ship that the equity markets have become, or wait for what seems to be a likely crash back down to earth? Commodities and Dogecoin has been making both my nerdy nephew and burly lumberjack uncle way richer than I am. How can I as a self-respecting white-collar salaryman stand for this? I WANT IN, now which vehicle is going to get me back to my deserved status?

These are all very difficult questions, with no obvious answers.

Thankfully, the world of finance allows for diversification. While we only have one body (Vaccines again), we generally have more than a few dollars to spread around. To me, the strategy to employ in this current environment is to look for asymmetry and optionality. We want to have staying power during volatile times, and even look to increase our wealth if we get a few calls right.

We have been interested in a few sectors, and have spread our bets amongst some of these areas:

1. Precious Metals

   1. Boring Bullion

   2. Miners

2. Energy

   1. Scary Uranium

   2. Dirty Coal

   3. Evil Oil and Gas

3. Equities

4. Cryptos

Why are these especially of interest? In a nutshell, all of them offer opportunity for transformational wealth increases. Nearly all of them are considered either to be fringe, or viewed with skepticism. In addition, depending on how one decides to put capital at risk, nearly all of them have low probabilities of going to zero.

So why the varied and broad exposure? Why invest in hated sectors?

1. All sectors are needed to keep the lights on, or have been around for hundreds if not thousands of years. It is unlikely indeed that these industries would cease to exist 10 years from now

   1. Bullion offers us an almost risk free asset. A put option on the financial system at large. Gold and Silver will/should have value come what may.

   2. Energy is needed to keep the lights on, and hospitals running. Yes, renewables are surging ahead, but for the moment, fossil fuels and uranium are still needed. In the developing world, every increasing access to energy is what is keeping revolutions at bay.

2. The S&P 500 might correct, but it should not go to 0. If liquidity continues to flow, indices should continue to protect purchasing power.

3. Cryptos can be viewed as an out of the money call option on the decentralisation of our financial system at large. A small % exposure that one is willing to forego, offering tremendous odds.

4. Nearly all of these sectors are not considered mainstream. Some are downright hated. This means that prices are still subdued.

   1. For Equities, general sentiment is that of disbelief. It seems like we may be climbing a wall of worry as indices continually make all time highs. We would look to exit when the mania is palpable, and taxi drivers are mentioning how neck deep they are in OTM call options.

   2. Try mentioning in polite company that you are optimistic about the developing world becoming evermore industrialised, and you are manifesting that idea by going long Peabody Energy $BTU. (Coal Prices Hit Decade High Despite Efforts to Wean the World Off Carbon)

   3. Cite evidence that Nuclear energy is probably the safest (here & here & in summary here) of all energy forms, and that we need base-lode energy sources for Solar and Wind to truly be effective.

   4. Enunciate “Gold Mining” the next time you get asked if you bought any $DOGE.

When we invest in hated, untrusted or new sectors, prices only need to revert to the mean for large gains to be made. Equities and Cryptos do not fit nicely into the mean reversion waiting game, but they might be seen as sectors of growth in a new paradigm of never ending liquidity. People need a store of value. Where do they migrate to when currencies and bonds can no longer be trusted to serve that function?

I will go into the specific sectors in the weeks ahead, discussing the why’s, how’s and even what’s of investing in these areas.

In conclusion, one thing is for certain. The whole corona virus situation has created a landscape (investing included) that is full of unknowns, and unknown unknowns. Systems and institutions that have been trudging along for decades have now been thrown into the limelight. How will we as a collective navigate through this period, it seems even our northstars are cast in doubt’s shadow. The very notions of democracy, peace, equality, hardwork etc have been called into question on various levels. Why work when we can $DOGE to the moon? Gamestop vs General Electric. AMC vs Apple. Heck, even the vaunted modern portfolio theory has been hauled in front of the jury, looking somewhat sheepish facing up to the new kid on the block - Modern Monetary Theory.

In any case, opportunities (and risks) abound, and at least no one will be able to say we are living through boring times.

Remember, don't take any of this as investing advice. It is a crazy world out there. Till next time.

JN

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us..”- Charles Dickens