We interrupt a mundane beginning to today’s Markets and Money with an observation: the world is becoming binary. That is, in all aspect of human affairs—financial, political, and military—there is no middle ground or third way. Increasingly, there are only two outcomes: you win, or you lose, you’re alive, or you’re dead, you’re rich, or you’re poor.
It will take us a few weeks to develop this claim and prove it. But we’re just throwing it out there today. And from a financial perspective, you can trace it back to controlling interest rates and printing money. Once you begin to tinker with monetary values, you start tinkering with all sorts of values. By punishing savers and rewarding spenders, you create a culture of short-planning and dangerous risk taking, where the wins are big and the losses are unrecoverable.
But maybe the simplest way to understand this development is geopolitically. The news reports show that US drones and combat boots are jointly operating in Mali, where the French have begun another military intervention against someone. This is one half of the binary outcome for the State: it fails in places that are ungovernable.
Sadly, the other half of the binary outcome for the State is that it’s getting bigger, more centralised, more intrusive and more powerful in formerly democratic places like Europe, Japan, and the United States. You have collapse of the State at the periphery, and consolidation at the global core.
None of that probably has any interest for Tom Albanese today. He’s out of a job. But come to think of it, that’s a pretty binary outcome, too. You either have a job or you do not. Albanese was thrown on his sword by the Rio board after the company announced a $13.25 billion write-down to its coal and aluminium assets yesterday. When you lose money like that—and remember Rio already wrote down around $8 billion on its Alcan acquisition in 2011—heads have to roll, and roll they did.
In keeping with the theme of today’s Markets and Money, the Rio news is part of the debate about the global economy. One outcome from the current situation is growth through debt. That is the Keynesian/Statist point of view. The other outcome is collapse and liquidation, or the Austrian point of view.
Of course history is not a made for TV movie. Events rarely unfold in black or white fashion. There are a lot more than fifty shades of gray. Since 2007, total collapse has been avoided by changing the rules, reshuffling the debts, and manipulating interest rates and currency values. Still, you can’t help thinking that all things eventually succeed or fail.
That brings us to the end of our contribution to today’s Reckoning, now over to Nick Hubble. Nick has taken the position that investors who focus on company valuations are making a fundamental mistake about the market that compromises their ability to succeed, if not assuring them of failure.
Nick argues that the difference between a winning investment and a bad investment comes down to the people who run a business, people like Tom Albanese or Sam Walsh, Rio’s iron ore chief and soon-to-be CEO. But we won’t make his argument for him. We’ll let him make it himself.
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