False Evidence Appearing Real

One of THE most brainless and pernicious perpetrations against humanity is instilling a sense of fear where it doesn’t belong. This begins at a young age as kids everywhere are taught the same nonsense…

Beware of Strangers!

In the West they’ve even given it a catchy tag line. “Stranger Danger”, they call it, and to this they dedicate countless wasted hours explaining to kids to be fearful of strangers and what to do when the guy with a mustache smiles at you from the corner of the curb and invites you into his van with tinted windows. It’s literally pulled fresh from a 1980s Hollywood thriller. Realistic? Hardly.

Why would people do this? Have they tested this theory in the real world? Are they spending too much time reading Stephen King and watching Tarantino films?

Good friends of ours, the Millers, travel and continue to travel the world with their family of 4 children. The mother, Jenn, home schools all the way.

Aside from being some of the most amazing people we’ve had the fortune of getting to know, they share our worldview in more ways than one. I’d like to share with you Jenn’s thoughts on this very topic as she’s a far better writer than I am, and manages to provide clarity. You can read her entire thought process on the topic here.

Aren’t we afraid of strangers?

Statistically, we should be afraid of the people we know. They’re the ones most likely to kidnap us or harm us in some way. Strangers have no reason to wish us harm, and consequentially are a safe and delightful bunch. “Stranger Danger” is a pernicious idea. I can’t imagine a worse thing to teach a kid than that the world is out to get him, when the exact opposite is the reality. Discretion is worth developing, the ability to “read” people is important to study and discuss with emerging adults, but to seed fear and distrust? How awful. Are we afraid of strangers? No, certainly not.

Sadly this viewpoint is far from mainstream. Strangers have almost without exception been very hospitable, kind and generous to me.

This thinking is ingrained in society. We were taught the same rubbish as kids and now that we’re adults the “strangers” are not some boogeyman enticing us into his car with some candy.

A stranger is quite simply someone we don’t readily identify with.

It’s the guy who moves in next door who wears a turban. It’s the Greek, Italian, American, whatever depending on where you live. It is… the foreigner.

This thinking has ramifications which run deep and dangerous. As I survey a dysfunctional and rapidly disintegrating European Union, where now much of the participants in this grand experiment are turning against one another, I’m reminded of how easily a populace will rise to flag-waving, boot-stomping rhetoric.

Then, as discussed last week, I turn my head East and watch the anti-foreigner comments coming out of China as their stock market comes under pressure. Humans don’t change. The human instinct for survival includes blame as a protection mechanism.

I fear that rising tensions, a direct result of central bankers so inept and corrupt they’d make Idi Amin blush, are in their infancy. Murky as my tea leaves are and leafy as my crystal ball is, the trend is ominous.

More interventionism, more protectionism, more scapegoating, more racism, more capital controls, more border controls, more tension, as the giant bond bubble begins to unravel, and economic conditions for everyday people deteriorate.

It’s ironic that these series of events typically allow those who created the mess to implement radical and dangerous initiatives. The populace not only accepts it but demands it.

Discrimination, scapegoating, bigotry, racism, stereotyping, disinformation, minority persecution and genocide.

Some examples worthy of our consideration:

  • Apartheid in South Africa under previous white-led Governments.
  • German Jews being required to wear the “star of David”.
  • Japanese Americans isolated in camps during World War II
  • Native Americans having their land confiscated in violation of treaties, and being victims of government sponsored massacres, and being placed on reservations.

China blaming foreigners for the sell-off in the market is text book. Foreigners have, as I mentioned last week, extremely little to do with this sell-off. In fact, if every single foreigner was involved in selling their stock it would amount to… bugger all. And as I mentioned, direct short selling isn’t allowed anyway.

Solution? Create multiple income streams. Diversify assets. Get out of the way. Actively choose a location for living safely.

I’ve chosen New Zealand. Only time will tell if it’s a wise choice, however I remain nimble keeping alternatives open.

What Does This Mean for Capital Allocation?

It means “risk off”. It means a drying up of liquidity which in turn means an increase in volatility as bid ask spreads widen. That, my friends, means that assets get miss-priced and fortunes are made.

I’ve made no secret of our belief that we’ve entered a dollar bull market.

Currency trends tend to stay in place longer than many other trends, in part due to their self-reinforcing nature.

A dollar bull market is deflationary in nature and has the potential to cause problems in emerging market bonds, something Brad and I have been discussing and strategising on…

How are you allocating your capital right now? Curious to hear your feedback.

From the Mailbag…

A reader writes:

Thank you very much for the insightful postings of the newsletter; always an eye opening and fun read.

Your articles on Colombia have particularly captured my attention and your views on the RE market are very convincing and seems that a unique long-term opportunity is in the making – would need to make some research/visits but would guess that in the commercial office and retail market there could be some interesting acquisitions and/or development plays I had few questions on which I was wondering if I could pick your brain:

1) Is there a RE asset class which you are most excited of in Colombia? Where are you seeing the most opportunities/favorable pricing?

2) On the macro side, are you worried about further economic deterioration in Colombia, driven by a China and global slowdown? As risk assets reprice, commodity prices plateau downwards and USD strengthens do you think interest rates in Colombia will shoot up significantly?

If so, do you think this will be just a short term concern (providing even better pricing) or can it have long term repercussions? The macro risk is something I am particularly wary of and a China “crash” is a concern I have in general for EM (eg. Mongolia).

Thanks again for all the insightful reads you send and wish you a great Roundup in Medellin (unfortunately I will not be able to join but look forward to the next Meet Up; looks like they are uniquely interesting and fun experience).

1) Overall the macro trend in the country is favourable. That is important as we want to invest with a tail wind. Even with the decline in the price of oil economic growth has been strong.

What we’re interested in, and will be covering at our upcoming Meet Up in Medellin is raw land in the path of infrastructure. We are looking at other opportunities too but those are the most compelling.

One point I will make is that there are great opportunities if you wish to give up your day job and get stuck in. This doesn’t however suit our purposes.

2) I’m not that concerned about interest rates in Colombia since one of the reasons I’m interested in the first place is due to low levels of consumer debt.

I do believe we’ll see the Colombian peso weakening further but this is easily hedged with a long dollar position.

You’re right about risks on the EM front and in fact I believe we’ll be seeing EM bond markets coming under pressure including their currencies. The key level to watch on the DXY is 90.

Positioning in a growing economy coming out of a civil war with sound purchasing of quality real estate provides diversification out of the West and we intend to invest this for a fairly significant time frame. We’re not trading it. We are positioning now for the long term favourable trend.

– Chris

“The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown.” – H. P. Lovecraft


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