Last week millions of people around the world sat up straight, got all self righteous, argued with one another, and picked a side. It was like Brexit, but global. You were either with or against.

We could say that it was the battle lines of those hollering for socialism vs those seeking freedom. I’ll say it’s more nuanced than that.

Here, take a look:

In case you’re not up to speed, what happened was that Venezuela’s President, Socialist Maduro’s arch enemy and rival Juan Guaidó was elected El Presidente. Well, sort of.

You see, it’s no secret that Maduro runs a “tight ship”, ensuring any credible opposition to his regime are visited by surly looking men sporting tattoos, scars, and black boots.

And so Guaidó took a rather cheeky gamble pronouncing himself “interim president.” A bold move! It’s a “heads I win, tails I lose my head” bet.

Sure, Guaidó clearly has the people behind him, but let’s face it, the world’s littered with millions of pissed off folks who aren’t going to do much about their particular plight because stepping out of line often involves a showdown with a military quite content to put a bullet in their heads. And that’s what Maduro still has — the military.

The background to how Venezuela got to this point is quite simple to understand.

Marxism was tried and, as is always always the case, things “suddenly and quite mysteriously things didn’t work as planned”, which is another way of saying the economic laws refused to bend to daft centrally planned ideas based on emotional rhetoric and thugs who promise they’re “there for the people”.

A reasonable person at the helm of this troubled ship would have said, “Oh jeez guys, we really are a bunch of dopes for thinking that our version of Marxist socialism would miraculously produce something other than the abject horror it has managed to produce every single other time it’s been tried? What say we call it a fail and give something else a whirl, heh?”

Side note: For a list of Marxist utopias, go take a look here.

Sadly, that’s not how ideologues think, and so with renewed gusto they did what so many before them throughout the annals of history have done: They doubled down. And THAT in a nutshell left the peasants starving. Which is why now they’re in the streets with pitchforks because many have quite literally nothing left to lose.

The Argument Goes Global

But what I think is a far more frightening thing to witness is how the rest of the world is responding to what’s taking place in Venezuela today.

Sure, it’s a mess, and yes, I feel for the millions of Venezuelans who’ve seen their lives destroyed by this murderous ideology. That is unquestionably tragic and the world should all take note of it.

But with that said, what is possibly more important is how the world’s leaders are responding. It is, in effect, showing us where global alliances are forming and that is worthy of our attention.

Battle lines are being drawn and the situation in Venezuela is being used as a pinball for global geopolitics.

At a political level, as is always the case, any alliances are calculated.

This is why the Trump administration recently gave a pass to Bin Salman when he had his thugs fly in to Turkey to chop up Khashoggi with a saw. Be that as it may, in the Western democratic world the politics is also driven by what the man on the street is thinking, saying, and feeling. And where at all possible politicians will tap into this for their own benefit.

Which brings me to how it is that we see this rising tide of Westerners actually in support of Maduro. Crazy heh.

For anyone who understands even a modicum of economic history this should be pretty terrifying, but it is understandable. Let me explain.

We are at this point because of…

A Problem With Capitalism

What we have today isn’t really capitalism. The problem lies with the fact that what folks think is capitalism is this bastardised mongrel of a creature we’re left with which is crony capitalism.

And so just as folks in Venezuela are angry and calling for change so, too, folks are angry and calling for change in the Western world.

The problem lies in mistakenly taking the current crony capitalism to be capitalism and the increased inequality to be the result of capitalism rather than this crony capitalism that has only gathered momentum as the perpetrators have been emboldened by ever greater and outrageous acts.

No wonder they’re fed up with it!

And so it’s no surprise that folks who should know better have been moving towards the crazies.

Who?

Well, for example take this lass who, despite her obvious lack of intelligence coupled with an understanding of history befitting a toddler, is clearly and surprisingly unapologetically also mentally retarded.

If that doesn’t scare the living isht out of you, then you’re made of sturdier stuff than me.

Or this guy who, like Ocasio-Cortez, is increasingly popular.

Hey, who doesn’t like a little bit of Bolshevism in their lives?

The unfortunate thing is this: Marxism isn’t the antidote to crony capitalism anymore than drowning is an antidote to thirst. And my concern is that for the west we may have to relearn this.

[clickToTweet tweet=”Marxism isn’t the antidote to crony capitalism anymore than drowning is an antidote to thirst.” quote=”Marxism isn’t the antidote to crony capitalism anymore than drowning is an antidote to thirst.”]

But pendulums swing, and so is this one.

How The Hell Did We Get Here?

The truth is we wouldn’t have Ocasio-Cortez and Corbyn or even Trump and Salvini if it weren’t for these guys:

Destroying the middle class and creating arguably the largest transfer of wealth in history (really a heist, I’d say) central bankers, together with bankers (recall the revolving door between Goldman Sachs and the Treasury department), set the stage for what we’re seeing on the streets today. This is no coincidence.

The Real Reason Behind Nationalism

This, folks, is why Trump was elected — something I promised you well before it took place here, here, here, and here,…. and NOT because of some Russian collusion as the hysterical leftist media has been trying so desperately for over 3 years now (with no evidence to show for, it I may add) to advocate.

It’s why Brexit took place. Again, not due to some mysterious Russian interference.

And it is the fuel behind the yellow vest movements sweeping the globe.

Are we honestly to believe that all of these global political shifts are the secretive behind the scenes work of Russia? Are we to believe this is the work of Putin sitting in the Kremlin with a small group of Ivans sporting scowls, tattoos, and hard jaws just chomping at the bit to break knees? Are we to believe that Russian hackers are at the heart of all of this?

If you buy into that, you’ve been hoodwinked at best and certainly you’ve lost your capacity to think critically and examine history and current facts.

No, it’s actually because of the world that these guys and the Davos crowd created. A world where their truly epic mismanagement and theft created extraordinary inequality in the developed world. And the second order consequences are now coming home to roost.

What’s fascinating to me is that the average man on the street may not be able to eloquently explain why he’s thinking the way he’s thinking, but this is how he feels. His living standards have been declining to stagnant, he can’t afford to send his kids to college, which means his kids will become lumbered with monstrous student debt, all the while degrees have been commoditised and are thus less valuable.

And as for those millennials who want to buy a house or start a family. Pffft, fughedaboudit!

And the Davos crowd wonder why birth rates in the West are collapsing. Sheesh!

And here is what is really fascinating to me:

While that’s the case, when I talk with many of my hedgie and investment banker friends, this perplexes many of them.

I know, I get it. When you grow up going to the top schools followed by the top universities and then go on to work for JPM or Goldman or any of these guys, the fact of the matter is you’re not even remotely connected with the working class and their problems. It’s easy to think that your experiences must somehow be similar to others’ without realising that your experiences are 180 degrees different to the working class.

I count myself lucky that I came from a very working class background. The schools I attended were not elite by any stretch of the imagination, and I had to pay my own way for my education and putting food on the table.

But just because that’s a distant world for me now doesn’t mean I don’t remember it or understand it. The problem as I see it is that we’re rich, and rich people don’t really feel the impact of stalling wage growth and rising healthcare, education, and housing costs and a myriad of other factors too complex for this article.

And we’ve benefitted massively from asset price inflation (stocks, bonds, and real estate). I get it. I understand why nobody who’s been on the right side of this gig wants that to end.

But aside from the obvious problem that this is not good for society, here’s the other problem: When looking around for an explanation as to why nationalism is rearing its head, it’s very easy to fall for the claptrap that “the Russians did it”. After all, it’s what the leftist media have been pumping at us day and night.

That it’s so evidently 100% hogwash doesn’t stop it from being parroted though. And the consequences of this are devilishly dangerous.

Disillusioned, Lost, and Divided

Look around you and tell me the last time you could think of when the developed world was this disillusioned, lost, and divided.

And so just as within countries we’re seeing chaotic political turmoil and repositioning, we’re seeing it on a global scale as entire countries do the same thing.

Right now global powers are realigning themselves as old allies question allegiance and new alliances take form. That this comes at a time when those folks above (Goldman and co) and the ones who followed in their tracks managed the largest heist in the world’s history (transferring trillions of dollars in public money to the balance sheets of Goldman Sachs, JPM, and their cohorts) is both a cause and a symptom.

The problem that we face is that the Western sovereigns whose balance sheet debts are now stuffed fuller than a tick on a tampon means that their ability to “buy” the public trust is problematic (yes, I’m looking at you unfunded liabilities).

And so in order to “buy” or pay for existing or future promises, at this point this can only realistically be done by adding more debt to an already staggeringly large pile. And sharp readers will realise that pulling this rabbit out of the hat would only stand a chance if interest rates plummet and bond prices scream higher.

And in the last couple of months this is precisely what appears to be happening.

Small wonder a popular viewpoint is that we’re in for a deflationary plunge. Maybe.

But realise that though that may be the case, and certainly right now you’d be in the company of many pundits if you believe that likely.

Let me remind you that the situation that allowed for global interest rates to collectively plummet was one of absolutely extraordinary political cohesion, which allowed for absolutely extraordinary global monetary (read central bank) cohesion.

I’ll therefore ask you one question: Does the geopolitical landscape look anything like that we enjoyed back in 2008?

Which brings me to the market that rules them all: The cost of capital.

Let’s face it, in a levered world the cost of capital affects global asset prices more than most anything else including those meddlesome Russians.

What Are We Seeing?

We’re long-term investors here, and so short term moves are just noise to us.

That said, we’re not ignorant of shorter-term trading patterns. And so I always like to watch year-ends and the first couple of months in a year.

Quite often we get a head fake taking place. Sometimes it’s a bounce in a particular market, other times it’s a selloff in a market, but what often happens is that the move is a head fake, a sucker punch.

And this year looks like we may have our winner. I think this year’s head fake is easy bonds.

And before you look at the charts, remember this: We’ve had the longest bull market in deflation (bonds) in the history of mankind, and so it’s no surprise that the overwhelming majority of market pundits trend towards more of the same and a continuation of the great bond bull market. We think that’s a mistake.

The popular argument we hear, especially if you tune into CNBC, is that yields are going back to zero and bonds going much higher.

The developed governments of the world had better bloody hope so because the angst is rising and the pointy-shoed crowd are going to need every damn penny they can get their hands on to keep the unwashed masses from ensuring they have a very, very bad day.

But here at HQ we have a saying: Hope is a pretty shoddy strategy.

Thanks for reading.

-Chris

“Venezuela has changed forever.” — Hugo Chavez