Political Posts

[Ulti]

https://www.bbc.co.uk/news/resources/idt-829ea0ba-5b42-499b-ad40-6990f2c4e5d0

Counting Russia’s dead in Ukraine – and what it says about the changing face of the war:

[Guest]

On 6/16/2023 at 11:56 PM, Haryana said:

 

Considering that US markets are currently nearing the highs and the Chinese markets are currently nearing the lows, those long term % results can easily flip to other side when compared during near highs of Chinese market and lows of US market.

 

That's fair but if China hasn't outperformed for the last nearly 30 years, why think it will outperform in the future? I mean it's typically easier for a place to have crazy growth when it's small than when it's super large. 

[no_free_lunch]

It is hard to decipher the true growth.  I think sentiment towards China for investors has changed and perhaps the PE multiples too?  I don't have access to the data but if you standardize the PE ratio, I wonder if the returns in China look any different. 

 

Just casually observing, it seems China is not so different from say most European equity baskets over the past 30 years.  Keep in mind the European economy is roughly the size of the US so should be a reasonable comparison.  China equities certainly lags the US over any time span but the US is quite exceptional and doesn't correlate to Europe, China, Canada, etc.  There was a time back in 2010, where the US was market was hideous and almost any other country (China included) had 10-15 year returns that exceeded it.   Basically, this is complicated and while I am personally very cautious on China, I wouldn't write the returns off just yet.

Edited June 18, 2023 by no_free_lunch

[tnp20]

Lot of our views are US/Western centric.

 

Lets assume geopolitics go from boil to simmer back and forth and never normalize as a basic conservative assumption. Yes, it will loose western investors. US investors will be probably more averse than Europeans. But you still have Middle-east soverign funds and much of Asian that is still growing. Granted you wont get investors from India, Japan and Korea as excited but still there will be some flows. About 10-15% of Chinese own stocks. The European and US figures are 30-55%. SO if domestic investors get more excited about their own markets and economy, Chinese markets can propel themselves for decades to come and each 1% adds roughly a $1T in buying power. China is both making it easier for foreign and domestic investor to invest with various schemes (IRA, Yuan counter, etc) already implemented. Long term Chinese need foreign capital and they know it. Domestic investors are also being cajoled into directing their savings from house buying or CDs into stocks and this is likely to be slowly at first but will pick up pace.

 

The hinderance of course is Xi himself.  He hasn't quite figured out how free markets operate. His covid strategy, his attack on tech companies/entrepreneurs his poor strategy on geopolitics and optics of it are all feeding into one big CRISIS OF CONFIDENCE.  Domestic investors and entrepreneurs are shell shocked. They would rather save then spend or invest.  You have a perfect crisis of sorts in China stocks. Many Chinese companies have monopoly like positions with excellent balance sheet and cheap valuation metrics by any measure. You have to pick companies in CHina carefully but this is where the  proverbial "fish" are. Munger may say turds and raisins but he is buying this turd with both hands via Li Lu and Daily Journal.  Few other reputable fund managers are too.

 

There are three classes of China investors:-

 

(i) Wont touch China stocks because they dont like the system no matter what the valuation is - fair enough, your points are likely very valid but I suspect it will play out over longer term not short-medium term.

 

(ii) Hate Xi and geopolitics but like the valuation which is incredibly cheap for select Chinese companies - add 2-5% China stocks to your portfolio . Its either a zero or multi-bagger.

 

(iii) Go with greater conviction on China - but realize that there are gating functions that must be watched and if it fails at any of the gating function, start reducing position. What are the gating functions ?

                              - Confidence collapse is more sustained even with pending stimulus - we have a Japan like situation after their property bubble and weak markets could last 20+ years.

                              - Geopolitics gets worse and it looks like we are willing to suffer very painful decoupling (so far its been de-risking but not true decoupling else Apple , Nike, Starbucks etc would be down big)

                             - Xi's style of "Capitalism with Chinese characteristics" is increasingly too Maoist for foreign and domestic investors

                             - Republicans come to power and ban all investments in Chinese stocks...so watch the language of emerging candidates and their posture towards China - ofcourse there is rhetoric and reality but still...

 

 

Notice I didn't bring Taiwan into this. Invasion of Taiwan will not happen for at least 10 years. Why ?

        -  US and allies hold all the main choke points for oil into China so any war will not last long.

        - China needs time to digest the Ukrainian lesson and reformulate and retool. Chinese navy just isn't experienced enough to take on the US navy at this juncture. As long as they are making threatening noises - no war will actually happen but the minute they stop making noises - something serious has happened - some change in strategy that might include war.

 

 

 

            

                                             - 

 

 

 

 

Edited June 18, 2023 by tnp20

[Spekulatius]

@tnp20 I agree on most everything but I think XI Jinping timeline to gain control of Taiwan is shorter than 10 years. The increased aggression towards the US military presence around Taiwan is new and a strong indication of this and that is what led to to sell TSM. Even if 10 years is correct and China continues to escalate, the market will start to discount this more and more and multiples will suffer.

 

There is no stock in China or Taiwan like PBR-A that pays me out 20% + annually so I get my money back quickly. If there was, I would consider it.

Edited June 19, 2023 by Spekulatius

[tnp20]

These pieces are very good:-

 

https://www.clocktowergroup.com/research-insights/chinasthreetrapsmacrotrilemma

 

https://andrewbatson.com/2023/05/10/xis-new-growth-synthesis/

 

https://www.prcleader.org/

 

 

Edited June 19, 2023 by tnp20

[tnp20]

If your China thesis is correct, Apple is also a sell as ~20% of sales come from China and a very large part of production.

Buffett owns a lot of Apple. Apple's chips are made by TSMC.

 

 

As to war...

China's most recent and significant land wars have been:-

(i) Korean - easier to buttress North Korea - resulted in stalemate

(ii) Tibet - an easy land grab.

(iii) Defense against Japan - was loosing until allies helped

 

They have no history of naval battles or invasion by naval force - which is much harder than land war especially when waters are crawling with allied subs and surface vessels are sitting ducks to barrage of missiles from Taiwan. Think Normandy losses x 100 and there is no surprise factor with satellites and alternative landing zones.

 

As long as we don't box them in, like we did with Japan oil embargo, we leave them with rational but less than optimal options. We left Japan with no options and they acted irrationally with respect to Pearl Harbor so the chances of an irrational act on part of China are much lower but never zero.  CCP wont act until it sees chances of success as 95%. Failure means a neutered China and possible end of the communist party - a risk Xi in particular will not be willing to take. Taiwan is not attacking China so what is the immediacy ? If there is no immediacy, why not aim for absolute certainty when you know time is on your side ?

 

They will not do anything until:-

(i) Technology self-reliance

(ii) EV reduce reliance on oil

 

 

 

Edited June 19, 2023 by tnp20

[Spekulatius]

1 hour ago, tnp20 said:

If your China thesis is correct, Apple is also a sell as ~20% of sales come from China and a very large part of production.

Buffett owns a lot of Apple. Apple's chips are made by TSMC.

 

 

As to war...

China's most recent and significant land wars have been:-

(i) Korean - easier to buttress North Korea - resulted in stalemate

(ii) Tibet - an easy land grab.

(iii) Defense against Japan - was loosing until allies helped

 

They have no history of naval battles or invasion by naval force - which is much harder than land war especially when waters are crawling with allied subs and surface vessels are sitting ducks to barrage of missiles from Taiwan. Think Normandy losses x 100 and there is no surprise factor with satellites and alternative landing zones.

 

As long as we don't box them in, like we did with Japan oil embargo, we leave them with rational but less than optimal options. We left Japan with no options and they acted irrationally with respect to Pearl Harbor so the chances of an irrational act on part of China are much lower but never zero.  CCP wont act until it sees chances of success as 95%. Failure means a neutered China and possible end of the communist party - a risk Xi in particular will not be willing to take. Taiwan is not attacking China so what is the immediacy ? If there is no immediacy, why not aim for absolute certainty when you know time is on your side ?

 

They will not do anything until:-

(i) Technology self-reliance

(ii) EV reduce reliance on oil

 

 

 

I actually agree that Apple is a sell, and so is NVDA etc. Apple has the biggest problems because their entire supply chain is housed in China, it’s not just the chips from TSM in Taiwan. It will take them a decade to move it out of China to the extend that being cut of from China still allows them to supply the rest of the world with their products 

 

I am not so optimistic on Chinas economy and think they are close to peaking and who knows what self imposed factors are at play here when an autocrat can call the shots. Xi Jinping could be sick and feel he needs to do something while he can. Or one of their military maneuvers go wrong and rockets end up on Taiwan i stead of lying over or worse on an U.S. warship or an airplane gets shot down and things escalate from there. It is just a matter of time when you play it that close.

 

Maybe nothing will happen for the next 10 years - I sincerely hope so. Even without direct exposure, the fallout from having to totally decouple from China would be severe. 

Edited June 19, 2023 by Spekulatius

[crs223]

4 hours ago, tnp20 said:

Xi himself.  He hasn't quite figured out how free markets operate.

 

 

I don't see why Xi has to figure out how the US does things in order to lead his country.

 

Even so, I doubt Xi is dumb or otherwise incapable of understanding any complex topic, including "how the free markets operate".

[crs223]

2 hours ago, Spekulatius said:

Xi Jinping could be sick

 

Sick too?  And dumb.  Country in secular decline.

 

US military, government, and intelligence agencies are wasting a lot of time with all these chip bans, spy plane incursions, and Taiwan antagonism.

[crs223]

I find these arguments hard to take seriously:

• Chinese leadership is dumb/sick and will destroy the country
• Chinese is in secular decline (US wouldn't be worried ifs this were true)
• Chinese leadership doesn't change (they turn on a dime -- Jack Ma's kidnapping, one-child-policy, COVID lockdown/reopen)

 

I believe these arguments:

• China demographics will be a problem
• Nobody wants to move to China (how can they prosper if they cannot attract talent?)

 

Edited June 19, 2023 by crs223

[boilermaker75]

18 hours ago, cubsfan said:

I don’t know, but I have such a simple view of this situation.

 

Do you want a world where everyone has nukes? Or do you want a world where a bulk of Western favoring democracies/allies can band together under some type of umbrella protection to protect themselves against expansionist/aggressors nations?

 

Whether you call it NATO or a far East coalition against China/North Korea- the point is to have some level of strength and true WILLINGNESS to stop unchecked aggression in its tracks. You may think that is warmongering lead by the United States. I disagree. What’s your alternative is what I’d ask you? What chance do we really have for some level of world peace without such a policy???

 

And I respect the argument that this can’t apply to everyone and is unfair. You have those awful conflicts in places like Rawanda and Yugoslavia.

It seems tremendously unfair.

 

As an American, I hate the idea that so much of our GDP goes to Europe and Asia for protection. But what alternative do we really have? Become isolationists again, like we did with Japan pre-WWII? Become appeasers again like Britain did with Germany? 

We all know how that ended..

 

There’s a reason the first George Bush took the hammer to Sadaam when he invaded Kuwait. You can say it was about oil or whatever. It was about stopping aggression in its tracks and protecting the neighbors in the area. It’s about stopping something that may lead to something much, much larger. Take the pain now, before it escalates. That’s exactly where we are now with Ukraine…well into the escalation of something that well MIGHT have had been stopped much earlier. The leaders that pass off the problem look like heroes because they kept the peace….temporarily…until you have a wider conflict…

 

That’s the kind of message that tells your allies or coalition members you mean business. For US citizens, it’s sucks to be in that position since it saps the country’s resources big time.

 

So I would ask: what’s a better alternative?

 

As Thomas Paine said, "Those who expect to reap the benefits of freedom must undergo the fatigue of supporting it."

[Spekulatius]

Sturmtruppen 2023. If you have read Ernst Jungers book "In Stahlgewitter" it is exactly how he describes Sturmtruppen commandos into enemy trenches. Now we got the same thing going on more than 100 years later. Brutal.

Make no mistake, with this sort of trench warfare, both sides will be taking heavy losses.

Edited June 19, 2023 by Spekulatius

[John Hjorth]

Absolutely gruesome, ugly and meaningless seeing young men - Russian or Ukrainain - does really not matter to me! - loose their lives like this - In Europe, anno 2023! It's a disgrace for Europe.

Edited June 19, 2023 by John Hjorth

[shhughes1116]

In World War II, the Germans built the Atlantic Wall, starting in earnest around 1942.  They put over 6.5 million mines in front of the wall, and built almost 15,000 concrete fortifications along the Channel and Atlantic coast.  This was in addition to other non-concrete emplacements and other obstacles erected along beaches and in fields that could be used for landing gliders.  Fortunately for the Allies, these fortifications were mostly occupied by static divisions comprised of “volunteers”, older troops, and others with wounds that prevented them from serving in maneuver units.  The supporting mechanized units were too far removed from the beaches to have an immediate impact, and when mobilized to stem a breakthrough, they were exposed to withering CAS and artillery fire.   Once the lines finally cracked with Operation Cobra, the German mobile reserves were expended/wastes in Falaise and it was a race for the Allies to the Seine and beyond.  
 

we are seeing something similar play out in Southern Ukraine.  Russia has erected numerous field fortifications and protected them with deep minefields.  Unfortunately for Russia, these fortifications and trenches are manned by mobiks - static units with almost zero organic transport, and no training to fire and maneuver.  When the Russians are forced to bring up their reserves - a handful of VDV units - they are exposed to drone attacks and artillery fire.  I think in the next few weeks, we will see cracks in the Russian line.  The Russians will be forced to deploy their reserves, at which point the Ukrainians will deploy their remaining brigades for a culminating fight.  
 

The outcome of that fight will determine whether the Ukrainians can race to the Sea of Azov and cut the land-bridge, or have to call off the counter-offensive.  
 

 

[changegonnacome]

7 hours ago, Spekulatius said:

Make no mistake, with this sort of trench warfare, both sides will be taking heavy losses.

 

Yep its brutal stuff - the issue with trench warfare or wars of attrition is that they quickly become a numbers game:

 

(1) artillery

(2) men

(3) objective

 

(1) Russia has an artillery advantage for sure. It has an artillery war machine at its captive disposal. Ukraine has strong backers with artillery capabilities lets hope this is not a limiting factor for Ukraine relative to Russia.

 

(2) Russia also has a population size advantage....crudely they can put more young men through the meat grinder than Ukraine can - it would require more mobilization and then the question becomes whether Putin has the political capital to do that. I haven't researched it so maybe somebody can answer it for me but has Ukraine effectively maximized and mobilized every fighting age man it can by now? My guess is yes but cant be sure.

 

(3) Russia is attempting to hold on to territory (East Ukraine), Ukraine is attempting to capture from Russia territory it holds. Russia is in a defensive posture & Ukraine is in an offensive posture. The exchange ratio between offensive & defensive positioning is 3:1....the math says in this posture that Ukraine may need to throw 3 men at every one Russian soldier position. The fatality rate falls disproportionally on the offensive party in this scenario sometimes in a 2:1 death ratio. The price of a counter-offensive is high in terms of men.

 

The problem with the above equation, over time, which unfortunately favors the Russian - is that Ukraine will likely run out of men before Russia does. Unless Putin's regime implodes at increasing domestic mobilization.

Edited June 19, 2023 by changegonnacome

[Sweet]

7 hours ago, Spekulatius said:

Sturmtruppen 2023. If you have read Ernst Jungers book "In Stahlgewitter" it is exactly how he describes Sturmtruppen commandos into enemy trenches. Now we got the same thing going on more than 100 years later. Brutal.

Make no mistake, with this sort of trench warfare, both sides will be taking heavy losses.

That’s brutal and not nice to watch.

 

I fully support Ukraine but I also feel very bad for those Russian soldiers being killed in that video.

Many young men dying for no real cause.  It’s mad.

 

Unfortunately I also agree with @changegonnacome, this trench warfare is not good for Ukraine either, and it’s a problem if it goes on for very long.  They need to pierce the French system quickly otherwise they are going to get sucked into a war of attrition that they are less likely to win.

 

[changegonnacome]

14 minutes ago, Sweet said:

trench warfare is not good for Ukraine either, and it’s a problem if it goes on for very long.  They need to pierce the French system quickly otherwise they are going to get sucked into a war of attrition that they are less likely to win.

 

Indeed - the question the West needs to ask itself after the result becomes clear of this summer/fall counter-offensive and in a scenario where Ukraine has potentially made limited gains at a high casualty cost is:

 

(1) the West willing to help Ukraine with what it will need most for the next leg of this conflict - men?

(2) If not willing to provide them with men..(my base case)......are 'we' going to continue to provide them the equipment, money & encouragement such that they will put every Ukrainian male age 17-64 through the Eastern front meat-grinder before accepting some comprise less than their current aspirational military objective. 

Edited June 19, 2023 by changegonnacome

[Xerxes]

Ukraine-Russian 2022-23 war has a much closer resemblance to Iran-Iraq war than they do to the First World War. 
 

It starts and always ends the same way:  two boxers running with adrenaline, super pumped, than fatigue exhaustion, as they gather all their strength to throw one more punch. 
 

[Xerxes]

On 6/17/2023 at 2:09 PM, changegonnacome said:

 

Not suggesting we back down....but also kinda suggesting we in the West don't attempt or lets call it aspire to 'win' so completely either...which I know is tough when you get into war one automatically begins to think in binary outcomes and surely 'winning' is the point of getting into a conflict in the first place, right?.......however the above Japan thingy was just a little thought experiment for those that dream of 'winning' and 'defeating' Russia so completely in this conflict....defeated nations do crazy, irrational & unpredictable things......so I guess what I'm saying is be careful of what you wish for, you just might get it......as folks never quite think through what peril exists in the West/Ukraine 'winning' so completely in this conflict.

 

You know the dream on CNN.......retired Generals with maps and videos of a Russian army bloodied and battered retreating as Ukraine with NATO equipment drives East, pushing Russian forces out of Ukraine taking back the Donbass/Crimea (which are now due to emigration of Ukrainian's at the start of the war....are really just majority full of ethnically Russian people now).....& who knows maybe Ukraine in gaining these now ethically Russian regions engages in a little ethnic cleansing as payback for Russian atrocities (not sure anybody would be surprised if this happened?)....and maybe to be safe the Ukrainian army decides to push its battles lines deep into Russian territory to create some security space....all while maybe further wins & progress on the sanctions front from the Biden administration means India signs up & refuses Russian oil.....and the Russian economy begins to implode......sounds like the WH's and the Western medias dream scenario........but then stop and think what that all looks like from a seat in the Kremlin.....then think about what an Imperial Japan so defeated in Oct 1941 was so recklessly willing to do in its final throes......they attacked a nation ten times their size with a military capability with no hope of achieving anything.

 

Their reckless abandon when faced with total defeat is best illustrated by a word that jumped from their language into our language  - 'kamikaze'

 

I wonder what the Russian equivalent word for 'kamikaze' is? I hope I never find out. 

 

i think the real risk is not cornering Kremlin. I have said in the past that the nuclear window was at the onset of the war. Then it could have really shocked the West into submission. 
 

the real risk is not the tactical nukes, the real risk is Kremlin doing the reverse to Washington. Meaning attacking supply lines directly in NATO territory (explicitly) and proving that just like Kremlin’ red lines are phantom, so are the NATO red lines. 
 

both sides like to bark a lot. That is usually a sign for impotence. 
 

yes yes yes. Article 5 would become in effect. We can puff out our chests and make grand statement like “spring break in Moscow in 2024”, “an attack on 1 and attack on all” and make grand statements.

 

But really, what matter is what you will actually dare to do as counter to Russia targeting supply lines in NATO land. (Not much different than what US did in the wars in south east Asia).
 

Selling to public a glorified war being fought at arms-length and then having Moscow calling your bluff … and forcing you to engage are two very different animals.
 

That is the real risk. that the Kremlin will showcase your impotence. 
 

Western folks like talk about article 5. It works both ways. And that charade works until it is shown that it is ineffective. 
 

there is reason why there are NATO multi-national regiments in the Eastern Europe. So that all or most NATO nationalities are “bloodied” in case of a direct attack. 

Edited June 19, 2023 by Xerxes

[cubsfan]

From the Western point of view, I think you will see much more reliance on technology, drones, and artillery than manpower. The west has more respect for loss of life than the Russians. Furthermore, technology is much more important than manpower than in past wars.

 

That said, expelling Russia will be quite the chore. But there is no way Russia possesses the advantage in the fight against Western forces, out numbered or not. The West will easily outproduce the Russians and they will have no capability of destroying supply lines. It will come down to a war of attrition and who wants Ukraine the most.

 

Worst case, you end up with DMZ with Russia stopped dead in its tracks. Best case Russia gets expelled from Eastern Ukraine.

 

[changegonnacome]

Agree with a lot of what you’ve said @Xerxes in a game of true escalation I wonder who’s bluff gets called first - I suspect NATO given the existential anxiety asymmetry I’ve talked about before….it matters to Russia a lot…haven’t they demonstrated that launching the attack of Feb 2022 knowing the international commendation & sanctions was a cert. However we won’t litaget this point again…the Western consensus is that Putin is an imperialist, my contention is he’s a Russian nationalist desperately trying to preserve any semblance of Russian global power left via acts of aggression that are ultimately underpinned by security paranoia. I know this is a contrarian non-narrative view and one open to ridicule as being  pro-Russian but maths don’t lie - Russia crossed the Ukrainian border in 2022 with at most 190,000 men….if Putin is an imperialist he and his generals must have mis-read the invasion communiques…an army of 1,900,000 men would be required to ‘take’ Ukraine , not 190k.

 

If you take the view as I do then re:security the West will lose in a game of escalation the stakes are much higher for Putin than for us - there is a point where ‘we’ chicken out and he doesn’t. Not sure what that point is but my guess it comes when Ukraine runs out of the only resource we are not willing to throw at this conflict and that’s men.

 

This IMO is Putin’s medium term strategy and it doesn’t involve nukes - it involves patience and time….the attrition math, as I’ve indicated above, is in his favor the get out of jail card for the West is an unexpected & swift regime change in the Kremlin......which being honest feels to me like wishful thinking in the West driven by the deep primal knowledge that when ‘men’ are required in the future to sustain the Ukrainian defense/offense we will lack the commitment to provide them & we’ll be embarrassed and ashamed of ourselves given our earlier rhetoric around democracy & freedom. 

Edited June 19, 2023 by changegonnacome

[cubsfan]

The attrition math is not going to matter as much as technology and supply lines. The West is not going to throw human waves against entrenched Russian positions. The West has much more respect for life. This is not Verdun or The Somme. Artillery, anti-tank missiles, etc will carry the load - and stop the Russians.

 

It will be the decision of the Ukrainians if they risk devastating loss of life. Ukraines allies will have to decide how far to deplete their own armaments/stockpiles in order to destroy Russian gains.

 

It’ll be interesting to see when a treaty is negotiated. Personally, I think Crimea is gone for good. Eastern Ukraine? We’ll see…

[shhughes1116]

2 hours ago, cubsfan said:

The attrition math is not going to matter as much as technology and supply lines. The West is not going to throw human waves against entrenched Russian positions. The West has much more respect for life. This is not Verdun or The Somme. Artillery, anti-tank missiles, etc will carry the load - and stop the Russians.

 

It will be the decision of the Ukrainians if they risk devastating loss of life. Ukraines allies will have to decide how far to deplete their own armaments/stockpiles in order to destroy Russian gains.

 

It’ll be interesting to see when a treaty is negotiated. Personally, I think Crimea is gone for good. Eastern Ukraine? We’ll see…

I think Crimea is a bargaining chip for Ukraine.  Crimea is essentially uninhabitable without controlling the Kakhovka dam.  This is the dam that enables water diversion through canals to Crimea.  Keep the canals dry and drop the Kerch Bridge, and it becomes almost impossible for Russia to maintain their presence in Sevastopol and nearby bases.

[cubsfan]

13 hours ago, shhughes1116 said:

I think Crimea is a bargaining chip for Ukraine.  Crimea is essentially uninhabitable without controlling the Kakhovka dam.  This is the dam that enables water diversion through canals to Crimea.  Keep the canals dry and drop the Kerch Bridge, and it becomes almost impossible for Russia to maintain their presence in Sevastopol and nearby bases.

 
Interesting/good input. Do you think the Russians can be expelled from Eastern Ukraine? Or are we destined for a stalemate whereby Crimea is conceded in order to return the East?