This Kind of Duality

By John Mauldin 


We’re midway through the SIC 2021, and as I expected, it’s shaping up to be the biggest and best Strategic Investment Conference I’ve ever hosted. 

So far, all of our presenters and panelists have given stellar performances... and attendees seem to agree with that assessment.

Candidly, the China panel was worth the price of admission for your humble analyst. 

I was aware that the People’s Bank of China was exploring issuing its own cryptocurrency, but I had no idea of the consequences of that move. 

They start out with a billion users, then add the Belt and Road countries, offer the ease of a no-transaction-fee, frictionless digital currency (which can convert to their local currency at the touch of a button) and they are well on their way to becoming a global currency. 

I don’t usually watch a video twice, but this is one I will watch at least once more, and read the transcript three or four times. 

It will take me weeks to unpack the implications.  

What I heard from Emily de La Bruyère was simply a revelation. 

Packaged with Louis Gave, George Friedman and Mark Yusko it completely transformed my view of global currencies and US-China competition.

The entire conference will be available on video, audio, and transcript for you to enjoy at your leisure. 

And if you hurry and get your Pass now, you can still catch some great panels and presentations live, including:

  • Macro geniuses Felix Zulauf and Grant Williams chatting first thing Monday morning
  • Ian Bremmer taking us around his geopolitical world
  • Our “Investing Masterclass” with Byron Wien, Jerry Jordan, and Doug Kass on Wednesday
  • ARK Invest CEO Cathie Wood’s speech about disruptive technologies on Wednesday
  • Howard Marks and yours truly on Friday
  • Our Final Panel on Friday

…and so much more. 

We’ll also have an extra day on May 18 devoted exclusively to actionable investment recommendations.

My friend David Bahnsen (see below) wrote this in his letter today:

Day one of the Mauldin Strategic Investment Conference is complete and I think I learned more from a few of the presentations I [virtually] attended than I have learned on some of these topics in a year.

 Absolutely invigorating stuff on China, trade, US housing trends, and so much more… 

I can only say that the other speakers and presentations are among the best I’ve ever come across in these types of events, and I will likely do a Dividend Cafe wrap-up when the event concludes at the end of next week.

You owe it to yourself to get your SIC 2021 Pass today

You can still claim your 50% discount until May 31.

Improving World

Below is the second part of my podcast conversation with David Bahnsen. You can read the first half in my last letter, or listen to the entire podcast. [Note that items in brackets are inserted today.]

David Bahnsen: Well, hello and welcome to another edition of the Capital Record. 

This is part two of a two-part series, picking up where I left off last week with my good friend John Mauldin. 

We decided last week to bite off the last 20 years of national debt and economic stagnation and then talk about the next 20 years of national debt and monetary policy. 

And it turns out 40 minutes was not quite enough to get it all. 

So John graciously agreed from his beautiful home in Puerto Rico to join me once again. 

John, thanks for joining us once again at Capital Record.

John Mauldin: David, some of my best memories in recent years are just simply time with you. You always force my mind to work a little bit better. I wish I had you on my shoulder when I was writing my letter.

David Bahnsen: Well, I certainly appreciate hearing that, especially from you, John. 

And, you know, even before it became more personal in these discussions and correspondence and conversations and dinners and lunches, and things took on a life of their own for many years, I felt like I had you on my shoulder while reading Thoughts from the Frontline so religiously every week, and of course your books like Bull's Eye Investing. 

That is always going to be a very underrated book, and I think it was actually rated very highly.

John Mauldin: It hit number one in China [investing books], of all places. 

And the editor of the Hong Kong Economic Review and someone in Beijing decided it was the best book of all time and they just promoted the heck out of it. 

I had a column in the Hong Kong newspaper for like 10 years translated into Chinese. 

And when I went over to Hong Kong, I was the front-page picture and had a thousand people in the room. 

Those were heady times for this country boy.

David Bahnsen: Well, as it should be. 

And when I say underrated, I mean, I would say Michael Jordan was an underrated basketball player and he's the greatest of all time and everyone knows it. 

Yet he was that good. 

The Bull's Eye Investing was that good in this sense, at the time it was written and the introduction of the concept of Muddle-Through Investing. 

There are people that have, I believe, a sociological and a psychological affinity towards pessimism and doom and gloom. 

And there are certainly people that are really almost addicted to a Pollyanna-ish, everything's-always-bullish type of dynamic as well. 

And for me, as someone who could identify early on the psychological hang-ups that were keeping people from being more objective, your book was so refreshing in that I didn't have it in me to be a permabear. 

All I had to do is look out my window. 

And yet I certainly knew coming out of the tech crash, 9/11, the unsettling parts of our new millennium, this wasn't a time for permanent bullishness either. 

And I'm sure over the years you were proud of things you got right and other [way too many for my comfort] things you now recognize maybe you got wrong. 

But the point is coming at it from a posture that is realistic, not committed to permanent pessimism or permanent optimism.

John Mauldin: I've developed this kind of duality. 

It's hard to think of the next 20 years or indeed the last 20 years without being very optimistic about the future of humanity. 

In terms of our ecosystems, the amount of forest, amount of water we're using, the amount of power and so on, with the exception of oceans, we are so much better off than we were 10 or 20 or even 40 years ago. 

We're not doing a very good job with the oceans but fewer people are in poverty. The world is improving. 

Technology is moving absurdly fast. I think this will be the decade of biotechnology. 

Look at what we've done with the COVID response, the speed of the vaccine development. 

We're going to see so much science, so much knowledge come out of this that we have no idea where it's going to take us. 

We can create all sorts of incredible new approaches to health and aging. 

This decade is going to be powerful. 

So it's hard not to be optimistic.

David Bahnsen: Is your optimism limited to technology and biomedicine, health sciences? 

That's been a focus of yours for a long time. 

But where else do you derive it?

John Mauldin: I look at artificial intelligence I don't think we realize the extent to which 3D printing and virtual reality is going to be a focus. 

There's a technology coming along that's literally absolutely going to turn the agricultural world on its head It’s going to be great for humanity. 

We'll be using less fertilizer and less fungicide and less herbicide and getting healthier, better plants. 

So my pessimism, if you will, goes back to what we were discussing last week. 

We as a society are not managing our debt, are we're not managing our social systems very well. I get very concerned. 

My letter this last week [two weeks ago] was about what happened in 1971. 

The Great Society was beginning to kick in and we were looking at all Nixon’s social programs. 

We think of him as this arch-right conservative but he had a lot of very liberal policies.

David Bahnsen: I just want to be on the record that I did not think of Nixon as ultra-right conservative.

John Mauldin: Well then, we agree.

David Bahnsen: Price controls, wage controls, and significant weakening of the US dollar. 

Other than that, how was the play, Mrs. Lincoln?

Out the Risk Curve

John Mauldin: For 70 years, we've only seen 3.9% unemployment rate twice in our history, one was 2019, the other was during the middle of the Vietnam War when we took half a million young men and put them into the Army and those men don't count as employed. 

They're in military service. 

So we took half a million people out of the labor force, stuck them into the Army or Navy or whatever. 

Those two brief instances, and now you've got the Federal Reserve saying they want to get back to [that employment nirvana].

I mean, I'm not so old and neither are you, David. 

We used to think of 4–5% unemployment as pretty much full employment. 

Now we have a Fed saying 3.9% is our goal.

And that's going to so distort the financial world.

David Bahnsen: There's nothing new under the sun, right? 

I mean, there hasn't been. 

I wrote a piece recently arguing that, by definition, if we're actually getting our vocabulary right, all bubbles are debt-fueled because if you look at the consequences of equity-fueled bubbles, they don't feel like bubbles when they blow up. 

They're bad, but it's not systemic. 

The pain and aftermath is limited to those who took direct risk. 

It is debt-fueled bubbles that actually feel like bubbles and look like bubbles and act like the bursting of bubbles when it happens. 

A hedge fund recently blowing up [from leverage], and we can go back three or four hundred years, I'm not sure we'd find anything that blew up that wasn't out of leverage. 

But now the great leverage-taker in our society [is the government and the central bank]. 

I mean, you get a hedge fund here, there, but I don't know about you, John, I don't mean to be crass, I don't care about these hedge funds... 

Let them blow themselves up. 

It's their damn money. 

It's their investors. 

These are all grown-ups. 

But the government is now the big levered actor.

Let's talk investment stuff for a little bit. 

I'm an investment guy, you're an investment guy. 

And I spent so much time on this podcast because I also love macroeconomics. 

But let's talk investing. 

You bring up an interesting dynamic. 

Let's not use a 75-year-old, but let's use a 62-year-old that's getting ready to go into retirement. 

I would make the argument that the reason people right now largely need equity exposure that are into a withdrawal phase of their financial lives is not for the growth. 

It's not for the total return. 

It's for the income. 

A good dividend portfolio can give them a 5% coupon and a bond portfolio is going to give them a 1% to 2% coupon. 

This is a total turning on the head of that idea [of fixed income]—bonds for income, stocks for growth. 

Right now, there is no yield available in safe bonds. 

You talk about going out the risk curve. 

Well, you can get some 4% and 5% yields in the bond market and...

John Mauldin: But dear gods. 

What risk are you taking?

David Bahnsen: B-minus credits. 

They call them junk bonds. 

You're going to go to levered loans. 

You're going to go to commercial mortgage-backed securities. 

Is that risk any less than equity markets?

John Mauldin: No, no. 

And I think we're setting ourselves up. 

It's happened three times in my career. 

You see this huge push down in yields on high-yield bonds, junk bonds, and they're going to blow up someday. 

I mean that we don't know when. 

They are encouraging leverage by making rates so low and they're screwing retirees just as the biggest piggy-in-the-python, the Boomer generation, comes along and needs low-risk income. 

[It is financial repression and it is one of the massive evils that central banks have committed.]

David Bahnsen: [Is the market going to] blow up because of defaults or is it going to blow up because the spreads are re-widening?

John Mauldin: The spreads’ re-widening is the big problem, not a few defaults here and there. 

You have a trigger point, a few defaults, that makes everyone nervous. 

The last trigger point we saw was the financial crisis, the Great Recession. 

Before that it was the tech bubble bursting and a lot of margin debt everywhere. 

When there's a lot of leverage, you don't sell what you want to sell. 

You sell what you can sell. 

If you start saying, let's sell our debt, well, the spreads just blow out. 

And that creates a phenomenal opportunity.

The last time you started seeing high-yield paying 18%, 19%, 20%.. 

Then you can start taking some risk because it's blown out and all the stuff that's really going to blow up has already blown up in the portfolios. 

We've seen this three times before and I think it's going to happen again. 

But the sad part of it is the investors in those high-yield bonds today are going to blow up. 

They're going to panic and get out, so they're going to lose a lot of money. 

They'll swear off high-yield bonds forever. 

It's this financial repression from 12 people sitting around a table setting the most important price in the world, which is interest rates on the US dollar. 

[And often it’s just one person.]

The Opportunity Market

David Bahnsen: Well, so let's wrap up, John, with this. 

You've teed up a really neat way to conclude that actually connects to where we started this podcast, with the rejection of both permanent pessimism and permanent optimism. 

Now you're applying it to portfolio expectations, the way investors ought to think. 

But from the vantage point of the economy at large, it sounds to me like you are, and I think you even said this exact line before, you are short government and long humanity.

John Mauldin: That is my line, and I’m sticking to it.

David Bahnsen: And I don't know how we could encapsulate the philosophy of this podcast, the philosophy of National Review, of free-market conservatism, of classical liberalism, much better than saying that we are long those aspects of human ingenuity that are investable, exciting, dynamic, that have created progress for thousands of years, and yet short those elements that create bubbles and bursts and debt problems and mismanaged crises and all those things. 

Yet we have to live with both. 

We all live in a world of human ingenuity and we live in a world of the not-so-benevolent hand of government touching everything. 

So, give us a couple of closing thoughts as to how we reconcile those two dynamics.

John Mauldin: At least 150,000 businesses have had to shut down in the last year. 

That's the bad news. 

The good news is that there's 150,000 entrepreneurs out there trying to figure out how to get back in the game. 

I'm optimistic about that. I think as long as we don't screw around too much with the mechanisms of the opportunity market, I don't want to use the word free market, just the opportunity market, the country will be fine. 

The opportunities will be there.

Are we going to have a potential day of reckoning in terms of our debt and government size? 

Yes, but it's potential. 

Can the Federal Reserve monetize more using QE instead of MMT? 

There's a significant difference in how those work. 

And as long as it's QE, like Japan and Europe, we might be able to keep the game going, albeit with a great deal of volatility. 

$40 trillion, $50 trillion in debt with the Fed picking up half of that. 

Yes, it will slow the economy in general. 

But I don't have to participate in the general economy, I have my business in front of me and I'm going, OK, this is what I can do within this environment to make money. 

That's what entrepreneurs do.

David Bahnsen: And so, as we close out, the takeaway is the more things in the free market and opportunity market and the less out of the coercive hands of the state and the distorted hands of the Fed, the better off we're all going to be.

It’s All SIC, All the Time

I have been hosting the Strategic Investment Conference for 18 years. Each year it somehow manages to be a little better than the last, partly because every year we (the ever-growing team) put in more work. 

I spent at least eight hours prepping just for the Joe Lonsdale interview. 

Howard Marks? 

It helps that I’ve been reading him for years. 

But still a lot of prep. 

Ian Bremmer? 

I literally read him every day (his GZERO letter is free) but making sure I have my questions tight and on point still takes several hours. 

Plus, the introductions and I have the privilege of listening in on the pre-conference calls for each of the guests and panels.

One of my personal fantasy conversations this year will be between my great friends (Drs.) Ben Hunt and John Hussman. 

I had my questions ready to review in our preconference session, but they actually hijacked me. 

They planned (such temerity!) their own conversation, basically told me the set-up question, and then the rest of us sat as they went through their conversation. 

It was the best hijacking I’ve ever been part of. 

I’m gobsmacked.

We spend months curating the right faculty that meshes, and then months of preparation to make sure you get the very best experience possible. It really does take a small (team) village. 

As I’ve said before, conferences are my personal artform. 

I hope you plan to participate.

And with that, I will hit the send button. 

I know I’m going to have a great week and I hope you do as well. 

hank you for giving me your time and attention and making it possible to do the things that I have the privilege of doing.

It is a wonderful life! 

And you really should be following me on Twitter.

Your still trying to wrap my head around Chinese cryptocurrency analyst,



John Mauldin
Co-Founder, Mauldin Economics

Is the central bank panic about the PBOC coin justified?

The Bank of England has united with the Treasury to explore the basis for a UK central bank digital currency, but will it also fairly address the downsides?

Izabella Kaminska

    © REUTERS


In further reactionary panic to China’s hugely-hyped digital currency advances, the Bank of England announced on Monday that it would be creating a joint taskforce with the UK Treasury to explore the potential of issuing a British equivalent.

As their press release stated:

A CBDC would be a new form of digital money issued by the Bank of England and for use by households and businesses. It would exist alongside cash and bank deposits, rather than replacing them.

The move is likely to magnify perceptions that the West can only meet the challenge emerging from China’s e-currency advances, and the greater efficiencies it is likely to offer users, by following a similar path.

And yet, this is hardly the case. The lack of critical commentary about the setbacks China faces in making its e-yuan system a proper challenger to the dollar are glaring. As too is the lack of proper critical commentary about the huge disadvantages that accompany any system that opts to go full CDBC (or unite with its domestic Treasury on any such action).

In the interests of dispelling some of these myths and balancing the narratives out there, we thought we would cite a few comments from Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, who recently testified on this “threat” before the US-China Economic Security Review Commission.

Here’s the key extract:

Hype has far outpaced the reality in digital currencies, CBDCs, and China’s digital RMB in particular. 

Cryptocurrencies like Bitcoin are booming, but these are mostly for speculation, as they are ill-suited to large volumes of payment transactions. 

We are still at an early stage in which the benefits of CBDCs have not yet been proven in practice, and the risks (cyber, operational, financial) are serious enough that most central banks will be hesitant to issue any until these can be resolved with a high degree of certainty. 

China’s eCNY efforts have similarly yet to prove they will be any cheaper, more efficient, more private, or more convenient than the existing domestic and international payment systems. 

Therefore, it is unlikely to represent any more a threat to the dollar’s international dominance than the current forms of RMB, at least over the short and medium term. 

Nothing is certain over the long term, however, so the US should continue to carefully monitor China’s CBDC efforts and other digital currency innovations and incorporate any useful lessons to ensure that dollars and the payments systems that carry them remain competitive long term.

The important context is that for the large part, the Chinese state, allowed fintech companies like Alibaba-affiliated Ant Group and Tencent-owned WeChat to grow into overly dominant bank-like entities that serviced both financial and commercial activities. 

This is because it suited their interests to modernise the financial landscape and to drive mass adoption of digital cash systems. 

It made strategic sense to temporarily allow these entities to undercut the far more heavily regulated state-owned financial sector.

Left unchecked, however, these private entities soon became so powerful and so prone to exploiting international regulatory arbitrage they became ever more confident of their ability to deny Chinese government data requests about their clients.

This was obviously going to introduce a power struggle.

When the People’s Bank of China acted in 2018 to force these entities to bring customer deposits onto the central bank balance sheet on a fully reserved basis, it became evident the good times were up. 

From this point on the fintechs would have to tow the government line or see their exceptional allowances vis-a-vis banks extinguished.

Unsurprisingly, in no time at all, the framework began to clip away at the capacity of the fintech giants to compete with state-owned financial institutions, especially with respect to credit creation.

But rather than recognising the degree to which his fortunes were built on state-permitted financial arbitrage in the first place, Alibaba founder Jack Ma saw fit to vent his frustration in a now infamous October speech, in which he criticised excessive government regulation. 

Why he thought this would encourage a change of heart by the government is the puzzle.

The government predictably used the criticism to initiate even stricter regulations around privacy, anti-monopoly and financial risk, all of which contributed to the cancellation of the Ant Group’s planned IPO.

In the months since, Chinese authorities have moved to up their control of Ant Group even further by forcing a restructuring of the group into a fully-licensed bank-holding company. 

The power struggle with Ma also continues.

On Monday, Reuters reported Ant Group would be exploring options that would see Ma give up his control in the company by divesting his stake in the financial technology company entirely.

According to Reuters:

The company hoped Ma's stake, worth billions of dollars, could be sold to existing investors in Ant or its e-commerce affiliate Alibaba Group Holding Ltd without involving any external entity, one of the sources with company ties said.

But the second source also with company connections said that during discussions with regulators, Ma was told that he would not be allowed to sell his stake to any entity or individual close to him, and would instead have to exit completely. 

Another option would be to transfer his stake to a Chinese investor affiliated with the state, the source said.

Any move would need Beijing's approval, both sources with knowledge of the company's thinking said.

This is the context that Beijing’s digital yuan ambitions slot into. 

It is important because it demonstrates not only that e-money use already prevails in China, but also -- thanks to recent regulatory action vis-a-vis Ant Group -- that the PBOC already largely controls it.

So perhaps the e-yuan push is motivated by technological factors and a desire to leverage new decentralised blockchain technologies? 

Well no. 

As Chorzempa identifies, Chinese central bankers have publicly rejected the use of blockchain as a basis for their e-yuan because it cannot handle the transaction volume they anticipate.

So what then is impetus for going ahead with a CBDC, if currency and payments are already digital, the PBOC already has the capacity to obtain data from fintechs it has brought into line and blockchain is not the attraction, asks Chorzempa?

Ultimately, as we have stressed for a long time, it’s all about expanding access to the central bank balance sheet to non-bank entities. 

But since opening up the balance sheet too much is also a recipe for cost transfer to the government, the road ahead seems focused on a two-tier system where the PBOC authorises and supervises intermediaries, starting with banks.

That again begs the question: how is it really all that different to what we have now?

Chorzempa suggests the only real difference is that the e-yuan, unlike bank deposit money, will not pay any interest on money held in e-yuan wallets, which works in a system where banks can offer attractive interest rates to lure funding. 

He also believes the PBOC might be inclined to help help mask customer identities details from retailers by using encryption.

But if that’s the model that’s to catch on in the rest of the world -- especially one that is already partial to negative rates on bank deposits or short-term government securities -- it introduces a hugely destabilising force in the financial system, since it creates a climate where the central bank competes directly with the banks it licenses.

In a negative interest world, this disintermediation risk can only be mitigated by a strict cap on the value of balances anyone can hold as CBDC or by matching the negative rate environment. 

But to police such a cap, the centralised system would require more information about its users, not less.

In that sense, the true disruptive force being peddled by China isn’t access to a superior payment infrastructure, but rather to a system that can facilitate interest rate arbitrage, and in so doing suck dollar funding away from the Western financial system (at a below market rate) . 

The other main benefit is then using that well-funded framework to create, in the words of Chorzempa, “an alternative, sanctions-proof set of financial infrastructure and currency arrangements”.

We can see why central bankers might be worried about this since it is a bit of Kobayashi Maru situation. 

If they don’t emulate the system, dollar-funding could be sucked out of the Western financial system in a feedback loop that depreciates the dollar in favour of the yuan (although there are obviously other factors that come into play, such as trust in the Chinese financial system over more Western ones). 

If they do emulate, the Western financial system could see their own central banks defunding their own banking network, at the same time as adopting ever more centralised and state-directed practices which -- under their own AML/KYC frameworks -- would force them into ever greater surveillance of their population.

Either way, the situation benefits China. 

And neither pathway diminishes the attraction of the sanctioned (i.e. the financially deplatformed) to buy into a parallel financial-network system where their ways are tolerated rather than penalised.

But framing the conversation as a technological challenge is nonsensical. 

All it does is detract from the very real downsides of overly centralised systems and the true nature of the competition at hand, which is a function of interest-rate arbitrage, the sort of privacy users value more (privacy from the state or from data-mining merchants and other private sector entities), and the question of whether deplatforming is effective at all. 

Taiwan and the Ghosts of History

It may be that in today’s world, when a superpower conflict could destroy much of mankind, China and the US will avoid a war over Taiwan. But the two sides are engaged in a game of chicken, which can escalate quickly and unpredictably, with fear of humiliation making it difficult to back down.

Ian Buruma




NEW YORK – Would the United States be prepared to risk a catastrophic war with the People’s Republic of China to protect the Republic of China, better known as Taiwan? 

President Joe Biden laid out his vision clearly last week. 

He sees the rivalry between the PRC and the US as a global conflict between democracy and autocracy, and the ROC is unquestionably one of Asia’s most successful democracies.

In 1954, President Dwight D. Eisenhower threatened to use nuclear weapons after China shelled a rocky islet near Taiwan’s coast, when the ROC was still a military dictatorship. 

But things were different then. 

The US was treaty-bound to defend Taiwan. 

This changed after 1972, when President Richard M. Nixon agreed that Taiwan was part of “one China,” and President Jimmy Carter nullified the defense treaty in 1979. 

Whether the US would still fight a war over Taiwan has become a question subject to what Henry Kissinger long ago termed “strategic ambiguity.”

As a result, American military commitments in the East China Sea are very peculiar. 

A defense treaty with Japan obliges the US to defend a few uninhabited rocks called the Senkaku Islands (or the Diaoyu Islands in Chinese), but not democratic Taiwan and its 23 million people.

There are practical reasons why a Chinese military attack on Taiwan might still provoke a war with the US. China’s control of the East China Sea would be a threat to Japan and South Korea. 

Allowing that to happen could start a dangerous nuclear arms race in East Asia. 

Taiwan also has highly advanced computer technology, which the US and its democratic allies would prefer not to see in the PRC’s hands.

Then there is the long hand of history. 

We are not determined by the past, but we ignore it at our peril. 

And while its effects may be the result of myths, myths can be more potent than facts. 

At the core of contemporary Chinese nationalism is the idea of national humiliation redeemed by renewed greatness. 

According to this narrative, for at least one hundred years, between the Opium Wars in the 1840s and the brutal Japanese invasions in the 1930s and 1940s, China was degraded, bullied, and occupied by foreign powers. 

Only the national revival overseen by the Communist Party of China will ensure that this never happens again.

This lesson is taught throughout the country, in patriotic museums, memorials, movies, books, musicals, and of course, history textbooks. 

One reason for the current dominance of revanchist nationalism in official Chinese rhetoric is the weakening of Marxist-Leninist or Maoist ideology in China. 

With so few Chinese, even Communists, still believing the old dogma, the Party needed a new justification for its monopoly on power. 

Redemption of the humiliations of the past has become a powerful one.

Japan’s colonial conquest of Taiwan, as a spoil of its victory over China in the Sino-Japanese War of 1895, still rankles. 

It is irrelevant that the emperors of China never cared much about Taiwan. 

Nor is it important that it was not the Chinese people who were humiliated, or even China as such, but rather the Qing Dynasty’s empire, ruled by Manchus, which the Chinese Revolution in 1911, led by Han Chinese, brought down. 

None of that matters: the Party regards restoring or keeping the Qing imperial possessions, like Taiwan and Tibet, as a sacred patriotic duty.

Americans are affected by a different history – for which they weren’t even directly responsible. 

It was Britain’s Neville Chamberlain who signed the Munich Agreement in 1938, allowing Hitler’s Germany to begin dismantling Czechoslovakia. 

Chamberlain’s name would be associated forever with cowardly appeasement, while Winston Churchill emerged as the great war hero.

But the Munich Agreement has haunted American foreign policy, possibly even more than Britain’s, like a vengeful ghost. 

Presidents and prime ministers have been terrified of being compared to Chamberlain and have dreamed of being heroic Churchills. “1938” emerged in US political rhetoric in pretty much every foreign crisis since the war. 

President Harry S. Truman invoked it at the beginning of the Korean War in 1950, when he vowed to “contain” communism.

When the British refused to send troops to Vietnam to help the French fight against Ho Chi Minh in 1954, Eisenhower accused Churchill, of all people, of “promoting a second Munich.” 

And so it has continued. In Vietnam again during the 1960s, Richard Nixon, among many others, warned of another Munich. 

More recently, in the US-led wars against Saddam Hussein, both Presidents Bush, father and then son, compared the Iraqi dictator to Hitler, and fancied themselves in the role of Churchill. 

On the eve of that war, British Prime Minister Tony Blair read Chamberlain’s diaries as a lesson in what not to do.

It may be that in today’s world, when a superpower conflict could destroy much of mankind, China and the US will avoid a war over Taiwan. 

So far, China appears to be playing a game of chicken, probing Taiwanese defenses, flying into its airspace, stepping up naval patrols, engaging in military practice runs for an invasion, and making provocative statements about “not ruling out the use of force.” 

This is met on the American side with more arms shipments to Taiwan and tough talk about a new cold war.

A game of chicken is a test of who will crack first, so it can escalate quickly and unpredictably. Being in thrall to the ghosts of history makes it harder to back down. 

If both sides refuse to do so in a crisis, everyone will lose.


Ian Buruma is the author of numerous books, including Murder in Amsterdam: The Death of Theo Van Gogh and the Limits of Tolerance, Year Zero: A History of 1945, A Tokyo Romance: A Memoir, and, most recently, The Churchill Complex: The Curse of Being Special, From Winston and FDR to Trump and Brexit.

How the Green Economy Will Be a Gold Mine for Copper

By Andrew Bary

    Copper rods used to machine parts are stacked on a shelf / Scott Olson/Getty Images

Copper, a linchpin of the old energy economy, will play a crucial role in the new green one, too. 

Cables made of the metal are still the most cost-effective means of transmitting electricity from solar and wind sources, and it is a key material in charging stations and the electric vehicles that use them. 

Indeed, Goldman Sachs analysts say, there is “no decarbonization without copper,” which they call “the new oil.”

Supplies, already tight as the global economy recovers, could be further strained by a predicted fivefold rise in green energy demand in the current decade, leading to significant shortages, starting in the mid-2020s, according to a report by Goldman commodity analyst Nicholas Snowdon. 

He sees copper, now around $4.50 a pound, hitting $6.80 by 2025. 

Bank of America commodity strategist Michael Widmer thinks the price could hit $6 this year.

Shares of copper producers, up sharply in the past year as the metal’s price has doubled from a post-Covid low, still have room to advance.

Freeport-McMoRan (FCX), with mines on three continents, is the top play and the S&P 500’s only major copper stock. 

Barron’s wrote favorably on copper and Freeport in January. 

Other notable producers are First Quantum Minerals (FQVLF) and Southern Copper (SCCO), 89% owned by the Mexican conglomerate Grupo Mexico (GMBXF).

The Global X Copper Miners exchange-traded fund (COPX) holds mining stocks, while the U.S. Copper Index fund (CPER) offers a direct play on the metal through ownership of futures contracts.

The main risk to copper is unexpected weakness in the global economy. 

China is critical; it accounts for about half of worldwide demand. 

However, a pullback seems unlikely, given that green power-related demand, just 3% of copper usage in 2020, could hit 16% by 2030, the Goldman analysts estimate.



An electric vehicle contains as much as 180 pounds of the red metal, four times the amount in an internal- combustion-engine vehicle. 

Onshore wind turbines use about four times as much copper as power plants fired by fossil fuels per megawatt of electricity. 

Offshore wind farms are even more copper-intensive; they need thick copper cables to transmit power onshore.

In commodity markets, higher prices normally elicit greater production, but copper might have to hit $6 a pound to convince miners to add new capacity, argues Jefferies analyst Chris LaFemina.

“The supply constraints in copper are the worst they have ever been. Combine that with recovering demand, and you have a recipe for higher prices,” he says.

Copper mines annually produce about 21 million metric tons—about 45 billion pounds. 

Freeport noted last month that only 2 million metric tons of new annual supply are being developed. 

Miners are cautious after being burned when copper collapsed from a peak $4.70 a pound a decade ago. 

There are a limited number of good mining locations left worldwide, and lead times for new projects can stretch from six to eight years, due to permitting and environment reviews.


All this benefits copper-rich companies like Freeport, which has 30-plus years of reserves. 

At a recent $44, its stock was quoted at 16 times projected 2021 earnings of $2.71 a share and 14 times estimated 2022 profits of $3.08. 

“Freeport has world-class assets and it’s a good operator,” says LaFemina, who has a Buy rating on the stock, with a price target of $55 and an above-consensus 2022 earnings forecast exceeding $4 a share.

Freeport is expected to produce almost four billion pounds of copper this year. 

It owns mines in Arizona, has interests in two in South America, and owns 49% of Indonesia’s massive Grasberg copper and gold mine.

Canada-based First Quantum has three main mines, two in Zambia and one in Panama. 

It produces about half as much copper annually as Freeport does and is more leveraged, with net debt of $7 billion. 

At a recent $28, its U.S. stock was fetching 23 times projected 2021 earnings of $1.23 a share and 14 times 2022’s estimated $2.01. 

LaFemina rates the stock a Buy, with a $38 price target and a 2022 EPS estimate above $3.00. 

First Quantum’s earnings should rise in 2022 when below-market copper hedges roll off.

With mining operations in Mexico and Peru, Southern Copper has the industry’s largest reserves and some of its lowest production costs. 

Its stock, at around $77, trades for 20 times projected 2021 net of $3.79 a share. 

It aims to double production in 2028 from a projected 2021 output of about two billion pounds.

John Tumazos of John Tumazos Very Independent Research, favors Grupo Mexico as a play on Southern Copper. 

Controlled by billionaire German Larrea Mota-Velasco, Grupo Mexico owns 89% of Southern Copper and 70% of Grupo Mexico Transportes, which owns a top Mexican railroad. 

“Through Grupo Mexico, you’re able to buy Southern Copper at a big discount and get the railroad for free,” Tumazos says.

With copper potentially in a long bull market, there still is time for investors to get aboard.

Remembering al-Qaida

By: George Friedman


The United States invaded Afghanistan 20 years ago, soon after the attack on Sept. 11, 2001. 

By 2008, then-President Barack Obama made it a point to disengage from what has become known as the Forever Wars. 

He failed. His successor, President Donald Trump, pledged likewise but failed all the same. 

President Joe Biden, too, has said the U.S. would withdraw, this time by the anniversary of the 9/11 attack.

The war in Afghanistan can’t be discussed without discussing al-Qaida, the Islamist group led by Osama bin Laden, the son of an extremely wealthy Yemeni who had moved his family to Saudi Arabia. 

His goal was to recreate an Islamic caliphate. 

As I wrote in “America’s Secret War,” his strategy was to unite the Islamic world against its common enemy, the United States. 

To that end, he would conduct an attack against the United States that generated massive causalities and electrified the world. If the U.S. could be attacked, it would prove the U.S. to be vulnerable. 

If the United States declined to respond, it would prove Washington to be weak or cowardly, or so the thinking went. 

Both cases would, bin Laden thought, achieve the same end: Islamic unity.

The attack against the United States was both simple and brilliant. 

Hijacked aircraft would strike American icons – the World Trade Center, the Pentagon and Congress (the latter of which failed). 

The Islamic world would know these buildings well and would see al-Qaida’s power. 

What was remarkable was the detailed planning, the deployment of operatives and the movement of money, none of which was fully detected by U.S. intelligence. (There are always those who claim that they predicted such events. 

I have no idea what they said to whom before the attack, only what they claimed to have said after.) 

The fear that struck the United States was palpable.

Part of the fear was that Washington did not know what al-Qaida was planning next and what resources it had. 

The idea that 9/11 was the sum total of its capability was plausible, but there was no evidence for it, and the American public was thinking of all the worst-case scenarios. 

There was intelligence, necessarily uncertain in nature, that al-Qaida had acquired a single small nuclear device. 

All reasonable people scoff at such thoughts now, but in the days after the attack, nothing was being dismissed. 

Lenin said that the purpose of terror is to terrify. 

The country was terrified, because none of us knew what was next.

U.S. intelligence began connecting dots and acquiring intelligence from allies, and determined that al-Qaida was responsible for the attack. 

They also determined that bin Laden and his command cell were located in Afghanistan under the protection of its leader, Taliban chief Mullah Mohammad Omar. 

The desire to lash out at everything was overpowering, but President George W. Bush elected instead to focus on the country that had given al-Qaida sanctuary. 

This was the beating heart of the movement, and it had to be destroyed or dispersed to prevent, to the extent possible, a follow-on attack on the U.S.

The ultimate objective of the invasion was to destroy al-Qaida’s command. 

“Invasion” might not even be the right word; there was no invasion planned because one could not possibly be mounted in 30 days. 

The primary operation was carried out by CIA operatives with contacts in Afghanistan, along with special operations teams, who would carry out any attack mounted on al-Qaida. 

Occupation and regime change were incidental.

Most of the combat was meant to be carried out by U.S. allies such as the Northern Alliance, which had only recently discovered they were U.S. allies when the CIA delivered them a ton of cash. 

Among this group there were those who knew where bin Laden was and who claimed to be prepared to find him and turn him over to the Americans. 

Bin Laden was located in a complex of caves called Tora Bora near the Pakistani border. 

The allies located him but just missed capturing him (no surprise there). 

U.S. Special Operations Command moved toward a blocking position between Tora Bora and Pakistan, but the al-Qaida command cell and their families slipped across the border into Pakistan, where they seemed to be welcomed.

The initial operation was impressive for what it was. 

Though it did not succeed in capturing the enemy, it did disorganize the enemy enough to buy time for U.S. intelligence to gain some clarity, allowing continual harassment of the group and no further attacks on the U.S. 

Then came the original sin of U.S. military operations: mission creep. 

Until al-Qaida showed up in Afghanistan, the U.S could tolerate Mullah Omar and had little interest in his country. 

The U.S. thought it would withdraw, then hunt down escaped al-Qaida operatives wherever else they went in the world. 

It was not to be. 

The idea that, of all the countries al-Qaida might be in, Afghanistan was uniquely important, requiring a multidivisional force to pacify, was unsound. 

The American force was never large enough or suitable to occupy Afghanistan, which had already broken the Soviets and the British. 

The Taliban declined to engage in combat head-on, retreated, dispersed and regrouped. 

They fought the U.S. to a standstill. 

If the U.S. withdraws, it leaves Afghanistan to the Taliban, the same situation that would have been the case in December 2001.

The argument against withdrawal is that Afghanistan could be used as a base for mounting terrorist attacks. 

That is true, but recall that 9/11 was mounted mostly inside the U.S. Transnational terrorism is just that – transnational – and even if Afghanistan were its hub, the U.S. simply cannot hold it.

Obama, Trump and Biden all reached a similar conclusion. 

Their critics on the matter confuse the desirable and the possible. 

They often argue that Afghanistan poses a unique danger. 

It doesn’t. 

Even so, nothing is over so long as something is possible. 

And since few things are impossible, the people who want to stay tend to win. 

But it is important to remember what happened to understand the logic that led to a war that wanted to do what no one, not even Alexander the Great at the height of his power, could. 

You can isolate Afghanistan, but you cannot impose your will on it.