Episode Details

My apologies if you have received this twice. Cock up at HQ.

Over a Zoom call earlier in the week,  I heard some people discussing the “Russian Davos” which they had attended back in June. 

I didn't even know such a thing existed, such is my Western, Ptolemaic view of the world. (Ptolemaic, by the way, to save you having to look it up, means you think you are at the centre of the universe, and everything revolves around you).

So the Russian Davos, or as it’s properly known, the St Petersburg International Economic Forum, held in June, is an annual event that began in 1995 to signal the (then) new Russia. It would attract global political leaders, business titans, finance bigwigs and all the usual shizzle.

The event went ahead this year, though, for obvious reasons, the VIP headcount was significantly down. Gone were the likes of (once) German chancellor Angela Merkel, ECB chief Christine Lagarde, Goldman Sachs' Lloyd Blankfein, Citi's Vikram Pandit and ExxonMobil's Rex Tillerson. Top billing went to presidents of Egypt (via video link), Kazakhstan, Armenia and other allied states.

There were representatives from the likes of China, India, Iran, Serbia, Turkey, Venezuela, Egypt, Belarus, Central African Republic, Nicaragua and the United Arab Emirates. Quite a collection. Non-Western nations that have not imposed sanctions had greater prominence.

The Western economy has been shaped by cheap commodity prices 

The official title of the forum was "New Opportunities in a New World", and the recurring theme was how to improve trade between non-Western powers in a US dollar controlled world of sanctions. 

"A new form of international cooperation: how will payments be made?" was the title of one such talk. Time and time again the conversation came back to a new, non-Western international currency.

Which brings me to the second strand of thought that makes up today’s piece: the latest contribution from Credit Suisse analyst, Zoltan Pozsar. 

Pozsar has long since argued that Bretton Woods III, a new world monetary order, is happening before our eyes and that new money systems east of Europe will be based around commodity-based currencies.

In his latest, War and Industrial Policy, Pozsar, who I am fast becoming a fan of, argues that there were three forces that shaped the western economy before Covid - cheap immigrant labour, cheap Chinese goods and cheap gas. 

Such a trinity is no longer possible in a world in which international trust is fast evaporating.

“The “cartoon” version goes like this: China got very rich making cheap stuff, and then wanted to build 5G networks globally and make cutting-edge chips with cutting-edge lithography machines, but the US said “no way”. As a result, Chimerica is going through a messy divorce. The two sides don’t talk anymore.”

Meanwhile, “Russia got very rich selling cheap gas to Europe, and Germany got very rich selling expensive stuff produced with cheap gas.” Those two sides aren’t talking any more either. 

“Chimerica does not work anymore and Eurussia does not work either,” he says and now, in the divorce, it seems Russia and China are “getting it on”. Meanwhile, out west, QE and zero interest rate policies are no longer possible in a world without cheap Chinese and Russian exports. 

There is now a rush to regain control of key technologies, especially microchips, and key commodities, especially oil and gas (and soon in my opinion metals and grains). Pozsar adds straits to the key list - the Taiwan Strait, the Strait of Hormuz, and the Bosporus Strait.

“I think that four themes (re-arm, re-shore, re-stock, and re-wire the electric grid) will be the defining aims of industrial policy over the next five years … the global order is at stake.”

Inflation or not, high rates or not, there is a commodity-intensive demand shock coming that “could easily drive another