Conviction versus Stubbornness

The week ended on August 29, 2025, interesting news items to look at this week are:

Conviction versus Stubbornness: This week has been one of those weeks that directional changing news items broke so fast and frequent that any student of Geo-politics and Economics must pause, take notes and ponder. I am thankful that I have developed a habit of sitting down early Saturday morning to reflect on the past week with a view to calibrate decisions that I need to make in the following period. So what you see in this Blog is part of that process. Rightly or wrongly, I hope my dear readers will spot my mistakes and prejudices and become a better person than I can be, hence the title of my Blog “Spoudazo Sunago” - Study Together. After-all, change is a necessary part of life and everyone should be willing to surrender what we are for what we could become. (Fig. 1)

As I began to write on this week’s Blog, I reflected for the past 25 years, how I positioned my resources has not fundamentally changed in terms of asset class but only in relative weighting and geographic preferences. Was I stubborn or did I have a deep conviction of what I decided. Allow me to share the answer to this question from Google AI. (Fig. 2).

Then it suddenly dawn on me that all the chaos, uncertainties and volatility besetting the world today is but a fleeting manifestation of this victory and flaw of human character - conviction versus stubbornness.  

(i) Rule Based International Order: On December 9, 2016 then President-Elect Donald Trump made this statement “China causes nearly half of the U.S. trade deficit. China is not a market economy. They did not follow the rules in the past, but now they must do so. We are in the same boat, and we all have to follow the rules.” (Fig. 3)

After nearly 10 years and many failed attempts and false starts, US is still trying hard to force China to bend the knee. Honestly “Rule Based International Order” is just an invented linguo since the encirclement of China to justify the endgame. Stubbornness or Conviction. 

The US Appeals Court just ruled that most tariffs issued by US President Donald Trump are illegal Another one bites the dust. (Fig. 4).

(ii) Second Domino in Europe (France): (Fig. 5)

First the new UK Labour Government rewarded her political backers, through lavish fiscal measures and found her Treasury empty. They tried to raid the non-British billionaires domicile in Britain with a wealth tax and found all the billionaires fleeing . Next France tried to cut social transfer payments of grass-root Frenchmen and entrapped in successive no confidence votes with revolving French Prime Ministers and political stalemate. All the while, both the British PM  French President spent billions in arms and cash to prop up a puppet Zelensky regime in a hopeless proxy war against Russia. Money and arms that Britain and France never had. The result - a possible bailout by IMF and its consequential shock therapy. Stubbornness or Conviction.

(iii) Gold Surpass US Treasuries as No. 1 Central Bank Reserve Assets: Data as at August 27, 2025 indicated that Gold is now ahead of US Treasuries as top Central Bank Reserve Assets. (Fig. 6).

It is so sad with many many brilliant US minds like Buffet, Musk, Dimon, Dailo, Rogers, Gunlack and the like, White House never took heed. Firing empty threats by weaponizing tariffs when other nations control the supply chain is doomed from day one especially the power to tax constitutionally rest with US Congress and not POTUS. (Fig. 7)

    

(iv) AI Hype and Reality: This week two report on AI came out and brought a more sober outlook on the whole AI economy. The first report was from MIT and reveals that 95% of generative AI pilots at companies are failing. (Fig. 8).

The second report was from Morgan Stanley. According to the report, it takes 14 years to reap the productivity gains from a typical New Tech adoption cycle. It is believed that AI adoption rate will outpace past tech cycles, but measurable economic impact may not arrive until late decade with significant risks if companies fail to adopt effectively or integrate AI strategically. (Fig. 9).

I need to point out AI chews up a lot of electricity but both reports did not highlight the US does not have sufficient electricity power generation and distribution to support the forecast AI growth. Electricity demand growth will range from 196% to 2016 to 2100% through to 2030. (Fig. 10).

As is typical of a US narrative driven financial market - all hype but few substance. Nothing stops this train until it runs out of steam by his own bloated hot air. Stubbornness or Conviction.

(v) Unintended Consequence of the Chinese Digital Nomads: In a previous Blog titled “The Best Cure for Low Prices is Low Prices” dated August 2, 2025. Quote “I estimate the Chinese real estate froth is a US$3 trillion problem and China will not follow US footsteps to inflate away the property slump but risks a bigger crisis later on. My estimate was based on a survey of vacant property space of around 50 billion square meters which is good enough to house 120 million people. I also observe that costs of living in oversupply areas have become so cheap that even without full time employment young people reckon they could wait it out until conditions improves. Well, interestingly Chinese Digital Nomads are rising rapidly and are aggregating fast in low cost and more remote areas. By Digital Nomads we mean people who use the internet and digital technology to work remotely, freeing themselves from the constraints of traditional offices and allowing them to travel and live anywhere in China. Their core characteristics are "location freedom" and "online income. (Fig. 11)

These Chinese Digital Nomads are characterized by

 (a) Core Age Group: Mainly those born in the 1990s (71.28%), with an average age of 31.

 (b) Common Occupations: Programmers, designers, self-media creators, online education, e-commerce, remote translation, trainers, illustrators, etc., often relying on the internet for remote work. 

(c) Popular Destinations: Dali, Anji, Yangzhou, Jingdezhen, etc. These areas typically have lower costs of living, better environments, or well-developed digital infrastructure. 

(d) Main Motivations: Pursuing work-life balance, escaping workplace inertia, and desiring freedom and flexibility,

 (e) Income Characteristics: While newcomers generally have low incomes (approximately 56.73% earn less than 100,000 yuan annually), nearly half of those with more than three years of experience earn over 200,000 yuan annually, demonstrating a U-shaped recovery in income and 

(f) Total Size: Approximately 70-100 million (as of the end of 2023), including actual nomads and potential populations which incidentally could fill the glut of overbuilt properties overtime.  

My thesis is a robust infrastructure with freedom of mobility would allow problems to solve by itself despite the blunders of the bureaucrats. Conviction or Stubbornness.

1Samuel 15:22  And Samuel said, Hath the LORD as great delight in burnt offerings and sacrifices, as in obeying the voice of the LORD? Behold, to obey is better than sacrifice, and to hearken than the fat of rams. 23  For rebellion is as the sin of witchcraft, and stubbornness is as iniquity and idolatry. Because thou hast rejected the word of the LORD, he hath also rejected thee from being king. 

 

Domino Effect and Contagion

The week ended on August 22, 2025, interesting news items to look at this week are:

Domino Effect and Contagion: The domino effect occurs when one event triggers a chain of related events, much like falling dominoes. (Fig. 1)

This can happen in various environments—from global finance to politics to failure of nations. In contrast, contagion is the spread of a disease, risk, or idea that can involve various transmission channels and often leads to similar outcomes but isn't necessarily a direct cause-and-effect chain.

(i) UK the first Domino: There has not been much good news in the UK. (a) Firstly, the grand plan to fragment Russia into 41 separate states with a view to a looting of Russia’s wealth came unstuck (Fig. 2).

Trump struck an off-ramp deal with Putin to extricate US from a losing proposition in Project Ukraine, thus leaving major NATO European countries in utter panic. (Fig. 3).

(b)Then, millionaires are leaving the UK in droves like rats deserting a sinking ship. (Fig. 4).

(c) A constitutional crisis is brewing for PM Stramer to resign after a Supreme Court finding on Starmer’s involvement in a financial scandal. (Fig. 5).

(d) Admist all the turmoil, UK Gilts had lost 32.6% in value from its peak since 2020. (Fig. 6).

Almost the worst performer in Western developed economies.

(ii) Yen Carry Trade: We have repeated many times in this Blog, every Central Bank that practiced “Quantitative Easing”  through suppression of duration interest rates (using currency issuance to purchase government bonds at higher than market prices) are now trading fraudulently. These Central Banks (The Fed, BOE, ECB and JCB) all have liabilities exceeded the value of the assets they hold, e.g. As at August 20 2025 the Federal Reserve realized losses on its Bond Portfolio was $229.65 billion, far exceeded its Capital and Surpluses of $45.7 billion. (Fig. 7).

In those period of ZIRP and NIRP, Hedge Funds borrowed trillions in Yen at NIR to buy US Treasuries, Equities and assets for yield enhancement. By 2024 as global interest rate and Japan domestic inflation rose, the Yen Carry Trade blew up in August 2024 which caused panic and gyrations in the global financial markets. With the 2025 Reciprocal Tariff War, we are waiting for the next shoe to drop when uncertainties and market volatility become serious hurdles on trade and investment flows. Data points on Japanese Banks offshore exposure as at end of 2024 was a staggering US$11.6 trillion of which $999.8 billion was exposure to Cayman Island and similar offshore Centers. We expect a continued de-risking of currency exposures when Central Banks’ ability to control financial markets waned. Year to date DXY has declined by 9.57% with Precious Metals gaining 30%. (Fig. 8).

 What asset class are dominoes and what asset class can be quarantined from a contagion are the questions we need to ask and understand. Hope you will all find your answers after a restful summer break.

Ecclesiastes 3:1  To everything there is a season, A time for every purpose under heaven: 2  A time to be born, And a time to die; A time to plant, And a time to pluck what is planted; 3  A time to kill, And a time to heal; A time to break down, And a time to build up; 4  A time to weep, And a time to laugh; A time to mourn, And a time to dance; 5  A time to cast away stones, And a time to gather stones; A time to embrace, And a time to refrain from embracing; 6  A time to gain, And a time to lose; A time to keep, And a time to throw away; 7  A time to tear, And a time to sew; A time to keep silence, And a time to speak; 8  A time to love, And a time to hate; A time of war, And a time of peace. 

Barking Up The Wrong Tree

The week ended on August 15, 2025, interesting news items to look at this week are:

1. Barking Up The Wrong Tree : If you feel the world is getting increasingly chaotic, allow me to quote here a saying of Joseph Campbell, a professor of literature in a small liberal arts college in New York and author of the book “The Hero with a Thousand Faces” which inspire the “Star Wars” saga. Campbell said, “When we talk about settling the world's problems, we're barking up the wrong tree. The world is perfect. It's a mess. It has always been a mess. We're not going to change it. Our job is to straighten out our own lives.” (Fig. 1)

Ironically, China’s statecraft is very much in sync with this philosophy, hence, no military alliances and no interference with internal affairs of other nations. The Chinese core belief is “时势做英雄” (“The times make heroes” - It is a particular crisis, social movement or technological shift that allowed certain individuals to rise to prominence”). The opposite is “英雄做时势” (“Heroes make the times” - The decisive actions of a leader or innovator who changed the world”.) It is exactly at this time in history with sharpened conflicts in Europe, Mid East, South Asia and East Asia that a victory by Global South will prove the former and a victory by Donald Trump will prove the latter. In this week’s blog we will examine the times and heroes with emphasis on numerical data points.

(i) The Wrong Tree of “Full Spectrum Dominance” - The US War Doctrine of “Full Spectrum Dominance” came to prominence after 911 which initially concentrate on US military push for dominance in conventional and asymmetrical warfare. As time progresses, the concept expanded its scope to encompass every facet of psy-war, soft powers, politics, technology, monetary and economic dominance. Yet the more US wants to maintain her crown, the more she feels she is slipping away and the more the world came to realize US is failing. In a final act of desperation, US has taken mano a mano against every country on earth with a tariff war on a false narrative that times during the “McKinley 1890 Tariff Act” were the best of times for the US. History shows both the McKinley 1890 Tariff Act and the subsequent Smoot-Hawley 1930 Tariff Act proved to have done more economic damage than good. Historical facts showed recession will result with full impact lagging two years the relevant tariff legislation. Furthermore full economic recovery was not possible until a world war erupts. (Fig. 2)

I need to emphasize here that I am not a proponent that there is a causal relationship between tariff and recession but rather when economic conditions of a normally open country are so degraded that a high tariff barrier becomes a necessity than the consequence of a tariff barrier will be recession and kinetic war.   

(ii) The Wrong Tree of D-globalization - Whilst the debate on the merits of globalization or d-globalization continued, this section of my blog is an attempt to quantify the relevance of globalization on the US economy. One may then draw one’s own conclusion of how successful will MAGA be and the consequential d-globalization. I will present here a series of slides comparing annual increases in US Household Wealth and Nominal GDP.

(a) A comparison of Annual Increase in US Household Wealth with Nominal GDP for the past 25 Years shows whilst annual increase in nominal GDP were in hundreds of billions, increase in Net Household Wealth were typically 10 times larger in the trillions. (Fig. 3).

How can it be when annual income of a household hoovers around $100,000, the wealth of the household is increasing in the ‘millions.

(b) The Cumulative Picture is even more startling - From 2000 to 2024, cumulative annual net US household wealth grew by US$85 trillion as compared with cumulative increase in Nominal GDP of only $5 trillion. (Fig. 4).

There were two principal reasons involved - in the early part of the 21st Century US began the Internet/Smart Phone/Social Media Revolution and China joining the WTO. US Tech companies were immensely profitable but the sweat labor were conducted in China, hence, wealth increased tremendously in US but sweat (labour and resource activities) were drenched elsewhere.

(c) Towards the end of the first decade of the 21 st Century, economic mismanagement and the relentless money printing had been a drag rather than a stimuli to the US economy. This resulted in a continuous contraction of the private sector real economic activities.  The legacy benefits of US tech advances and global tech dividends has been progressively eaten up by Fiscal Dominance. The latest example is the 15% indulgence fees payable by Nvidia and AMD on chip exports to China. (Fig. 5).

Most analyst are aware that the US economy is in a K-shaped recovery but few would come out and specify that sudden death would come in just 24 months from Liberation Day. Why? What goes around comes around, in encircling the world with tariffs, US also will cut herself off from the benefits of globalization as victims of oppression retaliates. Friends, you have been warned.

2. Times and Heroes - Having subscribed to an understanding that it is “The Times that make Heroes”, I tend not to be alarmed by the coming and going of politicians and avoid second guessing their intentions, tacit and strategies. I am primarily interested in long term macro directions and consistency of a country’s adherence to their stated missions. Life is hard and it is enough to everyday discipline  ourselves into a little bit more loving and compassion. (Fig. 6).

Ecclesiastes 1:9  That which has been is what will be, That which is done is what will be done, And there is nothing new under the sun. 10  Is there anything of which it may be said, "See, this is new"? It has already been in ancient times before us. 11  There is no remembrance of former things, Nor will there be any remembrance of things that are to come By those who will come after.