An Elegant Framework

Greetings from Austria

Hi everyone.

We’re finishing up an amazing week here in Austria and about to head home. These trips sure have a way of going by too fast! Keeping with our theme from last week, here’s a flavor of what it’s like here:

An Elegant Framework

As you all know, I do a ton of reading 🤓—sometimes I think maybe too much. But every once in a while, I come across an idea so good, so pure that it makes it all seem worth it. This happened the other morning in Salzburg when I came across this article from Charles Gave, the founder of legendary Wall Street research firm Gavekal. I was just blown away by the elegance of his global macroeconomic framework. I highly recommend reading the entire article but I’ll summarize the idea here.

For Charles, the economy can be best understood as a combination of a production system (individuals, companies and governments trying to make money) and an operating system (laws, regulations, interest-rates). The operating system works on two axes:

· Currency exchange rates which act to intermediate geography &
· Interest rates which act to intermediate time.

Problems can emerge in the economy in 3 different ways:

1. In the production system itself
2. In the operating system itself
or
3. In the link between the production and the operating systems.

Anything that tends to decrease the returns on invested capital causes problems in the production system. So, things like war, significant increases in taxes on productive assets, large increase in energy prices, price controls, an explosion of regulations…. And the operating system and the links back to the production system get messed up when governments attempt to fix or control either exchange rates or interest rates or both.

Note: We live in a world where you can find evidence for all of these problems but that’s a story for another day.

It’s no easy task to take something as complicated as the global economy and break it down into a clear, intelligible framework but the real genius here is that this is actually a pretty accurate model of reality. It explains much of the past 40 years of economic history, that’s for sure! In the coming weeks, I’m going to be using this model a lot as a lens to help us understand just what’s going-on in our quickly-evolving global economy.

Summer Finance Season on the Nick Halaris Show

While most of Wall Street may be away for summer vacation, we are keeping busy with a remarkable line-up of guests on the Nick Halaris Show. We are living in such a very consequential economic moment and I want to leave no stone unturned in the search for understanding what’s going-on and, more importantly, what might happen next. Over the next month or so, I’m going to be talking with some of the finest financial minds in the world. I just cannot wait to have these conversations and get these episodes out into the world. I’m certain we are going to get some really interesting and helpful ideas from these incredible individuals.

Here’s who we have on deck:

· Jim Rogers – Co-founder of the Quantum Fund (with George Soros),
author and overall finance legend

· Darius Dale – Runs the most popular Global Macro Risk Management
Service in the world

· Martin Wolf – Author and Financial Times Journalist and one of the most
important and influential voices in economics and finance

· Simon Mikhailovich – Runs The Bullion Reserve and legendary
contrarian investor

· Mike Green – Runs Simplify Asset Management and one of the world’s
most respected market theoreticians

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🙏 Thank you!