Category: simonblack

July 4, 2014
Kiev, Ukraine

In one of the most ill-timed columns ever written, Fortune Magazine published an article entitled “10 stocks to last the decade” on August 14, 2000.

The NASDAQ Composite Index was at 3849.69… and within days of the article being published, the index would begin a ruthless decline, taking a whopping 13 years to return to that level.

And as for the 10 stocks which were supposed to last the decade? Two of them (Nortel, Enron) went bust entirely.

One of them (Morgan Stanley) would have gone bust if it hadn’t been for a $107 BILLION taxpayer bailout.

Others (Univision, Genentech) were bought out at valuations substantially lower than their August 2000 levels.

The remaining ones (like Nokia) are still out there somewhere, but their stock prices have declined as much as 83% over the last fourteen years.

To put it bluntly, not a single company on Fortune’s list of titanic, unbeatable stocks managed to generate a positive return for investors. Everyone lost.

In fairness, this isn’t a dig against Fortune; nearly EVERYONE thought that Enron was a sure bet back in 2000. (Although Fortune actually named Enron “America’s most innovative company” for six years in a row from ’96 to ’01…)

Back then no one could imagine that Enron and Nortel would soon cease to exist. Or that Nokia’s brand value would be virtually wiped out by Steve Jobs and a bunch of scrappy Koreans.

This is really a fantastic example of how a herd mentality forms about the sanctity and staying power of certain institutions.

It’s human nature to believe that whoever is in the lead now will always be in the lead.

And it’s the same for countries.

Virtually everyone alive today was born into a world in which the US was “#1”, the largest and most important economy on the planet. Hardly anyone can imagine anything else.

Yet ironically, as many Americans are celebrating dependence day today, it is the last holiday that will pass with the US being the world’s largest economy.

China is set to surpass the US in a matter of months. And this shift of wealth and power is, by far, the biggest story of our time.

Let’s explore this together in today’s Podcast episode. We’ll go back in time and talk about ancient cities, kings and queens, grand palaces, epic battles, and major crises… real Game of Thrones stuff.

And when we’re finished, you’ll see that this time is absolutely NO different. Click here to listen:

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Enjoy your weekend.

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July 3, 2014
Kiev, Ukraine

In the fall of 1239 AD, Batu Khan and his Golden Horde were making great progress in their rapid advance into Europe.

The Mongol Empire was in the midst of global conquest, and Batu’s army had been devastating cities across the Russian plain.

He stopped briefly after taking Chernihiv (in northern Ukraine) and sent his cousin Mongke with a vanguard force to probe Kiev, the capital of Kievan Rus.

At the time, Kievan Rus was one of the greatest powers in Europe, forming a loose federation of Slavic principalities that stretched from the Black Sea to the White Sea.

Kiev had been founded nearly eight centuries before, and by 1239 it was a grand capital with some 50,000 inhabitants. Mongke was quite taken with it. And, not wanting to destroy it, he sent an emissary to discuss terms for their surrender.

Apparently Kiev’s Prince Mikhail had just watched the movie 300… because he put the Mongol emissary to death.

Now, if I could paraphrase the Princess Bride, history gives us a couple of very clear rules– (1) Never get involved in a land war in Asia; and (2) Never go in against a Sicilian when death is on the line.

But only slightly less well-known is this: (3) Never slight a guy named Batu Khan, especially when his army is called the ‘Golden Horde’.

Batu responded to Mikhail’s poor manners by laying waste to the city. Martin Dimnik’s work “The Dynasty of Chernigov” describes the carnage in gruesome detail, saying that people “drowned in a pool of blood.”

To their credit, though, the Kievans fought bravely. They lacked the Mongolian weaponry and tactics, but they fought with sticks and knives… hand to hand, house to house, man to man.

Resistance is in their DNA. So it’s no surprise that, several centuries later, people were out in the streets fighting against their own government. Sticks and knives, once again, againt tanks and automatic weapons.

This time they won. Sort of.

Every 10-15 years this place has a major revolution. And each time it’s precipitated by one basic principle: money.

All people really want is to be in a place where they can improve their lives… where their children can have a brighter future than they did.

The system in Ukraine did not provide those conditions. It was designed for a tiny political and banking elite to enrich themselves at the expense of everyone else.

This revolution was borne from economic frustration, plain and simple.

Yet each time this happened in the past, all they really did was change the players… not the game. They just ended up with a different set of criminals in charge.

This time around there seems to be serious effort to at least change the rules.

Many are talking about major revisions to the Constitution (leading one local journalist to ask– “Why don’t we use the American Constitution? It was written by really smart guys, it has worked for over 200 years, and they’re not using it anymore…”)

He’s right. Much of the West, in fact, has descended into the same extractive system as Ukraine.

There’s a tiny elite showering itself with free money and political favors at the expense of everyone else.

Dow 17,000 means that a handful of people at the top are making boatloads of money thanks to quantitative easing, some upper-middle class are doing fairly well, and the average guy pays higher prices for food, fuel, education, medical care, etc.

It’s not just the US. France, for example, is simply not a place where you can work hard and expect to improve your life anymore. In Greece and Spain, half of the nations’ young men are broke and unemployed.

And along they way, they have all set aside civil liberties and turned into vast police states.

Ukraine may be in the midst of turmoil right now, but they at least hit the big giant reset button and are looking to build something new.

The West, meanwhile, continues down its path of more debt, more money printing, more regulations, and less freedom. How long can this really go on without consequence?

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July 2, 2014
Vienna, Austria

There’s an old joke here that Austria is famous for two things: convincing the world that Adolf Hitler was German (he was Austrian); and convincing the world that Beethoven was Austrian (he was German).

Frankly one of the things that Austria should be more famous for is its banking. But it probably won’t ever be because the culture here is far too discreet to shout it out for the world to hear.

Switzerland is traditionally associated with private wealth management and conservative financial stewardship. But as the saying goes, when the Swiss wanted private banking, they would come across the border into Austria.

Granted, those days are long gone. Switzerland’s banks have completely rolled over for the US government (and just about everyone else who’s come calling), and Austria has joined up to curtail banking secrecy.

But the culture of discretion and privacy here is as pervasive as it ever was.

This is one of the primary reasons why Austria excels as a place to hold certain physical assets. Because while you might not be able to have any financial privacy across the global banking system anymore, you can still securely and privately hold physical assets.

Consider gold, for example. We all know the story of how private gold ownership was criminalized in the Land of the Free back in the 1930s (a severe form of capital controls).

Would this happen today? Possibly. And there are a number of realistic scenarios which might cause this (like major foreign holders dumping US Treasuries.)

But what’s far more concerning is the prospect of civil asset forfeiture… something that has been on the rise for the past several years.

In the Land of the Free alone, there are hundreds of federal, state, and local agencies that have all the firearms and legal authority they need to kick in doors, freeze accounts, and seize assets.

You don’t even have to be doing anything wrong. Hell you don’t even need to be anywhere in the vicinity. If your ‘stuff’ just happens to be in the wrong place at the wrong time, it can be confiscated.

Almost every week, some government agency is holding an auction of other people’s confiscated property.

And at nearly every one of them is some poor guy’s collection of gold eagles and Canadian Maple Leaf coins.

This is reason enough to consider holding at least a portion of your physical assets abroad.

Think about it– gold is really an anti-currency. It’s an investment you make because you don’t have confidence in governments and central bankers.

Gold is something that cannot be printed at will or conjured out of a policy meeting. And it’s a lot easier to carry around than an acre of farmland.

But what’s the point of trading out the paper currency issued by a desperately bankrupt government if you’re just going to store your gold in the same desperately bankrupt country?

It makes a lot of sense to move some physical assets abroad. And this includes much more than gold.

I was recently reading the findings of one US government agency that was proudly listing all the items they had recently confiscated from people merely suspected of victimless crimes. And I noticed that one gentleman had been relieved of roughly $2.7 million worth of Perth Mint Certificates.

If you’re not aware, the Perth Mint in Australia stores gold on behalf of its customers, and then issues certificates that are redeemable for gold at the mint.

So this particular gentleman had the right idea to store gold overseas. Unfortunately he didn’t do the same with his certificates. So now he’s effectively had his gold stolen even though it’s 10,000 miles away.

No one ever thinks it’s going to happen to them. Until it does.

I just found out that this actually happened to my own parents; they recently had some funds frozen (wrong place, wrong time) because a guy they did business with twenty years ago (and haven’t heard from since then) ended up on the wrong side of the Treasury’s Office of Foreign Asset Control.

My pops was actually flown to New York under subpoena, and they pummeled him with questions about some obscure business transaction that took place in 1993. I can’t think of a more absurd situation.

Civil asset forfeiture is clearly on the rise. And it makes sense to take prudent steps to protect what you’ve worked for.

Gold bullion. Stock certificates. Jewelry. Rare coins. Collectibles like wine and art. Just about anything that’s physical and portable can be stored abroad.

(Das Safe remains my favorite place to do this in Vienna… though they are starting to run out of space. And there are plenty of other options in the world, including Hong Kong or Singapore.)

Rational people have a Plan B. And this is one of those things that you won’t be worse off for doing.

But if the worst happens, it just might make all the difference in the world to have a small cache of real assets stored in a safe, stable place away from your bankrupt government.

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July 1, 2014

Vienna, Austria

 

If you want to gather honey, don’t kick over the beehive.

This was how Dale Carnegie titled the first chapter of his 1936 personal development masterpiece—How to Win Friends and Influence People.

Carnegie had sensible advice: if you want to keep people on your team, first and foremost don’t piss them off. Duh. Seems pretty obvious.

I think the US government could use a little Dale Carnegie right about now (I actually just ordered a copy and had it sent to the President. You’re welcome, BO.)

Because based on the way they’re acting, you’d think they were test-driving an entirely different manuscript—How to Lose Friends and Alienate People.

Exhibit A: FATCA.

Four years ago, the US government passed this absurd law requiring every bank in the world to enter into an information-sharing agreement with the IRS.

Those who don’t will be subject to a 30% withholding tax on certain funds that get routed through the United States banking system.

What’s more, every bank on the planet is somehow supposed to simultaneously keep track of every other bank in the world and know precisely who is / is not in compliance with the law.

Banks that are in compliance are supposed to withhold the 30% tax on any funds transferred with banks that are not in compliance… otherwise they risk the withholding tax penalty themselves.

The whole thing is enough to make your head spin. Needless to say, the mere thought of complying with this law is enough to drive banks crazy.

This isn’t a way to treat friends. And today’s the day it comes into force.

Exhibit B: BNP Paribas. Uncle Sam just slammed this French bank with a massive fee and threats of criminal penalties for doing business with a country they don’t like.

In doing so, the US has given BNP… and France… nine billion reasons to abandon America.  Again, this isn’t the way you treat friends.

I think politicians fail to realize how important the US banking system is to holding together the US economy.

Right now, the entire world uses the US banking system.

If a merchant in Angola wants to do business with a merchant in India, for example, that transaction is cleared through banks in New York.

This, by default, creates demand for people to hold dollars, giving the US billions of people to splay their inflation onto.

It’s the only reason why the Federal Reserve has been able to print $3.5 trillion over the last five years; nearly any other country does that and you get hyperinflation.

You’d think they would guard this dearly. You’d think the US government would treat their friends… their customers… respectfully.

But no. Instead they’ve dropped a steaming hunk of dung on the entire system, and everyone in it.

With law and behavior this dumb, they’ve gone and kicked over the beehive. No bankers want the hassle of dealing with America anymore, and everyone is looking for a better option.

It’s happening.

Chinese renminbi trade settlement is growing like a weed, constantly posting record levels. Everywhere you look there are countries and big companies looking to hold and conduct trade in renminbi.

Even Canada and the UK are now angling to become major centers of renminbi settlement. Everyone else seems to get it… everyone but the US.

With all of its debt and all of its money printing, the US banking system was one of America’s last economic competitive advantages.

But now we are going to see more and more foreigners curtailing their use of the US banking system… and by extension… the dollar.

Without that mass of people to export dollars to, inflation will really kick in back home.

It’s not going to happen overnight. But as yet another insane law comes into force today, it represents one of the final nails in the coffin for the US, and the end to one of its last remaining advantages.

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June 30, 2014
Rome, Italy

As of today, I am $250,000 richer than I was last week. And thanks to the magic of economics, I didn’t even have to do anything.

You see, following the lead of the Italian and British governments, I’ve taken the liberty of ‘rebasing’ my net worth.

In their case they decided to include proceeds from hookers, coke addicts, and meth heads in their GDP calcuations, thereby increasing the sizes of their economies overnight.

So the other day in Singapore as I was filling out an application for a new account at a private bank, there was a box where they wanted me to write in my net worth.

I decided that I would include the “street value” of some of my vital organs; after all, a kidney in a wealthy country like Singapore can fetch over $250,000.

(There was actually a case back in 2008 of a retail tycoon in Singapore who was arrested for trying to buy a kidney for roughly USD $250,000…)

The banker didn’t find my logic particularly convincing, something about ‘not being able to get that past compliance…’ Yet amazingly the market has given these bankrupt European countries a pass on their equally ridiculous idea.

It’s a testament to how absurd things have become. And the fun’s only just begun.

In the last month, I’ve put boots on the ground in four continents. Just about everywhere I’ve gone (with the exception of Myanmar), it’s pretty clear that things are slowing.

In South America, several major economies are slowing down. Chile is seeing much slower growth and much higher inflation.

Brazil is slowing down as well, and the central bank there just quietly released a substantially lower growth estimate that no one seems to have noticed amid the World Cup festivities.

Asia, which is supposed to be maintaining growth for the rest of the world, is slowing. China’s President has told his nation, and the entire world, to prepare for a new normal of slower growth.

Thailand, Southeast Asia’s most important economy, is slowing down. And inflation is rising. Even in Singapore growth is slowing.

Here is Europe, no amount of hookers and coke can put a brave face on 50%+ youth unemployment.

And of course, in North America, the US economy ground to a halt, contracting at a 2.9% annualized rate. This amid the highest rate of inflation in 18-months.

(By extension, growth rates in Canada and Mexico are slowing as well.)

Hmmmm… Slowing growth. Rising inflation. Central bankers have really backed themselves into a corner on this one.

They’ve spent years creating an ocean of credit, creating credit-junkie addicts out of everyone from governments to banks.

But these bankrupt countries are all so dependent upon cheap credit that if the central banks stop printing, the economies will all take a nose dive.

Even worse, shut off from the central bank teet, governments will lose their #1 buyer of debt and be in serious danger of default.

On the other hand, the inflationary effects of their print-at-all-costs monetary policy are starting to be felt all over the world. So if central banks keep printing, they will do even more damage to their currencies and anyone who uses them.

So at the end of the day, central banks have to pick between screwing the governments and banks which appoint them vs. screwing the people who are told to blame the weather.

Gee I wonder which one they’ll choose…

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June 30, 2014
London, England

[Editor’s Note: This column was written by Tim Price, frequent Sovereign Man contributor and Director of Investment at PFP Wealth Management in the UK]

“We are currently on a journey to the outer reaches of the monetary universe,” write Ronni Stoeferle and Mark Valek in their latest, magisterial ‘In Gold we Trust’. Their outstanding work is doubly valuable because, as George Orwell once wrote,

“In a time of universal deceit, telling the truth is a revolutionary act.”

The reality bears restating: as the good folk of Incrementum rightly point out,

“..the monetary experiments currently underway will have numerous unintended consequences, the extent of which is difficult to gauge today. Gold, as the antagonist of unbacked paper currencies, remains an excellent hedge against rising price inflation and worst case scenarios.”

For several years we have advocated gold as a (necessarily only partial) solution to an unprecedented, global experiment with money that can only end badly for money.

The problem with money is that comparatively few people understand it, including, somewhat ironically, many who work in financial services.

Rather than debate the merits of gold (we think we have done these to death, and we acknowledge the patience of those clients who have stayed the course with us) we merely allude to the perennial difficulty of investing, namely the psychology of the investor.

In addition to being the godfather of value investing, Ben Graham was arguably one of the first behavioural economists. He wisely suggested that investors should

“Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it – even though others may hesitate or differ. You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

Graham also observed,

“In the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand.”
Judgment has clearly been tested for anyone who has elected to hold gold during its recent savage sell-off.

The beauty of gold, much as with a classic Ben Graham value stock, is that as it gets cheaper, it gets even more attractive. This should be self-evident, in that an ounce of gold remains an ounce of gold irrespective of its price.

This puts gold (and value stocks) markedly at odds with momentum investing (which currently holds sway over most markets), where once a price uptrend in a given security breaks to the downside, it’s time to head for the hills.

There are only three ways of trying to handle a mountain of unsustainable debt. The options are:

1) Maintain economic growth at a sufficient rate to service the debt. We believe this is grossly unlikely.

2) Repudiate the debt. Since we also operate within a debt-based monetary system (in which money is lent into being by banks), default broadly equates to Armageddon.

3) Inflate the debt away.

At the risk of pointing out the obvious, which path do we consider the most likely? Which path does it suit grotesquely over-indebted governments and their client central banks to pursue?

But it does not suit central banks to be caught with their fingers in the inflationary cookie jar, so they now have to pretend that deflation is Public Enemy Number One.

Well, deflation is certainly a problem if you have to service unserviceable debts. So it should come as no surprise if this predicament is ultimately resolved through an uncontrollable and perhaps inevitable inflationary or stagflationary mess.

So we have the courage of our knowledge and experience. (In fact, of other people’s experience, too.

As the title of Robert Schuettinger and Eamonn Butler’s book puts it, we have ‘Forty Centuries of Wage and Price Controls’ and their inevitable failure to draw upon. We know how this game ends, we just don’t know precisely when.)

We have formed a conclusion based on facts and we know our judgment is sound. For the last two years, the crowd has disagreed with us on gold.

We think we are right because we think our data and reasoning are right. Not that we don’t see value in other things, too: bonds of unimpeachable quality offering a positive real return; uncorrelated assets; value and ‘deep value’ stocks. And we ask a final question: if not gold, then what?

Are we deceiving ourselves – or are our central bankers in the process of deceiving everyone?

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June 25, 2014
Yangon, Myanmar

Well, at least someone gets it.

While just about every other central bank on the planet is giving everyone two thumbs up on the economy, the deputy chair of the Monetary Authority of Singapore (Lim Hng Kiang) said last night at a dinner that “an uneasy calm seems to have settled in markets” and that “we remain in uncharted waters.”

It was pretty amazing, really, to see such pointed language from a central banking official.

Mr. Lim jabbed at the “obvious” risks and said there would be “bumps on the road” ahead. That’s putting it mildly.

Warren Buffet once said that ‘only when the tide goes out do you discover who’s been swimming naked.’ (In my mind he says it like ‘nekked’ but I seriously doubt he pronounces it that way…)

That’s exactly what happens in severe financial crises. You find out which banks have been playing it safe… and which have so mind-numbingly stupid it’s a miracle they’re still around.

There are a number of ways to judge how safe a bank is. One way is by looking at its liquidity; my preferred metric is to calculate how much cash a bank has on hand as a percentage of customer deposits.

Note- this doesn’t mean physical currency, as in bricks of paper cash stacked up in a vault. Those days went away long ago. I’m talking about electronic currency– typically deposits with central banks.

The more cash a bank has on hand, the safer it is. Because in a financial crisis, people tend to panic (hence the crisis) and want to withdraw their money.

Banks bleed cash. And if they don’t have enough of it on hand, the bleeding turns into a sucking chest wound.

It’s at this point that they’ve been caught red handed swimming naked, and they need to go raise cash from somewhere, anywhere else.

So they start selling assets– loans, securities, and even shares of the bank itself.

But this is not an orderly liquidation in a well-functioning market. It’s a distress sale brought on by a full blown crisis. Asset prices are collapsing, fear has taken hold, and it’s difficult to find a buyer.

You never get full price in a crisis (unless you’re Goldman Sachs and can call up your BFF the Treasury Secretary). So in the process of raising cash, banks end up taking heavy losses on their balance sheets.

Now, banks that have healthy balance sheets will be able to withstand these losses.

But banks with razor thin capital ratios (i.e. a bank’s net equity as a percentage of total assets) will fold. Or go to the taxpayer with their hats in their hand claiming to be too big to fail.

This is precisely what happened to the US financial system back in 2009. Lehman Brothers. Wachovia. Washington Mutual. Etc. They were all swimming naked, with very little liquidity and miniscule capital levels.

Singapore’s monetary authority is obviously concerned about financial markets. They understand that you can’t expect to conjure trillions of dollars out of thin air without creating epic bubbles and even more epic consequences.

Sure, you can shuffle those consequences out a few months… even a few years. But at some point those bubbles must be reckoned with.

Perhaps the greatest concern is how few people seem to care.

Central banks and institutional investors turn a deaf ear to obvious risks and fundamentals that are screaming out in desperation hoping some conservative steward will notice that we are tap dancing on a knife’s edge, where nearly every single financial market is simultaneous at/near an all-time high, and central bankers keep pumping money into economies that they claim to be ‘recovered’.

This is the ‘uneasy calm’ that Mr. Lim discussed– a prevailing attitude that there’s nothing to see here; keep calm and buy the all-time high.

And he’s telling banks to get ready for something to happen.

Curiously, Singapore’s banks are already better capitalized and more liquid than most western banking systems. Back in 2008, Singapore demonstrated a lot of resilience as a financial center, sidestepping most of the problems with zero bank failures.

But for a country that went from third world to first world in just a few decades, complacency is not a cultural norm.

According to Mr. Lim, Singapore’s experience with the 2008 crisis “shows how the buildup of risks can severely destabilise even the most developed and sophisticated financial markets.”

So he wants them to increase their capital and liquidity even more.

If a senior official presiding over one of the world’s safer banking jurisdictions wants his banks to become even safer, a rational person would certainly wonder– “What do these guys know about the financial system that I don’t?”

They must be expecting the mother of all busts.

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June 24, 2014
Yangon, Myanmar

When I was a kid, I had a 4800 baud modem. At the time, it was about the most whiz-bang rockin’ modem on the street, and everyone would coo over its blinding speed.

If you’ve never heard the term ‘baud’ (i.e. you’re under 25 and have never known a day without Internet), it refers to the old way of clocking data transmission before they started using the more common tongue of ‘bits (or Megabits) per second’.

To give you a comparison, my 4800 baud modem would have taken over an hour to download a simple music file that can now be live-streamed from a mobile phone.

I bring this up not for the nostalgic trip down technology’s memory lane… but out of envy.

Because right about now after my 43rd explitive-laced tirade since the start of the weekend, I’m really longing for my old modem.

That’s because the Internet quality in Myanmar is absurdly, pathetically slow.

I don’t mean “Oh, snap, I can’t stream 4 Youtube videos and have a Skype call at the same time” slow.

I’m talking Usain Bolt vs. Tortoise slow. I’m talking paint-drying slow. I’m quite certain the Mars Rover can upload images to Houston faster that I can check my email.

Bandwidth is a precious resource here. They just don’t have it.

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People with political connections are given the fastest bandwidth. And what few breadcrumbs remain is largely unaffordable to most of the population.

If you’re lucky enough to get home Internet service, it can run $1,000+ just for installation. And the monthly fee can be several hundred dollars to boot.

This, coming from a place where the average wage is less than $100/month.

Along with just about everything else in Myanmar, it’s truly third world (as outdated as that 1950s era term may be).

Actually that’s generous. Myanmar has some catching up to do before it reaches third world status. It’s realistically ‘fourth world’.

But here’s the thing– and this is important: last time I was here, Myanmar was in even worse shape, even less developed. Let’s say ‘fifth world’.

It’s been less than a year. And yet there’s been a marked improvement.

Roads are paved that once weren’t. Buildings are complete that didn’t exist… with actual honest to goodness tenants doing real business. New business.

More people have mobile phones than before. And more people than ever are having their first taste of this ridiculously slow Internet.

Mr. Zuckerberg has picked up over a million locals in the last year.

There are even folks engaging in a prehistoric version of e-commerce business.

This is real growth; it’s not the result of some debt-fueled consumer binge. (You know, the thing that keeps the US economy on life support).

There’s not even a functioning consumer credit system in Myanmar. Hell, there was hardly a working ATM twelve months ago.

This is good old fashioned GDP growth based on the investment of a pool of savings (mostly foreign investment) in vast enhancements of productivity and infrastructure.

Myanmar hit rock bottom back in the 1960s and spent the next several decades rattling around as an impoverished mess. No doubt, they have a long, hard slog back up the mountain, just to catch up with a place like Cambodia.

But it’s going to be a spectacular climb. And over the next decades, I suspect it will potentially even rival China’s meteoric rise.

It’s one of the last places on earth with that kind of potential. Just be sure to bring you modem.

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June 23, 2014
Undisclosed location

No one ever thinks about the water. Or the toilet paper, as it were.

But these are among the many, many staples that become luxuries when one’s nation is in crisis.

Hours ago, the local gas company in Kiev (Kyivenergo) announced that they would be shutting off the hot water supply to most of the city.

While the official reason for the hot water shutoff is that Kyivenergo (the energy supplier to Kiev) owes a debt to the Ukrainian state gas company (Naftogaz) of over $100 million.

It’s just a quirky little coincidence that this debt suddenly became materially important only one week after Russia shut off natural gas supplies to Ukraine.

Funny thing is that Ukrainian politicians for years had been telling people not to worry about this.

You see, Ukraine has its own domestic natural gas supplies. And they tell people that the domestic gas is strictly for the people and their utilities (like hot water).

Russian gas, according to this story, is imported for businesses to use. But that domestic gas is sacrosanct, only for the people.

Clearly this turned out to be a big fat lie.

Bear in mind, it was just a few weeks ago that utility companies announced that the price of cold water would jump from 3.18 hryvnas per cubic meter to 6.22– a 95% increase, practically overnight.

So there’s an entire city now taking cold showers… and paying twice the price for the privilege! Insult. Injury.

I have several Ukrainian employees with family still in the country; they’re telling me how their loved ones are now finally starting to look at their options to get out of dodge.

It’s strange when you think about it– war, revolution, inflation, etc. All of that was OK. Cold showers?!?! “Honey pack the bags, it’s time to leave.”

I jest of course; all of this is accumulated pain that eventually culminates in reaching one’s breaking point… especially when a rational look into the future suggests this situation will not resolve itself anytime soon.

You know the outlook isn’t so great right now because Ukraine’s Vice Premier Minister is telling people that they can survive the -winter- (still months away) without Russian gas imports.

While I’m sure everyone appreciates the ‘turn that frown upside down’ approach, they’d probably just rather take a hot shower and not be lied to about the nation’s ability to sustain shrinkage.

A few key lessons I wanted to pull out of this:

1. Politicians always lie. They will tell you that your nation is stronger than it really is, that your country is prepared for whatever may come, that your benefits will never be cut, etc.

And even though they may be well-intentioned, these are not promises that can be kept… especially by a nation in crisis.

2. A nation in crisis affects just about everything. It’s not just about numbers and data, or even Molotov cocktails. It’s hot water and toilet paper. It’s food on the shelves. It’s the stuff we all take for granted that suddenly doesn’t function anymore.

3. Even though the obvious warning signs are there, most people wait until it’s too late (or at least suboptimal) before considering their options.

When you wait until a full blown crisis, you have to rush through critical decisions in haste instead of planning things out slowly, rationally.

Rational people have a plan B because we all have a breaking point. Do you know what you would do if you reached yours?

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