May 1, 2022 • 37M

Rob Marstrand on Inflation and Capital Controls

Plus, doing business in Argentina, global supply chain fragility, crazy taxi drivers and plenty more...

6
 
0:00
-37:07
Open in playerListen on);
A podcast about mobs, markets and manias. Each week, Joel Bowman sits down with a member of Bill Bonner's private research team to discuss the pressing issues of the day. From high finance to lowly politics, irrational markets and international real estate, great wine and classical books, nothing is off the table in these freewheeling discussions. New episodes every Sunday.
Episode details
6 comments

“So there are a lot of lessons to be learned here about how governments can really clamp down. So when their policies and their central bank policies are failing, they'll try all sorts of tricks to stop people protecting themselves. You've got to essentially try and get ahead of them.”

~ Robert Marstrand, Investment Director for UK Independent Wealth

Ed. Note: Learn more about Rob’s work at Fortune and Freedom, right here

TRANSCRIPT:

Joel Bowman:
All right. Welcome back to the Fatal Conceits podcast. A show about money, markets, mobs, and manias. Not necessarily in that order. If you haven't done so already, and you're just tuning in for the first time, please head over to our Substack page, that's at bonnerprivateresearch.substack.com, where you'll find plenty more articles on everything from high finance to lowly politics. And of course, many more conversations just like this. I'm joined in the studio, actually here in Buenos Aires today, with my good friend and long term Argentine expat, I guess, Robert Marstrand. Welcome Rob.

Robert Marstrand:
Hi Joel. Well, great to see you, as always. Joel and I, usually when we're sharing time, tends to be over a fat steak and a glass or two of the local Malbec, but here we are in a studio.

Joel Bowman:
Yeah, indeed. We might have to take a rain check on that meal until later in the day. Mate, first of all, you were telling me just before we got on air here about your trip in a kind of a lunatic taxi. And it struck me that was somewhat metaphorical for some of the topics we're going to talk on today. So give us a little bit of your backstory with regards to arriving here. What would it have been 15 years ago or something like that?

Robert Marstrand:
Yeah. Well, I actually immigrated here in 2008. As your listeners can probably guess, I hail from the UK originally. I'm English from South East England place called Sussex. My first time in Argentina was in 2002, which was an interesting time because it was just after, or almost actually in the middle of a massive financial crisis. So Argentina defaulted on its debt and had a massive two thirds currency devaluation around that time, so the peso collapsed against the dollar. I still have a pair of boots by the way, I bought it back then, August 2002. I bought a pair of ankle boots. They cost me the grand total of $20. And it's still going strong.

Joel Bowman:
How much was that in pesos at the time? Because that's obviously collapsed.

Robert Marstrand:
Well, I suppose by that point it would've been about 60 pesos.

Joel Bowman:
Right. And how much did you pay for your taxi ride in this morning? Just so readers can get an idea of how much the peso has collapsed.


Robert Marstrand:
Well, my what should have been a 10 minute taxi ride that took five minutes because I was being driven by a maniac, and that I believe probably had a rigged meter that bumped up the price, cost me about 300 pesos, which is about $1.50.

Joel Bowman:
Right.

Robert Marstrand:
It should have been about a buck.

Joel Bowman:
Right. So you've got completely ripped off and had to throw in an extra couple of quarters. Mate, you and I share a lot of articles, just regarding what's happening in current affairs, both down here in Argentina and in your home country, mine, and in the US. An article, a wall street journal article came across our collective desk within the past couple of weeks describing what I think may turn out to be the kind of inflationary ghost of America's future, or maybe even the future of many Western nations, that are just now seeing inflation tick up to once in a generation highs, depending on how you measure it. But for the Argentines, where we currently have an official inflation rate of over 50% right now, it strikes me that the people here have been dealing with this for... Goodness knows how long they have adapted, they've anti-fragelized themselves to some extent. How do you see having lived here for the past 15 years, the people of Argentina adapting to this... what for many people would be a completely foreign and very, very out of whack economy?

Robert Marstrand:
Yeah. Well, I'd say when I arrived here in 2008, inflation was about 15% a year, one, five. And it's just gone up and up and up since then. So it's never had low inflation since I've been here. I forget the long term average, but it's some monstrous number, because they had high pre-inflation back in the 80s and so forth. Look, all the stuff that happens here, borrowing money you can't afford to pay back, printing money like crazy from the central bank, it's happening in the US and across Europe, for that matter. It's something I write about and look at quite a lot, if you look at US bank deposits, since just before the pandemic started, so let's say February 2020, US bank deposits are up about 35%, 40%. So in just over two years, the economy is more or less the same in size, in terms of volume.

It went down during the pandemic and came back. Guess what? You get inflation. Well, guess what? We have inflation in Argentina too, because they keep printing masses of money. And you know what? Politicians, central bankers here will often say dumb things like, "Inflation is not created by the emission of money, or money printing."

Joel Bowman:
It's greedy capitalists or price gouging.

Robert Marstrand:
... it's whatever, it's speculators, it's whatever it happens to be, whatever they happen to claim. I remember a few years ago, there was a head of the central bank here who said exactly that "inflation wasn't created by money printing." And there was a finance minister, or maybe he was vice president by then, who said that "inflation only affects the rich." It's the poor that get affected most. Now here in Argentina, frankly, who gets affected most depends on where they fit into the social structure. So the very wealthy who have overseas assets and foreign currency assets and so forth, don't get affected that badly. The people at the very bottom who just have a bad life, whatever happens, they're struggling badly. They rely on handouts from the government, they tend to be adjusted for inflation, so they struggle along, I think at the same level by and large.

So the people in the middle, they get squeezed, it's the middle class, the people that have salaried jobs, and maybe their salaries don't keep up with the inflation and pay, so in terms they're paid in local currency. So those are ones that get squeezed. But it's brutal, 50% inflation a year, you're talking about prices doubling in less than two years, a year and a bit.

Joel Bowman:
And this is something that I think to your point about a lot of purchasing power for real wages, that is real wages going down when adjusted for inflation, this is something that I think people in the United States... And I'm not sure about the UK, but I imagine that many countries in the Euro zone and Australia, Japan and elsewhere are now just experiencing for the first time. So some of the strategies that people in that article down here in Argentina were using were things like, going to the store when there were discounts, coupon, clipping, this kind of thing, but also delaying payments, taking out loans and then paying in installments, which sounds counterintuitive, but if you think that your money is going to be worth... Or rather, you know that your money is going to be worth 50% less, 12 months from now, then it does make a certain amount of sense to take out a loan and pay it back with deflated currency sometime in the future.

But it doesn't say a lot about planning for the future when you're trying to get rid of your money as quickly as possible, or diversify into other assets. Is this something that people in the US and across the West, broadly, are going to have to learn to deal with in the future?

Robert Marstrand:
I think they are. If you've got dollars sitting in the bank and inflation's running at 10% a year, you're losing a lot of buying power, because you certainly aren't getting a lot of interest from the bank at the moment, right?

Joel Bowman:
Right.

Robert Marstrand:
I've seen people here, if you've got a few extra pesos at the end of the month, you stockpile whatever you might need in the future. So I've seen people loading up their storage units with things as simple as toilet paper. You might buy some wine, you might buy some canned foods, you might buy anything that's not going to degrade. People here also, I've heard about people who maybe wants to build an extension on their home, but they don't have all the money up front, so they'll buy a few bricks at a time. At least the brick is still a brick, when it comes to sticking it together into a wall. Whereas a pesos is going to be worth a lot less. Will people get to that, or learn, relearn to do that in the US and the UK and other places? Well, they may have to, if it carries on like this.

Share Bonner Private Research


Joel Bowman:
Right.

Robert Marstrand:
People also tend to have... If you have a pension fund, if you follow standard advice, you probably have huge investments in US treasury bonds, or gilts, as they are in the UK or whatever in other countries, these are dreadful places to be. If they're paying you like 2% a year and inflation's at 10%. So people got to think how to get out of some of the stuff they're used to, their local currency, their bonds, their whatever. Of course, people here are very clued up about that. The trouble is the government is very aggressive about blocking the exits. Well, yeah. People here, if you have spare pesos in your bank account, if you've got anything left at the end of the month, I think you're limited to something like $200 a month that you can buy in a-

Joel Bowman:
In foreign exchange, in foreign currency.

Robert Marstrand:
Yes, for the official markets, which gets you the better rate. So there are a lot of lessons to be learned here about how governments can really clamp down. So when their policies and their central bank policies are failing, they'll try all sorts of tricks to stop people protecting themselves. You've got to essentially try and get ahead of them.

Joel Bowman:
So unpack that a little bit, because this is something that you and I talk about, and people down here who save, invest, earn in another currency like dollars or British pounds, this is something that we bandy about pretty regularly, this idea of parallel rates. But I think that's something of a novelty to people in the US or Australia or the UK where we have an exchange rate for, let's say Australian dollars to US dollars, and that's the exchange rate. Why is there a parallel exchange rate? Explain that for our listeners, let them know why there's such a huge spread between the official and the unofficial, or rather blue rate.

Robert Marstrand:
Well, that's quite a rabbit hole to go down, because I think there's something like five, six or seven different exchange rates, so depending on which one you want to pick.

Joel Bowman:
Right. So let's go with the blue.

Robert Marstrand:
Yeah. So there's the official exchange rate, which everyone would be familiar with, which is, you go your bank and you want to buy some foreign currency to go on holiday or whatever, and they'll do it at the exchange rate plus their commission or whatever. But over here, there's also the other extreme, it's called dollar blue. I don't know why it's called dollar blue, but it is. It's the black market, but it's called the blue market here. And it's officially illegal market, it's backstreet dealers that you go and you take your pile of cash to, and they'll convert it, either from pesos into dollars or dollars into pesos. And that exchange rate is roughly twice the official rate. So I forget what the official rate is exactly now, but let's say it's 110 pesos per dollar...

Joel Bowman:
Something like that.

Robert Marstrand:
... you go to your backstreet guy and they'll probably give you 210, 220, something like that, the other way around. And then in between, you've got these other rates, so there's a legal market through the bond market for getting money in and out of the country, which trades bonds between New York and Buenos Aires, which is close to that black market rate. As far as I'm concerned, that's the market rate, that's the real market rate, it's legal and it's much higher than official. Then in between, the government imposes taxes on foreign purchases. So if I go on holiday, let's say from here and buy something with my Argentine credit card, they automatically add an income tax on that if you like. So that puts it somewhere nearer.

Joel Bowman:
How does that...?

Robert Marstrand:
... disincentivize me spending money overseas basically, they want me to spend my pesos here.

Joel Bowman:
Right. They want to keep you captive as it were and not let any of that peso leakage. So explain how that happens. It's something like 30% or something, I think that tax on foreign credit card purchases.

Robert Marstrand:
Yeah. And it's got some name, it's the solidarity tax or something. So there's that if you buy stuff, and there's another one, I think if you buy flights to go overseas, there's another tax added. Something odd goes on. Anyway, I-

Joel Bowman:
Does that get deducted just directly from your account?

Robert Marstrand:
Oh yeah, it's done through your bank.

So your bank is instructed by the government to automatically add to that to any purchases you make overseas, and then it gets taken out of your account, and then goes to the government. So people-

Joel Bowman:
Is it really your money? Who says it's your money?

Robert Marstrand:
Governments have all sorts of tricks that they can come up with to control the gates, to control capital. And of course, the US already has capital controls in the sense that if you're a US citizen and you move overseas, you still pay tax to the US on your foreign income. And if you wanted to give up your... As I understand it, if you want to give up your citizenship, you'll pay a massive exit fee. Because I had a neighbor in London years ago, he was actually a German. His wife was English, lived upstairs. And he'd lived in Washington for a couple of decades, and he left the US. And to his shock horror, discovered he had to pay some massive exit tax on the notional value of his pension, which wasn't even funds he had, it was just a notional value of money he might get in future. And he got whacked with this massive bill. And he wasn't even American, just lived there for 20 years.

Joel Bowman:
It's extraordinary.

Robert Marstrand:
There are capital controls already.

Joel Bowman:
Right. And I guess some of these controls and taxes are more conspicuous than others and certainly people don't tend to think of inflation as a tax. But as we mentioned, if you're watching the purchasing power of your dollars or pesos or pounds or pengős or złoties or whatever, depreciate by 10%, 20%, or in Argentina's case, 50% per year, that's certainly a tax on your quality of life. I remember you did a little bit of work when you were, I think, maybe when you were riding with our mutual friend, Bill Bonner, some years ago in unpacking all of the business taxes here in Argentina, if you were to operate what they call [foreign language 00:15:10], if you were to operate a business strictly above board, you were to cross all your Ts and dot all your Is with the tax agency here. And it was some extraordinary amount, something like 130, it was above a 100%, I remember.

Give a gift subscription


Robert Marstrand:

Yeah, it was a study done by one of the big global accounting firms. I think it was covering about 40, 45 countries, something like that. And they looked at all the taxes levied on companies. It was sort of mid-cap, small mid-cap companies, it wasn't big multinational, just the small stuff. They looked at all the taxes levied in these countries, and their conclusion, and Argentina was the only one that achieved this, was that if a normal business paid all the taxes that it was supposed to, it was guaranteed to make a loss, which is obviously insane. I would hate to try to be a local entrepreneur here, I think it's a phenomenally hard place, it ranks very low in the world. It's not quite as bad as say, Eritrea or North Korea or somewhere, but it's not that far.

So effectively, you reach the conclusion when you read stuff like that, and talking to people. If somebody's running a business here, they have to break the rules to stay above water. And not just that, if they don't, the guy next door will be, and so how do you keep up? So it's an insane situation.

Joel Bowman:
And if they're running a profitable business here, there must be incredibly nimble and entrepreneurial and anti-fragile and it's quite a testament to their business acumen

Robert Marstrand:
I know some very successful entrepreneurs here, and I think they're probably some of the best business people in the world, given what they have to put up with.

Joel Bowman:
Right, right. Hardened in the crucible of Argentine politics.

Robert Marstrand:

If they were gifted, the kind of environment that people enjoy in the US, let's say, say in certain states, this place would rocket. It would be an absolute overnight success within not that many years.

Joel Bowman:
Right. Well, the natural resources here-

Robert Marstrand:
Yeah. You get this place 10 years of a decent, stable set of rules that were sensible, and a tax system, and employment law that was sensible, I think this place would absolutely be boom.

Joel Bowman:
So let's talk about that then, because I know you headed back to the UK in a month or so with family. When you go back to the UK, when I go back to Australia or we visit the US, and I'm sure you hear this as well, I oftentimes hear people pining after... with a romantic tear in their eye or advocating for these very, very progressive taxation, let's say, or broadly socialist policies that... Of the Stripe, which have led Argentina to exactly the lamentable position that it finds itself in today, where it has an abundance of human capital and abundance of natural resources, and can't seem to get it together, where other countries like the UK, like the US or Australia, how do you address the dinner table conversation where somebody who's telling you with a straight face and without any hint of irony that "what we need more of in the UK is some Argentine-like policies."

Robert Marstrand:
Well, God, where to start with that? I have to say, as you know well, I'm about to go over the big barrier of my age, beginning with a five, rather than a four.

Joel Bowman:
The half ton.

Robert Marstrand:
I have to say that as I get older, my appetite for having arguments with people over dinner tables or otherwise is diminishing because you lose patience with it. But that said, I do observe a lot of the views and the actions, and I find it exasperating. In fact, one of the reasons I immigrated, despite all I've said about Argentina's problems, Buenos Aires is a lovely city and I do love this part of the world. But when you don't live in your country of origin, it's easier to put mental distance between yourself and the nonsense that's going on. When I go back to the UK, I'm instantly thinking, "Why on earth are they doing this nonsense?" And just this week, just in the last couple of days that in theory, they have a conservative government, which is, I suppose, broadly a bit like the Republicans, it's different, but it's slightly to the right, in theory.

Joel Bowman:
Small city conservative type of-

Robert Marstrand:
Supposed to be in favor of business and all the rest of it. I think they're left of center personally, but that's my view. The chancellor of [Vecheko 00:19:49], which is like the... What do you call it? The sector of the treasury.

Joel Bowman:
Right.

Robert Marstrand:
It's talking about putting windfall taxes on oil and gas companies. This is madness. This is in the middle of a global energy and commodity crisis. And they're talking about slapping extra taxes. These are companies, which by the way, are investing billions of dollars every year into renewables as they move away, they don't have a choice, moving away from oil and gas over time, but it's going to take a lot of years.

Joel Bowman:
And a lot of money.

Robert Marstrand:
Slapping taxes on them slows that down. So it would be idiotic. So that's just one example of what exasperates me. It's not just taxes, it's just lots of petty rules. And it really took off in the 90s, when Tony Blair came in with what's called New Labour.

Joel Bowman:
Well, he had the hand of history and shoulder.

Robert Marstrand:
Yeah. He had the hand of history, and the God, he had hand of something on him, I don't know... They just started bringing in lots and lots of petty rules. It was sort of a effectively job creation, all these non jobs in all the bureaucracies of the state. And they wrapped up. I think I once calculated in the UK during the Blair government, that adjusted for inflation and population, that government spending per person in real terms, so just for inflation, went up something like 40%.

Joel Bowman:
It's incredible. Incredible!

Robert Marstrand:
That's talking about big state. And they've never dialed it back. In theory, we had a conservative government since what, 2010?

Joel Bowman:
Right.

Robert Marstrand:

And it's never gone down again.

Joel Bowman:
Well, that's the way, isn't it? It tends to be rules are easily put on the books, but it's very, very difficult to appeal.

Robert Marstrand:
But also if you give lots and lots of bureaucrats, lots of jobs, they're going to be busy bodies and they're going to bug you and get into your life. And I find it, just drives me out the wall personally.

Bonner Private Research is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.


Joel Bowman:
And also I find a perverse incentive structure, where in the marketplace for all, its rough and tumbled turbulence or what have you. If you're a losing business, you tend to go out of business. If you're not satisfying your customers or you're not meeting payroll or you're not growing earnings or you're not producing value for your shareholders, et cetera, then you don't stick around for very long, or you become an acquisition target or whatever happens to you, but that capital becomes eventually liberated. It seems to be the opposite when it comes to conversations about the state, where any program you happen to point your finger to, whether it's the war on drugs, or the war on poverty, or the war on terror, or the war on COVID, or any of the above and plenty more, it seems the more inept the agency is, the more money it gets. And as you say, that just kind of the Leviton growth.

Robert Marstrand:

Well, being the finance nerd I am, I dig into things like, what's the real tax burden on people? Because we think we pay a certain amount of tax, but what's it really? Now, I can't give you the numbers for the US, and also it varies by states and all that kind of thing. I was looking at the numbers in the UK and I reckon, rich or poor, high income or low income, if you add in, so all the direct taxes, income taxes and whatever, but then you look at the taxes embedded in the prices of things you buy. So all the taxes that corporations pay. So the income tax for their employees, their local taxes on their property, their corporate taxes and et cetera, et cetera, in UK, we have value added tax, which is a sales tax as well. You add all of that together, I reckon that just on average, across all the stuff you buy, probably about 40%, maybe more, it's just tax in the price of everything. It's probably even more or in Argentina by the way.

But I reckon that people roughly speaking were paying about 60% tax across the board. And most people probably think they pay about 20%.

Joel Bowman:
Right.

Robert Marstrand:
It is insane. And it just goes up and up and up. The UK recently that the tax burden is the highest relative to GDP. I think it's been since the second world war or something, or maybe it was the 60s, I can't remember, but it's high anyway, that's the point.

Joel Bowman:
Right. So whether it's this inflate or die or tax and spend mentality, it does seem that-

Robert Marstrand:
Well, sorry. Just a crucial point is here...

Joel Bowman:
No, go ahead.

Robert Marstrand:
... obviously, we have this cost of living crisis going on, and price of energy and food and everything is rocketing. And I think it could go on for a while. No one ever talks about the fact that so much of that cost is tax.

Joel Bowman:
Right.

Robert Marstrand:
Could the government not scale back and cut some taxes and reduce our cost of purchases? Hey, not even talked about.

Joel Bowman:
Not in the nature of the beast. So going back to what you said before about this, the proposed windfall tax for oil and gas companies, which have just been the whipping industry [foreign language 00:24:43] of the last decade let's say, a similar windfall tax proposals have been tabled in the US, and it just strikes me as perverse that at precisely the time when we are experiencing... Let's be generous and diplomatic and say, tensions in the global energy markets, we've had under-capitalization in this particular industry. I think the high watermark for dollar spending for global exploration was around 2014, something like $800 billion. That was not coincidentally the high watermark for the last high in oil prices itself.

And whether it's being squeezed by environmentally sustainable governance and all this kind of stuff, it seems like it's very difficult for entrepreneurs and businessmen to invest in critical energy if they're being beaten around, boxed around the ears by governments. What's your outlook... I know I've already had a huge run up in energy prices, and we talk about this a lot in our newsletter upon a private research, but what's your general outlook for global energy prices in next short to medium term?

Robert Marstrand:

Well, I think it's likely that oil and gas prices stay pretty high, especially in Europe. Of course, there's a big disparity right now between North American natural gas prices and European natural gas prices, because it's cheaper to deliver gas through pipelines than turn it into a liquid, stick it on a ship, sail it across the ocean, turn it back into gas, which is the liquid natural gas, liquified natural gas. I'd say the prices are likely to stay high. Because even if this whole thing is wrapped up in Ukraine tomorrow, is everyone going to rush back to buy Russian commodities? And Russia being such a massive producer of both oil and natural gas. I suspect they'll be sanctioned for years, maybe decades, until there's a change of leadership. And by the way, people talk about removing Putin. Well, who knows if the next guy isn't worse. So don't get too excited about that idea.

But just a bigger picture... So I'd say prices probably stay high. Bigger picture for all the hoser about the shift to renewables and getting to net zero by X year, depending on which government saying what's on, what day of the week, people forget... There's a great piece of work done every year by an oil company called BP, it's big oil company, you've probably heard of it. Where they do a world energy review, although they're an oil gas company, they look at coal, they look at nuclear, they look at wind and solar and the whole bit. And the stark reality is that 84% roughly of the world's energy comes from hydrocarbons. So that's coal, oil, and natural gas. Then you've got a chunk that goes to, I think it's something like 10% goes to nuclear, comes from nuclear.

Another chunk similar comes from hydro electricity, so damning up rivers to create lakes and then running the water through turbines. And then there's only a little bit left. That's the renewables, in quotes, the solar and wind piece mainly, and few other bits, biofuels maybe. How are we going to get that tiny piece to replace the 84%? Well, it's going to take a damn long time. So the fact is, whatever people say, oil, coal, natural gas are here to stay probably for decades, especially in poorer countries that can't afford the new technologies straight away. They can barely keep the lights on as it is in many cases. And don't forget, everyone talks about... Everyone, well in Europe, we can cut ourselves off from Russian oil and gas, and let's all build lots more nuclear power stations.

Well, great. But guess what? Nuclear technology is subject to restriction some proliferation because of fears about weapons. Right?

Joel Bowman:
Right.

Robert Marstrand:
So all those poor countries, what are they going to do? They can't build nuclears, they're not allowed to, no one lets them. So I don't think this thing is going to evolve anywhere near the way that the politicians claim they want it to evolve. I think poor countries, big places like India or parts of Africa or wherever, they're just going to say, "Look, we need energy to keep the lights on. We need to keep our populations heated or lit or fed. We need tractors, we need..." Whatever. I don't think they're going to shift to massive, great solar and wind farms anytime soon. There'll be a bit of noise around the edges to keep people happy, but it won't happen, simply won't happen.

Joel Bowman:
Right. And it does strike me that in many of these... you mentioned India or Sri Lanka or nations that are decidedly not energy independent. And we've spoken a little bit about Sri Lanka before, but there are a lot of places where a large and meaningful portion of the population live at or around the breadline level wearing, as you mentioned before, inflation herding, not the richest people, contrary to what the Argentine government would have you believe. But inflation actually hitting the poorest people, we see 10%, 15%, 20% rises in the cost of energy, combined with the inflationary pressures that these people are feeling. It does strike me that this... Much like the Arab Spring in 2009 or 2010 or whenever it was, it does strike me that we might be a lot closer to civil unrest in volatile pockets of the world than we might necessarily be factoring into the geopolitical equation.

Share Bonner Private Research


Robert Marstrand:
Yeah. There's no question. People complain about rising gasoline prices or food prices or whatever in wealthy countries, but in poor countries, poor populous countries, this is life or death stuff, if you can't feed yourself. And throughout history, revolutions have always been caused basically by populations becoming hungry, that's the final trigger point. It doesn't matter how authoritarian the government is. If people are starving, they hit the streets, and they will throw their lives on the line because they're going to die anyway. Now the people that really struggle, so the rural poor usually just about scraped by because they've got some plot of land, they can plant some food, they might have a goat or sheep or whatever. It's the urban poor that really struggle because they can't grow their own food and they're scraping a living.

And so that you think about some of those big cities in India or wherever. I haven't actually been to Africa yet. I know you have, but I imagine some of those big African cities are pretty grim. And those are the people that are likely to riot. And you mentioned Sri Lanka, Sri Lanka's economy relies on tourism to a large degree. And of course they got slammed during COVID because people weren't traveling. And I have a brother-in-law who has a business there as it happens. He lives in England, but he has a business in Sri Lanka. And they're going through rolling 5-10 hour power cuts at the moment, there are food shortages, they've just defaulted on their debt, they've had riots, so the place is going into meltdown. Indonesia, biggest producer of cooking oil in the world has recently started restricting exports of Palm oil, which is controversial for some people because of they have habitats where the trees are, orangutans and things.

But throughout Asia, it's a very important cooking oil. This also goes into the filling in Oreo cookies by the way, and shampoo and all sorts other things. But that's another sign, a big country, 200 million people and they're restricting their exports of an important food stuff. So I think we're going to see a lot more of this through those poorer countries. And of course, Argentina also has restrictions on some of its food exports, particularly meat, beef here is produced in great quantities, because it's all about suppressing the price in the domestic market.

If all these big food producers start cutting off exports or restricting them in some way, obviously it has knock on effects to the importers, the Sri Lankans of the world.

Joel Bowman:
I know a lot has been made of these so-called supply chain disruptions and I've heard it said before that, well actually supply of chains are the economy. Supply chains aren't a part of the economy. Supply chains are the capillaries and the arteries and the veins getting necessary nutrients to different parts of the marketplace. We've seen, I think in the UK, certainly in the US and in Australia, I've noticed there have been... people are starting to notice empty shelves. This seems unthinkable after a generation of more or less uninterrupted growth and this cornucopia of goods and services that are ever being made easier, and at our fingertips with the advent of various technologies and such, but it is interesting to note that, now, for the first time in decades, people are looking at shortages, they're looking at long lines at the gas station. Just how fragile are these supply chains. And given what's happening in Eastern Europe and the energy markets in general, how likely are we to see more of those kind of empty shelf syndrome in markets around the world?

Robert Marstrand:
Well, I think the whole two years of the COVID pandemic was a great wake up call to a lot of companies who were operating these just in-time supply chains from right around the world. One simple example would be the car manufacturers who... I quite like cars, I don't like modern cars that have so much computer technology loaded into them. Of course they're completely reliant on all this computer technology now. And the shortage of chips has created... Basically meant they had to shut down factories. And that's why secondhand cars' prices have gone through the roof, because people can't buy new ones, it is absurd. China is still locking down its cities. So Shanghai recently, and this week there's been fears about them locking down Beijing. That clearly creates supply eye chain issues, if you shut down all the big cities in China.

Joel Bowman:
I think Foxconn was the-

Robert Marstrand:
Oh yeah. They supply Apple, right.

Joel Bowman:
But yeah, when you locked down 25 million people in Shanghai, 25 million more people in Beijing, these people go to factories, they make products, those products get shipped to America and the UK or not as the case may be, so yeah. Mate, it's a little bit of a grim outlook. We're just bumping up on the end of our time here. But before we get going, I want you mention where readers or listeners rather can find your work. I know you're with Southbank Investment Research in the UK, give us the details on your work.

Robert Marstrand:
Yeah. Southbank Investment Research, it is a branch of the same outfit that you are involved with. It's mainly for a UK audience, but we talk about the investment world in general as well, the products called UK independent wealth, and I'm sure I can provide you a link or something that people can come and find us if they want to.

Joel Bowman:
Right. All right, well, we'll have to organize a little bit more time for our next podcast or maybe we'll be lucky enough to do it over a steak at Don's and a big fat glass of Malbec. But Rob mate, thank you very much for joining me in the studio today. And for our listeners, please don't forget to head over to bonnerprivateresearch.substack.com, where you can find plenty more conversations like this and many, many irreverent articles about high finance and lowly politics besides. That's all for this week, and I'll catch you again next Sunday.

Thank you for reading Bonner Private Research. This post is public so feel free to share it.

Share