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The war in Ukraine has changed the world in a new and profound way

I get asked a lot about whether I am going to go back to the asset management industry. The temptation is strong. Lets say I find a great trade, then perhaps I can increase my net worth 3 or 4 times over a 10 year run. But if its a trade that can also raise capital, and become a cornerstone of a fund management business, then you are a looking at something that increase your wealth exponentially. The best trades are always contrarian in some way, and so you really need to be convinced to make them work.

I have had two mega trades that really moved the needle for me. The first was China. In 1998, I was living in Hong Kong, and one job I had was to take Japanese executives up to visit factories in China. I learnt two things from this - first China had amazing infrastructure. I still remember arriving at a huge airport in Guilin and only seeing two flights scheduled to land that day. I asked my brother why build such a big airport, and he said the CCP plans for the future. From 1998 to 2008, I made it a priority to try and latch my career to that of China as close as possible. This was more difficult than you could imagine. In 2002, after two years working in Australia, I tried to get a transfer to Hong Kong. There were no jobs. The closest jobs to “China” I could come up with was an auto analyst in Japan, or an emerging market analyst in London. I went with the latter, but the pay was so low, the custom official asked me how I was going to survive in London. He only let me in when I assured him my company was paying for accommodation. And from 2002, I ran the bull market first as an analyst, and then from 2006 as fund manager all the way up.

I managed to get short emerging markets and China in 2008, but was still short in 2009, when China launched its huge stimulus program. I was certain that a economic growth programme centred on not only building more housing, but getting house prices to rise was doomed to failure. At the time, Chinese induced stimulus and inflation, as well as the ongoing Eurocrisis had led people to be very bearish on bonds. But I was pretty certain that a country like Ireland would never be allowed to default, and that inflation was going to be much weaker than expected. In 2011, buying bonds was a 10 year mega trade.

When Russia invaded Ukraine, this has made me think that the new mega trade, was short bonds long gold. This was part of a longer term idea that we are moving from pro-capital policies to pro-labour policies. This has led me to keep thinking that we might see a repeat of the 1970s in terms of gold versus bonds.

However, as I have been reading about the war, a new thought, and potential variant mega trade has started to form in my mind.

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Capital Flows and Asset Markets
Russell Clark