A gaze on the rest of the world

The situation in the Middle East is hopeless. It doesn’t matter how many trips the Secretary of State takes, Israel and Palestine will never reach a Two-State Solution: the parties are too distant from each other. Isis is a formidable factor in the region. They are guided by ideology, well financed, skillfully trained, and encouraged by their recent victories. Only the Kurds seem effective against them. The Iraqi army seems to have insufficient motivation, weak leadership, and poor preparation: a lethal combination. Unless the United States sends combat troops—an improbable event—Isis will continue to make gains in Syria and Iraq, while the Taliban controls Afghanistan. Sending a few hundred advisors to help the Iraqi army is too little and excessively late. Even if the US sent an army, they situation would descend into chaos as soon as they left. This condition will persist until Saudi Arabia is threatened, after which other countries could become seriously involved with military forces.

The agreement with Iran will not be satisfying for many western countries, but this will halt Iran’s efforts to develop nuclear capabilities. Without an agreement, Iran could have had a bomb within two years, greatly destabilizing the region, and for this reason I tend toward the side of those who believe an imperfect agreement is in any case better than the lack of an agreement. While the religious hierarchy in Iran could continue to pursue a hard line, political leaders and citizens rejoice over the revocation of sanctions that could create more opportunities in a struggling economy. Here, there is a similarity with Greece: serious compromises were made in order to make progress. Neither side will be satisfied, but the consequences deriving from this reasonable agreement are sufficiently positive to force both sides to maintain a basis of understanding. The Iranian deal will attract a mass of investments to the country.

When you look at other problems in the world, it’s clear that the Third World War has already started. Whether it’s Ukraine, Libya, Syria, Iran, or Afghanistan, there’s no way that the United States can use its power and influence to create a peaceful solution. The US can endow locals with weapons, but they shouldn’t send their own soldiers to fight another country’s battles. In any case, there is no longing for this outcome, and it wouldn’t work. These problems need to be resolved by the parties directly involved. The Kurds have demonstrated this. It’s true that if the conflicts aren’t stopped, terrorism could increase. But this is something we are bound to face. By now we should have learned that being involved without being prepared to intervene in an influential manner is ineffective.

Japan is well for now as a result of monetary and fiscal stimuli, but I don’t see any sign that the country will continue to grow without the continuation of these policies. Consequently, it runs the risk of falling back into a deflationary recession. I know something about emerging markets based on commodities, and I expect a slow, continued growth. The weight of the United Kingdom’s public debt will diminish the possibility of anything more than a modest economic improvement. In France, I expect that economic growth will recover next year thanks to the elections. I’m worried by the political equilibrium in Europe that’s moving toward the extreme right, but I’m happy about the elections in Turkey and Erdogan’s subsequent loss of power. He was beginning to demonstrate tendencies typical of Putin. Right now he is respecting the electoral results. If he continues to do so, it will be very favorable for Turkey.

Looking at other global financial markets, Modi is creating constructive progress in India, but it’s slow because of the country’s bureaucracy. China is working hard to rebalance their economy in favor of consumption and far from infrastructure and investments in state-owned entities, but in order to do so they’ll have to increase their debt. Fortunately, their balance sheet is in such a position to allow all of this. Real growth without fiscal stimuli is much slower than rates, and this is why I’m worried about the Chinese stock market, whose recovery will not be as rapid as many expect. I don’t want to worry too much over China’s territorial expansion. This could be a long-term problem, but Chinese leadership is currently focused on reducing corruption and maintaining growth, and neighboring countries are arming themselves quickly. Japan’s constitutional change—unthinkable until only a few years ago—is a clear signal of Asian countries’ strong determination to collaborate and contain China at the same time.

I believe we have seen oil prices touch bottom. I am aware that reserves are enormous, that shale producers are back in operation, and I believe that $50-55 is still not the minimum for Brent. The battle is between Saudi Arabia and shale drillers. The Saudis are producing one million barrels per day, which is more than the established quota, to keep shale producers under control. However, demand is growing slowly and prices are creeping up modestly. Iran’s entrance into the market will contribute to depressing price levels with important benefits for the European and Japanese economies.

Turning our gaze to other non-financial assets, I think residential real estate prices will maintain their levels in places where finance and technology are going well, like New York, London, Boston, and San Francisco. There will also be an enormous sum of capital that migrates from Asia to areas they believe provide safe refuges for foreign wealth. It’s likely that this will continue, but the anti-corruption campaign in China could slow the process. In commercial real estate, the real opportunities will be in depressed areas like Italy and Spain.

The art market is strongly influenced by new billionaires in search of esteem. They can purchase a precious painting and immediately become a relevant individual in the world of culture. You don’t need to read a book; you can hire someone to correct your errors. Art has proven to have good stock value, in particularl works from the XX century and sculptures by renowned artists. Based on the mark-up of recent auctions, there are buyers ready to acquire important paintings. Younger people hope to buy promising art ahead of the pack, but this is riskier.

In the past, there have been times in which I observed abundant opportunities everywhere. Now, I have focused my interest on technology and biotech. The entire world has seen growth opportunities curbed by debt, and I don’t think much can be done about this.

Turbulence in the Middle East will not subside, and I think nations need to resolve their own problems without European or US intervention, because I don’t think our noble efforts will help. The same holds true for the situation between Russia and Ukraine.

I see terrorism as a destructive force that can cause turbulence in the current context of investments, and I think we need to do everything possible to protect ourselves from this. While there could be more risks than opportunities outside, I trust that we can always find a way to increase our net assets.

Straightening out Italy and Europe is impossible, and in any case, is well beyond the majority of our abilities. I struggle to be optimistic in this regard.