The Weekly Distillation No.76
Taiwan; Inflation; Kosovo; Israel; Water; Whisky; Pineapples; Flying Cars; Tech Breaks
This newsletter is written for entrepreneurial leaders who want to learn about the moment we are living in but don’t have time to read broadly; who want to grasp the key themes; and who want to create better ways of advancing their mission. The Weekly Distillation covers a broad range of topics with the intent to curate the key narratives of the week, how they fit the broader themes of society and to pose questions that help you to think deeper on the application in your context. You can read more about the key themes I see here.
People once said……………….
“Basically all the world's computer parts come from the same supply chain that runs from Korea, down through coastal China, over to Taiwan, and down to Malaysia.” - Thomas Friedman
“Imagine a part of the U.S.A., from which the U.S.A. started - where is the cradle of your history? This is Kosovo for Serbia.” - Novak Djokovic
“In Lebanon, tens of thousands, even more than one hundred thousand missiles, are ready to be fired to create a hell for the Zionists at the moment of making the divine predestination happen,” - Gen. Hossein Salami, Islamic Revolutionary Guard Corps of Iran, after meeting in Tehran with Palestinian Islamic Jihad’s general-secretary Ziad Nakhaleh
Skim it in a minute
Not another cold war?
China has managed to throw its toys out of the pram over Taiwan but has not yet kicked over the pram. This is good news for the world. I jested a few weeks ago that one of the last two items that had not yet come true on my 2022 bear case was China invading Taiwan (the other being a much worse variant of Covid spreading widely). However, whilst all eyes are on Taiwan, don’t forget that only last year there was a military conflict between India and China and that this doesn’t seem to be heading in a good long-term direction. China could also be a significant influence on Russia in putting an end to its invasion of Ukraine but is so far failing to do so. Taiwan is a massive factor for the global economy because of 1) the semi-conductors made there 2) the Taiwan Strait is a very significant shipping route and 3) it’s a significant market in its own regard, including for whisky.
Aside from Taiwan / China, the theme of geopolitical tensions rising is still alive. Examples abound including:
Israel and Hamas/Palestinian Islamic Jihad/Iran/Gaza are at war again -and PIJ/Hamas may be a few years from taking the West Bank as well as Gaza.
Azerbaijan is kicking it all off again in the disputed region of Nagorno-Karabakh. War with Armenia coming up? Did I hear Iran, Turkey, France and Russia getting drawn in?
The Tallys are getting pally with AQ again. The CIA [finally] got the monster that Al Zawihiri was but what happens in retaliation? AQ isn’t gone, neither is ISIS or Islamic terrorism in general.
A dispute over license plates has seen protests and shots fired in Kosovo. The Balkans remain a significant potential flashpoint of tension for Europe. Russia is influencing heavily in Serbia and would no doubt be very happy if it all kicked off in Kosovo again.
In the US the Counterterrorism Group has warned of ‘The Hard Reset’ a radical call to conflict from right-wing radical groups and to expect more shootings and attacks. Similar to the UK, right-wing terrorism is on the rise.
It’s very difficult to predict which of these will be a meaningful factor in the rest of 2022 and which will pass or remain highly localised. Flexibility, resiliency, spare cash and a fast reaction and decision making are the best routes forwards.
What’s your organisation doing to keep abreast of these risks? What would you be willing to fight over? What does it look like to build a lasting peace in teh face of multiple enemies intending to cause chaos and harm?
Thirteen percent inflation
I was listening to some random music with the children this week on Spotify and an song “If I had a million dollars” came on. In the UK the Bank of England announced that inflation is expected to hit 13% within the next 12 months (but don’t worry lads because it will drop to 2% by 2024 (uh huh….))….having spent my entire working life seeing inflation fall or remain at very low levels, it’s hard to even imagine what that means.
I heard of one firm this week that plans to put through a 15% across the board price increase because “if you can’t do it now, when can you do it”, which is the sort of mentality that the Bank of England is very concerned about. Returning to the song, the $1m in a 13% inflation environment would be the equivalent of $480k in 3 years, $160k in 5 years and $1k in 10 years. Maybe they need to re-release the song as “If I had a billion dollars”.
Savers are getting destroyed, the poorest are getting crushed, strikes are on the rise, employers are not yet having to pass inflation through to wages - the winners are the large borrowers (hello Governments) and to an extent exporters due to the weakness of the currency (in companies where input costs are not rapidly rising). In the UK it’s going to feel a lot worse before the improvement comes - probably another 12 months of pain.
The bull case though is that inflation collapses because demand falls off a cliff. This is the flaw in the Bank of England’s mandate - to keep inflation down, as opposed to the Fed that focuses on inflation and employment. As a result of wearing different hats in life I get to spend time with people who are unemployed and struggling all the way through to billionaires who are wondering which yacht to buy next. It’s clear that the current pressures are brutal on the lowest income families - but even in the middle class/income and up to people that are earning £150k a year, inflation and cost of living is now a factor in purchasing decisions.
I’ve not yet heard a lot of blame being directed at the Government, which suggests the narrative of “blame Putin for this” or “it’s a global crisis, not a UK one, and we can’t fix it” seems to be working. Australia ran this play brilliantly in 2008 when it referred to the financial crisis as the GFC (‘Global Financial Crisis’), in one fell swoop shifting all the blame onto the Americans and excusing themselves from any culpability.
We’re in an environment where we’ve got exceptional cost pressures corporately and personally, rising political tension, slowing demand for most products, rising unemployment, rising interest rates, global tensions, supply chain shortages - #wearealldoomed. And yet - on the other side commodities are falling, slowing demand may slow price rises, wage pressures may ease off with rising unemployment, interest rates may peak lower than expected, the weak £ helps exporters and incoming leader prospects may cut taxes - there are definitely signs of hope but these may take a good few months to come through.
When the water runs out
Spare a thought for the French, where they are in the worst drought they have ever seen and are having to tanker water in to towns. In my themes of the future I wrote this:
“We will see peak freshwater and so many conflicts (legal and military) over access to water. Desalinisation technology will be one of the main areas to focus on this century — there is no shortage of water, it just takes too much energy to take the salt out and then move the freshwater to where you need it to go.”
There are some signs of hope, with the invention of low-cost desalination technology but there needs to be an immense amount of infrastructure put in place to transfer the water to where it is needed. Climate change might kill us all in 100 years (or maybe not) but running out of water kills you in days. Water shortages are not getting sufficient airtime in the West versus the scale of the crisis. In Scotland we have no meaningful water shortages, it has already started showing hints of Autumn/Fall in early August.
I wonder if we’ll ever reach a day where it will be cost-effective to export water the way that woodchip or oil gets shipped around the world. (And yes, I know the story of the plan to tow icebergs to Saudi Arabia and no, that’s not what I am talking about). A great long-term investment theme, and a source of significant tension in chaos in the next 50 years.
Whisky news
I travelled to Speyside this week (a nice 370 mile round trip as I popped in to Banchory too) to visit one of the largest single malt distilleries in the world - an excellent trip. There’s so much going on in whisky right now, it’s fun to play a small part in it.
Great to see the Belfast Distillery get all of its funding. James Ameen, an elderly gentleman in NYC, is one of the key drivers and is one of my favourite people in whiskey.
More exceptional whisky being released - this time a 72 year-old from Strathisla (or Milton as it was when distilled).
Another Islay Distillery on the cards from the Islay Boys, helped by Ian Macleod Distillers. I’m now up to tracking 52 new whisky distilleries still being built/reopened/planned in Scotland which will take the industry to 195 distilleries versus 100 pre 2000.
Needing a boost?
If you find the geo-political environment brutal and depressing, here’s a few other stories I came across recently that might just put a smile on your face:
Scotland just crowned a tree hugging champion
Flying cars have arrived - approved by the FAA you can now pick one up for $150,000
The pineapple team (I saw this from Pascal Bornet on LinkedIn who you should follow if you don’t already)
Scientists have a proof of concept for a tiny bionic robofish that can capture micro-plastics from the ocean
I was back at work this week after 16 days holiday and going 100% off-grid. An annual practise, this break from tech is an amazing mental reset. It helps to have highly competent colleagues and gracious clients of course. I’d recommend trying a complete tech/phone break. I’m WFA next week from Northern Ireland and looking forward to counting flags, hunting down the EU border that seemed pretty absent on the Irish Sea today and getting a serious amount of work done. Enjoy the weekend. Thanks for reading.