Good on ya, Australia and influencing the influencers

The Weekender offers my perspective on market developments and their potential broader implications, written most Friday afternoons. If you'd like this delivered to your inbox on Saturday mornings via Northern Trust, please sign up here.

Good on ya, Australia 

...for being the first country to legally age-gate social media for children under 16. As we have for some months discussed (including here), I’m picking this as a direct result of Jonathan Haidt’s, The Anxious Generation which provided the science for what many parents can observe directly (go Nokia!). This bold move has met with the approval of most parents I’ve spoken with. And left kids…well, talking to their parents. In my own study (with admittedly a sample of one), my teenage son returned from his no-smartphone boarding school yesterday. It was extremely uncomfortable.

We conversed. With fully formed words! He even asked me questions like, ‘what you been up to?’ and seemed oddly interested in the reply. I reported this to his schoolmaster, as any responsible parent would, and he confirmed sightings of similarly unsettling behavior, such as children congregating in communal areas, playing things our parents called ‘sports’ and participating in rituals of ‘laughter’ – a seemingly contagious infliction. Who knew?

Meanwhile, experts are skeptical, predicting kids might just VPN their way around this. But hey, it’s a start, so ‘good on ya Australia’ – we owe you. I’ve finally met my son.

El Loco

What’s the difference between a madman and a genius?

Success - Javier Milei, President of Argentina.

The world’s biggest influencer

Over the years I’ve suggested reading a few books/biographies to gain insights over key influencers like Trump and Musk . But who influences them? And what do they read? Well, it appears one of Trump, Musk and even UK leader of the opposition Kimi Badenoch’s influencers is Argentina’s new pro-market, libertarian President, Javier Melei.

What does he read? Well, a lot. Everything from Adam Smith, Milton Friedman, F.A Hayek, John Locke to The Bible, and Ayn Rand. His heroes are Rocky Balboa (‘it aint how hard you get hit but…’), Gary Becker (think the economics of human capital), Moses (‘the greatest freedom fighter of all’) and his dogs (“unconditional love and loyalty”).

So, to gain insight into what might influence the influencers like Trump, you might read Milei’s book: Capitalism, Socialism, and the Neoclassical Trap. If short on time, it may be easier to listen, or perhaps read the transcript of this incredible interview between Milei and Lex Fridman. I would also listen to this interview with Discovery’s Rob Citrone. He’s picking Argentine stocks to 5-bag over the coming years (having already doubled this year).

And who doesn’t love a five bagger. If only I could get exposure….

Buying baggers

It’s truly staggering what Argentina has achieved since Milei’s arrival. Inflation’s come down from +200% to just above 2% (thanks largely to higher exchange rates), it’s soon to become a net exporter of energy thanks to its vast shale reserves (second largest globally) and has slashed a third off government spend and produced a budget surplus for the first time in 123 years, much to the excitement of their bond-market. While not everyone’s a fan (the Telegraph’s Evans-Pritchard thinks Melei’s made a horrible mistake), Melei is someone you probably can’t ignore for much longer.

And if, like me, Citrone’s comment above had you searching for Argentine exposures, you won’t find any in the MSCI EM Index. For it’s not included. That may soon change of course, but even if it does, that Index’ performance will be more linked to China (~25% weighting) than to Argentina, 5 bags or not.

Country first, theme second, index… so last Thursday

Now, if geo-political + economic fragmentation continues, and tariff-related trade conflicts create more reliance on self-reliance, shouldn’t market fragmentation follow? And if it does, are these regional indices fit for purpose? I would argue the EM Index is too blunt of an instrument. Its country constituents beat to different and increasingly domestic drums, if even included (Argentina is not). I wonder if this is symptomatic of a broader trend in markets. One in which a greater focus on mega-forces (like AI/crypto) or popular politicians (Milei/Trump) that are seemingly capable of arresting macro drivers and reshaping whole economies, forces us to reorientate our allocation around themes and countries more than sectors and indices?

If it does (and I believe it will) then I doubt the single Argentina ETF stays single for much longer. It could soon find itself with many friends and copycats.

Another fan

As mentioned, it seems UK Leader of the Opposition Kemi Badenoch is a Milei fan. In a speech to The Confederation of British Industry she said  “over the last two decades, you have all had to transform your business models to account for massive societal and technological change. It’s time that the government does the same because what we have now isn’t working.”

A good example – we have more people holding pens (i.e civil servants) than guns (i.e., Navy/Army/RAF personnel) in the Ministry of Defence. She’s diagnosed the problem: “….what is wrong with our country is that we have stopped being entrepreneurial and become bureaucratic. The middle class has changed from people who grow things, like farmers, or people who build or make things…towards people who live off the law in one form or another, whether that's regulation, compliance in banking, HR or government contracts”.

How refreshing. Problem is, she (or Nigel) will have to wait four years to do anything about it.

Buying scarcity

We’ve discussed for a while the benefits of buying exposure to the scarcities within the AI value chain, the data, compute, storage and more recently the energy. Musk has already warned we could face energy shortages next year as the increase in power demand is growing faster than chip efficiency, and that power needs to be reliable and constant (so no wind or solar). As discussed, the energy gaps will most likely be filled, at least initially, with cheap natural gas – explaining Exxon’s move to design natural gas power plants outfitted with carbon capture technology to meet the voracious demand of AI. Longer term it looks like nuclear will play a role.

But to really understand future energy policy, I would research the man likely to set it: Chris Wright, Trump’s elect for Energy Secretary.

Clues 

Some clues come from his biography: he is the CEO of Liberty Energy, a pioneer in fracking and recent investor in Oklo, a modular nuclear reactor developer. And, like Trump, Melei and Musk he too has a book, a biography: Chris Wright: From Energy Entrepreneur to a Key Voice in U.S. Energy Policy (Secretary of Energy) (gosh, that was quick!). But maybe you just read the key takeaways of his Bettering Human Lives report.

The standout points for me: “…no (energy) transition has begun. Modern alternatives like solar and wind, provide only a part of the electricity demand and do not replace the most critical uses of hydrocarbons. Energy-dense, reliable nuclear could be more impactful”. So, there you have it. I’m not permitted to give investment advice. But I reckon a rather large nod has been given to the themes of LNG and Nuclear by a man with the wherewithal to effect change.

Coincidence 

I just saw this headline on X : “Argentina will become an AI and nuclear powerhouse”. "Argentina is poised to become a global hub for artificial intelligence, attracting major investments from the world’s top companies. AI’s energy demands will drive a global resurgence in nuclear energy, and Argentina won’t be left behind”. “Dr. Reidel will present this plan soon”. Note, Dr Reidel is Chair of Melei’s Advisory Council, studied at Harvard University and was mentored by Kenneth Rogoff,  who described him as his best student.

Note also, that Musk and Melei have met at least three times in the past six months. Probably nothing…

Tethered to bitcoin (and gold?)

For Tradfi loyalists, it probably pays to at least be aware of what’s happening with Tether. According to the FT, Tether is arguably the world’s most important crypto company. Its USDT stablecoin is the biggest in the world with a market cap of nearly $140bn, making it bigger than the GDPs of Iceland and Luxembourg combined. In the first three months of this year it made $4.52bn in profits, more than Goldman Sachs’ $4.1bn.

While most of its reserves are US treasuries (presumably a source of incremental demand?) and custodied with US giant Cantor Fitzgerald, it recently launched a new stablecoin backed by gold, which can be used as collateral for new USDT stablecoins…(that’s interesting!!). Tether’s had plenty of distractors, of course. The FT itself historically being one of them. But it now looks like it’s gained new support, in the form of large US firm Cantor Fitzgerald itself who just took a 5% stake and are likely to support Cantor’s $2B bitcoin lending program.

Coincidentally, their CEO, Howard Lutnick, looks likely to become Trump’s commerce secretary. Another with the wherewithal to affect change. Change that I suspect will support both bitcoin. And gold.

What I’m buying the kids for Christmas

A motorbike that works (they still haven’t fixed the broken one, nor learned how to spot-weld).

A Nokia brick phone (see above: social media bans but need to stay ‘connected’).

For my teenage son, who’s smelly (and now social): Trump’s musk, aka his latest fragrance “Fight, Fight, Fight” with its “rich, robust notes”. For my wife: Trump’s female fragrance (he doesn’t discriminate) with its “delicate floral notes and a burst of citrus” (you’re welcome).

For when that annoying uncle finally leaves, a quip from Sickert: “you must come again when you have less time."

Finally, I’m asking Santa for a fly-fishing holiday to Argentina’s Rio Malleo, regarded as one of the world’s greatest dry-fly rivers. I have a feeling that I might run into a few people I know.

Merry Christmas

Gary

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