Guest Post by Chris MacIntosh
Howard Marks of Oaktree Capital put out a note to clients sometime ago, “I Beg to Differ” and the below paragraph in particular resonated with me.
First-level thinking is simplistic and superficial, and just about everyone can do it (a bad sign for anything involving an attempt at superiority). All the first-level thinker needs is an opinion about the future, as in “The outlook for the company is favorable, meaning the stock will go up.”
Second-level thinking is deep, complex, and convoluted. The second-level thinker takes a great many things into account:
- What is the range of likely future outcomes?
- What outcome do I think will occur?
- What’s the probability I’m right?
- What does the consensus think?
- How does my expectation differ from the consensus?
- How does the current price for the asset compare with the consensus view of the future, and with mine?
- Is the consensus psychology that’s incorporated in the price too bullish or bearish?
- What will happen to the asset price if the consensus turns out to be right, and what if I’m right?
The difference in workload between the first-level and second-level thinking is clearly massive, and the number of people capable of the latter is tiny compared to the number capable of the former.
First-level thinkers look for simple formulas and easy answers. Second-level thinkers know that success in investing is the antithesis of simple.
Here is a brief example of how to employ second-order thinking with Taiwan
It is worth considering a lesson from World War 2 because it’s vitally important, and — as far as I can tell — not only do most Americans not know it, but the current bunch of podium donuts in the US don’t appear to either.
In World War 2 Taiwan was THE major base for the Japanese army. It was the location that all major invasions of China were launched from. To some extent we could argue that Taiwan is to China what Ukraine is to Russia. This isn’t merely about posturing (though there is some of that, for sure), but Taiwan is very important to China due to this history. It will never allow any Western or Western-allied (Japan) forces to use Taiwan for military operations. Never ever. The moment anything of that nature happens, the West is immediately at war with China.
Furthermore, take a look at a map. Taiwan is kinda far away from the US mainland. The US military is already overstretched and hasn’t the capability to defend Taiwan. That’s just the reality. The US military has conducted multiple war games over an attack on Taiwan, and they’ve lost every time. In the end, the US has to cover a lot of distance and provide continued and massive force. The Chinese can just sit and wait… and sink them.
Something else: if you study and monitor geopolitical moves and especially from an economic front, then you’d see that CCP leaders have been committed to implementing and iterating a Mahanian naval force structure. This has certainly been the case for the last three generations. That’s fine, you may say. Well, no. This has been taking place while the US has allowed their shipbuilding base to atrophy. Remember how we’ve been rabbiting on about the lack of shipbuilding capacity?
Now, pray tell what happens if, or should I say “when,” the CCP gets kinetic in the South China Sea?
The first thing they’d do is take out US carrier capabilities in this area and potentially move to the Pacific.
Also, and I would think US military men… and women… and uh “peoplekind” know this, but they’ve pushed Russia, Iran, and now India all closer together. When looking at things from this perspective, you’ll note that a Chinese coalition could be rather powerful. Russia has a Syrian base at Tartus, the Chinese have bases in Djibouti and Gwadar (we spoke about these in a previous issue) and as such could resupply and sustain a naval war in a way that was unthinkable only a couple decades ago. Not so now.
Then there’s Iran, who bring two assets to the table that the Russkies and the Chinese don’t have: coastal-defense submarines (Ghadir and Fateh-class) and more than 1,500 fast attack boats armed with machine guns and anti-ship rockets. Remember the lesson the US Navy was taught back in 2002? Yeah, you never heard about it much. That’s how the legacy propaganda outlets most refer to as “media” have led the West into a collective myopia.
The primary American Naval force operating in the Indian Ocean/Middle East is the Fifth Fleet based in Bahrain. But here’s the issue. Take a look at the map below.
If conflict erupted, Iran and its allies would shut the Strait of Hormuz. That Bahraini outpost would be shut off.
So what happens then? Well, the US navy then has to stretch further and resupply from their base in Italy. And that, my friends, means the Suez.
We pointed out how Egypt is applying for membership in BRICs.
Egypt, who imports much of their food, may well have to make a choice. Get food from Russia and do their bidding on whatever is required in the canal or go hungry. No easy decisions.
From my perch it really feels like the hubris of the American empire is about to catch up with them because things are moving quickly and they’re not only not moving to catch up but seem largely blind to much of what is transpiring.
This is not to even mention the Bosphorus, which we’ve highlighted many times in these pages before. But, Turkey is part of NATO, they say.
Don’t make me laugh. Erdy is playing both sides for all he can get and is as slippery as a snake. He’d be reliable as an EV in the middle of the Nevada desert running out of juice.
We now have in no particular order:
- The Black Sea (and Ukraine), which sits just beyond the maritime choke point of the Bosphorus. Access to and from is now controlled by both Russian/Chinese-controlled ports in the Aegean Sea, the Russian naval base at Tartus in Syria, and the Turkish Navy. The US Navy is nowhere here.
- The South China Sea, which is going to be very very difficult for the US Navy to control (also remember, politically it is going to be hard to have the American public happy with fighting a war “over there” when inflation is raging back home).
- Then the strait of Hormuz as discussed.
- And of course, the Suez.
Some considerations, at least with respect to shipping. Would you think that a massive rebuilding of shipbuilding may take place? Perhaps we should look at shipbuilders?
What else? Well, the obvious. Wars are inflationary — just sayin’.
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Great to see that admin sold out to the globalists with his Amazon affiliate link.
Some years back a US Admiral was asked to list our ship classes. His response…
“Submarines and targets.”