The risks taken in 2017 and their consequences are set to haunt us well into next year
The ongoing anti-corruption purge in Saudi Arabia remains the most disturbing event of 2017, but any threat to the greenback as the world’s reserve currency will result in US measures that could heighten internal instability
You’ve got to make the most of life. And it’s all about taking risks. But decisions have consequences.
Those three short sentences embody the choices made by investors and government leaders at the end of 2017 and as we head towards 2018.
“Trump derangement syndrome” is still chronic among some of the Americans who are still fighting their lost election. A sober analysis of US President Donald Trump’s policies and actions are important for understanding next year’s financial environment.
The ongoing anti-corruption purge in Saudi Arabia remains the most perplexing and disturbing event of 2017. We have not seen the end of this perilous family dispute that poses tremendous hazards for oil markets and geopolitics. It represents a dangerous Middle Eastern powder keg that has been primed by Trump – the former casino owner’s multi-position bet to re-align power in the region.
Former US President Barack Obama’s vacuous rhetoric and listless foreign policy is partially responsible for Trump’s muscular and risky response.
Obama underestimated the zeal and fanaticism of the thousands of ISIS sympathisers who travelled from afar to fight to their death.
Rather than being the “junior varsity” version of Al Qaeda, these militants were led to believe that they were fighting to establish their version of heaven on earth – an Islamic state with a pure sense of purpose – even if that purpose is an anachronism in an interconnected world that was arching toward tolerance and multiculturalism.
Crown Prince Mohammed bin Salman is either Niccolo Machiavelli reincarnated or impersonating Michael Corleone. The 32-year-old heir apparent to the Saudi throne is either executing his own version of The Prince, or is recklessly settling scores in the tradition of The Godfather. History will tell.
Inaction and caution used to characterise Saudi rule. Under the crown prince, the kingdom has evolved into an independent force, striking interests at home and abroad.
Those who have lived and worked in Saudi Arabia like myself understand there is a lot more happening than the average investor will know.
The recent power play has created internal strife and anger within the royals, against the crown prince and the king. It will eventually lead to a potential coup or external destabilisation using money that has not yet been seized and is lurking in offshore accounts.
This story has just started. The National Guard and other security forces share loyalties among different princes. Their sudden removal will not only demoralise these forces, but motivate them to insurrection. The National Guard is independent of the police and military and wields major power in the state security apparatus.
The Saudis are slowly being caught up in a three-way currency struggle. If they want Russian and Chinese cooperation in their regional efforts they will have to accept more oil trade in yuan and roubles rather than US dollars.
Any threat to the greenback as the world’s reserve currency will result in US measures that could heighten internal instability.
We know from history that the next financial crisis (regardless of source) cannot be accurately modelled. It will probably overwhelm the regulatory regimes of the time.
Whether bitcoin will transcend or precipitate a financial revolution or collapse is difficult to ascertain in a culture possessing technology where relentless buying and selling blinds the value of everything.
It is no longer about intrinsic value or store or transaction of value, but strictly price action, momentum and crowd psychology.
When the mainstream financial media tries to report on bitcoin price movement like it was another financial asset it only feeds its legitimacy. As it appears more real, investors buy into the reality.
My previous week’s column warned that the trading moment of truth would come in the event of a sharp decline – a test of whether any real support existed beyond the ability to sell at a higher price. That test is already occurring. The absence of reliable figures such as trading volume provided by a central authority or exchange only weakens objective analysis.
And if anyone is more inclined to lament about nearer home in Hong Kong, we must agree that a well educated, sophisticated middle class with liberal values and open access to the internet can only be governed with talent and vision.
Much of Hong Kong’s failures since 1997 can be laid on our government and business leaders who have collectively failed to lead the people and define our relationship with China.
Instead, tycoons have only been concerned about making money for their own families, basically the same strategy employed under a British colony now applied to new Chinese colonial masters. And successive governments simply carried on administrating without a greater vision of governance.
The outcome has been economic stagnation, oligarchic domination and massive rent seeking across the entire economy. Whether the government actually believes, cares or does anything about this will determine the city’s social stability and economic prosperity.
The wishful dependence on big infrastructure projects like a high-speed rail link to Guangzhou to magically liberate the economy shows mediocre thinking at the highest government levels.
Hong Kong’s over emphasis on a service- and property-based economy has left it unprepared for the entrepreneurial, innovative, risk-taking economy.
All these roads we have embarked upon ensure that we will be overtaken by their moral consequences of more suffering, war or financial crisis.