Herding the Gray Rhinos

April 2022 – As we have noted in this space in the past, there is a lot of the world that cannot be captured by the most elegant and detailed of spreadsheets. I am not sure “Vlad, the Fearless Horseman” reads our Strategy Letters, but our guess is that he would now be pretty much in agreement.

Geopolitical issues are somewhat beyond our paygrade. We have opinions (really, really strong ones), but they remain difficult to employ within the world in which we live—mostly U.S. and mostly equity-oriented investing. We obviously pay careful attention to any input that affects long-term profitability and growth, but it is difficult to apply the maxim of “quantify and reassess” to the idea of a reclusive dictator who thinks proudly of a legacy that involves three bloody uncivil wars within the space of 30 years and who believes a closeted and anesthetized population will continue to give blood to support it—for now, at least. And day trading based on “sources close to the negotiations” somehow strikes us as almost as unhelpful as watching an index of daily snowfall across 50 cities as a way to make money in road de-icer Compass Minerals International, Inc. (Ticker: CMP). (Trust us, really unsuccessful.)

Russian Isolation and the “ESG Thing”

What can be seen…and quantified…are obvious issues: the Russian universe is a major energy supplier, a major steel producer, a major breadbasket to the world, and a major supplier of phosphate which feeds much of the rest of the world. And oh, yes, don’t forget the nukes and London real estate. Global isolation is going to have many derivatives of problems for the rest of the world, but I would discount the bold pronouncements of “world change” from the chattering classes who generally get nearly everything wrong. The geopolitical balls on the pool table are scattering – political conclusions are early days. This conflict certainly mangles any claims of “temporary inflation,” and it mangles discussions of global supply chains, as global businesses have some really interesting, long-term decisions to make other than giving away Russian assets. In the meantime, it’s widely and wildly painful for consuming and profit margins—pick your favorite complaint.

It also mangles this “ESG thing” as talk turns from the worship of a girl named Greta and a guy named Fink to some really basic “hierarchy of needs” analysis. You know, those crazy old standbys of food, shelter, security, and energy. One does not have to be Ukrainian or in the non-10% to get really angry here, but we will let that notion linger in the ether. Instead, we will express some simple relief that the building blocks of the last 100 years of human progress are unlikely to be sacrificed at the altar of the New York Times. (Go natural gas!) To paraphrase the writer Matt Taibbi, are we at the end of an era that was almost completely transformed into a Boschian hellscape of penthouse-priced unelected third party entities who see ESG everywhere to degrees so far beyond even the most demented Fox News fantasies that the corpse of Roger Ailes almost sat up? And are we seriously considering trading Putin for Venezuela and a dictator to be named later? And did the SEC’s 501-page Pravdian Manifesto on how companies should comply with climate disclosure mark the beginning of the end of inanity?