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Thursday, July 23, 2020
The Foresight of Financiers
Chan Kung

There are two types of financiers, the bookkeeper type and the thinker type. The former is very common, a classic type of financier cultivated by conventional college education, and they assume that the world of finance is like what they think. The latter is rare. They are low-profile and usually exist in century-old financial institutions. This logic is simple, if there is no strategic vision, their century-old financial institution could not survive to this day.

Once a year, the Rothschild family hosts the "Conference on Inclusive Capitalism" with heavyweight guests including former U.S. President Bill Clinton, Britain's Prince Charles, Bank of England Governor Mark Carney, and former International Monetary Fund Managing Director Christine Lagarde. Typically, this conference has more than 200 super-rich individuals participating, and each of them controlling an average of USD 120 billion in assets. A BBC reporter recalled a visit to Rothschild's office:

‘"Hello," his butler greeted with a gesture.

He stood gracefully, typical of British aristocratic housekeeping etiquette.

"Please have a seat," said the butler, seating me beside a long table in the middle of the parlor.

"What kind of tea would you like to drink?"

"English tea, thank you."

I looked around. It looked more like a hotel than an office.

"How many people work here?" I asked the butler.

"Sir, me and the secretary," the butler replied politely.

The entire sitting room is about 40 square meters, with a fireplace in the center of the left-hand side, and bookshelves on both sides, filled with books. Two meters to the right was a round table, neatly stacked on top of which were several newspapers of the day. The table in front of me was about four meters long, half full of books.’

Jacob Rothschild, the 78-year-old banker and chairman of RIT Capital Partners, has delivered savers in the GBP 2.3 billion trust a stark warning about global instability and the fragility of future returns. He used his chairman's statement in the trust's annual report to outline his concerns, saying that on top of a "difficult economic background", investors face "a geopolitical situation perhaps as dangerous as any we have faced since World War II". He said this was the result of "chaos and extremism in the Middle East, Russian aggression and expansion, and a weakened Europe threatened by horrendous unemployment, in no small measure caused by a failure to tackle structural reforms in many of the countries which form part of the European Union".

The result of Rothschild's report was a much gloomier assessment of the world than its last report. The report also listed the major dangers as the slowdown in China’s growth and a possible over-valuation of shares. The Rothschild’s trust was established in the Sixties with the aim of overseeing much of Jacob Rothschild’s personal wealth. Jacob Rothschild and his daughter Hannah, who is also on the trust’s board, together own shares worth approximately GBP160 million. RIT is popular among private investors thanks to its excellent track record and its conservative approach to conserving capital. The trust was listed on London’s Stock Exchange in 1988 since when it has delivered an average annual return of 12%.

The “preservation of shareholders' capital remains the Rothschild's highest priority, taking precedence over tactical maneuvers based on short term returns. To paraphrase him simply, what investors are looking for in the future is not to make more money, but to keep it in the face of the huge geopolitical risks ahead, which is the focus and direction of the future.

When did he give the warning? The answer is March 24, 2015, four years ago.

Anyone who follows the matter closely will find that the Rothschilds were one of the few institutions in the world at the time with such foresight and predictions, apart from the warnings of ANBOUND. Not many understand that when people are forced to focus on inflation, it indicates their wealth has closed to zero.

Looking back on 2015, when China's economy was still at its peak, people discussed and cared about how to keep asset growth at a high speed for another 20 years. Zheng Yongnian, a famous scholar on geopolitics, published his opinion in March 2018 that the U.S.-China trade war has brought "geopolitics back". In 2015, the financial investment research community's understanding of future risks was mainly concerned with the risk of inflation and the risk of artificial intelligence.

The CSRC Investor Protection Bureau reminds investors of future risks: (1) Invest with knowledge, and lose less. (2) Do not follow the trend blindly, don't be superstitious. (3) Be more cautious and knowledgeable. (4) Act accordingly when the stock market is risky. Participate rationally, do not sell the house nor borrow money for speculation. In 2015, the famous financial channel and financial community reminds people that there are three opportunities to get rich in a lifetime, including the most recent 2019. Also, in 2015, people suddenly realized that houses were selling hot again, and the optimism spread throughout the financial market.

Compared with the performance of the Chinese financial sector in 2015, the world financial community is not much better, but they are very professional and never conduct regression analysis of their own forecasts and judgments.

In 2015, CB Insights, a leading data analysis firm, and KPMG, an accounting and auditing firm, jointly released the Global Corporate Venture Capital report 2015. According to the report, the total amount of venture capital investment worldwide reached USD 128.5 billion in 2015, up 44% year-on-year from USD 89 billion in 2014. The amount invested was the highest since 2000. In 2015, 71 venture-backed companies made it into the unicorn club, which valued at more than USD 1 billion. There were 13 unicorns in the first quarter, 23 unicorns in the second quarter, 24 unicorns in the third quarter and 12 unicorns in the fourth quarter. In 2014, there were 53 new unicorns.

The two well-known institutions believe that compared with previous years, the amount of venture capital in 2015 was larger and the investment field was broader. Life science and technology, fintech, retail, education, and other fields of innovation and innovation space are very huge. Investors have also seen the potential and invested heavily in many sectors. If future problems are anything to go by, then the likely rise in interest rates is a real risk.

It is interesting to look back and see how many people were horrified by not foreseeing anti-globalization and the shrinking of market space coming. They cannot understand how Trump's "America First" policy changes the global free trade environment, nor can they foresee a U.S.-China trade war, and are loath to believe that financial authorities like the Federal Reserve have succumbed to reality. Of course, they are unable to foresee a future in which the world will once again embark on the path of monetary expansion.

Few people now deny that the main problem we face now is how to preserve wealth after the tide of capital has passed. It is so difficult to retain wealth now, with all the tax barriers and penalties around the world, the volatility and shock of market risk, interest rates, asset depreciation, currency risk, and exploitation of all kinds. Many people do not realize that the preservation of wealth is still difficult and full of uncertainty. At a time like this, when so many talented people, and companies are losing their fortunes, with the prices of gold and cryptocurrencies are soaring, it proves that people are not as smart and intelligent as they thought they were four years ago.

In fact, this is the difference between "macro-finance" and "micro-finance". In today's world, if entrepreneurs just want to do business, it is difficult to stay in business. People familiar with Li Ka-shing revealed that he spends 90% of his time thinking about the future. His method is to mentally consider the company's adversity and then figure out how to solve the problem. When the crisis comes, he is ready for it. In fact, large enterprises and small enterprises are the same.

Final analysis conclusion:

In the face of geopolitical risks, how to preserve wealth has become more important than expanding it. At this point, only financiers thinking about "macro-finance" had the foresight to keep their wealth when the crisis struck.

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