TPW Advisory Friday Musings: The Perils of Closed Circle Thinking

One of the more amazing things about a quite amazing few weeks is the degree to which President Putin, widely considered a master strategist (I confess to thinking he was) has been wrong about virtually everything. From his war planning to his idea that Ukrainians would greet Russians as friends & brothers, to the reaction of Europe, Germany and the US & most visibly to the speed and power of modern communication.

He has unwittingly provided a master class in the perils of closed circle thinking – of being insular with little to no diverse input. As an isolated, single decision maker, speaking only to yes men, he has been revealed as completely out of touch. It shows how rapidly the world is changing and how powerful the combination of speed and instant communication can be on a local/global basis. The Arab Spring gave us a hint but the interplay between Putin and Ukrainian President Zelensky has been like night and day. The contrast between Putin and Pres. Biden’s SOU speech is also quite telling.

Social media has been leading the process, not just recording & distributing it. It is pushing politicians to act, faster and more aggressively than they would have most likely moved otherwise. It has provided further validation to the Age of Speed we have written about at length, the push for diversity in society as well as for the idea of being “woke” enough to have concern for your fellow humans.

The EU’s reaction serves to validate our core Tri Polar World framework – our thesis that regional deepening and integration in Asia, Europe and the Americas is the way forward. The EU will certainly deepen integration on defense and energy security. Here is EU leader Ursula von der Leyen: “European security and defense has evolved more in the last six days than in the last two decades.”

It is also a reminder for us as investors to keep an open mind and be alert to the perils of our own closed circle thinking, whether it is to do with our circle, our inputs, a position one really likes or a portfolio structure one feel sure to work out. These are tricky, tricky times with the speed of change threatening to upend almost every decision making process. Keep it simple, be like water, trust in the process & be calm.

Speaking of process, here at TPW Advisory we had our monthly model portfolio review session this week. Happy to note both models, our Global Multi Asset (GMA) and TPW 20 thematic model, outperformed their respective BMs by considerable amounts over the latest period. This is with both being fully invested. Recent adds to the GMA (PICK, EWZ, GDX) were all near the top of the best performer list while in the TPW 20, 16 of the 20 ETFs outperformed their BM, suggesting that investor appetite for thematics may be shifting. Curious about what changes we made this month? Reach out to learn more about our Model Portfolio Delivery Service (MPDS).

The diversified nature of both portfolios allows them to ride through even the volatility we are seeing now, with UST vol the highest in years, sustained US equity VIX readings well above 30 and a Commodity sector that has had its best start to the year since 1915 according to BofA and its best three day run in over 15 years. As a result, commodities, especially oil, are widely overbought (GSG’s 14 day RSI in mid 80s, WEAT at 81) and should be approached with caution, especially since an Iran deal would seem to be imminent. Broad Commodities are at their strongest backwardation ever.

So where do we stand? Here is an anecdote that I think speaks volumes: we had our monthly call with my ex MS buddies, all senior, all active in the markets and I was the 4^th speaker as we went around the (virtual) table. The 4^th speaker but the first to utter the word Covid.