Notes from the Diamond #7: Hittin ‘Em Where They Ain’t (Part 2)

David A. SalemEmail: [email protected]: @dsaleminvestor Log of no

Want to continue reading this and the other 1,500+ essays you won't find anywhere else?

Already a subscriber? log in here

To learn more about Epsilon Theory and be notified when we release new content sign up here. You’ll receive an email every week and your information will never be shared with anyone else.


  1. “I have a natural if unfortunate tendency to craft sentences that run longer than most readers presumably prefer”.

    Ya think? Lol, good stuff.

  2. Avatar for faust faust says:

    Can you explain a bit more what you meant by including Germany in the three currency blocs you expect to be around in the 2030s? Do you mean that because Germany is the Eurozone’s economic powerhouse and it effectively holds the pursestrings that the Euro is driven by Germany? Or are you saying that the Euro will unravel and Germany will return to the DM?

  3. Excellent question, Sean, for which I’m grateful. Answering as concisely as I can (while watching Vlad Guerrero Jr. make his MLB debut), I don’t know how to assign odds to the Euro unraveling over the next few decades. Whether certain current Eurozone member-nations abandon it or not — and I can’t imagine circumstances under which Germany would exit the Euro without the Euro being abandoned by most if not all nations now using it — I believe strongly that whatever currency(ies) Germany chooses to use as that nation’s official currency will also be the preferred medium of exchange and unit of account for most commerce within and among the countries comprising Europe. As for the Euro’s evolving capacity to play the third role that reserve currencies worthy of that label play — store of value — I have my doubts. But we’d all agree that the Euro is less likely to undergo material debasement over the long term if Germany “remains” than if it were to “exit”. Hope this helps. Thanks again for the question, and for reading Note #7.

  4. Avatar for faust faust says:

    Thanks for the response, David. I am not in the camp that the Euro will disappear despite the imbalances and incompleteness of the Eurozone system. There is too much political will and in many countries there is too much memory of life pre-Euro to disentangle without political and social agreement.

    If individual nations did leave or if Germany decided to leave, then either the rumpEuro or newDB will appreciate in value and be a “big country” equivalent of the Swiss franc. In short, I can imagine that type of currency being more willingly used as a reserve currency notwithstanding reduced liquidity.

    Still, from my perch in London I struggle to see positive structural factors in the Eurozone and am more positively inclined towards North America & Asia.

    And it was good to see Vlad Jnr’s debut & the BlueJay support for him.

  5. Just to clarify, I found the piece to be very interesting and informative. My simple brain isn’t used to reading such highly complex and structurally challenging writing. It may take me awhile, but I know it’s worth it.

  6. Great post! I have to say, it’s taking me a little while to wrap my head around all these concepts. Is the gist of this that the US political and corporate environment has trended away from investment that increases the productivity / competitiveness of our economy. Therefore, when the global cooperative games change, our “free lunch” of immigration and globalization will run out. When we take this situation, combined with inflation and a move away from the USD as the reserve currency, a primarily US based investment thesis carries a much higher risk of “tails you loose”?

  7. I agree that there is little coverage in US media on Asian public listed companies ( Tencent’s excepted ) ;
    But the large Asian cultures - Indian, Chinese , Indonesian - all operate on a scarcity mentality. All of them…they may have fancy modern buildings - but the mindset, particularly of the Governments , is still locked up in the Feudal Farmer stage of Human development. Tight control by bureaucrats is considered the only acceptable form of administration.
    As to MMT, the Chinese are way ahead of the US ; that is one of the key reasons why they are unable or unwilling to float the Yuan. The RMB is even more of a ‘fiat’ currency than the US$. Totally and only backed by authoritarian Government power.
    “Power grows out of the barrel of a gun” - Mao Zedong.
    Of the big three , only Indonesia, a commodity and resource economy , has a free floating currency regime.

  8. Okay, the mistake I made was setting aside only a half hour to read this (and glad to see others making comments share this view) highly intricate piece; hence, I read it in several parts and need (and will) go back to read it again, this time, in one sitting.

    I have too many question owing to that - and it’s not fair to burden others or David with my confusion - but thought I’d ask one question: David, you describe one of the “intractable problems” as being -

    “America’s unsustainably undemocratic approach to self-government.”

    Are you referencing the intentionally designed undemocratic structures built into our constitution - electoral college, the need for super majorities for some legislative actions, etc., - or something else?

    Thank you for an incredible piece that I know I will value even more when I’ve reread/studied it (a few times, at least) so that I actually understand it (and can not just half fake my way through a discussion of it).

  9. Willem: Thanks for taking the time to read Note #7 and for commenting on it. Addressing your comments as concisely as possible, the true gist of Note #7 isn’t the particular geographic focus or desired “circle of competence” identified in it (i.e., Asia) nor the parts of the world from which I personally would draw capital in order to fund Asia-focused investments (e.e., the US and Old Europe). Rather, the true gist of Note #7 is the concept of defining and then staying within one’s circle of competence, whatever that happens to be. As suggested in Note #7, it helps greatly (and rather obviously) if an investor’s self-defined circle of competence comprises opportunities respecting which he or she enjoys favorable odds and has an actionable edge. Hope this helps and I hope too that you’ll continue consuming my writings as well as other ET posts with a critical eye and commenting on them as your schedule permits. Thanks again. Best, David

  10. I appreciate your comments and ascribe what seems to be a difference of opinion respecting the phenomenon you cite to one or both of two root causes, neither of which should be interpreted as criticism of you: (1) semantics, including especially what I mean by “scarcity mindset” as manifest in the words and deeds (defined broadly to include acts of omission as well as commission) of a nation’s citizenry as distinct from its leaders; and (2) differing time horizons, with my arguments underpinned not by perceptions of where the “pucks” (borrowing language from The Great One in hockey) are at present in given nations’ economic, political and social evolution but by where such “pucks” might be found a few decades from now. My opinion, which I’m careful to label as such, is that some if not many of your unarguably correct observations about the current status quo will not apply to evolving conditions in Asia by the end of the planning horizon conjectured in Note #7.

Continue the discussion at the Epsilon Theory Forum

10 more replies


Avatar for dsalem Avatar for Mkahn22 Avatar for willemave Avatar for jason-olson Avatar for Victor_K Avatar for faust Avatar for cartoox

The Latest From Epsilon Theory

This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.

Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.