Today’s video is kind of a case study in the importance of striking while the iron is hot. I was very, very excited to make this video a month and a half ago. An outline, and copious notes came to mind almost instantly. But instead of finishing off the script, I focused on the other two videos in the series, confident that this would be a big blow-out finale. Early next week when I finally sat down to write this script, I was a bit non-plussed. The ideas and the outline still made sense to me, but the vigor and rigor of the ideas have gone flabby. I don’t know. The video still makes some worthwhile points. But I’m not particularly happy with the final execution. I am, however, happy to have finally said my piece on cryptocurrency. Should be able to avoid this topic until the next run up in price a couple years from now.
That old, way over-quoted saying, attributed to Keynes, keeps reverberating in my head lately. “The market can stay irrational longer than you can stay solvent”.
Almost three years ago, I put out a video mocking Saudi Arabia’s investing strategy, calling it plainly irrational and irresponsible, and destined to end in tears. Well, so far it looks like my prediction is a failure. In fact, this investing strategy may be the most successful thing that MBS has done, staving off financial disaster for his country, and in the process making himself just as valuable to US politicians as Saudi Arabia was back in the 20th century when we needed their oil.
This one was interesting. The fact that I need to produce longer videos kind of ambushed me here. I intended to focus on how the MBS-Khashoggi issue is a side-show to what our true priorities should be, but the need to correct my older video on Saudi investing kind of swallowed my scripting process, drawing in Gamestop and some media critique.
So let’s talk about King Abdullah Economic City. In today’s video, I may give the impression that it doesn’t exist. It totally does! It was established in 2005, and much like NEOM, the mega city the Saudis are currently pushing, it was supposed to revolutionize everything!!! 13 years later only about 15% of the 100 billion dollar city has been built. The other three cities that were meant to be built at the same time are somewhere between 30% and 0% completed. Theirwikipediapages make for some depressing reading. Depressingly familiar reading.
The objective of SAGIA’s “10 x 10” program, which ran from 2005 to 2010, was to place Saudi Arabia among the world’s top ten competitive investment destinations by 2010.
Launched in 2006, the Economic Cities program was designed to drive toward greater competitiveness, job creation, and economic diversification.
In developing economic cities, over a thousand of the world’s free zones were surveyed. The sixty deemed most successful were studied to determine key success factors. The objectives of the Economic Cities were to promote regional development, achieve economic diversification, create jobs, and enhance competitiveness in Saudi Arabia. Four new cities were identified and thus developed: King Abdullah Economic City, Jazan Economic City, Prince Abdulaziz Bin Mousaed Economic City, and the Knowledge Economic City, Medina.
When you read some of this 15 year old public relations copy, you realize just how familiar it all is. It’s the same thing as Vision 2030, but it’s Vision 2010. It’s all very sad. Back in King Abdullah’s time it was possible to imagine that Saudi Arabia could pull it off. Their oil was still one of the most valuable commodities in the world. An Aramco IPO back then would have yielded hundreds of billions of dollars. Instead the economic cities plans just sort of fizzled out during the extraordinary expenditures the government made to bribe the populace out of an Arab Spring. After Abdullah died in 2015, the focus shifted to new projects.
A sensible ruler ca. 2015 would have recommitted to all the plans Abdullah had made, and brought them to fruition. It would have made a lot of sense. But that wasn’t ambitious enough for King Salman, and Crown Prince Muhammad Bin Salman. They are diverting scarcer and scarcer funds to all of their new cities, and losing investments in foreign companies. They’ve gotten a lot of uncritical support in the Western Press, but that’s because they are paying for it. So yes, the King Abdullah Economic city exists, as a shell of what it could be. The bottom third is the only section of this BBC article on King Abdullah Economic City that is worth reading. After repeating the standard public relations texts, it lays out what a disappointment the project has been. NEOM might get there too. But it won’t ever become what was promised. Today’s video lays out why.
With today’s video we go all in on discussing the US stock market. There’s this idea that stock markets are somehow rational, or serious. People who talk about it are always wearing suits, and we put a lot of effort into making all the details of interest rates, portfolio management, and valuations seem boring. The stock market is none of these things. In fact it’s nuts. By going through the history of the “Trump Bump”, I attempt to draw the curtain back a bit.
Unfortunately, watching the video, I think I screwed something up. It’s not that the story I put forward is wrong, it’s just that I left too much out. The video falls into the “Presidents impact everything” school of commentary. I hate that school. The differing views market makers took of Trump and Obama are tremendously important to this particular economic story, but that doesn’t mean that presidents are actually all that powerful. I really don’t want to create that impression, and I apologize if I did so with this video.
I feel like markets and economics have been an underpinning of what I’ve been talking about for quite some time now. It’s been a troubling thing for me. There’s always a lot of certainty when these issues come up in political discussions, but usually almost nothing backing up that certainty. The conditions we’re looking at are always changing, and the theories that people gravitate to are some of the least proven imaginable. Economics has pretensions to being a science. But the variables are immense, and there’s really only one result.
We have one world economy, and its performance at any given time is the only thing that we have to point to, to see whether our theories are working. There is no control group. Most of the figures we rely on to measure what’s going on are little better than rough estimates, and the political consensus rarely lasts a decade. I have high hopes for the profession of economics. People are doing amazing work in the field, and the move onto the internet that our species is currently undergoing provides the possibility of real measurement (and Orwellian nightmares). I’m confident that the future is bright, but I think we all need a lot more humility in talking about the economy. Which is why I made today’s video, and why I’ll be adding to the series in the coming weeks…