SUDETENLAND & UKRAINE
Issue # 73
It’s great to be back online. After taking a little time off for the holidays I got super busy at work. As some of you know, we have been investing in the innovation economy and I am trying to complete a couple of additional investments prior to the end of the quarter. So it has been crazy busy!
I also syndicated a follow on round in Sable, a Neo Bank based in NYC that caters to global citizens who are arriving in the United States to work or study. It can be very challenging for immigrants to establish credit in the US and that is the problem that Sable is solving.
The Sable Path is a program that enables immigrants to apply for a bank account as non-citizens with a passport and visa, no SSN or U.S. credit history required. Sable then issues a secured credit card and once the account holder has demonstrated credit worthiness Sable issues an unsecured credit card and begins reporting the payment history to the three major credit rating agencies to help the account holder establish a credit history.
When I went back and re-read Sable’s 2020 annual letter the company expected to open 10,000 accounts in 2021, that turned out to be very conservative as the company opened 200,000 new accounts last year!
SUDETENLAND and UKRAINE:
Moving on to the Ukraine.
In 2014 Putin invaded Ukraine and annexed Crimea. The incident was largely shrugged off, although Putin and his cronies were subject to limited sanctions. The incident is similar to Hitler’s annexation of the Sudetenland in 1938.
The Sudetenland was a territory in Czecholslovakia populated by German speaking citizens. Benito Mussolini organized a conference of the major powers in Munich and on September 29, 1938. Hitler, French Prime Minister Édouard Daladier and British Prime Minister Neville Chamberlain met and signed the Munich Agreement, accepting the immediate German occupation of the Sudetenland. The Czechoslovak government, was not part of the talks, but promised to abide by the agreement on September 30, 1938.
The Sudetenland was then assigned to Germany in October 1938 and we all know what happened after that….
The US intelligence community got it right on the current invasion of the Ukraine. The Biden Administration warned the world that Putin was likely to invade, the media and much of Western Europe disregarded the warning.
Most of us thought that if Putin did cross the border that his activity would be limited to the Donetsk and Luhansk regions, which are heavily populated with ethnic Russians. Again, following the playbook from the prior annexation of Crimea.
It is safe to say that Putin has gone much further than most expected, moving well beyond areas occupied by ethnic Russians.
However, Putin appears to have miscalculated too.
He has sent 170,000 troops, tons of armor, artillery, warplanes, cruise missiles, etc.. He has commited a lot of Russian blood and treasure and Putin may well eventually take Kyiv, particularly if he is willing to destroy it.
But, 40 million Ukrainians are dug in and do not look like they are going to hand over the keys to Capital willingly. The U.S. is sending more Javelin anti-tank missiles and the Germans are sending both Javelins and Stinger surface-to-air missiles. The Ukranians will have the tools to create an insurgency similiar to what the US and Russia encountered in occupied Afghanistan.
Add in the global sanctions and this could get very expensive for Putin.
UKRAINE & OIL:
There is a lot of discussions on the television centered around higher oil prices. But it is important to note that the US is a small, but still a net exporter of oil and that the US economy has gotten much more efficient in how it consumes oil.
In 2020, the amount of energy required for each unit of GDP was just 37% of where it had been back in 1970 with the US Energy Information Agency forecasting a continued decline over the coming decades. The chart below shows US energy intensity with 1970 set at 100 on the index.
Normally, a spike in energy prices like what we have seen over the last year would cause a recession and maybe it is coming. The chart below courtesy of Jim Reid of Deutsche Bank illustrates that the current rise in oil prices is worse than anything we have seen since the oil embargo in the 1970s.
If nothing else, the current conflict in the Ukraine and the high price of oil should accelerate the demand for alternative sources of energy. Solar, wind and nuclear seem like the winning combination.
The UpFront Summit - Los Angeles February 28 - March 2: I will be attending the LP meeting on Monday and the first day of the Summit on Tuesday. If you are attending please let me know and we’ll try to connect for a coffee or cocktail.
The Winter Retreat - Dallas March 2 - 3: This event is organized by With Intelligence, I will be participating in a Private Credit panel and a Private Markets panel, the latter will focus on pacing strategies for allocating into private funds.
CAIA Allocator Advisory Council - Los Angeles March 23: Small group of asset owners discussing global themes facing the industry that will affect allocator’s abilities to meet desired investor outcomes.
SVAlts - Los Angeles March 24: I will be participating in a Digital Assets panel, discussing how the VTA approached this new asset class and how we are positioning for the future.
Crypto Summit - Palo Alto March 25: I will be participating in a fireside chat with Amit Pradhan of the Silicon Valley Blockchain Society, we will be discussing the case for institutional investors to allocate assets in crypto, DeFi and Blockchain technologies.
I hope that you enjoy the letter as much as I enjoyed writing it and please feel free to share the links with friends and associates. If you are interested in startups and are an accredited investor you can join over 750 other backers that follow my AngelList syndicate here.