The Anglo-American Free Enterprise Model have Unleashed Innovation in Eastern Europe & KSA
By Ryan Scott, Executive Director
Steven Arevalo, Chief Technologist
20 June 2024
On 9 October 2002, The Wall Street Journal published an insight piece from Mr. Adrian Karatnycky of the Atlantic Council Eurasia Center titled: Ukraine’s Rogue President. Mr. Karatnycky’s piece laid out the frustrations that President George W. Bush’s National Security & State Department experienced when dealing with apparent odd dealings in state backed transactions of military-grade Radar Early Warning equipment approved by the Ukrainian President Leonid Kuchma vis a vis President Saddam Hussein of the Republic of Iraq. It was only a year prior that President Bush issued the direct warning to the world following the tragic attacks on America’s Twin Towers and the Pentagon: “Today the world has an axis of evil: Iraq, Mullah Run Persia, and North Korea: Therefore, you are either with the United States of America— or you are with the [violent extremists that reject liberty & due process]!”
The edict was a quote from the Book of Joshua— a book of the “Old Testament” of the God of Moses per Western Civilization Tradition. President Bush after all startled some of the Old Line Eastern Establishment when he was asked during a debate with VP Gore on who is favourite philosopher was: “Jesus Christ— because changed my heart.” To the Heartland, South, and “Goldwater” Western USA— that was a level-setting statement to allow their business community and civic leaders to at least know the foundational cornerstones for how President Bush indeed sought to conduct his “Charge to Keep.”
The shot across the bow created a clear dividing line world wide: within one years of that Wall Street Journal Article, Ukraine engage in peaceful institutional reform efforts (albeit painstakingly slow)— carefully seeking to balance the more “Moscow Anchored” eastern flank with the more Poland-Hungarian oriented Western Flank: Per the American Conservative, the Holy Roman Empire at one time managed governance of the Western Portion of Ukraine— Lviv used to be “Lemberg” for example.
Hence, it was likely considered quite a shock to the former KGB Colonel and Dresden Bank risk officer, President Putin of Russia, that Ukraine’s Leadership did an "about face” with the Bush Administration by sending Ukrainian troops to support DC-London’s efforts against radical anti-American extremism from taking root in the Republic of Iraq: effectively pre-empting Mr. Hussein, or his sons if ever heirs, chance to acquire a Nuclear Lesson. Additionally, Iraq had attacked Israel with scud missiles 12 years prior during the Iraq-Kuwait war. Ukraine, as Russia, realized it was not beneficial to play the “cheat” in the GWoT era: less the world revert back to an even more destabilizing era of risk parameter modeling than what was experienced during the peak of the Cold War.
Per the Middle East Forum Think Tank, in 2005, the Aspen Institute Italia middle east expert noted the oddity that the Bush Administration— whose office were generally staffed by the political and business “heirs” of the long time allies of Kingdom of Saudi Arabia, consternations emerged in the EU when the Bush Administration began to encourage the Royal Family to begin implementing plans for long-term structural reforms to the sphere of their civil society and undertanding of political rights. Fast forward 20 years, the fruits of that addition of a slightly disconcernting, yet needed, "blues chord dissonance” (see: Dr. Cornell West’s segment on the PBS John Coltrane Documentary), to that long-standing relationship— enabled the Royal Family to survive the “Arab Spring” and therefore enable HRH Prince MBS to launch the Vision 2030 plan.
This recently culminated into a capstone seed capital investment from the Sovereign Wealth Fund of the Kingdom into a Saudi Arabia Domiciled joint venture between PIF and BlackRock— staffed mostly with local top talent. This is an another example of the underpriced “upside risk” that the options afforded to the Reagan-Bush doctrine on supporting the Anglo-American free enterprise system— couple with the prospect of intervention to stave genocide from the Clinton Cohort of Executive Administration, combined to truly facialitate not only a floor foor stability, but a foundation of peace via commerce— as long as each counterpart is square with another, of course.
That action not only escalated already high tensions in the global oil markets, which produced a quasi stagflationary transmission mechanism as the Federal Reserve’s R* may have inadvertently under-estimated— it also most importantly caused unduly fear within Israel’s civilian population— around the same time as the Oslo Accords were brokered by President Bush’s Father.
Therefore, from a perspective of for institutional investors to better understand how to reduce idiosyncratic risk within their Middle East and Eastern European sleeves, especially regarding the geopolitical and governance risk factors, it can be best examined through the lens of the Anglo-American free enterprise style of “capitalism” juxtaposed with the English Common Law for civil procedure and civil based property right claims— all rooted at the end of the day out of the principles of the Magna Carta and taught through the ages at Oxford University (source: “History of the English Speaking People” and “Letters of Eisenhower and Churchill” by Sir Winston Churchill).
Once a contract is agreed to, the enforcement mechanism is based on the pledge of honour, then collections process if that honour is somehow violated, then a good faith attempt to arbitrate privately to determine the just share of the claim on net assets— and if that does not work the uncertain claim is then vetted through the civil court system, rather than taken out to the English shire as Alexander Hamilton and Aaron Burr once did in America— to the sadness of America’s Federalist Age, yet to the bittersweet joy of Broadway Show fans during Mr. Lin Manuel’s groundbreaking show Hamilton, based on Mr. Chernow’s biography.
Thus at the end of the day, institutional investors must understand that the Anglo-America system is indeed rooted in the traditions of English common law for civil procedure— but once multiple civil attempts are conducted to resolve claims on assets, and whose civil enforcement willfully ignored by one of the participants— then the “American portion” of “Anglo-American Free Enterprise System” takes over: cowboy rules. In America’s cowboy era, once contracts were broken— which were essentially handshakes— and the violating party continued to shirk responsibility to resolve one way or another— then it was “High Noon time” as people had debts to settle and someone’s dishonor was getting in their way of meeting those usually gold-backed collateral obligations.
Additionally, Sheriffs had a laissez-faire approach at the time "when the West was won”, just as they did during the Hamilton - Burr Duel. America, as was England by then— had moved long beyond the days of the internal strife and constant division experienced by England during its War of the Roses era: America had a strong civil society because in the end, it was generally understood whether someone is a Hatfield of McCoy: everyone wins as long as honesty is the keystone for mutual relations. Hence, there was never a long history in America of 14th century A.D. style “vendetta culture” spurred by constant switching back and forth of nobility family loyalty, as outlined in Machiavelli’s “The Prince”.
This societal undercurrent is exactly what Secretary of State John F. Dulles’ Brother encouraged his friend Ike to ensure that the POLITBORO and Czar Kruschev understood when they made the first Soviet Government Visit to DC and later wined and dined at Camp David in the late 1950s (“The Brothers” by Prof. Steven Kirzner). General Ike decided to show “High Noon” cowboy movie to educate the Soviet Comrade-in-Chief that it is best to use the civil claims process rooted in the “Anglo” side of the Anglo-American Free Enterprise Tradition: it’s clean, less emotional, match-book accounting based (which the Medici’s helped to invent per Dr. Niall Ferguson’s “Ascent of Money”), and everyone walks out a winner of sorts in terms of the appropriate share of their asset claims— as long as both parties were square with another on what the valuation of the land/oil/home/forests/minerals etc. were in the first place.
Most institutional investors in the City of New York took great joy in the Mr. Singer’s deft move of using civil contract law, as executed via the English Common Law system, to peacefully lay claim to the Argentinian ship, after a civil court via fair due process allotted to both the Kirchner Government of Buenos Aires and Elliot Asset Management, ruled in favour of Mr. Singer’s claim that his asset rights to the sovereign bond cash flows were maliciously impaired by the socialist Kirchner Government’s lack of forthrightness to international capital markets investors based in The City of London and in City of New York.
In a nutshell: President Eisenhower, who oversaw the planning and implementation of D-Day 80 years ago this month, wanted to ensure President Kruschev was at the level with the American-side of the Anglo-American Free Enterprise system: the Declaration of Independence does not permit the concept of a Hobbesian world of perfidious uses of poorly implemented civil procedure, bad-faith criminal litigation, or double-dealing diplomacy all so that the other side could then enact “nuclear blackmail” thus seeking to “wipe away” the playing board and ruining everyone’s property just so an unhinged leader can declare “Heads, I win: tails you lose”, pyric sense of ‘victory’ (while the water he drinks becomes mores radioactive than Fukushima spent-fuel rod tragedy).
Hence, the 2023 to 31 May 2024 “mystery” as to what risk factors have enabled Eastern European MSCI EM IMI Index to set the record for one of the best performing cohorts within MSCI ACWI IMI Index since January 2023— rests in the legacy “Reagan-Bush Bull P&C Put Spread” on Property Rights “issued” to Eastern Europe that decided to “unplug” from the Soviet Stasi style society that tended to generate dis-equilibrium and lack of trust in contract law, let alone civil procedure to adjudicate claims: all predicated in the end on the heavy hand of the Soviet State’s prying eyes into the daily lives of small businesses and scrappy entrepreneurs . despite the tragedies and financial turmoil generated by the war between Kiev vs Moscow,
As the “love of (arbitraged upside capital gains) is the root of all evil”, that Anglo tradition becomes constrained though if there ever becomes a question of what action or effort or whose IP/R&D produced the original “credit”, and whose inaction or willful neglect produced the original debit. Thus by the time a business handshake is made, papers are signed, and photos made by PR for the record-books and trade papers— the hard part should be over: in the Anglo-American free enterprise system everyone simply agrees to “handle thine own business” in order to maximize shareholder profits— doing good by investing their time, intellect, and work effort well.
However, once a party begins to show signs of “cheating” in the classic Nash Equilibrium game theory of a “stag-rabbit hunt” framework: the cheater/fraudster is then referred to the “American” side the Anglo-American free enterprise system. There, they are effectively warned they will be “called out” if they incur three strikes (as long as “fair pitches”): hence, at this point the American side does not deal with Vega risk in the market since everyone has already put their “big boy pants on” and signed civil contracts— whose enforcement procedure rests in genteel City of London’s English Common Law tradition.
For fun comparison sake, and historical FYI, it is interesting to do a compare and contrast with the State of Louisiana vs. State of South Carolina’s per capita Development over the centuries: Louisiana, after all, still retains vestiges of a “Napoleonic Law” approach— hence it has a much different industrial-tech development history relative to its resources and talent pool available. Yet, for $10 Million, its purchase was not a Bad Trade by President Thomas “Yeoman Farmer” Jefferson. That said: most institutional investors understand the risk if they ever sign a property and casualty insurance contract for commercial hurricane and water damage risk with a firm such as GEICO, where claims adjustments are adjudicated in the Big Easy— rather the City of New York.
Lastly, President Bush did warn the Congress that Mr. Hussein tried to launch an assassination attempt on President George H.W. Bush during a friendly visit to Kingdom of Saudi Arabia and Kuwait post his tenure at the White House. Although it may have taken a decade or so: institutional investors that today fret about “political volatility in DC and London” can take some solace to concerns of underpriced Vega risk: at the end of the day, when the chips are down on America— it’s never great to bet against Black.
“Black” after all is the colour used to mark profit in the Mr. Lou Raniere & Mr. Larry Fink days of pen & paper based MBS trade booking (source: Liar’s Poker by Michael Lewis, and “Sustainable: from ESG to Impact Investing” by Mr. Terrance Keeley). Additionally, considering Mr. Hussein was part of a faction that falsely arrested, detained, and then unjustly executed the Royal Family of Iraq— a key ally of both the Royal Family of the Kingdom of Saudi Arabia— and longtime business partner of Standard Oil, there likely is an under-appreciated upside risk factor for nation-states and or regional “country subsidiaries” that are part of a broader nation-state, such as many of the Eastern European entities that participated in the bipartisan DC-London “coalition of the willing” GWoT.
Effectively “New Europe” partners of the Reagan-Bush era “Pro Magna Carta, Free Enterprise, and Western Civic Virtues” alliance, proverbially were “credited” with a cheap OTM downside protection floor to buffer their nascent nation’s against extreme “left tail risk” scenarios: such as nuclear genocide or another Balkans 1994 series of genocides that President Clinton nobly acted to subdue within the best of his understanding and capacity.
Thus, the an institution that examines the multi style and multi macro risk factors within the observable underlying market activity within Eastern Europe EM constituents over the last 1, 3, and 5 years, should then be able to identify which political-economic risk factors are still daring to encourage the antiquated and maniacal threat of nuclear genocide on a group of people who, at the average level, likely think the war in Ukraine is basically just about whether Total or Rosneft secures the oil/gas contracts.
Nonetheless, for institutional investors, the time path of the pursuit of peace between the two old rivals, has to be adjusted with the steep slope that an unhinged 1961 Cuba situation could indeed be a factor again: hence the associated supply chains of companies that could enable such nuclear genocide 2.0— regardless of sphere— should also end up becoming “priced out” of all investable indices— regardless of whether the UST ends up enacting OFAC compliance rulings on such entities— or whether a violator of the Executive Order 13224 gets called “out” after three strikes.
That is key driver as to why MSCI Eastern Europe EM IMI Index country constituents such as MSCI Hungary IMI Index, Poland MSCI IMI Index, and even MSCI Serbia IMI Index (granted it has just one constituent currently— yet certainly room to grow, especially if MSCI launches more “equal weighted” international indices as Dulac Capital Advisory L.L.C. predicts). In aggregate, MSCI Eastern Europe EM IMI Index is even outperforming MSCI EM IMI Index by over 30% in the last year: “not bad work if you can get it” (source: MSCI.com as of 05/31/2024).
Hence, the concern 20 years ago on whether there were under-priced downside risks to the core of the EU deciding to “opt-out” and actually vociferously protests President Bush’s war efforts against Iraq’s government, ended up proving true— but to the upside benefit of the Eastern European partners.
After all, given the District is named after the Sailor who “Discovered America” and America’s greatest General and respected Founding Father, Eastern Europe knows it must be nice to have Washington on its side— as long as it is square with civil contract law via London: in the end, no one wants their company’s ship, fashion mall, or parking lot “REPO’d” due to spurious charges or falsified paperwork.
Therefore, if a “Nunn-Lugar 2.0” style deal is enacted between Washington and Moscow to enable both sides to “reprice” their understanding of the costs of nuclear genocide, then Wall Street and the City should work with their counterparts in continental Europe through St. Petersberg to square away any differences in understanding in commercial contract rights enforcement and civil procedure with fossil fuel wealthy Kingdom of Saudi Arabia and UAE.
This will also serve to boost the principles behind the “Abraham Accords” which Secretary Pompeo helped engineer on behalf to the Trump Administration— and that the Current President’s team is likely working to boost via backdoor channels with KSA’s business relationship with firms like BlackRock.
Under this backdrop, DuLac Capital Advisory L.L.C. estimates that will be an expansion of interest in MSCI Eastern Europe indices: it will be on their side for the long-haul— it is usually the commercial enterprise contract rights that end up causing the root of the consternation between the “East and the West.” However in the age of blockchain, AI, and digital communication, those risks should be ever more readily ironed out by open channels between DC to NYC to London.
This is unique as the spectre of alleged “un-priceable nuclear option risk” by Tsar Putin (see Ms. Julia Ioffe’s piece in Puck news “A Czar is Born”), is effectively neutralized by the fact that the smart money in the market knows that President Bush did indeed invite President Putin to his family’s Estate in Maine on 02 July 2007— and said: “The thing about President Putin— he tells me the truth: even if I don’t like hearing it sometimes, he does tell me what I need to hear.”
He also was magnanimous in allotting President Putin credit for catching a sizeable fish: that is the duty, honor, and loyalty that makes and keeps America Great: and that provides a “Asymmetric Downside Risk Blanket” over the heads of those Patriotic Eastern Europeans, or “New Europe” as penned by Dr. Rice, who stood by America during its most solemn hour since General Ike ordered to charge up that Hill yonder the beaches of Normandy.
Ryan Scott
Executive Director and Founder
DuLac Capital Advisory
(+1) 516-939-6833
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