Happy Hump Day!As were getting ready to fly 15 long hours to Rome soon, that China Eastern crash yesterday was jarring, to say the least.As Christopher Reeves Superman once said, Statistically speaking, flying still is the safest way to travel.But Margot Kidders clearly shaken Lois Lane seemed unassured.Planes crash occasionally, and they seem to do so more on this side of the world.But it was the way the plane crashed.Caught on a few cameras what isnt nowadays? the plane looked like a missile heading perpendicularly down on a target.Sky News Australias senior flight correspondent wouldnt rule out terrorism, saying the flight path downward indicated it may not have been a systems malfunction.But that wont quell Chinese authorities, who have yet to reinstate Boeings 737 MAX.The MAX wasnt the plane in the crash, of course, but this older model crashing will surely weigh on the reinstatement.Though this model is older, its allegedly easier to fly.Thats causing even more consternation in the Middle Kingdom.Lets look at how American and European companies are virtue signaling their way into crises.
- Boeing, along with many other companies, stopped doing business in Russia.
- Yesterdays horrific crash in China couldnt come at a worse time.
- If China looks more to Airbus, that will be two large markets gone in quick succession.
Building Resilience into AntifragilityNassim Nicolas Taleb, perhaps the finance industrys agony aunt, wrote a few books that ought to be read before entering any career.He calls them The Incerto. Here are their titles:
Today, Ill concentrate on Antifragiles main idea, as I think Western companies are ignoring it to their detriment.Maybe even to their eventual demise.Taleb writes in Antifragile:
- Fooled By Randomness
- The Black Swan
- The Bed of Procrustes
- Skin in the Game
Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile.
Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.
Taleb goes on to allege that antifragility determines the boundary between what is living and organic (or complex), says, the human body, and what is inert, say, a physical object like the stapler on your desk.
Weve got two eyes, ears, lungs, kidneys, testes (perhaps), boobs (perhaps), legs, and arms. Even two cerebral hemispheres.
And we can function just fine with any one of those things.
And that leads to redundancy.
Brett and Kate McKay over at The Art of Manliness wrote a great article on Talebs work titled, Two Is One and One Is None: How Redundancies Increase Your Antifragility.
From their article:
How redundancies increase our antifragility is obvious: if you only have one of something, and it fails, you can be up the creek without a paddle. Members of the military have a maxim that neatly sums up Talebs philosophy: Two is one and one is none.
If you bring one piece of gear on a mission, its bound to break, and when it does, youll find yourself in a real pinch.
Far better to have not only a Plan A and a Plan B, but a Plan A, B, and C. Former Navy SEAL Richard J. Machowicz calls the intentional creation of strategic redundancies advantage stacking you want to stack so many of the advantages in your favor that, when the order comes, when the opportunity presents itself, you cant help but win.
Two is one and one is none may sound fatalistic, but its also realistic; Murphys Law is far too often in effect. Or as Taleb puts it, Redundancy is ambiguous because it seems like a waste if nothing unusual happens. Except that something unusual happensusually.Heres where this relates to Boeing and other Western virtue signalers.
When You Rely on Efficiency, You Get Caught OutWhen I worked as a young trader operations specialist (a clerk, really, who typed trade tickets into our back-office systems), someone always always checked my work.And I checked theirs.We never did anything on our own because there were bound to be errors no matter how diligent, competent, and sober we were.Now, expand that upward.All companies need to have redundancy procedures in place to ensure the safety of the firm.I dont think Western companies have thought this through.Sure, I think solely relying on Russia for their every energy need has put Europe in one hell of a pickle.Conversely, I think completely excluding Russian energy supplies form their mix is suicidal.And we may see this come to pass if the Europeans dont wake up and cut a deal before next winterAmerican companies like Boeing have already ceased all business activities in Russia.Im sure Boeing executives werent expecting the crash in Southern China.And yet, here we areIm not so fatalistic to think Boeing will run out of countries to sell to.Thats plainly absurd.But those cartographically-challenged Americans currently running the USG need to understand this map:Credit: Google MapsSure, the Mercator projection makes Russia look enormous.Nevertheless, thats a whole lot of flying.China is already developing its own aircraft.Now Russia will surely do the same.They wont be as good as Boeing for a long time.But eventually, theyll get there.And Boeing will never get back in that market.Its an entirely new risk American investors need to worry about.Lets call it exclusion risk.Its the risk American companies youre invested in cant expand into huge markets.It puts a ceiling on their growth and limits your opportunities as a business owner.And thats not all.Boeing recently said it wont buy Russian titanium. (Luckily, Airbus isnt that stupid.)Russia is by far the worlds largest producer of the all-important metal.Boeing alleges theyve diversified their platinum sourcing."We have suspended purchasing titanium from Russia. Our inventory and diversity of titanium sources provide sufficient supply for airplane production," Boeing said in an emailed statement.I flat out dont believe them.Like I dont believe Europe will get through next winter without Russian gas turned on to the full.
Wrap UpRealpolitik needs to be reinstituted as a policy.This pie-in-the-sky, nah, itll be alright attitude towards sources of important resources and international revenue must be abandoned.America has done business with dictators far nastier than Vladimir Putin.Sure, he does things his own way for his own country.Thats exactly how America says it does business.If this conflict doesnt get resolved soon, American companies will be in international peril.I dont think any of the companies who quickly abandoned Russia will be allowed back in.And thats a risk American investors must look at when theyre investing in homegrown companies.Building antifragility must come back into vogue.Until tomorrow.All the best,Sean