On Friday 6th March 1998, a crowd of 5,000 concert goers are waiting for a middle aged Mexican-American man to appear on stage at the Bellville Velodrome in Cape Town, South Africa. The concert is a sell out, and the level of anticipation and excitement is palpable. Everybody in attendance had assumed they would never see Sixto Rodriguez perform, and many were still not convinced he would actually walk out onto the stage.
When the music started, the lights came on and Rodriquez strolled to the front of stage with his guitar it was like seeing Elvis come back from the dead. The crowd went utterly wild.
For 25 years almost nothing was known about Rodriguez, he was a complete mystery. Yet he was a household name in South Africa and had sold more records than Elvis and the Rolling Stones combined. In fact, It was widely believed that the singer-songwriter had died by either setting himself on fire, or shooting himself while on performing on stage.
What’s even more remarkable about this story, is that Rodriguez had no idea he was famous. Rodriguez had released two albums in the early 1970’s, his songs spoke of the gritty reality of inner-city life in Detroit, and was often compared to Bob Dylan. In the US both albums were complete flops, selling only a handful of copies, and he was dropped his record label 1975. Rodriquez then quit the music business and lived a quiet life as a construction worker in Detroit, believing his music had faded into history and totally unaware of what was happening thousands of miles away in South Africa.
It is a mystery how a copy of Rodriguez’s first album ‘Cold Fact’ made its way into South Africa, especially given how few albums were actually sold, but the anti-establishment message in his music resonated with young South Africans living in the shadow of apartheid. Cassette tape copies of the album spread across the country (Yes, kids, this is how music used to be shared) and eventually the album was officially released, and became a household staple alongside The Beatles or Simon and Garfunkle.
In the 1990s, a couple of determined South African fans set out discover what had become of Rodriguez, and how he died. After years of searching, they finally tracked down his original record producer and then discovered the most surprising thing of all. He hadn’t died. He was alive and well, living in Detroit with his family. A fateful phone call across the Atlantic then took place and Rodriguez was told he was a superstar in South Africa and was invited to come to over and play his first ever tour in South Africa.
Searching for Tariff Plan
This amazing story was eventually told in the 2012 Academy Award-winning documentary film ‘Searching for Sugar Man’. Not to be over dramatic, but this is perhaps the greatest ever story in the history of modern music. This man lived for 25 years never knowing he was cultural icon. South Africans spend 25 years thinking their icon was dead. This was their reality for a long period of time, then one phone call changed everything.
The current world order, the reality we have all shared for a long period of time, is currently changing before our eyes. The US wants to reset how they trade with the rest of the world and reduce their share of the global security bill. The treatment of long-standing US allies such as Denmark or Canada was a warning shot, but ‘Liberation Day’ was the turning point. It was the bell ringing for last orders on globalization and economic cooperation as we know it. This is a reality reset.
Since World War II, the United States has been the world’s economic superpower, and the US dollar and US Treasuries have been the backbone of the global economy. This decade alone, the US has attracted 80 per cent of the money flowing into stock markets worldwide, but those flows are starting to reverse. The US stock market has underperformed the rest of the world this year by the widest margin in more than three decades, underlining investors’ concerns that Trump’s tariff onslaught will take a heavier toll on the US economy than it will on other economies.
Usually, when the stock market crashes investors rush to US treasuries and US dollars as safe havens, but the triple selling of the US dollar, US bonds and US equities highlights just how much the current chaos has undermined the reputation of US assets and institutions. This is a radical shift in how the rest of the world sees the US.
The world is also adjusting to the “America First” foreign policy which will see the US row back from the security guarantees that have underpinned peace and stability for decades. This has finally shocked Germany into action, and after years of economic malaise, the newly elected Chancellor Friedrich Merz has unveiled a fiscal package worth up to €800bn to fund investment in defence and infrastructure. This proposed relaxation of the debt brake could be a game changer for Europe and as the trade war intensifies between the US and China, the strategic importance of Europe is increasing as well. Europe can tip the balance in this trade war and is looking increasingly well placed to capture money that needs to find a home away from the US.
No pain, no gain
In many ways the global rebalancing strategy that the US is employing makes sense. The dollar is too strong against other currencies, they have too much debt, they need to cut their trade deficits, they need to cut their defence costs and they need to produce more goods domestically (especially critical minerals). There are three main problems with this plan. The time it takes, the uncertainty it creates, and the people you piss off on the way.
This transition will ultimately take a lot of time and a cause a lot of pain. Are US citizens prepared to suffer loss of wealth for the greater good? The US is like a middle aged man (not talking about myself) finally deciding he needs to start exercising and eat healthier after years of poor living (just to be clear, not talking about myself). It can be done but it won’t be easy.
The first sign that perhaps the US administration may not have the stomach for what is coming next is when the bond market started to sell off and bond yields rose. It is all well and good telling the public they may have to endure some pain in their stock portfolios but when the government’s borrowing costs started to rise then something had to be done. The US blinked and gave a 90 day reprieve on the vast majority of their reciprocal tariffs, but the situation has not been solved. If this is a tactic to renegotiate trade deals it won’t happen in 90 days, trade deals take years.
This is also assuming that other countries will be prepared to concede ground. China in particular seems up for the fight. In a full blown trade war they will not come out unscathed but are prepared to endure some pain, knowing that they have the economic weapons to do some damage back. China have been keeping quiet over the last few weeks and letting the US government negotiate with itself.
While the promise of bringing manufacturing jobs back to the US is good for winning votes, it is not so easy to achieve in the modern world. A good example is the iPhone, which has 2,700 parts and Apple uses 187 suppliers across 28 countries to assemble the phone. The supply chains are hugely sophisticated and require specialist knowledge, equipment and materials. The estimated cost of producing this in the US is $3,500. Even if you think that Apple, or Nike, or whoever, will start building factories in the US (which they won’t), and even if those factories would not be mainly automated (which they would) the US is near full employment, meaning any manufacturing gains would mostly involve reallocating workers from other sectors rather than reducing unemployment.
Attempting to reset the global trading order has also created uncertainty, and this uncertainty comes at a cost. Investors are reluctant to put their money to work when they don’t know the cost of different goods and assets under an uncertain tariff regime. Companies can’t make investment plans for hiring staff, mergers and acquisitions or strategic decisions. This uncertainty is spreading through markets like wildfire.
Lastly, many of the US’s long term economic allies have lost trust and patience with how Trump treats them. No nation is more irate than Canada, where consumers are switching from US to Japanese whisky, cancelling US streaming services and calling off trips to their southern neighbour. As Walter Wriston, the late Citicorp boss who was one of the titans of American banking, once observed: “Capital goes where it is welcome and stays where it is well treated.” For close to a century, the US has been the world’s ultimate destination for money. Now, investors suddenly worry this may no longer be true. Ray Dalio, the founder of the Bridgewater hedge fund believes “the United States’ role as the world’s biggest consumer of manufactured goods, and greatest producer of debt assets to finance its over-consumption, is unsustainable.”
Over the last few years, an investment strategy of just buying US equities and US dollars would have served you very well, but the game has now changed. If your allocation is still based on having most of your money in US assets, because that what everyone else does, then you are just not paying attention.
Coming From Reality
At the very beginning of Rodriguez’s first performance in 1998, the audience spent five to ten minutes screaming and cheering, he hadn’t yet played a single note, but the mere experience of seeing him in the flesh after all those years was an incredible moment. There must have been a million thoughts running through Rodriguez’s mind, but rather than getting swept up with the moment there was a serenity on his face. He was accepting his new reality. He simply smiled, said “Thanks for keeping me alive” and then started playing.
As investors we should follow Rodriguez’s example. There is uncertainty and chaos all around us, but we must remain calm and accept the new reality. Markets can be volatile and always will be. The essence of our job is to overcome this and find opportunities.
I would whole heartedly recommend watching Searching For Sugarman, but in the meantime, here is the video of the moment he first plays in 1998 https://youtu.be/knmM657IxnE?si=fYiuupTVSJu_-Pvx
