A portfolio for these interesting times

Wednesday, 16 March 2022 — Albert Park

[8 min read]

Dear Reader,

In his latest editions of The Daily Reckoning Australia, Jim Rickards has been diving into the different aspects of these interesting times we live in.

Pandemics, tapering, inflation, asset bubbles…the list goes on and on. But what can you do to manage all these different things?

Today, Jim outlines what he sees as necessary to a portfolio equipped to handle these interesting times.

But first, he outlines another factor that massively impacts our economy — geopolitics. Read below to see how this could affect your investments and get Jim’s advice on what to do about it.

Best wishes,

Callum Newman,
Editor, The Daily Reckoning Australia

PS: There’s no bigger story in the markets today than the outlook for oil.

The Russia-Ukraine conflict risks shutting Russian oil out of the market at a time when inflation is raging around the world. Oil could soar to US$150 or sink back toward US$70, depending on future events.

Find out what’s more likely...and more!...as we chat with energy analyst and private equity investor Mark Rossano.

Watch on YouTube here or listen on the go on your favourite podcast platform:

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Dear Reader,

The humiliation of the US in August 2021 was nearly complete. We surrendered in Afghanistan, stranded US citizens behind enemy lines, handed over US$90 billion worth of high-tech weapons to terrorists, and most tragically, lost 13 marines, soldiers, and sailors in a terrorist attack that we should have seen coming.

The incompetent blunders of US leadership are even worse than that sketch. We closed a secure airbase (Bagram) while relying on an insecure airport too close to Kabul to control. We extricated the military first and left civilians behind when any novice knows you get the civilians out first and the military last.

Following the Afghanistan fiasco, it was reported that Four-Star General Mark Milley, Chairman of the Joint Chiefs of Staff, committed treason just before the 2020 election and again after the 6 January 2021 riot in the Capitol. He did this by undermining the chain of command and warning the Chinese Communist leadership that the US would not attack. He also said he would give the Communists advance warning if we did.

Can things get any worse? Unfortunately, yes.

Enemies of the US are on the march

China is threatening to invade Taiwan and is sending fighter jets through Taiwanese airspace. Russia has completed the Nord Stream 2 pipeline to Germany and now has Western Europe totally at its mercy through the control of natural gas supplies. North Korea has tested new long-range cruise missiles for the first time. Cruise missiles can easily be fitted with nuclear warheads, which North Korea is also working on.

Unlike long-range ballistic missiles, cruise missiles are highly manoeuvrable and can go through mountain passes and densely populated cities to reach their targets. These missiles are also potent against vessels at sea, which makes US sea power less effective at deterring further North Korean actions.

Aristotle said nature abhors a vacuum. As applied to politics, this means that when a power is weak or absent, other powers will rush in to fill the void. Right now, there is no functioning president in the Oval Office and the US is perceived as weak. Russia, China, North Korea, Iran, and others are rushing in to fill the void.

Aristotle was right, at least in the political realm. It will take the US years, possibly decades, to recover from the debacle of August 2021 and the collapse of American prestige. All of these geopolitical events combine to undermine confidence in US power. When that happens, a loss of confidence in the US dollar is not far behind.

A portfolio for interesting times

A new depression is not coming; it’s already here. In some ways, the US economy has been in a depression since 2007, but the pandemic of 2020 cemented that reality and ended any possibility of escape.

The depression will last for years and the behavioural changes such as increased savings and reduced consumption will last for decades. The adverse mental health aspects of the depression will weigh on economic recovery as well.

To be clear, depression does not mean continually declining growth; it refers to a situation of depressed growth (with occasional technical recessions) where the economy doesn’t reach its potential or prior trend growth levels. With continued slow growth and continued high fiscal debts, the debt-to-GDP ratio of governments — especially the US — will reach new record highs and reduce growth even further.

The Big Tech companies should continue to do well since they are relatively unaffected by the pandemic and lockdowns. If they suffer at all, it will be from increased competition in their own sector and possibly reduced consumption as the economy slows down. Tech will outperform other sectors, but it is not immune to decline in line with the overall economy.

Commercial real estate will remain sluggish because of the new work-from-home ethic that even companies have come to prefer in many cases.

I don’t see cryptocurrencies as investments; I see them as speculation similar to gambling. You can make or lose money in cryptos, but it’s more like going to a casino than investing in sound companies or government bonds.

As described above, the global depression is already here (meaning weak, below-trend growth). A global technical recession (two or more consecutive quarters of declining growth) could arise inside the depression. This happened during the Great Depression, which lasted from 1929–40 and included two technical recessions: 1929–33 and 1937–38.

Of course, there is also a difference between a technical recession and a financial crisis. While I do not currently forecast a recession, one will certainly arise in the coming years. But a financial crisis may be unfolding now.

The most important market action today is all behind the curtain in the form of Eurodollar collateral shortages, quarter-end window dressing, the Evergrande liquidity fallout, and a shortage of Treasury bills. Drama around the fiscal cliff and the Treasury debt ceiling will add to the uncertainty and increase the fear factor. Markets will face a very rough ride for the next few weeks.

You cannot escape, only prepare

There are no ways to avoid slower growth and disinflation.

Monetary policy will fail due to the declining velocity of money, and the fact that printed money has been sterilised in the form of excess reserves held by banks at the Fed.

Fiscal policy will fail because debt levels are already too high. Historical evidence is clear that adding government debt when the debt-to-GDP ratio exceeds 90% does not provide stimulus. It acts as a headwind to growth. The US debt-to-GDP ratio is currently 130% and headed much higher. The government has no way out of stagnation.

Still, individual investors can prosper and preserve wealth with the right mix of gold, cash, government notes, real property, and stocks in energy, artificial intelligence, agriculture, natural resources, defence, and healthcare.

There’s no need to head for the hills or go completely to cash or gold. Investors can do well, but they need diversification, selectivity, and patience. A simple ‘buy-the-dip’ mentality using passive index funds has worked in the past, but it won’t work going forward. It’s a recipe for disaster.

In my recent editions of The Daily Reckoning Australia, we have tried to make sense of important trends in the pandemic, Fed policy, fiscal policy, and geopolitics, as well as give you optimal asset allocation.

Importantly, these trends are connected, and a setback in one area easily spreads to others. Using diversification will be a way to protect and grow your investments through crises.

Regards,

Jim Rickards,
Strategist, The Daily Reckoning Australia

This content was originally published by Jim Rickards’ Strategic Intelligence Australia, a financial advisory newsletter designed to help you protect your wealth and potentially profit from unseen world events. Learn more here.

Dear Reader,

Mundus vult decipi, ergo decipiatur:

The world wants to be deceived, so let it be deceived.

The US media is privately owned. But it acts as an arm of the US government…which is an arm of the Entire Elite Establishment (EEE, aka the ‘liberal world order’).

No surprise. Reporters go to the same schools, read the same newspapers, and believe the same things as Washington’s movers and shakers. They are not intentional propagandists; they just see the world in the same way.

So they generally accept the whole agenda — equity, decarbonisation, racism, financial manipulation, military adventurism, neutral pronouns etc. — of the ‘liberal world order’. In other words, they become cheerleaders for the powerful EEE, not critics of it.

Never has this been clearer than reporting on the war between Russia and Ukraine. The war is nothing remarkable. Russia insists that Ukraine remain a neutral buffer between itself and NATO. Ukraine — lured and spurred by the US — doesn’t want to do that.

The whole brouhaha should be of little interest to the average American. His problems are here at home — such as US$5 a gallon gasoline — and they are being made worse by US sanctions.

But every headline insists that he take an interest. And they tell him which side to support. Ukrainians are noble freedom-lovers (rarely are its neo-Nazis mentioned) and the Russians are brutes. Putin is compared to Hitler. The Russian army is accused of dastardly war crimes, etc. Last week, one ‘news’ item even featured an adorable stray puppy that had attached himself to a Ukrainian military unit. Are there no puppies among the Russians? Apparently not.

Much of the coverage is just puffery and claptrap. Some stories are actual lies — the Russians did not attack a nuclear reactor…Miss Ukraine is not actually fighting for her country. And some delicious details are hardly noticed; Zelenskyy really is a former clown/comedian who got elected after playing a teacher on TV who got elected president! Life imitates art…especially when the art is (allegedly) funded by George Soros.

But little attempt is made to observe, study, or understand. Instead, the ‘liberal world order’ is on the field itself. Zelenskyy leads the home team. And the American media…along with the public, as gullible as ever…puts on its jerseys and flies its colours.

McUnhappy deal

You can fool most people most of the time. And that’s plenty for government work. People want to be fooled. That’s what politicians, with their empty-headed jackassery, depend on. And corporate chiefs, Wall Street heavies, and Hollywood celebrities join in too…and share the glory of the winning team.

Leonard DiCaprio said he has sent money to Ukraine. McDonald’s shut down its business in Russia. Wall Street is pulling out too. Business Insider:

‘Goldman Sachs is shutting down its operations in Russia, becoming the first major US bank to do so.

‘The company said the move was “in compliance with regulatory and licensing requirements.”’

From the UK comes word that fans may not even be able to watch a soccer match. Because the team’s owner is Russian. Bloomberg’s Matt Levine is on the story:

‘The U.K. froze the assets of Chelsea Football Club owner Roman Abramovich, as Boris Johnson’s government dramatically stepped up its sanctions against prominent Russians over the invasion of Ukraine.

‘Abramovich and six others face a full asset freeze and travel ban, and are prohibited from transacting with U.K. citizens or businesses, the Foreign Office said in a statement Thursday. The move effectively derails Abramovich’s plan to sell Chelsea, which plays in England’s highest soccer league, and raises major questions about the future of the club.

‘Chelsea won’t be able to sell new tickets for matches, including games in the European Champions League, and the club’s merchandise stores will be closed. Player transfers are banned, as are new contracts.’

Speaking of sanctions…

Even Switzerland is giving up a foreign policy that has served it well for centuries — neutrality — in order to pile on. The Swiss had protected American oil and metals trader Marc Rich for almost two decades after he was accused of dealing with Iran (among other things). Legal scholars at Harvard and Georgetown later concluded that he had committed no crime; they advised Bill Clinton to pardon him, which he did. But henceforth, oligarchs, dictators, traders…Christians or Jews — none can depend on Switzerland to shield them from the long arm of the ‘liberal world order’.

Yes, dear reader, sanctions work! Look at what they are doing to Afghanistan. USA Today:

‘As a result of all this economic disruption, including the loss of billions of dollars of aid, 22.8 million people — more than half the population — are facing acute food insecurity. They include a million children under 5 “at risk of dying due to severe acute malnutrition,” according to UNICEF.

‘It is not clear why the Biden administration has imposed such devastating sanctions on Afghanistan.’

Meanwhile, the Chinese look on. Tom Friedman believes they have a simple choice. They can stick with Putin. Or they can join the ‘Western’ coalition against him. Seeing the awesome firepower of our weaponised money system, he thinks they will buckle under:

‘There are signs that China recognizes some of these new realities — that no country is too big to be canceled in the wired world.’

Get it? The end of history. No country can stand against the ‘liberal world order’. The wired world has been levelled after all.

And yet, the media never even asks the basic question: what does the fight between Ukraine and Russia matter to Americans? Why are we so keen to expand the ‘liberal world order’ onto the Eurasian steppes? What’s it really all about?

Or, to put it more provocatively, and borrowing from Country Joe and the Fish who asked the same question about the War in Vietnam, ‘it’s one, two, three…what are we fightin’ for?’.

Tune in tomorrow...

Regards,

Bill Bonner,
For The Daily Reckoning Australia