Investing in a Changing World Order: Part 3
Weekly Investment Update | By Brian Schreiner
In part one of this series, I introduced the case that we are in the early stages of a “new world order,” that will include major societal, economic and geopolitical changes that will have major impacts on our everyday lives and our investments.
In part two, I focused on two of the five “big forces” explained by Ray Dalio. Dalio believes, and I agree, that we are in the late stages of a global debt supercycle and have reached a point in the societal cycle where internal conflict is having major impacts on the way the world works.
This week, I will discuss the other three big forces which include major shifts and conflicts in geopolitics, a changing climate and technological advances.
Great Power Conflicts
We believe that the most significant and developing trends in geopolitics today are demographics, geography and the decline of the U.S.-led global system.
The period of globalization we've experienced has largely been a product of U.S. military dominance, particularly naval superiority and security guarantees. The U.S. seems to be slowly withdrawing from this role which is causing the global order to dissolve. It seems impossible to predict what the results will be, but due to the U.S. fiscal situation, their withdrawal, if not forced, is necessary.
Much of the world is facing negative demographic trends including declining birth rates in many countries. Aging populations, labor shortages, and economic instability will be a driver of major shifts of power across the globe creating investment risks and opportunities.
Geography will be of increasing importance as countries with favorable geographic positions, such as access to navigable rivers and defensible borders, will have advantages when it comes to global trade, but for many countries without these advantages they will be forced to operate domestically or in a tighter region of influence prioritizing self-sufficiency to secure supply chains. This will generally weaken economies and result in conflicts among countries with shifting trade relationships.
The importance of access to energy, food and water resources will increase as global trade declines. Countries will face increasing challenges in securing these essential commodities.
There are conflicting views on China. We believe that China, primarily due to its declining demographic trends and communist leadership, is entering a period of decline. Europe, also due to declining demographics and poor leadership will continue to struggle economically.
The world is becoming less stable and regional and wider global conflicts are increasing and causing economic disruptions. From an investment perspective, emerging markets are more attractive than the developed economies which are become destabilized. But not all emerging markets will do well in the changing order and it will be critical to identify the markets that can benefit from the shifting power and influence.
Climate Change
This is an area where I have a contrarian view. The mainstream view is that climate change is a major threat to the earth itself and by extension, economies, society and our way of life. My views have been most influenced by scientists such as Randall Carlson, Scott Tinker and Judith Curry.
The climate is, and always has been changing - and the changes have not been subtle. Living creatures, especially humans, have always adapted to changes in climate. People would rather be warm than cold and food sources are more abundant in warm climates than cold climates. While climate change will have economic impacts at the regional level, the earth isn’t going to burn up or become inhabitable.
Climate change is real, but it’s nothing new. Since the dawn of time the climate has been changing over both long-term and short-term cycles. In the long term, catastrophic events, such as asteroid impacts have been the primary drivers. Human-caused greenhouse gas emissions are not having a major impact, but rather a minor impact that will be far less drastic than predicted by mainstream scientists.
CO2 is plant food and our world is getting greener. Of far more concern should be the prospects of World War III, nuclear conflict between nation states, comet impacts and other natural catastrophic possibilities. Warmer temperatures will be welcomed by everyone living above the Tropic of Cancer and below the Tropic of Capricorn; and most living between will not see major impacts to their way of life.
Even though the mainstream media won’t admit it, the earth’s climate is controlled by many more factors than just human output of greenhouse gasses. I think our efforts to save humanity are better spent focusing on more important realities than a slight change in temperature that can be easily adapted to by most societies.
Technological Advancement
The rapid evolution of technology is having major impacts on the global world order. Artificial Intelligence (AI), especially generative AI is rapidly transforming various sectors of the global economy and societies around the world. Machine learning and deep learning are driving advancements in fields like healthcare, finance, and transportation. Their broader and specific impacts will be especially important to investors as we must decide which sectors and which companies will be the winners and losers.
Another phase of AI may be quantum computing which holds the potential to revolutionize computation by tackling problems that are impossible for classical computers. This technology could lead to breakthroughs in areas like drug discovery, materials science, and cryptography, however the promise of quantum computing is an old one, which may take generations to fully develop.
Advanced connectivity and the expansion of communication networks is enabling faster and more reliable connectivity, supporting the growth of technologies such as autonomous vehicles, and other data-intensive applications. This enhanced connectivity is driving development across the global economy through communication, industrial automation, business productivity and entertainment.
Advances in biotechnology and many scientific applications are advancing healthcare, medicine and human longevity, however these advancements are in conflict with advances in other areas such as chemical food additives, the proliferation of industrial packaged foods, plastics, weaponry, warfare and other technologies that are in various phases of development and have yet to be perfected.
These technologies and others are interconnected and are driving innovation across various sectors, shaping the future of how we live and work. For investors technology is another area fraught with risk and opportunity and so deep and careful analysis is critical to understanding which technologies are worthy of investment. Appropriate timing and asset allocation are far more important than simply identifying new technologies or their advancement. α
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Interesting things I came across this week…
An Honest & Sensible Conversation about Global Energy (Scott Tinker)
Investors Aggressively Buying Downside Protection (Torsten Slok, Apollo)
Most US banks have done nothing to address underwater loans and securities (The Institutional Risk Analyst)
Sam Bankman-Fried on Life in Prison (YouTube)
Thanks for reading!
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