Screw history, embrace the brave new world
How I'm thinking about investing in a world that's going to suck
We’re in a new world. To make as much money as possible (which is my preference) we must be open to change. I’m not talking about the great reset, eating bugs or anything else Klaus has planned for us. I mean that in the old world we had,
Inexpensive energy
Easy access to energy
Peace (the Middle East not-withstanding)
Little to no inflation
Good demographics (Japan’s demographics were the first to turn rotten)
The central bank put
Political stability
The brain-dead 60/40 portfolio
The 40 year bond bull market
Pop-tarts were invented and instantly gained marketshare with six year olds and college sophomores
For lots of people, that’s been their world since their day of birth. For others, they’ve known this world their entire adult life. My parents, for example, were teenagers during the great inflation and oil embargo of the 70s.
The thing is, when the world remains the same for a long period of time (or for someone’s entire life, like mine!) there is a tendency to believe that this is how the world is. Stability is the natural order. Any problems that arise will be quickly fixed. We take avocado toast for granted.
History would suggest, however, that the period of abundance and relative peace that we’ve enjoyed since the end of WWII is an aberration. History is replete with energy scarcity, wars and famine. Although it may offend the sensibilities of the snowflake, it would appear that many countries are transitioning to a new equilibrium where people beat each other to death with heavy sticks. The ramifications will be a complete reordering of how the world works.
A brave new world
I’ve talked to several Europeans in the last week. I’ve read hundreds of Twitter, YouTube and Substack comments from Europeans. What I find most surprising is that so many Euro-folk seem unconcerned about what’s happening.
One German fellow told me,
“I’m not worried about our industry shutting down if there’s not enough natural gas, we can restart the factories later on. In fact our problem is that we’re going to generate too much electricity from our renewable energy resources. I believe we’re going to use the extra energy to produce hydrogen.”
Granted he said that two months ago, before the shit really hit the fan, but seriously? People have been conditioned to believe that nothing bad can happen. We’ve spent so long with abundance that we’re incapable of imagining privation. For example; a world where there is no-fucking-energy no matter how much you pay, not enough food, men with guns are more powerful than men with bluecheck Twitter accounts.
Energy
I am long energy. So far that’s oil and gas producers, but I might even buy some of that coal that everyone seems to hate so much. Barring some kind of white swan (an unexpected positive event), I expect the world to get a lot more medieval than people expect.
More broadly, I think it will be essential to keep an open mind to as how our world might change.
Broken supply chains
High energy prices
War
Famine
Riots and revolutions
Nationalistic policies
Stocks and bonds fall together
High inflation
Extreme equities market distortion due to passive investing
Hamstrung central banks, stuck between inflation and crippling rates
Mind-boggling incompetence on the part of our “leaders”
Capital controls
$260 to buy a loaf of bread and gold is at $1,900 an ounce
We cannot foresee what all will happen, however, I’m willing to bet that the next forty years are not going to look like the previous forty. That’s why I believe it’s important to be careful everytime I hear someone say,
When that happened in 2008 the Fed…
Bonds always go up when…
Whenever that happened before…
Last time that happened…
But XYZ has never happened before!
That’s impossible…
While there will be many challenges, there will also be TREMENDOUS opportunities to bet against the crowd. In the next ten years the flexible investor will steadily outperform everyone who can’t see what’s coming.
Postscript
I’m not a cranky codger who thinks we’re going back to horses and boiling the neighbor’s kids to survive the winter*. I’m a happy person with a relatively positive outlook on the future. However, I do believe that the next decade is going to fucking suck.
*Known to have happened during the great Ukrainian famine.
