What If Peter Zeihan is Right?
Where to put your money now?
Image by Gerd Altmann from Pixabay
If you believe the world is going downhill, hold on to your hat.
You ain't seen NOTHING yet!
The negative cycle has barely begun.
That's the message of Peter Zeihan's fourth and most recent book:
THE END OF THE WORLD IS JUST THE BEGINNING: Mapping the Collapse of Civilization by Peter Zeihan
He means it, too.
That part about the "collapse of civilization."
Maybe not 100% - just most of the countries not blessed with the ability to survive mainly on their own. 80% to 90% - my guesstimate.
Most books I read about the future are wildly optimistic. Technology is going to keep making progress, so we'll all live forever and be wealthy.
Most pessimistic books about the future are just modern updates on the standard old-line libertarian gloom and doomers of the 1970's. The financial world is going to Hell because we got off the gold standard, so the politicians spend too much money. Fiat currencies are going to collapse . . . someday.
Zeihan is much, much different than those old-school "the sky is falling" economic hardliners.
If you grant him *two* basic premises, he details the consequences for every major country around the world - and makes the end of our current world sound totally reasonable and convincing - which is scarier than Hell.
If you want to feel comfortable about the future, read Stephen King.
Zeihan is the REAL horror writer.
I refuse to grant him those *two* basic premises, just because I'm so afraid.
But I learned many years ago reality does not always conform to what we want.
Therefore, it's a good idea to consider potential negative consequences, the better to prepare for them as individual investors.
Politicians should consider these things, but nobody wants to hear bad news - let alone deal with it - until forced to.
Premise #1:
Demography is destiny.
Zeihan doesn't word it that way.
He just says people follow predictable lifecycles.
To a large extent, that's undeniable.
It's young adults who - mainly - get married and have children. They buy houses, dependable cars, furniture and appliances.
That makes them the main consumers of society.
Older folks don't buy as much big stuff as cars and houses and new families.
Older NONretired people in their 50's and 60's are the most productive because they've had the most career experience. Plus, they're buying stocks to prepare for retirement. They're creating the investment capital societies need to grow by selling stuff to young consumers.
Retired people sell off their investments and stash the money into "safe" financial instruments such as bonds.
Retired people also burn up society's financial capital by receiving Social Security and pension checks - without creating new capital, because they're no longer working.
Premise #2 (even scarier):
The United States is abandoning the world order it set up in 1945 at the end of World War II.
As the largest, still-functional industrial power, we told our allies and the nonaligned countries: Stand with us against the Soviet Union bloc, and we'll guarantee free commerce around the world.
Despite all its anti-US rhetoric, China was able to grow its economy so dramatically because it could freely trade with other countries around the world.
Thanks to the United States Navy.
We have kept the peace on the oceans (and many lands) of the world.
Even after we achieved the goal of destroying the Soviet Union in 1991, we've continued to maintain what Zeihan calls the "Order."
Many people criticize the United States - and we have also benefited from this "Order" - but it's also an economic sacrifice.
It's paid for by American taxpayers.
Other taxpayers help. Great Britain's navy is an ally, of course.
The Consequences of Premise #2:
We're seeing a preview in Ukraine.
Putin apparently invaded only because he believed a weak US and NATO would fail to support Ukraine.
So now the world is experiencing the worst war in Europe since 1945 - and people dependent on grain from Ukraine and Russia are starving.
Europeans dependent on natural oil from Russia are freezing.
And this is only the beginning.
The Order made possible the highly complex network of supply chains we now all depend on for everything from chocolate to iPhones to SUVs.
In the 1980's, Japanese businesses jumped ahead of American businesses by adapting "just-in-time" inventory processes that cut out the expense of warehouses.
That was possible only because the Japanese could depend on a reliable system of subcontractors to supply product parts.
Subcontractors can be located anywhere in the world. It just depends on their access to raw materials, the educational level of the local labor force and such other factors.
Shipping parts across the ocean is cheap when you don't have to worry about pirates and warfare.
Thanks to the United States Navy.
So now the entire world is enmeshed in a giant supply chain network.
It worked well until the pandemic.
Then we got a foretaste of how fast products could disappear off store shelves when "just-in-time" inventories turned into "suppliers shut down due to Covid" shortages.
The situation is now better, but American companies are reshoring to this country.
According to Zeihan, we're - at best - returning to the world as it was before World War II.
Only the United States, Canada, Australia, Europe and Japan were industrialized.
The major European countries, the United States and Japan controlled colonies so they would have access to what those colonies produced, including oil.
International trade was tricky and often dangerous.
The world's population was much, much lower than now. Most people lived an agricultural, preindustrial lifestyle - and often starved.
And, let's not forget, that situation brought about World War II, in which an estimated 70 to 85 million people died.
Everything Runs on Oil - Including Solar Power
We depend on petroleum for energy. Even electric vehicles depend on large amounts of minerals - some of them scarce - transported across long, long distances that depend on the Order to maintain the peace.
Solar power also depends on those minerals.
Three areas of the world now produce the world's oil:
The Middle East
Russia and nearby countries
North America
Japan and China depend on oil to make things and feed their people - and they're at the end of a very long supply chain from the Middle East.
A supply chain that passes many countries that hate China - India, Vietnam, Taiwan and others.
Many Europeans are similarly vulnerable, or depend on Russia.
Refineries complicate the picture. You need raw crude in the ground AND refineries to turn it into usable gasoline and other petroleum products - AND a reliable system to distribute gas to gas stations.
The upshot is: few places in the world have RELIABLE sources of usable, refined energy.
Without the US Navy protecting the shipping lanes, what or who's going to protect tankers from hijacking?
Competition for Oil Will Drive Many Wars:
In his previous books, Zeihan described his likely scenarios for more small, regional conflicts:
Iran vs Saudi Arabia
Japan vs China
Japan vs South Korea and North Korea (both Koreas hate Japan)
South Korea vs North Korea (and each other)
China vs Taiwan
China vs Southeast Asia
China vs India
Russia vs Ukraine (Zeihan said in 2014 Russia would invade Ukraine within 8 years)
China vs China (he predicts China as a unified country will violently break up)
Turkey, France, Angola, Argentina and India are likely to be overall regional winners.
Besides the United States. We are already economically well-integrated with both Canada and Mexico. North America will no doubt suffer economic dislocations, but we'll be the biggest winner of the future.
We'll have enough food, minerals and industry.
We'll likely continue the "Monroe Doctrine" to protect all Central and South American countries from European countries.
We'll also likely protect any country supplying us with something we want, good news probably for much of Europe and Japan.
At least somewhat. We do have the largest navy in the world, by far.
But carrier groups can't be everywhere at once.
The Greatest Famine in History
Zeihan analyzes worldwide agriculture. He makes the point we're feeding 8 billion people now because of oil.
Oil for fertilizers, herbicides and pesticides.
Oil to run tractors and other farm equipment.
Oil to transport and process foods.
Oil to send foods by the oceans to where people want to eat them.
Most countries of the world are not self-sufficient in food.
They'll have to return to pre-industrial agriculture: doing everything by hand. Lucky families might have a few pigs, chickens or a water buffalo.
But what will happen to the millions occupying city slums?
Pre-industrial farms will only support pre-industrial levels of population.
That's not 8 billion people - not even close.
We're going to see levels of famine that will make the images of starving children in Sudanese refugee camps seem like a walk in the park.
Only they'll be televised 24/7 by cable news and social media.
Can you handle that?
Mass starvation in Sub-Saharan Africa and many other world regions?
That includes much of China.
Zeihan on this topic reminds me of the late 60s, when I first read science fiction and environmental books warning about the dangers of overpopulation.
I realized even then the real risk wasn't actual overpopulation itself.
The world would never reach the population extremes foretold by John Brunner and Paul Erlich.
The REAL risk was whatever was going to PREVENT worldwide overpopulation.
Everybody With Half a Brain Will Want to Come Here
Zeihan covered the many geographical advantages of the United States in earlier books.
Let's just say we are deeply, deeply blessed.
By climate, by weather, by soil, by rivers, by natural resources and by our relative position.
We can project economic and military power around the world, but are largely uninvadable.
Even by Mexico and Canada, if they wanted to, but don't because they've already partnered with us.
Together, we can feed ourselves, keep the lights on and keep trucks running.
We’re also demographically blessed. We still have children, so - unlike much of Asia and Europe - we still have young adults to consume lots of stuff.
However, that doesn't mean we'll be as wealthy as a country and society as we are now.
It just means we'll have sufficient food and energy - at least most of the time.
In his books, Zeihan elaborates on the advantages and disadvantages faced by other major countries.
If We Can Make It Through the 2040s
Maybe the world will be okay.
That's what he says at the end, though he doesn't go into details.
Is This Gloomy Future Inevitable?
Zeihan says it's been too late to change for at least ten years.
I don't know. I'm not happy about it either.
Here're some of my hopes:
1. Technological innovation makes quantum leaps.
Maybe we'll find ways to make solar cells and batteries without requiring minerals from around the world.
2. Artificial Intelligence comes up with better ideas - or, maybe, just takes over the world.
3. Older people refuse to stop working.
I've written about this before.
I don't always say it outright, because I sometimes assume I'm addressing the typical audience for financial newsletters - people who have stopped working and just want to live on their investments, without being told to go back to work.
But I'm against "retirement" where you do nothing useful or productive.
It's bad for your finances.
It's bad for your physical and mental health.
Working doesn't have to mean a J.O.B., though that's not as bad as sitting around every day with your thumb up your ass.
It could be a business, especially one where you control how much, how hard and when you work, so you can adjust it to your other needs and limitations.
Last summer I had dinner with old friends Betty and Jim and my sister Nancy.
Jim is still working. He said, why should he stop when he's good at it and enjoys it? You're preaching to the choir, Jim!
Betty left her job teaching school, but watches her two preschool grandchildren because their parents are busy busy busy successful lawyers. She's not paid, but is performing an economically useful service her daughter would otherwise have to pay for. Besides, taking care of grandchildren is a task grandparents have always carried out in traditional societies.
Nancy remains active in the service organization PEO. (Don't ask me what they do. It's a secret they keep from men. But I'm sure it's useful.)
My brother-in-law, Ray, has left his job. But he's working on some kind of project with an old friend.
So, none of us are boringly *retired.*
By the way, this is a general trend, at least in the United States. A higher percentage of people aged 85 and older are still working than ever before. (The biggest career category for these folks? You won't believe it - it's farming and ranching.)
The National Geographic specials on the "Blue Zones" where people live the longest also prove the importance of remaining useful. They followed one woman - 104 years old. Every week, she volunteered at ten or so different charities, mostly senior centers where everybody was younger than her.
Look, I do understand many people have illnesses and limitations that prevent gainful employment or even meaningful activity.
And, because we tend to have more such illnesses and limitations the older we get, we associate them with "retirement."
I call diseases and injuries that prevent you from working "disabilities."
Working 30+ years for the Social Security Administration made me extremely clear on those words.
Except now that I've left SSA, I want to change them.
If you can't work due to medical issues, you're not retired, you're disabled - no matter what your age.
And, I must also admit, type of work is a factor.
I just saw this headline on the Drudge Report:
As Asian Societies Age, Retirement Just Means More Work
I do understand older people should stop difficult physical labor, and the article describes the difficult lives of some older Asian men who can’t afford to retire.
If you can work but don't, that's retirement. And I do say - with all due respect - in the long run you'll be happier if you work or volunteer or somehow make a positive contribution to society. No matter your age or net worth.
I always advise investing for income, including reinvesting at least a portion of the dividends so your income continually grows faster than inflation.
And I advise owning the "means of production" - that is, a business of your own which generates its own income.
Both are great. You control your own business, so it's all up to you. You don't control companies by owning their stocks, but you're leveraging the hard work of their employees.
I understand I can't make anyone return to work if they don't need to or want to.
But if more American, European and Asian seniors kept working, that would benefit the countries they live in.
And I still believe we'll all be better off owning stocks - even ones that don't pay dividends - than selling those stocks off and keeping your life savings in cash and near-cash instruments such as certificates of deposit.
Over the decades to come, inflation will eat you up.
Image by Gerd Altmann from Pixabay
4. Americans refuse to turn their backs on the rest of the world.
That they're doing so is Zeihan's central tenet.
In the years leading up to World War II, one of America’s greatest soldiers, General Smedley Butler published a book advocating America’s military withdraw to the geographical boundaries of the United States.
Much more recently, I’ve heard callers on conservative talk radio shows say the same thing.
Almost as though Pearl Harbor and 9/11 never happened.
Zeihan makes good arguments for saying America is going to re-isolate itself, but they are nowhere near as compelling as his descriptions of what will happen after Americans withdraw back into our collective turtle shell.
He says George H.W. Bush was the last American leader to speak about having a post-Soviet vision of the world. And he got criticized a lot for mentioning the concept of a "New World Order" - and defeated for re-election by Bill Clinton.
But Clinton got us involved in Bosnia. George W Bush got us into Afghanistan and Iraq.
Obama did allow Russia to take over Crimea and other pieces of Ukraine in 2014 (which encouraged Putin to invade again in 2022), but Obama remained engaged with the world.
Trump most appealed to the "America First," screw the rest of the world mentality, but he lost in 2020 - and has been thoroughly exposed and disgraced.
Biden has done a great job of coordinating support for Ukraine, so they are winning against Russia. Except for some MAGA extremists, Republicans are supporting him.
The Americans with the most influence in politics and culture are not sticking their heads in the ground.
They travel to Antigua, Bali and Spain. They're used to texting friends in Europe. They listen to Jpop and watch The Squid Game. On the job, they collaborate with team members in Dubai.
They also remember 9/11. That happened because the federal government took its eyes off the Middle Eastern ball. Terrorists training in Afghanistan? What's that got to do with America?
9/11 should have taught us the best way to protect the United States is to proactively eliminate threats before they fly planes into our buildings.
Also, to anybody paying attention, it's clear our way of life depends on cooperating with people of many other countries.
Yes, as Zeihan says, without the rest of the world we won't starve or run out of electricity - but we also want our iPhones, avocado on toast breakfasts and international chatting.
I grew up a fairly isolated Midwestern boy. Meeting an American Exchange Student was a big deal.
That's not true of Americans now.
For my book covers and translations, I've hired Filipinos, Bulgarians, Brazilians, Americans, Germans, Portuguese, Italians and other nationalities, some I never learned.
They made some immediate cash, and I've got assets that make me ongoing income.
Besides, many Americans were not born in the United States. We have immigrants from Bosnia, Vietnam, Thailand, India and many more places.
I live in a suburb of St. Louis, hardly a shining example of "diversity."
If you just drove through, you'd say we're a "white" suburb.
And that's largely true.
But, besides the African-Americans, we have many Africans, Hispanics, Chinese, Arabs, Indians, Koreans, Eastern Europeans and so on.
If you drive farther out, the population does get whiter and more "born in America American" on average, but still many immigrants live out in those areas.
And, by the way, EVERYBODY except the very oldest carries a smartphone.
Everybody except the very oldest uses email and various other Internet technologies.
Sure, if a 2024 candidate asks them, "Do you want American troops to die to protect Albanians from Bulgarians?" they're going to say, Hell, no.
But just ask them: "Are you willing to give up the Internet to allow Albania to attack Bulgaria with impunity?" and you'll get the same Hell, no.
I desperately hope that when Americans understand the price of their current lifestyles is allowing the US Navy to blow ocean pirates out of the water before they can hijack oil supertankers and container ships loaded with laptops and washing machines, they'll say, "Blow the fucking pirates out of the water."
That appeals to both our sense of fair play - we don't like thieves - and inherent selfishness.
We don't want the price of Starbucks coffee to go up because - without the help of the US Navy - coffee transport ships will require military escorts.
If they make it here at all.
Personally, I hate coffee. But if that daily hit of caffeine will keep Americans protecting both freedom and economic freedom around the world, three cheers for all baristas.
(Besides I do add matcha green tea from Japan to my smoothies. To some extent, we all depend on the rest of the world.)
One Hopeful Sign
President Biden has handled Russia's invasion of Ukraine well, and so have most other European countries.
If Ukraine manages to push Russia out of Eastern Ukraine, and especially if they can reclaim Crimea, that will send a huge signal to would-be aggressors:
Don't. Even. Think. About. It.
What you gain won't be worth the risk of facing American drones and artillery - and Patriot missiles flying up your ass.
That includes China's President Xi threatening Taiwan.
Putin evidently thought President Biden would stand by and do nothing, like Putin's dick-licker Trump, who hates NATO because its members are democracies.
But Biden is defending peace and freedom far more vigorously than anybody expected, and now NATO is stronger than ever.
Biden did give Afghanistan up as a bad job, realizing the Taliban had won over the people, but he's clearly standing up to outright aggression.
I just hope somebody in the world is thinking about how to prevent such wars of regional aggression in the future - especially when the aggressor possesses nukes.
Some Americans Do Want to Return to 30's-Style Isolationism
At first glance, "America First" sounds patriotic, but the slogan's roots go back to a 1930’s group that wanted the United States to allow Hitler and Mussolini to make war against the European democracies without interference from the United States.
That's not patriotism, that was Americans kissing Hitler and Mussolini ass.
Today, it's Americans kissing Putin and President Xi ass.
We have around ten supercarrier groups - way more naval power than anybody else.
It'd be idiotic to keep them close to America's coastlines.
Americans and American companies do business around the world - and make a lot of money from it.
And from supporting modern infrastructure, including the United States Navy - and ports, railroads, highways, factories and so on around the world.
We'd be leaving a lot of money on the table - and American companies don't want that.
They won't want to abandon capital investments they've made around the globe.
They know good and well that if European countries go to a wider war with each other, and Iran and Saudi Arabia go to war with each other, and Japan, China and both Koreas all go to war with each other - the global economic system will collapse - and so will their company - and personal - profits.
If a few well-placed supercarrier groups can prevent that, send in the Navy - and the Marines, the Army and the Air Force too.
And the CIA and NSA.
At least, I hope that all makes sense.
Because I'm as frightened as anybody by what Zeihan predicts.
What If Zeihan is Right, so We're All Screwed?
1. Invest in the NAFTA trio of Canada, the United States and Mexico.
Forget about companies outside North America.
I - and many others - advocate buying good stocks in Europe, Asia, South America and other areas because those areas have been growing fast . . . and simply for diversification.
According to Zeihan, however, North America is the only region we can depend on to economically survive - at least until America returns to the world stage in the 2040s.
2. Invest in farmland.
This could include funds that specialize in farmland.
It could include land of your own. Even if you're not an actual farmer, grow your own fruits and vegetables.
Even if it's just in your yard. That's fun, healthy, good exercise and economically productive as well.
3. Invest in stocks that pay dividends.
I always say that: because it's central.
If, as Zeihan predicts, the retirement of baby boomers will make investment capital scarce, your return on invested capital should go up.
That suggests interest rates as well as dividends should also go higher, but I hate financial instruments that pay interest, especially in the long run.
According to Zeihan, inflation in America itself will remain high for years because companies will have to pay a lot of money to move manufacturing back to this country. That won't come cheap.
Certificates of deposit and bonds don't keep up with inflation.
Remember: the United States grows enough food to feed us and generates enough electricity to keep our lights on - and we won't experience a direct military invasion.
That doesn't mean we aren't going to suffer economically.
"Better than most of the rest of the world" is just that, not great.
If you live outside North America, I suggest reading Zeihan's books to see what he predicts for you.
As I recall the few winners will be: France, Argentina, Angola and India.
Big losers will be Russia (even before invading Ukraine) and China.
But I suggest reading the books to know exactly what he says about you.
In general, we're all fucked.
Just, North America will be less fucked than the rest of the world.
Enjoy the world as it is right now. According to Zeihan, this is the wealthiest we’re going to be in our lifetimes.
My widowed mother's investments enabled her to live a comfortable lifestyle for over 50 years, beating the pants off the Wall Street gurus even though she couldn't have read a balance sheet to save her life.
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