Thoughts on the Future, on America's Bday
Most folks don't realize how precarious the economic situation currently is.
I’ve recently been out of touch, out of country, visiting friends and family in the Old World.
It’s a lot better than the new one at the moment. Cleaner, safer, with greater freedom. And a number of perks to envy — like universal healthcare and free (or cheap) education (with the partial exception of the UK).
It doesn’t have to come with crazy tax bills, either. My buddy in Switzerland pays a ~10% tax rate. Much lower than he’d pay in the States.
When you’re in Europe, it is immediately apparent that their governments are reinvesting money into their infrastructure, and their people.
While US money is going to a mighty, globe-spanning military. And increasingly militaristic security back at home.
(Police budgets sometimes dwarf the military, as a percent of the overall budget. And the military is a huge percent.)
Of course, a bloated military budget contributing to ballooning debt and debt payments — that’s one of the hallmarks of an empire in decline, or on the verge of collapse.
But the US was designed to be resilient. It has bounced back from similar shortcomings before.
If our biggest problem were a line item, I’d be optimistic.
That’s not our biggest problem.
No — it’s the breakdown of our electoral voice that will do us in.
Though, thankfully, it should take some time — and even now isn’t a done deal.
But we are teetering.
The Supreme Court Rips Up American Stability
What do markets like?
Stability.
What did the last term of the Supreme Court do?
Undermine American stability.
It isn’t just how impactful many of the rulings were, to both immediate and long-term business interests. To say nothing of the human impact.
It was how the Court didn’t even pretend to present consistent logic in arriving at its decisions.
States’ Rights reigned Supreme in one case when it was advantageous to the majority’s favored opinion, and then ignored when the state in question was New York and its firearm regulations.
Precedent was broken in landmark cases — one going back 50 years, one going back 2.
And, in the EPA case, the Supreme Court brought all federal regulations into question.
It was decided more narrowly this term — “only” disallowing the regulation of carbon dioxide, the byproduct of our power systems that’s killing our world and us with it.
But it’s easy to read the direction of this activist and radical court.
When they rule without rules, everything is up for grabs.
This term has knocked the US one peg lower on the freedom scale, and confused the rules of the game that business must play by.
That’s not a good combo.
Especially when the economy is already struggling to deal with some serious challenges.
Covid is spreading wildly, and we’re getting more snarls out of it — like 10% of major American airline flights canceled during a recent weekend. Due to an absence of staff.
The Atlanta Fed is saying its GDPNow forecast shows the economy shrinking 1.6% in the first quarter, and 2.1% in the second, indicating an official recession.
And the predictions going forward are none too rosy.
How to Protect Yourself From Coming Calamity
All this is to say, as bad as the markets have been the first half of the year, we’re not done yet.
See that big gap between the Blue Chip consensus, and the Atlanta Fed estimate above?
If the Fed prediction turns out right, it will take multiple large drops for the markets to price in the actual weakness of the economy. (The markets may be forward-looking, but they make predictions about the future based on past data.)
And then, with faith and trust in the American system of laws and regulations waning, it will likely prove particularly hard for many businesses to get back up.
Oh, the behemoths will survive fine. The monopolies, duopolies, and small cabals now at the head of most sectors will take their lumps and emerge out the other side.
But it will likely be to a more sclerotic economy, with legacy companies deeply embedded in the centers of power guiding things.
With more and more profit concentrated in fewer hands, consumers given an illusion of choice through umbrella branding, and innovation finding less room to compete.
In other words…
First off, we’re not at the bottom yet. The market outlook isn’t matching up with the real-world numbers, even after the worst half-year in decades.
And then, it’s going to be hard getting back up when we do find the bottom.
Invest in tangible assets for the short term. Hold on to your blue chips, but don’t expect to sell them anytime soon.
Europe now has the more trustworthy business environment, along with Canada and Japan — that’s where we’ll start seeing more and more unicorns emerging. That’s where we’ll see innovation, which will lead to growth.
Africa has a demographic boom just waiting to take off, promising years of above-average growth (once we’re past the interruptions from Covid, and the coming food shocks from the war in Ukraine).
But the US? We’ll be lucky to avoid massive civil strife — to hold onto our republic over the next few years.
Our economy? It’s going through some things.
We’re likely to have a number of years of chaotic, below-average growth.
And then, we’ll see where we are.
For now, diversify out of America.
Because the American rule of law is weakening.
Where the rules of the game remain trustworthy — that’s where the energy, and the money, will flow.