Desperational speaking – The End
Final thoughts from recent presentations….there is no decent place to stand in a massacre
Other than a note on Asian currencies that we’ll send as a kind of aftermisthought, this is, mercifully, the conclusion in the recent series of extracts from our recent presentations about where 2022 (what we have termed the year of sensory overload) has delivered us.
In particular, the leading global economy finds itself fighting wars on an unprecedented six fronts:
– The proxy war in which the US Government is using Ukraine to attack Russia.
– The inevitable universal proliferation of ideological warfare, especially in America, since the proxy war began.
– The hegemonic war in which politicians are fighting threats to America’s primacy from China and the growing alliance of countries increasingly opposed to American dominance.
– The trade war that American policymakers are fighting alongside the hegemonic war via parabolically escalating sanctions.
– The currency war which American government agencies continue to wage against financial systems that present barriers to US ideological, hegemonic and economic supremacy.
– The existential war in which America remains the standard bearer for all of us against the planet and its depleted resources.
We have no idea what the outcome of these wars will be
– We read conflicting expectations of the Ukraine conflict, ever mindful that the risk of global, potentially nuclear conflict remains probabilistically low yet uncomfortably elevated.
– We see polarisation, between and within nations range far beyond our comfort levels, as propaganda strengthens division.
– We see growing tensions between competing global factions of influence.
– We see unnecessary hardship and privation stemming from shortages exacerbated by the weaponization of resources in times of increasing scarcity.
– While it’s impossible for us to envisage imminent de-Dollarisation, the weaponization of currencies is a high-risk strategy, especially in an era when technology accelerates instability and unpredictability (especially when the technology of Central Bank Digital Currencies seems to us to be a tool that in general Asian and Eurasian central bankers will be most adept at developing and deploying, US less so while the ECB seems intent on turning up at an Uzi fight armed with penknives).
– The utter destruction of trust in cross-border financial systems in 2022 , such as the freezing or seizure of up half a trillion Dollars of governmental and private assets connected to Russia this year (Russia has for instance overtaken Libya and Iran to become the UK’s most sanctioned nation according to the Orwellian-sounding Office of Financial Sanctions Implementation.)[1] One aspect of this that has been largely ignored in mainstream commentary is the implication for US Multi-National Corporations that have extracted unprecedented value from the global economy in recent decades.
– Above all, we see the continued deterioration of the health of the planet and the ramifications this has for its occupants. Failure to fully recognise or address the scale of these challenges creates a dangerous complacent sense that baby steps might help mitigate a problem that has now achieved a scale of challenge that is no longer solvable.
Note that in all cases, we would distinguish the actions of policymakers from the people that they pretend to serve.
Please also note that we’re not suggesting that US politicians are uniquely culpable – but their inclination to support the continued expansion of the leading global hegemon that they represent gives them a special incentive to act against the interests of the majority of their fellow Earth dwellers . This self-interest was of course previously ‘enjoyed’ by other leading Empires but today is uniquely allied to an unprecedented deliberate and inadvertent destructive nuclear, biological, technological and harnessed natural power to destroy.
This is not in any way a diatribe against any country but rather a warning to politicians of all countries, albeit some more than others.
As we have noted before, earlier species of hominins survived up to two million years before subsequent hominins rendered them extinct. Homo sapiens have been in existence for just 70,000 years and represent the greatest known threat to their own existence. (The Dangers of Sustaining Unsustainability)
It’s certainly not our base case that literal extinction level events such as World War III, nuclear holocaust, more severe pandemics and resource privation or financial disruption such as economic collapse, the demise of the Dollar, threats to global trade are significanctly probable in 2023.
However, a year ago, we didn’t expect that we would have moved the needle on this toxic cocktail of concerns to anywhere north of non-negligible.
The fact that we now see these as small but perceptible possibilities that need to be factored into everyone’s outlook shows how far we have travelled in an unconscionable direction in the last twelve months and how urgently we need to reverse that direction of travel and until that happens, we at least need to consider the potential consequences in every important decision, financial or otherwise, that we make in the next twelve months.
Apologies that we don’t feel able to offer a more upbeat assessment of the prospects for life as we currently know it, as we head in to 2023.
Thank you for taking the time to read our outpourings this year and wishing you a happy, healthy and prosperous New Year, whatever the policymakers may inflict upon us.
The combination of bond market losses that at the long end have exceeded equity market losses[4] and decadal equity losses, along with negative returns in precious metals, credit and property has been challenging for portfolios in 2022, with the average private wealth manager US Dollar portfolio having lost -14.9% this year.[5]
For 2023, the outlook for US treasuries largely reflects the interest rate outlook. While treasuries could be re-rated (either up or down), the odds of a significant re-rating strike us as low. Excluding such effects, bond returns have a reasonable mathematical relationship with long-term rates. Long-term interest rates have a reasonable relationship with long-term economic growth rates. Disregarding these frictions and assuming that nothing has changed with regard to long-term growth rate expectations since the pre-pandemic old normal, total returns on long-term treasuries would be expected to be 25-45% over the period of mean reversion. If long-term growth prospects have been impaired in any way, such as by the recession that is being increasingly feared will onset in 2023-24, these returns might be higher – as high as 65% if fears of slowdown analogous to those that gripped markets during the second and third quarters of 2020 were to resurface.
For risk assets, the picture is less clear. It’s possible that there may be some way back for some of the more fragile assets of the last year or two – but some of the worst casualties may have already been irreparably damaged.
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About the Author:
Paul Gambles is licensed by the SEC as both a Securities Fundamental Investment Analyst and an Investment Planner.
Please Note: While every effort has been made to ensure that the information contained herein is correct, MBMG Group cannot be held responsible for any errors that may occur. The views of the contributors may not necessarily reflect the house view of MBMG Group. Views and opinions expressed herein may change with market conditions and should not be used in isolation.
