Preface
The first phase of China-US trade negotiations was quickly reached in a very reasonable manner (optimism about future negotiations is reasonable), and Donald Trump and his team are now on a Middle East trip to Saudi Arabia to reach an investment deal (I believe they will succeed, and it seems other reasonable trade deals will follow), and soon after, he and his team will try to reach a good budget agreement with Congress (I am not too optimistic about this). Meanwhile, the Iran agreement and Russia-Ukraine agreement are brewing, and I believe these agreements will make some progress.
In my view, there are two situations: a) daily issues often attract people's attention, affect people's emotions, and lead to short-term market fluctuations; b) major issues and forces that drive significant changes in world order. While both need attention, the major issues and forces that drive everything are the most important, so we cannot let short-term, eye-catching events make us ignore the major forces and issues that will determine how the story unfolds. This perspective is especially important when betting on the future through investment.
As for major issues and forces, I will reiterate the five forces that drive almost everything and what they look like to me. They are:
1) Debt/monetary power that drives markets and economies and determines monetary order;
2) Domestic wealth and value gap power that determines political order;
3) International order/disorder power that determines world order;
4) Natural disasters (droughts, floods, and pandemics), and;
5) The power of human invention and creation, especially new technologies.
On the Brink of Crisis
These forces are in different forms, which makes the current situation fundamentally different from when these forces are in different forms. Regardless of who the leaders are, their forms determine the environment they must deal with and the choices they must make. More specifically:
1) About the debt/monetary power that drives markets and economies and determines monetary order.
The US government and some other governments now carry massive debt and deficits, and markets and economies will largely depend on these conditions, even more than daily news and specific leaders' choices. In other words, this over-indebtedness will require governments to obtain more funds through fiscal means (i.e., taxes and spending) and/or through more debt monetization, which will have significant impacts in some way. This is because the laws of monetary reality indicate that when government debt is already high and debt increases faster than demand for debt assets (such as bonds), it must be addressed by cutting spending, increasing tax revenues, and/or implementing looser monetary policies (which are disadvantageous to creditors). This is true regardless of who the president is. There will be many struggles about what should be done (for example, the conflicts between President Trump and congressional leaders and Federal Reserve Chairman Powell). This will generate a lot of news and lead to many short-term fluctuations. In any case, as I explained in my new book "How Nations Go Bankrupt: The Big Cycle", budget deficits will either be reduced to around 3% of GDP or not, which will have huge consequences for debt and monetary value. At the same time, the US remains the only large capital market globally (almost half of the global market) and the world's largest commodity purchaser, proving itself to be a steadfast capitalist environment that respects investment instruments as a means of wealth storage, still possessing the rule of law, entrepreneurial and innovative culture, and relatively free speech, which together constitute the "American exceptionalism". Maintaining capital inflows to the US and creating mutually beneficial investment deals can greatly improve this situation. Everything depends on how this is managed.
2) About the domestic wealth and value gap power that determines political order.
These have led to irreconcilable differences, with almost no willingness to compromise, manifesting as the rise of populism, the emergence of populist leaders, and the classic rise of more authoritarian leadership, the weakening of democracy, and the weakening of the rule of law due to populist and more authoritarian leaders fighting against opposition to achieve the changes they believe are necessary. The relative power of the president to the judicial and legislative branches, and the American democracy as we know it, may be tested. Moreover, the issues of the bottom 60% of the population remain unresolved, and inevitable political and media opposition will almost certainly escalate soon.
3) About the international order/disorder power that determines world order.
The lack of a single dominant world power - plus more countries having determined populist leaders facing the aforementioned issues, tending to fight for their own interests and more inclined to victory than harmony - leads to more unilateral rather than multilateral decisions, and greater conflicts. During this period, the risks of trade, technology, geopolitical, and military wars are higher, causing countries to behave more aggressively and defensively. This prompts ensuring safe sources of domestic production and other needed goods. Multilateralism is receding, and bilateralism (bilateral transactions) is rising, with the US and China each responding in their own way. Countries that provide the best deals to others will obtain greater and better outcomes. How this is handled will be crucial to changes in world order.
4) About natural disasters (droughts, floods, and pandemics).
The situation is clearly deteriorating, which will cause enormous economic losses and equally enormous actual losses. How countries and people adapt will be key.
5) About the power of human invention and creation, especially new technologies.
This will greatly enhance human thinking capabilities in most areas and will likely be used to generate both enormous improvements and enormous harm. In short, the overall situation shown by numerous objective indicators is that the existing monetary, domestic political, and international geopolitical orders are deteriorating and declining, accompanied by increasing threats of natural disasters, and significant technological advances. Meanwhile, most of these factors are being recognized and addressed by a unique right-wing/capitalist US president and his government.
What Measures Are We Taking to Address These Issues?
Reaching deals, including: a) establishing tariffs aimed at increasing tax revenues and bringing better business for domestic producers and US exporters; b) attracting large amounts of foreign capital into the US; c) promoting better global investment.
· Reducing government regulation to improve productivity.
· Reducing government waste and improving government asset management.
· Reducing budget deficits and addressing government debt issues, although it is not yet clear how to do so.
· Using power to challenge established legal and regulatory systems to achieve the president's and his hard-right voters' goals while not losing the needed swing voters.
How to Respond to These Situations and Forces? This Is the Biggest Question.
Will these situations and forces be properly handled or mishandled? In other words, are the approaches to handling these situations reasonable or out of control? Does Donald Trump's extreme position trading approach and friend-and-foe negotiation style indicate that he and his government can properly handle our problems? Was his announcement of a 145% tariff on China on "Liberation Day" just an effective facade that ultimately led to a two-day productive meeting and a very wise short-term agreement, after which serious negotiations will follow? What has happened so far supports the view that Donald Trump is handling these important and long-neglected issues in a relatively unstable but productive manner. But frankly, it is too early to draw conclusions.
A Few Suggestions: On the Brink of Crisis
Remember, news should have value and should be viewed against the backdrop of major forces that collectively determine the direction of large cycles, with the most important being monetary order, domestic political order, world geopolitical order, climate change, and technological change (i.e., five major forces). Remember, we are on the edge of significant changes in monetary, domestic political, and international orders, and everything depends on whether these matters are handled intelligently and cooperatively. Remember, in investing, what's important is:
1) Develop a well-thought-out investment plan, including smart diversification, and stick to it;
2) Do not react to news and market fluctuations without careful consideration.
Finally, the views expressed here are my personal opinions and do not necessarily represent the views of Bridgewater Associates.
Welcome to join BlockBeats official community:
Telegram Subscription Group: https://t.me/theblockbeats
Telegram Communication Group: https://t.me/BlockBeats_App
Twitter Official Account: https://twitter.com/BlockBeatsAsia
