Time to prepare our portfolios for war?
- Ray Dalio (article), Jamie Dimon (article), Paul Tudor Jones (video), and others think this is the most dangerous time in our generation.
- There are 3 major conflicts, Ukraine and Russia, Israel and Hamas, China and Taiwan.
- Luckily, the leading powers (the US and China) are not directly involved, but that might change.
- Rising concerns about external governments seeing the US president as weak, which might escalate conflicts further before the elections —> e.g. China invading Taiwan.
- The US is in the worst fiscal position since WWII and not in a shape to finance a worldwide conflict.
- Dalio expands on his book: Principles for Dealing with the Changing World Order, for which he made a great summary in this video.
- In the video, he explains how the power shifts from the leading empire to the rising one, and how did this happen in the last cycles (Dutch, British, US)
- Dalio is worried this escalating war in Gaza will lead to new conflicts both between countries and within countries (e.g., repulsive violence against Jewish and Muslim populations in many countries).
- This could further fuel the internal conflicts driven by already existing debt/money/economic problems, and divided US government (article).
- As Dalio says: “Fortunately, the progression toward a world war between the biggest powers (the US and China) has not yet crossed the irreversible line from being containable (which it is now) to becoming a brutal war between the biggest powers and their allies.” but if that happens and the US enters in direct conflict with China, this will likely end up with a World scale conflict.
Paul Tudor Jones
- 4 nuclear-armed powers: China, Russia, and North Korea are led by “sociopaths with zero accountability and responsibility”. Iran is led by someone “who thinks God is talking to him”.
- The US is in the worst fiscal position since WWII: 122% debt to GDP (s) and interest cost rising. Higher interest rates > higher funding cost > higher debt issuance > further bond liquidation > higher rates > untenable fiscal situation.
- He further elaborates on the debt situation. The interest bill will exceed the defense bill in a few years, and the FED is losing control because the debt is getting too high, which can force further rate hikes and a recession in 2024.
- From the political point of view, PTJ mentions that the two people responsible for this fiscal situation (Trump and Biden) are the two candidates for the next election and that neither of them should be the next president.
- The way out could spark further internal conflicts as it’s needed to cut spending (healthcare, social security) and simultaneously raise taxes.
Is it time to panic?
“If you tell me all of that's going to happen, I will still be buying the stock. You're going to invest your money in something over time. The one thing you can be quite sure of is if we went into some very major war, the value of money would go down - that's happened in virtually every war that I'm aware of. The last thing you'd want to do is hold money during a war.”Warren Buffet on 2014 escalating crisis.