We have entered a period of historic inflection that will lead to a new world order. Among other things, it will mean the demise of the hegemony of the dollar, which likely will be replaced by a multi-currency monetary reserve system backed by gold. And if you think the U.S. is simply too strong or wealthy for this to happen, the irony is that our wealth itself has undermined our thinking and actions in ways that make such a change virtually inevitable.
I don’t claim to know the exact form the currency of the New World Order will take. It’s possible that all the world’s major countries, including the U.S., will choose to participate, which would result in a smoother, less volatile transition. It’s also possible that, initially at least, we’ll see a more contentious multipolar situation in which various reserve currency schemes compete with one another. Ultimately, a fully shared currency system backed by gold will be indispensable for the world to have any hope of maintaining an acceptable level of material progress.
Central to the change will be recognition of the importance of material assets – natural resources – which we’ve largely taken for granted over the past half-century. Financial assets, which in developed economies like the U.S. have been the main focus of growth over that period, will fall in importance. This reversal of priorities will be essential to ensure that critical natural resources like food and energy become self-sustaining.
Massive Bull Market In Hard Assets
For investors, it means to expect a massive bull market in material assets, including in most commodities, and the end of the bull market in financial assets. True, financial assets may gain in nominal terms, but real inflation-adjusted returns in stocks and bonds will likely end. We’re already close to that point, if not already past it. Gold, because of the special role it will assume in the new monetary system, will likely lead to real gains in material assets.
Back in the mid-1980s, I was called crazy for saying that the bull market in the DJIA would reach at least the mid-4000s, about a six-fold gain from its lows in 1982. Now I am confident in making a two-part projection for gold. My first target is $5,000. After that, if the world stays on track in moving to sustainability, a further multifold gain will follow.
If I’m right, it will be in part because I can see through the smoke screen surrounding the Ukraine War. The war increasingly seems likely to be the critical catalyst in the shift to a new world order.
I strongly believe that today, especially in the U.S., propaganda in general is greater than I have ever witnessed. And I believe that relates closely to growth in anti-democratic values spawned by the monomaniacal focus on money and wealth that emerged once we ditched the gold standard…
Hannah Arendt, a Holocaust survivor whose writings on totalitarianism and authoritarianism elevated her to the top ranks of 20th-century philosophers, wrote that:
“Power cannot be measured in terms of wealth … riches are particularly dangerous to the power and well-being of republics.”
One reason is that it becomes easy and tempting to conflate what you need… With what you want. Future historians, I believe, will need this notion to interpret the fall of America – hopefully, a temporary fall – from its long-held position as unchallenged world leader.
Swimming Naked
Our fall has been hard to accept. I conjecture that the Ukraine War will bring home the distinction between wants and needs, becoming the catalyst for initiating the inevitable change in the world order. An often-quoted expression of Warren Buffett is:
“You don’t know who is swimming naked until the tide goes out.”
In this case, I think it is America that has been swimming naked, in the face of the precarious situation in Ukraine.
Morning Consult is a global consulting firm that provides businesses with social and economic data. Last year the company reported on a study comparing eight OECD countries – the U.S., the U.K., Germany, France, Spain, Italy, Australia, and Canada – on how they performed on a test assessing authoritarian tendencies such as unquestioned willingness to obey authorities. The results showed that for the seven countries excluding the U.S., low authoritarian scores exceeded high authoritarian scores by over 5 percentage points. For all seven, the percentage of low authoritarian scores was greater than that of high scores. The U.S. was the only country in which high authoritarian scores exceeded low ones. And the difference was a whopping 12 percentage points – a significant, off-the-scale result.
Interestingly, there is strong anecdotal evidence that the current difference between the U.S. and other countries was the reverse in the 1960s. Probably the most famous social psychology experiments ever done were the Milgram experiments, which showed that it was virtually impossible to find individuals who ignored authority. Some people, though, are more willing than others to follow authority to extremes. And by authority, I am referring not just to political leaders but to all who represent themselves as experts, from media pundits to university professors to charlatans pretending to be experts.
The Milgram experiments are best known for what they revealed about humanity. But what’s less well known is that the experiments, originally done in the U.S., were replicated in other countries – and back then, other developed countries showed a greater tendency to obey authority than was true in the U.S.
This brings us back to Ukraine and the implicit belief that our wealth relative to other countries gives us the right to dictate how other countries should act. More generally, the belief that money can solve any problem is the umbrella belief that has undermined our willingness to think for ourselves and blinded us to the dangers of extreme wealth. Indeed, our country has become the poster child of how extreme wealth undermines power.
The Good ‘ol Days
In the period following WWII, needs trumped wants, and we took pride in long-term projects such as the Interstate Highway System along with all the technology that came out of Bell Labs, which as an appendage of a government-related monopoly was implicitly funded by the government. In the early 1950s, government-funded research, which tended to focus on long-term projects that increased nationwide productivity, represented 70% of our country’s research, while research done by businesses represented the other 30%. Those percentages have reversed and then some over the past 70-plus years.
The stock market, which has become such a central symbol of our prosperity, is a chimera. Our maniacal focus on the wealth created by financial assets has undermined our power. In Ukraine, our insistence on spending so much on a war that, whatever the outcome, will be damaging is a glaring example of wanting to prove something instead of focusing on the long-term needs to create a sustainable world.
We’ve dropped the ball when it comes to natural resources. I was stunned to learn that MP Materials, the successor company to Molycorp and currently the only U.S. company to mine rare earth, depends on China to refine the ore that it mines. Rare earths are the basis for the world’s strongest permanent magnets and are critical to virtually all advanced technologies including guided missiles, advanced aircraft, and other military hardware. However, the transition from mined ore to highly refined permanent magnets is a complex multistep process.
Molycorp went bankrupt because it had to send its mined ore to China to be refined. I thought that with MP Materials, that no longer was true. Unfortunately, I was wrong. Not only is China still needed but through a business arrangement it has become a source of profits for MP Materials.
I’ve been writing about the need for the U.S. to develop a vertically integrated rare earth industry for more than a decade. Our failure to do so is an example of our lack of long-term thinking and reluctance to make the kind of long-term investment required, an investment strategy that would include better education in engineering and related fields. Right now, our universities don’t even have programs that offer classes in rare earth engineering.
China Is Ruthless
One bit of propaganda I think does have some validity is what is said about China. Beyond a doubt, China can be ruthless in achieving its goals. Until recently, I believed that China felt that cooperating with the U.S. was both desirable and possible. Now I’m not so sure. In the recent past, whenever China achieved a milestone in an important technology, it would brag about it. For instance, during many years in which it had the world’s fastest computer, it would enter – and win – global computer programming contests.
That’s changed. China hasn’t been entering these contests, and for two years it has hidden that it possesses the world’s fastest exascale computers. That’s worrying because we have no idea what else they might be hiding. China has gone back to following the iconic dictum from The Art of War; Hide your strengths and show your weaknesses.
Yet while the United States is essentially in a proxy war with Russia (China’s most important ally) we remain dependent on the Chinese when it comes to the most sophisticated refining of rare earth elements that we require for advancements in military, science, and technology. Does this seem strange to you, too?
How do we know if China is doing its best to provide us with the most critical rare earth refining? We probably have no way of knowing. It is both perplexing and frustrating to see the current administration bury its head in the sand regarding the sovereign self-sustainability of the United States.
The Path To Real Wealth
It’s time to recognize that wealth and power have diverged. I hope that before it’s too late, we can change our ways, which would ultimately allow the resurgence of America’s greatness. Meanwhile, regardless, real assets will be replacing financial assets as the path to real wealth, with gold likely leading the way. It’s only a matter of time – and probably a relatively short time – when the upward pressure on gold becomes so great that not even the world’s biggest bank will be able to keep it down.
