If anyone can make Dan exclaim, "If you don't get the hell away from your microphone, I'm going to keep you here all day," it's today's Stansberry Investor Hour guest: geopolitical strategist and New York Times bestselling author Peter Zeihan.
But first, Dan and his co-host Corey McLaughlin kick off the show by dissecting the conflicting – and confusing – news headlines on the direction of stocks and housing into 2023. The duo also evaluates ARK Investment Management founder Cathie Wood's latest Twitter ramblings (and why she sounds like a certain founder of a certain defunct cryptocurrency exchange).
Circling back to today's guest, Peter is also the founder of his own firm, Zeihan on Geopolitics, where he provides his expert analysis to clients that include Fortune 500 companies, trade associations, policymakers, and government agencies of all levels. His first three books – The Absent Superpower, The Accidental Superpower, and Disunited Nations – have been recommended by U.S. Senator Mitt Romney, political scientist Ian Bremmer, and CNN anchor Fareed Zakaria. His fourth book, The End of the World Is Just the Beginning: Mapping the Collapse of Globalization, was published in June 2022 and is a New York Times bestseller.
And in this week's episode, he and Dan start by diving into the topic of deglobalization. Peter says the pace of deglobalization has accelerated since the start of the current decade – fueled by declining birth rates and an aging population. Additional kindling has come in the form of the COVID-19 pandemic, Chinese President Xi Jinping's narcissistic "cult of personality," and the Russia-Ukraine war. Global economies are in for some grim times... And as Peter puts it, "We are looking at the end of the world that we understand – probably in the next 36 months."
Not every country will be underwater, though, as there will still be "relative winners and relative losers." But Peter says there's one country whose markets investors should tread with caution...
It's difficult to overstate just how screwed China is.
Peter also keys in on a particular demographic trend that'll weigh on global economies soon: the aging Baby Boomer population...
The Baby Boomers are not just an American population bloc. They exist in every advanced country. The difference between the American Boomers and everyone else is that the American Boomers had children that we now know as the Millennials.
Now, we can talk trash about the Millennials all day – and I really do enjoy doing that – but they've got something going for them that all of their cohorts around the world don't... They exist.
Plus, you'll hear Peter's take on the economic prospects for the U.S., Japan, France, Africa, and more. And he gets kudos for finally giving a "concrete answer to a question that's everywhere [in the media]" about the Russia-Ukraine war.
Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value, published by Stansberry Research.
Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, Dan talks with the geopolitical strategist and author Peter Zeihan.
Dan Ferris: And for our opening rant, which way do housing and stock prices go? Many questions, few answers.
Corey McLaughlin: And remember, you can e-mail us at [email protected] and tell us what's on your mind.
Dan Ferris: That and more right now on the Stansberry Investor Hour.
So, I'm seeing lots of conflicting headlines about, certainly about the stock market. Like, the Bloomberg headline this morning as we speak is "World's Top Money Managers See Double-Digit Stock Gains in 2023." And one of those is Leuthold Group, Jim Paulsen is predicting the S&P 500 will hit 5,000. That would be a new all-time high, right?
Corey McLaughlin: All right.
Dan Ferris: On the one hand. And then, on the other hand, SentimenTrader reports Wall Street is tepid on the prospects for 2023. Wall Street strategists who they survey and keep track of are kind of saying the opposite, you know. They're "meh" for 2023. And the same thing, the Daily Shot which is a service that I get that has global macro charts all throughout. They're saying that analysts are divided on home price trajectory as well for 2023.
So, I'm like, I don't know how to read this because of course, I'm bearish. But I'm waiting for a blistering rally. And I'm wondering if the lack of a consensus maybe kind of a good thing for a bear. I don't know. I don't know what to think.
Corey McLaughlin: Well, I know what I think. I'm conflicted a bit, too, heading into the new year. So, those headlines kind of reflect just the uncertainty of this you know, you have the recession overarching concern, I think. And then obviously, what does that mean for stocks? How does housing play into that? So these are two of the largest, housing's obviously as you always say, the biggest part of the economy. I think it just reflects more fear and concern.
And I was thinking this week, a lot of what I was reading, similar headlines from CEOs and the big-bank CEOs about recession fears. It seems to me everybody's just eyeing up being conservative in 2023, or a lot of people are eyeing up being conservative in 2023... at least ones who are making headlines. And so that to me actually would be kind of a bullish sign, if anything, if you're going to go against the crowd there.
But still, I think there's a lot of earnings recession, perhaps, that still hasn't happened. And maybe there's a rally through the end of the year here. But what happens after that, I think, is maybe being reflected in what, all those headlines that you're talking about.
Dan Ferris: I mean I think at this point, near term is always, who knows, right? Who knows. I still think we're in a bear market. And I still think you don't get out of what I think is the biggest financial bubble in history this easily. And I still, and I know that the two biggest parts of the American household balance sheet are their home equity and their 401(k), basically. So I don't know.
I don't think – like housing won't be what it was in 2008. It won't be the big issue that screws everything up. And people who are worried about that I think are fighting the last war. But it is a real source of wealth. People borrow against it, and they spend, and that becomes GDP. So it means a lot.
And the same thing, the wealth effect is the same thing in the stock market, right? So it can be really important. And I think overall I do like the fact that there doesn't appear to be a real consensus. I mean, the folks at SentimenTrader, they look at a lot of data. And the headline in Bloomberg is not the same kind of thing. So if you say these are apples to oranges, I'm not going to argue with you. You're right.
But I just like, I think I ultimately like the lack of consensus. When we give our surprises, our top 10 surprises for 2023, I think it's a great time to make a list of potential surprises. And I think it's a great time to embrace my mantra, "prepare, don't predict," because I feel like lots of people want very badly to predict that the bottom is in, we'll see a new high, or it's going to be a terrible year and the economic hurricane that Jamie Dimon keeps talking about is coming. And BoA, I think Bank of America is still kind of bearish. You know, Bank of America Securities saying, "Don't bet on stocks going up after that last Fed rate hike and maybe another upcoming one this month." So yeah, I like the uncertainty.
Corey McLaughlin: Yeah, I'm with you. I'm with you too. That's what I was, it's been on my mind too. Of course we always say nobody has a crystal ball, right? But in long bull markets, that trend is established. Or a bear market here, we've been in for a year, that trend is established. We're at a point where it's kind of like, it's going to get a lot worse for stocks relatively soon. Or it's not. I mean, I'm being simple-minded here. Or it's not.
I keep thinking about stock market performance in bear markets, like garden-variety bear market versus one with a quote-unquote official recession. So if you're a believer that an actual mild, medium, hot, whatever, spicy recession is going to come, you know.
Dan Ferris: Yeah, that's the other one.
Corey McLaughlin: You would think there's more downside ahead for stocks. So, yeah. I mean, of course we don't know. So that you can own things that will benefit you and your goals no matter what is kind of the most important part. Though, another interesting thing I did see this week was with respect to housing. People who bought houses at, I don't know the exact timing.
But say, the top of the market recently – and also, what became higher interest rates for the mortgage are already – some of those houses have gone down in value and people are paying higher rates. And so they're technically down on a house that they bought six months or a year ago. I don't know how much of an effect that has, will have on people. But I would think it contributes to the reverse wealth effect that you've talked about before, I know.
Dan Ferris: Right. That's the biggest hit, right? We saw earlier this year, the all-time highest-ever home-equity values... like $20 trillion or $27 trillion or something crazy, in the United States. And you're right, some of that are people who bought at the top of course. And those are the ones who get hit the worst.
I still think in the longer term, housing is great. Housing has an excellent underpinning of low supply and increasing demand. But the stock market, I don't know. I still think that we don't get out of this without a horrendous bear and a sideways market that follows maybe, probably, I think. And that's what you prepare for, right?
All this predicting is just talk. But then when it comes to putting money to work, you know, you still own stocks but you own different ones than you might have owned from 2014 to 2020 or something like that... and, you know, throughout 2021 even. Interesting.
But I'm glad you mentioned recession because it just reminded me of this Tweet of Cathie Wood from ARK, where she was kind of criticizing the Fed again, in public. Her flagship fund is down 78%, and she takes to Twitter to do what? Criticize the Fed and tell them they're making a big mistake, she says.
And she quoted the two's and 10's Treasury spread, which the Fed does not look at. They've said it over and over again. In fact, they use the forward spreads, like really short-term forward spreads. And what is it now versus what the forward, you know, future spread. And so I don't know. I don't know what she thinks she's doing. Lots of people do look at two's and 10's.
But I guess that's a side issue. The real issue is that Cathie thinks it's worth her time. I mean, she's like Sam Bankman-Fried. They can't shut the hell up.
Corey McLaughlin: Right. Well, I think I know what she's doing. She's begging for the Fed to pivot. To, yeah, that's what she's doing. It couldn't be more blatantly obvious, to me at least. But maybe I'm wrong. But yeah, I wonder what she was saying when the Fed was doing what they were doing in March 2020 and April and May and June and July, and all the way till a year ago.
Dan Ferris: Exactly. When all her garbage is going up, she's a genius. You see? It works. Disruptive innovation. And it doesn't work.
Interviewee: I guess we could go back and see what she was saying in every article that was being written about her. We could find that.
Dan Ferris: Oh, I'll tell you what she was saying. Nine days, nine days before the ARK Innovation Fund peaked, she was saying, is this a bubble? I don't think so. Like, the fund went up 165% in less than a year. I think it might be a bubble.
If you look at the trajectory of that fund, that ARK Innovation ETF, from inception in I think it was September or October, no, October 31 I think, 2014 to the present. It's like the chart creeps and creeps. Huge bubble. Crash back to pre-bubble right now. It's a total round trip. And now it's creeping up again. I mean, it's just like –
Corey McLaughlin: It was a bubble. And still is, maybe.
Dan Ferris: I have to say that I understand expecting her to turn around at the top and say ooh, this is a bubble, be careful. It's like asking Warren Buffett to tell you when the best time to short Berkshire Hathaway is. Like, it's not going to happen. You know?
But yeah, it's like Sam Bankman-Fried. These people just can't shut up. They're like the nervous nerdy guy at the parties, talking to the prettiest girl in the room. And just, can't shut up because everything lands flat, so they just keep talking and blathering nervously. And meanwhile, she's looking at her watch. Anyway.
Corey McLaughlin: To that point about Sam Bankman-Fried, he's going to testify next week in front of the House Financial Services Committee. So we'll get a whole another round of, "What the heck is he saying? And do we believe him?" talk.
Dan Ferris: You know what the best part of that is? He's testifying remotely from the Bahamas. Not setting foot in the U.S.
Corey McLaughlin: Oh, my god. I didn't even know that part. I figured he would be actually in Washington, at least.
Dan Ferris: Yeah. That was the first thing I went for in that article, when I saw the headline this morning. I was like, "Hmmmm," and there it is. Yep. Of course. He's not coming to the U.S. I would hope that he would be arrested for something.
Corey McLaughlin: Right. Unbelievable.
Dan Ferris: Maybe they don't have all the evidence gathered. But doesn't look good. Anyway. I don't know. I feel like, are we broken records? I feel like we say the same thing every week. I don't want to be a broken record for our listeners.
Corey McLaughlin: I don't either. Maybe they could tell us.
Dan Ferris: Maybe they could. They'll write and tell us we're broken records. But the lesson, it's good to talk about Sam and Cathie Wood and all these people... because people forgot. The reason why another huge bubble happens is because the memory is so short, right?
People just forget. They make all the same mistakes. And the lesson they learn is like oh, but there's got to be a way to participate and get out near the top. And it's like oh dude, that's not the lesson. It's just ridiculous.
Corey McLaughlin: I think the, well, we were going back to what we were talking a little bit about earlier. I think right now maybe the thing to keep in mind, or I'm trying to keep in mind, is really, keep in mind your goals with your money. And what you're really trying to accomplish. You should think about that all the time.
But I don't know, for some reason right now I'm thinking, because you look around and you see, certain sectors are doing better than others, like healthcare and certain, like insurance stocks that are benefitting from a higher interest rate environment and maybe just all the volatility going on.
So there's to own though, where you can grow your money. So, I don't know. My point is there's all this talk out here. You can read a billion headlines, no matter what, any day of the week. But really, I don't know. This time of the year, I get to scribble down goals and you know, what I'm really thinking about and those sorts of things. I think a lot of people do that around the New Year. I think it's time better served doing those sorts of things than reading Cathie Wood's opinion on the Fed.
Dan Ferris: Yeah, and reading all the stupid predictions about where the stock and housing markets are going, like I've been doing all morning.
Corey McLaughlin: Well no, I just, you've got to pay attention to that stuff too. But then how does that fit what you're doing.
Dan Ferris: You pay attention so you can build your ignoring muscle. All right. And with that, with ignore everything that we just told you about, let's go and talk with our guest. I can't wait to talk with this guy. Peter Zeihan, geopolitical strategist. I just love his YouTube channel. He's really smart. So let's go talk to him right now. Let's do it right now.
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All right, it's time for our interview. Very much looking forward to this one. Our guest today is Peter Zeihan, and Peter Zeihan is a geopolitical strategist who combines an expert understanding of demography, economics, energy, politics, technology, and security to help clients best prepare for an uncertain future. Fortune 500 companies, trade associations, policymakers, and government agencies at all levels regularly rely on his expertise.
Peter is also a critically acclaimed author. His first two books, The Absent Superpower and The Accidental Superpower, are recommended by Mitt Romney, Ian Bremmer, and Fareed Zakaria. This United Nations became available in March 2020. Peter's fourth book, The End of the World Is Just the Beginning: Mapping the Collapse of Globalization, became available in June 2022. Peter, welcome to the show.
Peter Zeihan: I'm glad I could finally make it.
Dan Ferris: Yeah, so are we. So I didn't get your book in time to read it. But I feel like the title gives us so much to talk about anyway.
Peter Zeihan: Fair enough.
Dan Ferris: And I really like your YouTube channel too. So I've been there, and have some thoughts about that. But with a guy like you, though, I almost feel like I should just say "what's on your mind?" because I know there's a lot. I've seen your YouTube channel. I know there's a lot. I know there's something about to spill out of you any minute now, right? No?
Peter Zeihan: Oh my god, yeah. There's so much in flux right now. I think the best way to approach this is to just kind of give you an idea of the scale of what's going on. In the post-Cold War environment, with the advent of hyper-globalization, it used to be in, well, let me back up. Pre-World War II, everything was imperial. And if you had iron ore and steel and food and coal, you could try to make something of yourself. And if you weren't, you were probably a colony.
But with globalization post-1945, you now only needed one of those things, and you could trade for the others. And the whole world started to industrialize and urbanize. As we urbanized, we moved into the cities, and people started taking manufacturing jobs. And that generated growth and specialization and education and health, and all the other things that we associate with the modern world.
But when you're on a farm, you have lots of kids, because they're free labor. You move into the city, you have like 1.2. And so we have been in a stage of ever-accelerating population crashes now in parts of the world for 75 years.
In the post-Cold War environment, when the end of history happened, everything about globalization and the cold war kicked into high gear. And the countries that had not embraced it yet did. And most of the economic growth we have experienced globally since 1990 has been about metabolizing assets and countries and populations and resources that were not involved before 1990. And that is roughly half of the world.
And this is the story of the Brazilian agricultural explosion or the Russian commodities explosion. The Chinese manufacturing explosion. But it was all happening against the backdrop of that demographic collapse.
When you stop having kids, at first you generate a lot of growth... because if you're in your 20s and your 30s and you have no kids, you're not spending money on diapers and school. You're spending it on cars and condos. It's a lot more high-octane. And you get the growth story we've seen in the developing world, especially China. But when you then are in your 50s, where they are now, the growth stops because you've got everything you need. And when you retire, it all stops completely.
So what we're seeing now in the 2020s is a lot of the world has aged into this point where the growth story is over, and the production story is over. And there isn't a story moving forward. So we've had 35 years roughly of the greatest economic growth and the most open system in the world, but it was never more than a geopolitical and a demographic moment in time. And this decade, it was always going to end.
And it can be sped up, and we're seeing that now. COVID sped it up. The Ukraine war is speeding it up. The complete descent of China into a narcissistic cult of personality, not narcissism, is speeding it up. And we are looking at the end of the world that we understand, in probably the next 36 months.
Dan Ferris: I see. So speeding up the end of globalization. Wow. It sounds, I mean, the title of the book, this doesn't sound good for business.
Peter Zeihan: Yeah, it depends upon who you are. Not all countries are created equal. Not all demographics are structured the same. So if you're in a position where you're, today's 50-somethings actually had kids. So there's a replacement generation. You know, you're not having a consumption crisis. If anything, you might be having inflation because of consumption. And that's what we're seeing here in the United States.
If you are on a chunk of geography where you're physically secure, then if global trade breaks down, you really don't have a problem. And so for the United States, only 12% of GDP is involved in international trade. But half of that is in NAFTA, whereas for the Chinese, the number is closer to 40%. And that includes the mass import of the energy they need to keep the lights on, and the food they need to keep the population alive. So obviously you interfere with international trade, and China ceases to exist as an entity.
So there definitely will be relative winners and relative losers. But if you are a firm that is involved in international trade, yeah. There's not a lot about this that looks great. Unless of course your footprint is in Mexico, in which case hot damn. You're probably in the best spot in the world.
Dan Ferris: Right. I found your discussion in this regard of Russia/Ukraine versus China/Taiwan to be really interesting. Russia being a producer of food and fuel, basically, was your point. Versus China being the biggest importer of these things. And I tell you, it's, everybody you meet it seems like in the financial world, like China's, they still view it as a great power.
And that's not the message I'm getting from you. The message I'm getting from you is Xi is this kind of "Cold War" type of guy who wants to really buckle down and bear down on his own economy. And right at this moment, we're seeing him get a lot of –I mean, it's like 1990 all over again and Tiananmen Square, it seems like.
Peter Zeihan: Just on a much larger scale.
Dan Ferris: Much larger scale now. Wow. OK.
Peter Zeihan: Yeah, it's difficult to overstate just how screwed China is. If you back up to before COVID, they were the most exposed country in the world in terms of energy and food security. They get their stuff from at least half a continent away, typically more than a continent away. And they are utterly dependent upon the U.S. Navy to keep the trade lanes open in order to access those materials. And then, they're utterly dependent upon the Americans keeping the market open to sell their [inaudible] products to.
So every stage of the Chinese economic model is dependent not simply upon American quiescence, but American action... America actually empowering the Chinese system to succeed. And between the disconnected populism of Trump and the more active nationalism, I'm sorry. The kind of disconnected populism of Obama. The more active nationalism of Trump. And now the bureaucratic economic populism of Biden. Every piece of the support network that keeps China going is being challenged at the same time.
At the same time, the Biden administration has killed their tech sector – at the same time that they've become completely dependent on Russian energy which, whether it's coming from the West or the East, is at its peak and can only go down from here because the technical workers that are necessary to keep it going are no longer there.
At the same time, the demographics have collapsed, with even the Chinese now admitting that they overcounted their population by 100 million people aged 40 and under... at the same time that Xi has completely destroyed all information reporting within the country in order to further his cult of personality. So, we are on the verge of a catastrophic, spectacular Chinese collapse.
Dan Ferris: Your screen froze up when you said collapse.
Peter Zeihan: Oh, that's good, that was the last word.
Dan Ferris: I know how that [inaudible, crosstalk]. Wow. So, I mean, is China uninvestable, or?
Peter Zeihan: I would argue at this point that any money that is in China is already lost. If you own a fixed asset there, your best chance is that the Chinese are going to confiscate it, but let your managers go.
Dan Ferris: Right. I saw you discussing this, and you said well, we're past the point where you're going to do anything with the assets. You'd better get your people out. In other words, you'd better have a plan to get your people out or they could be stuck there.
Peter Zeihan: With the protest that started Thanksgiving week in the United States, there's really only two paths here. I mean, number one is, in a cult of personality system where all policies start with one person, when you protest a policy you're protesting the leader. And we saw the protest evolve in that direction in a matter of days, with people directly challenging the competence of their dear leader.
If that is allowed to spin out of control, that tears the entire system down. And China has collapsed a number of times in the past because of that sort of popular uprising. Or we get a nationwide Tiananmen-style crackdown for political reasons. Neither of these outcomes is good for investment or manufacturing. And if it's the second one, anyone with a foreign link is going to be immediately seen as a security threat and they will be treated appropriately.
Dan Ferris: So your folks can wind up not merely stuck in China, but stuck in a prison in China.
Peter Zeihan: And again, China's history suggests that this has happened many times before as well.
Dan Ferris: Wow. This just, I'm going to leave that alone because I do want to get back to the point, I do want to talk a little bit or hear you talk a little bit about Ukraine and Russia. What I loved about what you did was you gave me an answer, a concrete answer to this question that is everywhere, which is –
Peter Zeihan: What the hell are the Russians thinking?
Dan Ferris: How does this turn out? Yep, well, what the hell are the Russians thinking? But specifically, the question that's been in the media and just on everyone's, like, when does it end? How does it end? Who wins? And when? And you didn't exactly tell me that, but you gave me a pretty darn concrete moment in time. I wonder if you would go over that for me.
Peter Zeihan: Yeah, sure. So when the war began, Ukrainians had been preparing for eight years but preparing with very limited resources. And they had a problem with Americans under Trump because Trump had stopped all military assistance to Ukraine. If you remember back to the impeachment hearings, it was Trump's ability to blackmail Zelensky. That's where it all started.
And so when Biden came in, he started the aid back up. And when the Javelins started reaching the front line around last Thanksgiving, roughly, that is when the Russians decided OK, we need to move. And the troop buildup started.
But for the first six months of the war, the Ukrainians were hanging on by the skin of their teeth. They were completely dependent upon foreign tech and foreign equipment to make things run. The change in the math occurred in August and September with the Kharkiv offensive. And in 36 hours, the Ukrainians captured the city of Izium, which had been the Russian primary forward staging base.
And they captured it and attacked. And in that one 36-hour period, the Ukrainians captured more Russian tanks and artillery than they began the war with. More tanks and artillery than NATO had transferred to them in the war to that point. And then the Battle of Kherson happened a few weeks after that, and they got a haul that was nearly as large. So they're going to need the winter to do a lot of deferred maintenance and get this Russian stuff back into operation.
And you add that to the 60-odd-thousand Ukrainian troops that are training abroad on new weapon systems that are not yet in theater, and just the general advancement of the military quality back home. And by the time we get to the end of mud season in May, it's going to be a very different military on the Ukrainian site.
We're not probably going to see a huge amount of maneuvering in mud season. So, you can kind of split the conflict period into four periods in a year, in Ukraine. You've got the hard winter when everything's frozen, where you can maneuver fine. You've got the summer when you can maneuver and everything is fine. But on the shoulders in the spring and the fall, when it's cold but not cold enough to freeze the ground, you get this thick mud in the steppe. And then you really can't operate with tanks.
We get to the other side of mud season, the Ukrainians are going to have a couple hundred thousand men operating equipment more advanced than they've ever had, and it's going to be a very different sort of army. On the Russian side, there's going to be at least a half a million new men on the front lines. Perhaps as many as a million.
And by the time we get to the end of June, we're going to know whether this is a Sparta or an Athens situation as to who's going to win. Now, we will not be done by the end of June. This war is still going to drag on. But it will be very clear who's got the momentum, and who is capable of striking the knockout blows in the long run.
Another thing to watch for is just in the last few days, the Ukrainians have been launching some long-range drones several hundred miles into Russia. They will probably be able to get that into a degree of mass production by the time we get to May. And then we're talking about supply-chain systems and logistical issues for the Russians, not just in Ukraine proper but all the way back to the point of manufacture. So we will know in about six months just how this is going to unfold in the long term.
Dan Ferris: I see. And the next thought on my mind is one from another of your videos on Russia. And I swear, Peter, you left me with the distinct impression at the end of that video. You talked about the 1930s. And there was this other little thing that happened after the 1930s that was kind of a big deal. And that one had a two after it. There was one after the one before that. Is there going to be a three, a World War III? Is that what you were implying?
Peter Zeihan: You're going to have to remind me which video this was.
Dan Ferris: So this was about the Russian price caps I think it was.
Peter Zeihan: Ah, got it.
Dan Ferris: And you got to the end of it, and you said you know, dynamics similar to the 1930s in trade and energy. And I was like, "1930s?"
Peter Zeihan: One of the great things about globalization is by having a single military superpower, the entire world was combined into a single economic zone. And the efficiencies and the economies of scale that we got from that are something that we've never had before in human history.
So if you want to make this an American example. Imagine what your economy would be like in your local state if you couldn't trade with the other 49 states. So Texas has all the energy it needs but it's not going to have the iron ore. Minnesota's going to have the iron ore, but it's not going to have electricity. Iowa's going to have the corn and the pigs, but it's not going to have access to a road network or a rail network.
Now, play that across the entire planet. We've had a single unified economic space more or less. And in the case of energy, that means that energy that is produced in Saudi Arabia can go anywhere in the world. Or the Germans can import energy from anywhere in the world.
And as long as we've been locked together in this single system, everyone has a vested interest in making sure there are no disruptions to the transport system... because if you have an interruption say in the Strait of Malacca, people in Vancouver are going to feel the energy pressure from that.
What the price cap that the Europeans are putting on the Russians is doing, is hiving the Russians off from the global pricing and energy security system, and then breaking the Russian system into two pieces: one that trades west into the European space, and one that trades east into the Asian space.
Well, if that's the case, then countries are able to choose what they want, but they're going to become locked into some of those choices. So China's probably the best example here. They're going to have a very heavy exposure to that Asian flow, which means that other countries have a vested interest or, let me rephrase that.
Other countries no longer are going to be upset if something happens to that flow, because it doesn't influence them. It's not part of their economies of scale. It's a sequestered energy source on a very focused transport route going to a sequestered energy consumer. And if any part of that process breaks, it doesn't affect Ecuador. The last time –
Dan Ferris: And Asian flow –
Peter Zeihan: Go ahead.
Dan Ferris: I was just going to clarify. Asian flow, this was the one I think you were describing. It's called like ESPO or something?
Peter Zeihan: Yes, the Eastern Siberian-Pacific pipe.
Dan Ferris: Right, gotcha.
Peter Zeihan: The last time this happened where we had pricing and security relationships for energy flows separated, countries had a vested interest in interrupting the supplies of their rivals. And that was one of the many factors that led to the world wars.
Now, I don't think we're going to see a World War III, because no one has the capacity to operate in different theaters except for the United States. And we don't have the interest. But we can still easily have the economic outcomes of a major conflict, and a series of regional fights, as countries are discovering that they're going to have to take matters into their own hands in terms of their security and economic wherewithal.
And in a world where demographics have already collapsed, and the Americans have kind of checked out in terms of patrolling the seas, that means a lot of countries have a very long way to fall.
Dan Ferris: Well, has this begun? Are we, as many have said, effectively at war in Ukraine, the U.S. effectively at war?
Peter Zeihan: Oh no. If we were at war, the Russians wouldn't have power right now. So no. We are certainly involved. There are no American boots on the ground in any sort of combat operation. This is not something like we were doing in the Iraq war where we had special forces enmeshed with the Peshmerga to help them with the technologies.
Almost all the weapons assistance is being done virtually, thank god for Starlink. So, we definitely have our fingers in the pot, but just the fingers. No boots on the ground, and that makes a really big difference.
If the United States was treating this like a real war, and our military assets were activated, there would not be a single Russian vessel that was not on the seabed already. And every Russian economic and military asset within 500 miles of any coastline would already be in ruins.
So anyone who thinks that the United States is all in on this has not been paying attention to U.S. military capability. We might suck at nation-building. But if it comes to turning things into craters, we are very good at that.
Dan Ferris: We're good at dropping bombs on things. So, let's see. Let's maybe step back a little bit. I feel like we started to talk about who is really good at doing business in this broken-up deglobalized environment. I mean, I know I feel really happy that I was lucky enough to be born in the United States.
I mean, I got lucky twice, right? I got lucky with globalization, I benefitted from that. And now, the world breaks up and hey, it's still the United States. You know, where else? Are you saying any developed country? What about Japan? Japan's an island, right?
Peter Zeihan: I anticipate we're going to be seeing sort of an American "friends and family" program evolving. NAFTA's obviously the core of that, and the hard work for that is not only done, but one of the great achievements of the Trump administration from my point of view, from a cultural point of view, is convincing the hard right that tends to be very anti-migrant that Mexico is part of the family. I think that is the most indelible, long-term impact of the Trump administration that we should be happy about.
Other countries are going to be invited or already have found a way in the door. So the Australians and the Columbians already have long-term trade deals with the United States that are only going to get stronger. And Japan is a country that realized what was going on. Realized that the Americans were backing away from sponsoring the global economy. Realized the American military was going to be less adventurous in the future.
And they've looked around, and they realized that they have the world's oldest demographic structure already. They've been dealing with this for 30 years. And they really didn't want to be facing the Russians in Asia and the Chinese by themselves.
So they went to the White House and basically sought terms. And Trump's terms were humiliating, to put it in a single word. They signed anyway. And then, when Biden came in, the Japanese made it very clear they did not want to amend the terms. So the Japanese have successfully bought their way into the American inner circle, so they're going to come along for the ride.
Whether or not the Brits join is up to them. They have to really figure out what Brexit means. I mean, it's been six years. It should be time already. But they're just not there yet.
Dan Ferris: So let's go there. I felt like when you were describing population crashes, I was like oh, so we're headed for Europe in the United States then, essentially.
Peter Zeihan: The Europeans have a lot less wiggle room on their demographics, because they have a lot less land area per unit of population. They just have not been able to maintain a high birth rate because they don't have something that we would consider the suburbs. You pretty much have a relatively dense urban core, and then you've got the farms, and there's very little buffer zone in between where an up-and-coming family can raise kids and have a yard.
And if everyone's living in a condo, you're just, your birth rate's going to be lower. Also, they started industrializing decades before the rest of the world, so they're just so much further along in this process. And a lot of what we would consider your traditional Western European countries – Italy, Germany, Belgium – their demographics turned terminal back in the '80s. There just weren't enough kids to carry it forward.
And if you fast forward that 40 years, it means that they're literally running out of 40-year-olds. So this is the decade that all of those countries age into mass obsolescence. And we really don't have an economic model that can allow national cohesion.
And then there's another crop of European countries, the bulk of the Central Europeans, all the way from Estonia to Bulgaria, that actually have faster-aging demographics but from a slightly younger base. And they will follow in the decade to come.
We're looking at a Europe in, as soon as 2040, that is made up of really just Spain, the United Kingdom, France, and the Scandinavian countries. The rest of it will have aged into desolation.
Dan Ferris: So you know, there's a funny thing, like as a financial analyst, when people have made all these demographic arguments at various times, I'm not saying they're not good arguments. But they tend to use it like a, it's like a marketing pitch. And I've done very well ignoring them, is what I'm saying. But it sounds like you're telling me when it comes to geopolitics, "demography is destiny."
Peter Zeihan: It certainly limits your options. I'd argue that the way you see it is probably broadly accurate. In the United States when we talk about demography, we usually do mean it as a marketing scheme. You know, that you've got a number of people who are in this specific demographic group. They value these things, they're at this stage of their life... therefore, these products make sense to them.
And the group that we've constantly been talking about are the Millennials and especially the Baby Boomers. But there's more to it than just what it means from a market point of view in the short term because if you play the long term, I mean, the problem with demographics is that they're glacial. It takes a lifetime for someone to live a life.
And we've known since the '60s that the Baby Boomers eventually were going to age into retirement, and that was going to change the system... because instead of paying taxes, they're going to be drawing pensions. Well, on average that happens in the fourth quarter of calendar-year 2022. We're here. We've known this has been coming for 40 years, but no one's ready, because it was always off in the future.
Well, the Baby Boomers are not just an American population block. They exist in every advanced country. The difference between the American Boomers and everyone else is that American Boomers actually had children that we now know as the Millennials.
Now, we can talk trash about the Millennials all day, and I really do enjoy doing that. But they've got something going for them that all of their cohorts around the world don't. They exist. And so, we have a 10- to 20-year period of financial crunch, as the Boomer money goes away before the Millennials are in their 50s and providing capital. So that's like a 10-year break in the financial world. And we've got a 20-year break while we're waiting for the Millennials' kids to grow up.
But if you look at the demographic structure of say Germany or Italy or Korea, they've got more people in their 60s than their 50s, than their 40s, than their 30s, than their 20s, than their teens, than children. There's no coming back from this. So we are literally living in the last handful of years for a number of major ethnicities and economies that have been globally significant for decades if not centuries, and it all ends in the first half of this century with most of it being front-loaded this decade.
Dan Ferris: And just to clarify what you just told me. More people in their 60s than in their 50s. More in their 50s than in their 40s. And so on down the decades in those areas?
Peter Zeihan: Yep.
Dan Ferris: Wow.
Peter Zeihan: All the way down to infants.
Dan Ferris: And we, you say the Millennials exist, again just to clarify. Like, we have a meaningfully large Millennial cohort in the United States, and just to be clear, nobody else in the world does?
Peter Zeihan: I won't say "nobody." The French do. The Swedes do. And the New Zealanders do. And that's it.
Dan Ferris: And that's it. Wow.
Peter Zeihan: So you know, the French can do the catering and the Kiwis can man the bar, and the Swedes can be the bouncers. But a global economy that is not.
Dan Ferris: No. And let's see. French, Sweden, Kiwis. I mean, are they going to wind up being part of the American friends and family plan?
Peter Zeihan: I think so. I mean, all in their own way. The Kiwis like to pretend that they're neutral, but when anything is really important, they're not. And with the Australians, their largest trading partner, joining us, they're probably going to come alone. Especially since their second-largest trading partner, China's, going to implode. So I have no doubt that the Kiwis will be there and I'm thrilled for that.
The Swedes, now that neutrality is a thing of the past, they are practically being American when it comes to defense policy. So a Swedish-led Scandinavian bloc that works hand in glove with the Brits and the Americans I think is a foregone conclusion at this point.
France will be France. They will always do their own thing. They will always have a sibling relationship with the United States, with all the ups and downs that that implies. But France is one of those rare countries that while it might not be a global power, is stable. And they're not going to face a chronic challenge to their political or economic structures like most of the rest of the world will.
In fact, there's a lot of upside potential if you're French right now, because they've kind of been trapped in this world for the last 30 years where the Germans have gotten more and more and more powerful, versus France within the EU to the point that the Germans are now making decisions for everyone with barely consulting the French. And from the French point of view, that is just sheer hell. And so the end of the European system from the French point of view is not nearly the unalloyed negative that the Germans would perceive it to be.
Dan Ferris: Right. So we've been talking a while here, but I need to get to a topic.
Peter Zeihan: Sure.
Dan Ferris: Maybe I haven't gone through your YouTube channel enough. I've seen several of the videos, and I want to mention to our listeners. Check out the leadership series. You know, leave your politics at the door, and check out Peter's leadership series. It's really good. I really like it.
But the topic that I want to ask you about, it's not a topic. It's a continent that I don't think I've heard you mention. It's Africa.
Peter Zeihan: The future's not great. The story, let me back up. So, sub-Saharan Africa in particular. It's built on a series of five stacked plateaus. And you hit over half a mile of elevation usually within sight of the coast. So, the difficulty of getting physical infrastructure from the coast, where there are no good natural ports, or very few, up to where the people actually live, is very difficult.
And then integrating these relatively highland zones with one another is very expensive. And you're dealing with mountains and topics and deserts, or some combination thereof. And so, it's the poorest part of the world because it's the most difficult part of the world to physically develop.
Now, in the last 15 years, we've seen record growth. But unfortunately, that is not because of money things that have happened within Africa. As the Baby Boomers have been approaching retirement but not gotten there yet, they've been the richest that they have ever been.
And that surplus capital has spammed out into the world to enable people to borrow. Part of that is the story of Chinese growth. Part of that is the story of European growth. Part of that is the story of consumption within the African continent, because the Africans for the first time in their history have been able to access nearly bottomless supplies of foreign capital at cheap rates.
Unfortunately, most African states did not use that to build out infrastructure. They just spawned a consumption binge. And so Africa today looks a lot like Greece in 2005. And now that the Baby Boomers are retiring, and they're liquidating all their investments and going conservative because they can no longer adapt to a market crash, they have to go into cash and T bills. All of that capital is going away. So the Africans will be left with the debt and without physical infrastructure. So they're going to have a very, very tough time.
Now, there are pockets of Africa that can still function, or actually maybe even do better. There are five places where there's sufficient infrastructure from the coast to kind of metabolize what we consider to be a normal development structure. Two of those, Nigeria, and Senegal, actually have flat coastlines. And then three of them –
Dan Ferris: I was going to ask.
Peter Zeihan: [Inaudible, crosstalk], Angola, Kenya, Uganda, and South Africa have enough income from other things. Oil in the case of Angola, and minerals in the case of South Africa, to actually overcome their geography to a degree to build physical infrastructure. And these parts still can interface with the wider world. But it's only those five.
Dan Ferris: How much of a liability is shall we say political instability in Africa?
Peter Zeihan: It doesn't help. But you know, this goes hand in hand. If you don't have reliable economic growth, it's hard to have a politically stable environment. And the two definitely contribute to one another.
Dan Ferris: I'm sorry, you said five. Nigeria, Senegal, it sounded like Kenya, Uganda was one?
Peter Zeihan: Kenya/Uganda is a single corridor. Uganda and South Africa.
Dan Ferris: Right. Angola and?
Peter Zeihan: South Africa.
Dan Ferris: And South, oh, of course, South Africa. Good old South Africa. Wow. So, let's take a minute here. We're getting toward the end, and I will ask you my final questions soon, which is the identical question for every guest no matter what the topic.
Peter Zeihan: OK.
Dan Ferris: And in fact, maybe I'll just do that. Let's just do that and see what we come up with. So, I can't believe that you're even going to be able to do this with the amount of stuff that's in your head. You think about the entire world. But here's the question, Peter.
Peter Zeihan: Shoot.
Dan Ferris: Do with it what you will. If you could leave our listener with a single thought today, what might that be?
Peter Zeihan: How about I give you two. One bad, one good.
Dan Ferris: OK.
Peter Zeihan: OK, let me give you the bad one first. We can end on a positive note. Between the Ukraine War and political maldecision-making in China, we are seeing a massive shortage, global in scope, of every type of fertilizer production. Agriculture is the most vulnerable economic sector, because if you don't have everything that you need at every stage of the process, you lose an entire season and you have to wait for the next one.
So this calendar year, we're going to be seeing fertilizer shortages throughout most of Latin America, sub-Saharan Africa, the Middle East, South Asia, Southeast Asia, and Australia. These areas import on average three-quarters of what they need. That is going to be haunting us for years, because it's unlikely to get better anytime soon because we're now seeing problems in finance and manufacturing and transport and the rest, all of which agriculture is dependent upon.
Now if you're a farmer outside of those zones, this is a golden opportunity. But that's my personal nightmare, is the implication of what happens when the agricultural input supply chain is strained, and we're seeing it break. So there's my negative.
The positive. We're looking at the simultaneous breakdown of the German and the Chinese manufacturing systems, and they're not coming back. In the United States, assuming for the moment that we want to have stuff, North America's going to have to double the size of its industrial plant in less than five years.
That's wildly inflationary, and it's on top of the Boomers gutting the labor force from their leaving. The Millennials jumping up consumption because of their age bracket. Chinese labor going away. And Russian materials going away. So we're looking at nine to 15% inflation in the United States for the next five years.
This is a really good story because yes, it's going to be high inflation. But doubling the size of the industrial plant, building that out using local workforces and shorter supply chains that use less energy and have less transport and they're closer to the end consumer. They're using the most advanced technology that is available of the day, integrating Mexico. This is going to be the greatest growth story in the history of Canada, Mexico, and the United States.
And when it's done in a few years, we will be left with the world's most productive and stable manufacturing base. And it will largely be immune to international shocks. It's not a straight road. But wow, is it a good one.
Dan Ferris: Yeah. That's one of my big theses, right? It's basically reshoring, is what I hear you saying.
Peter Zeihan: Reshoring... nearshoring... friendshoring... whatever you want to call it. There is not an industrial sector that has moved away from China in the last four years where the replacement system is less efficient than what it left. The Chinese have aged out. Their labor costs have gone up by a factor of 15 since the year 2000.
They are not economically competitive in anything. And the only reason we still think of China as a manufacturing superpower is because of the admittedly large sunk cost of the investment at this point. But it's all going to be lost anyway, and it's almost all going to be lost in the next three years.
Dan Ferris: OK, I know I said it was my last question, but you always make me think of more things, so I'm going to keep you for one more. So what do you think of this idea of the Thucydides trap, then? It doesn't sound like you think it has much teeth to it. Where two big superpowers, they're going to fight sooner or later. But China doesn't sound like the superpower it says.
Peter Zeihan: Have you read the book? Because I don't want to put words in Graham Ellison's mouth. So he's perfectly willing, and he says so early in the book, that this happened in 60% of the power transfers in human history. That leaves 40% where it didn't happen, so there's a correlation, not a causation. And second, the challenging power, when it loses, it loses badly. So, the Germans were the challenging power in the world wars. And that obviously didn't work out at all.
So the Chinese have become wealthy because of globalization, and because of the American security overwatch. If they were to challenge those things, they would have to have a replacement planned. They don't have the demographics to be consumption-led. They don't have the political system to be attractive to partners. They don't have a single ally, not even North Korea. And they don't have a navy that can reach more than 1,000 miles from home.
So, they would have to go through a top to bottom economic overhaul in order to survive the end of the American era. And that assumes that the Americans go quietly into that good night, which I don't see why that would happen, because we have Millennials.
Dan Ferris: All right. Well, look, if you don't get the hell away from your microphone I'm going to keep you here all day. But I just want to say thank you for making time for us. I really appreciate it. I love your YouTube channel. What's it called, Zeihan on Geopolitics?
Peter Zeihan: It's just Zeihan.com/newsletter which will take you to the first time everything pops up. And then of course we do post everything to YouTube that's a video.
Dan Ferris: There you go. All right. You are definitely going to be getting another call from us, dude. We want to have you back. I have a list of things already that I want to have you back. So get ready for that.
Peter Zeihan: I'm looking forward to it.
Dan Ferris: All right, Peter, thanks again.
Peter Zeihan: Take care. Till next time.
Dan Ferris: All right.
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I really enjoy talking with people like Peter. I mean, he's a great talker. He's got a head full of ideas. He's been doing this for years and years. He actually used to be a guy named Marko Papic's boss at a company called Stratfor, where Papic worked. And we've interviewed Marko what, two or three times I think. And you know, another geopolitical guy.
And more than any other type of guest that we have on the show, it's almost like they're like spies. They're dangerous, because they know too much, you know? And I never know what the next question is going to be, because there are so many ideas and so many details. And I'm sent off in five directions while they're talking. And I sort of have to wind up picking one at the end of whatever they're saying.
But I definitely want to have him back. And I'm definitely going to read this book, The End of the World Is Just the Beginning: Mapping the Collapse of Globalization. It seems really important to me right now.
It's like we said with our other guest, David Cervantes. It's a big macro moment. Not just this year, but this decade. And I'm going to try to find, you know, if there's more people like Peter and Marko out there, I'm going to find them... because there's, you know, investment is our beat. I don't want to sound completely mercenary, but investment is our beat and there's money to be made in learning about all this.
So, wow. That was really, I thought it was a wonderful conversation. But I guess I'm a little bit biased. But I hope you enjoyed it as much as I did. That's another interview, and that's another episode of the Stansberry Investor Hour. We provide a transcript for every episode. Just go to www.investorhour.com. Scroll all the way down, click on the word "transcript," and enjoy.
If you like this episode and know anybody else who might like it, tell them to check it out on their podcast app or at investorhour.com. Do me a favor, too. Subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts. And while you're there help me grow with a rate and a review. Follow us on Facebook and Instagram. Our handle is @investorhour. On Twitter, our handle is @investor_hour.
Have a guest you want to see interviewed? Drop us a note at [email protected], or call the listener feedback line: 800-381-2357. Tell us what's on your mind and hear your voice on the show. Till next week, I'm Dan Ferris. For my co-host, Corey McLaughlin, thank you for listening.
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