Principles of a Changing World Order

[Music] well thank you for having me I I started coming to Abu Dhabi 32 years ago and I've been very lucky to see the evolution and understand the culture so it's um I'm very grateful to um your highnesses your excellencies and um all my friends here so thank you for having me um I've been given the assignment of describing how the world order is uh changing and what to do about it and I'm supposed to do that in about 15 minutes so I'm going to have to talk fast I approached this subject as a global macro investor who has for the last 30 years bet on global markets and over those 30 years I found that when I was surprised it was typically because of events that happened in my lifetime um let me say that again it was because events that happened to me didn't happen in my lifetime but they happened many times before and that led me to study history to develop my decisionmaking rules and place my bets on the basis of those with that perspective I was able to anticipate big developments in the world that I otherwise would have missed for example by studying the Great Depression I was able to participate or anticipate the 2008 financial crisis and make a lot of money for myself and my clients which I wouldn't have been able to do if I didn't study the 30s about 5 years ago I saw three big developments that I hadn't seen in my lifetime and that I knew happened in the 1930 to 1945 period they were first big increases in indebtedness financed by big debt monetizations second big in irreconcilable wealth and values differences within countries that led to populism of the right and populism of the left and big conflicts between those and third a powerful Rising power now China challenging the existing leading power the now the United States and challenging its world order these things have happened repeatedly through history so that led me to study the Rises and declines of great powers and their markets over the last 500 years which showed me um how these things happen repeatedly over time I converted that study uh into a book because I thought it was worthwhile and to pass that along copies of the book are available for you if you want to get them and when you're going out but I'm going to um show you a clip of a 40-minute video I did a way to communicate effectively nowadays is not necessarily through books but I I found it effective through videos and I'm there's a 4minute clip that I'm going to show you from the 4 minute from the 40 minute video which is also available on YouTube if you want to see it so here it is we studied the 10 most powerful Empires over the last 500 years and the last three Reserve currencies it took me through the rise and decline of the Dutch Empire and the Gilder the British Empire and the pound the rise and early decline in the United States Empire and the dollar and The Decline and Rise of the Chinese Empire and its currencies as well as the rise and decline of the Spanish German French Indian Japanese Russian and ottoman Empires along with their significant conflicts as measured in this chart to understand China's patterns better I also studied the rise and fall of Chinese dynasties and their monies back to the year 600 because looking at all these measures at once can be confusing I'll focus on the four most important ones the Dutch British us and Chinese you'll quickly notice the pattern now let's simplify the form a bit as you can see they transpired in overlapping cycles that lasted about 250 years with 10 to 20e transition periods between them typically these transitions have been periods of great conflict because leading Powers don't decline without a fight so how am I measuring an Empire's power in this study I used eight metrics each country's measure of total power is derived by averaging them together they are education inventiveness and Technology development competitiveness in global markets economic output share of World Trade military strength the power of their financial center for Capital markets and the strength of their currency as a reserve currency because these powers are measurable we can see how strong each country is now was in the past and whether they're rising or declining by examining the sequences from many countries we can see how a typical cycle transpires and because the Wiggles can be confusing we can simplify it a bit to focus on the pattern of cause effect relationships that drive the rise and decline of a typical Empire as you can see better education typically leads to increased Innovation and Technology development and with a lag the establishment of the currency as a reserve currency you can also see that these forces then declined in a similar order reinforcing each other's decline let's now look at the typical sequence of events going on inside a country that produces these Rises and declines in a nutshell the big cycle typically begins after a major conflict often a war establishes the new leading power and the New World Order because no one wants to challenge this power a period of peace and prosperity typically follows as people get used to this peace and prosperity they increasingly Bet On It continuing they borrow money to do that which eventually leads to a financial bubble the Empire's share of trade grows and when most transactions are conducted in its currency it becomes a reserve currency which leads to even more Bor at the same time this increased Prosperity distributes wealth unevenly so the wealth Gap typically grows between the rich Haves and the poor Have Nots eventually the financial bubble bursts which leads to the printing of money an increased internal conflict between the rich and the poor which leads to some form of Revolution to redistribute well this can happen peacefully or as a civil war while the Empire struggles with this internal conflict its power diminishes relative to external rival powers on the rise when a new Rising power gets strong enough to compete with the dominant power that is having domestic breakdowns external conflicts most typically Wars take place out of these internal and external Wars come new winners and losers then the winners get together to create the New World Order and the cycle begins again that's a summary that I call the big cycle that has repeated throughout history they never exactly the same but you get the drift uh in brief I learned that while there are many factors that CH uh Change the World Order there are five big forces that drive just about everything they are the money debt force in other words spending power comes from credit more than anything credit produces debt which has to be paid back so there's a debt money economic Market cycle that we're acquainted with there's also an internal political um uh order uh disorder cycle due to wealth and values gaps that we're seeing uh become manifest in most of the countries right now uncompromisable differences causing political turbulence and threats to democracy as we know them then there's an external geopolitical order that I touched on which is the great Powers conflict and then there's also acts of nature droughts floods pandemics have killed more people than Wars and it's certainly um a big issue and the um economically as well it's going to cost about 8 trillion dollar a year roughly that's 8% of world GDP and number five is uh human inventiveness particularly of new technologies so if you look at those five forces those five forces has always existed and everything that we're going to talk about really is a function of those five forces and how they're operating the first chart shows that I'm going to show you shows the US government debt and Debt Service going back to 1900 I want to put these big things in perspective so the first chart shows debt and Debt Service going back to uh 1900 and it shows the projections going forward and the one to the right shows the total amount of debt um so that amount of level of indebtedness will not be sustainable so we're going to have a debt issue one man's debts are another man's assets and so to be able to be paid back in a real return is going to be expensive for debtors to Ser to to deal with this is not just a US issue this is a uh Global exu the next chart shows the big debt cycle going back to 1865 in China you could see the rise then the repudiation of debt during that period of time and the rise again and it shouldn't be obvious and everybody I think everybody knows that there's a big debt issue in China and the next chart series of charts shows this for most of the countries around the world so it shows many countries debts um I won't get into all of them but they're all projected to rise this is an important factor uh so as shown in these charts all major countries except Germany have increased and are projected to increase their debts at unprecedented levels based on the calculations that I've done I believe that it is impossible for these countries to be able to um not have u a debt crisis in in the years ahead and that will lead to a rate a great decline of uh value of money and as we know it one man's debts are another man's assets and when you own a debt asset you own money and the ability to print money in is what the um way of dealing with this is all about um and I believe that what we're seeing is the this uh incipient Dynamic is behind and will continue to be behind the Rises of gold and cryptocurrencies that we're now seeing these next charts that I'm going to show are going to be about wealth and values gaps um the chart to the left is um about the wealth gaps and what they show back to 1900 is that we have now in the United States and a number of countries the largest wealth gaps since the 19 uh 30 to 45 period the one on the right shows the ideological differences um uh the Blue Line shows uh measures of how far left the Democratic party has become and uh the one on the right uh the red chart shows how far right the Republican party has come and there's also a that shows voting against part across party lines and it just reflects the uh conflict that we're seeing so um as you can see they're the largest uh um reported in our lifetimes so uh so we have these uh political and uh economic uh differences in each countes that are largest since the 19 uh 30s the next two charts show the great power conflict between the two greatest powers of today the United States and Germany um uh the United States and China um I bring them back to uh 1850 the reason I'm putting these charts out to show the long term is because I think we can get trapped on in seeing just the short term and we miss some of these big things the F the chart first chart is a total power index of the United States and China going back to 1850 in it I combine measures of economic geopolitical military power into one index those are the indexes that I mentioned earlier and it shows what we know which is that there has been a great rise in China's power relative to the United States's power so that China's total power is approaching that of the United States the chart on the right is a conflict gauge that is made up of several measures of conflict it shows what we also know which is that the conflicts between the United States and China and their allies are intensifying to be the most significant since the 1935 to 40 period so to me it appears obvious that there is that we're in a period of increasing conflict it's taking place both between and within most countries the United States China France the UK Russia North Korea South Korea Japan and many other countries on are going through this internal conflict at the same time as there's this external conflict and so there's also all of those countries facing U an impending debt problem um and that all makes for a dangerous situation history also shows that during periods of great conflict well-run neutral countries do exceptionally well while those in Conflict even the winners lose that the W winners still get themselves in debt and still have the damages of the war the in the neutral countries uh work so a principle to keep in mind at such times is to consider spending time in the neutral countries where there is little conflict and within the country and little conflict with foreign countries as for climate change there should be no doubt that it is intensifying and that it's going to be very costly uh this chart shows the uh both the CO2 levels and and also um temperature levels so I in limited time I can't spend much time on it but as I said it's estimated that is going to have a very big economic impact as well as social impact as for technology changes there have always been and there are now more than ever great technology changes that increase productivity and raise living standards the next two two charts show the effects of these changes on per capita GDP and life expectancy again this long-term pattern is worth uh paying attention this goes down to, 1500 but you can see a real GDP per capita accelerates and and a good measure of that is in life expectancy which is the chart on the right so uh um to show technology changes and their impact I created also an innovation index which is based on patents discoveries and stock prices which is intended to capture the amounts of expected values and new and expected technology changes based on it and what I know I believe that we are headed for the most impactful technology changes ever because of the enormous advances in artificial intelligence I expect that these advances will produce huge changes in all dimensions of Our Lives that are unimaginable today some great and some terrible so where does that leave us it leaves us with choices such as where do we want to be and what do we want to invest it um as for where we want to as for where we want to be uh during this turbulent time there's a Chinese expression that says smart a smart rabbit has three holes in other words three places to go for safety while that we're seeing these places in many cases deteriorating we are also seeing other places that have never been better and deal making has never been more Global I mean look at us here today and how we've been moving from places uh uh that are the good places and to do deal deal making um there's a essentially a circus Circuit of financial deer makers often coming to with their Formula 1 teams who travel to and increasingly smart productive people are also establishing offices and residents in these good places which are the places that are friendly financially sound and have internal order rather than internal conflict and have less rather than more risk of being in an international war in addition to the previously mentioned qualities places that have a diverse population of smart nice people with vibrancy where families can live well and their children could be well educated I believe that the GCC and Singapore are the best examples of those that is why I'm here and I'm excited to be uh about these I'm excited about these places becoming Regional centers of smart family office investing uh they are Renaissance on state in a world in uh of turbulence I believe as for the assets to invest in because I believe that there will likely be a pending debt money problem I want to steer away from debt assets like bonds and cash and have some hard money uh like uh gold and Bitcoin and because I believe that they uh we're having a technology disruption because of AI I want to invest in those companies that are using it to dramatically improve their business rather than the super scalers and I'm active in a number of other markets as I've T run out of my 15 minutes I I will rush through just a couple of more suggestions first don't get too caught up on the twists and turns of the day-to-day headlines and instead think more about the big forces that are transpiring so think strategically as well as tactically taking a Global Perspective while recognizing that what you don't know about the future is more than what you do know so make sure you have diversification and optionality built into your strategy if you keep that in mind I think you'll be able to recognize the threats and see the opportunities and you will be well positioned to deal with them well so thank you for your 15 minutes or maybe I've gone a little over I apologize thank you very much [Music] what