We all know that post COVID, the world has entered a very different era with wars, civil unrests and out of control inflation. This is the end of the era of easy money and the start of a completely different geopolitical era that will turn everything a normal person knows about the world upside down. I am going to share what I know about the development of this situation and what can be done to protect yourself and your family from this huge Tsunami of changes in all aspects of our lives.
Disclaimer 1: This is my personal blog and is separated from my core proprietary trading business or my side business of providing tools to active day traders. I am writing this series of articles hoping that they reach people outside of my usual audience so that, even if one of you is listening and do something about it to protect yourself, it will be worth my time doing this.
Disclaimer 2: This is not financial advice. You can seek financial advice from your financial advisor in your jurisdiction. This is just my personal take on the current situation around the world. All content is for education and knowledge sharing purpose only.
There are four main area of concerns that I will address here.
I have written many years ago that the world is descending into chaos thanks to the way the Western governments are structured. The slippery slope will slowly and surely make sure good people who cares about others to not run for any official positions in these governments. At the moment, it is pretty obvious almost all the politicians in the game are there to pillage their own countries or following their masters’ orders to destroy their own countries. Maybe with a few rare exceptions, nothing good will come from the so-called leaders around the world at this point.
The creation of the central banks and the banking system we’ve lived with over the past few decades was not made to make the world better. It is created to bury the failure of the previous financial system such that no one has to answer to their wrong doings at the time. There are many books written on the subject and I don’t need to repeat the history and arguments here. What matters is that after pushing real interest rate to zero and beyond for a period of time by the central bank that manages the world reserve currency, US dollar, the system is getting close to a complete breakdown. There is nothing one can do to stop this from happening.
The current global logistic system was a great invention that enable the world to make available of everything imaginable to become available everywhere. It took some 30 years to get the system to work as efficient as it was back in year 2019. But ever since the COVID situation, lockdowns everywhere has seriously damaged the system. It is estimated that it will take a minimum of 10 or more years to rebuild what was destroyed. And the chance of getting there is next to impossible because of the geopolitical tension everywhere also reduced the chance of co-operation among countries that are fighting.
Our solar system has experienced one of the longest solar cycle in modern history. A new cycle has started approximately from end of 2019. We are in the beginning phase of the cycle that a lot more solar interference is happening and it won’t peak until 5 to 6 years later. During this time, it is expected to have a lot more dangerous coronal mass ejection (CME) coming off the sun that can seriously disrupt our electric grid and all kinds of computer equipment. Even worse, the cycle is also a good predictor of major earthquake activities and other extreme weather issues.
Themes In Motion
Given the background, we know there are four themes of future development that we have to pay attention to.
Corrupted governments with nothing there to really stop them means dictatorship is next. We are seeing that as COVID unfold where all these governments in the world choose dictatorship and idiotic policies over common sense. Since then all these guilty parties of course would never say that they have done something wrong since that is a sure political suicide act. Hence, the only path left is totalitarian states for the Western countries in near future. It is not possible to stop this unless the population of a country all wake up from their mass formation psychosis. It is well known that people who are brainwashed cannot wake up from their brainwashed state without external circumstances changed. So, don’t even dream of waking up tomorrow and your countrymen will revolt against your dictatorship regime.
The final fight to keep the current financial system alive has begun. However, countries that have been taken advantage of over the years like Russia, China, India etc. all know that if they do not fight back, they will be forever enslaved by this system. BRICS is going to introduce a new global financial clearing system that is independent from the US dollar based system. What it means is that all member countries of BRICS will be able to participate in trading with the other members without using US dollar as the medium. The moment it is up and running, US dollar’s premium as the world reserve currency will be destroyed. Based on BRICS announcement, the new system can go online as soon as end of this year. In order for non-members to transact with BRICS, should USD be refused, it will have to be some form of payment that the founding members of BRICS deem acceptable. It will not be any currency from the Western countries for sure.
Global logistic breakdown means supply shortage will continue for a long time. Premium on transportation on all front (by land, air or sea) will continue to rise until demand chokes off. It will continue to follow a very volatile path as both supply and demand no longer follow a stable trend. This will in turn making product availability and product pricing on all levels completely out of control. After a long stable period in global pricing of products and services, we are now entering a period of total chaos.
Natural disasters will become much more frequent. Unlike the peaceful time and that the easy money period where the governments can focus on one crisis and pour all resources into resolving that, it will not be possible to answer to these disasters quickly and effectively. People are more likely on their own when such event happens. Dependency on the power grid is also a major issue. Should the power grid be badly damaged by whatever reasons, many electric equipment including computers, GPS and EV cars will all be rendered useless.
How To Prepare
Preparation against these future development is to figure out the combined impact of them and address the areas that can affect you.
In this new era of stagflation, stock markets and bond markets will not perform well. Even if the overall stock market index is not dropping, it is actually negative return when inflation is taken into account. Government bonds will not do well in rising interest rate environment either. Unluckily, majority of the retirement fund accounts, they are forced to choose from very limited options that focus mostly on stocks and bonds. If your retirement fund account allows you to choose ETFs or segregated funds that are pure commodity based (not those buying stocks related to the commodities), you are lucky and can switch to them so that your fund there is hedged against inflation. For more specifics I will have to do that in follow up articles.
If such option is not available, do not easily go for the route of shorting the stock indices through those inverse ETFs unless you are a seasoned investor with the knowledge to do so. Shorting the stock market can be very high risk as Michael Burry pointed out that the strongest rallies in the stock market often come from the major bear markets.
There are other options in managing ones retirement funds and I will discuss that separately.
Since we know that we can’t trust our governments and that natural disasters can completely destroy a country, economically, physically or both, it is important to diversify your holdings into multiple countries or regions. In addition, specifically that BRICS is coming up with a competitive financial system, US dollar will be affected greatly. Ray Dalio has moved his family office to Singapore. Isn’t that clear enough what he means by his words? I don’t want to put words in his mouth here.
My take is that if US dollar is no longer the only reserve currency in the world in the near future, you can do one of the two things here depending on whether you are living inside US or some other countries. If you are living in US or majority of your assets are in US dollar, you need to unload a significant portion of that and put the money somewhere else. It can be in Singapore. It can be in United Kingdom. It can even be in Canada. As long as the money is parked in a separate jurisdiction, in a different currency, you enable yourself to not lose as much buying power with US dollar alone.
For those who are not living in US or majority of your assets are not in US dollar, you can hedge your US dollar based holdings by having a forex or CFD brokerage account. Your goal is not to make money speculating on the forex markets. You goal is to hedge your exposure to US dollar relative to your base currency. I will explain about this in a separate article.
For preparedness against potential food and essential shortages, plan ahead by writing down what you use every month to start the process. Figure out the core essential stuff you need and have at least a month of such supply over your weekly need. This way you will be able to live normally at least until the short term shortage is resolved. For food supply, forget about anything that requires a refrigerator. If power outage is an issue, your refrigerator will not help you much. Think of something that can last very long in storage and things that take minimum effort to cook. If you really worry, having portable gas stove and backup generator can help too in case of power grid issues.
I have a portable solar power generator and it is very handy in power outage or camping environment. Sometimes there are electric equipment you must use for just 10 minutes yet power outage will render that impossible. Having a generator can save your day.
I will not go as far as the preppers who have all kinds of survival means. But then if things get that bad, you probably need weapons and bullets too.
For preparedness against natural disasters or other disruptive events that you have to be evacuated, have a bugout bag for everyone living with you. The idea of a bugout bag is that you can take off in a moment and can survive on that for two to three days. It does not need to be fancy – water supply, basic food ration, clothing / blanket to keep you warm and basic id in case you need to identify yourself to authorities. Some people go for more items and you can learn all about that from the internet.
How To Profit From This Era
For those of you who still want to profit from the situation, beyond just protecting your money, it will depend heavily on what you have and what your plan is for yourself and your family. The subject can take many hours to go through all the possible scenarios. I will focus on several common ones and my suggestion of what can be done.
First, you need to know traditional brokerage accounts will not be able to help you dealing with this era because stocks and bonds will not perform in general. If you don’t have time to actively manage your stock picks the money you have in the brokerage account will be pretty useless. On the other hand, you can open a forex / CFD / commodity brokerage account allowing you to trade them without the hurdle of specific knowledge in trading futures and options. Such account allows one to easily create a portfolio of instruments that focus on the main themes I talked about earlier.
I have an account setup recently with Oanda here in Canada that I have just completed the basic holdings for the long term macro play. I am not associate with them. I am just a client. I am sure in your country you may have other brokerages offering similar services. So do your own due diligence and search for one that is reputable and reliable.
I call such basic portfolio a “wealth protection” program. I plan to move more money into the account in coming months as I liquidate holdings in other traditional assets. I will explain in great details what to hold and what to lookout for so that you can do this properly yourself. You don’t need a fund manager to do this right but you must be willing to spend the time to understand what I do with my own account so that you can duplicate my effort.
The macro strategy of such program is simple – we are looking to long precious metals, food, energies and short the currencies, bonds and stock market indices of whoever having close ties with US. The shorting part should be limited to a small portion of the portfolio as shorting has limited upside when you are not using leverage. The long side will take care of itself as the huge boom in commodities will lift all boats. So strategically, you don’t need to be extremely precise in your entries. As long as you are on the right side and not buying at the extreme highs you will do fine.
Key to such approach is the acceptance of the fact that you do not have time to actively manage this so you are doing this passively. When you see great profit in one or more markets you take profit and look for the next market you can rotate into. You also accept the fact that it is done to counter the loss of purchasing power of your money, not seeking for very specific high return percentage.
Of course, I have high expectation with what I do I think I can beat the expect inflation hands down.
Next level of the strategy is using tactical entries and exits to improve the return further. This requires the use of leverage above the basic portfolio where we can overweight certain markets based on our trading models. You don’t need to be a genius to do that. What you need is basic chart reading skill so that you are not getting in at the wrong time. If you have time doing this properly, you can double the return of the basic approach.
This can be taken to yet another level if the portfolio is managed full time. By adding proper day trading engagement, the return can again be improved significantly. But this is not the subject for this series and you can research on the topic from many successful commodity traders how they day trade for a living to understand what it takes and how to get it done.
I wrote a much simpler version of this article a month ago as a memo sent to my former clients as a courtesy because without them I would not have a successful career in trading. I learnt so much in trading and investing while having the privilege to see how large family offices operate and eventually managing my own money. One thing that I would like to say, not disrespectfully, but just stating a fact, is that many CIOs of family offices, do not have the professional experience or best interest of their bosses in managing the portfolios. There are a handful of these guys I respect a lot and they are good friends of mind. The rest are really acting like deer seeing a big flashlight in front of them and paralyzed in the current environment.
We are seeing the biggest and probably most complicated change in investment landscape and societal disruptions in human history. It takes very drastic measures to counter the negative effect on your savings, investments and your outlook in life. What I learnt over the years though, is that you don’t have to be a ultra wealthy person to thrive in this era. What you need is knowledge and a bold belief that you can come out ahead in the future.
I am an introvert and do not like being the focus in the public. Most of my time is spent in doing research and managing my businesses. But I feel compelled to write this down for some mysterious reasons as if I am dictating the words from somewhere else. Whatever the reason, I hope this can get you thinking about your future and be prepared.