The transfer of political power from the UK and France to the US and Soviet Union was not without plenty of bumps (French Vietnam, Algeria, Suez etc...)
I have great sympathy for the long-term bull gold and treasury bear argument but I fear that we're going to miss a lot of action in the interim.
Which way does the yen and JGB market gyrate in the interim? What happens to the Offshore yuan and HKD? These are potentially career defining macro trades!
So first of all - I think all rise and falls of empire pretty much track a cost/benefit analysis. Does the empire benefit from expanding - is the cost of increasing the empire less than the gain? This is true as long as you have superior military capability I think.
I feel for you on the short term gyrations of markets. This was the day to day stuff I focused on for 20 years plus. But the reality was understanding the long term drivers of the bull market in bonds was more important than anything else, and would have save myself a lot of money and time understanding that better. likewise, understanding the drivers of the bond bear market is going to help the most I tihnk.
That being said in 2023, I am going to start publishing a model portfolio, to get myself to focus more on teh day to day movements within the larger framework that I have already talked about.
Yes, this is why in many respects I saw Trump as the American Gorbachev.
He represented the view of those in "flyover country" that perhaps the costs of empire were starting to outweigh its benefits.
The thing is that Biden is no American Yeltsin, to use the analogy. Even if his detractors claim he's senile.
Not to dwell on US politics as I'm sure many have more to say. The point here (which I then agree with you) is that the "collapse of Empire" will be decided by a maverick politician at home, not in the plains of Lugansk or the East China Sea.
I applaud your courage in tackling such a large and complex topic in a twelve minute presentation.
Directionally, I think you are correct, American is in decline and capitalism is no longer working well for many Americans. However, the reasons are more complex than whether the U.S. wins a proxy war with Russia in Ukraine. It's interesting you didn't show the life expectancy for Russians which are horrendous. Russia is a fourth or fifth rate kleptocracy whose resource-generated wealth has been systematically siphoned off by Putin and the elites surrounding him, and is probably on its way to becoming a vassal state of China.
The decline of America is not about military spending but more analogous to the fall of Rome from within as you alluded to at the end of your presentation. Examples include generations of young people coddled and spoiled growing up among affluence and a woke philosophy of "safe spaces", trigger words" and "mental health days" off work, etc; a failing educational system due to the power of corrupt teachers unions which fosters a permanent underclass of ethnic minorities; the inability of politicians of either party to keep spending within income leading to an unsustainable exponential growth in debt; massive expansions of inefficient and wasteful government at all levels, draining the wealth created by the private sector; hubris by national leaders concerning America's economic status; an incompetent central bank; a complete unwillingness to control the southern border; and an obsessive focus of attention and resources on climate change when so many more imminent and serious problems loom, e.g. the U.S. healthcare and educational systems.
These, rather than any military factor, are among the reasons I agree that your buy gold (and silver)/sell treasuries (and bonds) trade has a long way to run, although I think there will be money to be made in treasuries and bonds if one is nimble and plays the volatile cycles ahead of us.
In any case, thanks for a provocative and thought-provoking piece.
I think a sign of a successful empire is that it creates unimaginable wealth for its citizens. One sign of American success was how much more successful you could be in the US relative to anywhere else. I was certainly shocked by how wealthy "poor" people were when I first went to the US in 1998, when I spent most of my time in Alabama.
So I try avoid judging an empire by the actions of its citizens. If you were bearish on Rome because of Caligula, you were about 400 years too early!!
What I am trying to say, is that the US has been the dominant military power since 1990, and its has built a system that overwhelming favours the US. If Pax Americana turns, it will be because US citizens will begin to reject the military costs associated with maintain it - which must be rising as China become more competitive. Of course, if China collapses like the USSR, then this goes away - and like Rome, we have centuries more of Pax Americana... lets see.
Your points are well taken Russell. My wife and are deeply grateful for the opportunities America afforded us to rise from lower middle class families to relative affluence through hard work, education and intelligence. This is the great "gift" American has given to hundreds of millions and although harder to achieve now it is still possible. And I do understand your arguments about role of the military in "empire". However, America is protected by two oceans, has enormous natural resources and food production capabilities, and still fosters innovation. It doesn't need to be an "empire." I'm one who believes in less military spending and more focus on domestic needs and in addressing our massive debt problems. The latter two factors are most likely to determine whether America remains a cohesive and relatively wealthy country or sees it's fiat currency inflated away, making everyone poorer.
GLD/TLD started to collapse in the early 80s after the Volcker Shock (ie: Short Gold to fund Long Treasuries was a ripper of a trade as inflation expectations collapsed)
Was that the antecedent of Pax Americana, at least financially?
After all if you subscribe to the thesis (not all would agree BTW) that the Regan buildup was decisive to the Soviet collapse - then the ability to fund large deficits for a defence buildup "guns and butter" relatively cost-free is just as important.
So my question now is... for the proponents of the "Pax Sinica" thesis, what is the trade/metric that we should be looking at? I'm trying to figure it out myself but am stuck...
That's true. But somewhere there's a trade to be made. What happens if China no-longer needs precautionary savings (reserves)? What's a good macro trade that hasn't already been discussed?
Well that took me back to my College days. I’ll just add that in terms of Pax Romana and Roman expansion, it was very much driven by the needs of its Veterans. Ex Military were promised lands post their campaigning years. The drive for expansion was a lagging need to satisfy Veterans (as well as greed). Makes me think what is the lagging need for Pax Americana. Right now it suits the US to run twin deficits to fund unsustainable healthcare and social welfare deltas (which ironically Veterans are a high number). If there is no Reserve currency who pays for those deltas?
Longer term (2-5 years) I agree that with your Gold / TLT trade. However, over the next 12 months the massive move made by the Fed on rates,reduction of the Fed's balance sheet, and reduction of M2 seem to point to lower rates on the long end as the economy rapidly slows in reaction. Thoughts?
Where do the other powers fit in this scheme?
The transfer of political power from the UK and France to the US and Soviet Union was not without plenty of bumps (French Vietnam, Algeria, Suez etc...)
I have great sympathy for the long-term bull gold and treasury bear argument but I fear that we're going to miss a lot of action in the interim.
Which way does the yen and JGB market gyrate in the interim? What happens to the Offshore yuan and HKD? These are potentially career defining macro trades!
So first of all - I think all rise and falls of empire pretty much track a cost/benefit analysis. Does the empire benefit from expanding - is the cost of increasing the empire less than the gain? This is true as long as you have superior military capability I think.
I feel for you on the short term gyrations of markets. This was the day to day stuff I focused on for 20 years plus. But the reality was understanding the long term drivers of the bull market in bonds was more important than anything else, and would have save myself a lot of money and time understanding that better. likewise, understanding the drivers of the bond bear market is going to help the most I tihnk.
That being said in 2023, I am going to start publishing a model portfolio, to get myself to focus more on teh day to day movements within the larger framework that I have already talked about.
Yes, this is why in many respects I saw Trump as the American Gorbachev.
He represented the view of those in "flyover country" that perhaps the costs of empire were starting to outweigh its benefits.
The thing is that Biden is no American Yeltsin, to use the analogy. Even if his detractors claim he's senile.
Not to dwell on US politics as I'm sure many have more to say. The point here (which I then agree with you) is that the "collapse of Empire" will be decided by a maverick politician at home, not in the plains of Lugansk or the East China Sea.
I applaud your courage in tackling such a large and complex topic in a twelve minute presentation.
Directionally, I think you are correct, American is in decline and capitalism is no longer working well for many Americans. However, the reasons are more complex than whether the U.S. wins a proxy war with Russia in Ukraine. It's interesting you didn't show the life expectancy for Russians which are horrendous. Russia is a fourth or fifth rate kleptocracy whose resource-generated wealth has been systematically siphoned off by Putin and the elites surrounding him, and is probably on its way to becoming a vassal state of China.
The decline of America is not about military spending but more analogous to the fall of Rome from within as you alluded to at the end of your presentation. Examples include generations of young people coddled and spoiled growing up among affluence and a woke philosophy of "safe spaces", trigger words" and "mental health days" off work, etc; a failing educational system due to the power of corrupt teachers unions which fosters a permanent underclass of ethnic minorities; the inability of politicians of either party to keep spending within income leading to an unsustainable exponential growth in debt; massive expansions of inefficient and wasteful government at all levels, draining the wealth created by the private sector; hubris by national leaders concerning America's economic status; an incompetent central bank; a complete unwillingness to control the southern border; and an obsessive focus of attention and resources on climate change when so many more imminent and serious problems loom, e.g. the U.S. healthcare and educational systems.
These, rather than any military factor, are among the reasons I agree that your buy gold (and silver)/sell treasuries (and bonds) trade has a long way to run, although I think there will be money to be made in treasuries and bonds if one is nimble and plays the volatile cycles ahead of us.
In any case, thanks for a provocative and thought-provoking piece.
I think a sign of a successful empire is that it creates unimaginable wealth for its citizens. One sign of American success was how much more successful you could be in the US relative to anywhere else. I was certainly shocked by how wealthy "poor" people were when I first went to the US in 1998, when I spent most of my time in Alabama.
So I try avoid judging an empire by the actions of its citizens. If you were bearish on Rome because of Caligula, you were about 400 years too early!!
What I am trying to say, is that the US has been the dominant military power since 1990, and its has built a system that overwhelming favours the US. If Pax Americana turns, it will be because US citizens will begin to reject the military costs associated with maintain it - which must be rising as China become more competitive. Of course, if China collapses like the USSR, then this goes away - and like Rome, we have centuries more of Pax Americana... lets see.
Your points are well taken Russell. My wife and are deeply grateful for the opportunities America afforded us to rise from lower middle class families to relative affluence through hard work, education and intelligence. This is the great "gift" American has given to hundreds of millions and although harder to achieve now it is still possible. And I do understand your arguments about role of the military in "empire". However, America is protected by two oceans, has enormous natural resources and food production capabilities, and still fosters innovation. It doesn't need to be an "empire." I'm one who believes in less military spending and more focus on domestic needs and in addressing our massive debt problems. The latter two factors are most likely to determine whether America remains a cohesive and relatively wealthy country or sees it's fiat currency inflated away, making everyone poorer.
Invert, always invert...
GLD/TLD started to collapse in the early 80s after the Volcker Shock (ie: Short Gold to fund Long Treasuries was a ripper of a trade as inflation expectations collapsed)
Was that the antecedent of Pax Americana, at least financially?
After all if you subscribe to the thesis (not all would agree BTW) that the Regan buildup was decisive to the Soviet collapse - then the ability to fund large deficits for a defence buildup "guns and butter" relatively cost-free is just as important.
So my question now is... for the proponents of the "Pax Sinica" thesis, what is the trade/metric that we should be looking at? I'm trying to figure it out myself but am stuck...
Tough one - Pax Sinica is not likely in my view. China itself is an empire, and I am pretty sure the CCP are focused on just keeping that together...
That's true. But somewhere there's a trade to be made. What happens if China no-longer needs precautionary savings (reserves)? What's a good macro trade that hasn't already been discussed?
Russell, thanks for sharing your macro views. Very thought-provoking.
Well that took me back to my College days. I’ll just add that in terms of Pax Romana and Roman expansion, it was very much driven by the needs of its Veterans. Ex Military were promised lands post their campaigning years. The drive for expansion was a lagging need to satisfy Veterans (as well as greed). Makes me think what is the lagging need for Pax Americana. Right now it suits the US to run twin deficits to fund unsustainable healthcare and social welfare deltas (which ironically Veterans are a high number). If there is no Reserve currency who pays for those deltas?
Happy New Year
Longer term (2-5 years) I agree that with your Gold / TLT trade. However, over the next 12 months the massive move made by the Fed on rates,reduction of the Fed's balance sheet, and reduction of M2 seem to point to lower rates on the long end as the economy rapidly slows in reaction. Thoughts?