Strongmen and a Stimulus Which Likely Won’t Work: Investments and Mindset
I called a family member in Boston and shared my thoughts on two topics I am deeply concerned about — i. ramping geopolitical tensions which are going unnoticed against the backdrop of the pandemic and ii. my view that any economic stimulus during a prolonged, multinational quarantine is doomed to fail. I told him what I would do if I were in his shoes: a retiree worried about the prospect of losing his savings. Later, our conversation turned to some strategies which might be helpful for folks of every walk of life to consider. I hope this can help.
A Showdown of Strongmen
Over the past 48 hours, Iran declared it has and will respond to the US killing of Major-General Qassem Soleimani, characterizing it as a terrorist attack. Should Iran retaliate, it could incite bitter regional rival and US ally Saudi Arabia to intervene in the US’s place; Congress voted to limit Trump’s ability to fight Iran last week. Saudi Arabia likely wouldn’t need a lot of goading, having already been rumored to be at the brink of war with Iran last year. Russia, an Iranian partner, would have no qualms mobilizing decisively against Saudi Arabia, with which they just entered a bet-the-economy oil price war. The cherry on top: China would welcome, at a minimum, an economic fight vs a NATO roiling from the aftermath of COVID-19.
Saudi Arabia’s back is against the wall in many respects right now. The world has come down hard against the murder of Jamal Khashoggi. Saudi Arabia’s ability to move forward on the global stage is staked on winning the oil price war with Russia. As the most volatile character in the cast, Saudi Arabia might take the first step to ignite a firestorm, either intentionally or unintentionally.
Stimulate What?
My hunch is things could quickly start to unravel should it become apparent the populous is opting not to transact as much as the current system demands due to supply chain issues, affordability, and lack of desire for goods and services. Unlike with previous economic crises, we’re attempting to stimulate an economy on lock-down. A multinational quarantine is like lighting a match in a room with a gas leak. There is a chance the whole house will go up in flames.
No stimulus package can change the mood of consumers who can’t or don’t want to transact. The central banks which administer fiat currencies, which have no intrinsic value, would need to consider a kind of reset of expectations and, perhaps, obligations to one another. Currency stability challenges would make debt in the system seemingly insurmountable.
What to Do?
If you are blessed enough to have savings — most of us do not — consider creating a basket of positions which will hedge against the downside of a global reset as much as possible while catching any upside, should things not be as catastrophic as they seem.
Think in terms of futures contracts for wheat, everyone will still need to buy bread; precious medals and perhaps cryptocurrency; and tie any equity investments to sectors of the economy which should function no matter what. Consider blue chips like Home Depot and Walmart.
If you are like most of us, without savings, change your mindset to one which served your grandparents and great-parents well during the Great Depression. Take a minimalist and conversationalist approach. Can you plant vegetables inside or outside of your apartment? Can you make laundry determinant and toiletries last longer?
Theologians might say we are living in Biblical times, and the world is due for judgment and a sort of re-set. Political scientists could hypothesize our global systems are reaching a point of failure and a hard reboot is needed. Economists, historians, and philosophers might share similar end-of-cycle views. In any case, it seems, as always, two productive things we can do are turn to unconditional love and use ours gifts to serve one another.
God Bless.
