If you missed The Markets and Money this week, you’re in for a treat. In this weekend edition, I’ll summarise the week’s grand tour of the Asia-Pacific. I spent one day each week profiling Australia’s economic and strategic relationship with each of the nations on the Pacific ‘Rim of Fire’. That summary is below.
You’ll also get a quick tour of the nation on the other side of the Pacific, the United States. I’ll show you why America may not be a reliable military ally of Australia in the coming years. It comes down to political, economic and military factors.
I’ll finish with a three-part investment strategy you can adopt for a world at war. I’ve based this plan on the recommendations I’ve made over the last four years in my newsletter, The Denning Report. Here, I’ll share the general outline of the strategy. Even if you don’t agree or don’t take the advice, I hope it will give you something useful to think about. But first…
Recap of the Asia-Pacific strategic tour
The ‘rim of fire’ is a reference to the ring of volcanoes and fault lines around the edges of the Pacific Ocean. Geologists and seismologists have studied it for clues to predicting earthquakes and volcanic activity. This week, I studied it for clues to economic and military activity that might affect Australia and your investments in the future. Have a look at the map first.
It’s met with such a big response that I’m going to put the whole series in an e-book. That will make it easier for you to read and review, or to forward on to friends and family if you like. But for now, here is a bullet point summary of the findings:
- Indonesia: On Monday, we looked at the world’s fourth most populous country, the world’s third largest democracy, and the world’s largest Muslim country. Australia has had a stormy relationship with its neighbour to the north in recent years. The presidential election contest between Joko Widodo and Prabowo Subianto has been billed as a choice between a democratic future and authoritarian past. Political choices are seldom black and white. But in this stop on the tour, I looked at the danger of a radicalised, authoritarian Indonesia to Australia’s future.
- Japan: Japan’s cabinet has reinterpreted its 1947 Constitution to allow for the right of ‘collective self-defence’. This paves the way for the Japanese to export key technologies and defence systems — like the ‘Blue Dragon’ Soryu diesel-electric submarine — to allies like Australia. Prime Minister Shinzo Abe visited Australia to sign a free trade agreement and to welcome ‘normalised’ relations with Australia’s Tony Abbot.
- Russia: Further north on the ‘rim of fire,’ on day five, we finally came to Russia. It’s an energy superpower masquerading as a nation state, in the words of World War D presenter John Robb. Yet Russia has possession of a key weapons system that could make China’s territorial dominance of the East and South China seas a new ‘fact on the ground’. Australian trade routes are at risk, as is Australia’s status as the preferred LNG supplier to Korea and Japan.
If you have time, I recommend you go back and read each piece. But the big picture view all leads to the same conclusion: There is already a conflict over control of the Pacific Ocean and over the oil and gas resources of the East and South China Seas. That conflict is not an armed conflict yet. But it could be. And if it comes to that, Australia will have thrown in its lot with America. Is that a winning move?
The coming social anarchy in America
There was no ‘America’ stop on the ‘rim of fire’ tour. I ran out of time and space. Plus, I’m an American. My view is always going to be biased. But there’s no doubt America will play a critical role in the Pacific in coming years. It has a formidable military and is an ally of both Australia and Japan.
It is beyond the scope of the weekend edition to give America a full ‘rim of fire’ treatment. Also, I’ve addressed the issue in depth in my ‘Invasion A330 report’, published last week. Indeed, that whole report is about the reliability of America as an Australian ally in the next 50 years. If you haven’t watched it or read it yet, you can do so here.
The reaction to that report has been all over the shop so far. I’ve been dismissed as an amateurish kook. And I’ve been told it’s a trenchant commentary on what’s going on. At the very least, it’s provoked some thought about how your retirement might be affected by events in this part of the world. But let me address three additional points about America before I move on to the investment strategy.
1. Economic decline precedes military decline. The US still has military power. But the primary source of its power has always been economic. Today, the primary source of its economic power is that the US dollar is the world’s reserve currency. Yet day by day, more countries object to this. The US can print money to pay off its debts. This is what the French have called an ‘exorbitant privilege’. The anti-dollar alliance is coalescing around the BRICs nations. Financial warfare — the Currency Wars Jim Rickards has written about and spoke about at World War D — could be the death of the dollar and the birth of a new monetary standard, with gold playing a big part.
2. US military power is being challenged as never before. In recent weekly editions of my newsletter, The Denning Report, I’ve shown how the development of anti-ship ballistic missile by China could be the single-most important development in weapons since the creation of the first atomic bomb. Why? It changes the strategic balance of power by threatening the safety of US aircraft carrier battle groups. What’s more, the next generation of ASBMs, Hypersonic Glide Vehicles (HGVs), are the equivalent of a non-nuclear weapon of mass destruction. By developing them, China contains US military power as never before.
3. Political upheaval threatens American stability. While the American military is still capable, it’s also expensive. More importantly, the political will to deploy American soldiers, airmen, and Marines in overseas fights is exhausted after over a decade in Afghanistan and years in Iraq. Even more disturbingly, an immigration crisis on the American border with Mexico threatens to put armed militia directly in conflict with a highly militarised US police force. With mid-term elections in November and a Presidential election 2016, the American political climate could become dangerously radicalised.
Will all that lead to social anarchy in America? You have an economy that can’t recover or create jobs. You have Wall Street and Washington elite out of touch with ordinary Americans. And you have a rising China keen to press its advantage for more say in its own region and in global institutions.
How will Australia fare in this environment? We’ll find out. But the truth is, these events are largely beyond your control. You can’t do anything about public policy or geopolitics. But you do have control over one thing: your own financial strength. That brings me to the final part of this weekend edition.
A three-part battle plan for a world at war
I’ll keep this brief. All of this is extracted from what I’ve told readers of The Denning Report. But I didn’t want to spend a whole week writing about problems without offering a solution. So here, in short, is a three part investment solution for a more combative world.
Part one: Don’t lose money
You MUST take risk seriously and not take rising financial markets for granted. It’s vital to put some of your wealth in real assets.
I offer my readers simple ways to buy assets like gold, silver and platinum group metals. Why?
Because these should do well in a market correction or crash — and in either inflation or deflation.
This is the conservative side of The Denning Report portfolio.
The stock market is highly unstable, probably manipulated and definitely not where you want to have all the money you’ll need in retirement.
There’s a reason gold sits in bank vaults all over the world.
It is real, stored wealth. People tend to hoard what’s valuable and rid themselves of what decreases in value. This has been true for more than 5,000 years.
Part two: Future-proof investments
By relying more and more on foreign powers for our oil and energy supply, Australia is losing control of its future.
The underlying trend here is that energy is a national security resource.
That makes it a breeding ground for new technology and innovation.
A combination of real assets and technological development gives investors like us many opportunities to invest in quality companies riding this trend.
They’re ‘future-proof’ insofar as energy will ALWAYS be vital to our economy and security.
There are three Cooper Basin-based energy recommendations in The Denning Report portfolio. I’ve also recommended three world class oil and gas services companies, in addition to an African-based exploration and production play. Amidst the chaos, energy is one of the best opportunities.
Part three: Emerging trend punts
In 2004 a new type of investment emerged. There weren’t many to begin with. Today, there are almost 100 of them available to you. And they give you the most powerful way to put my ideas into action.
So what are they?
These investments allow you to make highly targeted speculations on specific sectors, countries, industries, assets, and, most importantly…TRENDS.
I have nine of these in The Denning Report portfolio right now.
One is a recommendation I made in May last year. It’s an Australian-listed fund that gives you targeted access to a European market that I predict will boom as central bankers take money printing even further.
They’ve just done just exactly that. The European Central Bank is taking interest rates BELOW zero. And this investment lets you profit from that trend.
The idea of your country losing control of its future is an uncomfortable one. It’s a possibility that few Aussie investors are ready to recognise.
Nevertheless, just like the US Dollar decline I called in 2001, this is an important investment idea that you CAN make money from if you prepare.
Like I said, the world is changing. About the only thing you can be sure of right now is that the next 20 years will not be like the past 20 years.
Russia, China and Japan are all flexing their military muscle like never before. Military tension is spilling over in Eastern Europe, the South China Sea and even the China-Vietnam border.
Australia’s main ally, the US, no longer has the status it once had. The financial markets are more unstable and manipulated than ever before in history. Australia is losing control of its future against this backdrop.
The most important investment you should make right now
I’m sure there will be plenty of people who watch my recent presentation and decide I’m crazy.
But whether a foreign power invaded Australia in the next 20 years is not the point.
The point is: Would you rather be prepared for such an event or not?
If Australia’s fuel supply was cut, would you rather be ready for the chaos that would wreak on our economy or not?
And the deeper point is that these questions…and their possible answers…present you with real investment opportunities.
That’s the whole point of my work — to anticipate what might happen next and match those predictions with simple investment ideas. This week I’ve shown you one of my latest predictions — that Australia is losing control of its future…and that this has investment consequences whether we want to accept it or not.
That’s the reason I do what I do. You deserve a fighting chance to prepare yourself with better information to save your money and your retirement.
I write and publish The Denning Report and The Daily Reckoning because investors like you deserve to be given an alternative explanation with alternative ideas on how to profit — something you’ll almost never get from the mainstream. Even if you don’t agree with it, I hope you’ve enjoyed it!
for The Markets and Money