Count on human nature. As much as things change, the one thing that you can count on, is that the people with the most to lose will do what’s in their best interest when push comes to shove.
This kicks in whenever the news gets bad and people start to worry about investments. Remember that the very, very wealthy – the people that really run the show, will do whatever they need to do (which is typically in their best interest) to handle the crisis.
Silicon Valley Bank
The most recent example of this is the meltdown of Silicon Valley Bank. The U.S. Federal Reserve would be quite within its right to let their FDIC bank insurance deal with things and just cover the $250,000 of insured deposits. But, there is so much at risk here (with many Billionaires and 50% of Silicon Valley startups having the majority of their accounts there), that it’s just not in anyone’s best interest to let it all slide. So, government regulators have effectively changed the rules on the fly and decided to bail out 100% of all deposits.
Note: I’m not saying that this is necessarily a bad thing. Rather, you can count on vested interests acting in their own interest, which is what should keep the whole system floating in times of dire trouble. Let’s look at some other examples.
The war in Ukraine is another great example. Western interests had put $45 billion dollars of energy infrastructure into the Ukraine over the last decade. Russia wanted that energy infrastructure and the new resources which were rapidly about to come online.
After all, these are durable industries. They endure recessions, depressions, global climate change, hunger, you name it. We’re always going to need more and more energy.
So the people at the heads of both energy industries, with their ties to government and the military-industrial complex, would risk a war – even perhaps even a nuclear one, to make sure that they can continue to do what they do best. They are willing to risk destroying their own country, and the Ukraine, because of it.
Note: This is not a judgment of right or wrong, or one that dismisses or trivializes the horrors of what’s going on over there. It’s a comment on human nature. There’s just no way that people in business, whether they be Russian or Western, are going to easily give up their interests, no matter what.
One could make the same case for big Pharma. Never let an opportunity go to waste.
They rushed through unproven vaccines. They even went to the extent of working with governments to mandate those vaccines through moves such as curtailing work privileges and travel – all under the guise of the best interest of the population.
Please note, I’m NOT saying that the vaccines have not been a success for many (despite the well-documented dire consequences for some). Rather, that there was no question that people in that industry were going to get involved. They were sure to take the initiative, and the profit, while the need (and opportunity) existed.
This is something that you can count on. In times of turmoil, we don’t abandon our culture, we double down on it. Risk be damned.
Consider the Climate
Want another example? Regardless of what you believe about climate change, there’s no question that there is massive disruption going on ecologically around the globe. While the climate has always been, and will always be changing, the gravity of such changes today represents existential threats to the world’s industries, countries and their populations.
Accordingly, you can expect broad strokes and measures to yet again be recommended and then largely dictated to the populace.
Today, that takes the form of the popularization of electric vehicles, solar panels etc, which as we progress with the dramatic changes we are seeing, you can expect to be increasingly foisted upon the taxpaying public once again under the guise of their best interest.
New Zealand recently instigated the “burp tax.” I kid you not. The government there is literally taxing farmers for the number of cows belching methane.
The money raised will no doubt go into general public spending as opposed to being earmarked for specific hail-mary ecological initiatives. But doing so allows governments to act, definitively moving forward with new initiatives. The tax also justifies ever-increasing government debt in an attempt to save the day – and there’s lots to be saved.
The Crisis and Opportunity
What about sea rise? A couple of years back, scientists announced that the massive Thwaites ice shield in Greenland is now sinking into the ocean. It may cause sea level rise of up to 10 feet.
If true, this has massive global ramifications for coastal areas. But remember, it also has massive ramifications for government spending on things like seawalls – and thus the profitability of the companies that will build them around major centers, investment in alternative energy and others.
Or consider desertification, or in other words, the drying up of natural water sources around the world. Major changes in rainfall are causing havoc with crops dramatic shortages of water in parts of the world and massive floods.
While it’s inevitable that this will cause massive hardship on humankind over the course of the next 50 years. It’s also certain that this will drive investment into new technologies, such as large-scale desalination plants which already supply much of the drinking water to many, industrialized countries.
Herein Lies the Opportunity
And that’s what gives me eternal optimism about our future, regardless of what happens to us individually. It’s not that there is going to be a perfect future by any means. The world has lots and lots of problems. But the more trouble there is in the world, the more you can expect the entrenched industry to act decisively with broad if not huge strokes to take advantage of it. That action represents risk, and profit ultimately comes from risk being acted upon.
This observation seems lost on the majority of us. When people look at the headlines, they have a feeling of looking at things like the end of the world is nigh.
We look at things differently. You can bet on the fact that people in power will inevitably stick to their knitting when it comes to doing what they’ve pretty much always done – forging new product and industry along the way to maintain and grow their profits in times of trouble.
So given that we are hurtling towards our future at an ever-increasing speed, what we can expect? Greater turmoil. As technology and communications further pervade our existence, we can only expect more and more disruption, and with it opportunity.
Change used to unfurl itself over decades, not years, let alone months. But technology (and particularly the internet) is rapidly changing the pace at which we move.
This will create even greater disruption than we’ve seen in the past. And despite the carnage, it will bring even more opportunities for those holding the right assets.
I’m not just talking about the pharma industries and munitions industries which are seeing all-time record profits. This extends to most industries over the long term.
Inevitably, there will be winners and losers. Finding those winners and losers, or perhaps I should say finding the winners and ideally avoiding the losers, are the jobs of your portfolio managers – not yours. They have world-class resources to think through what is likely to happen, and determine who will benefit, far in excess of you and I.
And while short-term traders will inevitably, try to beat the market by jumping in and out, history has shown that staying invested has historically been the best way to earn solid returns.
We Shall Overcome
The reality is that mankind, shall overcome as we always have. Despite the pain, hardship and devastating loss to many that is associated with change, mankind’s nature has always been to overcome and we shall not fail.
You can count on humankind, not necessarily because of our altruism, but rather because of our human nature.