When You Can’t Trust Anyone
Who Can You Trust?
It’s a battleground out there. Lines have been drawn in the sand, part of the country on one side and the rest on the other. And everyone is calling everyone else a liar.
So, if everyone has an incentive to have you believe their version of the truth, and everyone who thinks differently is a liar, doesn’t that mean everyone is lying out there?
And if everyone’s a liar, who can you trust? Seriously, when you’re told day in and day out that this politician is lying or this newscaster is a fraud or that scientist made up his results, and by the end of the week, everyone who’s spoken publicly has been accused of lying…
When you’re told you can’t trust anyone, who can you trust?
You Can Trust Me
I’d like to think you can trust me. I’ve got no incentive to lie to you. You’re not paying me for these thoughts. And my company has a rule about how we can invest in stocks we write about, so I couldn’t even use you to pump my profits if I wanted to.
But I’ve been wrong the past two months. I said that we were in a bear trap and that we’re destined to see the stock market rally that started in March do an about face and send shares back down to retest lows.
I said just wait for that 50% retracement of the March crash. I advised you to sell into the strength to get some cash together for when the next shoe drops and the markets fall again.
But we’ve now recovered about 72% of the ground lost in the S&P 500 index. That’s a lot more than a 50% retracement.
So, yeah, you can trust me. But I may be wrong again. Still, at least I’m not wrong and a liar.
You Get What You Pay For
As my colleague, Christian DeHaemer, at our sister site, Energy and Capital, likes to say, you’re getting this for free and you get what you pay for. And today, you’re going to get a little mishmash in your free newsletter.
As I said, you can trust me. And I still think there’s more downside to come before we’re truly out of this mess. But I’ve been wrong about the short term for the past two months. So, I’m not going to ask you to believe those forecasts.
Instead, I’m going to go back to the area where I really excel and I’ve got mounds of proof that I know what I’m talking about — long-term macroeconomic stuff. What’s the big picture, and where is it going to have us 10 years from now?
Big Is Relative
But that’s a little more complicated than it might sound. What’s the big picture? And how big a picture are we looking at? Just the U.S.? Globally? Developed countries? Just stocks? Resources, too?
Well, there’s a lot of stuff in the big picture, so I’m going to try and give a little time to all of it.
First off, I’m talking about the world, not just our country. But what happens in the rest of the world will be amplified in the biggest economy in it. And it’ll affect American stocks likely more than others as our exchanges are the safest to trade on.
So, let’s talk global changes coming in the next decade.
Buy Local, Think Global
A major change coming for the whole world has to do with shifting supply chains. U.S. companies had already started moving supply lines out of China before the coronavirus struck. And there’s bound to be some backlash regarding the Chinese Communist Party’s initial handling of the virus outbreak.
But the changes we’re about to see will be far bigger than just punishing China for getting the world sick.
You see, even as China came back online after its initial lockdowns, global supply lines were (and are) still kinked and tangled like last year’s Christmas lights. And that’s making it very difficult for companies to fulfill their orders.
So, that’s going to be a big move that plays out over the next decade. Companies will stop sourcing supplies far away from production lines and sales channels.
Steel used in Europe will come from Europe and not China. Electronics sold in the U.S. will come from Mexico instead of Taiwan.
Manufacturing operations may not all come back home to the U.S. But they’re going to get a lot closer.
And companies that can help make American workers be more efficient are going to have a field-day when U.S. workers are competing with Mexican workers and not the Chinese anymore.
Inflation Will Come
It seems that most of the folks talking about inflation think the only way it comes is via a printing press in the Federal Reserve’s back office — i.e. increasing demand. But the other side of the equation — supply — can cause inflation spikes, too. And that seems to be getting ignored right now.
Shortages cause inflation. Real wealth is being destroyed as I type. I’m not talking about market capitalization. And I don’t mean the losses that showed up in your stock portfolio back in March.
I’m talking about real wealth actively being destroyed. Farmers are culling herds (that means slaughtering cattle and other livestock). Dairies are pouring milk down the drain. And farmers are ploughing their ripe vegetables back into the ground.
That will lead to shortages in the coming years. You can’t just create a new cow, chicken, or pig out of thin air. And you’ve got to raise them for a while before they can be sold to be turned into food.
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The farmers ploughing their crops under paid for those plants with the understanding that they’d be able to sell them for more down the road. Now, they’re looking at loans they’ve still got to pay back for crops they just destroyed because they can’t get them to market.
Some of them will plant again next season. But many won’t. And we won’t even have the supply to meet current demand, let alone increased demand when the world wakes back up.
Mr. DeHaemer pointed out to me earlier this week that freezers are on backorder for months (unless you’re willing to pay double the MSRP or more to get one now). It could be that others are seeing the same signs I’m telling you about and stocking up for a winter that could last years.
Raw Materials Make a Comeback
The past decade has been pretty rough for coal companies. It’s a dirty fuel and has been labeled a main culprit for causing global climates to change.
It’s gotten so bad that Arch Coal recently rebranded itself to cut the word “coal” out of its name. One of the biggest coal producers in the world can’t mention coal or it’ll get blasted for being a villain.
But we need coal (and other raw materials) to build and maintain our global society. You can’t make steel without coal-fired furnaces. And much of the world still can’t afford alternative sources of energy.
Plus, the history of energy-generating fuels shows that as new fuels become available, demand for old fuels still rises.
In fact, as a species, we burn more wood for fuel today than we ever did before the advent of coal. And we burn more coal to generate electricity than we did before oil was discovered.
If history serves as any kind of guide, we’ll burn more oil and natural gas for fuel as developed countries transition to more renewable sources like solar and wind. New fuels are for rich countries. Old fuels are for everyone else.
We’ll also wake up to the fact that we need other raw materials to keep society running and growing. We’ll need copper to connect communications. We’ll need lithium to power electronic devices. We’ll need iron ore to turn into steel in those coal-powered blast furnaces if we want to repair existing infrastructure and build new.
The Fourth Industrial Revolution
And finally, the fourth iteration of the Industrial Revolution will play out right in front of us.
Between 1760 and 1850, the first industrial revolution brought about mechanization through steam power and things like power looms for making fabric. Then, between 1870 and 1914, electrification led to assembly lines and mass production in the second iteration.
And between 1969 and 2010, we watched as the third industrial revolution brought about digitalization, automation, and advances in communication.
Today, we sit at the cusp of the fourth Industrial Revolution. That’s going to further the changes brought about by the first iterations, like automation through robotics and continued exponential growth in processing power.
But it will also introduce us to concepts that have seemed like science fiction until now, things like true artificial intelligence and hyper-connectivity.
Machines will match or outperform humans at tasks previously considered too complex for a computer. Wearable and implantable technology and advances in genetics could lead to advanced human capabilities.
We’ll see major advances in robotics, smart buildings and cities, autonomous vehicles, virtual reality, space exploration, and 3D printing. Companies will be working toward more sustainable operations — especially in developing new ways to feed the planet.
We’ll keep working toward clean energy in the developed world. And we’ll need a ton more cybersecurity to keep an eye on all the data and connections needed to run a digital world.
Failure to Evolve
But right now, it’s going to be extra difficult to pick the winners and losers. And that’s because some of the winners might not even exist as public companies yet. And some of the companies around today will fail to adapt to the new normal.
History is not kind to the incumbent when change is afoot. And we’re still in the early days of this massive revolution.
Microsoft has shown its ability to adapt and evolve with the times (mostly thanks to its new CEO). But that could change. IBM used to be a top company, but it failed to adapt to the changes brought about by the third Industrial Revolution. Microsoft could suffer the same fate if it follows the same path.
Then you’ve got companies like Amazon and Netflix. They didn’t come about until the end of the third Industrial Revolution. In 1969, nobody would have even guessed we’d be doing all our shopping from home and watching TV on our personal computers and smartphones.
So, my partner, Brit Ryle, and I have started compiling a list of the companies we see leading the charge into and through this fourth Industrial Revolution. Some are small public firms with only a few years of operation behind them. A handful aren’t even public yet but are destined to become darlings once they list on the exchanges. They’re focused on different industries, but they all share one common thread: They’ve got a product that will help their customers adapt and excel in the new normal the next few decades will create.
We’re still doing all our due diligence. As I said, we’re in the early stages of this shift. And it’s very tough to pick the winners and losers when some of the winners haven’t even been created yet.
But we’ve committed to getting the research done and to you ASAP. So, we’re going to be releasing them in several waves as we complete our due diligence. The first wave will be ready for release soon.
And we’re going to make sure you, our loyal Wealth Daily readers have first access. So, keep your eyes out for emails from Brit and myself announcing the release in the coming weeks.
That’s it from me for today. You’ve got my take on the state of trust in the world, where I see us heading in the next few years (since I’ve obviously got no idea where we’re heading tomorrow), and a head start on the trend we’ll be profiting from for another 40 to 50 years.
To your wealth,
After graduating Cum Laude in finance and economics, Jason designed and analyzed complex projects for the U.S. Army. He made the jump to the private sector as an investment banking analyst at Morgan Stanley, where he eventually led his own team responsible for billions of dollars in daily trading. Jason left Wall Street to found his own investment office and now shares the strategies he used and the network he built with you. Jason is the founder of Main Street Ventures, a pre-IPO investment newsletter, and co-authors The Wealth Advisory income stock newsletter. He also contributes regularly to Wealth Daily. To learn more about Jason, click here.
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