WW3 is just the beginning | feat. Peter Zeihan | Global Macro #12
What this covers
In this episode, Niels and Cem are joined by Peter Zeihan, author and Geopolitical strategist, to discuss the New World Order and World War III, how the Globalization has become a new battleground rather than a barrier to conflict, the role of technology in modern warfare, how the US were able to read Putin's emails and the impact of war on a national and global scale, the military and political power of China, America and Russia and the relationship between them and the rest of the world, how democracy is affected by the “age of emergency”, the financial aspects of war and crises, crypto as a potential economic asset and much more.
#toptraders #investing #trendfollowing #globalmacro
Episode Summary 00:00 - Intro 04:15 - How we got to the brink of WW3? 09:42 - The role of technology 18:32 - The relationship with China 28:25 - Submarines and the war in Ukraine 40:38 - Age of Emergency and the threat to Democracy 47:58 - Autocracy and technology 54:34 - The financial perspective 59:39 - The role of Crypto 01:02:39 - Climate change 01:06:56 - Trading advices 01:10:42 - The role and future of Governments 01:17:11 - Thanks for listening
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Peter Zeihan: https://twitter.com/peterzeihan (@peterzeihan) Cem Karsan: https://twitter.com/jam_croissant (@jam_croissant)
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Zeihan argues that deglobalization driven by demographic collapse, energy/food insecurity, and geopolitical conflict is inevitable this decade, ending the post-WWII American-led order and requiring nations to rebuild self-sufficient regional systems with dramatically constrained resources and capital.
- Demographic transition from population growth to decline eliminates the consumer base and capital pool that sustained globalization
- Ukraine war and supply chain fragmentation prove the system cannot be repaired; countries must plan for complete decoupling
- The US alone has the geography, energy, agriculture, and demography to navigate this transition; most of the world faces state collapse
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The demographic transition from high birth rates in agricultural societies to low birth rates in urbanized societies has spread globally, and birth rates have dropped to levels that never existed in pre-war history, with all these issues coming to a head this decade.
“when you live on the farm you have a lot of kids but when you live in a city they're an expense rather than a benefit and so you have fewer of them and bit by bit this system spread around the world until with the fall of the cold war it went everywhere and so we have seen urbanization and industrialization happen on a scale that we never thought was possible and we've seen birth rates drop to a rate that never existed before”
Climate prediction at the urban scale is not possible; we can predict general trends (warmer regions get even warmer, more rainfall in some places) but we cannot predict what happens on a specific square kilometer, so planners should expect change but not try to predict specific outcomes like Portland's 2021 heat wave.
“if you want to say what that means for a specific town now you're going off the reservation we do not have data for that the best example i can point to is here in the united states in the summer of 2021 uh the city of portland which is normally rainy overcast and cool got hotter for a two-week period than las vegas has ever been no one predicted that”
China imports 85 percent of their energy, and 85 percent of that comes from the Persian Gulf, so in a real war, if someone cuts the energy line (by positioning destroyers in the Indian Ocean), China would literally de-industrialize in 3-6 months and face mass famine in 6-12 months that would kill 500 million people.
“the united states hasn't been the world's top energy importer for a long time it's been china china imports 85 percent of their energy and 85 percent of that comes from the persian gulf so in a real war that stops and china literally de-industrializes in a matter of months the trucks stop running probably in less than in three to six months and you'll have mass famine in six to twelve that'll kill 500 million people”
Clashes of economic models, especially in their infancy, have historically led to conflicts (Cold War, German wars); we now get to experience a clash of models during simultaneous energy, food, and financial crises in hyperdrive version of the 1930s-1960s period, and we won't get it right on the first try.
“my biggest concern moving forward is that every time we've had a clash of economic models especially when they've been in their infancy and just being developed we have had conflicts uh the cold war the german wars at their heart economic theory was there well we now get to do that on a global basis during an energy crisis and a food crisis and a financial crisis and we're not going to get it right on the first try”
The United States changed the post-WWII world system from imperial blocs (Dutch, German, Russian, Japanese) that avoided trade to a free-trade system secured by American naval power, where countries that aligned with the US against the Soviets gained access to any supply chain and raw materials.
“the americans changed that system to what we now know as free trade so the americans committed their navy which was really the only one of size to survive the war so that anyone could go anywhere and interface with any partner and participate in any supply chain or access any raw material if in exchange they lined up with the united states to fight the soviets in the cold war”
The Russian navy has fundamental constraints: split into four fleets (Pacific, Baltic, Black Sea, Arctic) with limited ability to coordinate, and the first three exit points are easily monitored (Bosphorus, Danish Straits, North Atlantic buoy line); only the Pacific fleet has a theoretical hiding place (underwater trench) but the US has tracked it for 60 years.
“the russian fleet is split into four there's a pacific fleet a baltic fleet a uh black sea fleet and an arctic fleet so it's not like these are all in one place that they can sail together and do a giant armored punch and it's very easy to monitor everything that is coming out of the black sea because it has to go through the bosphorus everything that comes out of the baltic because it has to go through the danish straits”
China's demographics are already more terminal than Germany's, Russia's, or Korea's; the Chinese population actually peaked in 2003 and has been overcounted by perhaps 100 million people since the one-child policy, most of whom would have been women.
“the most recent data we've got out of that the chinese suggests that their population actually peaked back in 2003 and that they've been over counting their population by perhaps as many as 100 million all who would have been born since the one child policy and most of whom are probably women so the chinese demography is actually more terminal already than the german or the russian or the the korean demography”
Every currency system backed by metal has ultimately failed by its own success because successful currency attracts users who need more supply, forcing expansion and war, until the system collapses; fiat currency backed by trust is the only thing that might work in a deglobalized world, making the US dollar the only globally-traded currency of size.
“every currency system that has ever been backed by a metal throughout history has ultimately failed by its success because if you have a successful currency system that people trust people want to use it they want to use it for a medium of trade they want to use it as a store of value and if they do that eventually so many people will be piling into your currency that you're going to need more metal to support it and so you're going to have to expand physically to get the metal go to war to get the metal and so everyone who's ever done that has eventually expanded past the point that their system collapsed”
Food insecurity is the biggest concern; globalization allowed specialization so avocados grow in North Carolina and corn in Iowa/California/Florida, but deglobalization will force each country to feed itself with less specialization, reducing total global calories produced by more than half.
“the thing that worries me the most is food um over the last 70 years globalization has allowed every agricultural producer to specialize in whatever grows best in their climate so we now have avocados in north carolina and we now have corn in iowa and florida and i'm sorry california and florida are big into orcharding for example if you break down the global system people are going to be more responsible for their own food production and that means a lot less specialization and bringing wheat back to the core of the production system”
If China captured Taiwan and TSMC, they could not operate TSMC because if they had the technological capability to do so, they would have already done it; TSMC's designs are done in the US or Japan, so the Americans and Japanese would have to become complicit in an invasion for it to be strategically meaningful.
“if the chinese were to capture taiwan tomorrow without a shot being fired they could not operate tsmc uh if they could do something of that technological level they would have done it years ago already”
Europe will have to become neocolonial—forcing former colonies in Africa to redirect their oil flows to Europe—to survive the loss of 4-5 million barrels a day of Russian crude within months; this contradicts liberal multi-party democracy which Europe now has to choose between preserving.
“in europe uh i mean you're gonna lose four to five million barrels a day of crude from the russians within a couple of months the only way you keep the lights on in europe is to go and re-interface with the former colonies in africa and forced them to redirect their flows to europe to survive in the world that we are to europe has to become neocolonial how is that compatible with now what we understand is liberal multi-party democracy”
Americans have elected an anti-globalist seven times in a row, and the advanced world no longer has sufficient young people to regenerate demographic structures; all are moving into mass retirement with top-heavy demography that has generated capital for the last 10 years as baby boomers saved, but now that generation is moving into retirement, so this decade will see an investment bust, production bust, and consumption bust simultaneously.
“the americans have lost interest in maintaining the system they've elected an anti-globalist seven times in a row and now in the advanced world there are no longer sufficient young people to even pretend to regenerate the demographic structures moving forward and they're all moving into mass retirement and so this decade was always going to be the time we hit an investment bust a production bust and a consumption bust”
In times of stress, the state tends to strengthen; in times of war, the state tends to weaken because it needs wider support; we're facing simultaneous supply chain, transport, energy, and agricultural breakdowns that would normally generate weak states, so we'll see state dissolution in more places than we have in the last 75 years.
“usually in times of stress the state tends to strengthen and usually in times of war the state tends to weaken because it needs to throw a wider net for support so there are patterns in play that i'm you know not exactly comfortable with but when i look forward i look to the crystal ball and i see simultaneous supply chain breakdowns in manufacturing transport breakdowns that make extra regional trade almost impossible energy breakdowns that force countries to stop using oil and natural gas”
Ukraine has been preparing for war with China for 75 years, is a wealthy country, and faces the advantage of a non-flat ocean border with China, meaning any invasion would face much higher casualties and difficulty than the Russian invasion of Ukraine—making the Taiwan template dramatically harder to execute.
“ukraine while they're massively overperforming has really only been preparing for this war for eight years and did not have a lot of financial resources to do so taiwan has been preparing for war with china for 75 years and they are a wealthy country and there is not a flat land border between china and taiwan it's an ocean so there's always going to be a much higher level of casualties and a much level higher level of difficulty”
In Egypt during the Arab Spring, the military allowed internet and cell service when they wanted to enable the rebellion, but later shut down all communication (only two internet cable entry points, all cell towers disabled) to easily overthrow the government within a year. Russians studied this and installed kill switches on all four cables coming into Russia and implemented a 'poor man's version' of Chinese control.
“when the when the arab spring hit egypt there was a rebellion against the mubarak government that the military approved of and so they allowed all the technological means of communication to continue two years later when it was the military who didn't like the government they shut it off there were only two places where internet cables come into the country they cut them both they disabled the cell towers and they were able to easily overthrow the government within a year the russians were in egypt to study what the generals did and they went back home and they put kill switches on all the cables that come into russia there's only four of them and have done kind of a poor man's version of what the chinese have done within russia”
Monetary policy has driven the world economy for the last 40 years (particularly the last 20-30 years), but we now see a shift to fiscal policy, which is what originally triggered inflation after COVID. Rising government intervention is likely to continue as populism grows globally.
“obviously monetary policy has driven the world economy for the last 40 years really uh particularly the last 20 to 30. um and we've seen a shift to fiscal um that has was what originally kicked off the inflation here after coven”
Agriculture faces greatest danger in arid regions where most wheat is grown; crops are temperature-hardy up to +10 degrees Celsius if they have sufficient water, but water is the limiting factor in humanity's number-one crop production.
“you can raise the temperature up to 10 degrees and they'll still be there assuming they get enough water and so i'm most concerned about the more arid parts of the world which is where most of our wheat is grown”
Labor costs in China have increased by a factor of 15 since 1999, but productivity has only doubled, so technology has not managed to shift the demographic pattern in China's favor.
“we've seen labor costs in china go up by about about a factor of 15 since 1999 but productivity's only doubled so technology has not gotten its hooks into china to the degree that it's been able to shift the pattern at all”
Financial professionals and investment strategies that worked in the era of bottomless capital will fail: high-frequency trading, broad index funds, ETFs, and passive strategies don't work when capital is scarce and expensive; individual capital allocation and active due diligence become necessary.
“the period of bottomless supplies of capital are ending and that means capital is going to become harder to get and that means we're probably going to have a lot fewer financial professionals and they're going to have to prove that they offer a add because high frequency trading doesn't work broad index funds don't work etfs don't work in this environment if there's less money available and there's more people who need it the cost of that capital will rise”
China must pass through the first island chain to project power, and any passage point is visually and sonar-monitored, making Chinese naval projection into Pacific vulnerable to US and allied interdiction.
“china has to get through the first island chain and so no matter where the chinese sail they have to go through a strait that's monitored uh visually and with sonar so i don't mean to suggest that there's no military threat there at all but it's a very manageable one”
Russia's strategy in Ukraine is not to conquer territory but to plug the invasion corridors through the mountains that lead into Romania and Poland; they're destroying civilian infrastructure to split the population into refugees (who leave) and fighters (who can be shot on sight), which is a repeatable strategy they're applying to each Ukrainian city.
“the russians are trying to plug the gaps in the mountains and between the mountains and the seas that have always been the invasion corridors and there's two of those corridors on the other side of ukraine one that goes southwest into romania and one that goes uh northwest into poland that's what they're ultimately after here”
The euro will probably fail economically, but it's not just an economic project—it's a political project to prevent Europe from reverting to its pre-1945 pattern of internal wars; whether the euro survives depends on whether Europeans can maintain that political commitment to prevent nationalism.
“from an economic point of view it doesn't work especially if we're moving into a world where europe is one of the most advanced aging societies ever and just doesn't have consumers but the euro is not just an economic project it's also a political project and if there is any any any hope for europe to not fall back into their pre-1945 habits the euro has to be a centerpiece of that now in the end do i think that will fail yeah”
China is not interested in negotiating; the Russian government and people see control of gateways into Europe as an existential threat and know their demographic decline makes this their last chance—if they don't take these positions now, they won't be able to in future wars and will be completely vulnerable.
“the russians the government and the people see getting control of those gateways as an existential threat and they know because of their advanced uh decrepitude and their demographic structure that this is their last chance if they don't do it now they it won't happen and then the next time there's a real war the russians will be unmoored in the eurasian hordelands”
Gold is preferable to cryptocurrency as a store of value and medium of exchange because it has all the negatives of crypto plus one crucial difference: gold actually exists as a physical thing and has industrial uses, giving it a permanent base value that cryptocurrency lacks.
“i don't see it serving a need i don't see it having a use it's definitely not a store of value or a medium of exchange now does that mean that there is something out there that could serve all those roles well yeah we call it gold limited in supply but i mean it has all the negatives of crypto with one exception it actually exists it's a physical thing uh and because it has industrial uses it will always have a base value whereas crypto's net value especially if we move into a world where we hope to regulate carbon at all crypt bitcoin anyway it's its net value is negative”
Keeping the war in Ukraine is the best way for the US to manage the risk of nuclear escalation, because fighting Russia in Ukraine avoids direct US-Russia military conflict, while allowing the US to degrade Russia's military capacity and prevent Russian expansion into NATO.
“keeping the war in ukraine is the best way the u.s has right now to manage that risk i don't mean to suggest it's perfect”
The Chinese navy has more ships than the US Navy but most are very small and 90% can only sail 1,000 miles from the coast assuming straight-line sailing at slow speed with no one shooting, making them incapable of force projection beyond Vietnam.
“the chinese navy while they do have more ships than the u.s navy most of them are very very small and 90 percent of them can only sail a thousand miles from the coast assuming they're sailing in a straight line moving slowly to conserve fuel and no one is shooting at them so they can't even make it uh past vietnam in force”
Peter Zeihan is redirecting all book sales proceeds until June 1 to the AFYA Foundation, which provides medical assistance to Ukrainian refugees, with over 6 million already displaced and another 6-7 million internally displaced, making current refugee flows three times the largest in history.
“there's a group called the afia foundation afya uh they provide medical assistance to the ukrainian refugee community there's already over six million of them in europe and there's another six to seven million displaced in ukraine and because of russia's obliteration strategy they're going to become refugees in the next month or two so we're already three times past the largest refugee flows in history”
The United States produces 55 percent of the world's semiconductors by value (found in cellphones, servers, laptops), while Taiwan and Korea are the next tier, Japan is with the US, mid-tier (aerospace, cars) comes from Thailand and Malaysia, and low-end (smart devices) comes from China.
“the united states actually product produces 55 percent of the world semiconductors by value so if it's going into a cell phone or a server farm or a laptop it probably comes from the us the next tier down is where the taiwanese and the koreans are the japanese are probably up with the united states and then the mid tier which is for like aerospace and cars that's primarily thailand and malaysia”
China's system is stable until it's not; as long as basic needs are met, it works, but there's no risk of popular uprising until those needs fail; now with endless COVID lockdowns, food insecurity from African swine fever in pork herds, and energy issues, the math may be changing because life will no longer be stable for average Chinese citizens.
“when you look at a situation like china that system is stable until it's not as long as certain basic needs as the chinese define them are met it works there's no risk of rebellion in china until those needs are no longer being met so until now i really didn't have a lot of hope for any sort of popular uprising the math may be changing now we now have an endless covalent lockdown”
American defense planners initially got excited seeing the Russian 40-mile convoy from Belarus fail due to lack of fuel trucks, thinking the Russians weren't tough; but then they realized the real threat: if Russia isn't checked in Ukraine, they'll move into multiple NATO countries, forcing a direct US-Russia conflict that Russia will lose militarily, leaving them to choose between strategic retreat or nuclear escalation.
“we know that the russians intention is not to stop in ukraine and is to go into multiple nato countries we know that that fight between american and russian forces is destined to happen and we now know how it will end the russians will be obliterated and they'll be faced with a simple choice a strategic retreat across the entire line of contact all the way back to russia maybe even further or escalate to involve nukes”
The entire economic model of the world—whether fascism, communism, socialism, or capitalism—is based on the assumption that the pie is stable or growing, usually due to population growth; now the pie will get smaller due to population collapse while breaking into pieces simultaneously.
“remember the entire economic model that the world is based on whether it's fascism or communism or socialism or capitalism it's all based on the concept that the pie is either stable or getting bigger usually because of population growth well now it's going to get smaller because of population collapse”
In countries with healthy demography (like the US), labor will have a leg up in society, generating economic democracy that strengthens democratic systems even if political democracy is impaired; the US has seen greater wage appreciation for lower-income tiers in the last two years than in the prior 20 years.
“assuming you've got that we're moving into a period where the younger generation is smaller than it's ever been uh that would suggest that labor is actually going to have a leg up in those societies we're certainly seeing that in the united states it may not be the political democracy that we always have said that we're after but there is a degree of economic democracy that i think strengthens any sort of democratic system so that is definitely happening here we have seen greater wage appreciation in the last two years in the united states than we have in the last 20”
85% of the Russian population would still support the government's war aims even if freed from propaganda, with only about 500,000 people (those who fled) actively opposing the narrative, demonstrating that information control reflects existing public preferences rather than creating them.
“now they're also at war now but i would argue 85 percent of the russian population even if they were freed from the propaganda would still support the russian government's war aims and the people that refuse are the people who left and that's probably a half a million people by now but that's all of them”
The US has been able to read Putin's emails and phone records of his inner circle and military planning, which is why the Biden administration could publicize invasion plans beforehand; the NSC even published Russian emails complaining about the NSC reading their emails.
“the united states has been able to somehow through some excellent work basically read putin's email and the emails and the phone records of everyone in the inner circle and everyone in military planning and so when we got beginning within a couple of weeks of the invasion the bite administration just started dropping this out there”
Bill Gates is the largest single individual landowner in US farmland, but foreign ownership is minimal (Canada owns 2%, all others combined less than 3%), so there's no concentrated land control risk; US farmland ownership is broken into tiny bits.
“i wouldn't read too much and it's not like he's got fifty percent the total or five percent of the total or half of one percent of the total or half of one thousandth of one percent of the total uh you you don't have to own a large chunk of land in the united states to be the single largest owner because there's a lot of land right uh also our single biggest foreign i'm sorry not the biggest um single investor uh the country that owns the most american farmland is canada and it's about two percent of the total”
Crypto has zero potential because it requires regular interfaces with the real economy, liquidity in exchanges (neither of which exist at meaningful scale), and cannot function as a currency because no one controls the money supply; it has all the negatives of gold with none of the positives (no industrial use, negative environmental impact from mining energy).
“crypto can only work if it has regular interfaces with the real economy and it's liquid in an exchange and it's neither of those things also it can't be a currency per se because no one's in control of the money supply uh bitcoin's probably the worst example of what might theoretically work”
The European Central Bank has shown willingness to manipulate the euro's value to achieve policy goals by 10-20% at a time, while the US Federal Reserve never does this, demonstrating different approaches to currency management and less trustworthiness in the ECB.
“the europeans have shown on multiple occasions they're willing to manipulate the value of the dollar in order to achieve certain program goals which is something the united states honestly has never done i mean we've got qe1 and qe2 and they were little bumps in the m2 supply less than one percent of the total whereas the europeans will go by 10 20 at any given time”
The US is well-positioned to weather deglobalization because it's energy self-sufficient, a massive agricultural exporter, has a smaller baby boomer cohort as a percentage of total population (less financial strain), has Mexico next door with healthy demography, has Canada for raw materials, and can access Western Hemisphere resources.
“the united states it's energy self-sufficient it's a massive energy agricultural exporter its baby boomers are retiring but as a percentage of their over all population their baby boomer class is actually the smallest in the world and so their financial crunch isn't going to be nearly as bad they've got mexico next door with a healthy demography they've got canada for raw materials the western hemisphere walk for raw materials”
China won't even exist as a country by the end of the decade in every way you measure it—demographically, economically, culturally, nationally—making its terminal decline even worse than Germany, Russia, or South Korea.
“the chinese aren't even going to exist as a country i would say by the end of the decade and that's before you start factoring in some of the more acute things that are happening”
Even in the best case scenario with no wars and technology gains in food production, simply reducing each country's agricultural output to match its domestic needs will result in 3 billion more people than the system can support; with plausible switching to plant protein and countries like US, France, Australia working to maintain broad production, the deaths from famine will likely number around 1 billion.
“simply matching production of each country to each country's needs is going to reduce the amount of calories the world grows by more than half so in the best case scenario where there are no wars over anything we're already looking at having three billion more people than we can support minimum yeah i am hoping with gains in technology that some of the countries that can keep producing a broad-based system i think the us and france are going to be at the top of that list australia is probably on that list argentina assuming they can get their head out of their asses on that list uh you know that'll hopefully along with a shift from large-scale animal protein to large-scale plant protein reduce the number of people who die of famine over the course of the next 20 years to only a billion”
Technology-based autocracy has never been tested at scale; Nazi Germany's technocratic control was interrupted by WWII so we have zero historical examples of whether 1984-style monitoring and control can actually work long-term.
“um well we're we're testing the bounds because we've never done this before uh the closest uh existing system to that would be the fascism as practiced by the nazis where they experienced technocratic government control of the means of production the means of consumption the means of communication what the chinese are doing right now is that kind of on steroids there's an open question if the world war ii had not happened whether or not it could continue to contain german society we don't know so we we have a a example list of zero here for knowing if this works”
The problem with global investments during deglobalization is finding companies not exposed to the former Soviet Union or disrupted supply chains, because most agriculture, energy, and commodity companies have significant Russian or Ukrainian operations.
“the problem with all of this is that it doesn't match the investment theses that have been coming out in this capital-rich period where anyone can throw money at anything and it'll stick so like if you want to invest in agriculture for example it's a global fund and obviously obviously it touches companies like bungie that are very heavily invested into ukraine and russia and they're losing everything so you have to go more specific and that's a lot more legwork”
Rivers are less important to future prosperity if they remain navigable even with higher or lower flow, and Germany has engineering expertise to contain flooding, so Zeihan is not concerned about river-based European advantage flipping due to climate change.
“i'm not too concerned about that because if a river has higher or lower flow as long as it's still navigable it doesn't matter uh we we've got plenty of methods for containing floods i mean the dutch are obviously the world's class at that so there's engineering that needs to be done and if there's anything the germans know how to do its engineer”
The US is providing Ukraine with man-portable and truck-portable weapons systems with no American training requirement or supply chain involvement, progressively upgrading capabilities (from Javelins to Stingers to Switchblades to Predator/Reaper drones) to maintain plausible deniability of NATO involvement while maximizing Ukrainian military effectiveness.
“the united states is going for man portable and truck portable stuff nothing that requires on-site training nothing that requires a supply chain that involves americans because then you have an american defense envelope nothing that requires american troops on the ground but everything else we're sending in”
The ability of a country to survive coming breakdowns depends on how reliable its food and energy supplies are and whether it can muster internal financing to generate its own supply chains. This is easier with large polities than small ones.
“we've been living in the most charmed period in human history for the countries that can make a go of it it all depends upon how reliable their their food and their energy supplies are and whether they can muster the internal finance uh to generate their own supply chains that's easier with large polities than it is with small ones”
In countries without energy, food, and raw material self-sufficiency, the world will look more like Pakistan—with a functional slave class—because scarcity makes control of supply the basis of power.
“in countries that don't have those inputs however the world's probably going to look a lot more like pakistan where there's a functional slave class because so many things are in scarcity that whoever can control their supply is the one with the power”
There's a one-in-three chance China invades Taiwan because the math is changing: the CCP realizes they're going to lose their system anyway in the deglobalized future, so choosing the time and place of conflict to control the narrative is rational, and for the price of 500 million dead Chinese, the Communist Party can remain in control during the transition.
“they realize now that they don't have a lot to lose or more to the point they're going to lose it anyway and there's something to be said for choosing the time and place of the conflict so that you can write the narrative and if for the low low price of 500 million dead chinese the communist party can remain in control during the transition that's a price worth paying so i give it like a one in three chance that it's going to happen”
Everyone who visits Xi as a world leader now sees him as the one person who has to make all decisions because he's removed all rivals; he has no one to give him good advice, only people terrified to deliver bad news.
“he's established a cult of personality that is so airtight that there's no one left in china with intellectual capacity that he hasn't exiled or imprisoned or intimidated into silence or flat out killed he's the only one who can make decisions on anything anymore and now he has to start from scratch while also ruling a country of 1.4 billion people it's beyond him”
The United States will be less affected by tech slowdown than other countries because its baby boomers actually had children (the Millennials), who are now in the creative/interactive stage of life, so Silicon Valley won't die but won't move forward at the pace we've become accustomed to.
“there will be some places like the united states that this is less true for because our our baby boomers actually had kids we know them as millennials and they are now in that stage of their life where the creativity and the interaction is very important and so it's not like silicon valley is going to die here but it's not going to move forward at the pace that we've become used to”
Northern and Western Europe have the capacity to go out and get some of what they need and will be slightly hypocritical about it, but the alternative is de-industrialization. Southern and Central European democracies are more fragile because they lack this capacity.
“i'm far more worried about central european and southern european democracy than i am about northern or western because northern or western has the capacity to go out and get some of what they need they're going to be a little hypocritical about it when they do it but the alternative for them is to de-industrialize”
Globalization will reverse in the coming period, and the world will go 'in reverse' with countries becoming more locally focused and less trusting of international institutions, similar to the Seinfeld reference where George Costanza succeeds by doing the opposite of his normal instinct.
“you of course have written and and and for many years about kind of the coming de-globalization so everything we've experienced certainly in our lifetime is going to end and um and the world will go in reverse so to speak which reminds me a little bit about this seinfeld episode with george costanza where he realized he has just has to do the opposite and he'll be successful”
Good investments going forward require looking for: (1) very large markets with deep liquidity (mainly the US currently), (2) energy-intensive production (advantageous in the US due to cheap shale oil/gas/electricity), (3) products with demographically-driven demand (US has healthy demography; Mexico has even better), (4) exportable products (as North American supply chains strengthen relative to global ones), and (5) materials no longer coming from Russia (bauxite, aluminum, titanium, steel, fertilizers).
“i am most interested in things that are in very large markets with deep pools of liquidity which for the moment now is really just the united states i want products that are energy intensive in their production because in the united states because the shale revolution we have the cheapest oil the cheapest natural gas the cheapest electricity uh that's a huge competitive advantage particularly as global supply chains break down i look for things where their demand is demographically driven because the united states has the healthiest demography in the rich world and mexico has the healthiest demography in the advanced and developing world and if the product is exportable great because as supply chains globally break down but north american ones get stronger there's an arbitrage opportunity as well and then of course because of the ukraine war i'm getting very very big and the things that we need to make things that are no longer going to be flowing from the russian system so that's bauxite and aluminum that's titanium steel pig iron uh wheat nitrogen-based fertilizers phosphate-based fertilizers”
Companies asking 'when can we get back to normal' and 'when will we find a new balance between America and China' are asking the wrong questions because the demographic system has already tipped and the consumption and production balance of 2019 will never return.
“when can we get back to normal and when are we going to find a new balance that works for both the americans and the chinese and those are definitely the wrong questions the demographic system has tipped already and so we're never going back to the consumption and production balance that we had in 2019”
Companies dependent on Chinese manufacturing are now being forced to reshored supply chains; those who started the transition 3+ years ago have first-mover advantage, while latecomers must build new infrastructure from scratch, which takes much longer than 6 months.
“there's limited labor in the united states and mexico because of that demographic transition and so the first mover advantage has gone to certain companies and everyone who's late to the game now has to figure out how to do something completely from scratch with new infrastructure in a new place you don't do that in six months”
Europeans are moving incrementally up the ladder of escalation with weapons provision, staying below the threshold that would force direct NATO-Russia conflict, but operating in a gray area; the difference between helicopters and fighter jets is not clear, and at some point Russia will declare a red line crossed, though identifying that exact line in advance is impossible.
“i totally agree that we are we are moving into a gray area here bit by bit by bit uh the systems that the americans are providing are upgraded systems of the things that the ukrainians already know so for example um when we went from javelins to stingers not a big leap in terms of training when we went from javelins to switchblades same general thing and once you can operate a switchblade you can operate a switch like blade b which is the one with the bigger warhead so bit by bit by bit we're moving up the uh the opportunity slash concern”
The Chinese government sees the boycotts of Western companies leaving Russia as terrifying because consumer pressure on corporations is a force they don't believe exists in their own information environment; Xi has no idea that individuals can organize corporate behavior at scale.
“the boycotts everybody's left russia and that is the development model for china they need that for the market access they need for that for the technological transfer if they didn't have foreign corporations operating you know they'd be dead and the most horrifying part is that consumers individual people have been able to pressure companies to leave russia the chinese don't even admit that that's a force in the world individuals”
China is removing itself chunk by chunk from global manufacturing and supply chains because COVID lockdowns have made them an unreliable partner; they can't fight the virus effectively because their vaccine is useless against omicron, forcing endless lockdowns in 65+ cities including Shanghai and Guangzhou.
“the chinese are no longer even reliable partners in supply chain manufacturing because they can't fight the virus effectively so we're seeing china removing itself by bit by bit or chunk by chunk from the entirety of everything that we've always associated with china most notably in manufacturing”
NATO countries may be near a point where they either put a spine in Germany and cut off energy exports to Russia, or Ukraine blows up the pipelines itself, because Russia is getting almost a billion dollars a day of income from energy sales to Europe, which is not tenable given what is at stake.
“i think we're only a few weeks away from either the europeans number one putting a spine in germany and cutting off the energy exports or number two the ukrainians just saying screw it and blowing up the pipelines themselves because right now you know the russians are getting almost a billion dollars a day of income from their sales to europe and that is not a tenable situation”
Minimum preparation for the coming period is accepting conditions like the dark doldrums of the mid-1970s after the oil crisis; if someone can't stomach that now, they won't have the emotional capacity for what's coming and should find another career.
“if you start by thinking of the dark doldrums of the mid 70s in the immediate aftermath of the the uh oil crisis if you're not ready for at least that you're not going to have the stomach for what's coming so that's just kind of like the bare minimum that you should consider”
Ukraine was shocked when Putin invaded because Xi had been isolated for so long (first world leader he met with since January 2020) that he had no one in his intelligence services willing to tell him bad news; Putin lied to Xi's face about the war plans because Xi's information environment is completely controlled by his cult of personality.
“when putin came to beijing which by the way was the first world leader that she had met with since january of 2020 he's that isolated uh he believed everything that putin told him because no one in his own intelligence services dared said say anything and so when the invasion actually did happen she was shocked because putin lied to his face”
The China-Russia joint communique in February 2022 represented an unprecedented abandonment of hedging strategy, suggesting either that China believed it was fully prepared for conflict or that Russia had convinced them to commit; either way, it signals shift in strategic posture but is also potentially a strategic error based on false confidence.
“when the release the joint communique with with russia i believe february 7th um that was delightful delightful right yeah historic piece of um literature um they um they really did something that they had never done before which is stop well not never but in recent history would you stop walking that line stop kind of playing both sides”
The Ukrainian war serves as a hard stop to the globalized system, and the coronavirus pandemic accelerated the transition by a couple of years, so the breaking point has arrived.
“the ukraine war is a hard stop and coronavirus sped it up by a couple of years and so here we are”
Zeihan's dollar-dominance forecast clashes with about half of investment theses out there, but those are based on the assumption that globalization can continue and no one will shoot at each other, which has been contradicted since February 22nd.
“now i realize that clashes with like half of the investment theses out there but most of them are based on the idea that globalization can happen and no one will shoot at each other ever again and i think we've put a bullet in that theory uh back on february 22nd pretty thoroughly”
European countries have shown surprising unity on Ukraine sanctions that they haven't shown in the past, which is a pleasant surprise to Zeihan who expected less commitment, though he remains skeptical about long-term European cohesion.
“i gotta admit i'm really surprised that the world came together especially europe in the way that it did so quickly”
Zeihan is not familiar enough with Neil Howe and Bill Strauss' 'Fourth Turning' generational framework to comment meaningfully; he notes it seems like too convenient a pattern and prefers to focus on deglobalization and depopulation trends that he understands.
“i'm going to have to put that in the coincidental issues they're looking at different trends that i don't consider myself an expert in so i really i really don't know um it strikes me as a little bit too convenient of a pattern personally but again this is not where i focus i focus on deglobalization i focus on depopulation because we know where this goes and we know where this has been going since the 1960s”
Zeihan moved to Colorado highlands because his work schedule (traveling in winter, home in summer) aligns better with mountain living than his previous Texas location where summers were often on fire.
“i moved out here because my free time is in the summer and i used to live in texas and so i would come home in like march for a weekend and the weather would be glorious and i'd do my laundry and then i'd head out again on monday um and then i'd get home for the summer and everything was on fire so it's just that living out in colorado and the highlands more matches my uh my work schedule”