20 Dec The Future Begins Now
“May you live in interesting times” is a warning signifying danger, uncertainty and …, yes, opportunity. We most definitely live today in an interesting time. This time, its events and its personalities will be studied for decades to come …, and present merely a prelude to a future that will be filled with change that necessarily will include progress-with-hurdles that, we hope, will result in ultimate human triumph. The next few years will set the stage for growth for the remainder of this century, for global hegemonic relationships, for technological development, for a rising economic tide to lift all ships, and for health and increased human longevity …, among others. Although this is a time having powerful resonance with the issues that haunted past economic, political and social upheavals turning points in history …, it also is a time that reverberates with exciting, disturbing and heartening themes and thresholds. It is a time of more than usual disruption, where uncertainties have largely neutered conventional forecasting metrics, making laughingstocks of predictors and their predictions. Pundits, for example, have simplistically analogized the economic, political and social fallout triggered over a hundred years ago by the Spanish Flu pandemic to what the world can expect from 2020’s Covid-19 shock. This is not the early 20th Century and the impacts that Covid-19 is having and will continue to have are materially different. The 1918 Flu created social turmoil of quite a different sort, with the practice of medicine, the quality of education, the level and speed of technological advances, and economic thinking and practice of that day being wholly different. This also is not the pre-Civil War United States of 1860 … or the Depression-era America of 1937 (as TLR discussed in “1937” here). Those parallels are alluring, but inapposite. Their causes and contexts were measurably different in quality and quantity … and the outcome today will be different as well. History is not repeating itself and, in fact, the rhyming is misleading and, at times, discordant. There is so much more complexity, such heightened uncertainty, such a greater risk of catastrophe coupled with a confluence of optimistic possibilities …, including ones that would remake the world into a better, healthier and safer place. The incredible agricultural, industrial, technological and biotechnological revolutions of the past 250 years have planted the seeds for 21st Century prosperity and growth … and the events of the past several years have provided fertile ground for them to sprout.
These indeed are the most interesting of times.
This past year – the notorious 2020 – saw an acceleration of historically-significant change, a quickening of incipient trends … as well as the beginnings of new ones. 2021 will see a further acceleration. Some things will become markedly better – for example, the world will find new validation in capitalism. Attempting to see into the future, however, even the near future of 2021, presents formidable challenges. Experienced analysts with reams of data and mathematically-precise tools had little success in predicting the recent American elections. Readers of TLR undoubtedly will recall that an attempt to do so baffled even Cassandra, the soothsayer who accurately warned of the Trojan Horse. TLR has learned its lesson and determined that it’s best to avoid soothsayers – as well as data and mathematics. Instead, in composing today’s commentary, TLR has relied on something with more solidity: a crystal ball recently purchased on Ebay. It may not have worked well for its prior owner, but (as they say in the investment world) past results are not necessarily indicative of future performance. After dusting it off and peering into it for hours, TLR is venturing the following for 2021.
Education: Education will be the most important American accomplishment of 2021. Federal, State and local governments together with America’s most wealthy and their charitable and religious organizations will coordinate with educators and teachers’ unions to provide better, deeper and more accessible education for America’s youth … and vocational training for its under-employed workers. The insidious effects that Covid-19 have had on America’s youth and blue-color workers will not merely be acknowledged. They will be addressed.
America’s children fell ruinously behind their global peers – particularly those in China – by losing a full year of schooling. The failure in 2020 to provide school-age children with consistent, regularly-scheduled intellectual, nutritional, physical and social stimulation has placed Americans – and America – generationally behind its most aggressive global competitors. Similarly, American workers – especially those from the food, entertainment and travel industries – require vocational and educational retraining in order to find employment in a post-Covid economy.
America in 2021 will rise to these challenges by closing its educational and training gaps. The lost year will be regained by a coordinated national effort. Teachers’ unions will partner with governments by volunteering their after-hours efforts. Strapped government education budgets will be supplemented by capitalism’s private sector in recognizing that the future, the future of America, depends on a well-educated, well-trained workforce. The result will be that America will use 2021 to begin the process of catching up with “the lost year.” As Winston Churchill sort-of could have said, “You can always count on the Americans to do the right thing … when they have no other choice.”
Inflation and Deflation: There will be more of each. And, yes, they can and do co-exist.
The Federal Reserve, together with Central Bankers throughout the world, will accelerate Quantitative Easing by injecting US Dollars into global markets in what has become a repetitive asset-inflation frenzy. As a consequence, There Is No Alternative … and there will continue to be no alternative … to investing in equities, the value of which will continue to rise to previously unimagined heights (as discussed in “America’s Love Affair with TINA” here). Because the recovery from the Covid Recession will trigger the flow of investment dollars into global capital-intensive projects, governments like China will build new infrastructure (including for its Belt and Road Initiative – discussed in “Red Storm Rising” here), America will replace outdated infrastructure, and private industry will increase and automate domestic production. Capital construction will lead to resource inflation as demand rises for industrial metals as well as for agricultural commodities to feed an increasingly hungry global population.
The continuation of QE, increasing construction and production, and economic recovery will not, however, trigger wage, retail or consumer inflation. Quite the contrary. The abundance of cheap labor and an increase in robotic automation and artificial intelligence tools will keep a lid on wages and reduce the costs of production. These deflationary forces will be further enhanced by city-flight and the spread of the work-from-home culture (inflating rural and suburban property values), reducing costs for both employers and white-color employees and thereby keeping a lid on consumption and retail prices.
The balance of inflation and deflation will be necessary to prevent the shredding of government balance sheets which depend on maintaining a low interest rate environment. Countries running trillion-Dollar deficits and issuing trillions of Dollars of government-backed debt cannot afford to see rising interest rates. They won’t. Interest rates will remain at current levels during 2021. They may even decline.
America’s Government: Except for progress in education and infrastructure, partisan politics will further weaken America in 2021. President Trump’s refusal to accept the Electoral College vote and his placing of restrictions and delays on the transition process will handcuff government action well into 2021. With pollsters reporting that 77% of Republican voters agree with Trump, a substantial minority of Americans (and anti-Americans) will conclude that America’s government is illegitimate. Former National Security Adviser Michael Flynn on Thursday reinforced that message, suggesting that President Trump “could order, within the swing states … military capabilities and basically rerun an election in those states.” A former Cabinet member suggesting military intervention in America’s electoral process both undercuts the Constitution and sanctions violence. A country thus divided is a weakened country, one that will become increasingly ungovernable. Institutions will corrode as faith in government dissolves and extremism increasingly separates Americans from each other.
Axis of the Sanctioned: TLR cautioned (in “Axis of the Sanctioned” here and “Axis of the Sanctioned – Part 2” here) that a foreign policy of sanctions and tariffs unilaterally-pursued by America to simultaneously target previously un-allied countries would lead those countries to find areas of common interest in opposition to the U.S. “The enemy of my enemy is my friend.” TLR also noted that the pursuit of such a policy would create a multi-front battlefield in which the U.S. could become over-extended. That is what has happened.
Among other things, Russia has allied with its previous foe, Turkey, to reduce American power and influence in the Middle East and Eastern Mediterranean, allied itself with Syria to establish a military presence in what was once an American backyard, and has become the principal in resolving tensions between Azerbaijan and Armenia. Because of America’s threatened withdrawal from its European alliances, Russia, despite its aggressions, maintains cordial relations with America’s
former EU allies and has significantly increased its hegemony and influence in Eastern Europe.
At the same time, China has firmly established its dominance in the East and South China Seas, occupied Hong Kong in defiance of treaty obligations, gained greater hegemony over Tibet and its Muslim Uighur minority, and is exerting increasing influence over its near-Central Asia neighbors, including Pakistan, a former American ally. It also has threatened border areas with India and Nepal, pressured Australia with an economic boycott of goods and tourism, and is now militarily and economically threatening Taiwan in a Western Pacific power game that America appears to already have lost. In response to American tariffs, it has enhanced its economic relationship with Iran (violating American sanctions), provided protection to an increasingly powerful and threatening North Korea (violating American sanctions), established closer economic ties with Russia (violating American sanctions), and increased its influence in Africa, South America (particularly with Venezuela – violating American sanctions) and Europe. This at the same time as America has been pursuing an anti-globalization, isolationist policy (discussed in “The Failure of American Foreign Policy” here).
Most recently, America’s government and industry have been attacked by Russia in what reportedly is the most successful hack in cybersecurity history (a subject discussed in “When is a Nation ‘At War’?” here). Thomas Bossert, the Trump Administration’s former Homeland Security Adviser, said of the Russia hack, “[T]he magnitude of this national security breach is hard to overstate.”
The US Dollar, Gold and Bitcoin: The Dollar will continue its inexorable decline (as discussed in “The Fracturing U.S. Dollar” here) with one consequence being a 2021 bull market in Gold and Bitcoin. Both JP Morgan and Goldman Sachs are believers in the rise of cryptocurrencies with Goldman adding that Gold will retain its “status as the currency of last resort.” 2021 therefore will be a year in which economic and financial volatility requires asset allocators to include both Gold and Bitcoin in their portfolios.
Overview: Never before has there been a global pandemic with such virulent economic, social and political fallout …, a level of economic and social disruption not seen since the Great Depression. Entire industries suddenly have been swept away, leaving workers without usable skills, their families without a means of support, and their children with altered futures. We are living in a era where seemingly unrelated tensions and conflicts arise and reverberate, accelerate, and build on each other. We are at the beginning of a new historical cycle as well as in the midst of several …, a history-making tempest of simultaneous multi-year economic, social, pandemic and political developments in which the evolution – and the eruption – of dangers, uncertainties, tribulations, achievements and victories are unpredictable. In short, as TLR noted in “Is This Time the Same?” here, there is no precedent to study in making predictions about 2021. This time indeed is different … as well as being a most interesting time to be alive.
Oh, and the Mets will win the World Series.
Finally (from a good friend)