Navigating the 2020s in the Footsteps of Napoleon’s Missteps
A geopolitical view of the future and it’s impact on investors …
In June 1812 Napoleon Bonaparte gathered an army of 500.000 man, to invade Russia. Since his tactics relied on speed, his army would try to be as quick and aggressive as possible, in order to defeat the enemy quickly. At first Nopoleon had a huge success, by winning several battles and moving towards Moscow. But the Russians would move deeper into their own territory, while burning the land, which created supply difficulties for the French army. Once in Moscow, Nopoleon thought that he had won. But after holding the city for 5 weeks he realized his fatal mistake. Winter was coming, so his army would retreat as quickly as possible. But it was already to late. Napoleon managed to get back to Paris, but he had lost 450.000 men during the failed invasion.
As the saying goes:
“Once your blood's in the water, everyone's a shark”
— Tilly Bagshawe
Russia, Austria and Prussia went on to defeat Napoleon in a number of battles, which ultimately led to the abdication of Napoleon.
1/ A Battle for global dominance
Underestimating his opponent and trying to score quick gains against a superpower ultimately were the mistakes that resulted in the epic fail of Napoleon’s invasion of Russia. Today we are seeing a battle of similar scale. The west underestimated Russiaˋs capabilities and tried to quickly destroy the Russian economy via Sanctions. But this didn’t work out as planned and while Russia maybe isn’t in great shape, the country is stronger then most of the so called „experts“ predicted. The reasons for this are several, but regarding the economic strength, it’s mostly the result of global money flows. Money has to always float around, in order help the capitalistic system. And sanctions are no exception to this. China, Russia, Saudi Arabia, etc are forming a coalition to fight for global dominance, that is currently in the hands of the “west“.
As Harris Kupperman put it:
Constantinople fell to the Ottoman Empire in 1453. And that was a disaster for Western Europe. Because all of a sudden, basically Western Europe was cut of from the Silk Route. And if they wanted to buy anything fancy, they had to go trough the Ottomans, who jacked up all the prices like crazy. But what that ended up doing, of course, it created the incentive for Europeans to get on ship and try to find a new route. The Ottoman Empire by basically trying to squeeze Europe, ended up making Europe the center of the universe for 400 - 500 years. The Ottoman Empire by imposing these trade restrictions wrote itself out of history. The parallel that I was drawing is fairly obvious, today we’re trying to block Chinaˋs trade, but also Russiaˋs. In so doing we have basically thrown them into each others arms. We’ve kind of officiated at Russia and Chinaˋs wedding, which is a geopolitical mistake of epic proportions. Because Russia produces everything China needs and China produces everything Russia needs.
— Harris Kupperman (e.g. KUPPY)
If we look at the developments in the Middle East over the last months, we can clearly see, that Saudi Arabia is moving much closer to Russia and China. The grand strategy behind this is probably, to make Saudi Arabia less dependent on the U.S. Dollar, which is the same path Russia has chosen from 2014 onwards in preparation of the Ukraine war.
We have to remember that Mohammed Bin Salman (MBS) is currently 38 years old. He has a vision of his country and the Middle East. If we compare this to „leaders“ like Joe Biden, Olaf Scholz or Emmanuel Macron, I would never underestimate the capabilities of the “coalition“.
2/ Financial Wars
Because there is a correlation of the Russian Ruble and Oil, strengthening of the RUB would create headwinds for oil. On the other hand weakening of the RUB would have negative impacts on the price of oil, because Russia is one of the largest exporters of oil. The draining of the SPR (Strategic Petroleum Reserves), threats by both sides on the other and geopolitical conflicts are just some of the results, from the war between the “west“ and the “east“.
Putinˋs visit to the UAE probably came, in order to strengthen existing relationships, discuss the price of oil and importantly to sell Russian Bonds, in an effort to strengthen the RUB, which would push up the price of oil.
They print dollars and euros, but you can’t feed anyone with paper, you need food. Energy is needed. […] And those who start asking questions are called extremists.
— Vladimir Putin
We have already seen a trade war between China and the U.S., but what many people forget, is that this war is still ongoing. With sanctions on critical technologies, in order to prevent the opponent of winning the technological race.
Over the coming years these conflicts will get bigger and bigger, until we reach an important point that will decide the course of history. Just like The U.S. became the global superpower after WW2, we are sailing towards an event of similar magnitude.
3/ Implications for Investors
What’s the bottom line here ? Well it’s extremely difficult to project the future, but what most people will agree on is, that this decade will be marked by a variety of conflicts. We already see proxy wars, trade wars, sanctions, restrictions, etc.
And with more conflicts, we will see crises of an extend like few times in history. Oil price shocks will happen more frequently, because military conflicts often involve natural resources such as oil, gold, diamonds, etc. And if the projections of Goehring & Rozencwajg are correct, then speculation in the global food markets in combination with different weather conditions, should lead to severe food crises.
Emerging markets should also not be forgotten, especially since they are at the lowest level compared to developed markets since 2001 ! 👇
Defense spending will pick up all around the world again. If we are getting just remotely close to the military spending levels of the Cold War, then “defense“ stocks will dramatically outperform the general market.
While many people have just a short term view and are afraid, as soon as a commodity drops 20%, the volatility will increase a lot over the coming years. Therefore you need conviction in your ideas, else the market will fool you big time.
4.0 Conclusion
As conflicts escalate all over the world, investors will face a lot of volatility, from oil price shocks to potential food crises. Much like the events that shaped history, we are at a defining moment that will influence the course of history. Get ready for a time period like no other. This will be a journey of geopolitical changes and tremendous opportunities.
I will leave you with the following:
"The best way to predict the future is to create it." - Peter Drucker
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Yours sincerely,
MODERN INVESTING