"It was the best of times, it was the worst of times... we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way...”.When Charles Dickens wrote A Tale of Two Cities, he inadvertently described the geopolitical risks affecting the stock market nearly 200 years later..Globalization is unraveling as China-US relations simmer and may boil over into conflict over Taiwan as the west attempts to prevent China from reaching superpower status. Western nations are becoming more incestuous in their trade practices as leaders push re-shoring, friend-shoring and thus far bringing back 1.6 million jobs to the US..The US empire’s relationship with China is fraught with peril and any miscalculation can imperil the 'empire’s' $690 billion in yearly business. Decoupling from the Middle Kingdom will take years and produce inflationary pressures on the US economy as it suffers from higher wages, labour shortages, and making the production of goods much more expensive..The battle lines are drawn and a new high-tech cold war is under way between the two economic behemoths..China imports $300 billion in chips per year and does not have the expertise to produce advanced microchips. Making chips is a process requiring 1,500 steps using technologies owned by western countries and Taiwanese suppliers. Ninety-two percent of advanced chips come from Taiwan and most are manufactured by Taiwan Semiconductor Manufacturing Company..The US created the world's first chip transistor, but in recent decades relied on manufacturing in lower-cost countries and became over-reliant on Taiwan — an island one-tenth the size of California and within 100 miles across a straight, facing mainland China..Emperor for Life President Xi bet his country's future prosperity on becoming a technological equal to the US: “Technological innovation has become the main battleground of the global playing field, and competition for tech dominance will grow unprecedentedly fierce,” he stated..The Biden administration responded by committing $52 billion in subsidies to manufacture domestic microchips as it relies on importing chips and covets the Taiwan Semiconductor industry as its own. Investing in homegrown chip making can benefit a company like Intel which used to be number one in chip manufacturing (98 market share) and stands to gain if management can execute, as several years ago it became Scrooge and refused to invest in extreme ultraviolet lithography technology. That allowed its main competitor, AMD, to catch it and steal market share. Intel continues to struggle to increase profits, even amid a chip shortage. Intel represents deep value trading at 1.3 price to book versus market leader Nvidia at 30 times..The ongoing Ukraine-Russian conflict — which is a nine-year-old war as Russian-backed separatists have been fighting there since 2014 — only adds to geopolitical risk. Russian history is dominated by the ideology of empire-building and NATO expansion brought out the bear’s dark side..Regardless, of how the war turns out, Russia remains extremely important to the global economy and the world’s long-term prosperity is dependent on accessing its resources. It is the world’s largest land mass (11% of the globe), and the third largest producer of oil behind the US and Saudi Arabia. Russia's resources are valued at $75 trillion, the US at $45 trillion and China at $23 trillion. Ninety per cent of Chinese resources come from coal and rare earth minerals and little else. China is smitten with Russia and desires to make it a vassal state with easy access to cheap resources for years to come. China's control of Russian resources could give Chinese socialism an edge over US dominance in a game of high-stakes competition for global power..In sum, geopolitical risk is here to stay and the stock market remains oblivious and is not paying any premium to investors for the risk they are taking..Currently, the S&P 500 trades at a price to earnings of 22, versus a historical average of 16 and is overvalued by 30% as it factors in a federal rate cut going into 2024 and a soft landing. Anytime the CPI historically averaged 3% — it sits today at 5% — the S&P price-to-earnings multiple falls to 15. Along with Fed policy that's been erratic, weak, and behind the curve, US GDP is decelerating fast, expected to be 1.5% in 2023 and 0.9 in 2024. According to the OECD, one can anticipate a substantial correction..Making money during turbulent times involves staying nimble, keeping cash on hand, and pouncing on market corrections — in the short term, under-weighting US equities while searching out underpriced blue chip companies that pay a dividend. Flying under the radar is IBM as it is focused on a $1 trillion hybrid-cloud market opportunity..Investing in China to take advantage of its cheap P/E of 13 as its government continues to stimulate its economy. China and India are growing at double the rate of the G20 and the IMF projects China over the next five years to contribute 22.6% to world growth while the US lags at 11.3%..All that glitters is not gold, but gold will surpass its all-time high and shine brightly in 2023 offering a safe haven and hedge against a nasty macro backdrop of high inflation, geopolitical uncertainty, a fragile banking system that could topple under any serious stress, and the humongous debt that underpins global economies. Central banks purchased 1,136 tons of gold in 2022 and are continuing to buy in 2023 to protect their weak balance sheets from their profligacy..Canada’s political system might be dysfunctional, but its gold companies are some of the best in the world: Agnico Eagle, Barrick Gold, and Newmont Corporation should do well in the weeks ahead..As the war drums keep beating, countries are investing even more in the economics of “guns over butter” with NATO increasing its expenditures by $350 billion. Its benefactors include the Pentagon’s favourite collection of munitions factories: Lockheed Martin, Boeing, General Dynamics, Raytheon, and Northrop Grumman..As for the masters of the universe — big tech — they remain overpriced and require the fertile ground of low-interest rates to reward investors. Amazon has 1.2 million employees; when they cut 27,000 jobs, it made sensational headlines, but it did not address the company's structural problems in retail that can’t turn a profit. Growth in its crown jewel Web services is slowing..Maybe it's time for its founder Jeff Bezos to spend less time on his $500 million super yacht, the Koru, and get back in the office and help make retail profitable. Amazon currently trades at less than half of its book value versus its five-year average. Should it ever get its retail strategy right-sized, it's the investment of the decade..Dicken’s great tale shed light on the disruptive state of 19th-century England. Today's modern economy has many conflicting dualities: great wealth underpinned by vast amounts of debt, full employment generating high inflation that will lead to stagflation, fast-moving innovative technologies that create overnight millionaires, exceptionally well-paid CEOs, and stagnating living standards for its citizens, economic freedom versus the exponential growth of the state and a stock market that is priced for good times ahead ignoring geopolitical risk..As economist Nouriel Roubini, better known as Dr. Doom, who called the 2008 financial crisis, has warned: "Markets are sleepwalking into a new catastrophe."
"It was the best of times, it was the worst of times... we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way...”.When Charles Dickens wrote A Tale of Two Cities, he inadvertently described the geopolitical risks affecting the stock market nearly 200 years later..Globalization is unraveling as China-US relations simmer and may boil over into conflict over Taiwan as the west attempts to prevent China from reaching superpower status. Western nations are becoming more incestuous in their trade practices as leaders push re-shoring, friend-shoring and thus far bringing back 1.6 million jobs to the US..The US empire’s relationship with China is fraught with peril and any miscalculation can imperil the 'empire’s' $690 billion in yearly business. Decoupling from the Middle Kingdom will take years and produce inflationary pressures on the US economy as it suffers from higher wages, labour shortages, and making the production of goods much more expensive..The battle lines are drawn and a new high-tech cold war is under way between the two economic behemoths..China imports $300 billion in chips per year and does not have the expertise to produce advanced microchips. Making chips is a process requiring 1,500 steps using technologies owned by western countries and Taiwanese suppliers. Ninety-two percent of advanced chips come from Taiwan and most are manufactured by Taiwan Semiconductor Manufacturing Company..The US created the world's first chip transistor, but in recent decades relied on manufacturing in lower-cost countries and became over-reliant on Taiwan — an island one-tenth the size of California and within 100 miles across a straight, facing mainland China..Emperor for Life President Xi bet his country's future prosperity on becoming a technological equal to the US: “Technological innovation has become the main battleground of the global playing field, and competition for tech dominance will grow unprecedentedly fierce,” he stated..The Biden administration responded by committing $52 billion in subsidies to manufacture domestic microchips as it relies on importing chips and covets the Taiwan Semiconductor industry as its own. Investing in homegrown chip making can benefit a company like Intel which used to be number one in chip manufacturing (98 market share) and stands to gain if management can execute, as several years ago it became Scrooge and refused to invest in extreme ultraviolet lithography technology. That allowed its main competitor, AMD, to catch it and steal market share. Intel continues to struggle to increase profits, even amid a chip shortage. Intel represents deep value trading at 1.3 price to book versus market leader Nvidia at 30 times..The ongoing Ukraine-Russian conflict — which is a nine-year-old war as Russian-backed separatists have been fighting there since 2014 — only adds to geopolitical risk. Russian history is dominated by the ideology of empire-building and NATO expansion brought out the bear’s dark side..Regardless, of how the war turns out, Russia remains extremely important to the global economy and the world’s long-term prosperity is dependent on accessing its resources. It is the world’s largest land mass (11% of the globe), and the third largest producer of oil behind the US and Saudi Arabia. Russia's resources are valued at $75 trillion, the US at $45 trillion and China at $23 trillion. Ninety per cent of Chinese resources come from coal and rare earth minerals and little else. China is smitten with Russia and desires to make it a vassal state with easy access to cheap resources for years to come. China's control of Russian resources could give Chinese socialism an edge over US dominance in a game of high-stakes competition for global power..In sum, geopolitical risk is here to stay and the stock market remains oblivious and is not paying any premium to investors for the risk they are taking..Currently, the S&P 500 trades at a price to earnings of 22, versus a historical average of 16 and is overvalued by 30% as it factors in a federal rate cut going into 2024 and a soft landing. Anytime the CPI historically averaged 3% — it sits today at 5% — the S&P price-to-earnings multiple falls to 15. Along with Fed policy that's been erratic, weak, and behind the curve, US GDP is decelerating fast, expected to be 1.5% in 2023 and 0.9 in 2024. According to the OECD, one can anticipate a substantial correction..Making money during turbulent times involves staying nimble, keeping cash on hand, and pouncing on market corrections — in the short term, under-weighting US equities while searching out underpriced blue chip companies that pay a dividend. Flying under the radar is IBM as it is focused on a $1 trillion hybrid-cloud market opportunity..Investing in China to take advantage of its cheap P/E of 13 as its government continues to stimulate its economy. China and India are growing at double the rate of the G20 and the IMF projects China over the next five years to contribute 22.6% to world growth while the US lags at 11.3%..All that glitters is not gold, but gold will surpass its all-time high and shine brightly in 2023 offering a safe haven and hedge against a nasty macro backdrop of high inflation, geopolitical uncertainty, a fragile banking system that could topple under any serious stress, and the humongous debt that underpins global economies. Central banks purchased 1,136 tons of gold in 2022 and are continuing to buy in 2023 to protect their weak balance sheets from their profligacy..Canada’s political system might be dysfunctional, but its gold companies are some of the best in the world: Agnico Eagle, Barrick Gold, and Newmont Corporation should do well in the weeks ahead..As the war drums keep beating, countries are investing even more in the economics of “guns over butter” with NATO increasing its expenditures by $350 billion. Its benefactors include the Pentagon’s favourite collection of munitions factories: Lockheed Martin, Boeing, General Dynamics, Raytheon, and Northrop Grumman..As for the masters of the universe — big tech — they remain overpriced and require the fertile ground of low-interest rates to reward investors. Amazon has 1.2 million employees; when they cut 27,000 jobs, it made sensational headlines, but it did not address the company's structural problems in retail that can’t turn a profit. Growth in its crown jewel Web services is slowing..Maybe it's time for its founder Jeff Bezos to spend less time on his $500 million super yacht, the Koru, and get back in the office and help make retail profitable. Amazon currently trades at less than half of its book value versus its five-year average. Should it ever get its retail strategy right-sized, it's the investment of the decade..Dicken’s great tale shed light on the disruptive state of 19th-century England. Today's modern economy has many conflicting dualities: great wealth underpinned by vast amounts of debt, full employment generating high inflation that will lead to stagflation, fast-moving innovative technologies that create overnight millionaires, exceptionally well-paid CEOs, and stagnating living standards for its citizens, economic freedom versus the exponential growth of the state and a stock market that is priced for good times ahead ignoring geopolitical risk..As economist Nouriel Roubini, better known as Dr. Doom, who called the 2008 financial crisis, has warned: "Markets are sleepwalking into a new catastrophe."
