Keynote - Peter Zeihan - 2019

and since I really want to get off this stage very quickly I'd like to introduce you to the first featured speaker for today geopolitical strategists Peter Zion Peter is a global energy demographic and security expert his worldwide views marry MIT worldwide view marries the realities of the geography and populations to a deep understanding of how global politics impact markets and economic trends helping industry leaders navigate today's complex mix of geopolitical risks and opportunities in 2012 Peter founded his own firm Zion on geopolitics in order to provide a select group of clients with direct custom analytical products today these clients represent a vast array of sectors including energy majors financial institutions business associations agricultural interests universities and the US military many may remember Parag Khanna at our conference in 2016 Parag discussed the idea that we were accelerating into a future shaped less by countries and more by connectivity in Peters most recent book the absent superpower he explores what happens when one country does not rely upon that connectivity with the shale oil revolution the US will soon be energy independent and with that had a little need an even less desire to engage with the rest of the world we have already seen a little of this take place on Twitter please welcome Peter Zion to the stage and let's learn what happens next [Applause] [Music] good morning everyone where are my Texans a little quiet this morning I guess the elevations getting to you huh I love Texans I love Texas never had an opportunity to live there I mean I was in Austin for 20 years but we all know that doesn't quite count it's important to remember that just as Texas is really not our Austin is really not part of Texas the United States really isn't part of the world but to really unpack that we got to take a step back this is how we used to trade we didn't trade goods we traded ammo and if you saw something that you thought you needed you went out and you took the damn thing you confiscated it you colonized it you expand it into Empire and those empires clashed over resources and access and markets and those clashes brought us Wars and those Wars ultimately brought us to World War Two which took the entire system and made it crash now at the end of that war the Americans drew their allies together and tried something new we said instead of everyone having a sequestered Imperial economic system that they guarded with their own navies the US Navy the only one to survive the war would patrol the global oceans for everyone so that anyone could go anywhere at any time and purchase any raw commodity ship it home safely metabolize it into a finished good and then export it for hard currency there was just one catch you had to be on our side we bribed up an alliance to fight the cold war and it gave us this map the deep blue or the countries that the Americans cared about before the war the medium blue those were the new allies in this new global order the first global order the light blue was the field of competition and the orange were the other guys we don't like to talk about them and it worked but then one Idol Tuesday and the very definition of pent-up demand it was all over when the wall fell we didn't have a concept for what to do next it had never occurred to us that the Cold War could win end in anything other than thermonuclear destruction and almost overnight our view of the world changed there's a lot of gray up there a lot of places that Americans just don't have a firm opinion on now the person who was in charge at this moment of change when the wall fell was George Herbert Walker Bush who from a foreign policy point of view is arguably the best president that the United States has ever had he certainly had the experience been ambassador to China ran the Office of Budget was VP ran the CIA served in Congress had an excellent working relationship with everyone around the world who mattered had a first-name relationship with everyone on both sides of the political aisle at at home he was the right person at the right time with the right mindset in the right rolodex and the right expertise to lead us into a new era so of course we voted him out of office and we started down the parade of morons Bill Clinton arguably the smartest person to inhabit the Oval Office since Jefferson but he had a how should I put this an attention deficit issue he also saw himself as a domestic president a leader of domestic renewal he found foreign policy boring now whenever he found out that there was going to be a summit the following day he kind of crammed for the test with the CIA desk officer in the State Department folks and he would hit out of the park every single time but there'd be no follow-up so for eight years we really only had about two months of foreign policy W let's call it what it was we had a monochromatic foreign policy that dealt with one issue in one region and then we had President Obama who Obama was a weird cat he gave a series of kind of exit interviews with the press in his final year as president where he demonstrated a command of the context in the details of the international system that I have never seen out of an elected leader not even out of Herbert Walker Bush you know why green technologies won't work in their current form why the israeli-palestinian conflict will never end why the Russians do what they do but for American leaders for any leader Obama had a weird personality quirk he hated people no American president went to Capitol Hill or even met with his own cabinet secretaries fewer times than Barack Obama well with the exception of President Harrison you guys remember him he caught pneumonia during his inauguration speech and then died on day like thirty Obama beats him but that's it and so for eight years we didn't have foreign policy at all and the world got strange just as making choices has consequences refusing to make a destroy has consequences and for three straight presidents this country refused to have a conversation with itself about what sort of world we wanted to live in what was our goal what did we want we were on strategic drift which meant that the global order which was created to fight a war that ended 30 years ago was always on borrowed time and now it is finally giving way and that's okay because we never used it the global order was designed to fight a war it was a bribe and so the United States never invested its economy into it we are the least involved economy in the world as a percent of GDP last year only about 8% of GDP came from exports but half of that is within the NAFTA system the United States can and is and will have a regional order without needing a global one that gets really interesting really quick now this is how most Americans see themselves were the pioneers heading out west it was the greatest cultural and economic expansion in human history and it lasted for a hundred and fifty years we see this as our norm things can will should our gut our God ordained to get better every single year but we all know that that's not how it always happens sometimes the world reaches out and punches you in the face and because of this backdrop this cultural formative experience we don't deal with that well and so when the world does reach out and touch us in ways we don't like we overreact we panic and if you're looking for someone to blame for why we're kind of flipping and flopping and manic-depressive as a culture well I blame Canada because back in the war of 1812 they burned our capital down that was just rude like yeah yeah yeah yeah did the brits officially did it they drove the carpool but it was Canadian Marines from Toronto and this started us on this weird path where we get shocked and we overreact and we're convinced that the world is going to end and we reinvent ourselves so Sputnik is probably the quintessential example let's be honest here folks it was a beeping aluminum grapefruit it was not a big deal but we were convinced that we had already lost the Cold War even though we were ahead in rocketry and electronics and metallurgy our overreaction to Sputnik forced us to completely overhaul our educational and manufacturing systems and we coasted on that for the next 50 years Viet Nam's another great example we lost a post-colonial war to a rice producer and it wasn't even our colony and we were the world's largest rice exporter at the time our overreaction to the Vietnam defeat pushed through the Revolution and military affairs which brought us everything from cell phones to cruise missiles which are still the backbone of our economic and military system today the most recent time that we got hit was 9/11 tragedy by any measure 3,000 dead we now have the sharp end of American power on either side of every trade and energy artery on the planet and I hate to say it folks it's been a while since 9/11 we're due for another shock and since we're the ones that maintain the global order and yet we don't use it that's more problem for everyone else than it is for us because think about what you need to maintain a global order well first of all you need a consumption base so let's talk demography now this is a standard demographic profile children at the bottom young adults mature adults retirees at the top men on one side women on the other simple mortality build it into a pyramid now this is Mexico this is an ideal demography lots of young people whenever you've got a bulge in your biography below roughly age 40 it's all about the spending kids cars college homes pot Spence been spent but they're new their income has yet to expand to match their needs so it's college loans and car loans and mortgages high growth but also high debt now when American policymakers look at this sort of demography we see the perfect pairing because this is a country that is a lower stage of economic development their value-added work is not as good as ours but there's a lot of young people to absorb goods so the United States more technical Mexico less technical two-way trade works out very very well you may have noticed that over the last two years Trump's can we call it a rant yeah Trump's rants against Mexico have largely dropped the trade issue because it wasn't resonating Mexico is a partner not a problem that's not the case in Canada Canada had a baby bust back in the early 1970s they never recovered now they've got a surge of population in that mature worker demographic this makes some capital rich all these people are saving for retirement but they're not consuming anymore because the kids have moved out which means that they are competing in the same industries that the United States does well in and because there's no consumption down there nobody in their 20s and 30s they have to export everything they produce so you've got a supersaturated labor market in that advanced state which pushes down the cost of the goods that they produce American policymakers see this as a problem Canada is no longer a partner it's a competitor and if you can't get your birth rate back up eventually you age into something like Japan now Japan has an interesting problem how do you run a first world economy without a workforce you automate funny thing about robots they don't vote yet which means it doesn't matter where you put them so Japan has become the world leader not in out sourcing or in resourcing but in d sourcing picking up entire chunks of their industrial plant and dropping them in other countries on the other side of political and currency risk build where you sell here's the United States kind of in the middle kind of a chimney now there's two demographic groups here we need to talk about the first right up here at the top these are the baby boomers it's the largest generation as a percentage of the population in American history and their concentration in that capital rich demographic has made the United States capital rich exorbitantly capital or it's unprecedented ly capital rich - capital rich because all of that money seeking this limited number of investment opportunities has pushed down the cost of capital in the United States led them to invest in projects that in retrospect maybe weren't the best idea this is brick this is subprime this is Enron this is disco none of this should have ever happened and in the year 2022 the majority of the American boomers will have moved into retirement and all of those prospective investments will be liquidated and all the cash will be brought home where it's not going to be in stocks and bonds it's gonna be in tea bills or literally cash because they won't be able to take the volatility the availability of capital will collapse the velocity of capital won't slow won't stop it'll reverse which means the cost of capital will at least quadruple in just three years next generation down here we've got the Millennials now with your look young Leaders Forum here I gotta say I am pleased to see so many Millennials in the audience today who are awake normally I like to spend about 20-30 minutes of every presentation talking about why the Millennials are a waste of skin we don't have that kind of time today so instead we're going to focus on the positive why we should all be horrendously great for the money this won't take nearly as long there's only three reasons number one consumption all that filet mignon dog food and all those juice bar memberships and all those goddamn scooters they add up millennial consumption has kept the United States out of recession since 2009 and they are young enough and there's enough of them that that consumption pulse has at least another four years to run that is phenomenal it doesn't make us recession proof but Wow does it give us a lot of ballast second if you fast-forward to the year 2030 when the Millennials are in charge they will fill out the tax paying class in a way that my generation Gen X never could so there is a light at the end of the fiscal tunnel it is not a train it's a millennial whether that makes you very happy or very sad is up to you third in the United States we think of the Millennials as the end-all and the be-all as the Alpha and the Omega but really they're all alone in the night almost every other country on the planet had a baby bust on the Canadian scale at about the same time and if you look at the rich world demography without the Americans in it it's an old folks home the global system today is based on expanding consumption of first the developed and then the developing world that will no longer work even if the United States remains engaged there's no one who can step into the American shoes people like to talk about the Chinese but hello remember the one-child policy well 25 years after the one-child policy the Chinese are running out of 25 year olds they're not nearly as good at math as they'd have us all believed what about elsewhere in Asia Koreans are just as bad so are the Thais let's let's switch continents here's Germany you want to talk about a country that can't have an open honest conversation about population policy and it has an impact let's go south you know if there's any country in the world that has cracked the code on how to have kids it should be Italy it's not any better in Spain moving over into new Europe Poland looks pretty bad too and then the Russians assuming these numbers are accurate because they tend to lie about you know statistics other Russians are flat-out dying out Brazil there we go country the future right this is where we put our hope look at the number at the top of this chart this is Brazil in 1990 here's Brazil today Brazil is aging at six times the American rate they will be old long before they become rich in fact the average American will be younger than the average Brazilian by the year 2040 - the average American is already younger than the average Chinese citizen there's really only one place on the planet that has young people in any volume and that's Mexico but you'll notice those four bottom bars how it kind of drops straight down the baby bust thirty years late has arrived in Mexico now we're well before the point of no return this could still turn around but Mexican imports labor import to the United States have been negative for ten years running now so you really your only option is to go further south into Central American I don't know arrange a convoy in fact aside from the United States there's only two countries on the planet that have sustainable demography and while the French commander II managed the catering and the Kiwis can man the bar a global system that does not make this system was on borrowed time before the United States decided to bar back away and that's just the first piece without consumption there's no global order but there's something else you need security the global system requires a military power to hold it together and without that these are the zones that are likely to see the greatest disruption moving forward because these are the zones that have seen the greatest civilizational tectonic plate action if you want to put it that way over the last millennia the one exception is under the global order where the Americans forced everybody to be on the same side but you remove the Americans from that equation and history restarts these are the places that have seen the greatest economic growth and it's largely a base effect because we removed security from the equation we're just going back to the norms now the person you need to watch most is not Donald Trump I mean don't get me wrong he's entertaining but this is the guy who's making the real decisions this is Robert light Heiser he's the US Trade Representative and he is responsible for the negotiation and enforcement of every trade deal on the books in the United States he's been a very busy boy of late now this is not his first stint in government light hyzer used to work for Reagan you guys remember the plaza Accords 1985 quick war story so back during the first Reagan term the Reagan administration noticed that a lot of the Allies were doing things that we weren't really fans of for example the French the Germans the Brits the Japanese they were all intervening in currency markets pushing down the cost of their currency in order to boost exports to the American system Reagan saw this found it distasteful but the Cold War was running hot and heavy he didn't want to rock the boat he needed the Allies all lined up on security issues so he looked the other way but by the time I got to 1984 things had changed Reagan would never face another election Gorbachev was rising to power and the Cold War was warming up so the Reagan team pulled the Allies together at the Plaza Hotel in New York and says look we see what you're doing you're gonna stop you're gonna stop today because if you don't we will pull out of the global order and you can deal with the Russians by yourself because we now have a side deal it worked the intervention didn't just stop it reversed within six months the US dollar had dropped by half light Heiser was the Reagan administration's hatchet man assigned to Tokyo to make sure the Japanese did not renege on the deal and whenever he got his marching orders he would walk into the Ministry of Finance lay out the American position instead and then when the Japanese were issuing the rebuttal he would take off his translator microphone disassembled on the desk in front of him have a little GI Joe with the war board the pieces you when the Japanese were done he'd reassemble it put it back on and say well that was that was absolutely riveting but we're gonna do it my way right he doesn't negotiate he imposes he makes sure that he holds all the cards and then he just goes so far he has concluded deals with South Korea with Mexico with Canada with Japan and we'll probably have a bare-bones if not a complete deal with the United Kingdom done by the end of the year those five are all the United States is concerned with because those five represent a majority of the American trade portfolio there is not going to be a deal with China there is not going to be a deal with Europe which means the tariff levels that are in place today are the new floor for international trade no order and if you don't have a specific deal with the United States no security and that's just the start of the conversation there are four big tools that light Heiser is bringing to bear number one energy the United States becomes a net oil exporter this year it is already a net exporter of every other energy product that humans use I urge you to think of stability in the international energy markets is no longer in American interests because in an environment where the global system is disrupted the United States is not and it gives every American corporate power a competitive leg up on everybody else I strongly urge you look at American foreign policy in places like Iran and Venezuela in that light disruption is now good for business next up steel and aluminum an automotive for those of you who have been following the trade talks you may have noticed that these details steel aluminum automotive are not included in any of the trade deals that is so light Heiser has am in his back pocket he can pull them out it at any time to shape any negotiation he wants in addition it's not limited to trade Trump has them in his back pocket and uses them to force compliance on whatever issue he wants even if it has nothing to do with goods exchange and then finally the currency market now you guys deal with almost an exclusively dollarized product so this is probably a little bit out of your bailiwick but I urge you to consider how trade actually works from a currency point of view let's say you've got a load of Korean electronics that are being sold to the Brazilians the Koreans do not get paid in wong because nobody in brazil has or wants one and they don't get paid in Brazilian reals because no one in Korea has or wants reals so what happens is the Brazilians pay in their local currency the rial it's converted to US dollars on a secondary exchange and then it's reconverted into one which were given to the Koreans it's a three-step process with the dollar in the middle roughly ninety five percent of global trade uses this mechanism under Obama the last round of Iran sanctions were cyclists expressly designed to interrupt that intermediate step so that individual transactions or individual corporations could be blocked what Trump has done is taken a scalpel and turned into a machete so that it can cut out not just companies but countries and these sanctions have already been threatened against NATO allies and light hyzer is chomping at the bit to throw that against China because if this tool comes into play you don't simply lose access to the American market you lose access to all international trade and the biggest problem the Chinese have right now is that this is the guy in charge foreign policy debate within the administration right now falls into two rough camps and camp number one led by light hyzer you have a belief that the global system is flawed and out-of-date and so but it has to be able to secure some sort of national interest so be it in the second basket the global order itself is seen as part of the problem and that it should be taken down regardless of what else happens in this sort of environment it's just a question of timing before the whole thing comes crashing down all right let's talk about your world more specifically now this is the private capital curve this is all private capital from all sources to all American institutions and corporations starts in 2000 that little bump in the middle that's the 2007 financial crisis we basically doubled total private credit in seven years that was too much too fast and so we had a recession GDP fell back by about 5 percent since then the capital curve has recovered but at a much more sustainable rate much more similar to the century average okay this is our baseline same data but instead of absolute terms relative terms that little bump in the middle that's a doubling here's the eurozone and the time that we added doubling they had a tripling too much too fast their recession hit harder lasted longer some countries at least still haven't recovered here's Greece 7 fold increase in credit in seven years too fast the Greek economy has to this point contracted by 40% that's more than we went through during the Great Depression they are not done they probably have another 20 percent to go here's Brazil you don't have to put your hands up but if you like soap operas or 9:02 100 or game of through you know drama drama drama you have got to look into Brazilian politics it's just delightful last year the Brazilians had a presidential election and the two final candidates one of them was campaigning from prison where he had been convicted of corruption not indicted convicted loved it and the other guy the guy who ultimately won said that the the real problem with the Nazis is that they were just too soft on their domestic opponents Wow folks this capital cur that's what a lost decade looks like it's not as bad as Greece but it's still pretty bad and that assumes that the Brazilians get the politics right I think we should go ahead and pencil in a second Lost Decade for the Brazilians this is Indian Turkey two countries who have yet to begin their adjustments but who have already elected at know nationally ders who think of nothing think nothing of spawning a race riot at the drop of a hat in order to get a bump in the polls and then here's the People's Republic of China and let me just kind of bring that down for you yeah there are 2030 major reasons why I don't think China is going to be a unified state a decade from now in your industry this is probably the most important one China is the most over capitalized country in human history in both absolute and relative terms that little hook at the top that's what they call a capital tightening when the money is free when the loans are bottomless you can bit up the price of anything because you don't care what the price is this is one of the reasons why manufactured good prices have gone down why raw commodity prices have gone up neither those trends is sustainable again before the United States pulls the rug out from the global system now there are a number of things going on in the energy sector today I want to focus specifically on things that have a lifespan at least a couple of decades so let's start with price the taller the bar the greater the cost of producing crude the broader the bar the greater the volume of the crude out of any particular play now on the far right and black you've got the OPEC OPEC states lots of volume low relatively low cost on the far left you have US shale very expensive to produce and not a lot there now this is data that is dated this is from 2012 so 7 years old back then US shale cost about $90 a barrel to produce and there's only about 4 million barrels a day of it strategically significant but not really a game-changer since then we've had a number of breakthroughs and things like water management data processing drilling and here's where we were as of the beginning of the second quarter US shale today is almost cost competitive with Saudi Arabia and we are dealing with an industry that is still a juvenile so as these technologies get combined into a best practices suite I have no doubt that the United States shale sector writ large will be roughly cost competitive with Saudi Arabia by the end of next year and of course we're already out producing Saudi Arabia and the United States becomes a net exporter of crude this year as well so that's our starting point and within that one slide is a whole lot of detail let's start with guns on the right you have a jump carrier on the left you have a super on the deep blue sea without support from the land it takes seven jump carriers to hold their own against one super carrier there are 20 jump carriers in the world half our American there are 11 super carriers in the world all are American which means that one American aircraft carrier battle group roughly has the same projection based firepower as the combined navies of the rest of the planet now putting this force disconnect at the service of the global Commons is what makes the order work but pulling it back means that there can't even theoretically be a global order what is the product that by volume is shipped the most around the world oil when the R United States removes itself from the Persian Gulf and we are now have fewer troops in the Gulf than at any time since the 1960's and fewer troops stationed abroad overall than at any time since the 1920s that means it's left to the tender mercy of the local powers to figure out who's in charge Saudi Arabia have some Saudi Arabia and Iran have some strong opinions on that topic and now managing that dispute is not our problem it's Britain's its Frances its Germany's its turkeys its Japan's it's China's I don't know about you but I can't wait to see how that shakes out what about back home this is a map of all the shale fields in pink you'll notice that all of them are between the Rockies and the Appalachians which means the American midcontinent is the most supersaturated energy market in the planet now originally we were gonna have a keystone pipeline coming down this zone but between problems and Alberta problems in Ottawa and simply the the price structure of the Mid Continent it isn't happening or at least not anytime soon so this pool of crude of the world's largest pool isn't going anywhere and the nature of that crude is different from your average crude blend around the world remember shale production is different from traditional production normally you drill down through the cap rock you tap the pool it all comes up a little oversimplification but you get the idea that's not how it works with shale with shale you literally have to blast it out of the rock so in traditional formations the crude migrates through various rock strata picking up impurities like sulfur and Mercury along the way with shale that never happens it's trapped within the rock strata at the point of formation so it's super light and super sweet so not only do we have a crude pool on the midcontinent we have a very specific grade of crude and that changes the math now ignore the colors on this just focus where all the dots are and their size this is every publicly traded crude stream in the world that's over a hundred thousand barrels per day now that top left corner that's the light and the sweet stuff all US shale has hit that section and normally this isn't what people are after because it's easy to refine you don't need really 1990s technology to do at 1940s technology will more or less work just fine that's not what we've done because we knew new as recently as 2007 that the global crude stream was getting heavier and more sour so starting in roughly 1980 we retooled our entire industry in the refining sector to run on that heavy gunk here's the problem those purple arrows are pointing to Canadian and Venezuelan crude strains that are basically falling off the market in Venezuela it's because of civilizational collapse an Alberta it's because of price pressures that red arrows pointed at Mexican Mayan one of the many many effects of lopez obradors election in mexico is the complete destruction of crude production out of mexico which means everything that we have done here to make our refineries the best in the world has turned them into paperweights this disconnect the light sweet heavy sour disconnect is the new normal for the industry it is the biggest challenge of this industry faces luckily the shale industry also shows a possible path forward now this is the checkbook map every dot there is somebody with the checkbook because they can't afford to play the power bill now this is arguably the most important city in western civilization this is Marshalltown Iowa that's where I'm from this is Bismarck North Dakota should you ever find yourself in the neighborhood I strongly suggest you go to Fargo instead and this is not a rave this is the shale field in North Dakota now why is it lit up not because anyone lives there not because people are trying to stay warm although that's a reasonable expectation it's because of the transport disconnect now oil is a liquid you can put into a bucket you can put into a tanker car or a rail car and if you can't move it that that day that's fine just put an open tank it's not gonna go anywhere it's a liquid can't do that with natural gas it disperses so you have to have a collection a transmission in a usage system and that usage system has to be able to process the natural gas at the rate it comes in because storage is so difficult now in the United States we've got the world's largest most sophisticated most versatile natural gas distribution system and we can't keep up with the stuff that is bubbling up out of the shale fields as a by-product in the United States and only in the United States natural gas is essentially free what can't you do with a bottomless supply of it well you can burn it for power the blue line is average u.s. electricity prices you'll notice that it kind of flatlined back in 2007 when shale gas really hit the market even in New York that's the orange line it's basically gone flat to negative gray there's Texas ground zero for the shale revolution power prices have dropped back down by about 30 percent only California that's in yellow escapes the trend because as you all know consuming power in California's heartily encourage the producing it is usually illegal but we can't burn enough of it we're displacing coal out of the entire fuel mix and we just can't keep up with all the stuff that's coming so that brings its petrochemicals now you guys have seen some version of this before on the bottom left you start with crude oil you refined it to naphtha that turns into daughter products on the bottom right you start with natural gas you crack the ethane to make ethylene same general concept now normally you would only use natural gas inputs to make this relatively narrow product set because these are the products you can only make from natural gas and normally natural gas and BTU terms is about five times the cost of crude because it's hard to produce hard to store hard to transport but it's not here which means that we are using natural gas for this product set we are the only country in the world that now has an alternate feedstock for the both of our petrochemical work which means that the United States is the premier petrochemical power not just today but for the remainder of this century because these price trends have legs their structural they deal with the nature of production in this country now and they cannot be replicated on anything other than a generational time frame anywhere else in the world even if the global order were to hold so the question is can you keep up we face a bottleneck we don't have enough heavy sauer we have way too much light suite which actually enforces this and we will always have too much natural gas so can we build out our petrochemical system to take advantage of these disconnects so let's look at the inputs primary industrial commodity is iron ore here are our conflict zones the greener areas where it comes from the redder areas that it goes to you will notice that there's no disruption in the production zones roughly three-quarters of the world's iron ore comes from two southern hemisphere powers Australia and Brazil no problem there but here's where the Steel's forged Germany Russia Ukraine South Korea china-japan those are the world's sixth-largest producers and exporters of steel they're all in the conflict zones which means in this country if you want to avoid complete and utter steel shortages there's only one solution you have to find new places to put the steel together new foundries once you have the iron ore what's the single largest limiting factor in forging steel power who's got the cheapest power in the world right here heavy industry all of it is coming back because you can run this for almost any industrial commodity whether it's rare earths or aluminum and the pattern pretty much holds let's talk manufacturing when you're talking about multi step manufacturing systems no country can do it completely by themselves so what I've done here has put together the numbers for where the various components that go into you American manufacturing the greens are ones that in this new global disorder that we're facing aren't going to face significant disruptions when you get into yellow you're probably talking about a quarter it being disrupted and when you're talking orange probably half it isn't a perfect picture but there's a lot of green up there in a fair enough amount of yellow these are the sort of disruptions that given a few years the United States market and the aftermarket in particular can work its way around that's not the case in Europe the German system is far more integrated with foreign countries than the American system both as a percentage of the overall value added and in the exposure that they face once you start getting into those red arrows you're talking about three-quarters if not more disruption the German manufacturing model will not hold in its current system even if demographically they were able to retrain and they're not they're not gonna be able to have the trade access to continue being the Germany that we know and that's nothing compared to what's going to happen in East Asia tries the Chinese might they simply have not turned the corner and they are way to dependent upon technology imports and other manufactured systems that they can't replicate themselves so even if the Democrat graphics argued for them even if the capital structure argued for them even if trade access argued for them somebody like light Heiser who has a really bad hair day can bring down the entire Chinese manufacturing system and then the final piece I want to talk about is labor now this is my global stability map blue countries are the ones that are going to rule the future they can't screw it up even if they tried and some of them will try oh so very hard greens still looking pretty good yellow and brown is where things start to fall apart the countries in yellow have something going for them maybe they're self-sufficient in energy or food or the population is uniquely unified to face the challenges of the future they're still gonna probably lose more fights than they win but they're gonna hang in there Browns no the Browns are utterly dependent upon the global system in its current form as maintained by the Americans and they lacked the power demographically economically financially militarily to impose a new system even in their own neighborhood that will survive more than a few years and then the Reds those are the failed states I'm gonna zoom in now on Eurasia and those hashes that's the world's skilled labor pool anytime that you are someone with a portable degree and some financial assets and you find yourself in a yellow brown or red country you get out now the last time something like this went down it was the 1840s and 50s we had the German civil wars we had the largest wave of migration to the new world that we have ever seen one of the reasons are so many Germans in Illinois and Texas is because of this factor we're going to see that happen again now think about what that does to the world we're going to be in an environment where there's going to be absolutely shortages around the world and absolute consumption shortages around the world and then we're gonna see brain drain to the United States on a scale that we have not seen in 100 two years now for those of you who are Gen Xers or boomers this is kind of cool because it means you're gonna be able to hire a 50-something German engineer who knows how to do everything in his or her sector for peanuts or you could hire a sandal-wearing scooter writing millennial who thinks he's going to have your job in three years your choice alright I think that's plenty to think about for now if you're finding yourself in need of a doorstop or maybe a coaster accidental is where it all started how the world came to be in the shape that it is today the international crises that Americans are most likely to care about absent picks up with the shale revolution plays it forward shows how it's remaking the American industrial experience and the wars that will erupt around the world as a result this United Nations comes out in February and it goes through the countries of the future the ones that will actually be able to do very well in the chaos to come we've got about 15 minutes for questions so fire them off go ahead just put your hands up we've got microphones roving Quinn Smith with Aviva and that was very interesting how does the nascent AI machine learning industrial 4.0 and that disruption playing to all this labor centric you know world you outlined I'm glad that you referred to a correctly machine learning AI as one of those terms that makes us all think of you know Skynet we have seen no capacity from Silicon Valley and no claims from Silicon Valley that machines can think or that they're going to be able to think within the next 40 years so they're not gonna be able to pass the logic test of a two-year-old anytime soon machine learning is absolutely what's going on it's the optimization of a binary decision point and that will still have significant gains for us and finance and manufacturing and everything else the biggest impact you are going to see in the next 15 years as on optimization of supply chains not from a security point of view but from a number of supply chain steps point of view because of the new manufacturing techniques especially things like additive manufacturing mean that we're gonna be able to make a car with instead of 30,000 pieces with 2,000 pieces and that means this long gangly manufacturing structure that we become used to all this thing gets a lot shorter and because of what's going on with machine learning it's going to require a different skill set of the type that first world countries as a rule or better at so you're these gangly continent oceans spanning supply chain systems those are going to go away because of AI even before we start thinking about changes with insurance and transport and security so it kind of rolls into there as a general reinforcing trend for a lot of what I'm discussing here yeah Tracy Griffith Worley hi hey wait hi last year at ECC we had a presenter that talked about alternative energies disrupting some of these futuristic geopolitical plans as well as the Millennials and others perspective on green energy and alternative to petrochemicals how does that factor into some of your equations and thoughts sure full disclosure I'm personally I'm agree and I've got solar panels on my house he just got activated this morning I'm really excited to see what happens to my power bill in most places it doesn't work if you look at a map of solar radiation and wind intensity and you look where everything overlaps and where it works and where it doesn't there's only about seven countries on the planet they can appreciably get more than Oh 20-25 percent of their power from current green technologies the United States being the first world power that is closest to the equator is on that list Denmark Australia South Africa United Kingdom Argentina you know those are some of the others and that's about it in most places we have discovered that if you go with today's technology you're actually increasing your carbon footprint because you will never be able to generate enough electric power from solar panels to pay back the cost of producing them in the first place that is certainly the case in places like Canada and Germany I mean no offense to any Germans in the room but the Sun does not shine in your country why in the world would you put up solar panels and so they've put up about one and a half trillion euro of infrastructure their power bills have increased by a factor of five and their carbon emissions had increased so ideology is nice if the technology is ready to support it and in most places that is not the case now the interesting thing for people in this room is that most of you are in Texas and that's one of the few places in the world where it works the Great Plains are great for wind West Texas is great for Sun the first u.s. metro city of size fully 100% renewable is going to be dallas-fort worth and I don't think there are any environmentalists in dallas-fort worth they're doing it because they like free things and it makes sense there but you're just not gonna see you'll see that wave of Technology and regulation going around the world no argument there it's just not gonna work in most places until we figure out the storage side of the equation and we know it's not lithium we really can't move past 20 to 25 anywhere we got one up here yeah go ahead Dewayne Boudreaux with ref Kim burns a McDonald company so we have Robert light Howser chief negotiator working for a guy that wrote the art of the deal how's this play out our our stock market a lot of volatility yet we're still double compared to when he took over how's this play out over the next let's say six years you said six years instead of six months yeah tactical stock stuff I don't do that light Heiser is the guy who wrote the WTO Charter so he knows exactly where to put the knives in order to cause as much pain for whoever's across the table as possible he's done a fairly good job of hit light Heiser is also the only person in the Trump administration that Trump actually gives leeway free rein - there's an incredible amount of trust between those two probably a year from now light Heiser will be the only member of trumps cabinet who was there at the beginning everybody else has been cycled out so Korea that one is already done and ratified Mexico and Canada that will be ratified later this year Japan was just completed will probably be ratified later this year the United Kingdom negotiations are gonna be a little more interesting because light hyzer first has to break the British will to live before he signs the deal but that won't take any more than eight months that's all of them the rest of it everything else that is on light Heiser's plate is sheer fun so he can't wait to treat the Chinese like he really wants to he just wants to get the British thing taken care of first and then the European Union is next so we're gonna see a broad breakdown in trade relations in the best case scenario across both oceans that's assuming all these other issues that I've been discussing don't overtake events but we are looking at the collapse of the global order from both an institutional point of view and a day-to-day economic point of view so if you are one of those companies that still has a lot of manufacturing in China I mean a you've not assume at this point that every technical secret you have has already been stolen B as soon as the extradition law and Hong Kong goes formal the Chinese are gonna start arresting executives foreign executives because the extradition law doesn't just apply to mainlanders or to Chinese citizens in Hong Kong it applies to everyone and third if you can even put up with that you're gonna have to start actively participating in Chinese propaganda on everything regardless of if it deals with the Chinese military the American military things like Tiananmen Square whatever it happens to be that is going to be the bar that you're gonna have to pass to remain a presence in the People's Republic so with that sort of risk I mean it's not even about reputation at this point it's about whether or not your companies can even function as a national for a global whole we're going into a reen a tional is isis re-nationalization of the global trading network Samsung has given us an incredible insight as to how you can do that Samsung used to be one of the countries that was her company's excuse me that was most invested in the mainland China and then there was a nationalist spat between South Korea and China about 2012 and Samsung started diversifying away five years on less than one in ten of their inputs actually come to the mainland anymore so it can be done it can be done quickly but it does require a certain mindset shift something to consider is that most independent studies say that today because of cost increases in China regulatory increases in China and especially the demographic change in China you can build most things outside of China for the same price you can build them inside once you have paid for the sunk cost of the Industrial Development and I realize that that number is not zero but this is not a broad scale economic collapse in the next six years your timeframe this process at least as far as North America is concerned is going to be completed because the capital is there the labor structure is mostly there and the skilled labor structure is going to be coming anyway so we're gonna get through this it's not a straight line there are a lot of bumps along the way and Donald Trump loves his Twitter account but over the long term this looks pretty good and we're done thank you so much Peter really appreciate it here's a little gift arrived on the board and yeah it's got some weight to it Peter's gonna be sticking around from during our network break so if you have any more questions feel free to find him he's one of the tallest people here so you shouldn't be too big of a problem we will meet back in this room at 9:50 for our next featured speaker so enjoy the networking break all right you

Channel: The ECC Association

Views: 134,789

Rating: 4.8557115 out of 5

Keywords:

Id: sfyrURHpUcM

Length: 56min 56sec (3416 seconds)

Published: Tue Sep 10 2019

Reddit Comments

[u/BandsomeHeast]

someone on a Zeihan hype and I love it! ;)

I understand lots of people find him utterly ridiculous but at the very least he puts some darn interesting points across which would require a darn good counter-argument to refute

[u/Basedshark01]

Crazy to see how popular Zeihan has gotten in just the past few months.

[u/I_heard_a_who]

Thanks for posting, Peter Zeihan has an absolutely fascinating job.

[u/tin_mama_sou]

Thank you for posting. Interesting analysis but very one sided and super optimistic and pro-American. I would be very surprised if things turn out the way he thinks they will turn out.

[u/john_carver_2020]

If you guys haven't checked it out yet, you should listen to his interview with Patrick O on the Invest Like The Best podcast.

[u/hidflect1]

He's pointing out exactly what the US plan is with China. Currency is their weakness and that will be used to break them.

https://youtu.be/sfyrURHpUcM?t=1513