Peter Zeihan, 2019 Land Investment Expo, Turning Millennials' Consumption into Investment Strategy

[Music] I'm happy to say that all this talk about the end of the world is overblown and we're just gonna be just fine there's not gonna be a trade war everything's gonna settle oh yeah that's that's utter crap it's all going straight to hell folks but before we talk about the end of the world let's talk about the beginning this is what global trade used to look like we did not trade goods we traded ammo and if we saw something that we thought we wanted we went out and we took it we colonize it we confiscated it we expanded into empire and those empires clashed over resources and access and markets and those clashes turned into World War two which brought the entire system crashing down at the end of that war the Americans the last people standing change the rules we brought our allies together and we tried this thing called free trade we used our Navy the only one to survive the war to patrol the global oceans so that anyone could go out anywhere and purchase any raw commodity and bring it home process it into a finished good and then re export it for hard currency there was just one cash you had to be on our side versus the Soviets we bribed up an alliance and it gave us this map the deep blue those are the countries we cared about before the war the medium blue those were the new allies in this new global order orange those are the other guys we don't like to talk about them in this country and then the light blue is what really matters that's the field of competition it was a global contest we could never deny battle but then one Idol Tuesday in the very definition of pent-up demand the Germans had a party and it was over and the Americans didn't know what to do because for the last 40 years we had been living in the shadow of nuclear Armageddon but that was now gone and the map changed the places that Americans care about change and there's a lot of gray up there a lot of places we really don't have a strong opinion on now the person who is in charge during the trans back in 1989 was George Herbert Walker Bush who from a foreign affairs perspective is the best president we've ever had he grew up in the DC bureaucracy ran the CIA for a while had first-name relationships with every world leader and everyone who Madeleine on either side of the political aisle here in the United States he was the right person with the right skill set in the right job at the right time in us being Americans we of course voted him out of office and we started down what I like to call the parade of morons Bill Clinton with the possible exception of Jefferson is the most intelligent president we've ever had but he had a how should we say an attention deficit issue he saw himself as a domestic president and so whenever there was a summit he was like okay I guess I got to get ready for it now and he'd hunkered down with the State Department and the CIA and kind of crammed for the summit like he was in college and it was the test the next morning and he would hit it out of the park every single time but there would be no follow-up so in eight years we had two months of foreign policy then we had W and let's call it what it was we had a monochromatic foreign policy that dealt with one issue in one region and to hell with the rest of it Barack Obama comes along and Barack Obama was an interesting cat in his final year as president he gave a series of multi our kind of exit interviews with the media where he demonstrated a command of the context that I have never seen an elected leader ever why the technologies for green power as they exist just don't work why the israeli-palestinian process will never generate peace why the Russians do what they do but he had a weird personality quirk he loathed people no American president has ever had fewer meetings with their cabinet secretaries or gone to Capitol Hill than Barack Obama well with the exception of Harrison who died like three weeks on the job from pneumonia Obama beats him but nobody else so for eight years we didn't have a foreign policy in the world got stream because we were still providing all of the strategic ball work that allowed the world to function that allowed free trade to exist but we weren't getting anything on the security side back and a series of countries that had never been significant economic powers ever rose to prominence places like South Africa and Brazil and South Korea and Poland in India and Russia and of course China the glory the horror of Donald Trump is at its core he's got a really good point strategically the global order is no more longer serving American interests but economically it was never supposed to we subsidize the Alliance the Alliance fights the Soviets that was the deal where does the American system fit in this strange new world without the rubric of the Cold War we don't and that's fine because remember global trade was the bribe there's about 30 major reasons why the United States is going to be just fine in a world without a global system I'm gonna talk about five today number one trade we don't do it trade was the bribe where the least involved economy in the world last year only about 8% of GDP came from exports about half of that's within NAFTA so the u.s. can have a regional trade system without meeting a global trade system second energy the broader the bar on this graphic the more crude that comes out of the country OPEC is there on FARC and the far right in black the taller the bar the greater the cost of producing the crude and this is full cycle this is everything from exploration to tax us shale crude is the light blue bar on the far left now this is data from 2012 so six years old back then we produced about four million barrels per day of shale crude it was important it was strategically significant but it really wasn't a game changer and it was pricey since then we've had breakthroughs and things like water management seismic and drilling and here's where we were as of three weeks ago folks energy independence is not something for the distant future functionally were there now technically we will probably be there in about ten to sixteen months the last link between the United States and the broader system the last economic link is breaking right now third demography now this is a standard demographic profile this is India and a demographic profile you've got children at the bottom then young adults mature adults and retirees at the top men on one side women on the other simple mortality build it into a pyramid now India here is a consumption lead at demographic whenever you have a bulge in your population below age 40 it's all about the spending kids cars college houses pot spend spend spend spend spend it but they're new their incomes have yet to expand to match their needs so it's college loans car loans mortgages it's high growth but also high debt requires a lubricated financial system funny thing about a young demography like India it does not necessarily need to trade with the outside world because all those young people can consume most of what the country produces that's not the case for Korea they had a baby bus circa 1980 never recovered so you've got a big bulge there above 40 40 to 65 now this is the mature worker category these are people who the kids have been sent on their way the house has been paid down but they're at the height of the careers their earning power is very high a system like this is gonna have a big tax base and all these folks who aren't spending very much they're investing the difference those was a lot of capital sloshing around the country like South Korea is gonna have great infrastructure good career mid-career tree training with good mid-career training and and highly value-added industry but it has to export because those older workers aren't gonna buy all of those Samsung phones it has to be sent abroad now if you're not careful with your demography eventually you end up like Japan interesting problem the Japanese face how do you run a first world economy without a workforce there's a reason though the world leader in automation now a funny thing about robots they don't vote yet which means it doesn't matter where you put them so Japan has become the leader in not outsourcing or resourcing but D sourcing where they pick up big chunks of their industrial plant and plop it down in other countries to get on the right side of currency and political risk but most of all to service a growing demographic so that they can then build will they where they sell the four largest facilities that toyota has Texas and Kentucky they're trying to purchase a relationship with the United States so far so good speaking of the US here's us we're kind of in the middle now two things about this one I draw attention to you see there's kind of a double ball to the top bulge there that's the baby boomers though the largest generation is a percentage of the population that the United States has ever had and their numbers in that capital rich demographic have made the United States capital rich unprecedented Lee Capital rich perhaps just a little too capital rich they're nearing retirement and they're shoving money into investments that are riskier than they would normally go for because they're trying to get that mythical extra 1% of return before they're done and that is a prompted them to put money into things that in retrospect maybe weren't the best idea this is Enron this is subprime this is disco none of this should have ever happened and by the year 2022 the majority of the American baby boomer generation will have moved into retirement and all those perspective in we'll be liquidated and the stocks and bonds will be turned into tea bills in cash because they won't be able to take the volatility because their income is gone we are right now in the lowest capital costs in history because of the baby boomer capital flood and in three years it's not just over it inverts because they'll be drawing down their investments there'll be less interesting investments and they'll be drawing pension and healthcare costs which means in three years the cost of capital is going to quadruple on average next gap down the baby boomers they're the second largest generation of the Boomers kids now normally I would like to spend about a half an hour each presentation denigrating the Millennials because you know easy target don't have that time today so what we're gonna do instead is talk about well we should all be grateful for the Millennials three reasons only three so number one consumption all those fidgets spinners and all those bedazzled flip-flops and all that fat free soy free gluten free sugar free cruelty free beard butter it all adds up boomer conceptions mean millennial consumption has kept the United States out of recession since 2009 and they're young enough and there's enough of them that probably has another four years to run that's fantastic second if you fast-forward to the year 2030 when the Millennials have matured and defined the word mature however helps you sleep they will fill out the ranks of the taxpaying class in a way that that small Gen X generation never could so everything you have heard about the snakes swallowing the watermelon of the fiscal crisis with the baby boomers that is true listen to that prepare for that but there is a light at the end of the tunnel it's not a train it's a millennial whether that's a plus or a minus I guess depends upon where you stand on the issue of Millennials third we think of the Millennials as the end all and be all but they're really all alone in the night everyone else in the world had a Bey phoebus kind of like Korea and if you look at the rich world demography without the Americans in the same year 2030 it's a disaster this isn't a snake swallowing a watermelon this is a snake swallowing a freight train and this alone is more than enough to kill most of the countries out there in the wider world so today courtesy of the Millennials the United States at the top consuming power and today courtesy of the boomers the United States is the top investment power but in just 11 years the United States is the only consumption power and the only investment power we are the in the great transition just as the world needs the United States as the United States becomes the only country capable of absorbing global exports its lost all interest in doing so forth geography not a hard sell for this crowd the tan area is the greater Midwest single largest chunk of contiguous arable temperate zone high-quality farmland in the world as important as that is it's really the blue lines you guys are gonna hang you get it moving things from A to B is kind of a but if you floated it's only 1/12 the cost the greater Mississippi by itself has more miles of navigable waterway than the combined internal systems of the rest of the planet in addition forests and lakes to the north deserts and mountains to the south ocean moats on either side our chunk of North America is not just the richest territory in the world it's the most securable we are condemned to being an agricultural industrial financial and military superpower decades of bipartisan effort have yet to screw this up and we are not going to figure out how in the next few years and then finally in this time of change who holds the guns kind of matters now on the right you've got a jump carrier on the left you've got a super carrier there are 20 jump carriers in the world half our American there are 11 super carriers in the world they're all American it takes seven jump carriers to equal the firepower of one super carrier in the deep blue sea one American super carrier battle group has more long-range combat capability than the combined navies of the rest of the planet at current rates of global naval build out the rest of the world combined will roughly equal American naval power in the year 20 to 40 I am not losing a lot of sleep over this but add that up and think about what it means the only country that can theoretically hold up the global order is the only country that has the guns is the only country that has no interest in doing so for the people on this planet whose economic and physical security is completely dependent upon American involvement that's quite possibly the worst outcome of all and if you remove the Americans and let the chips fall where they may local powers whether out of desperation or opportunity are going to feel compelled to look after their own interests that means we get dozens of brushfire rewards with these being the most intense shooting zones folks that's three quarters of global energy shipments and three quarters of global manufacturing supply chain setups and three quarters of global agricultural shipments and what does it all have in common the Americans really don't care it's not their trade and for the most part it's not even their allies it's nothing less than the end of the world that we know which means it's important to understand the dude at the top right now now when Donald Trump rode that in gold an escalator down three years ago I think everybody thought it was a joke pretty sure he was convinced it was just a PR ploy then lo and behold and a year later he was in the White House and the Republican establishment was like holy crap how did this happen we didn't even know he was a Republican he was a card-carrying Democrat for 35 years okay but he's got our bumper sticker now so let's put together a team to put in front of him that he can pick from for his new cabinet so hopefully you know we can you know make him a Republican posthaste the allow me to introduce to you the axis of adults now the first guy in the room was rinsed previous chair of the Republican National Committee it was his idea to stack the cabinet he became chief of staff and he tried to impose Republican orthodoxy upon the freshman president in essence he tried to tell Donald Trump how to think so he was gone in a year Rex Tillerson came in he said mr. president you got to understand when it comes to foreign policy that most Americans work for a small and medium company and those companies don't trade at all most of America's corporate position in the wider world is the Fortune 100 companies like Exxon so you have to plan policy with that in mind so he started running his policy from a corporate point of view and one big thing that big corporations don't do is read Twitter so Trump would tweet something until her sin would ignore and just do anything else and then it never the two would meet so he was gone Gary Cohen came in to explain the importance of global financial flows to New York well that that sounded suspiciously like math HR McMaster came in from the Defense Department to speak truth to power well that got tedious fast general Kelly became the new chief of staff and he did something interesting in his first week in the White House he didn't say a thing he just stepped back and watched the show after a week he stepped forward like mr. president I think I figured out the problem you don't read the State Department and the CIA briefing books every morning you wake up at 3:00 a.m. you get on Twitter you watch Fox and Friends and those are your only information feeds and you make policy off of that so what we're gonna do is we're gonna improve your information feed so I'm gonna take that phone I see what the general was going for he did put his finger on part of the problem but I know how I would respond if someone took away my phone to the degree that Kelly was still there the last half of last year he was really just holding down the carpet and now he's gone to Dutchess left general mattis at the Defense Department he became the only person in the administration that could still talk to the president about things like the consequences in context as a result the last three months of last year he wasn't even allowed in the room when strategic policy was being discussed when the meeting was over someone would hand him in his orders and he'd be dismissed off to the Pentagon to implement them his last day was New Year's Eve folks that's it they're all gone so this thoughtful deliberative cautious president we've all become used to is now going to change we now get to see Trump unleashed the pace of change is about to skyrocket there's really only two people in the entire administration that have any autonomy or authority to discuss foreign strategic or economic affairs now the guy in the right he's fairly famous and that is John Bolton he's the national security adviser he has a reputation for being a prick that doesn't mean that he doesn't know what he's doing this is not his first stint in government he served under the W administration he was responsible for the North Korea portfolio and as part of that he basically tricked up an 18 nation alliance that included Russia China Japan and France to go and board North Korean vessels it stopped missile proliferation it worked it's still working the country that he wants to take down as the People's Republic of China now the guy in the left maintains a much lower profile that's Robert light Heiser he's the US Trade Representative and the USTR is responsible for negotiating and implementing all US trade deals he's been a very busy boy of late now this is not his first stint in government either back in the 1980s he worked for Reagan now the first Reagan term quick quick digression digression that quick digression quick war story in the 1980s first half of the 1980s the Cold War was running hot and heavy we had a nuclear scare over Berlin and some of the allies the rugged administration notice we're doing some things that we really weren't fans of the French the Germans the Japanese they all intervening in currency markets pushing their currencies down pushing the US dollar up which allowed them to export more to the US market stabilize their own home systems but Reagan really needed all the Allies standing shoulder to shoulder to fight the Soviets oh he's willing to look the other way but come 1985 things had changed Reagan's reelection was over he would never face another election Gorbachev was rising to power in the Soviet Union so the Cold War was getting calmer so he drew the Allies together at the Plaza Hotel in New York and said look we see what you're doing and you're going to stop because if you don't we're going to pull out of the global order and you can deal with the Russians on your own we have a signed deal within six months not only had the intervention stopped it had reversed and the US dollar dropped by half-light Heiser was the Reagan administration's hatchet man assigned to Japan and whenever he got his orders from the White House he'd go over to the Japanese Foreign Ministry lay out the American position and then when the Japanese started with a rebuttal he would take off his translator microphone disassemble it there in front of them and have a little GI Joe war with the pieces while they presented when they were done he put it back together put it back I was like oh well that was that was absolutely riveting but we're gonna do it all we're gonna do it my way right this is the guy who's also number one target is the People's Republic the question in my mind is not are these two gentlemen trying to wrestle China into a subservient position it's whether or not they're just trying to crash the Chinese sysm system outright because that would be easier so let's go through the folks that matter president moon of South Korea was the first leader in the door he said I want to deal no matter what version of the world after the order well no matter what it looks like I have to get with North Korea and Japan and China and my country cannot exist without American boots on the ground so whatever you need to do to adjust our trade deal to make sure that you're still involved let's do it they caved on everything is it enough to make sure American troops will still be there when the time comes don't know but it was the only way there was a possibility the next country up is Mexico now on the left there you've got Pena Nieto he is quite possibly the best Mexican leader we've ever had as a negotiating partner on the other side of the border speaks fluent English pro-american pro-business pro trade wanted to do deals with us on security and migration Barack Obama would not give him the time of day and Donald Trump has given him nothing but insults massive wasted opportunity taking over for him as Lopez Obrador he's weird cat he combines the blind ideology of Ted Cruz with the shrillness of Elizabeth Warren in the anti-foreigner sentiment of Donald Trump and the body of Nancy Pelosi and the pathological refusal to engage in basic mathematics of Bernie Sanders all-in-one guy therein lies an opportunity he knew that if he tried to be a foreign affairs president he'd just be in a pissing contest with Trump he sees himself kind of like Bill Clinton as a domestic leader domestic renewal so he reached out to Pena and he reached out to Trump and says look if you two guys could agreed on what the next NAFTA is going to be I'll get it ratified so far he's been a man of his word white hyzer team took that deal and went north we have any Canadians in the room security of there's one over here all right this is Cristina Freeland she is the Canadian foreign minister in my opinion she's one of the top 10 smartest people Western civilization has ever produced three years ago I beat her in a debate but she's foreign minister so let's just call it a wash she realized five minutes into her first meeting with Donald Trump that she was absolutely the wrong person for the job Trump has this little foible he feels he absolutely must be the smartest person in the room and that was never going to happen as long as Freeland was in the same zip code she knew that she needed someone with a tight body and a skin close outfit and fantastic hair and a wonderful smile to put in the front just knot and smile never say anything and she found the perfect person Justin Trudeau is by far Donald Trump's favorite world leader because he never speaks he just stands there nods and Trump's inner monologue fills in the voids it's very complimentary the Canadians call it the hug offensive and it was working very well until mid last year when Canada had to host the g7 summit and all of a sudden Trudeau actually had to speak and for the first time of trumps presidency what Justin Trudeau was saying was not matching the monologue and he got pissed and relationship the bilateral relationship collapsed in a day literally a day and light hydras like oh yeah see Canada had been dragging its feet in the talks he's like you know nothing's gonna happen without our agreement we're too important but now that the relationship had collapse he was like we've got a deal with Mexico Mexico is the larger economy Mexico is growing more quickly Mexico has the better demography Mexico is the country the future you're just Canada and without the global order you're nothing so you've got seven days to agree to our terms or we'll just do it without you it only took six Shinzo Abe a thought he had a deal he was the second world leader to visit Trump after the inauguration and they cut a series of agreements on security and naval cooperation and intelligence and then all of a sudden the United States slaps Japan aluminum and steel tariffs and he's like what's going on here we had a deal you and the carriers were being fraught and all the allies were gonna be hiding to you it was gonna be glorious we were to take down China in terms like oh that's interesting that that's what you thought because that's totally not I what I was doing if you want to take down China you're gonna have to take down China in fact you're gonna be in front if you want any deal whatsoever quit holding out for a multilateral one that does not allow us to use our diplomatic military and economic leverage to the most this is not the order you cannot trade guns for butter we can use guns we can use butter and we can use it to get whatever we want from you but if you want any economic relationship with us it's going to be a bilateral deal not that we negotiate that we impose and obvious like oh he clearly doesn't mean that so I'm just gonna keep stalling for time and then all of a sudden the Americans had a deal with South Korea and Mexico and Canada and four of Japan's five largest trading partners were already part of this new postorder system about a month later the Japanese started their bilateral talks they'll probably be finished up later this year Wow talk about somebody who's had a crappy last few months brexit was always always always going to end with a hard divorce there was never going to be a deal the way the European Union works if there is ever a big issue each individual member has veto power and there is no version of a brexit divorce agreement that could make Ireland and Spain and the Netherlands and Germany and France and the British Parliament happy there's no way that this could go except for a hard brexit which means the United Kingdom is facing down an economic depression that's going to take 20% off of its headline GDP over the next three years that is unavoidable that is baked in and those are the situations in which the United Kingdom is coming to the United States seeking a bilateral trade deal now the last time Britain was in this situation it was world war two they were on the ropes versus the Nazis and FDR got a call from Churchill and Churchill says look if you're not going to get in this fight at least give us some equipment in FDR's you know we've got these old super crappy destroyers that were obsolete when we floated them 25 years ago that your sailors made fun of we you want those in churches like I guess it's better than nothing yeah sure we'll take those but they're not free as payment we'll take every single military base you have in the Western Hemisphere fine uh what's the magic word please and for the next 50 years the United Kingdom was a strategic subservient nation to the United States we're gonna do that again with this new trade deal because the Brits have no leverage at a minimum it's gonna cost them the London Financial Center well if there's a world out leader out there that does not understand Donald Trump its Angela Merkel she thought she could win him over with a history lesson Michael you did not study ahead for this one she came in to explain that Germany's in the middle of the northern European Plain which means that it's got rivals all around it and the only way that the Germans have ever discovered that they can exist in that environment is to be better stronger infrastructure a better educational system and more advanced workforce a more sophisticated technological base but you take anything as big as Germany and you make it as an advanced as Germany and it's very existence threatens everyone around it so European history is this horrible pendulum that swings between periods of extreme German strength which causes a pan-european Alliance to tear them down in a war and then extreme German weakness where Central Europe becomes a black hole that sucks everyone in and she says mr. president do you realize that if you do what you say you're going to do if you remove the security overwatch that allows us to get past our history and our geography but that's not just the end of NATO and that's not just the end of the European Union that's the end of my country his response well I do now oh she thought she could just educate him and that would be enough and that he would continue doing what the United States had been doing for the last 70 years she missed the transactional nature of American foreign policy beyond the order so on her way out the door Donald Trump gave her a parting gift a bill for services rendered for defending Germany since the 1940s for all intents and purposes the American NATO the American European the American German relationship died that day and we've just been going through the motions since folks if the United States has a trade deal with Korea and Mexico and China and Japan and Britain that's already half of our trade portfolio that's the end of the Trump administration's ambitions for trade because that's enough that the u.s. can probably avoid a recession even if the global system burns I know that's great not great for people in this room in the short term but in the long term it's gonna work really well we'll get there in a minute one more country president gee when he finally had his summit last March called ahead he said I don't want to meet in the White House I only have things I need to say to you that I cannot say in front of the diplomatic corps in the press corps so they diverted tomorrow log where where Trump could control the environment and she later dies that you control the global security environment global finance global energy the market we have to have access to we're in a tough time in China we're financially over leveraged we're facing food crises were more dependent on you than we ever have been before and we're in the midst of the most difficult political transition in modern Chinese history for me to me please don't pull the rug out from under me right now so let's talk about North Korea about the South China Sea about cybercrime about the trade deficit let's talk about it all and we made more progress in the next 11 months than we had in the past 20 years was it enough oh no not even close but it was interesting that she felt he had to tip his hand and if you ever think you've had a bad day consider President Xi who has now admitted that the physical and economic security and continuity of his government of his person is entirely dependent upon the even-keeled mood of the man on the left all right let's talk AG this is what it looks like outside right now that's why we're all inside this is actually really good for agriculture winter is one of the best things that can happen to temperate zone agriculture it's a free bug kill and it's a free soil regeneration phase for the soil it's free fertilizer free pesticide that's not how it works in Brazil brazil's agricultural zone is an area called the cerrado it is a tropical prairie and it has this kind of weird fibrous tree that kind of crowds out the roots of anything else so if you want to farm the sarado you have to take a bulldozer out there after it rains chained up these trees drag them out by the roots and then spend the next 20 years poisoning the soil with a lime until you kill the acid that leaves you with a soil that's the consistency and nutrient profile of beach sand which means you have to put three and four times as much fertilizer per crop that you would here not to mention you can never let up with pesticide because there's never a winter kill it's the most expensive input cycle for agriculture anywhere in the world next problem is geography this is an elevation map and that kind of oranges butterfly down there at the bottom those are mountains that are about the same high as the Appalachian chain you'll notice in the middle of the butterflier there's a break that's the city of Sao Paulo think of Brazil like a table that has had two legs knocked out but the high side is on the coast so any product you ship can't use a navigable waterway Brazil has none it has to go by truck to the top of that escarpment and then zigzag down on switchbacks to the coast highest transport costs for agriculture in the world that also changes the political oh yeah there's the one road all soy exports one road can you imagine they get 200 mile traffic jams every it's a harvest season it's a disaster anyway the social system now in the background there you've got the Copacabana you want to sip Capri Mia's on the beach this is where you go but look at the foreground concrete block and plywood buildings these are the favelas these are Brazil's slums the reason for the juxtaposition is pretty straightforward there's so little in Brazil that is easy develop that the only people who can become wealthy in Brazil are the people who started wealthy and had the money to put in the infrastructure into terraform the land everyone else is dirt poor this is the most unequal economy in the world and has been for 200 years an idea from a different angle how stark it is well guess which industry this inequality problem is the strongest in Ag their farms on average or ten times the size of what they are in the United States and we're not exactly known for having small farms here there's no way for a small family farm to even survive to even begin because the capital costs are so high upfront and continuing now the Brazilians recently elected this dude this is ball scenario his big claim to fame from his campaign was talking about how the real problem with the Nazis is that they were just too soft on their foes one in a landslide go Brazil granted he was running against a guy who was companion campaigning from prison where he'd been convicted of corruption in Brazil you can still campaign from prison I just find that hilarious now this guy is in league with the agriculturalists of Brazil so expect the regulatory burden and expect a lot more slashing and clearing to happen in the rainforests as they finally have a friend in power but if you combine the inequality of the system and we're just on the verge of a global capital crunch and there's only one road that takes all this stuff to market this is how social revolutions happen and since only one road takes it all you don't have to cut one road from Brazil to cease being an agricultural exporter we are in the final years of you facing Brazil as a competitor alright let's talk about good news back to home so here we are right now in balmy Des Moines and here's that hoppin cultural mecca of Bismarck North Dakota and this is not a lot of barbecues these are the shale fields this is the Bakken and it's about transport oil is a liquid you can hold it in a bucket you can put it into a rail car and if you can't move it that day you just leave it and it won't put in bad it's not gonna go anywhere it's a liquid it hold the shape in a container that's not the case with natural gas natural gas can disperses and so you have to have a dedicated system to collect it transport it and use it and you have to be able to use it at the pace that it comes in because storage is almost impossible here in the United States we've got the world's largest and most diversified natural gas transport system but we cannot keep up with the natural gas that is bubbling up out of the shale fields as a byproduct as a waste product of oil production what can't you do with a bottomless supply of the world's most basic industrial input well you can burn it for electricity we've seen power prices in the United States basically flatline for nine years because of that here in Iowa you are in the process of making that transition right now you were a 92 percent coal state three years ago you're going to be a zero percent coal state within 10 years forget regulation it's just hard to beat with free also you can use it for the chemical industry now to oversimplify this grossly overcomplicated chart the bottom left that thick blue or thick gray bar that's crude oil you refine that into something called naphtha which is then processed into tens of thousands of daughter products on the right side the lighter gray that's natural gas that gets cracked and turned into ethylene and that in turn becomes darter products of its own now normally you would only use natural gas for this product set because normally natural gas is really expensive because of that transport issue but in the United States because of the shale revolution that relationship has been broke a natural gas prices here versus oil are less than one-sixth of what they are in the global average so we are using natural gas for everything we possibly can we have converted our entire petrochemical sector to run almost exclusively on the stuff which makes the United States the lowest cost highest quality producer for almost every chemical input under the Sun for you specifically this is fertilizer and this is pesticides herbicides and fights you have a massive competitive advantage over everyone else on inputs right now and that's before we have another global energy crisis which will happen and when that does happen two things will go down number one with the speed of a tweet will shut off our export system and you'll have a ceiling on oil prices here of probably about 60 or 70 dollars a barrel but we actually use a different feed stock for all the inputs we use every day so you have manageable import crisis prices here and all your competitors and the wider world are basically screwed okay let's talk capital I hear that you guys use money so this is the private capital curve this is all capital to all private enterprises that are not financial institutions from 2000 the current that slope up to the peak that is the 2000s boom that is subprime we had a doubling of credit in seven years that was too much too fast we had a recession knocked 5% of GDP off we've since been growing again at something much closer to the century average much more sustainable I'm going to show you the same data but in relative terms instead of absolute so again that blue line doubling of credit in seven years here's the eurozone or the same timeframe they had a tripling their financial crisis hit harder lasted longer several European countries still haven't recovered Italy for example there's Greece sevenfold increase of credit in seven years they're a recession so far has knocked 40% off their GDP that's worse than what we went through in the Great Depression and they are not done they have at least another 20% to go here's Brazil under normal circumstances this is what a Lost Decade would look like but with ball scenario let's just go ahead and pencil in a second Lost Decade Indian Turkey two countries who have already elected populist leaders who think nothing of spawning an ethnic race riot that kills a few dozen people whenever they need to pop in the polls they have yet to begin their credit adjustments and they've already gone populist nationalist and then here's the People's Republic of China which is now the most over credit and country in history in both absolute and relative terms every economic cycle that they have every economic sector they have excuse me is already far more over credited than anything that anyone ever did anything that subprime ever did and the sector they had that is most in trouble is agriculture so when they finally have their pop not only do they face an economic depression in every sector at the same time they starve this is starting to percolate through the minds of people who move money this is a financial centres map every dot up there is a place that moves money now all of the Blues are global financial centres the orange which would be the the greens are regionals and the yellows or locals every single dot up there that's not in the United States has had a net transfer of funds to the United States for each year for at least the last four in total we are talking at this point in excess of seven trillion dollars of capital flight has come to the US market so we're in this weird world where we know because of the global baby boomer retirement that we're gonna be facing a steady drop in the Vale ability of capital but every time there's a geopolitical hiccup we get these surges of capital flight into the American market because there's nowhere else to go we used to share it with London but because of brexit London's no longer an option it can only come here the places that that money is currently going three big sinks number one tea bills not very exciting but you know it's rock solid number two residential real estate this is one of the reasons why property prices in the big gateway cities like San Francisco Santa Monica Seattle Miami New York have been so strong despite the fact that nobody is living in these apartments and then finally shale bonds because what these foreigners are looking for is a hard asset with a reasonable rate of return and ideally some sort of local government guarantee and all three of these check at least two of those three boxes but you know what they're really after what you have agricultural land in the Midwest is considered the gold standard for capital flight they just can't get to it now if you guys can figure a way to package this sort of money into something that you can actually use brilliant because this is dumb scared money if they get 50 percent of their cash back after ten years they're thrilled because it means they got half their money out quick war story I've got a friend who works for FBI financial crimes lives in Santa Monica and he had all the stories start the same day I was there sitting in my boxers eating my Cheerios watching cartoons when Dodd there's a knock on his door and it's two Chinese citizen one is a dude who looked like he was in his mid-20s and another one is a woman who looked like she was in her mid 120 s and the guy and pretty good English says this is my client Miz min and she would like to buy your condo and he's like I just moved here six weeks ago it's not for sale and he says well that's fine but if you were to sell it how much might you ask he's like well I just moved here so payment for the move I would want at least a hundred percent return ads make it a hundred and fifty percent and I've always wanted to live in Tuscany so how long would it how much would it cost to move to Tuscan for a year and then live there for a year he added up in his head gave him the number there's a quick conversation in Mandarin and the guy says agreed we'll cash be fine 72 hours later he literally walked out of the room with an aluminum suitcase full of 20s folks these people will do anything to get their money out they realize their systems is collapsing give you an idea of the competition of the future this is American excuse me global crop zones if it's not shaded to darker gray they don't grow much there in the future that we're about to do with constrained access with more difficult maritime situations with less financial capability there's only six places in the world can actually expand output the first of course is here and we can expand it more than anyone else put together second Myanmar anybody care about rice in the room okay moving on next Australia this is primarily a wheat and a beef story but Australia's not like the United States it's 80% desert most of the land is borderline too marginal so they get good years and they get horrible year so a rising competitor but not a sustainable or consistent competitor next is New Zealand New Zealand is now the world's largest dairy operation the world's largest dairy exporter couple reasons for that number one climate it doesn't get cold enough in the winter that you have to bring the cows in doesn't get hot enough in the summer that you need to bring cows in it rains every other day so you never have to put supplementary feed out for them lowest production costs in the world they've doubled the Dairy Herd in the last 20 years and probably gonna double again in the next twenty second reason government support the Deputy Prime Minister is a dude who will do anything move heaven and earth to make sure there are no regulations on any rural residents at all that includes dairy as a side effect of the Kiwi dairy market they are the world's fifth largest producer of beef fifth can you imagine what's gonna happen once it occurs to the Kiwis they can actually raise beef cattle on purpose watch this space and then finally France and Argentina kind of like the United States broad range of climate zones good navigable rivers that overlay it they'll be competing with you in every possible market on a much lower scale but these are the really the only countries you need to worry about in the future and therein lies a massive opportunity final graphic this is a calorie map countries in deep blue and deep green of the world's major producers and exporters of grain-based calories everyone else is a net importer countries in orange and red import at least half the foodstuffs that they consume in a world without order in a world without easy transport in a world without easy finance these are the countries facing at least a 35% reduction in their ability to grow the crop in the first place folks this is what famine looks like we will never reach 10 billion people at best we're gonna hit eight and a half billion and then fall off we won't be able to feed them all the pie will get smaller but Wow is your slice of it about to get a whole bigger so if you feel guilty about feeding us starving world I can see that but then you'll go to the bank and you'll laugh so it'll all work out alright if you're looking for a coaster or perhaps a doorstop accidentals where it all started in the shape of the world absent picks up at the shale revolution plays it forward shows the wars that will read over there the wars that will erupt as a result if you have a little bit of patience this bad boy will be coming out in November disunited talks about the countries that will actually do well despite or maybe even because the end of the system I don't need you to read them I don't even need you to buy them but if you could all go onto Amazon and review them that would be fantastic alright we have time for a couple questions well let me ask you a quick question here you alluded to China we have a vexing problem as they do too with their neighbor North Korea of course they're third generation leader has indicated at least a willingness to negotiate we've spent a lot of money in the 90s giving them aid which from every account I've heard of was squandered by the people in power and not given to the people who really needed it where do we go for with them in the next 5-10 years can they survive sure okay anyone who tells you that they really understand what's going on in North Korea is lying because they're really good at killing everyone spies so what I'm going to show you is kind of like the best guess of the intelligence communities in the United States China Japan Germany Russia all of them so it's still a gas but it's the best we've got so best guess Kim il-sung the grandfather the guy who fought the jab in World War two founded Marlett water in North Korea in 1993 he slipped in the shower and fell on some bullets the what happened was three days after he died he was supposed to be in Seoul working out the practical mechanics of reunification in 1993 so you needed just collapsed the Bush administration first had just met with ding of China to basically patch up their differences after Tiananmen and move forward Kim knew that there was no future for his country second generation Kim jong-il this guy remember him yeah batshit crazy he came in and drove the economy right into the ground his policies are what caused the famine that killed two million people and the first generation the generals that probably could kill Kim il-sung or like holy crap that's not what we meant so they sent the entire third generation keep complete with Kim jong-il the current guy you know this guy abroad to figure out how the world really works so Kim jong-un actually went to school in Switzerland where apparently he sucks at basketball because one of my protegees sat next to him in chemistry class apparently his bodyguards really good though so you know it made up for it so problem with this plan was that the crazy guy Kimmel's Kim jong-il died too soon so at the tender age of 26 Kim jong-un is brought back to the United States or she's brought back to North Korea to run the place it's like think about this position the generals of the first generation offed your grandfather for moving too fast your father's generation of full of Mad Hatter's worst job ever so whenever you have the opportunity you kill a member of the second generation whether it's with an anti-aircraft cannon or maybe a little bit of sarin in the face when he's in Malaysia and you just wait for the first generation to die off I mean this is how you manage domestic affairs then all of a sudden you discover this little tool called nuclear weapons in your Twitter account that they used to keep everybody in North Korea off balance so they never know what you're do next and finally you've kind of gotten your hands around the system until Donald Trump discovers your Twitter feed and he's like Oh fire and fury and kim janggun is like oh holy crap that's not what I meant I wasn't trying to piss off the United States so he's like um just wanted to let everybody know that we finished our nuclear program and I got what I needed and I've got a deliverable nuke and I got a button here in my on my desk but but really we're done so you know it there's no reason to panic and of course North Korea are surging the Trump administration did not read through the lines there and it was like oh we've got a bigger button all of a sudden he had to have a summit so he reaches out to the Trump administration's like okay can we meet the Chinese lose their minds the Chinese forcibly summoned Kim jong-un to Beijing and when they realize they can't talk him out of it they put him live on television and they put him in a little baby chair opposite oh gee who was in a booster chair so he can lecture down to the wayward province and so when Kim finally leaves and gets back on his training goes homes like we're never talking to these people again call Trump's tell him the summit's on now is North Korea going to denuclearize absolutely not just like the South Koreans are in a tough neighborhood so are the North Koreans they need that nuke but what they don't need is intercontinental ballistic missiles and if you look at the aftermath of the first Trump Kim summit all of the changes of the North Koreans actually made had to do with delivery systems with destroying the test facilities for long-range missiles because if they can deliver a missile a thousand miles that covers all of populous northern China all of Japan and all of South Korea that's all they need they don't need to hit San Francisco and now they can't it's not very nice for the United States to say yeah you know East Asia this is your problem but from a national security point of view it's kind of brilliant probably how would you handicap Congress approving us MCA I don't think the problems in Congress I think there's enough of a remnant of centrist Republican Democratic support to get it through without a problem I also think that it's not a problem in Mexico so I think what we see ratification of the New Deal this year the problem is in Canada Trudeau because of the seismic shift in relations with the United States he's been caught on the back foot it used to be that Canada would leverage its position in American security affairs to get economic concessions well now that the United States no longer needs Canada for you know protecting our flight risk it used to be that the Soviet Union would launch missiles over Canada hit the United States that's why the Canadians always had more leverage that's why they were able to get more exemptions for their agricultural goods particularly from Quebec well that's all over Canada has no extra leverage now and they are in the process of adjusting to that Trudeau is a québécois but not a very good one my French is probably better than his the québécois had been treated as a vote bank by the ruling Liberal Party and because of the change in circumstances Canada's had a series of international economic catastrophes as all of its negotiating positions of collapse more or less at the same time and it's cost the Liberal Party control of every Canadian province that matters and in October we will have general elections and if Trudeau tries to ratify the new NAFTA deal they will absolutely get washed out and come back and that'll probably cost them the government so I am I'd say one in three chance that by the end of this year it's just gonna be the United States in Mexico anyway and Canada will enter into a protracted recession until they can get their politics right and it's not like there's anyone waiting in the wings Trudeau was kind of like Obama he sucked all the oxygen out of the room there are no pretenders to the throne in the Liberal Party the Conservative Party has still not recovered from the defeat four years ago and Alberta is openly debating secession and in about two months they will have provincial elections that is going to usher in a conservative separatist alliance that will probably have 80% of the seats in the provisional legislature so Canada is facing nothing shy of a national crisis right now and they just can't deal with NAFTA ratification okay thank you very much thank you Peter [Applause]

Channel: TokenEyes

Views: 24,600

Rating: 4.9240508 out of 5

Keywords: geopolitics, millenials, land, agribusiness, wall street, NYSE, NASDAQ

Id: JDnlsjxqqCU

Length: 60min 2sec (3602 seconds)

Published: Sun Mar 24 2019