Three years ago, I wrote this to my paid readership group at Diggers & Drillers:
According to most commentators, the end of globalisation is an unthinkable scenario.
The global trade network is far too interwoven… Impossible in a sophisticated modern economy.
But look around you…
From Russia, the US, the Middle East, and China, the geopolitical situation hasn’t been this tense since the early 1970s.
That marked the height of the Cold War and the devastating conflict in Vietnam.
It was also a HIGHLY inflationary period.
You’ve no doubt heard commentators comparing today’s inflation to the early 1970’s… An era where global growth stagnated against the backdrop of steeply rising interest rates.
But the 1970’s also experienced elevated commodity prices.
And one more thing… In 1971, globalisation began to unwind. Rapidly.
Three years on, and not much has changed. The worldwide economy is continuing on its path of deglobalisation.
And three years on, we’re faced with even more extreme supply chain disruptions, from oil to fertiliser.
Given the sustained momentum towards this breakdown, as an investor, you should anticipate further deterioration, not less.
Accept that reality, and you’ll be better prepared for what potentially comes next.
Using history as our guide
To get some sense of what that might be, I’m going to revisit another important point that I made a few years ago:
Globalisation is NOT a new or modern phenomenon.
It has ebbed and flowed in distinct ‘waves’ for at least the last 150 years.
In fact, some economic historians acknowledge THREE distinct phases of globalisation in the modern economy…
The first major wave began in 1870 and lasted 44 years.
The expansion of railways and the emergence of international steamships set off a tidal wave of global trade.
The transferring of goods, people and ideas between the old world and the new.
Established enterprises in Europe traded readily with colonies in Africa, Asia, and North America.
But this FIRST major globalisation event ended rapidly following the outbreak of World War I.
Supply chains froze as Europe drowned in conflict.
Nations pivoted to greater self-sufficiency to restore their manufacturing capacity.
And notice the similarities, today
No doubt, we’re seeing the parallels emerging in today’s increasingly fragmented world.
But perhaps the biggest concern is this…
History shows that globalisation tends to persist for decades. But on the other side of that, so does DEGLOBALISATION.
It wasn’t until the END of the Second World War, in the 1940s, that global trade began to expand to pre-World War One levels.
Mass migration from war-torn Europe drove a global economic boom… Riding well into the 1950’s and 60’s. It gave birth to the golden era for the USA.
But yet again, geopolitical instability put an END to this unprecedented phase of prosperity.
Economists note the SECOND great wave of globalisation came to a halt in the early 1970’s.
That was the height of Russian-US hostilities.
And it’s why the parallels today are uncanny.
From there, global trade remained fragmented for the next TWO decades.
Finally, with the 1987 stock market crash out of the way, the fall of the Soviet Union, and the emergence of China’s rapid growth, the next major wave of globalisation began to emerge by the early 1990’s.
That’s the era of globalisation that we’ve all become accustomed to (and taken for granted).
But how long can it last?
This current era of globalisation has gifted Western investors an exceedingly lavish three decades of growth.
Sticking money in a broad-based market index fund has been the clear winner in an era of rampant globalisation.
A set-and-forget strategy to participate in the monumental growth of the world’s largest enterprises.
But I believe this next chapter will be anything but simple.
The time to prepare is now.
So, in our next edition, we’ll look at the key sectors you should be focusing on to build and retain wealth in what could be a challenging future ahead.
Stay tuned.
Regards,
James Cooper,
Mining: Phase One and Diggers and Drillers
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