1859: Peter Zeihan - The End of the World is Just the Beginning: Mapping the Collapse of Globalization

This show is produced by the Hartman Media Company. For more information and links to all our great podcasts, visit hartmanmedia.com. Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to episode 1859. I am super excited you're with me today because we have a fantastic interview with a returning guest. I think he's been on the show maybe four times over the years and that is Peter Zion, geopolitical expert, possibly the foremost geopolitical expert in the entire world. And he's out with a new book called the End of the World is Just the Beginning. And I tell you, it's, I guess, like the title sounds. This is not a super optimistic interview by any stretch, but there's some real good news in here. There are some definite silver linings in this cloud and that is why you want to listen all the way to the end. If you're watching on YouTube or another video platform, please put your comments and questions below. We're going to endeavor to get to those. We try to read them all and I think you're just going to be fascinated by this interview. Also, we are going to announce the giveaway winners. We forgot to do that on Monday's episode, so we'll do that in a moment. But before we get to Peter, I want to just read from you a little piece of the introduction of his book. You know, you've heard me talk over the years about how the last several decades of prosperity around the world in many ways due to globalization and financial engineering, but also the prosperity in America has been fake. It has been built on a house of cards, through financialization of the economy and through a whole bunch of trickery and chicanery. I won't go into it here, but Peter touches on that in his introduction and that's why I want you to hear this. So it'll kind of set the stage for his Interview and we'll have him here in just a moment. We're going to play the entire interview today. It's lengthy, but it is great and you're really going to like it. You're going to want to get his book after this. I finished it just about two days ago and wow, lot of information here. He's going to share a ton of that in this interview. So here, from the introduction of Peter's book, he says the past century or so has been a bit of a blitzkrieg of progress. From horse and buggy to passenger trains to the family car to every air travel from the abacus to adding machines, desktop calculators to smartphones, from iron to stainless steel to silicon laced aluminum to touch sensitive glass, from waiting for wheat to reaching for citrus to being handed chocolate to on demand guacamole. Our world has gotten cheaper and certainly better and most definitely faster. Hey now, I'm always talking about instant gratification, right? That's what we're used to nowadays. And he goes on to say, and in recent decades, the paces of change and achievement have accelerated further. We've witnessed the release of 30 ever more sophisticated versions of the iPhone in just 15 years. We're attempting to shift wholesale to electric vehicles at 10 times the pace we adopted traditional combustion engines. The laptop I'm tapping this down on has more memory than the combined total of all computers globally in the 60s. Can you believe that? One laptop, right? And he may not even have the fastest laptop, by the way. So it's truly amazing. Not long ago, I was able to refinance my home at a rate of 2.5%. It was stupidly awesome. And we've talked a lot about that. And we've talked a lot about potential inventory increasers. I've got a lot more coming on that on the show. And these mortgages, the millions of mortgages that are out there like that. But anyway, let's get back to Peter. He goes on to say it isn't simply about stuff and speed and money. The human condition has similarly improved during the past seven decades. As a percent of the population, fewer people have died in fewer wars and fewer occupations and fewer famines and fewer disease outbreaks than since the dawn of recorded history. Historically speaking, we live in an embarrassment of riches and peace. All of these evolutions and more are tightly interwoven, inseparable. But there is a simple fact that is often overlooked. This is where it gets interesting and it ties back into what I've been talking about for many, many years. They are artificial. We have been living in a perfect moment, and it is passing. The world of the past few decades has been the best it will ever be in our lifetime. Instead of cheap, better, and faster, we are rapidly transitioning into a world that is pricier and worse and slower because the world, our world, is breaking apart. Peter's going to be here in just a moment with some fascinating insights on that and much, much more. But there's a lot of silver lining in this cloud, and if you know what to do, how to act, how to position yourself, you're going to benefit from this massive change that is going on. It is a historic change happening. Okay, before we get to Peter, though, just quickly, our giveaway winners for last week. For YouTube comments, we have John Cottam. That's not cotton, that's Cottam. Jason, what if private equity firms decide to unload properties off their balance sheets? Is this a concern or will it not move the market? That is a great question. I'm going to be talking about inventory increasers in depth on the show. And inventory is increasing housing inventory. Of course, I'm referring to. But don't worry too much about the institutional investors that you're referring to. They have an incentive to keep their properties for many reasons, which I'll discuss on upcoming episodes. And I don't think you need to worry too much about that. They might unload some, but hey, several of them are still buying. I just read an article about Pathway, one of the big institutional investors. Buying, buying, buying, moving into two new markets. One of my friends sent over that article this morning, and it's a mixed bag, but do not worry about that too much. Anyway, you won. For the YouTube comments, your $50Amazon gift card, go to Jason Hartman.com ask and claim your prize. You have one month, everybody, to claim your prizes. Okay, so Nate Mer is our winner for the Apple podcast review. And Nate says, so much value. As always, Jason is raising the bar again with this podcast. Such important and valuable information with a perspective that few people dare to share. Thank you. Well, thank you, Nate. And go ahead and claim your prize, Jason Hartman. And if any of you have questions or comments or needs, go to jason hartman.com ask and we will be glad to address those there. So go there and check it out. Without further ado, let's get to this fantastic interview. You're going to want to hear the whole thing. You probably want to listen to it twice with Peter Zion. It is my pleasure to welcome back a returning guest, and that is none other than Peter Zion. He Is out with a new book, the End of the World is Just the Beginning, Mapping the collapse of globalization. And I'm about halfway through it, and I have to tell you, it's awesome. So you're going to want to go out and get a copy. And Peter, welcome back. How are you?

Exhausted, but in a good way.

Have you been busy on the book tour?

Well, they don't do book tours anymore because there aren't a lot of book stores.

Understood.

Everyone decided in January that they were done with COVID So the speaking business picked up and then the war happened. So everybody wanted a piece of me. And now the book's out.

So, yeah, this may not be your year for rest and relaxation, huh?

No, not for a while.

I love how you catch that. Everyone decided Covid was over. Yeah, it's the flu. Anyway, pre Covid Peter, my listeners heard me say often this saying, it's an amazing time to be alive, and it certainly is. I definitely got more pessimistic given the COVID era, But it really is an amazing time. The world is changing so quickly and it's hard to keep up with it. Tell us about the book, especially, Peter, the title, I mean. The End of the World is Just the Beginning. That's an interesting, contradictory title. Tell us what you mean by it.

We've been living in the most atypical, bizarre period in human history. The very concept of globalization, the idea that you can participate in some sort of supply chain or source some product or sell some product on the other side of the planet. This has never happened before without some degree of military control and escort. But at the end of World War II, the Americans scrapped the old imperial system that generated the war. And we said that we would patrol the global ocean so that anyone could play. You could sail anywhere, at any time, interface with any partner, participate in any manufacturing, access any raw commodity and sell into any market if in exchange, you would side with us against the Soviets. And that created the world that we know. And it sounds like just a simple guns for butter deal, but you got to remember how fractured everything was before 1945. If you were in a country that didn't have oil, then you didn't industrialize. If you were in a country that didn't have farmland, then your population was minuscule. Globalization allowed everyone to sell what they were good at and buy what they weren't good at. And everyone in the world became a specialist. And so we now have son farms in Iowa that's the most productive in the world, but we also have semiconductors coming out of Taiwan, a country that was pre industrial by every definition until very recently and every part of the world can play now. And that has encouraged this mass diversification and it's encouraged this mass explosion in economic activity, particularly once the Cold war ended in 1992. But it was already always artificial and it was always based on the Americans continuing to hold up the ceiling. The United States has been edging away from that ever since 1992 when the Cold War ended. And we're in the final days of that right now. And that's only kind of half of it is when you allow everyone to participate in global trade. People move off the farm and they take services and manufacturing jobs in town. On the farm, kids are free labor. You have a bunch in town. Kids are really, really expensive pieces of loud, annoying furniture. So you have fewer because adults aren't stupid. You play that forward for 70 years and we have had a population bust in the making, global in scope for decades now. And most of the advanced world has now aged past the point of no return. That includes countries like China. So in this coming decade, it's not just that we're going to see populations aging out of being competitive. We're going to see populations aging of being sustainable and actually being countries. One of the many, many, many outcomes of the 2000 and twenties is the end of China's unified nation state and as an economy. But this has all been hardwired in now for 40 years and we are finally reaching the point where the page turns.

Yeah. You know, Western countries and China and Russia and certainly Western Europe. I mean, you can't have a country if you don't have children. So that is really going to rearrange the map. I mean, I think of especially like Japan. Right. You know, what will happen in five to seven decades? I mean, will other countries just invade Japan's land because there's just no one there to protect it? I mean, well, there's no one close.

By that has a demographic that's much better than Japan. So I'm not worried about that specific outcome for the Japanese.

Fair enough. But you don't need to have the country next to you in order to take it, right?

Fair enough. Fair enough.

Yeah.

Now every country is going to have its own story because every country started aging at a different point and they started aging at a different rate. And how you live in urban versus rural zones is dependent upon the local geography. So an example on the positive side, we started industrializing in the United States 200 years ago. So for us, this hasn't been a 40, 50 year process. This has been a 200 year process. And so our birth rate has dropped incrementally that entire time. But we've adapted to it as we've shifted into the cities. So the United States still today has the highest birth rate among any of the advanced worlds. We're the most slowly aging country. But if you go to a country like say, China, that only started the industrialization process in about 1985, they crammed 200 years of economic advancement into 40 years. That also means they crammed 200 years of demographic adjustment into 40 years.

Tell us what that means. I mean, we all know about the one child policy and so forth, but what do you mean when you say they crammed that into 40 years?

So one of the reasons why the Chinese have been so economically successful in many people's eyes is because they have done 200 years of industrial development, building out industrial plant and infrastructure and power lines in a single generation. In the United States. We did that very slowly over the generations. We didn't finish even electrifying the countryside until the 1960s. For us, we were able to adapt each step of this into our cultural evolution. That's one of the reasons why in the United States, you're far more likely to live in the suburbs than the urban cores. Because we did this on a slow process, we can make adjustments and people can still have families of size in the suburbs. In the case of China, the population was already relatively high, and when they made the jump, they skipped all the intervening steps. They didn't have to develop cell or telephones that were on landlines. They skipped right to cellular. And in doing so, they went into denser and denser footprints very, very early in the process. So you went from a subsistence farm to a high rise condo in a generation, and when you're in a condo, no kids. So one child, is that part of it? Absolutely. But one child is the secondary factor in the Chinese demographic collapse. Single biggest one is that they all moved in small condos in a very short period of time, and everyone just stopped having kids altogether. So we know now that China will cease to exist as a functional demographic structure and economy this decade. Because it's not just that they ran out of children. That was 30 years ago. They're now running out of 30 somethings.

Yeah. Wow, that's. That's something. One of the things I'm always saying to my listeners, Peter, is watch old movies, watch old TV shows, listen to old music, read old books, and I Do that. I make it a real point to do that. Even though a lot of those old movies really aren't that good, you know, but, but I watch them just because I want to learn and get a take on what life was like back in, you know, the 60s, the 50s, right. I'm not saying even really older, you know, even remind me of what it was like in the 90s, you know, I was there, but still. And one of the things that always strikes me, and I must admit being single, I'm somewhat envious of, is I look at how life was in the 60s, the 70s, and I there was this giant cohort of baby boomers and it was just, it must have just been such a social life, you know, and I'm in this tiny little crappy Gen X generation and there's like nobody. Right? You know, and it was just interesting. Like they all grew up together, they all did things together. All the TV shows reflected that. The whole culture just reflected their movement through the pipeline, if you will.

And part of the reason why the bank boomers think they're so important is because they, they have been and they still are. I mean for in the late 60s to the early 80s, they were coming of age, they drove consumption. That's why we had inflation. Then in the 90s into the 2000s, they had come out of their consumption phase. They were saving for retirement. That's why we had investment booms and now our inflation. It's because they're all retiring and we have a large generation that's just going away and next decade we have to pay for that.

I don't want to forget to ask you about that. The video you just recorded the other day from Las Vegas, okay. You were holding your, your probably your iPhone with a Luxor in the background and you talked about how this is changing capital markets, changing inflation and the whole like structure of the economy. Can you elaborate on, tell the listeners what you think about that?

Yeah, sure. So historically capital and demographics have not been intertwined. Now. Yes. As you age your net worth increases and as you age you become more adventurous with your investments and that drives more economic activity. And then when you retire you cash it all and go to T bills because you won't be able to stomach any sort of market turning or currency turning. That's been true since the dawn of recorded history. That's. There's nothing new there. What is new is the demographic profile has changed. So in a pre industrial world you had very few 60 thumb somethings, you had more 50 somethings and yet more 40 somethings and on down. It built a pyramid. What industrialization and urbanization has done is change the shape of the pyramid. In some countries, like the United States, it's more or less a chimney, but with a bulge for the baby boomers. And some, like Germany, it's a diamond. With more people in their 50s than their 40s, than the 30s, than their 20s, and then narrowing up, as you would expect, at the top. What's happening globally right now, not just with the American boomers, is that we've got this big cadre of people in their 60s who are moving into retirement and they are a bulge in the structure. So instead of just a small group of people relative to the overpopulation that are moving on and changing their investment portfolios, we have the single largest generation in our history doing that. And on average they will have completed that transition by the end of this year. So we go from having some of the richest, most liberal, most open, most liquid capital markets we've ever known to something that's a lot closer to the opposite in less than a year.

But with our financial repression that we've been going through for many years, this system has pushed people way farther out onto the risk curve in terms of their financial lives. You can't be 70s, 75 years old investing in bonds or T bills anymore. Right. It just doesn't work. So you see these older people doing things that they shouldn't be doing financially, they shouldn't have to do, I'll put it that way. But they've got to earn some yield. And they're just.

And the first time you have a market turning, they become destitute. That's why most people don't do that. I agree that there's a percentage of people that are, and that is unfortunate. And we're about to learn that good and hard because we're not just having this demographic turning, we're of course at the market tightening at the same time. And that's just damnably inconvenient.

But make sure we understand the link between inflation, capital availability and the demographic situation. So baby boomers are retiring quickly. I mean, most of them are almost through the pipe. Well, I don't know, I haven't looked lately.

But the midpoint is the end of this year.

Say that again.

The midpoint is the end of this year.

Okay, so the midpoint of the baby boomers is the end of this year now. And then it trails off. And I don't know the stats, but something like 10,000 a day. Retire some Number like that or whatever.

It's some ridiculous number.

It's big.

Yeah, yeah. I mean, the problem here is we're losing the single largest worker cadre we've ever had and the replacement generation down at the bottom of that pyramid. The Zoomers, they are the smallest generation we have ever had.

I'm sort of wondering why you identified. And you did that in the book. Book. Why you identified the Zoomers and not. You didn't say. Just the next one down, which is my cohort, which I think might be yours, too, which is Gen X.

Well, Gen X and Millennials have been in the labor market already, so we're already factored into the math now. There's pros and there's cons, and that shapes a lot of things, but we are already in. The Zoomers are the ones who are coming in to replace the boomers, and we have our largest generation going out, our smallest generation coming in. So right now, annually, that's 400,000 workers shortage, and that will increase every year until 2034, when it'll peak at 900,000 shortage. These people are already born, they're already on the way. We know exactly what's going to happen to the net flows each and every year moving forward.

Yeah, there's no mystery about this, which is what I love about studying demography, and Harry Dent got me into that in the 90s. And ever since, I've been a real, you know, student of that idea. Even though some of his predictions have been a little off. Sir, he's been on the show 11 times, and every time there's a bubble. But this time he's going to be right. I think we'll see. But. But what that does, what you just said is that gives the bargaining power to the labor, not the capital. Right.

The problem is that capital is going away at the same time. I certainly agree that the relationships are going to change. I think it's a little bit arrogant to think that I know exactly how, but we're definitely entering a period of protracted and extended increasing labor shortage. At the same time, we're entering into a period of protracted and extended and increasing capital shortage. And just to make it a little bit more fun, China's collapsing against this backdrop. So even if we decided we were fine with a completely globalized supply chain, we still need to double the size of the industrial plant in the next few years with less capital and with less labor.

Okay, so less labor would be inflationary because that would push wages up generally.

I would argue that at the Moment. The labor disconnect is the single largest issue behind our inflation numbers right now.

Okay, but tell me about less capital. I mean, I'm coming at it from kind of this angle that, you know, capital doesn't really disappear, it changes hands and you know, you could argue it changes places. Right. It might be in more, you know, risk on investments like the stock market, or it might be risk off like bonds or, you know, money markets. Right. So what do you mean that the capital is drying up? Like, explain that a little more.

Well, the baby movers at the height of their earning experience and as of the end of next year, they, or this year they won't be earning anymore. So the net inflows into the system from just normal demographic structure dry up considerably. The next generation down, Gen X is very small. And even if we do succeed in having significant raises now, in this labor inflationary environment, there aren't enough of us to generate nearly as much in total. So step one, we're losing volume. Step two, we're losing investment quality because in the flight from risk on to risk off, the capital becomes a lot less interesting.

Sure.

This is going to be broadly decent for people who want to be in the government and borrow because that's the T bill that's considered the ultimate gold standard. And to a degree that helps with the mortgage market as well, because mortgage rates are. Markets primarily draw their guidance from the 10 year as opposed to interest rate levels. After that though, you're entirely dependent on capital flight from the rest of the world. Now I think that'll be robust, but I also think that'll be wildly inconsistent depending on what's going on in the United States versus wherever else the capital might be. This is still the deepest, most liquid market in the world. It's denominated in the sole source of global store value. It is the only meaningful method of exchange for international transport and trade. And the Japanese and the Europeans have basically signed on to a US dollar denominated system as part of the deal that generated the sanctions against the Russian central Bank a couple of months ago. So if you're going to benefit from this in any way, the US Dollar is the place to be. But you can't predict the inflows year on year of what's coming in from the European space or the Asian space. It will come when they're in trouble and we look good and it will probably never go back. And so we know that the capital supply has to drop domestically and we know we're going to get these bursts of Capital from abroad. But planning on that, that takes a smarter brain than I have.

So 15 years away though, that capital starts to pass from baby boomers to millennials.

Yes.

What happens?

And the millennials themselves will then be entering their late stage worker years, where they will will gradually become the dominant capital providing class again. So for the United States, we have a pretty big needle to pass through here and a roughly 15, 10 to 20 years. It can be a little loosey goosey based on what happens with the monetary system and the Fed in that time. But in that decade of time, the United States will go back to having what we would consider a more stable capital structure. And at the same time, when you get into the 2000-40s, the labor market will start reconstituting based on normal demographic factors, because the millennials kids will then be entering the workforce will be through this long winter of the zoomers. But no one else gets to do that. Everyone else went through industrialization and urbanization either faster or more intensely than the United States did. Couple exceptions, but only a couple. And so for them, they're looking at labor markets getting smaller every year and the capital supply getting smaller every year. And still in this decade, their advanced worker cadre, that that big giant last generation moves into retirement. So their need for government spending to keep those people alive skyrockets and never drops.

And that is very problematic for places like China, Japan, Russia, et cetera. Yeah, it's.

I don't think China's going to survive long enough to have to wrestle with that problem, but for Japan certainly.

Yeah, I know. You know, that's interesting you say that because I have never been one of these believers that China's taking over the world. I remember the kind of xenophobia that was going on with Japan was going to take over the world and that never happened. Clearly. You know, China's got 10 years and then it all starts to really shift, as I see.

I think It'll be over 10 years from now. I think we're going to shift right now.

Tell me what you mean by that. I mean, is it going to be an overthrow? I know the Chinese communist government is very sensitive to civil unrest. Right. They have huge sensitivity to that over there. And as probably they should, because that's.

How they got into power. Yes.

Yeah. So what happens with China? How does that.

We've got some mid and long term trends and then there's a couple of really acute ones that are going on right now. Let's first deal with the longer term ones. Finance doesn't work in China the way it does here, the Chinese will throw a bottomless supply of capital against anything in order to make sure that people have jobs. It doesn't matter if there's a product on the back end really, as long as the people are working, working. So everything that people say about the US Fed is actually true to an order of magnitude higher in China. So the US dollar is the global currency. It's the medium of exchange, it's the store of value, it's the lubricant for the number one economy. And 2/3 of the top 20, the yuan is used just in China. It's not internationally traded. And they regularly expand their money supply by five times as much as we do. And at most times in the last 10 years, the yuan supply has been twice that of the US Dol even though it's just not exchanged at all. So their financial system is its own thing. And to think that this is going to continue in perpetuity is being really creative with your math. They get their energy from a continental way. They don't have a navy that's capable of making that far in force in order to secure their own supply lines. So China is the country most dependent upon the US Navy to keep the lights on in manufacturing. Their demographics have aged so much already that China is no longer the low cost producer for any manufactured product. There is not a product that the Chinese make that cannot be made in North America at a lower price point. Now you have to build the industrial plant first. So I don't mean to suggest we can flip a switch and it's all here tomorrow, right? But it does mean that anytime there's a hiccup in the Chinese system for any reason and somebody relocates, they never go back because it's better with a shorter supply chain, with less energy, with less transport, with more efficient labor closer to home. There's not a sector where that doesn't work. And then in terms of industrial commodities, kind of an echo of what's going on with energy markets, they have to get it from a half a world away. They can't go at it and get it themselves. They are completely dependent upon the globalized system as enforced by the American Navy. So any of these issues by themselves are country killers, independent of the demographic situation. And in the short term, I think we're seeing the whole system go belly up. I think it's safe to assume that most people have relatively formed opinions about whether the COVID vaccine is the way to go or natural immunity is the way to Go. But I think if we're all really being honest with ourselves, we will admit that people on the other side of that divide have some, some relevant points that are worth discussing. And we certainly know that if you have both, you're in better shape. Neither of those are options in China. The Chinese vaccine doesn't work versus the Omicron variants, Certainly not Omicron B. And because in many ways that the, the Chinese government was so successful at keeping Covid out these past two years, no one in China has natural immunity. So if they were to open up with Omicron being, being the dominant strain, Omicron B is the most communicable virus we've ever faced. And it's the highest lethality rate of all of the COVID variants to date. If they just opened up, they'd have millions of deaths a month for at least three months. And in a one man show government, that is how you bring the system down. So COVID lockdowns that affect entire cities, this is their only option for the foreseeable future. So Shanghai shut down on April 1st. They reopened on June 1st. They're in the process of locking down again already because Omicron is just so communicable. Masks don't stop it sufficiently. What is China if it's not a manufacturing center? Because that's all they have left. And now that is leaving very, very quickly. I think Apple's the best example there. Apple is the American company that has ignored the writing on the wall the most. And every time there's been a health issue with COVID or a trade war with Trump or Bernie Sanders coming out and beating the trade drum. Every time something has happened, an explosion of genocide in Xijiang, the crackdowns in Hong Kong, they've ignored it and they've doubled down. So they are the American company most committed to China, over 90% of the supply chains within China now. And as of last month, even they started looking for alternatives. Everyone is on their way out because China is no longer a reliable manufacturing partner.

Is Africa the next big labor market to exploit for cheap labor? I know China's got a lot of dealings in Africa, but it's so disjointed.

And first of all, China does not have many dealings in Africa. They have some infrastructure that they've built.

Yeah. And they're loaning, they're doing a lot of loans there.

Well, whenever you see The Chinese spending $12 billion on something that's only worth three or four billion dollars, that's not investment, that's capital. Flight. That's some bureaucrat taking advantage of that hyper financialized system to get some out. So when it's his time to run for the door, he already has a nest egg.

Oh, that's interesting because the impression I got was they were trying to act like a world bank, you know, where.

They'Re, they're splashing around a lot of cash. I agree. I'm just saying that it's not in anything that would broadly be considered sound investment. Most of the infrastructure is not in places that are really of any use. I mean, if the Chinese build infrastructure in a place that hasn't had infrastructure for the last 70 years. Years. You really got to ask yourself why there has not been infrastructure there for the last.

Someone would have done it by now.

Exactly. Now they are investing in some resource production zones. Absolutely. But again, they're overpaying for them. So the Chinese are doing no refining and they're doing no manufacturing in Africa. So they're actually not taking the African labor force and bringing it up a notch at all. And if they want unskilled labor, they've got that closer to home in a place like say Cambodia. So for Africa to kind of move up the ladder, they've got to be part of someone else's supply chain. They don't have the indigenous capacity, technology and capital necessary to do it all by themselves. And in a world that's moving into a tighter labor market, if you're not going to relocate the labor, you're talking about using some degree of automation to help out. Some places can do that, some places can't. But it's difficult for me to see kind of a neo colonial manufacturing system set up to tap unskilled labor on a different continent, especially a continent that has as riven geographically as Africa. So the basic transport issues are very, very difficult. It would be cheaper to do more automation and closer economy. So in the case of Germany, that's probably going to be Poland. In the case of the United States, that's probably going to be Mexico and Colombia. In the case of China, that would probably be Southeast Asia.

You know, that's actually, I was going to ask you about automation a moment ago. There's certainly a lot of fear that automation is going to take a of lot, lot of jobs away. Especially in transportation, which is really one of the biggest industries in the world. When you count all the taxis, trucks and everything, you know that the tankers with you know, self driving tankers and cargo ships and everything else. Right. Peter, I'm sure you've laughed at this stat too. But according to the bls, the only actual job category that was ever lost to automation is elevator operator.

So, you know, and technically, that wasn't automated. We just do it ourselves now.

Yeah, right. It's diy. You push your own button nowadays. But are we at a point where automation now is different than it's been in the past? Because it always ultimately created more jobs in the past. And there's no.

It is different, and probably not in the way that most people are thinking. I'm not overly concerned about automation being a giant job destroyer. Remember, the Zoomers are the ones who are coming in, smallest generation we've ever had. And they're not millennials. They're not social, they're. They're antisocial, and they're very loyal workers. They're very nervous people because they were raised by Gen X to be told that the future was a dark place where you will have no power, because that's what it has been for us to this point. And because of that, they're very loyal workers. Once they get a job, they cling onto it like their life depends upon it. But they're antisocial. They want to work remotely, preferably in a closet, preferably coding. These are not line jobs. These are not public service jobs. This is a very specific subset. So, you know, if you're in. In San Diego, and I'm sorry, in San Jose, and you need a bunch of coders, great, your workforce is covered for the next 20 years. You need them for anything else. Yikes. So we are going to need automation not just because we have fewer workers, but because the workforce of those fewer workers is very, very different from what we have had for the last 40 years. So we have to have it on the flip side, automation is one of the most expensive things you can do. It's expensive to develop, to operationalize, to install. And people always forget about this step. The most expensive of all, to keep it updated. That takes capital. We're not going to have as much of that. So this wrestling over what little bits of capital are left is going to be huge.

Okay, so in other words, you're saying that will slow automation?

I would expect it to, yes. The places that can do it successfully or most successfully are going to be those places that do have a stronger capital base, like the United States. I would also add in that in a world that de globalizes, the idea of having a supply chain with a thousand steps is kind of silly and honestly, really dangerous. So you need shorter supply chains closer to End consumer.

I think Covid made us all realize that.

Absolutely, I agree. But compared to what Covid has done, what's coming is a whole nother level in terms of intensity.

Tell us about that. Well, when you're finish.

But sure. So manufacturing, especially for things like electronics, it does best. It's most efficient when it can tap different wage levels and skill levels. So you do the low skilled stuff in one place and the high skilled stuff in one place. And for the last 25 years, that has made China very successful. They do the assembly, they do the low end and they do it at scale. So they can then have the intermediate and the higher end part elsewhere in East Asia or maybe even in North America. And there's a lot of back and forth and back and forth and the average manufactured product crosses a border at least 100 times. Even in automotive in the United States you're talking if you're taking each individual piece, you're talking like 25,000, maybe 30,000 border crossings. No, it's massive.

Oh my gosh.

In the world we're moving to, that's going to be harder to do. But the United States has Mexico. Mexico, so we've got 130 million Mexicans, 35 million Northern Mexicans, very proximate to the border. And we can still play in that old style manufacturing. At the same time we have the best capital structure to bits and pieces move into the new style. And the consumer base is right here, both in the United States and Mexico. So having that everything proximate and co located, that's going to be kind of the big mix of factors that generate outsized success. You're not going to have that in Asia because the consumption base is gone and the labor structure is now too expensive. And if you break down maritime transport safety, those border crossings are more difficult because in the United States it's the land border. With a country we broadly trust in East Asia, almost all of it is by sea. And the Chinese are making a point of being a bag of dicks at sea. The very concept that you can have a maritime trading system in a country where China is either rising or falling is a bit of a reach so.

Bad for China again, right? Yeah. Okay, Going back to what we talked about at the beginning, you didn't say it, but you were talking about Bretton woods, the Bretton woods system. Right. That happened right before the end of World War II and put the US in this really enviable position with reserve currency and so forth. And somehow it lasted post Nixon's closing The gold window in 1971. And I'm wondering, that was a good deal for the US Was that also, all things considered, the US being the world's maritime policeman, was that a good deal for the rest of the world?

Oh, yeah. Oh yeah. For everyone participated in globalization, it would have been like they, and they alone had won World War II. They had access to a world full of resources and markets in a way that only the Brits could even even dreamed of doing for the previous 300 years. And now it was available for everybody. So the only countries that for whatever reason didn't like that system were the countries that wanted all of the benefits and none of the cost. So countries that cited against the United States in the Cold War.

And then you lay on top of that the Marshall Plan. And, you know, the US is a pretty good global citizen, if you ask me.

We have our moments.

Yeah, yeah. I mean, that's, I mean, I don't.

I don't want to suggest for a heartbeat that we did this because we were nice. We found a way to stave off nuclear war and get a bunch of allies to side with us even in the worst case scenario. That's why we did it. The fact that it made the whole world wealthy was a happy side effect from our point of view, from everyone else's point of view, that was the reason to join.

Yeah, yeah, but, and I mean, for all the US bashers, it's just kind of interesting to me. You know, one of the sayings I constantly say here on the show is you can't hear the dogs that don't bark. Right. And the dog that doesn't bark is the one you're alluding to. The whole world would have just been much poorer had that globalization and global trade not occurred. Right.

Well, I mean, playing historical what ifs is kind of a fun thing. It's always guesswork. But World War II probably wouldn't have ended. It would have just continued on with the part of the or with the Allies then splitting apart with the Soviets on one side side and the west on the other. And keep in mind that in the dying days of World War II, we dropped a couple a bombs. So I think you have an idea of what that field of competition might have looked like.

Yeah, right, right. Yeah, certainly. Well, it's interesting to watch that series on Amazon prime, you know, man in the Hightower. Is that what it's called? But you know, what, what might have happened. Right, yeah, yeah, very interesting, Peter. What else do you want us to know? The book Is it just covers so much and it's. It's excellent. By the way, what else do you want to say to our listeners and let us know about any component?

Sure. So since this is an investment show, I think the best way to do is to talk about a chapter that you haven't made it to yet. There's an industrial commodities chapter. So anything that goes into anything that's not energy and food. The Industrial Revolution did more than just introduce us to what we now consider to be electricity and manufacturing. It also took the lessons of the Renaissance and applied them at scale, first through the Germans and the Brits and then eventually for the rest of the world. And we figured out all these components and elements that make up our world, and we figured out how to purify them and then recombine them in ways we found useful. What we have missed in the discussion of modern globalization and economic integration is their role. Because the very core of globalization is anyone can go anywhere to get anything. And when we talk about the breakdown of supply chains, we're thinking of semiconductors and tires and widgets. And that's true, but that's not the whole story. We're entering into a world where the raw commodity access that then goes into the process material that then goes into the intermediate products that goes into the finished products, that very base first step that is no longer guaranteed. So we can look forward to large portions of the world losing access to. To the inputs that are necessary to attempt a modern lifestyle. And if you want to talk about the sexiest of all of them, silicon. Not for panels, silicon for semiconductors, because 95% of it comes from one mine in North Carolina.

Wow.

So it's one thing to control global food or global energy. It's another thing when you can control the only input that allows digitization to even theoretically happen. And the United States is going to have to figure out what to do that with that over the next decade.

Well, why are we going to have to figure out what to do with that? We're going to continue to mine and explore.

Will we sell it to everyone? We're entering into a world where there's not enough energy and there's not enough food and where we're going to prioritize our own manufacturing. These are all strategic choices that we're going to make either by choice or failure to make one. When you get to semiconductors, though, when it's all coming from one place, that's an entirely other level. Because if you can't get enough energy, yes, your car Stops, yes, the lights go out. This is bad. But if you can't get any microchips, you can't even pretend to catch up in any sector at all.

Yeah, well, that's why countries like Russia shouldn't do what they do.

You know, the Russians have a very different definition for what modern quality of life means. That is one of their biggest negatives. That's one of their biggest strengths. It all depends upon how you're measuring it and what it is they're trying to do at the time.

Yeah, yeah. So what's the investment? I mean, what do you think's coming next in the economy? We, we alluded to that, of course, with the capital drying up and the worker shortage continuing and so forth. But just give us like the. What do we do with that?

Well, I'm not a cfa, so let me just start with that.

It's okay, neither am I.

Let me rephrase that. Investing is not my world. I can tell you though that we are looking at chronic shortages and a lot of base materials that make up our world. Not just the industrial commodities I just kind of went through, but food. You know, we've. The world's top wheat exporter has invaded the world's number four wheat exporter. And the world's top wheat exporter also is the world's largest exporter of fertilizer and the components necessary so people can make their own fertilizer. So we're in the early ages of a multi year shortage in all things agricultural. Russia is also a big player in the aluminum market, or it was. Not anymore. They also big in copper. That hasn't gone to zero yet. It's on its way down. Platinum group materials, for example, especially palladium, which does double time with silicon and semiconductors. The problem as you're looking at all of these, however, is, is that sourcing is critical. One of the biggest disservices in my opinion that the financial sector has done for us all over the last 20 years is become used to this environment where capital is flush and liquid and we can invest in everything and we don't have to be all that discerning. Because if the money is free, why the hell not? Well, the money's not free anymore. And so the financial sector has to actually provide value add in the old system. The entire developing world was in one exchange traded fund. That's asinine to think that India and Brazil and China and Russia have anything in common aside from size. Their markets are completely different. The sectors they play in are completely different. Investing in them and is completely different. And yet there they are all together. Same with frontier markets, which makes even less sense. Like what in the world do Argentina and Vietnam have in common? Clean. We have to disaggregate all that now. And that goes not just for the markets in general, but for the specific products. So for example, if you want to invest in agricultural processing, that seems like a big business right now. It's probably going to get bigger. But all the major agricultural processes that operate in the economies that are not getting hit by these shortages, think France, Canada, Australia, the United States. They're also in Russia, Russia and Ukraine. So you really have to do your homework to carve out the parts of the world from your investment choices that just aren't playing anymore. And that means you have to remove companies that had been household names. I'm thinking just Bungie here to pick one out of the air that is not inappropriate. If you want to take advantage of the kind of this boom we're going to see in demand for those products in an area of scarcity.

How about building materials that's messy because.

A lot of them are closer to home. Overall, I think that's a great idea, but you have to be really, really careful of what the sourcing is and where the companies that are producing that material are selling into. So for example, if you're selling into the United States, particularly in the Mountain west, the Southwest or the south, that is where the boom in the United States is going to be in residential real estate for at least the next 15 years. People are moving there because it's warmer. That's the boomers. People are moving there because it's cheaper. That's the millennials having families. And nobody wants to be on a metro where they might get Covid again. So everyone's moving into those that kind of arc. That's as a rule, not how we decide where we get the stuff that goes into it. You either have local companies that are not publicly traded or you have international ones that are bringing in wood from Canada. Untangling that mess requires a brain that's bigger than mine.

It's hard to tell from what you said as we started when we talked, and it's been a bit of a theme on this interview, of the worker shortage, which would be inflationary pressure and the capital shortage or the capital contraction from risk assets at least. I mean, the capital still exists would be deflationaries, the future inflationary or deflationary.

But the United States for at least the next five years, strongly inflationary. If we make some policy mistakes. It could be stagflationary, but I think a more likely outcome is high growth, high inflation. So think about something that's a little bit more reminiscent of the 60s and the early 70s than the late 70s. We need to double the size of the industrial plant. We need at least 4 million new homes. We're a magnet for migrants, skilled and unskilled. We're dealing with a massive retooling of the existing industrial base base, all at the same time that we're having the Ukraine war. So avoiding inflation is impossible. Avoiding high inflation is probably impossible, but at least we're going to have the growth to go along with it.

Yeah, very interesting, Peter. Well, it's always a pleasure. You know, you've been on the show several times now and I always love talking with you. Wish we could do it for longer. The book is out in all your. Your other books are in all the usual places. Give out your website. Yeah. Hey, there it is.

Here's the book. It came out this week or June 14th. I guess this is going to air a little bit later. Let's see, the website is Z E I h a n.com and the name of the book is the End of the World is Just the Beginning.

Yeah. Excellent, Peter. Well, thanks so much for joining us and we look forward to having you back soon.

World keeps falling apart. I'm going to keep talking about it.

There you go. It's good to have you. Take care.

Take care.

Thank you so much for listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out the show's specific website and our general website, hartmanmedia.com for appropriate disclaimers and terms of service. Remember that guest opinions are their own, and if you require specific legal or tax advice or advice in any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to itunes or Stitcher Radio or whatever platform you're using and write a review for the show. We would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.