China's Rise Means the Dollar's Decline | David Murrin on @naturalresourcestocks
Summary
Macro Thesis: The guest frames today as an advanced stage of a geopolitical and commodity cycle, arguing we are effectively in World War III dynamics with rising systemic entropy.
Precious Metals: Strong long-term bullish view on gold and silver as hedges against geopolitical disorder and inflation, expecting a near-term correction followed by much higher targets.
Commodity Supercycle: Emphasis on the Kondratiev C wave driving broad commodity strength, with copper, natural gas, and grains beginning to move alongside precious metals.
Defense Technology: Extensive discussion of modern warfare (missiles, hypersonics, drones) and underinvestment in Western capabilities, implying structural demand for aerospace and defense innovation.
Market Outlook: Warns of a transition from dopamine-fueled equity highs to cortisol-driven fear as bond markets tip, yield curves steepen, and inflation accelerates.
Risk Management: Highlights gold and silver as core hedges, while cautioning about initial correlation-driven drawdowns during equity selloffs before secular upside resumes.
China Factor: Stresses China’s scale, industrial capacity, and strategic learning from Ukraine’s “petri dish,” elevating geopolitical risk and accelerating defense and commodity cycles.
Specifics: No individual stock tickers were pitched; focus centered on sectors and themes such as precious metals, energy, and defense.
Transcript
So this idea that we create an empire and as you build an empire it's anti-entropic as it reaches the top and it starts to go into decline it becomes entropic like we do when we're old. We're pretty unproductive and pretty freaking useless. And that's essentially the paradigm between the individual's life cycle and the empires. And it just becomes an impediment to basically a more vibrant system that can follow it. And sounds brutal but that's our you know generational story and it's the same with empires. And what scares me is we don't have intention. We haven't created the firebreak to stop Ukraine and the petri dish of Ukraine is benefiting China because the lessons go back into its centerfold and their production is so much faster and powerful in the cycle they're able to really accelerate. So allowing this petri dish to continue I think is pretty scary. >> I know that you uh you push back on the idea of true black swans. Uh you know arguing that you know so-called surprises you know follow predictable cycles. Uh you know I'd love to get your input on that idea and how it should change the way we think about major shocks and then from that perspective you know what major political risk do you think investors are still underestimating right now as it relates to China Russia and what's going on? >> [music] >> Good day. Welcome back everyone to Natural Resource Stocks. Today I have with me David Murrin of the Global Forecaster. Uh David's had an incredible journey finance oil exploration even time spent in some of the most remote parts of the world like the jungles of Papua New Guinea. Uh he's worked at JP Morgan. He's founded hedge funds written multiple books and along the way he's built a reputation as a sharp observer of human behavior global patterns. He's respected and started the Global Forecaster uh to basically share geopolitical and financial market forecasts to create winning strategies. And so David I I've asked you to come on uh for the benefit of our listeners for the benefit of myself because of everything that's going on we'd love to get your thoughts. David it's truly an honor to have you here. Well thank you for that lovely introduction. I'm trying to live up to it. >> [laughter] >> Well David let's start with your story. Uh you've been all over the world. Yeah you you've been across so many different industries. How did those experiences shape the way you see the world influence the frameworks you use today? Very much so funny enough. Um Where do you start? I think probably >> [clears throat] >> if you're looking at it chronologically uh the first part of my story was I was fascinated by warfare and weapons and and very early on in my younger years decided that human history wasn't decided by social trends and patterns. It was really decided by the way humans fought wars and the societies that enabled those military structures and the rate of evolution those structures created to generate new technologies. And that was something I recognized very early on. Uh I was always adventurous and um mathema- good at maths so I became a physicist. Knew I didn't want to go into the city inverted commas. I said I'm never going to that place. I remember walking down a hill at university so I'm never going to the city. And I want all of your viewers my first piece of wisdom is when you use the word never you're probably going to be doing it within about 12 months. Very important. So I found myself um initially joining an oil exploration company and I was a seismologist working for Shell. Spent 3 years in the Papua New Guinean jungle which is pretty pretty severe. It was you know swamp deep swamps crocodiles fall off the bridging and you disappear into your waist and these things called sago fronds would lay on top of each other they'd look like palm fronds but they weren't because they were just made by the devil. They had these hard nails so when you fell off the bridging and your foot went into the sago fronds when you pull your foot out all the nails would be impaled in your in your legs. Took months and months for them to grow out. And I kept just thinking that in the Pacific war the Japanese and American fought in those jungles. And you hear stories that they they never recovered their health even if they came back alive and there's a good reason why it's pretty tough environment for your for your well-being to be sustained. They had a labor force of a cannibals. And I witnessed in the first day there this collective behavioral pattern where one person's anger towards me spread like the ripples in a pond. And just like the charge in a capacitor they charged themselves up. I didn't think I was going to survive to be honest. They had machetes and I've never seen anyone so angry as this group of 60 cannibals who I found out afterwards had eaten a nearby village 6 months beforehand. So they weren't really cannibals. And um I I having fronted it out and survived I watched this energy dissipate like a cap- a capacitor discharges. And about 3 or 4 hours later they were like vacant children no reminiscence of the anger they felt towards me. In our society if we were that angry we would be have generational hatred. It would just be last for years and years and years. But somehow they had this massive surge of emotion and then they dissipated it. And that was my first sort of seminal experience of human collective behavior. And then somewhere through hook or crook I ended up on the trading floor of Morgan Guaranty Trust which was JP Morgan or one of its early entities. And there I remember thinking I know nothing about economics but I'm a good scientist so I'm going to watch. And after a few weeks I felt what I was watching was really familiar only they weren't Papua New Guineans inverted commas how we were thousands of years ago. They were the best of our modern culture and they were behaving collectively. And I kept thinking about you buy a Cray computer and you get a pocket calculator which is sort of what collective behavioral patterns do to us. They sublimate our heart functions to a collective herd and we think we're in control and we're not. And because there's no way to store collective emotions they run through us but we have no memory of their influence apart from our subsequent actions. And that is shown with riots and people who are perfectly normal people doing things that they when they're shown on video they can't associate with. It is not some evil part of them coming out. Some people perhaps yes but the majority I think they're gripped by a collective behavioral pattern. So that was you know the beginning of it and I suddenly realized it wasn't about money it was actually all about understanding people. And I so I built models and behaviors which changed the way the bank worked. Stayed there for 7 years. And I was 30 by the time I left and set up my first hedge fund. And 33 when I set up my second bigger hedge fund which is an emerging market fund which was great cuz we got to do anything you ever want to do invest in. And the really super thing about you know finance especially then it was adventurous. It paid you to be think differently. So I remember we sold the height of the Asian crisis and we bought the bottom. We became number one fund in the world by clipping that particular experience. We had people like Soros offering offering us money afterwards which I refused. Remember his immortal words but no one said no to me before. Uh no no George because your fee structure is so ridiculously cheap. Anyway >> [laughter] >> um we uh we uh didn't do so well initially in the Russian crisis. We ended up buying a little too early and we experienced what it was like to get it all wrong and hold on to it for longer than you think. And I remember for months I was walking around my garden every morning thinking how do we make such a hash of this? And we ended up in fact converting the whole portfolio into Russian principal bonds. And you know there was no diversification it was just a lot of principal bonds which had started at 40. By the end of it we owned them at about 6 and a half and their price was two and we didn't look too smart. And then I remember one day just when you've truly given up hope the price moved and it went 2 3 3 4 4 5 6 7 through our break evens. And then we got most of it through 60s and 70s. It was an incredible trade. But it reminds you that in in incredible trades you're going to be a consensual. And then essentially as you're a consensual you're going to get it wrong if you don't necessarily have beautiful timing methodology. And then you're going to eat for a period. And then you got to decide whether you believe it or not. And we did the very same trade as the big shorts funny enough on television. We didn't do it in the same instruments but we did it nonetheless and we made about the same amount 84% between '07 and '08. So those periods are really formative for me. But the thing that really I think shapes our conversation now is 9/11. And in 9/11 I remember watching those planes plow in. It was truly you know awful to watch. And I remember thinking about the magnitude of what we'd witnessed. And I asked myself question and remember it was in the age of the neo-conservative movement it was going to be you know democracy forever a decade of American democracy exported around the world all of these neo-conservative ideas. And I remember thinking hang on a sec. Um what if that's actually an immune system failure? And if it's an immune system failure between two intelligence services that didn't share information then what about it being the beginning of the decline of America and how could I answer the question of was it or wasn't it? And I looked at all my price information there's just not enough price information to model. So I thought okay I'm going to have to reverse use the price modeling in psychology. And invert a structure I used which is an Elliott wave structure of five up and three down and sublimated into three and two in effect so two three pulses up and two pulses down and give them psychologies and then I decided to use wars as the clocks of empires. >> [snorts] >> And funny enough once I defined wars as not all the same civil wars wars of expansion, wars of contraction. Suddenly, it all fell out and I understood this five stages of empire model and I described it as regionalization, the first stage, driven usually by population expansion. And then a civil war which lateralized society and by lateralization I mean makes it adaptive and the lateral thinking people that build and break things and strategically think differently, build and expand the system non-linearly, so it becomes an exponential expansion. And then it reaches a point where it can't expand anymore, which is the end of the expansion phase and moves into maturity. And at that stage, the system is paying back an awful lot of its debt that it's incurred to build the USPs. It becomes a monster, starts institutionalizing its culture and architecture in bigger and bigger structures. And then the linear people who are good politicians start edge out the lateral people because you don't need your adapters anymore. You're just so big, you dominate everything. And towards the top, there's another subtle civil war where the linear group thinking people displace, because they're better politicians, the lateral mavericks. And in fact, from that moment onwards, the system is in decline. It doesn't realize it, but it's it's ejected its adaptive agents. And only the momentum and scale of it covers up that particular decision point. And that leads to overextension, which if you look at it is you have too much commitment and too little revenue and you basically are slowly croaking, but you don't realize it because you start to borrow money and you're so big and you're such a good bet, you can borrow quite a lot of money. And then the event like 9/11 comes along that reverses and accelerates the decline. And then things start to get really bad. Your system doesn't work. It becomes more linear. It prints money. And what we've seen in America since 9/11 is an extreme version of decline because our financial management is so sophisticated, we have printed enormous amounts of money. And the best way to look at it is say for example, you live in a world of no debt and you have a company that makes 10% per annum and the CEO looks great and suddenly everything starts to slow down and they're making 5%. And the CEO doesn't look so good, so he just goes along and says, "Well, I'll double leverage what I make and I'll leverage everything we do and now we'll make 10%." And everyone says, "Well, aren't you a great CEO? That's great." And then the next year, the real returns go to two and a half and then you leverage it four times. And everyone says, "When you are you brilliant. Well done." But what's happening is it's pasting over the need to adapt. It's pasting over the the changing environment that would then create a changing leadership with a different perspective to adapt the system. And that's been happening not just in companies, it's been happening in especially America and European countries to a lesser degree and we're probably 40 times leveraged, which means that what's underneath it is probably 0.001% of real growth. And if you've ever run a leveraged portfolio, the danger with that is one day you look hunky-dory and the next thing you suddenly it goes from positive to negative and it dives through the floor on you and it moves so quickly you can't actually respond. And I think that's the paradigm decline represents for the Western world right now. Um and then the other piece of that story is I stopped managing money well, before that actually, I'm dyslexic, which is why I see patterns. Dyslexia is, you know, is a is a thing superpower early years at school is a bugger, especially without a word checker because I couldn't spell and therefore I couldn't really write and no one could read my stuff. Um nowadays, for those that are dyslexic and myself, the spell checker takes the burden and actually it works. And people um kept saying to me when I presented this worldview back in '02 and '03 and it was the basis of our investment thesis, they said, "You must write a book." And I just laughed and I said, "You know what, Steve? I'm never ever going to write a book. I'm dyslexic." And then in 2005, my second and third children came along um and they're twins. I was feeding them at 1:00 in the morning in California thinking, "Jesus Christ, how I brought my children into this world that if I'm right is absolutely going to be at odds with each other. I've got to somehow try and show people what I've concluded and what it does." So I the next day, and I'm not religious, I'm very spiritual but I don't believe in religion, but there's a part that they talk about the gift of tongues where suddenly people can communicate in different language and for me, it was the gift of writing. That this wasn't writing that most normal people would do, but it was enough of a skill set where I could understand what I wrote the next day from the previous day, which was an advance and that was the beginning of writing my book. And it finally came out in '09, it was called Breaking the Code of History and it details all the examples and dynamics of the five stages of empire applied. It predicted what would happen and has happened very accurately since then. And it also highlighted a cycle which at that stage, um I've not I hadn't really adjusted, but it was contrarian 54-56 year commodity cycle, which is critical for anyone investing in the commodity sector. The thing that interested me was at each of those peaks, there was some kind of conflict. So [clears throat] conflict inflation went hand in hand and commodity dynamics and increasing prices went hand in hand with constriction. And that linked my professional finance with my fascination with conflict. And I drew the conclusion that essentially, and this is back in 2002 when I picked the beginning of the commodity cycle and we made a fortune from it. It was essentially that if we began, it would end and if it ended, it would end with a conflict and what conflict would look like. And using my empire models, I predicted that America wasn't just in decline as a single country, but we lived in a thing I call the super Western Christian empire. And when I first started looking at empire models, they were simple. But the first complex model was the Roman empire because the Western Roman empire based around Rome ran out of juice and basically Eastern Constantinople element became a separate empire for a time alongside it. And as the Western Roman empire went into decline, the East rose. But they actually had very shared common values. They were Roman structures. And it was like the evergreen tree that gives birth to a branch that becomes the next tree. >> [snorts] >> So I call them a super empire and I'd seen that in evidence and structured it. And then I asked the question, "Why empires in Europe suffered shorter durations?" And I thought it might be technology, but then I realized what they really were is the pistons of a bigger engine. With the Portuguese going first, then the Spanish, then the Dutch, then the French, then Britain, the biggest empire by far. And I laughed because, you know, much as America may have seemed powerful at times, it didn't touch upon the power of Britain in the middle of the 19th century, not one bit. And Britain didn't have a didn't have a challenger anywhere in the world. Um I didn't live through a cold war of, you know, bi-hemispheric power um dynamics. And then America came along. Germany tried twice before that, once as a Christian society, secondly as an atheist society. And there is America. So when I highlighted America going to decline in 2002, just after 9/11, it wasn't just America that was going to decline, it was a whole Western Christian value set, which is why you see democracy is a weakened value in many countries because democracy underpins the process of Western structuring and leadership and organization. So here we were with this conclusion that America was declining and what was going to fill the gap. And then I looked across to the Asian structure and I realized that actually in terms of modern recent cycles, which I called Japan the first of the super Asian systems and China was the second and India is the third. And when you look at it that way, it makes an awful lot of sense as the center of economic gravity has moved to the East. And why that was important was and this is incredibly arrogant, I would say, is that people in the West were saying to me, "Well, the Chinese will never challenge to the West, ever." And I said, "You do realize that the West has already had like one of these struggles with Japan. It started with Japan and Russia in the early wars. It then was the Second World War, so you've got to imagine this region's created rising hegemons which have gone against Western power and we've been here before. It's just a different country in within the region replicating that." And that helped an awful lot for people to understand that you couldn't just discount the Chinese. And at that time, I'd done an awful lot of Chinese martial arts and I'd studied, you know, Chinese culture, which is hugely admirable in so many ways and more sophisticated, I would say, than any other culture around and complex and Machiavellian. And I warned that they had already made a plan after the third Taiwan Straits crisis and they were coming for us. But that was a more sophisticated coming for us. It wasn't a coming out for you. What I'm doing is seducing you to invest in me to build the biggest industrial base in the world that I'm going to use in an arms race to flatten you. And that was their plan. And anyone who went into China, anyone who thought it was a good investment, I was saying, "If you do that, you betray our future. You betray our children's future. You feed the beast so it can then make the challenge into the next contrarian peak." And that's very important because if we hadn't fed the beast, it wouldn't be ready to do it now. We still would be in a form of peace because the West would have dominant control and its IP would have been intact and we wouldn't have educated the enemy that's coming towards us. So there's an awful lot of things we've been really stupid about and on the other side of that story, the Chinese have been incredibly clever and their broad-fronted challenge to the West, whether it was industrial, whether it's economic, or whether it's military, has been incredibly frightening. And most people don't realize just how sophisticated and powerful and broad that challenge is and has been for I'd say the past 10 years. David brings me to another book you've written, the Red Lightning. I believe you wrote that in 2021. You laid out a scenario where the West or US at least, the US-China conflict, you would see like a sounds like a World War III sort of deal, conflict between US and China by 2025. We're here in 2025, global tensions running as high as they are. How do you see that framework unfolding in real time, economically, militarily, through the lens of your, you know, Five Stages of Empire and Red Lightning? So, there's an awful lot of, you know, subject matter inside Breaking the Code of History about warfare and its role of empire replacement and displacement. And then, um I wrote a book which seemed at the time a little bit left field for my other work. It was all about the First World War and how Britain in its BEF, the Expeditionary Force, had created a very adaptive form of warfare that broke the static lines behind which the Germans were, you know, trying to advance but protecting their territory, even though they'd lost maritime control. And it was a story of innovation and adaptation and I made some parallels to the Chinese. There was some real parallels to what's happening in Ukraine. It's going through a static form of warfare and everyone thinks it will remain static and I would argue it will not remain static. There will be technologies and tactics which come out in combination which suddenly create mobility and shock everyone. And we should be prepared for that. And we need to make sure it's Ukraine being mobile, not Russia. Um but then moving forwards as the drumbeat builds in its, you know, rhythm and tempo, I became more and more aware we were running out of time. So, I wrote a defense review in 2015 after the disasters occurring in the UK to try and say to people, look, if you don't spend money, we're going to be at war with Russia and China. And that missed. I wrote another one called Now or Never in 2020 which got to the Prime Minister's desk. He used the Now or Never title in a very catchy way and then forgot about everything else. And then the Conservatives did exactly what they'd done before, destroyed defense each sequential year pretending they're not. And in desperation, I wrote Red Lightning and the basic thesis of Red Lightning and its warning is that when you have a hegemon of great power that's been there for a long time, it's usually risen to power with a USP, a force capability. For Britain, it was battleships. For America, it was aircraft carriers and their long-range standoff systems that goes within 600 miles of the enemy's coast, cycle 180 missions a day and pummel it to death. And carrier power was really what the story was about for the American Empire. So, as a challenger, China had a very simple challenge, which was how do you destroy power projection with carriers? And they came up with an and and promoted an access area denial strategy, as in how can we stop these carriers from getting close enough to our shores to have an effect? And in that process, they turned ballistic rockets that were traditionally nuclear delivery systems into conventional systems that could kill carriers. And the first one was the DF-26 and the DF-21 followed and then the hypersonic DF-17 more recently. What that really meant was if a DF a group of DF-21s and 26s were fired at an American carrier, it was traditionally escorted by three two three two destroyers and a cruiser. And each of those systems with their with their GS combat systems essentially could launch 28 missiles in a salvo to counter what's coming in because they needed direct control and because the PK or the kill ratio of that missile was less than one, it would be two missiles per incoming target. So, in effect, they could handle 14 systems coming at missiles coming at once. So, what the Chinese worked out to do was if I make 3 * 14 and enough for a carrier, somewhere just above 50 missiles and I've destroyed the carrier. And that was their proposition and what they did. And what was so interesting was how slowly the US Navy responded to that challenge and the recognition that their power base was being eroded very quickly. And the DF-17s came afterwards with hypersonic glide weapons which almost impossible to interdict unless you get them right to their apogee before the the rocket bus releases the warhead. So, I decided to write a book. It was short. It was all about two things. One, it pictured a world which up until 2020, I'd been trying to say to people, if you don't seduce Russia back into the West, then basically the bonding between Russia and China would become, you know, without a crack. One is a commodity producer, one is a consumer. They're both on the Eurasian continent and they would make a like a twofold enemy. So, we have if we were going to do it, we need to seduce Putin away before 2020. And the reason why that was there was in the contractive cycle of oil, you can see the pulse from 2002 to 210, there's a dip and then it goes back and it sits at 120, goes sideways for a number of years where there was huge wealth for Russia because 120 with a break even of 15 makes a lot of money for Russia. And Putin used that to rearm, reconstruct his conventional forces, create strategic rocket forces with different capabilities, and generally feel much better about his stability. And there was always going to be a trough in that process where oil prices were low and that was when he would be most vulnerable to saying, Mr. Putin, what's it like to win World War III with the Chinese? How long is your sovereignty going to last? So, wouldn't you like to be with us? And he would be economically vulnerable enough to say, yeah, okay, I'm going to come over with you guys. That was your our only chance. And that was negative oil. Oil went negative, that was it. From that from that moment onwards, the next cycle in this contractive, the sea wave, which is going to 250, basically started. And so, I wrote in the book this idea that actually Russia was on our side and Russia was attacked at the same time. I didn't think it was going to be possible but I just wanted to hang out the idea that essentially we'd missed the opportunity and we needed to do that and it was too late. But I put that in there. And then the main basis was a surprise rocket attack which wipes out every carrier in the, you know, within the third and second island chains and gives the Southeast Asian all the way out to Australia and New Zealand to the Chinese and demonstrated how destructive these weapons would be and there would be no counter. And then on the other half of it, I designed a uh the weapons that we would need to counter that technology. It's very similar to the things we're seeing, robotic submarines that were screened main events and um arsenal ships that let missiles be launched at range from the from the main controlling command system which gave them added sort of envelope control and lasers on F-35s using the megawatt fan, 25 megawatt fan to power those lasers. And I gave an example of how a carrier could be constructed with weapons to defend against those targets to give us hope and aspiration. So, I didn't just want to say, oh, we're everyone. I wanted to say, we are screwed but there are solutions if we put our mind to it. And so, that was Red Light- Red Lightning. And it's a short read, take you about an hour and a half. Wear some diapers because it's more true than ever. And what amazes me is that essentially in this time now, 5 years, the slow speed of which America and Europe has really realized it's been outclassed on a terrible scale, innovatively, in weapons technology and scale of production. And our response to Ukraine, for example, you know, many of the armies in Europe and America are still training as if drone warfare didn't exist on a scale that it does exist in Ukraine. And like all of these wars, they act like petri dishes. So, you've got to be the Spanish Civil War, you know, its gift to the world was Blitzkrieg. Blitzkrieg came along and, you know, Europe fell in 1940. We will look back on Ukraine and realize its gift to the world is it enabled forces who understood it to use drone warfare and in mobile forms to come and completely swamp all conventional models. And yet still we haven't adapted fast enough. Do you see How do you see the Russia-Ukraine conflict playing out? Do you see Trump giving in to Russia's demands? Do you see it this being the end of NATO? What do you forecast? Um okay, so let's put it in context. Russia-Ukraine wouldn't be happening if China wasn't at the back. So, we've got to realize that China the magnitude of China's challenge is enabling its key access partners, Iran in its war against Israel, Russia in its war against NATO, not just Ukraine, and North Korea that sits there brandishing nuclear weapons and saying, I'll do it. None of those things would be happening if China was weak and hadn't gone through this expansionary phase backed up by terrifyingly accelerating military power. So, we need to realize that the biggest mobilizing and enabling agent to Ukraine is China. For example, the Geran drones and um um other kind of techniques like their cab bombs, which are now have a little jet strapped to them. The little jets come from China. And you know, this is a huge challenge for Ukraine they shoot these different targets down and the numbers coming over their heads. So, that's a simple just that alone is a is a huge enable, but it's way bigger than just a few jet engines on every system that starts to swamp the Ukrainian defenses. So, I think we're not looking at a proxy war and this is a full-on war. And we have NATO components fighting inside Ukraine. The Russians know it. The Russians have spread their attack mode, you know, to the gray zone. That gray zone wouldn't have been gray in the Cold War. I mean, blowing up the railway tracks in Poland or blowing up the submarine halls where we build our submarines or pulling up our cables is not gray zone stuff in the old parables of Cold War definition of war. It's war. And because our politicians are weak, we sort of walk it back. We sort of pretend it didn't happen. And that is a problem because bully Putin is essentially a bully. And the only way you deal with a bully is you put your toe-to-toe and you thump him so hard he doesn't get up. When he gets up, you thump him again. And then he doesn't come back. And there isn't a single thing that I would argue that really we have done in NATO to put Putin at risk. He constantly puts us at risk. He pressurizes Ukraine's in constant assault and he might break through. He goes through, you know, territory that he shouldn't fly his drones into. He blows things up and we don't do things back to him that are clearly revenge. And the way the Western weak politicians think is, well, you know, that's escalation. Ashley, if you want to, you know, change the paradigm, you need to escalate it violently and quickly and it'll de-escalate. Because NATO does have overwhelming air power, which it could use. It could put an air shield over Ukraine and it would change the war overnight and Putin could do nothing about it. So, we do have tools. We just don't have intention. And what scares me is we don't have intention. We haven't created the firebreak to stop Ukraine and the petri dish of Ukraine is benefiting China because the lessons go back into its centerfold and their production is so much faster and powerful in the cycle, they're able to really accelerate. So, allowing this petri dish to continue, I think it's pretty scary. So, this conflict between Ukraine and Russia, uh it's are you suggesting that it's just giving China more confidence that they're able to Yeah. They study every lesson. And you know, one of the things in Ukraine that is a wake-up call is iterations and innovations are in the four to six-week loop. So, you know, the Usually Ukrainians innovate, but they can't make the innovation in big enough scale to make a strategic breakthrough. Then the technology gets given to the Russians and then they make it in scale and throw it back at the Ukrainians. So, it's all very well being innovative, which the Ukrainians are definitely great at, but they need an industrial scale to make sure that the when the innovation comes, it's the innovation that polishes off the Russians rather than needing 10 others and going nowhere. And it's an a profound lesson for us in the West that we you know, letting this process continue means that the beneficiary is China with its dark factories, which are fully robotic. And you know, it was bad enough when their 1.2 billion people working in they were industrial industrial and capable in their factories manually, but now they're fully automated, I think we really should be very scared. So, the war, uh a lot of people don't realize, acknowledge, or uh want to even admit that uh that there is a war going on. Uh and you know, like uh the what's the phrase uh the win the war against the West uh without firing a shot? Uh and and just they've uh China's been intentional. Uh they they know the US military playbook. Uh and you know, China's been doing stuff with, you know, like de- dethroning the dollar or de-dollarizing or with BRICS. Uh they've, you know, with Russia-Ukraine, uh with rare earth, uh minerals and and commodities and cornering certain markets. Uh I hear you saying that they are also able to stand toe-to-toe, head-to-head against the US in terms of uh military power. Uh and that's something that uh uh the you know, you when we think the biggest military in the world, we think the US. Uh now, I hear you saying that uh the threat is, what's the phrase, static form of war warfare? That's not something that uh you can expect to stay. Uh now, so uh I know that you uh you pushed back on the idea of true black swans, uh you know, arguing that, you know, so-called surprises, you know, follow predictable cycles. Uh you know, I'd love to get your input on that idea and how it should change the way we think about major shocks. And then from that perspective, you know, what major political risks do you think investors are still underestimating right now as it relates to China, Russia, and what's going on? I have to say you ask great questions. Really insightful. Well, thank you. I can hear your background reading and it's a great credit to you. So, yeah, I do put push back on the idea of black swans. I think black swans are things that happen to people that just don't understand the world. And it's a little bit like lightning. Oh, but the lightning bolt, didn't couldn't see that one coming. But under the models I built in global forecaster, these things are not black swans. They're part of systemic risks at various stages of cycles that you need to look out for and understand how they operate. So, I think that, you know, the whole statistical analysis of black swans by its famous author is actually, to me, if I'm being slightly rude, is an indication of a lack of like a model that actually encompasses how we collectively behave and therefore a predictive model. Um it's for those people that think everything is always the same. So, um where are we in black swan land? Well, you know, you're a black swan thinker when war breaks out because you did ignored a thousand signals beforehand that we were already in it. But one of the things that is very powerful in that is if you go with the First World War in 1914, where Britain was facing a massively surging Germany and who'd built a monstrous army and a navy to try and compete with the grand fleet. Essentially, through other dimensions, we were economically intertwined with Germany much as America is with America with China funnily enough today. People thought they were so intertwined they couldn't go to war. And also they were our closest ally for the last 100 years in on the continent and their royal families were intertwined with our royal families. So, there was a sort of Pax Britannica denial process that war could break out after that long duration of peace. Mhm. And there's something that's factor. So, we've definitely got Pax Americana, Pax Britannica. The first one, that'll be big in its own. But you'd think that would have been shaken by Ukraine and the existential war between Iran and Israel, which by the way is just going through a hiatus. It's going to come back with a vengeance. And you know, one thing that you should learn in life is if you have an enemy who wants to do you harm and do you in, having a pause and a holiday and letting them reconstitute themselves after they've had a bit of a a drubbing is a very bad move. And Trump has been instrumental in creating these false in Gaza, which are the illusions of peace for his own, you know, narcissistic purpose of appearing to be a great man. And in fact, what he's really created is the conditions for a truly consuming forest fire. And history will judge him appallingly as a result of that in my opinion. Um So, there are two other factors about denial. One of the factors is I talked about in decline with money printing, essentially linearity dominates. And linear thinking leadership just can't see anything but the railway tracks that run ahead of them. And they can't see the, you know, the the car that's about to smash into them from the side cuz they only look down the railway tracks. So, there's a denial in our leadership and Trump is more natural. And he but he he has other flaws in that process. But predominantly in Britain and other countries that should be, you know, the the voices as well of sheep dogs, we have terrible linearity in our leadership in Europe. And then there's a last factor and that is it's a product of money printing, but it's put the stock market in the US near its highs. And that produces collective dopamine. And trying to explain to people with their dopamine running through their system that they're about to get eaten by a big wolf, you can't do it. But the moment the market turns around and the cortisol flows, they're not going to see one wolf. They're going to see themselves surrounded by wolves. So, I think we're going to go from, and it's stock market generated, we're going to go from dopamine blindness to cortisol fear quicker than we realize. And that's why this decline and this high in the stock market has the potential to be the high of the decade in the stock market because once the dopamine stops and cortisol really flows and inflation kicks in because we are at the stage where the bond market's about to tip over. And once that tips over and yield curve steepen, no amount of money printing is going to have the reaction of what is an exhausted and internally exhausted stock market kept up by a false paradigm. And at the same time, as inflation rises, it's usually coincident with greater friction and what I call entropy in the geopolitical world. So, I think that's what we look forward to. And what we've seen with gold and silver is we've seen this anticipation and the reality that things are getting more entropic, and it's the hedge against that entropy. So, everyone who's a leader should be really quite scared that gold is behaving the way it is and silver because that's a behavior where the system has recognized danger ahead even if the politicians won't verify and confirm that. And I think that's one of the big messages. There's much more to go in gold and silver. I did actually sell the recent highs very precisely, and I do think we've got potentially a bit of a deeper correction than people think coinciding with the stock market going down because that's what happens. Gold and silver initially will fall with the stock market because people's margin calls and dynamics, it'll be where it's centered. But, I do think we'll see it much, much higher. Um and once that once that correction's over. So, you see temporary correction and then another uh hockey stick sort of or another rise. Yeah. Another rise. I mean, you know, I think we're going to 10,000 on gold and silver will be 100 and the gold-silver ratio will get down to 30 from where it is about 110 right now. So, we've got some really significant moves. And I just keep thinking that there's two Olympic swimming pools worth of physical gold in the world. There's an awful lot of paper money. >> [snorts] >> Awful lot of paper money floating around. So, is that what's is the money printing is that what's driving the surge in gold with what? Like north of 41, silver north of 52? Very interestingly, people forget that gold and silver have rallied and the stock market's been rallying in the latter stages of its move. Yeah. So, if the stock market rolls over, there is like, you know, a correlation risk. And that's why this correction has to be considered potentially a bit deeper than people imagine, especially as we had a proper extension and blow-off into that peak. So, we had a frothy interim moment. So, timing is everything and not just direction. And I've been long on gold for years. So, it's the first time I've actually stripped myself from it um and separated myself from it. But, I think the correction's a great opportunity to just wait for better prices. Um and that also sits in a paradigm which I think is very clear. The commodity sector is rallying. Copper and metals are moving. Um natural gas is moving. Grains are moving. And this is the most powerful part of the Kondratiev C wave. And we're just at the bottom of that process. So, and that is exactly about war. David, can you explain uh what the C wave is exactly and then how that connects with war, did you say? Yeah. So, basically, if you split the Kondratiev cycle into two parts, um which is the up stage and the down stage, each of the up stage and down stage has an A and a B and a C wave. So, the A wave was roughly 2002 to 2010 or 12 depending on the commodity. The B wave was down to 2020, which is counter-inflationary. And then the big surge, the one that you go, "My god, we're in a commodity cycle." is the C wave. And I think traditionally that's very close to uh being about resource constriction and conflict. And when people say to me, you know, why do you think we're in World War III? Uh there's not enough loss of life. There's not enough blood. And I say, "Well, actually, let's go back and look at history." Because Kondratiev was right about a subcycle, but I think he missed the real cycle. It's 108 to 112 years, which is double a Kondratiev cycle. And if you mark those points, you will see there are hegemonic conflicts that take place. So, I'm going to take you right the way back to France's challenge with Spain. The next one was Britain's challenge against Napoleonic France. War started in 1792, and it went on until 1815. And the peak of that cycle was 1808. And the second war first war war started in 1914. And the peak of that cycle was 20. But, what's really important, that conflict and that challenge didn't resolve until the end of '45. And if you're in Asia, it wasn't until the end of the Korean War that it was clear who had become the next hegemon. And we now, in 2022, are very much in a similar position as 1914 in the cycle. Now, what's scary about this is you can work out when it starts. And the best way to think about I think about the human endeavor is we live in an entropic universe. Entropy is order to disorder. And for living things to survive in an entropic universe, they need an anti-entropic survival like plan. How do you face the way entropy crushes you? And humans use social endeavor. We build social structures so that we build effectively great anti-entropy that builds protective mechanisms, houses, heat, power, light, you know, from the forms back when we're medieval to now that separate us from the entropy of day-to-day existence. And all those things need power. So, originally, all our early civilizations used the good old trusted human battery, aka slavery. And that's what slavery was. It was the power source of early systems. Slavery was displaced because the revolution came about that was industrial. And suddenly there was a better power source. And not a coincidence, so Britain led the charge to release slavery because it had an industrial power source to replace them. And the countries that didn't have industrial power sources, like for example, the southern parts of America using for agriculture, well, you couldn't get rid of slavery because it was economically important. And it became significant in the Civil War. We now are in the petrochemical release system and ultimately nuclear power. And each wave of energy produces social revolution as the system becomes more complicated with the energy that creates it. So, this idea that we create an empire, and as you build an empire, it's anti-entropic as it reaches the top and it starts to go into decline, it becomes entropic like we do when we're old. We're pretty unproductive and pretty freaking useless. And that's essentially the paradigm between the individual's life cycle and the empire's. And it just becomes an impediment to basically a more vibrant system that can follow it. And it sounds brutal, but that's our, you know, generational story. And it's the same with empires. Yeah. So, what you have is this pulse. So, I think the Kondratiev identified inflation. I want to say inflation is just a manifestation of an entropic surge which basically agitates all the human dynamics and connections and stimulates us to go to conflict. And that's what we're seeing. If you really look at our world right now, we see this huge challenge between China's autocracy versus what's left of us in the democratic world. It's built an alliance structure which is Russia, North Korea, and Iran. And a secondary structure around the SCO that was a trading organization, and now it's definitely more than a trading organization. So, it's building itself an alliance versus an alliance process. And this is a titanic struggle which is really about human history because my intuition when I was younger that war shapes our story, I'm afraid is true. I argue in my next book, which hasn't been published, that we use wars to evolve. And how does it make us evolve? It forces a lateral adaptive elements in our society to rise to the fore to face the challenge. And if you win, you win because you're more adaptive and you're scaled. Look at the Ukrainians. They're having to find every adaptive gene in their body. And they're surviving because of that adaptation and wouldn't be surviving without it. So, war creates adaptive systems. And when they rise to power, the period of peace, there's normally advance in conflict and technology that benefits subsequently. There's like a momentum in society because it's now fully adapted that lasts for 70 or 80 years, and then it runs out of steam. The system becomes old as I described and empires go into decline, and then new systems rise, and war cycles again. So, the sad thing is until we realize, in my opinion, we're using wars to evolve. And we're doing a very strange thing. We're stacking the entropy of the universe with added entropy of conflict to make a super entropic environment. We won't stop fighting wars. David, I've got so many questions we can't get into right now. Given that we're running out of time, I'd love to get your thoughts on one last question I have is uh uh you know, what's something that's obvious to you that you think that maybe most people are missing? Or if you're willing, what's one bold call you like to make for our audience? Well, the first is we are in World War III. And we better wake up because denial is not going to work. Uh the next is the bond markets are on the tip of a very nasty move which is going to take our societies into a real economic trauma with or without conflict. So, that's separate. Yes, conflict will accelerate that, but even without conflict, we're in trouble. And we need to expect inflation to surge. And the peak in '75 was 16% CPI. All of our inflation reporting methods have basically been changed. I if you do like for like and the levels that we think like CPI now, it's not the same CPI as 75. It's much higher. So, the numbers reported which facilitate borrowing money and lending you know and more money printing uh are not real. The reality is what's it like to go shopping, keep your families. And what we see in the western world is the poverty line is rising through the middle classes. And that's partly to do with lack of real productivity which is linked to higher inflation that reduces that. So, we have you know and that's why societies are feeling more fractured. It's because there's less to go around. So, these are all parts of the same process. They're about decline and this pulse of entropy. And that basically I think is the the piece of people are missing. And how powerfully systematic what we're experiencing is. David, if you can tell us about the Global Forecaster really quick and then what you're building there and how people can follow your work. Thank you. Um so, Global Forecaster is at its heart an inside-out hedge fund. That means that you can access all of the IP that I created in my own hedge funds and if you're a professional investor, you can access it. So, why would I give away my secrets people would say? And the answer is I realize that earning money is not the be-all and end-all to our survival. Given our society is at such risk, I needed a way of communicating to people that these ideas are work and they're powerful. So, there are two elements. One is if they work and people make money, they realize they work. That's you know key for the financial professionals that are my clients. And more importantly, I made available a thing called Marinations which is the cost of a newspaper and if you have any curiosity at all about the world, you really should read these because we've touched on just some of the fractions of perceptions and insightful mechanisms which I've created which are very different from the ones we're given. And we're given a very poor model which is why we're constantly surprised by what happens. If you have a model that actually works, you're not surprised. And then if you're not surprised, you can take action to avoid the rapids. And that's exactly what Global Forecaster is really about. So, if you're a professional asset manager, come come and look at the inside-out part of what we do. If you're a interested member of the public, and there's lots of people turn around to me and they say, "There's not enough investment potion and I I I want to manage my money." And I I really laugh because they're investment-grade insights. I warned everyone about the peak in Bitcoin, the peak in this market. I do it once in a while when it's really big. Told people to get out of gold. So, you like that alone would save your portfolio. But more importantly, being aware of essentially where the world is and how it works and not investing without that knowledge is from my experience of 40 years as a professional investor a form of suicide. And Global Forecaster provides that and insights about psychology. Um I'll give an example. One of them was our dark psychology and it talks about how society when you get a leader who's who has a sociopathic problem and let's just take Hitler and not talk about Trump. >> [laughter] >> And they're grandiose narcissists and they convert the system to their own form of narcissistic supply. They don't just sit in that system. They replicate their dysfunction and the system becomes malignant and it spreads like a cancer. So, if you go and look at you know Hitler's Germany, it wasn't just Hitler who was dysfunctional. His whole Nazi regime was dysfunctional because he replicated himself. And all systems, everything that live wants to replicate itself whatever it is good or bad, whatever we define it as and be as powerful as possible. That's a simple rule. So, this talks about how dark psychology spreads. And for those people that find and would wake up in the morning and say, "This is a mad world." It's because their thinking process is the old healthy process and they're witnessing an unhealthy destructive mechanism which doesn't compute and they can't understand it, but it will perpetuate and keep perpetuating because that's how systems operate until they're challenged and broken. David, uh I would love to have you back. Thank you for your time. Uh you know just for everyone listening, I'll make sure to include all of David's links in the show uh so you can dive deeper in into his research and insights. Uh for everybody, I'm Steve Yang learning alongside you from people smarter than me. Stay smart, stay curious, stay disciplined. David, thank you so much for your time and joining us. Steve, it's been such a pleasure being interviewed by you. Thank you for your for your for your for your great questions and and the knowledge you brought into this. Well, thank you. So kind. >> [music]
China's Rise Means the Dollar's Decline | David Murrin on @naturalresourcestocks
Summary
Transcript
So this idea that we create an empire and as you build an empire it's anti-entropic as it reaches the top and it starts to go into decline it becomes entropic like we do when we're old. We're pretty unproductive and pretty freaking useless. And that's essentially the paradigm between the individual's life cycle and the empires. And it just becomes an impediment to basically a more vibrant system that can follow it. And sounds brutal but that's our you know generational story and it's the same with empires. And what scares me is we don't have intention. We haven't created the firebreak to stop Ukraine and the petri dish of Ukraine is benefiting China because the lessons go back into its centerfold and their production is so much faster and powerful in the cycle they're able to really accelerate. So allowing this petri dish to continue I think is pretty scary. >> I know that you uh you push back on the idea of true black swans. Uh you know arguing that you know so-called surprises you know follow predictable cycles. Uh you know I'd love to get your input on that idea and how it should change the way we think about major shocks and then from that perspective you know what major political risk do you think investors are still underestimating right now as it relates to China Russia and what's going on? >> [music] >> Good day. Welcome back everyone to Natural Resource Stocks. Today I have with me David Murrin of the Global Forecaster. Uh David's had an incredible journey finance oil exploration even time spent in some of the most remote parts of the world like the jungles of Papua New Guinea. Uh he's worked at JP Morgan. He's founded hedge funds written multiple books and along the way he's built a reputation as a sharp observer of human behavior global patterns. He's respected and started the Global Forecaster uh to basically share geopolitical and financial market forecasts to create winning strategies. And so David I I've asked you to come on uh for the benefit of our listeners for the benefit of myself because of everything that's going on we'd love to get your thoughts. David it's truly an honor to have you here. Well thank you for that lovely introduction. I'm trying to live up to it. >> [laughter] >> Well David let's start with your story. Uh you've been all over the world. Yeah you you've been across so many different industries. How did those experiences shape the way you see the world influence the frameworks you use today? Very much so funny enough. Um Where do you start? I think probably >> [clears throat] >> if you're looking at it chronologically uh the first part of my story was I was fascinated by warfare and weapons and and very early on in my younger years decided that human history wasn't decided by social trends and patterns. It was really decided by the way humans fought wars and the societies that enabled those military structures and the rate of evolution those structures created to generate new technologies. And that was something I recognized very early on. Uh I was always adventurous and um mathema- good at maths so I became a physicist. Knew I didn't want to go into the city inverted commas. I said I'm never going to that place. I remember walking down a hill at university so I'm never going to the city. And I want all of your viewers my first piece of wisdom is when you use the word never you're probably going to be doing it within about 12 months. Very important. So I found myself um initially joining an oil exploration company and I was a seismologist working for Shell. Spent 3 years in the Papua New Guinean jungle which is pretty pretty severe. It was you know swamp deep swamps crocodiles fall off the bridging and you disappear into your waist and these things called sago fronds would lay on top of each other they'd look like palm fronds but they weren't because they were just made by the devil. They had these hard nails so when you fell off the bridging and your foot went into the sago fronds when you pull your foot out all the nails would be impaled in your in your legs. Took months and months for them to grow out. And I kept just thinking that in the Pacific war the Japanese and American fought in those jungles. And you hear stories that they they never recovered their health even if they came back alive and there's a good reason why it's pretty tough environment for your for your well-being to be sustained. They had a labor force of a cannibals. And I witnessed in the first day there this collective behavioral pattern where one person's anger towards me spread like the ripples in a pond. And just like the charge in a capacitor they charged themselves up. I didn't think I was going to survive to be honest. They had machetes and I've never seen anyone so angry as this group of 60 cannibals who I found out afterwards had eaten a nearby village 6 months beforehand. So they weren't really cannibals. And um I I having fronted it out and survived I watched this energy dissipate like a cap- a capacitor discharges. And about 3 or 4 hours later they were like vacant children no reminiscence of the anger they felt towards me. In our society if we were that angry we would be have generational hatred. It would just be last for years and years and years. But somehow they had this massive surge of emotion and then they dissipated it. And that was my first sort of seminal experience of human collective behavior. And then somewhere through hook or crook I ended up on the trading floor of Morgan Guaranty Trust which was JP Morgan or one of its early entities. And there I remember thinking I know nothing about economics but I'm a good scientist so I'm going to watch. And after a few weeks I felt what I was watching was really familiar only they weren't Papua New Guineans inverted commas how we were thousands of years ago. They were the best of our modern culture and they were behaving collectively. And I kept thinking about you buy a Cray computer and you get a pocket calculator which is sort of what collective behavioral patterns do to us. They sublimate our heart functions to a collective herd and we think we're in control and we're not. And because there's no way to store collective emotions they run through us but we have no memory of their influence apart from our subsequent actions. And that is shown with riots and people who are perfectly normal people doing things that they when they're shown on video they can't associate with. It is not some evil part of them coming out. Some people perhaps yes but the majority I think they're gripped by a collective behavioral pattern. So that was you know the beginning of it and I suddenly realized it wasn't about money it was actually all about understanding people. And I so I built models and behaviors which changed the way the bank worked. Stayed there for 7 years. And I was 30 by the time I left and set up my first hedge fund. And 33 when I set up my second bigger hedge fund which is an emerging market fund which was great cuz we got to do anything you ever want to do invest in. And the really super thing about you know finance especially then it was adventurous. It paid you to be think differently. So I remember we sold the height of the Asian crisis and we bought the bottom. We became number one fund in the world by clipping that particular experience. We had people like Soros offering offering us money afterwards which I refused. Remember his immortal words but no one said no to me before. Uh no no George because your fee structure is so ridiculously cheap. Anyway >> [laughter] >> um we uh we uh didn't do so well initially in the Russian crisis. We ended up buying a little too early and we experienced what it was like to get it all wrong and hold on to it for longer than you think. And I remember for months I was walking around my garden every morning thinking how do we make such a hash of this? And we ended up in fact converting the whole portfolio into Russian principal bonds. And you know there was no diversification it was just a lot of principal bonds which had started at 40. By the end of it we owned them at about 6 and a half and their price was two and we didn't look too smart. And then I remember one day just when you've truly given up hope the price moved and it went 2 3 3 4 4 5 6 7 through our break evens. And then we got most of it through 60s and 70s. It was an incredible trade. But it reminds you that in in incredible trades you're going to be a consensual. And then essentially as you're a consensual you're going to get it wrong if you don't necessarily have beautiful timing methodology. And then you're going to eat for a period. And then you got to decide whether you believe it or not. And we did the very same trade as the big shorts funny enough on television. We didn't do it in the same instruments but we did it nonetheless and we made about the same amount 84% between '07 and '08. So those periods are really formative for me. But the thing that really I think shapes our conversation now is 9/11. And in 9/11 I remember watching those planes plow in. It was truly you know awful to watch. And I remember thinking about the magnitude of what we'd witnessed. And I asked myself question and remember it was in the age of the neo-conservative movement it was going to be you know democracy forever a decade of American democracy exported around the world all of these neo-conservative ideas. And I remember thinking hang on a sec. Um what if that's actually an immune system failure? And if it's an immune system failure between two intelligence services that didn't share information then what about it being the beginning of the decline of America and how could I answer the question of was it or wasn't it? And I looked at all my price information there's just not enough price information to model. So I thought okay I'm going to have to reverse use the price modeling in psychology. And invert a structure I used which is an Elliott wave structure of five up and three down and sublimated into three and two in effect so two three pulses up and two pulses down and give them psychologies and then I decided to use wars as the clocks of empires. >> [snorts] >> And funny enough once I defined wars as not all the same civil wars wars of expansion, wars of contraction. Suddenly, it all fell out and I understood this five stages of empire model and I described it as regionalization, the first stage, driven usually by population expansion. And then a civil war which lateralized society and by lateralization I mean makes it adaptive and the lateral thinking people that build and break things and strategically think differently, build and expand the system non-linearly, so it becomes an exponential expansion. And then it reaches a point where it can't expand anymore, which is the end of the expansion phase and moves into maturity. And at that stage, the system is paying back an awful lot of its debt that it's incurred to build the USPs. It becomes a monster, starts institutionalizing its culture and architecture in bigger and bigger structures. And then the linear people who are good politicians start edge out the lateral people because you don't need your adapters anymore. You're just so big, you dominate everything. And towards the top, there's another subtle civil war where the linear group thinking people displace, because they're better politicians, the lateral mavericks. And in fact, from that moment onwards, the system is in decline. It doesn't realize it, but it's it's ejected its adaptive agents. And only the momentum and scale of it covers up that particular decision point. And that leads to overextension, which if you look at it is you have too much commitment and too little revenue and you basically are slowly croaking, but you don't realize it because you start to borrow money and you're so big and you're such a good bet, you can borrow quite a lot of money. And then the event like 9/11 comes along that reverses and accelerates the decline. And then things start to get really bad. Your system doesn't work. It becomes more linear. It prints money. And what we've seen in America since 9/11 is an extreme version of decline because our financial management is so sophisticated, we have printed enormous amounts of money. And the best way to look at it is say for example, you live in a world of no debt and you have a company that makes 10% per annum and the CEO looks great and suddenly everything starts to slow down and they're making 5%. And the CEO doesn't look so good, so he just goes along and says, "Well, I'll double leverage what I make and I'll leverage everything we do and now we'll make 10%." And everyone says, "Well, aren't you a great CEO? That's great." And then the next year, the real returns go to two and a half and then you leverage it four times. And everyone says, "When you are you brilliant. Well done." But what's happening is it's pasting over the need to adapt. It's pasting over the the changing environment that would then create a changing leadership with a different perspective to adapt the system. And that's been happening not just in companies, it's been happening in especially America and European countries to a lesser degree and we're probably 40 times leveraged, which means that what's underneath it is probably 0.001% of real growth. And if you've ever run a leveraged portfolio, the danger with that is one day you look hunky-dory and the next thing you suddenly it goes from positive to negative and it dives through the floor on you and it moves so quickly you can't actually respond. And I think that's the paradigm decline represents for the Western world right now. Um and then the other piece of that story is I stopped managing money well, before that actually, I'm dyslexic, which is why I see patterns. Dyslexia is, you know, is a is a thing superpower early years at school is a bugger, especially without a word checker because I couldn't spell and therefore I couldn't really write and no one could read my stuff. Um nowadays, for those that are dyslexic and myself, the spell checker takes the burden and actually it works. And people um kept saying to me when I presented this worldview back in '02 and '03 and it was the basis of our investment thesis, they said, "You must write a book." And I just laughed and I said, "You know what, Steve? I'm never ever going to write a book. I'm dyslexic." And then in 2005, my second and third children came along um and they're twins. I was feeding them at 1:00 in the morning in California thinking, "Jesus Christ, how I brought my children into this world that if I'm right is absolutely going to be at odds with each other. I've got to somehow try and show people what I've concluded and what it does." So I the next day, and I'm not religious, I'm very spiritual but I don't believe in religion, but there's a part that they talk about the gift of tongues where suddenly people can communicate in different language and for me, it was the gift of writing. That this wasn't writing that most normal people would do, but it was enough of a skill set where I could understand what I wrote the next day from the previous day, which was an advance and that was the beginning of writing my book. And it finally came out in '09, it was called Breaking the Code of History and it details all the examples and dynamics of the five stages of empire applied. It predicted what would happen and has happened very accurately since then. And it also highlighted a cycle which at that stage, um I've not I hadn't really adjusted, but it was contrarian 54-56 year commodity cycle, which is critical for anyone investing in the commodity sector. The thing that interested me was at each of those peaks, there was some kind of conflict. So [clears throat] conflict inflation went hand in hand and commodity dynamics and increasing prices went hand in hand with constriction. And that linked my professional finance with my fascination with conflict. And I drew the conclusion that essentially, and this is back in 2002 when I picked the beginning of the commodity cycle and we made a fortune from it. It was essentially that if we began, it would end and if it ended, it would end with a conflict and what conflict would look like. And using my empire models, I predicted that America wasn't just in decline as a single country, but we lived in a thing I call the super Western Christian empire. And when I first started looking at empire models, they were simple. But the first complex model was the Roman empire because the Western Roman empire based around Rome ran out of juice and basically Eastern Constantinople element became a separate empire for a time alongside it. And as the Western Roman empire went into decline, the East rose. But they actually had very shared common values. They were Roman structures. And it was like the evergreen tree that gives birth to a branch that becomes the next tree. >> [snorts] >> So I call them a super empire and I'd seen that in evidence and structured it. And then I asked the question, "Why empires in Europe suffered shorter durations?" And I thought it might be technology, but then I realized what they really were is the pistons of a bigger engine. With the Portuguese going first, then the Spanish, then the Dutch, then the French, then Britain, the biggest empire by far. And I laughed because, you know, much as America may have seemed powerful at times, it didn't touch upon the power of Britain in the middle of the 19th century, not one bit. And Britain didn't have a didn't have a challenger anywhere in the world. Um I didn't live through a cold war of, you know, bi-hemispheric power um dynamics. And then America came along. Germany tried twice before that, once as a Christian society, secondly as an atheist society. And there is America. So when I highlighted America going to decline in 2002, just after 9/11, it wasn't just America that was going to decline, it was a whole Western Christian value set, which is why you see democracy is a weakened value in many countries because democracy underpins the process of Western structuring and leadership and organization. So here we were with this conclusion that America was declining and what was going to fill the gap. And then I looked across to the Asian structure and I realized that actually in terms of modern recent cycles, which I called Japan the first of the super Asian systems and China was the second and India is the third. And when you look at it that way, it makes an awful lot of sense as the center of economic gravity has moved to the East. And why that was important was and this is incredibly arrogant, I would say, is that people in the West were saying to me, "Well, the Chinese will never challenge to the West, ever." And I said, "You do realize that the West has already had like one of these struggles with Japan. It started with Japan and Russia in the early wars. It then was the Second World War, so you've got to imagine this region's created rising hegemons which have gone against Western power and we've been here before. It's just a different country in within the region replicating that." And that helped an awful lot for people to understand that you couldn't just discount the Chinese. And at that time, I'd done an awful lot of Chinese martial arts and I'd studied, you know, Chinese culture, which is hugely admirable in so many ways and more sophisticated, I would say, than any other culture around and complex and Machiavellian. And I warned that they had already made a plan after the third Taiwan Straits crisis and they were coming for us. But that was a more sophisticated coming for us. It wasn't a coming out for you. What I'm doing is seducing you to invest in me to build the biggest industrial base in the world that I'm going to use in an arms race to flatten you. And that was their plan. And anyone who went into China, anyone who thought it was a good investment, I was saying, "If you do that, you betray our future. You betray our children's future. You feed the beast so it can then make the challenge into the next contrarian peak." And that's very important because if we hadn't fed the beast, it wouldn't be ready to do it now. We still would be in a form of peace because the West would have dominant control and its IP would have been intact and we wouldn't have educated the enemy that's coming towards us. So there's an awful lot of things we've been really stupid about and on the other side of that story, the Chinese have been incredibly clever and their broad-fronted challenge to the West, whether it was industrial, whether it's economic, or whether it's military, has been incredibly frightening. And most people don't realize just how sophisticated and powerful and broad that challenge is and has been for I'd say the past 10 years. David brings me to another book you've written, the Red Lightning. I believe you wrote that in 2021. You laid out a scenario where the West or US at least, the US-China conflict, you would see like a sounds like a World War III sort of deal, conflict between US and China by 2025. We're here in 2025, global tensions running as high as they are. How do you see that framework unfolding in real time, economically, militarily, through the lens of your, you know, Five Stages of Empire and Red Lightning? So, there's an awful lot of, you know, subject matter inside Breaking the Code of History about warfare and its role of empire replacement and displacement. And then, um I wrote a book which seemed at the time a little bit left field for my other work. It was all about the First World War and how Britain in its BEF, the Expeditionary Force, had created a very adaptive form of warfare that broke the static lines behind which the Germans were, you know, trying to advance but protecting their territory, even though they'd lost maritime control. And it was a story of innovation and adaptation and I made some parallels to the Chinese. There was some real parallels to what's happening in Ukraine. It's going through a static form of warfare and everyone thinks it will remain static and I would argue it will not remain static. There will be technologies and tactics which come out in combination which suddenly create mobility and shock everyone. And we should be prepared for that. And we need to make sure it's Ukraine being mobile, not Russia. Um but then moving forwards as the drumbeat builds in its, you know, rhythm and tempo, I became more and more aware we were running out of time. So, I wrote a defense review in 2015 after the disasters occurring in the UK to try and say to people, look, if you don't spend money, we're going to be at war with Russia and China. And that missed. I wrote another one called Now or Never in 2020 which got to the Prime Minister's desk. He used the Now or Never title in a very catchy way and then forgot about everything else. And then the Conservatives did exactly what they'd done before, destroyed defense each sequential year pretending they're not. And in desperation, I wrote Red Lightning and the basic thesis of Red Lightning and its warning is that when you have a hegemon of great power that's been there for a long time, it's usually risen to power with a USP, a force capability. For Britain, it was battleships. For America, it was aircraft carriers and their long-range standoff systems that goes within 600 miles of the enemy's coast, cycle 180 missions a day and pummel it to death. And carrier power was really what the story was about for the American Empire. So, as a challenger, China had a very simple challenge, which was how do you destroy power projection with carriers? And they came up with an and and promoted an access area denial strategy, as in how can we stop these carriers from getting close enough to our shores to have an effect? And in that process, they turned ballistic rockets that were traditionally nuclear delivery systems into conventional systems that could kill carriers. And the first one was the DF-26 and the DF-21 followed and then the hypersonic DF-17 more recently. What that really meant was if a DF a group of DF-21s and 26s were fired at an American carrier, it was traditionally escorted by three two three two destroyers and a cruiser. And each of those systems with their with their GS combat systems essentially could launch 28 missiles in a salvo to counter what's coming in because they needed direct control and because the PK or the kill ratio of that missile was less than one, it would be two missiles per incoming target. So, in effect, they could handle 14 systems coming at missiles coming at once. So, what the Chinese worked out to do was if I make 3 * 14 and enough for a carrier, somewhere just above 50 missiles and I've destroyed the carrier. And that was their proposition and what they did. And what was so interesting was how slowly the US Navy responded to that challenge and the recognition that their power base was being eroded very quickly. And the DF-17s came afterwards with hypersonic glide weapons which almost impossible to interdict unless you get them right to their apogee before the the rocket bus releases the warhead. So, I decided to write a book. It was short. It was all about two things. One, it pictured a world which up until 2020, I'd been trying to say to people, if you don't seduce Russia back into the West, then basically the bonding between Russia and China would become, you know, without a crack. One is a commodity producer, one is a consumer. They're both on the Eurasian continent and they would make a like a twofold enemy. So, we have if we were going to do it, we need to seduce Putin away before 2020. And the reason why that was there was in the contractive cycle of oil, you can see the pulse from 2002 to 210, there's a dip and then it goes back and it sits at 120, goes sideways for a number of years where there was huge wealth for Russia because 120 with a break even of 15 makes a lot of money for Russia. And Putin used that to rearm, reconstruct his conventional forces, create strategic rocket forces with different capabilities, and generally feel much better about his stability. And there was always going to be a trough in that process where oil prices were low and that was when he would be most vulnerable to saying, Mr. Putin, what's it like to win World War III with the Chinese? How long is your sovereignty going to last? So, wouldn't you like to be with us? And he would be economically vulnerable enough to say, yeah, okay, I'm going to come over with you guys. That was your our only chance. And that was negative oil. Oil went negative, that was it. From that from that moment onwards, the next cycle in this contractive, the sea wave, which is going to 250, basically started. And so, I wrote in the book this idea that actually Russia was on our side and Russia was attacked at the same time. I didn't think it was going to be possible but I just wanted to hang out the idea that essentially we'd missed the opportunity and we needed to do that and it was too late. But I put that in there. And then the main basis was a surprise rocket attack which wipes out every carrier in the, you know, within the third and second island chains and gives the Southeast Asian all the way out to Australia and New Zealand to the Chinese and demonstrated how destructive these weapons would be and there would be no counter. And then on the other half of it, I designed a uh the weapons that we would need to counter that technology. It's very similar to the things we're seeing, robotic submarines that were screened main events and um arsenal ships that let missiles be launched at range from the from the main controlling command system which gave them added sort of envelope control and lasers on F-35s using the megawatt fan, 25 megawatt fan to power those lasers. And I gave an example of how a carrier could be constructed with weapons to defend against those targets to give us hope and aspiration. So, I didn't just want to say, oh, we're everyone. I wanted to say, we are screwed but there are solutions if we put our mind to it. And so, that was Red Light- Red Lightning. And it's a short read, take you about an hour and a half. Wear some diapers because it's more true than ever. And what amazes me is that essentially in this time now, 5 years, the slow speed of which America and Europe has really realized it's been outclassed on a terrible scale, innovatively, in weapons technology and scale of production. And our response to Ukraine, for example, you know, many of the armies in Europe and America are still training as if drone warfare didn't exist on a scale that it does exist in Ukraine. And like all of these wars, they act like petri dishes. So, you've got to be the Spanish Civil War, you know, its gift to the world was Blitzkrieg. Blitzkrieg came along and, you know, Europe fell in 1940. We will look back on Ukraine and realize its gift to the world is it enabled forces who understood it to use drone warfare and in mobile forms to come and completely swamp all conventional models. And yet still we haven't adapted fast enough. Do you see How do you see the Russia-Ukraine conflict playing out? Do you see Trump giving in to Russia's demands? Do you see it this being the end of NATO? What do you forecast? Um okay, so let's put it in context. Russia-Ukraine wouldn't be happening if China wasn't at the back. So, we've got to realize that China the magnitude of China's challenge is enabling its key access partners, Iran in its war against Israel, Russia in its war against NATO, not just Ukraine, and North Korea that sits there brandishing nuclear weapons and saying, I'll do it. None of those things would be happening if China was weak and hadn't gone through this expansionary phase backed up by terrifyingly accelerating military power. So, we need to realize that the biggest mobilizing and enabling agent to Ukraine is China. For example, the Geran drones and um um other kind of techniques like their cab bombs, which are now have a little jet strapped to them. The little jets come from China. And you know, this is a huge challenge for Ukraine they shoot these different targets down and the numbers coming over their heads. So, that's a simple just that alone is a is a huge enable, but it's way bigger than just a few jet engines on every system that starts to swamp the Ukrainian defenses. So, I think we're not looking at a proxy war and this is a full-on war. And we have NATO components fighting inside Ukraine. The Russians know it. The Russians have spread their attack mode, you know, to the gray zone. That gray zone wouldn't have been gray in the Cold War. I mean, blowing up the railway tracks in Poland or blowing up the submarine halls where we build our submarines or pulling up our cables is not gray zone stuff in the old parables of Cold War definition of war. It's war. And because our politicians are weak, we sort of walk it back. We sort of pretend it didn't happen. And that is a problem because bully Putin is essentially a bully. And the only way you deal with a bully is you put your toe-to-toe and you thump him so hard he doesn't get up. When he gets up, you thump him again. And then he doesn't come back. And there isn't a single thing that I would argue that really we have done in NATO to put Putin at risk. He constantly puts us at risk. He pressurizes Ukraine's in constant assault and he might break through. He goes through, you know, territory that he shouldn't fly his drones into. He blows things up and we don't do things back to him that are clearly revenge. And the way the Western weak politicians think is, well, you know, that's escalation. Ashley, if you want to, you know, change the paradigm, you need to escalate it violently and quickly and it'll de-escalate. Because NATO does have overwhelming air power, which it could use. It could put an air shield over Ukraine and it would change the war overnight and Putin could do nothing about it. So, we do have tools. We just don't have intention. And what scares me is we don't have intention. We haven't created the firebreak to stop Ukraine and the petri dish of Ukraine is benefiting China because the lessons go back into its centerfold and their production is so much faster and powerful in the cycle, they're able to really accelerate. So, allowing this petri dish to continue, I think it's pretty scary. So, this conflict between Ukraine and Russia, uh it's are you suggesting that it's just giving China more confidence that they're able to Yeah. They study every lesson. And you know, one of the things in Ukraine that is a wake-up call is iterations and innovations are in the four to six-week loop. So, you know, the Usually Ukrainians innovate, but they can't make the innovation in big enough scale to make a strategic breakthrough. Then the technology gets given to the Russians and then they make it in scale and throw it back at the Ukrainians. So, it's all very well being innovative, which the Ukrainians are definitely great at, but they need an industrial scale to make sure that the when the innovation comes, it's the innovation that polishes off the Russians rather than needing 10 others and going nowhere. And it's an a profound lesson for us in the West that we you know, letting this process continue means that the beneficiary is China with its dark factories, which are fully robotic. And you know, it was bad enough when their 1.2 billion people working in they were industrial industrial and capable in their factories manually, but now they're fully automated, I think we really should be very scared. So, the war, uh a lot of people don't realize, acknowledge, or uh want to even admit that uh that there is a war going on. Uh and you know, like uh the what's the phrase uh the win the war against the West uh without firing a shot? Uh and and just they've uh China's been intentional. Uh they they know the US military playbook. Uh and you know, China's been doing stuff with, you know, like de- dethroning the dollar or de-dollarizing or with BRICS. Uh they've, you know, with Russia-Ukraine, uh with rare earth, uh minerals and and commodities and cornering certain markets. Uh I hear you saying that they are also able to stand toe-to-toe, head-to-head against the US in terms of uh military power. Uh and that's something that uh uh the you know, you when we think the biggest military in the world, we think the US. Uh now, I hear you saying that uh the threat is, what's the phrase, static form of war warfare? That's not something that uh you can expect to stay. Uh now, so uh I know that you uh you pushed back on the idea of true black swans, uh you know, arguing that, you know, so-called surprises, you know, follow predictable cycles. Uh you know, I'd love to get your input on that idea and how it should change the way we think about major shocks. And then from that perspective, you know, what major political risks do you think investors are still underestimating right now as it relates to China, Russia, and what's going on? I have to say you ask great questions. Really insightful. Well, thank you. I can hear your background reading and it's a great credit to you. So, yeah, I do put push back on the idea of black swans. I think black swans are things that happen to people that just don't understand the world. And it's a little bit like lightning. Oh, but the lightning bolt, didn't couldn't see that one coming. But under the models I built in global forecaster, these things are not black swans. They're part of systemic risks at various stages of cycles that you need to look out for and understand how they operate. So, I think that, you know, the whole statistical analysis of black swans by its famous author is actually, to me, if I'm being slightly rude, is an indication of a lack of like a model that actually encompasses how we collectively behave and therefore a predictive model. Um it's for those people that think everything is always the same. So, um where are we in black swan land? Well, you know, you're a black swan thinker when war breaks out because you did ignored a thousand signals beforehand that we were already in it. But one of the things that is very powerful in that is if you go with the First World War in 1914, where Britain was facing a massively surging Germany and who'd built a monstrous army and a navy to try and compete with the grand fleet. Essentially, through other dimensions, we were economically intertwined with Germany much as America is with America with China funnily enough today. People thought they were so intertwined they couldn't go to war. And also they were our closest ally for the last 100 years in on the continent and their royal families were intertwined with our royal families. So, there was a sort of Pax Britannica denial process that war could break out after that long duration of peace. Mhm. And there's something that's factor. So, we've definitely got Pax Americana, Pax Britannica. The first one, that'll be big in its own. But you'd think that would have been shaken by Ukraine and the existential war between Iran and Israel, which by the way is just going through a hiatus. It's going to come back with a vengeance. And you know, one thing that you should learn in life is if you have an enemy who wants to do you harm and do you in, having a pause and a holiday and letting them reconstitute themselves after they've had a bit of a a drubbing is a very bad move. And Trump has been instrumental in creating these false in Gaza, which are the illusions of peace for his own, you know, narcissistic purpose of appearing to be a great man. And in fact, what he's really created is the conditions for a truly consuming forest fire. And history will judge him appallingly as a result of that in my opinion. Um So, there are two other factors about denial. One of the factors is I talked about in decline with money printing, essentially linearity dominates. And linear thinking leadership just can't see anything but the railway tracks that run ahead of them. And they can't see the, you know, the the car that's about to smash into them from the side cuz they only look down the railway tracks. So, there's a denial in our leadership and Trump is more natural. And he but he he has other flaws in that process. But predominantly in Britain and other countries that should be, you know, the the voices as well of sheep dogs, we have terrible linearity in our leadership in Europe. And then there's a last factor and that is it's a product of money printing, but it's put the stock market in the US near its highs. And that produces collective dopamine. And trying to explain to people with their dopamine running through their system that they're about to get eaten by a big wolf, you can't do it. But the moment the market turns around and the cortisol flows, they're not going to see one wolf. They're going to see themselves surrounded by wolves. So, I think we're going to go from, and it's stock market generated, we're going to go from dopamine blindness to cortisol fear quicker than we realize. And that's why this decline and this high in the stock market has the potential to be the high of the decade in the stock market because once the dopamine stops and cortisol really flows and inflation kicks in because we are at the stage where the bond market's about to tip over. And once that tips over and yield curve steepen, no amount of money printing is going to have the reaction of what is an exhausted and internally exhausted stock market kept up by a false paradigm. And at the same time, as inflation rises, it's usually coincident with greater friction and what I call entropy in the geopolitical world. So, I think that's what we look forward to. And what we've seen with gold and silver is we've seen this anticipation and the reality that things are getting more entropic, and it's the hedge against that entropy. So, everyone who's a leader should be really quite scared that gold is behaving the way it is and silver because that's a behavior where the system has recognized danger ahead even if the politicians won't verify and confirm that. And I think that's one of the big messages. There's much more to go in gold and silver. I did actually sell the recent highs very precisely, and I do think we've got potentially a bit of a deeper correction than people think coinciding with the stock market going down because that's what happens. Gold and silver initially will fall with the stock market because people's margin calls and dynamics, it'll be where it's centered. But, I do think we'll see it much, much higher. Um and once that once that correction's over. So, you see temporary correction and then another uh hockey stick sort of or another rise. Yeah. Another rise. I mean, you know, I think we're going to 10,000 on gold and silver will be 100 and the gold-silver ratio will get down to 30 from where it is about 110 right now. So, we've got some really significant moves. And I just keep thinking that there's two Olympic swimming pools worth of physical gold in the world. There's an awful lot of paper money. >> [snorts] >> Awful lot of paper money floating around. So, is that what's is the money printing is that what's driving the surge in gold with what? Like north of 41, silver north of 52? Very interestingly, people forget that gold and silver have rallied and the stock market's been rallying in the latter stages of its move. Yeah. So, if the stock market rolls over, there is like, you know, a correlation risk. And that's why this correction has to be considered potentially a bit deeper than people imagine, especially as we had a proper extension and blow-off into that peak. So, we had a frothy interim moment. So, timing is everything and not just direction. And I've been long on gold for years. So, it's the first time I've actually stripped myself from it um and separated myself from it. But, I think the correction's a great opportunity to just wait for better prices. Um and that also sits in a paradigm which I think is very clear. The commodity sector is rallying. Copper and metals are moving. Um natural gas is moving. Grains are moving. And this is the most powerful part of the Kondratiev C wave. And we're just at the bottom of that process. So, and that is exactly about war. David, can you explain uh what the C wave is exactly and then how that connects with war, did you say? Yeah. So, basically, if you split the Kondratiev cycle into two parts, um which is the up stage and the down stage, each of the up stage and down stage has an A and a B and a C wave. So, the A wave was roughly 2002 to 2010 or 12 depending on the commodity. The B wave was down to 2020, which is counter-inflationary. And then the big surge, the one that you go, "My god, we're in a commodity cycle." is the C wave. And I think traditionally that's very close to uh being about resource constriction and conflict. And when people say to me, you know, why do you think we're in World War III? Uh there's not enough loss of life. There's not enough blood. And I say, "Well, actually, let's go back and look at history." Because Kondratiev was right about a subcycle, but I think he missed the real cycle. It's 108 to 112 years, which is double a Kondratiev cycle. And if you mark those points, you will see there are hegemonic conflicts that take place. So, I'm going to take you right the way back to France's challenge with Spain. The next one was Britain's challenge against Napoleonic France. War started in 1792, and it went on until 1815. And the peak of that cycle was 1808. And the second war first war war started in 1914. And the peak of that cycle was 20. But, what's really important, that conflict and that challenge didn't resolve until the end of '45. And if you're in Asia, it wasn't until the end of the Korean War that it was clear who had become the next hegemon. And we now, in 2022, are very much in a similar position as 1914 in the cycle. Now, what's scary about this is you can work out when it starts. And the best way to think about I think about the human endeavor is we live in an entropic universe. Entropy is order to disorder. And for living things to survive in an entropic universe, they need an anti-entropic survival like plan. How do you face the way entropy crushes you? And humans use social endeavor. We build social structures so that we build effectively great anti-entropy that builds protective mechanisms, houses, heat, power, light, you know, from the forms back when we're medieval to now that separate us from the entropy of day-to-day existence. And all those things need power. So, originally, all our early civilizations used the good old trusted human battery, aka slavery. And that's what slavery was. It was the power source of early systems. Slavery was displaced because the revolution came about that was industrial. And suddenly there was a better power source. And not a coincidence, so Britain led the charge to release slavery because it had an industrial power source to replace them. And the countries that didn't have industrial power sources, like for example, the southern parts of America using for agriculture, well, you couldn't get rid of slavery because it was economically important. And it became significant in the Civil War. We now are in the petrochemical release system and ultimately nuclear power. And each wave of energy produces social revolution as the system becomes more complicated with the energy that creates it. So, this idea that we create an empire, and as you build an empire, it's anti-entropic as it reaches the top and it starts to go into decline, it becomes entropic like we do when we're old. We're pretty unproductive and pretty freaking useless. And that's essentially the paradigm between the individual's life cycle and the empire's. And it just becomes an impediment to basically a more vibrant system that can follow it. And it sounds brutal, but that's our, you know, generational story. And it's the same with empires. Yeah. So, what you have is this pulse. So, I think the Kondratiev identified inflation. I want to say inflation is just a manifestation of an entropic surge which basically agitates all the human dynamics and connections and stimulates us to go to conflict. And that's what we're seeing. If you really look at our world right now, we see this huge challenge between China's autocracy versus what's left of us in the democratic world. It's built an alliance structure which is Russia, North Korea, and Iran. And a secondary structure around the SCO that was a trading organization, and now it's definitely more than a trading organization. So, it's building itself an alliance versus an alliance process. And this is a titanic struggle which is really about human history because my intuition when I was younger that war shapes our story, I'm afraid is true. I argue in my next book, which hasn't been published, that we use wars to evolve. And how does it make us evolve? It forces a lateral adaptive elements in our society to rise to the fore to face the challenge. And if you win, you win because you're more adaptive and you're scaled. Look at the Ukrainians. They're having to find every adaptive gene in their body. And they're surviving because of that adaptation and wouldn't be surviving without it. So, war creates adaptive systems. And when they rise to power, the period of peace, there's normally advance in conflict and technology that benefits subsequently. There's like a momentum in society because it's now fully adapted that lasts for 70 or 80 years, and then it runs out of steam. The system becomes old as I described and empires go into decline, and then new systems rise, and war cycles again. So, the sad thing is until we realize, in my opinion, we're using wars to evolve. And we're doing a very strange thing. We're stacking the entropy of the universe with added entropy of conflict to make a super entropic environment. We won't stop fighting wars. David, I've got so many questions we can't get into right now. Given that we're running out of time, I'd love to get your thoughts on one last question I have is uh uh you know, what's something that's obvious to you that you think that maybe most people are missing? Or if you're willing, what's one bold call you like to make for our audience? Well, the first is we are in World War III. And we better wake up because denial is not going to work. Uh the next is the bond markets are on the tip of a very nasty move which is going to take our societies into a real economic trauma with or without conflict. So, that's separate. Yes, conflict will accelerate that, but even without conflict, we're in trouble. And we need to expect inflation to surge. And the peak in '75 was 16% CPI. All of our inflation reporting methods have basically been changed. I if you do like for like and the levels that we think like CPI now, it's not the same CPI as 75. It's much higher. So, the numbers reported which facilitate borrowing money and lending you know and more money printing uh are not real. The reality is what's it like to go shopping, keep your families. And what we see in the western world is the poverty line is rising through the middle classes. And that's partly to do with lack of real productivity which is linked to higher inflation that reduces that. So, we have you know and that's why societies are feeling more fractured. It's because there's less to go around. So, these are all parts of the same process. They're about decline and this pulse of entropy. And that basically I think is the the piece of people are missing. And how powerfully systematic what we're experiencing is. David, if you can tell us about the Global Forecaster really quick and then what you're building there and how people can follow your work. Thank you. Um so, Global Forecaster is at its heart an inside-out hedge fund. That means that you can access all of the IP that I created in my own hedge funds and if you're a professional investor, you can access it. So, why would I give away my secrets people would say? And the answer is I realize that earning money is not the be-all and end-all to our survival. Given our society is at such risk, I needed a way of communicating to people that these ideas are work and they're powerful. So, there are two elements. One is if they work and people make money, they realize they work. That's you know key for the financial professionals that are my clients. And more importantly, I made available a thing called Marinations which is the cost of a newspaper and if you have any curiosity at all about the world, you really should read these because we've touched on just some of the fractions of perceptions and insightful mechanisms which I've created which are very different from the ones we're given. And we're given a very poor model which is why we're constantly surprised by what happens. If you have a model that actually works, you're not surprised. And then if you're not surprised, you can take action to avoid the rapids. And that's exactly what Global Forecaster is really about. So, if you're a professional asset manager, come come and look at the inside-out part of what we do. If you're a interested member of the public, and there's lots of people turn around to me and they say, "There's not enough investment potion and I I I want to manage my money." And I I really laugh because they're investment-grade insights. I warned everyone about the peak in Bitcoin, the peak in this market. I do it once in a while when it's really big. Told people to get out of gold. So, you like that alone would save your portfolio. But more importantly, being aware of essentially where the world is and how it works and not investing without that knowledge is from my experience of 40 years as a professional investor a form of suicide. And Global Forecaster provides that and insights about psychology. Um I'll give an example. One of them was our dark psychology and it talks about how society when you get a leader who's who has a sociopathic problem and let's just take Hitler and not talk about Trump. >> [laughter] >> And they're grandiose narcissists and they convert the system to their own form of narcissistic supply. They don't just sit in that system. They replicate their dysfunction and the system becomes malignant and it spreads like a cancer. So, if you go and look at you know Hitler's Germany, it wasn't just Hitler who was dysfunctional. His whole Nazi regime was dysfunctional because he replicated himself. And all systems, everything that live wants to replicate itself whatever it is good or bad, whatever we define it as and be as powerful as possible. That's a simple rule. So, this talks about how dark psychology spreads. And for those people that find and would wake up in the morning and say, "This is a mad world." It's because their thinking process is the old healthy process and they're witnessing an unhealthy destructive mechanism which doesn't compute and they can't understand it, but it will perpetuate and keep perpetuating because that's how systems operate until they're challenged and broken. David, uh I would love to have you back. Thank you for your time. Uh you know just for everyone listening, I'll make sure to include all of David's links in the show uh so you can dive deeper in into his research and insights. Uh for everybody, I'm Steve Yang learning alongside you from people smarter than me. Stay smart, stay curious, stay disciplined. David, thank you so much for your time and joining us. Steve, it's been such a pleasure being interviewed by you. Thank you for your for your for your for your great questions and and the knowledge you brought into this. Well, thank you. So kind. >> [music]