End of Liberal World Order: Let the Disorder Begin


I thought it was a little cryptic that the President of the Council of Foreign Relations declared the end of the liberal world order this last week:

“After a run of nearly one thousand years, quipped the French philosopher and writer Voltaire, the fading Holy Roman Empire was neither holy nor Roman nor an empire. Today, some two and a half centuries later, the problem, to paraphrase Voltaire, is that the fading liberal world order is neither liberal nor worldwide nor orderly.

The United States, working closely with the United Kingdom and others, established the liberal world order in the wake of World War II. The goal was to ensure that the conditions that had led to two world wars in 30 years would never again arise.

To that end, the democratic countries set out to create an international system that was liberal in the sense that it was to be based on the rule of law and respect for countries’ sovereignty and territorial integrity. Human rights were to be protected. All this was to be applied to the entire planet; at the same time, participation was open to all and voluntary. Institutions were built to promote peace (the United Nations), economic development (the World Bank) and trade and investment (the International Monetary Fund and what years later became the World Trade Organization).

All this and more was backed by the economic and military might of the US, a network of alliances across Europe and Asia, and nuclear weapons, which served to deter aggression. The liberal world order was thus based not just on ideals embraced by democracies, but also on hard power. None of this was lost on the decidedly illiberal Soviet Union, which had a fundamentally different notion of what constituted order in Europe and around the world.

The liberal world order appeared to be more robust than ever with the end of the Cold War and the collapse of the Soviet Union. But today, a quarter-century later, its future is in doubt. Indeed, its three components – liberalism, universality, and the preservation of order itself – are being challenged as never before in its 70-year history.”

End of Liberal World Order

This reflects the views of one of the most influential institutions in the Western world, the Council of Foreign Relations. Those surrounding President Trump might have a different view. There are many who believe in an America First policy and might say it’s all part of a rebalancing in key relationships and a reassessment of how the US will interact with key international organisations, but does not completely jettison allies or American leadership. I will let you decide. The important thing is that some major ideologies are clashing in a large way like 2 tectonic plates. This will have massive ramifications.

Where we are in the cycle

This is merely to update my views – this is not in any way the grand treatise. Its very difficult to capture what is going on as we are dealing with system-wide change and so much is inter-connected.

The Great Financial Crisis raged the financial system in 2008/9. I always said that the fundamental issues had been left unresolved and that the scary thing about GFC2.0 would be that it would be accompanied by societal and political breakdowns.

Last week I had a coffee with a friend and reader who is a likeminded contrarian and non-linear big picture thinker. He and I often discern some of the same trends. Previously both of us were expecting  that the middle of 2018 would mark the beginning of something big in the status quo of Western civilisation. A major catalyst – possibly geopolitical – and probably the start of the next financial crisis. Yet I found myself agreeing with him that things were remarkably calm and I don’t sense any immediate danger.  The China tariffs were expected and part of US posturing, North Korea sounds bad at times but we are moving towards a deal, the underlying global economy has risks but the data has been firm etc etc..

Then I found myself asking myself on the way home, am I just not looking carefully? Am I being a little blasé.  Very often things are much clearer from afar. When Trump won the Presidency I thought that financial markets would hold out until the middle of 2018. Now we are approaching this it does demand one’s attention.

Besides my latest investment recommendations actually imply some huge shifts in currents in themselves: I am positive on gold and silver mining stocks, silver, gold, platinum, agricultural commodities and cryptocurrencies (but carefully choosing entry points). I am very cautious on government bonds and stocks will depend on whether we end up in hyperinflation.

Here are the emerging cracks to the global order:

Russia vs the West

The faultine between Russia and the West is significantly worsening. For a moment I thought that Putin’s announcement of hypersonic weapons etc might deter the West or even give Trump an excuse to have a summit with Putin to calm the escalation down. However, when one looks at the chronology of events in March it is somewhat worrisome. I took this from the Saker blog which is dedicated to prevent war between Russia and the West:

March 1st, Vladimir Putin makes his historical address to the Russian Federal Assembly.
March 4thSergei Skripal, a former UK spy, is allegedly poisoned in the UK.
March 8thBritish officials accuse Russia of using nerve gas to attempt to murder Sergei Skripal.
March 12th, Theresa May officially blames Russia for the poisoning and gives Russia a 24-hour ultimatum to justify herself; the Russians ignore that ultimatum. The same day, the US representative at the UNSC threatens to attack Syria even without a UNSC authorization.
March 13th, Chief of Russia’s General Staff Valery Gerasimov warned that “in case there is a threat to the lives of our military, the Russian Armed Force will take retaliatory measures both over the missiles and carriers that will use them”. The same day Chief of the Russian Armed Forces’ General Staff, Deputy Defense Minister, General of the Army Valery Gerasimov had a phone conversation with Marine Corps General Joseph Dunford, chairman of the United States’ Joint Chiefs of Staff.
March 15th, the UK blocked Russia’s draft UN Security Council statement on Skripal poisoning case asking for an urgent and civilized investigation” into the Skripal case. The US, UK, France, and Germany issue a statement backing the UK and blaming Russia. The UK Defence Minister tells Russia to “shut up and go away.
March 16th, Major General Igor Konashenkov calls the British Defense Minister an “uncouth shrew” and “intellectual impotent”.
March 17thRussian Generals warned that the US is preparing a chemical false flag attack in Syria
March 18thPutin overwhelmingly wins the Presidential election. The same day, General Votel, Commander of CENTCOM declares in a testimony to the Armed Services Committee that differences with Russia should be settled “through political and diplomatic channels”. When asked whether it would be correct to say that “with Russia and Iran’s help, Assad has won the Civil War in Syria?” General Votel replied “I do not think that is too — that is too strong of a statement. I think they have provided him the wherewithal to — to be ascendant at this point”.
March 19th, the EU’s Foreign Affairs Council issues a statement fully backing the UK.
March 21st The Russian Ministry of Foreign Affairs summons all ambassadors to a briefing on the Skripal case. The language used by the Russian representative at this briefing possibly is the bluntest used by any Russian (or even Soviet) official towards the West since WWII. The French, Swedish and US representative at the meeting all stood up to declare their “solidarity” with the UK.
March 22nd, The Chief of the Russian Armed Forces’ General Staff, Deputy Defense Minister, General of the Army Valery Gerasimov had another phone conversation with Marine Corps General Joseph Dunford, chairman of the United States’ Joint Chiefs of Staff.  The same day, General Gerasimov also held another conversation by phonewith the Commander of US European Command and NATO Supreme Allied Commander Europe Army General Curtis Scaparrotti.

This is indeed pretty serious. I have always regarded the situation vis-a-vis Russia as the most serious global fault line. I think that many in the West would prefer the resolution to be through an internal coup inside Russia. In fact many overseas wealthy Russians have explicitly told me so. A number of intelligence analysts are expecting a Russia collapse in the 2020s with powerful countries around the periphery trying to pick off parts of the power. I am not entirely sure about that assessment because it always presupposes that the USA will continue on the trajectory of ‘Empire.’ More on that in my book.


The media are having a fit over the trade war and the Chinese Ambassador in the US also seemed to up-the-ante. I think he will be told to rein in what he says. Much of what you will hear in the media is posturing. Trump and his team made it very clear in 2016 that they wanted to rebalance the relationship with China.  Its taken one year or more of preparation for them to start to implement their plans.  But, the introduction of tariffs on 10% of Chinese goods was mainly symbolic. The real dialogue is happening behind the scenes. Wilbur Ross spelt out the US trade position quite clearly at Davos. The US is the most open economy in the world by far.  China has been part of the WTO and global trading system since 2002 so there is absolutely no need to continue to allow unfair (different?) standards. The US is endeavouring to strongly influence behaviour.

[I must also note that there is a view that many US multinational companies have benefited from basing operations in China and this is actually part of the problem: the US government has permitted a system where corporations were given a higher priority than society, and the stability of society. No wonder the system is pushing back against Trump so hard. Huge investments have been made].

China might make a lot of noise but $481 billion of their reports went to the US in 2016 vs US exports to China of $116. And no they wont suddenly start dumping US treasuries as a collapse of treasury prices will hurt them , and of course there are measures the US can take to find other buyers including further monetisation by the Fed.

I think President Xi is taking this rebalance quite seriously. He has appointed his top 2 lieutenants to the task of negotiations – Wang Qishan and Liu He (who is featured in an FT article this week https://www.ft.com/content/f4f29e14-2dcb-11e8-9b4b-bc4b9f08f381). I expect concessions out of China. But some of them are already in the pipeline – news has begun to pour out of China about further liberalisation of their economy.

North Korea

OK appointing Bolton as National Security Advisor did put shivers down my spine. Remember I am currently in South Korea as I write this.  My base case scenario has been that the status quo will break and the first steps of reunifcation would be seen by the early 2020s. This could be achieved through peace or war, but most recently it seemed that this might happen peacefully. The introduction of a very hawkish team at the White House (a CIA Director as Secretary of State, a new aggressive CIA Director and now Bolton at NSA) just raised the stakes. Some might read this that we are on a path to war. I would like to hope that some of this is cosmetic and that Kim Jong Un will seriously blink. There must be a lot of low hanging fruit for a diplomatic victory. I keep wondering about a peace accord and perhaps an economic collaboration on something like the trans-Korean railway which would plug in to the New Silk Road.

All of the world’s major powers’ interest intersect at the DMZ between North and South Korea: the USA, China, Japan, and Russia. In the past, international news channels  coverage has been a little superficial: basically a madman lobbing missiles across Asia. If the global world order is going to change, it should manifest somehow here. I hope for peace, but of course there is an outlier risk of something quite awful.

Financial Markets 

Of course, we know that we are dealing with asset prices at historically elevated levels: stocks are expensive, and bond spreads have been thin. But this has been the case for a while the bulls would say, don’t worry the economy is still strong.  It’s true, the economic growth has been firm – although there are now some indicators of it tailing off over the coming quarters. The largest risk is that financial markets themselves derail everything.   If something happens on the margin, it could reverse the ‘virtuous’ ponzi scheme very rapidly. By Ponzi scheme I am referring to the enormous debt bubble and central bank money printing.

David Rosenburg, the well-known former Chief Economist at Merril Lynch tweeted this on Friday:

If you stand back for a moment he is right. We are also seeing: higher volatility across equities and currencies, tightening of financial conditions (LIBOR’s next victim)the first cracks in the dominant FANG stocks in the USA, narrowing market breadth as well as some peaking of leading economic indicators. The problems with Facebook might be company specific but perhaps not. There might be a public push back against other technology companies who have become de facto monopolies. These stocks make up a significant portion of market capitalisation.
When I warned earlier in the year of an imminent stock sell off, I was still thinking that we would still go to higher highs. But now I am not so sure. As I have already recommended: other assets are far more appealing. And some of these would also benefit if we end up in very high inflation.


USA — More clouds on the horizon

“The Trump White House is behaving as if it were the prospective target of a coup d’etat. And it is not wrong to think so.” Pat Buchanan

The anti gun marches this weekend were widely celebrated across the media. I am born in the UK where civilians really don’t have much knowledge about guns. But in the USA there are 2 very strong camps and after many hours of conversations with American friends – and some study of history – I believe I have an idea of the arguments on both sides. What seems obvious to me is that the fractures in US society will possibly break open even further at some point.  Clearly no one is talking to each other and the echo chambers just keep getting louder. The ‘constitutional crisis’ that I forewarned might occur around the 2016 election is not over – just wait for the Mueller investigation to come to a head. If the Democrats makes significant ground in the midterms then they will try to impeach Trump. And I bet you Trump has some things up his sleeve as well.  I warned many years ago about a Civi War 2.0 and I am afraid that things have not abated. In fact the next financial/economic crisis will throw oil on this. I would expect an explosion of division in America – and elsewhere around the world. This will all be part of its reinvention. Unlike many in the media, I don’t think the USA is over, just the USA as we know it. The ramifications for Europe and Asia will be significant as well.

Just like Winter follows Fall, Spring will fall the Winter. I have always been a student of cycles. Perhaps the photo we selected above is a little dramatic. I am not negative about the future of our planet and species although I hear the concerns that eminent scientists and futurists like Dr Hawking have espoused.

We are merely undergoing a necessary transformation. The institutions and the stories of the last 300 years do not serve us any longer. We must shift to a new paradigm.




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