‘No one loves the messenger who brings bad news.’
It’s Friday. And while you may be day dreaming about the weekend ahead, there are dark forces at work.
I opened with the quote from Sophocles, because it is my unfortunate task to bring you bad news this Friday. And that is that the world is, yet again, on the path to war.
As hard as it may be to envision as you read this in the comfort of your home or office, it is in fact quite likely that the ‘hotspots’ of the world — Ukraine, the Middle East, the South Chinese Seas — will be drawn into a major war by mid-2017. And these ‘hotspots’ could spread throughout the world…very quickly.
Again, while you may find this hard to believe, and likely do not want to believe it, I do urge you to keep an open mind.
Major wars are common throughout history. And history shows they are typically fought over money and regional power.
Today, the financial system is over-indebted. Governments are bankrupt, and many are on the brink of default. The global economy is in a severe decline. If you scratch beneath the surface, you can see it’s never really recovered since the GFC.
Yet, this picture will get far worse before it gets better. Governments will default on their sovereign bonds in 2016/17, wiping out wealth around the world. Following this meltdown, the financial system will undergo a major restructure.
These combined events will crush the world economy… sending it into a deep depression. And as politicians finger point and blame someone else — anyone else — for their mistakes, geopolitical tensions will rise enormously.
As much as I’d like to go into this weekend happily unaware, my analysis shows that the world will be drawn into a major war by mid-2017.
There will be many events over the next two years which will drive geopolitical tensions higher. Some are predictable. Others will come out of the blue. I can’t tell you about the unpredictable events. But I will tell you what is already obvious.
First off the ranks is the Greek exit from the Eurozone. Make no mistake, despite Greece’s relatively small economy, the Grexit is a major geopolitical turning point.
The cracks in the Eurozone widen
I’ve long said that a Grexit is inevitable. Last week, however, I told you that a Grexit likely wouldn’t come until later in the year. But given recent events, it now looks like we’ll see a Grexit start this weekend. But it will be a long, drawn out event…
Before I explain why, it’s important that you understand the background on the euro project.
Towards the end of the Cold War, European politicians envisaged a ‘closer’ Europe. The political plan was that a ‘united’ Europe would avoid another major war. No one wanted a repeat of the two major wars that destroyed the European economy — and caused the deaths of tens of millions of people — during the 20th century.
From the outset, the euro was a political project to avoid another war. Indeed, it was designed with good intentions.
But good intentions aside, there were problems from the beginning. To start with, politicians didn’t consolidate the debts of member nations. Instead, banks were required to buy a little of everyone’s bonds — some Greek, some German, some Spanish, etc. — to be ‘politically’ correct.
That worked as long as the Eurozone was growing. But for the last years we’ve hit the point where economic growth in the Eurozone is dead.
And Greece, among many other nations, is bankrupt. A default by Greece will put a black hole in someone else’s accounting books…and potentially wipe their wealth out. Indeed, this is the contagion risk that Europe faces in the years ahead. It’s a bit of a stale analogy, but you can view Greece as the first domino in a long line set to fall.
For this reason, the well-meaning ‘political’ project meant to bring Europe closer has done the exact opposite. It will drive nations apart, just like what happened after the European sovereign debt defaults of 1931–33…defaults which fanned the flames of the Second World War.
As it currently stands, trust has broken down across Europe. Greece, the weakest Eurozone nation, has been blamed for bringing down Europe. In reality, the problem was the design of the euro from the outset.
Now, the likelihood of Greece leaving the Eurozone next Monday (European time) is highly likely. But whether it’s next week or later this year, this event will have enormous implications for the world and, by extension, your investment portfolio.
The Grexit is HERE
The resounding NO vote at the weekend’s referendum confirms that the Greeks are against more austerity. Yet, the Eurozone members steadfastly demand austerity measures. In this case, if the Greek Prime Minister, Alexis Tsipras, strikes a bailout deal that increases austerity, he’ll not only lose his job, but likely see major violent protests back home. He doesn’t want either of these outcomes.
Confirming the Greek exit, the International Monetary Fund (IMF) prepared a report showing that Greece requires debt relief.
So far, the Eurozone leaders have ignored the recommendations of the IMF. Germany — the Eurozone’s largest economy — has stated that any debt relief is off the table. Many Eurozone members will follow Germany’s lead. This is because if they let Greece off the hook, other bankrupt nations such as Portugal, Italy, Spain and even France will have similar demands.
As such, if Tsipras requests debt relief, it’s likely that the ‘negotiations’ will lead to a Grexit.
If you still have any doubts, here’s what European Commission President, Jean-Claude Juncker said this week, ‘We have a Grexit scenario prepared in detail.’
That sounds a lot like game over for Greece.
And that means the political project, the shared euro, has failed.
And when relations break down, along with the economy, tensions — and the risk of conflict — significantly increases.
But this is just one of many snowflakes building towards the coming avalanche… Geopolitical tensions across the globe are just starting to heat up.
A Grexit will see Greece pivot towards Russia and China. The US, and by part, the IMF (headquartered in Washington), are logically afraid of this scenario. And given that the Second Cold War has already set in, Greece turning towards the East would be a major setback for the US.
Before signing off for today, remember, I’m just the messenger. I don’t want to see war anymore than you do. But I think it’s coming.
We can’t stop it, but we can do our best to protect our wealth when this happens. This might sound callous. But you won’t help anyone by having your money invested in the wrong assets during times of global conflict.
So let me tell you this. Commodities always outperform during periods of rising geopolitical conflict. But to make the most of that you need to select the best resource stocks. If you want to know where to start, see here.
Resources Analyst, Resource Speculator