David Pinsen Blog | "The Third World War Has Already Started" | TalkMarkets

"The Third World War Has Already Started"

Date: Thursday, January 19, 2023 7:33 AM EDT
Russian troops repair an armored vehicle.
Russian troops repair an armored vehicle (screen capture via the Russian Ministry of Defense). 

 

Analysis From Outside The Anglosphere

Last spring, after imposing unprecedented sanctions on Russia, President Biden quipped that the ruble had become "rubble". But by the end of the year, Russia's ruble had outperformed the U.S. dollar, as Russia's economy proved to be more resilient than the U.S. government had expected. One of the few analysts who hadn't underestimated the Russian economy was the French economist Jacques Sapir. The French entrepreneur Arnaud Bertrand tweeted a translation of Sapir's comments, which I shared in this post at the time. 

Now, Bertrand has translated key comments by another French intellectual, Emmanuel Todd. As the physicist and genetics entrepreneur Steve Hsu pointed out, Todd predicted the fall of the Soviet Union when most Western analysts hadn't seen it coming. 

Below is Bertrand's thread on Todd, followed by a few thoughts by me in response. 


The Fragility of American Economic Hegemony


What Todd Gets Right

Let's start by noting that the "World War III" Todd refers to above is akin to another Cold War, not a hot war directly between the U.S. and Russia. Let's hope we can avoid a hot war, though recently mooted escalations increase the risk of one. 


That said, Todd gets a lot right here, but it's important to distinguish between the United States and the "imperial system" (American unipolar hegemony) he refers to. Barring a total defeat of Russia (which seems highly unlikely, and would come with its own set of problems for us), the Ukraine War will likely mark the beginning of the collapse of the unipolar world. But that need not lead to a collapse of the United States; on the contrary, it could be a boon for the U.S. if it starts to focus on its own borders and not those of countries thousands of miles away. Unlike during the Cold War, we are not facing an opponent attempting to impose a hostile ideology on us. If anything, we have become the ideological empire, as evinced by the LGBT flags flying from our embassies, and our current Two Minutes Hate for a Russian Orthodox hockey player who refused to wear a gay pride jersey during warmups.
 

We could simply decide to respect Russia's and China's respective spheres of influence in return for them respecting ours, and engage in mutually beneficial trade with them. 

The rest of the world's diversification away from the dollar, sparked by our current economic conflict with Russia, will impact the U.S., as Todd suggests: it will become more expensive to finance our trade deficit, but the obvious solution there would be to balance our trade, obviating the need to finance a large trade deficit. 


Investment Implications 

This is always the hard part, because it's not enough to figure out what's going to happen, but whether it's already been priced in or not, and what other factors may be in play. For example, in our post on the economic war against Russia last April, we included our system's top names at the time, which seemed to make sense in light of the conflict: consider the Teucrium Wheat Fund (WEAT), our top name then. After all, one would think that a war between two of the world's largest wheat producers, Russia and the Ukraine, would lead to a spike in wheat prices.
 

Screen capture via Portfolio Armor on 4/8/2022.


But apparently, that was already priced into WEAT, and that ETF tumbled more than 15% over the next six months. 
 


Similarly, one might have thought Century Aluminum Co. (CENX) would have benefited from sanctions taking Russian aluminum off the market in the West, and yet its shares plummeted 77% over the same period. Fortunately, investors in our hedged portfolios were hedged, so none of them were down anywhere near that much in CENX. Similarly, investors in our Substack's core strategy use 10% trailing stops to avoid steep declines in our top names while hedging to limit market risk. 

It still makes sense to consider the macro picture when investing, which is why I've shared the Emmanuel Todd observations above, but it's best to hedge in case you end up being wrong. 

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