SKEPTIC’S GUIDE TO INVESTING
Straight Talk for All, Nonsense for None
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Your Hosts - Meet Steve Davenport, CFA and Clem Miller, CFA as they discus the latest in news, markets and investments. They each bring over 25 years in the investment industry to their discussions. Steve brings a domestic stock and quantitative emphasis, Clem has a more fundamental and international perspective. They hope to bring experience, honesty and humility to these podcasts. There are a lot of acronyms and financial terms which confuse more than they help. There are many entertainers versus analysts promoting get rich quick ideas. Let’s cut through the nonsense with straight talk!
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SKEPTIC’S GUIDE TO INVESTING
Navigating Global Markets Amid Political Change
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In this episode of Skeptic’s Guide to Investing, Clem Miller and Steve Davenport discuss how the incoming Trump Administration’s threats to impose very high tariffs, expel millions of undocumented immigrants, and reshape U.S. alliances to favor authoritarian regimes (coupled with the Fed’s strong dollar policy) are causing global shockwaves. We discuss the precarious position of Trudeau’s government in Canada and the prospect of U.S. military intervention in northern Mexico to address migration and drug crimes. We discuss shifts within multi-party coalitions in Germany, potential EU direct military involvement in Ukraine should the U.S. reduce support, and Russia’s covert efforts to destabilize EU governments. We discuss the attempted self-coup in South Korea, as well as the political and economic situations in Brazil and China. Finally, Steve and Clem share their thoughts on U.S. investors should consider these developments with respect to their stock selection and portfolio positioning.
Straight Talk for All - Nonsense for None
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Hello everybody and welcome today to Skeptic's Guide to Investing. I'm Steve Davenport and, together with Clem Miller, we hope to try to figure out what's happening in this world since November 5th. It's been a wild ride and we don't think the ride is going to get any simpler. So I think that we've seen governments in Canada, brazil, ukraine and a lot of Europe France and Germany all reacting to what is going to be a move to the right in the US and a move towards more tariffs. So, clem, how has what's happened in the US impacted what's happening around the world, or are these all separate events?
Speaker 2:Well, they're a mix of separate events and US influence as a result of the Trump election and US influence as a result of the Trump election. Let me outline the four drivers that are US-centric, that are affecting the rest of the world, and then we can get into some specifics on individual countries and regions. So there are four things that I see as US drivers for actions and behavior around the world. First of all are the threat of tariffs coming out of the US. Second is manipulation of military aid that is, maybe increasing it in some areas and decreasing it in other areas. Third is what you were alluding to, which is a pro-authoritarian slant in US foreign policy. Slant in US foreign policy, at the very least, you know, treating pro-democracy and pro-authoritarian regimes, you know, with greater equality. And then the fourth, coming more out of the Fed, but also supported by the Trump administration, is a strong dollar, which also has its impacts around the world. So I see those as the four major drivers for developments around the world.
Speaker 2:Now, steve, we can talk about some individual areas, areas, and I think what I'll do is I'll actually start with those countries that are the most impacted by US developments, and those would be our neighbors, canada and Mexico. So we're seeing a situation in Canada where Trudeau the prime minister was already pretty weak and sort of struggling to retain his prime ministership when all of a sudden the Trump tariff threats in fact quite substantial Trump tariff threats, 25% were announced by Trump on his Truth Social and that caused Trudeau, who has felt in the past that he's got a good relationship with Trump, to go down to Mar-a-Lago and basically beg for him.
Speaker 2:That's how the Canadians viewed it Beg Trump for relief or for not to do that. That was, you know, trump's reaction. That you know. Maybe Trudeau should consider Canada becoming a 51st state. Really went down very well in Canada no, just kidding. Really went down very well in Canada no, just kidding. And weakened Trudeau's position even more. It caused the finance minister, christina Freeland, to resign, which wasn't good for Trudeau's position, and since then some other Canadians' officials have gotten some backbone. Then some other Canadian officials have gotten some backbone and even the energy minister has now weighed in and said that perhaps if there are tariffs, canada will stop energy supplies into the US energy production, because a lot of that Canadian oil well, canadian oil especially gets processed in the United States and used in the United States. So that's the situation with Canada.
Speaker 1:Wasn't Trudeau kind of on a weak footing already though?
Speaker 2:Yes, he was Is it really this has? Weakened him still further.
Speaker 1:Yeah, I guess. I'm just saying, though, that it wasn't like Trudeau was flying high and Trump has shot him out of the air. It's more like he was struggling, Right? This added to his struggles, right.
Speaker 2:That's true. I would say that that's something we can say about a number of the countries that we're talking about today, that the regimes are kind of weak and US actions could kind of push them over the edge. You know to varying degrees. So let's talk about you know, we talked about Canada, let's talk about Mexico. Now. Mexico recently elected its first female president, claudia Sheinbaum, and she has a somewhat of an authoritarian bent, sort of the typical sort of Latin American authoritarian bent. It's not a right-wing bent, it's more of a left-wing bent, but you know she does have that bent. The problem in Mexico is that, you know, crime is really out of control in Mexico. She's trying to fight it and you know, I think there could be the criminal situation in Mexico could really deteriorate a lot if the United States imposes these huge promised sanctions and if you have the migration issue exacerbating it as well, because criminal gangs can take advantage of policy changes like that.
Speaker 1:And so we see kind of a negotiation where they do more to help us with immigration and we do more to help with lessening the impact of tariffs.
Speaker 2:I do, and that's the same thing with Canada as well. But it just seems kind of odd that we had this Trump negotiated NAFTA II, which is called USMCA, just a few years ago, and what he's going to renegotiate his own trade agreement. It seems kind of odd. Can you really trust the United States if they're reneging on a recently, or can you really trust the same administration undoing the trade agreement that they just recently negotiated just a few years ago? So there's going to be some, you know there's going to be some doubts in Mexico and Canada about that, but I wanted to. Regarding Mexico, I just wanted to introduce what I think is possibly a worst case scenario for Mexico US, u S, mexico and that would be, you know, if you have these mass roundups, um, which I'm not sure we're going to have in the United States, but if we have these mass roundups of undocumented, uh, immigrants in the United States, uh, and they're being pushed into Mexico, uh, and you have this criminal activity in Mexico, I can possibly see a situation where the United States intervenes militarily in Mexico to deal with criminal gangs. So I see that as a worst case scenario, but I just wanted to put that out there as a possibility. So you know, moving beyond Canada and Mexico, let's talk about you know we'll come back to Brazil, but I wanted to talk about the EU, who are also big trading partners of the US and big investment markets for US investors.
Speaker 2:So you know, in Western Europe, you've got Germany and France in some turmoil right now and those are the two apart from the UK, germany and France are the two biggest investment markets in Europe. Germany and France are the two biggest investment markets in Europe. So Germany it's. There was a no-confidence vote in the three-party government led by Olaf Scholz and there's going to be a new election held in February or March of 2025, so coming up and we'll see what happens. But it could well be that the extreme right-wing AFD party, the Alternative für Deutschland party, could become part of the government. Now, no other party wants to align with them, but if the Alternative für Deutschland has a larger percentage of the vote that it's unavoidable that they be brought in. That could have a significant development in moving Germany to the right.
Speaker 1:Can we implement this voter confidence thing? I think it's kind of nice. I mean, I think we've always had this idea in America that you know we lose confidence in people but we don't ever actually officially vote on it.
Speaker 2:It feels like that could be a good solution to get people to take you more seriously. If you're one of the parties in the US, right, I agree, I mean right now the closest. But we don't have this situation where a majority, a simple majority, can oust a particular government and force new negotiations. Now one could say that a no-confidence vote in certain circumstances actually creates political stability, because you could have multiple votes of no-confidence. They keep repeating and repeating and repeating, and that was, until relatively recently, the kind of situation you would have in a country like Italy where you would have, you know, multiple governments. You know sort of one every year. Now that's changed in Italy recently, but you know you'd have this sort of frequency problem associated with no confidence votes.
Speaker 2:So yeah, there are positives but there are also negatives to this no confidence issue.
Speaker 1:We have to have it always lead to a new election, but I'm just saying that it would. It would seem like an a good way to I don't know cause some kind of a refresh in the way people are approaching things.
Speaker 2:Yeah, I mean, it works better in a. In a political system that has multiple parties? Oh, so more than two? Yeah, more than two. In a political system that has multiple parties, oh, um so that is more than two.
Speaker 2:Yeah, more than two, yeah, um it. You know it works well. When you've got, you know, a left party, a right party and a central part centrist party, even if the left and right right parties are not that left and right, uh, it still works better. Because then if you've got, if you've got a right, a center right government, uh, there's a no confidence vote, then that can just simply switch to a center left government, right, and here, uh, it's really all or nothing, right, so right, um, and I guess also the fact that we, at least theoretically, have checks and balances, you know, with three arms of government, makes it less, less necessary.
Speaker 1:But that's, that's, I think, sort of theoretical, more than I'm not sure that in practice we've found that this is the checks and balances are are working supremely well.
Speaker 2:So, in any case, I think in Germany a lot is up in the air. The key question is whether the extreme right wing is going to enter into a government, a multi-party government, starting next year. I think it's sort of up in the air, so we'll see that also. Whatever happens in Germany is also going to affect Germany's role in any kind of Ukraine situation going forward, because Germany, the current German government, is committed to providing peacekeeping forces if there is a peace agreement in Ukraine, and we'll see if that's the case in the future. There's some evidence out there that the extreme right-wing party that I mentioned, afd, has received some support from Russia, so we'll see if that becomes a problem, uh, if they enter government.
Speaker 2:Now, france, uh, has has its own issues in France, unlike Germany, unlike, uh, unlike the UK and but rather more, like you know, somewhat like the US, you have a strong president system, and the strong president is Emmanuel Macron, and he's got a fixed term of office. You've got underneath Macron, you've got a prime minister who the president picks but has to pick in order to maintain. You know that prime minister is sort of nominated by the president but has to be approved by the National Assembly. And so there's a new prime minister that came into power underneath Macron, nominated by Macron after there was a no confidence vote in the prior prime minister, after there was a no confidence vote in the prior prime minister, and, interestingly, it's another centrist from another party. So what you have in France is you've got kind of a realignment among the parties and you've got new centrist parties emerging. You've got a new leftist party emerging, you've got the old right-wing National Front Party.
Speaker 2:So there's a lot of uncertainty, even in terms of the parties themselves. Different political personalities are switching their parties. They still maintain their orientations politically, but you know they're switching parties around, and so it's kind of unclear what's going to happen going forward. You know what? What will the policies of this new prime minister look like? How long can that prime minister hold on? It's, you know it's. It's unclear as of the moment. And this also affects the Ukraine situation, because Macron has promised also promised, in fact, even more so than Germany promised the entry of troops into Ukraine post some kind of settlement there.
Speaker 1:Do you think that these are going to lead to more opportunities for us, investment-wise, or less? Or how do you see these political situations translating over into market situations for us?
Speaker 2:over into market situations for us. Well, I think it impacts. I think the fact that you've got this uncertainty, political uncertainty, in France and Germany adds to the policy uncertainty that affects some of these economies. Now, many of the you know. I always say you've heard me say this multiple times that you know there are companies in germ that are headquartered in germany and france that are really global companies, and I think those companies are less impacted by what's happening locally than, say, you know, german banks are French banks, are French utilities, german utilities. So it's really, it really draws. This political uncertainty is more impactful on locally oriented companies than on the global companies and just reinforces the fact which I have long believed in that one should basically stay away from or minimize exposure to local companies and focus more on global companies in order to face a diversified set of policy uncertainties and have a diversified set of global opportunities as well.
Speaker 1:So that's what I would say on that point Don't you think, though, that we've been saying that there's a big valuation difference between the US equities and the European equities, and now, with this uncertainty, it's probably going to get wider, and I guess my feeling is is maybe there isn't. You know, maybe these countries just deserve a different multiple, because there are different components that make up their overall economies that are less prone to growth and are more dependent upon local, you know, financing and economic opportunities. I mean, should we rethink our international exposure and maybe limit completely anything that's not global?
Speaker 2:Well, I think that there are problems with looking at valuations across countries and I think it's not just the valuation differences we see between Europe and the US are not just a function of policy uncertainty and risk, policy uncertainty and risk. They're also a function of the fact that when you look at it on an index basis, the sectoral composition in Europe is very different than the sectoral composition in the US. You've got a lot more tech and communications at higher multiples in the U S and you've got more, you know, industrials and energy and materials and and uh and consumer staples in uh in Europe than you do in the U S and and those tend to have and banks and banks and those tend to have lower multiples. So it's really it's always been regardless of risk. It's always been kind of an apples and oranges.
Speaker 1:Right, but I'm just saying, as we try to sell, I try to sell the idea of diversification, that as we see a pullback here in tech, there might be an opportunity with some of these other names, and I thought that opportunity was also in Europe.
Speaker 2:Well, yeah, I mean, there are opportunities in Europe, but I wouldn't, you know, I don't look at it on sort of the index basis. I look at it on an individual stock by stock basis. So, for example, you know both uh Eli Lilly and Novo Nordisk uh sell these GLP-1 drugs, right? Uh? If you're going to invest in in uh in Eli Lilly, why wouldn't you invest also in in uh Novo Nordisk, right? Well?
Speaker 1:they're in Europe.
Speaker 2:They have the same opportunities right globally, and so there's nothing. I wouldn't favor Novo Nordisk over Eli Lilly, nor Eli Lilly over Novo Nordisk, simply because the index valuations are different. I would look at the valuations of the individual companies themselves.
Speaker 1:Right, I'm just saying that there's a group of people I don't know how I would characterize them that are very US-centric and they have trouble reaching over the pond to invest in these areas and I try to make the arguments of why I think they are valuable and the dividend yields they pay and some of the strengths. But it seems like this further complicates that argument because it's although there are older governments and they're more established in the US, based on you know their history. I'm not sure how we look at this in terms of is it making the case harder for international and will it help making the case?
Speaker 2:harder the case, harder, you know, when it comes to Europe and Canada, even Mexico, japan, korea, singapore, I view those markets as markets that are safe markets in terms of investments. I do, I mean despite the political risks that we're talking about in this call. I view those as markets where the main considerations should be individual stock considerations and then the political risks are secondary. I think that that's not the case with some other markets, and you've heard me talk about my views on China multiple times, and so China is a country that I just sort of rule out completely because of the various political risks there.
Speaker 1:So that kind of leads me to the next question, which is Brazil. So that kind of leads me to the next question, which is Brazil. Yeah, how would you rate the Brazil market as one in the loop of safe places or not?
Speaker 2:No, so there are Particularly a company like Petrobras, right, I know, or?
Speaker 1:Yeah so.
Speaker 2:Let's talk about those specific company. Well, yeah, let's talk about those specific company. Well, yeah, let's talk about petrobras. Petrobras is a company that is, that is, majority controlled by the government of brazil and, as it, used to be more independent right yeah, uh, it's never been more independent or it's never been independent.
Speaker 2:Maybe it was a little more independent in the past, but it's always been a vehicle controlled by the state and it has a history of corruption. No, and, uh, especially with regard to its contractors, it has a history of corruption and so it's not. That is not a company that I would invest in. Petrobras Mercado Libre is a, you know, argentine, uh, and probably the only Argentine company that I would ever consider investing in. Uh, it's sort of a um, it's sort of an eBay slash Amazon for Latin America. Um, you know it's done well, but you know it depends on the, the, and it's diversified across latin america. So you know, you can say that you know some, as some parts of latin america do better, other parts may do worse, and so you know, mercado libre will just hum along. So, yeah, I mean that's. You know, that's definitely something not to exclude from your opportunity set. I would rather, as far as those kinds of companies, online e-commerce companies are concerned, I would definitely consider MercadoLibre over Alibaba, for example, right, not over Amazon. All right, you're still a little more us, right? So, um, so that's so.
Speaker 2:On brazil, uh, you know, we talked, I talked about petrobras. You know brazil is a company, is a country where you know, you've got, you know a different uh composition. Uh, you got, you know, you've got, you know a different composition. You got you know mining companies, you've got some banks. It's a, you know it's. It's obviously a large, growing country, but it has political instability. You know there was uh, an attempted coup. You could say, um, there's some uh discussion about whether it was actually an attempted coup, but it looked like it was an attempted coup to keep the old uh right-wing uh government in power. That was Bolsonaro, uh, and the new one under Lula. The new old one, lula was uh, was prime minister, um, uh, or president. I should say before uh, he's back and um, you know, it's just, you know I wouldn't say Does the currency problem there have a contagion effect or is it specific to Brazil?
Speaker 2:Well, the problem with the Brazilian real, as well as with other currencies, is that whenever the US dollar strengthens because of Fed actions, you tend to have weaker currencies elsewhere in the world. That's not just true with Europe and Japan, it's even more so with regard to emerging markets. You know the old saying right If the US catches a cold, the rest of the world suffers. It sort of applies that way to currencies. And so that's what's really going on is you've got a strong US dollar which is suppressing emerging market currencies. So that's being driven out of the US currencies. So it's being that's being driven out of the US, and perhaps local politics plays a role in it too, but it's more so driven out of what the Fed is doing and the strong dollar. But you know, a weak currency in Brazil or in other countries actually contributes to political instability as well. So there's some. You know there's some effects that go both ways. Political situation can affect currency, but currency can affect the political situation.
Speaker 1:Right. It just seems to me it's a little different situation than Europe's political situation that isn't really as related to the strength of the dollar and interest rates as much as it is. The parties are just, you know, are trying to figure out how they're going to operate in the new environment with the US leadership. And I guess I look at my other favorite, south Korea, and the declaration of martial law. I mean, I find all these events happening in one week kind of an anomaly for how things have been for years around the world in multiple areas. This, you know, this volatility and dysfunction seems to be no matter which way we turn, east or west.
Speaker 2:Yeah, well, I got to say I was rather shocked by what happened in South Korea. You know, you would think South Korea has had, you know, several decades now of democratic governance, and for the president of South Korea to just up and declare martial law on the basis of him not liking what the opposition party was doing, just seems so, you know, 1970s, right, right.
Speaker 1:It feels like we're falling backwards and I don't know if we're really just stumbling and that we're going to straighten up and everything's going to fly right in the new year, or if this is a precursor to more disarray because of, say, inconsistencies in our policy regarding tariffs and immigration and a whole range of issues, I think we're going to have much more instability going forward.
Speaker 2:Okay, so we must prepare.
Speaker 1:Then, yeah, have you gone to cash yet.
Speaker 2:Yeah Well, I've gone to a higher level of cash and, as I indicated in some prior calls, I've tried to reduce the beta in my portfolio, and so I've done that as well, and I've always looked at lower short interest companies Right For over-.
Speaker 1:So what do you typically keep? 2% in cash, 5% in cash.
Speaker 2:And now you're 10? You know, for over, you typically keep 2% in cash, 5% cash Right now, right now, I've got about 8% in cash, eight, yeah, and that's up from two or three, it's up from like two. Okay, I liked I, you know, I like to stay. You know, if in a in a rising stable environment, I would normally like to keep 2%. But I think now you know, I'm up around 8% because I see the environment as being, you know, less stable.
Speaker 1:So where do you see like the worst environment you've seen. You got to X percent in cash.
Speaker 2:What's your boundaries, mike GREEN? What's the highest level of cash I would put? Mike GREEN? Yeah, mike GREEN. Honestly, I don't think there is a high level. If I start to see the market start to collapse, I might go very heavily into cash. I'm just trying to put a parameter around it.
Speaker 1:Your emergency. Your light is yellow. Now it's showing a warning sign and you've made the adjustment, and when you get into the red territory you're closer to almost 20%.
Speaker 2:I'm just trying to understand the difference. When you asked the question, I was thinking 20 to 25%, so you know, but that's, and how? Probably will I see that next year? I don't see it next. I don't see that, I don't see a necessity right now of going to 20, 25 percent. I'm prepared to act at any time to go in that direction, but you know, I just I don't see that that happening right now.
Speaker 2:And I would have to see not just what appears in the newspapers and so on about what's going on in different countries or in the US. I would actually have to see what companies are saying about it, Because I'd rather be in the market and in particular, companies that are going to survive right, and then being entirely out of the market. So it's a question of becoming more, becoming much more selective. Uh, about, about companies Sounds good, Um, I mean, in other words, I'd rather, you know, I'd rather have, uh, you Sounds good, you know, just, look entirely at you know low beta and you know low, low vol. I'd rather do that. Sure, I think that's good. Actually, you know, there, there there are some studies that indicate that being in low vol is not great, because low vol, you know, low being in low vol actually means that markets could go down, because vol can only go up Right. So there's some theory about that. So I don't necessarily buy that that that low vol is such a. It's such a great thing in a, in an unsteady market.
Speaker 1:Right and PharmaFrench and other research has shown different characteristics that lead you to the right place AI focus and some of the energy that's going into which companies are going to really benefit from it and how they're going to benefit. I think labor cost is always going to be a factor and on-shoring in the US is going to have some benefits in terms of control, but it is also going to have some problems in terms of competing for a labor force that is pretty efficiently allocated right now.
Speaker 2:Yeah, I certainly agree with that, and you know, it's not just on shoring, it's, you know, friend, shoring slash near shoring.
Speaker 1:Yeah, we can put all the adjectives next to shoring, but you get the picture?
Speaker 2:I think yeah. But you know, to do those things requires having good relationships with Canada and Mexico.
Speaker 1:Right, and that's why I think that you started in the right place talking about Canada and Mexico, because they are trade partners, you know, the largest trade partners we have. So I think that if we look at our economy, I think the US has always looked at that beacon of stability, particularly for our currency, and I think that the strengthening of the dollar I don't know if it's necessarily a belief in the Trump administration or if it's a belief that the other administrations around the world are getting weaker and that the US looks more stable and I think that keeping our rates higher might also have an adverse effect of making our currency stronger.
Speaker 2:Well, that is the main driver right now. You know, political instability doesn't make rates go up. Right. What makes rates go up is inflation and inflationary expectations, and I think we're seeing a shift in how the Fed looks at inflation expectations right now. Certainly, the actions they took yesterday they reduced the Fed funds rate but at the same time, they said that their expectations for future Fed fund rate decreases in 2025 had gone to a lower number and because of higher inflation expectations. Now I know what some people are going to say, which is that you know that was only like one or maybe one or two Fed, only like one or, I guess, maybe one or two Fed governors who actually put in that forecast, but still to have an expectation that inflation is going to not continue to decline or to actually increase, I think is a significant consideration and was responsible for what happened in markets yesterday, by the way the skeptic in me has a little different view.
Speaker 1:I mean, I kind of wonder. You know, in September the Fed lowered 50 when they weren't really expected to lower 50. And I thought, gee, that's kind of a way to make sure the markets stay higher going into the election and so that they, you know, they look like they're being more supportive and therefore markets are more relaxed and perform better. And now I look at it and I think you know, being a realizer, that all things have some political instincts this feels to me like it's a little bit going to make it difficult for the Trump administration if the Fed suddenly decides that they are going to be an inflation hawk and they aren't going to lower rates. That doesn't go along with the everything goes up kind of mentality. That, if they're going to measure themselves in the Trump administration by how the market does yesterday, was kind of a wake-up call, wasn't it?
Speaker 2:Yeah, it sure was.
Speaker 1:And I don't know if it's a really nice call. I don't know if we'll see Powell go down to Mar-a-Lago or not, but it feels like we're going to see interplay between these things, whether it's the US and Canada, or whether it's the US and France, or our currency in Brazil, or just general instability in South Korea.
Speaker 2:Yeah. So, coming back, there's a few more things. Since we're talking about the world in this call, there are a few more things I just wanted to touch on briefly, just to be complete. So, russia and Ukraine, and and you know the US and the EU's role in that, you know, I think this is going to be a very significant year for that conflict. Clearly, we want Trump trying to end the war. I don't think Trump is going to have much success in doing that. You know, over the next few months, I think it could take. Will he ultimately have success? Possibly. I don't think it's going to be right away, though.
Speaker 2:The EU wants to make sure, is dead set On making sure, and by that I mean not just Germany and France, but also Poland, for example, romania, I think these countries and the Baltic states, finland, sweden, these countries want to make sure that Ukraine remains solid. Now, ukraine may have to give up some territories, right, but you know they. You know many of these European NATO countries and I say many, not all many of these European NATO countries want to have Ukraine either inside NATO after a peace settlement or have arrangements with NATO countries that are sort of identical, even though they're not in NATO itself. So I think that's NATO light. What NATO light? Yeah, nato light. So the UK would like that too. Uk, france, germany and so on.
Speaker 2:Now let me just throw some issues in there. One is that in the middle of the year, you have Hungary taking over the EU rotating presidency, taking over the EU rotating presidency, and so that could potentially cause a problem, since Hungary has, you know, orban has a tendency to lean toward Putin. You've got political instability in Romania and Bulgaria, which are both, and Moldova, which, well, romania and Bulgaria are both EU countries, both NATO countries. Moldova is not uh, but Moldova is uh politically unstable right now. Uh, so uh, who knows if that instability might uh impact the ability of European NATO slash EU to act with regard to Ukraine.
Speaker 2:It certainly helps that Sweden and Finland are now in NATO in terms of creating a solid pact with respect to Russia. You know a solid pact with respect to Russia, and let me just lastly say that you know, I think there are some indications that Putin's rule might be a little softer than it used to be. Now I know that's. You know a lot of people have said that for the last few years and have all been proven wrong, but I think, with all of the losses and the death and the terrorist attacks and Ukraine's ability to operate on Russian soil, and that assassination this week another example in my mind of how this is much further reaching than we had thought and the North Korean troops being trained, and I think that it's a much more complicated situation than it's not getting simpler.
Speaker 2:Using North Korean troops against Ukraine indicates that Russia is weak. There's no question about that. And also, russia has been striking at the EU slash European NATO, with hybrid warfare operations, disinformation, sabotage. There's been sabotage of communications cables. For example, there were fires at a whole bunch of DHL facilities in the EU. That has been attributed to Russia. So I think that you know, I think that you know that all could come to a head and, and you know, I think a really potentially negative scenario is if Putin actually falls Right, because you can have all those nuclear weapons.
Speaker 2:Yeah, nuclear weapons, you could have the country collapse. You know there are parts you know just like the Soviet union had. You know parts that. You know there are parts you know just like the Soviet Union had. You know parts that, like Ukraine, that split off. You've got non-Russian parts of the Russian Federation that could split off, so like Chechnya and Tatarstan and other places in the Russian Federation that could try to angle for their own independence from Russia.
Speaker 1:I think 2025 is going to be an interesting year, I guess. As I try to sum it up from an investment perspective, my feeling and you can tell me I'm right or I'm wrong is that there could be lower prices in some of these markets because of this instability, but I'm not sure they're viable moments because we don't know how they're going to come out. On the other side, there's too much uncertainty in terms of what US policy will actually be or what these governments will try to emphasize as they come out of what is probably going to be an uncertain and somewhat of a volatile period. So, while there may be opportunities, I'm not sure they're going to present themselves right away and it might be best to be patient and wait. How would you characterize it.
Speaker 2:I agree with you. I think, while there may be some opportunities, I think that the US and Canada, but especially the US, is the place to be in terms of investing, and keep in mind that a lot of the large US companies actually have global operations, so it's not like you're not we always are exposed to the US multinationals.
Speaker 2:Yeah, I mean, you're exposed to those and they give you global exposure, right? So you know you don't have to be invested in Chinese stocks to be to benefit from, you know from China, right? Not that China is a great place right now in terms of growth, no, but the higher you know the increasing income and the population growth and all you know, I think.
Speaker 1:Anyway, I want to. If you don't have any more comments, I'm going to wrap it up.
Speaker 2:There are always more comments, steve, but let's wrap it up, okay. If you have more comments, well, okay, let me just use a minute, okay, to just say first of all that we're seeing some deterioration in the Chinese economy right now, some significant deterioration on the consumer front, which, when you combine with tariff issues and export control issues, could be again very significant for in terms of investment risks in China, so perhaps even more than what we've seen in the past. So I'll just leave it at that with China. And then, with regard to the Middle East, I would just say that I think that we're seeing a situation where the US is going to give an even greater blank check to Israel to operate within the region and how would you characterize Netanyahu and Trump in terms?
Speaker 2:of. Well, they're obviously very close. So I think that's. I think Netanyahu and Trump are more close than than Netanyahu was with Biden, than Netanyahu was with Biden. But the one thing I would say that one has to keep a lookout for is Trump has a lot of personal family connections to Saudi Arabia and to the other Gulf states, and so if anybody thinks that Trump is going to be, you know, anti-palestinian, I think that that's not gonna happen, because Saudi Arabia is going to demand some kind of Palestinian autonomy in exchange for closer relationships with the US and with the Trump family itself.
Speaker 1:Yeah, we also forgot about Syria. So how did the Syrian government collapse? Do you think it's an indicator of other collapses that may come, or is it an isolated incident? Other?
Speaker 2:collapses that may come, or is it an isolated incident? Well, I would say, I would say that it's isolated in the sense that you know, you've had this civil war in Syria for many, many years, and so you have to think, well, what's the thing that's new, right? There are two things that are. One is uh, israel's destruction of hezbollah and hamas, so that's new, uh. And then the second one is russia doing so poorly in ukraine that it had to uh, reduce its support for assad and uh. And so those things are the two new things and, as a result, this, this new Sunni ex-terrorist group, or current terrorist group, however you want to call them, was able to achieve power with, by the way, the backing of Turkey, the backing of Turkey. So one should not underestimate the ability of Turkey to influence things in the Middle East, just as they did for several centuries of the Ottoman Empire.
Speaker 1:I mean, I look at Assad's departure and I know it creates more instability, but I also think it's probably uh, unless he's replaced with a worse autocrat or somebody who's more extreme, um, it feels like it's going more religious and less um political, if I can say that, I guess.
Speaker 2:Well it's, you know. It basically comes down to this that you had a in Assad, you had a branch of Shiite called Alawite that was in charge of the country, aligned with the local Christians to some degree, and the majority of the population was Sunni. And so now you've got the Sunni Arabs replacing the Shiite Arabs right In a position of power, which is exactly what happened when Saddam Hussein fell was pushed out of power. You had the local was pushed out of power, you had the local, except in reverse, right, where you had the Shiites basically take over from the Sunni Arab dictatorship. So just take what happened with Iraq and reverse it and you have that in Syria. So this new Syrian government is likely to be more aligned.
Speaker 2:Um, you know I could be wrong about this, but I think they're likely to be more aligned with the sunni gulf arab states. Uh, because of the religious connection. Yeah, okay, I. I think the worst case scenario steve for the for syria is for Syria is that this new Sunni Arab government, given its religious history, extremist history, I think could look a little bit more like the Taliban in Afghanistan because they're both Sunni Arab. Possible worst case scenario. But I think that, given that Syria is a much more developed country, sitting on the Mediterranean and not up in the mountains, I think it's. I think it's less likely that this new Syrian government will be that extremist.
Speaker 1:Well, I thought it was interesting that both Israel and Russia were going to remove weapons that they had stored in Syria. I don't know why you would use them as a store of your weapon cash, but it's interesting to me that they didn't feel good enough about the government and stability to leave what was a longer-term relationship alone there. So I kind of look at Syria as one of those pieces that Russia counted on for access to the Mediterranean, and I'm not sure how it will look at that naval advantage or move ships and other things to try to find and maintain the same access. So I think it's a very complicated. I appreciate your insights today and everything we went over. I think that these podcasts are educational and we're trying to help everyone to understand how and why it affects your money, and we look forward to the next podcast, which we will talk about 2025 and what's going to happen here in the US. So thanks everybody. I appreciate you listening and please like and share with your friends. Thank you.
