Economist

“The energy market suggests that the hard reality of supply constraints will overwhelm the Green agenda before it gets started.”

Asian Times, “Green bubbles threaten to pop stock markets”, 2nd October 2021

“The energy crunch is the threat few saw coming for China as 2022 approaches. Blackouts in the globe’s No 2 economy – or sudden bursts of inflation – could shoulder-check a world economy trying to regain its footing.”

Asia Times, “Bad timing for an energy crisis in China”, 8th October 2021

Reading the headlines today is a slightly surreal experience for me. Ever since 2003, I have been aware of the impending crisis facing our industrial civilisation as we used up the economically viable fossil fuels like a drunken sailor on a night out in town.

The classic peak oil books warned that, at some point in the future, the supply crunch in oil, gas, coal and other key resources vital to the functioning of our highly complex industrial civilisation would cause spikes in prices, shortages and blackouts across the world. Well, that world has arrived.

The most recent Economist weekly magazines refer to the new “Shortages Economy” and “the Energy shock” facing the world. It wasn’t so long ago that the chattering classes and so-called experts were saying that the big crisis facing the world was peak oil demand, as the world transitioned to renewable energies. The great fossil fuel giants, Big Oil and the oil and gas exporting states like Qatar, Russia and Saudi Arabia were facing economic disaster with their “stranded assets”.

Well, they aren’t saying that anymore as Chinese and Indian citizens experience blackouts, factories are forced to close across the developing world due to coal shortages with even wealthy Europe facing massive increases in the price of gas.

Long-standing readers of this blog are well aware that I follow closely the writing and forecasts of John Greer closely. To me, he is the most perceptive and knowledgeable of the “peak oil” era writers on the sheer scale of the crisis facing us. The depth of his historical understanding and use of the cycles of history to forecast the likely fate of our own civilisation never ceases to amaze me.

It was thanks to John’s historical knowledge and insights that I had the confidence to forecast Donald Trump’s victory in early 2016 when the vast majority of commentators considered his candidacy a bad joke.

So where are we going from now? Well, unlike the economists and central bankers who think the recent bout of inflation is merely “transitory” and supply issues are a temporary bug of the lockdowns, my view is radically different. We are in the early stages of the collapse of the globalised supply chain networks that have underpinned the entire globalisation phase since the 1980’s.

Even if one issue gets resolved within the next 18 months, other problems will arise, causing cascading disruption across the global supply chains that keep our economy going. So, prepare for worsening shortages, reduced supply and rising costs this decade. Try to build resilience into your life, stockpiling key supplies when they are available and look to local alternatives for other goods and services you need or enjoy. For those with jobs that are plugged into a functioning industrial economy, be prepared for the worst e.g. closure or redundancies as companies struggle to survive.

The other thing we can all try and do is cultivate a “household economy” lifestyle, for example brewing your own beer, growing your own food in the garden or allotment and so on. The more you do at home, within the household, the less dependent you are on the wider industrial economy to provide you with your critical needs and wants. All this is widely documented in John’s books on the Long Descent, the term he uses to talk about the era we have now entered.

I have discussed before the trajectory facing our civilisation, using the Limits to Growth business-as-usual model as the key template. This decade is the unravelling of our existing globalised economy, a process that you are witnessing in its early stages right now.

Limits to growth

Around 2030, is the key point that our global economy effectively collapses, global population peaks and a more serious unravelling of our industrial civilisation progresses.

Today, this blog post is aimed at those lucky enough to either have enough assets (e.g. shares, bonds, cash, real estate etc) already or think they will be in a position to this decade whilst the global economy staggers on.

This can be a sensitive area, as John Greer has himself written in a recent post, that the whole concept of owning assets is an increasingly pointless exercise in an era of contraction. For me, as an asset holder in a selection of tokens and shares primarily, this is a particular challenge. Whilst developing skills, investing in renewable technologies and so on are all excellent ideas, I still think that there is still a space for thinking about asset allocation in an era of the Long Descent.

On this, I am heavily influenced by the writings of the Elliot Theory (ET) analyst Avi Gilburt who has a superb track record in forecasting stocks and tokens through the Elliot theory analysis. Now, I don’t pretend to fully understand how ET works, but having reviewed their forecasts going back years, they do have a good track record.

What Avi and his team are forecasting is a melt-up rally of the main US stock market, the S&P 500, into 2022 and 2023 before it collapses after late 2023 into the mid-2020’s. He doesn’t explain why the US market collapses but that is what his analysis is expecting. Their long-term ET analysis suggests that a long bull market in stocks that commenced in 1941 is nearing its end, and after 2023, we are entering a dark time in what Avi refers to as the Greater Depression.

Avi Gilbert

I’m not aware that Avi or his team have ever heard of LTG – indeed, most people don’t – but his analysis certainly seems to broadly match the wider trajectory forecast in the LTG model. According to a recent interview he did, Avi said that for his own family, he was planning to move substantially into cash around October 2022, when he expects the S&P 500 to hit the 5,500 area in preparation for the looming crash.

That strikes me as sensible advice and I will be doing the same, at least with my US-centric technology stocks which are clearly already very highly valued compared to other sectors of the market. Avi also warns the listeners to not rely on traditional “safe havens” like real estate or gold in the coming economic crisis. The best place to park your assets is in cash and wait for the right to invest in something suitable.

As you can see from the above long-term stock market chart, a serious crisis is looming, with the S&P 500 bottoming out around 2025, before a partial rally in the markets – on the back of central bank monetization? –  into the end of this decade.

In regard to crypto-assets, Avi’s charts suggest that we will see a peak in bitcoin and other cryptos in late 2023, before BTC crashes by nearly 80% or so, into mid-decade. Smaller and more illiquid altcoins will probably face even more devastating losses, with virtually all the notional value wiped out during the crypto bear market.  My strong advice is to start selling out of tokens from late 2022 onwards, as BTC surges beyond $100k in anticipation of the end of the bull market within 2 years or so.

So, let’s say that Avi’s chart is right, and the US stock markets collapse, tokens collapse and other foreign stock markets drop significantly as well (if not quite as bad as the US). You are sitting on cash. What to do next.

Well, if Avi’s analysis is correct – which is a big if – there will come a time to start investing again, once the bottoming out process is confirmed. The S&P 500 is likely to double in value from mid to late 2020’s so clearly there are opportunities to invest some of that cash into something that can deliver capital and income growth for a few years at least.

You might consider investing in commodities, specifically companies that mine critical resources for our civilization, for example uranium, lithium, rare earth metals, copper, graphite and so on. Alternative, or as a supplement to that investing approach, consider investing in agricultural companies and those that sell phosphates and potash to the world. Both are key to fertiliser and we need those inputs to feed the world population.

I would be more careful about tech type stocks, or indeed any company that is dependent upon the elaborate infrastructure of the global internet. A recent report by Bloomberg highlighted the fact that at current projected growth rates, around a quarter (!) of Ireland’s electricity demand will be consumed by data energy centres by 2030. These are the energy hungry data centres that store the data held online by the big tech giants.

Is that sustainable in an era of blackouts and energy shortages? I don’t think so. Will governments, at some point, start rationing internet usage, or impose costs on internet companies who will, in turn, pass them on to consumers? Probably. Greer is on record stating that the internet is not, in its current form, a sustainable way of doing things and will fade away as the Long Descent worsens in the coming decades.

As a general rule, I would focus my energies on investing into companies that cater to the very real needs of a society in an era of economic contraction and are well managed given the risks of widespread corporate defaults as growth fizzles out in the years ahead.

If Avi’s chart is correct, a second economic crash will loom at the end of this decade, as the markets belatedly realise that they really are facing the collapse of the global economy. The collapse looks frankly terrifying and starts in October 2029, a spooky 100 years on from the 1929 financial crash that heralded the Great Depression, the rise of the Nazi’s in Germany and World War 2.

If history is any guide, something similar will happen to our civilisation in the 2030’s and 2040’s as chaos and war plunges our industrial civilisation into a death spiral. I have written before on the lessons of that last dark period in human history to us today, with a particular focus on the wealthy. You can read it here.

My main takeaway from the 2030’s is first of all, cash out by the late 2020’s in your stock positions and sit out the financial collapse in the global markets and consider investing in super-defensive arable farmland and only the most quality real estate in the 2030’s. These assets are the most likely to preserve wealth in a Greater Depression.

You must also consider the geopolitical chaos of a civilisation in a protracted decline, with mass migrations, internal conflicts and rise of dictatorships around the world. None of those things are conducive to the rule of law, property rights or the functioning of stock markets. So be careful about where you invest your assets and ensure that you are diversified.

The most important thing is to stay safe and look after your health. It really is the most important thing, far more important than stocks and bonds. I will be discussing that topic further in my next post, with a focus on the Covid-19 vaccine rollout.

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