Peter Zeihan - Dis-United Nations - [Invest Like the Best, EP.159]

My guest this week is Peter Zeihan, the author of a new book, the Disunited Nations. Peter was an extremely popular guest on the show last year and after reading his new book, I knew we had a lot to discuss in round 2. In this conversation, we discuss two ways of ruling the world, the coming American disinterest in global affairs, and which country are poised to do well int eh future. We explore military and non-military technologies, political changes, and up and coming alliances like that between the United States and Mexico. As with last time, peter packs more information into an hour than just about anybody. Please enjoy our conversation. This episode is brought to by Koyfin. For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag Show Notes 1:57 – (First question) – What makes for a successful country 6:02 – Five first-tier countries that are well positioned 7:14 – Ruling the world, US carrot model vs British stick model 9:39 – How other countries will use these models in the future 12:59 – The surprising reliance of Iran and Russia on the US 15:24– Key points of his research on the Middle East 18:36 – Advice for how those operating in the US should think about future business investments 23:05 – The future of manufacturing partnerships with the US and the focus on Mexico 27:30 – What Coronavirus has taught us about the world economy 30:01 – What the primaries and election are teaching us 35:09 – What role does Africa play in the future 38:36 – Strong and weak players in Europe and how Brexit has impacted things 44:41 – The future for nuclear power 46:27 – The outlook for South America 50:42 – The trends and future in military technology 55:03 – Non-military technology that will have a major impact 58:26 – Skills young people should focus on for the future 1:00:07 – Coronavirus as a dress rehearsal for large scale disruptions to the world Learn More For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on Twitter at @patrick_oshag

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Patrick O'Shaughnessy?

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• 0:43Patrick O'Shaughnessy?

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• 1:09Speaker 01

  Hello and welcome everyone. I'm Patrick O'Neal and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

• 1:29Speaker 02

  Patrick O'Neal is the CEO of O'Neal Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Neal Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Neal Asset Management may maintain positions in the securities discussed in this podcast.

• 1:54Patrick O'Shaughnessy?

  My guest this week is Peter Zeihan, the author of the new book, The Disunited Nations. Peter was an extremely popular guest on the show last year, and after reading his new book, I knew we'd have a lot to discuss in round two. In this conversation, we discuss two ways of ruling the world, the coming American disinterest in global affairs, and which countries are poised to do well in the future. We explore military and non-military technologies, political changes, and up and coming alliances like that between the United States and Mexico. As with last time, Peter packs more information into an hour than just about anybody. Please enjoy our conversation. A little bit different from our first one, given you've got a new book out today called Disunited Nations, that goes into all sorts of interesting detail on countries around the world.

• 2:39Patrick O'Shaughnessy?

  I thought a fun place to start would be for you to bridge our last conversation and just describe again for the audience how you think about what makes for a successful country.

• 2:48Speaker 03

  One of the things that I had to really focus on heavily in order to produce this book was talk about what makes things work, why things are the way they are, why we've become used to them in the way that they are, and what it means when it changes. And in the post-Cold War era, the United States has basically created this global structure that has told everybody that they can play and that everyone can be successful. You don't have to worry about wars, or invasions, or supply routes, or food, or energy, or anything. The global system will take care of it, and the US will make sure the global system works. Well, you remove the Americans from that system, and we go back to a world where countries more or less have to look out for themselves, and most of them don't have the capacity to do so. If you're going to have a chance of taking care of yourself, there's a few things you

• 3:33Speaker 03

  need. First of all, you've got to have a certain degree of territorial viability. Think of it kind of like the candy strategy, where you kind of want a gooey inside and a crunchy exterior, so that you can do what you need to in your own territory. You want it to be easy to move around. Plains and rivers are kind of the perfect combination. But then you want a hard crunchy exterior, so people can't get to you. So mountains are great, oceans are better. It's great if you're in the temperate zone, because it means you can take care of your own agricultural supply, and it means you actually have a chance to develop with a reasonable cost. Because any money that you don't have to use for overcoming internal geographic problems, you can use for infrastructure, or education, or defense. It's just a cost benefit.

• 4:18Speaker 03

  Second, if you can grow your own food, that is absolutely preferred. We've come to think of agriculture as remarkably unsexy in the modern era because we're not used to having to fight for it. But if you go back throughout history, more, far more countries have collapsed because of food distribution and famine than have ever died because of disease or war. And once again, the temperate zone, flat areas, is kind of what you're after. Third, you want a sustainable population structure. You need just the right number of young people versus mature workers versus retirees. One of the things that's industrialization kind of bequeathed us is when we started to move off the farms and into the cities, we went from thinking of children as free labor

• 5:00Speaker 03

  to thinking of children as kind of really expensive pets, and so people had fewer of them. Well, four generations on, this preference for smaller and smaller families has left most of the world with a distressed and unsustainable demographic structure. And most countries in the world are on the cusp of having more retirees than mature workers and more mature workers than young workers and more young workers than children. So that's a recipe for national self-destruction. It's really only a handful of countries around that have something that's a little bit more sustainable. And if you can manage all of that, your next bet is to whether or not you can turn the lights on. It's about energy access, whether you use solar or coal or wind or nuclear, whatever it happens to be.

• 5:45Speaker 03

  If you can't guarantee sufficient energy supplies to make your system run, you can't industrialize, you can't modernize, you're going to be living in a neo-primitive sort of state, or even worse, you're going to be completely dependent upon countries far beyond you. And if you look at these four factors and kind of stack them up, there's really only about five countries in the world right now who can kind of do this well. And that first tier of countries is honestly what the book is mostly about. If you go down from that, if you look at the countries that we think of as being very successful, they really don't measure up very well with these four categories. So, most of the book is dedicated to kind of an if this, then that.

• 6:28Speaker 03

  We think of this country as being successful, but in reality, it's the neighbor over here that's going to be able to dominate in the future.

• 6:34Patrick O'Shaughnessy?

  Could you name those five countries now? Then I want to talk about the kind of different models for ruling the world that you lay out, the American and the British model. But before we go there, I'd love to just hear what those first tier of countries are so that we can return to them in a bit.

• 6:47Speaker 03

  Sure. Well, the United States comes in at the top of the list. It's got the best internal territory. It's got the best border system. It's got a population structure that is, while starting to thin out a little bit, still at replacement. Number two is Japan. Japan's a country whose demographics are kind of bad, and it doesn't seem like it's got a good energy situation, because it doesn't, but it has the capacity to go out and take everything that it needs, or interface with friendly countries in order to get what it wants. Third up is Turkey. It's the most powerful country within a thousand miles, and there's no one who can really hold a candle to it within its own neighborhood. Fourth is France, which is really the only significant European country that can take care of itself once the United States leaves. And then the final one's kind of a surprise entrance, that's Argentina.

• 7:31Speaker 03

  It is a country that has absolutely everything it needs within its own borders. It faces no security threats. And in a world that kind of breaks down, Argentina has huge amounts of everything that the rest of the world needs, whether it's energy, or raw materials, or foodstuffs.

• 7:47Patrick O'Shaughnessy?

  So, before we go into some of those individual countries, there was a second early framework, like the what makes a successful country framework that you just laid out, that I found really interesting and probably important for understanding your model of the world. And I think that the chapter title was something like "How to Rule the World," and it compares the American kind of carrot model to the British shtick model of large influence in the world. Could you briefly lay out the distinction between those and talk about why they might be important in the future?

• 8:13Speaker 03

  Sure. The key thing to remember about how the United States has managed the global system is that it did something very different from how every empire before had worked. The American empire can be summed up as a bribe. We basically paid everyone to be on our sides versus the Soviets. And to do that, we guaranteed absolutely every country's physical security. We guaranteed the security of all of their civilian trade on the ocean. Nobody had to convoy anything anymore. Countries that could never float a navy in the first place, that was kind of a big deal. We provided a global system that would work for everyone and we provided a gold currency that we really didn't care to manipulate. If you want to have the global currency, the most important detail is you just have to not care what happens to it in any given day.

• 8:58Speaker 03

  So it's really difficult to imagine, say, the Chinese having a global currency because it's the most manipulated currency in the world. They set the peg every single day based on what they're trying to achieve with policy. Whereas the United States has only intervened into the currency markets a half a dozen times in the last thirty years. Even at the height of the 2000 crisis, when countries were begging the United States to intervene in currency markets, the US really didn't do that. Now, the British model is one of sticks. The British model requires a technological advantage. So Britain was the first country in the world to industrialize, and they basically went around the world beating up everybody and taking what they want because they would be bringing guns to knife fights. And they were the only country who could do that for about a century.

• 9:41Speaker 03

  So Britain was able to establish this massive global position based in large part upon a technical acumen, particularly as regards to the Navy. If you were the most industrials country in the world by a large margin and you started to float a bunch of ships and you were isolated from land attack because you were an island, it basically meant that your core territories could reach out and touch anyone, anywhere, at any time and do so at the time and place of your choosing. Play that writ large around the world and, well, we got the empire that the sun never set upon.

• 10:12Patrick O'Shaughnessy?

  So talk about why these models are important. I think a key central part of the book is that the Americans have done what they've done over the last however many decades, but that their interest in all of this in the future around the globe is just going to wane. So I'm curious how you think this carrot and stick model will be tried or applied by other non-American would-be powers in the coming decades?

• 10:34Speaker 03

  Sure. The first, the central point is to understand why the United States is waiting. We created the global order in order to build up an alliance, bribe up an alliance to fight the Cold War. And so once the Cold War ended, we had the opportunity to kind of recast the world towards a new goal. And we neglected to do that. The president we had at the time, George Herbert Walker Bush, was voted out of office when he was in the process of figuring out that plan. And in seven straight elections, we went with the candidate who was just not interested in foreign affairs, and that eventually led to Donald Trump where we are today. So the United States has been letting this system atrophy and fall apart bit by bit. And now Donald Trump is kind of going around with a sledgehammer, breaking whatever's left. So the US is done. Because the system was a bribe, the US never really invested its

• 11:17Speaker 03

  economy in the network. The United States is the least involved country in the world as a percentage of GDP in terms of trade exposure. And that leaves it to everybody else to kind of pick up the tools themselves if they can. Now, most countries don't have the geography to do this in a sustainable manner. Most countries have kind of subcontracted out all their defense needs to the United States now for 70 years. And even if they hit the ground running, now, it takes a generation to put that back together. The Germans, for example, don't have a functional tank force, air force, or navy right now. And honestly, aside from a few special forces teams that have proven their worth in Afghanistan, they really don't have a ground force at all. Learning this takes time, a decade,

• 11:59Speaker 03

  two decades, three decades, four decades. It took us a long time to get to the degree of military skill that the Americans have today. You're not gonna manifest that overnight. So if the Americans just kind of walk away and the pillars of civilization, as we understand them, collapse, there is no global power. The Chinese can't reach beyond the first island chain, the Brits are out of practice, the French are regionally obsessed, the Japanese don't want to go beyond the Pacific. So you've got a lot of regional powers that can duke it out, but no one can go global. Which means we go back to something that existed back during the age of empires, where you have a handful of powers that have a good geography

• 12:40Speaker 03

  at home and a limited ability to influence their regions. We have a series of regional powers that try to make sense of their own areas. Now, I say that Argentina, Turkey, France, and Japan are the four that are gonna emerge on top, but that doesn't mean it will be a bloodless transition. There are a lot of countries that have been trying to challenge the United States on a regional basis, that have ironically become more dependent upon the United States than they ever thought possible. And when the US leaves, some of these regional competitors that the United States thinks of as problem countries, China, Russia, Iran, all of a sudden are gonna discover that what makes their systems work is American

• 13:21Speaker 03

  engagement. And so all the United States has to really do, if it wants to wreck these places for decades, if not generations, is go home. And that's exactly what we're doing.

• 13:31Patrick O'Shaughnessy?

  I'm curious, so the China example, I'd like to talk in some depth about China in a bit, but the examples you gave there of Russia and Iran as being largely dependent on America, I'm just curious exactly what that means. So maybe take Iran as an example. How does that manifest? That's a surprising thought.

• 13:49Speaker 03

  Iran is actually pretty straightforward. Here's a country that back in antiquity was a superpower by any definition of the word, but in the process of the world figuring out how to sail the ocean blue, they were able to bypass Iran completely. So it just fell into disrepair. And once the industrial revolution came along, the Iranians basically imported all their goods and used mined output and a few other things like pistachios and carpets to kind of pay for it all. Oil comes along and it just completely wrecks the Iranian economy because they produce the crude to get cash and then they import whatever else happens that they need, up to and including food. Well, in the modern era, all of that crude oil is exported through a specific point called Karg Island that's deep in the

• 14:33Speaker 03

  Persian Gulf, and then it sails the ocean blue to wherever it's going. If you remove the Americans from the equation, oil shipments on the wider world aren't going to be safe. They'll have to be convoyed. Well, Iran doesn't have a navy. And Iran is completely dependent upon a single export point, all of which sends its crude through the Strait of Hormuz. So Iran has traditionally threatened oil shipments, specifically the Strait of Hormuz, in order to get what it wants out of the international community. And it's been up to the United States to figure out how to contain Iran in that environment. Well, if you remove the Americans from the equation and something happens to Hormuz or oil in general, the Iranians lose all capacity to export and they don't have an industrial base and they don't have an agricultural plant. And they are completely dependent upon

• 15:18Speaker 03

  those export sales in order to fuel their system and keep their population fed. Their competitors in the region, the United Arab Emirates, Saudi Arabia, Iraq, they all have alternate shipping options that bypass the Strait of Hormuz completely. So in any sort of conflict scenario that threatens the Gulf oil,

• 15:38Speaker 03

  The other countries, the Arab countries, do take hits. I don't mean to suggest they'll get off scot-free, but Iran's exports go to zero. And in that environment, we might actually be facing the eighth regime change in Persia's history. They've only had seven. In 3,500 years, we might be on the verge of number eight.

• 15:57Patrick O'Shaughnessy?

  What other implications does sort of your worldview have for activity in the Middle East, more generally speaking? And obviously intricately tied to that would be sort of the future of oil and the many intricacies there. What do you think are the other key points from your research in the Middle East?

• 16:13Speaker 03

  Well, there's no part of the Middle East that is going to escape this, but I think the best way to frame that discussion is to look at the country that is most likely to be countering everything Iran is doing. So here in the United States, we've got some fairly strong opinions about the Iranian Republic. But if you look back historically, right up until 1979, Iran was one of our best partners in the region. They were relatively culturally sophisticated. They partnered well with our intelligence and military services. We were broadly on the same side versus things like Russia, for example. But since the 79 revolution, relations have gone from bad to worse to horrible, and I don't see that getting repaired anytime soon. But you remove the Americans from the equation,

• 16:56Speaker 03

  and when the Iranians really realize the situation they're in, they're likely to get a little bit more aggressive. Now, the country that matters the most here is Saudi Arabia. The Saudis see them as the natural leader of the Islamic world because they control the holy cities. But they utterly lack the sort of military capacity that Iran has. And in a straight-up fight between the two powers, I mean, it's no contest at all. A bunch of high school kids could probably take on the Saudi military. So the Saudis use different tools. They use checkbook diplomacy in order to underwrite militant groups throughout the region, and then they use their command of the holy cities in order to motivate people based on ideological and religious grounds. And they have a complete

• 17:40Speaker 03

  Disdain for the sort of morality that drives decision-making in the West. So it's difficult for Americans to accept, but groups like ISIS and Al Qaeda, these are direct Saudi creations. And these are Saudi creations in a time where Saudi Arabia faced no direct military threat. So if you fast forward to a world where the United States is not protecting the Saudis in everything that they do, and where the Iranians are getting nervous and belligerent, the Saudis are going to really let loose. They're going to be spawning groups left, right, and center in order to attack Iranian proxies, Iranian allies, maybe people in Iran themselves.

• 18:20Speaker 03

  Keep in mind that the Syrian civil war has been so nasty because every couple of months, the Saudis form a new militant group right in the heart of it, try to kill as many people as possible. And so if you've got the Iranians trying to fight a more conventional war, and the Saudis fighting this unconventional war with groups like ISIS, you're talking about something that is actually designed to burn most of the region to the ground. From the Saudi point of view, they've actually got a pretty secure northern border, several hundred miles of deep desert. They're thinking that if they can just lob militant groups across that into places like Iraq and Syria and just cause problems for Iranians there, then the Iranians will never have the bandwidth necessary, the capacity that's necessary to punch through that desert buffer in order to get Riyadh and the oil fields.

• 19:05Speaker 03

  It's not a dumb strategy. It's just kind of evil.

• 19:09Patrick O'Shaughnessy?

  I'd love to hear your thoughts on maybe almost advice for those operating here in the United States, especially business people, a lot of those listening. There's a great little description at one point in the book where you say that Americans in the future, as it pertains to their interest in global affairs, will be distant, uninterested, but strategically unfettered and armed to the teeth, which is a really interesting combination of adjectives or characteristics of a country with the power that we have. How would you translate that concept into advice for how to think about the future of business for those operating in the United States?

• 19:43Speaker 03

  Well, something to keep in mind is that the United States government has never been good at economic policy and its foreign affairs. In recent decades, since World War II, that's by design. We specifically subsidized the rest of the world so it could fight the Soviets, which meant that American corporate interests took a distant, distant second place when it came to American policy planning. So, any free trade agreements that we did were made with the concept of global security in mind, and supporting the economies of our allies was far more important than supporting American economic interests. Now, if you go back to the time before World War II, there was this kind of interregnum period when we came out of Reconstruction.

• 20:27Speaker 03

  We fought the Spanish-American War, that was kind of our coming back to the world party, and in the aftermath, we had finally reunited the country. We had finally made the military an inclusive institution that had both northerners and southerners represented. But it was fragile, and the United States did not want to take any positions in foreign affairs that would disrupt that balance. So what happened was, American business leaders had already reintegrated the North and the South and the West. The area had been a significant success, and they were looking for greener pastures. So the United States was now part of the world again, but the military and the diplomatic corps really wasn't. So, American business leaders and American missionaries would actually go out and

• 21:09Speaker 03

  interface with the world, establish import-export facilities, start mining, start selling, and if something went wrong, because remember, they're intervening in foreign affairs, then the US diplomatic corps and the US military corps would come in and back them up. And the era was called dollar diplomacy. It got a little messy. You had the American government via business leaders, sometimes sponsoring the coup, sometimes we invaded countries in order to make sure that they repaid their bond payments, sometimes it was a more naked mercantilism. We're probably going to see some version of that coming up again, except for this time, instead of the United States being one of a dozen major powers, the United States is going to have global reach and really no global interests.

• 21:53Speaker 03

  So the capacity for this to go completely overboard is pretty significant. So if you're looking for advice, be very careful. The decisions that American business leaders make in the next 25 years are going to set the tone for American relations with the rest of the world for at least the next century. And if we become perceived as gun-toting greed monsters, that is something that is going to haunt us for generations to come. We are still trying to undo some of the damage from the last period of dollar diplomacy in places like Latin America. And we're probably about to get involved in something similar. So the trick this time around is to remember that the countries that the United States is going to be integrating with and trading with in the future are already industrialized.

• 22:37Speaker 03

  They may not be as advanced, but we're not talking about this quantum leap in development terms that we had back in the 1910s. It's best to build partners, it's best to build capacity locally, it's best to make sure that you've got local business leaders and local politicians on your side when you're making various decisions. Some American business leaders will heed that advice and probably do very well and build a cooperative relationship. There's not so much. Now, the country that we are likely to do this the most with is the country that we're already most economically close to, and that's Mexico. Mexico became our top trading partner last year. It's a position they will not give up in our lives. And the real thing to keep in mind with Mexico is that they are the only country that has

• 23:22Speaker 03

  any leverage versus Washington and versus American business because of the degree of integration and because of the proximity. So if you're going to cut your teeth on foreign trade, that's the country to do it on, and that's the one that'll probably protect us from some of our worst impulses.

• 23:38Patrick O'Shaughnessy?

  Do you imagine that in the future, Mexico and perhaps other countries will replace, say, China as a manufacturing partner of the US? One of the most important or interesting things I've seen come out of this coronavirus issue is how much it has exposed supply chains and overconcentration of risk in a single country for manufacturers specifically. What do you make of the future of manufacturing partnerships and is Mexico a big viable partner there as well?

• 24:04Speaker 03

  Sure. To explain how Mexico's going to roll in the future, we got to kind of dissect the Chinese system a little bit. The Chinese system geographically is a disaster. You've got a flat area in the north, which the Chinese have fought over throughout history, 2,000 years of ethnic cleansing and civil war. And then you've got a southern region, which is dominated by coastal city-states that actually do fairly well and have a history of integrating with the wider world. And the Chinese have always had a problem holding this all together. And so basically what they do is they bribe everybody. So they take the sum total of all the citizens' savings and they apply it to any project they possibly can. It doesn't matter if it's cost-effective, it doesn't matter if it's efficient. If it's employing everybody, then they're not rioting and they're not resisting the government.

• 24:48Speaker 03

  And what's happened since World War II is that the Americans have admitted the Chinese into their global structures. And so for the first time, China's been able to access the world on someone's terms that is not a colonial occupier. So we broke the Japanese empire in World War II, the Europeans got sent packing, and all of a sudden China could be a country. It could unify, it could trade, it could develop. But all of this is an outcome of the American security position globally and of the global order. Very little of it is because of what the Chinese did. So if you remove the Americans, the Chinese lose those links. So the entire Chinese model, whether it's energy imports, finished goods, exports, the

• 25:30Speaker 03

  local financing system, the manufacturing supply chain, the infrastructure, all of it breaks without the United States. So if you're like me and you see the end of China as kind of a foregone conclusion, it's a little harsh to say, but coronavirus is wonderful. Because it gives us a look ahead at what a world without the Chinese manufacturing system looks like. And so if you're a company today and you're having problems with the supply chains, this is a warning shot for you. And if you're a company today and you can operate without the Chinese supply chains, then you're looking pretty good. So it's not very often that history allows us to have a dress rehearsal. And that's exactly what we're experiencing right now.

• 26:16Speaker 03

  Now, Mexico's topography is kind of a mess. It's highland, it's rugged, part of it's desert, part of it's jungle. It's just a difficult area to work. Infrastructure is everything because if you can't build artificial infrastructure, you're not going to be able to have a manufacturing system. But the Mexicans do have a political system that is actually fairly well set up for what's coming. I call it the jefe model. So a short version, if you've got a mountain town that has limited infrastructure to its neighbors, you've got a guy in charge, a jefe, an oligarch, a cadió, who basically controls the town through their families, through their friends, through their business partners. They've got a network of connections that hit everybody from the utility system, the

• 26:59Speaker 03

  tax man, to the manufacturing supply chain, to the labor force. And they can just decide almost overnight, you know what, we want to go into TV screens or we want to go into bumpers. And what happens is they build the local industrial plant that they need, they mobilize the resources they need, and then they look around in Mexico and especially in Texas for a partner in order to buy and sell the components to, in order to participate up and down the supply chain. So about half of the trade between the United States and Mexico is managed by the three Texas triangle cities, well, four Texas triangle cities of Austin, San Antonio, Dallas, Fort Worth, and Houston. And that interface is beautiful and it is nearly perfect.

• 27:41Speaker 03

  And that's the face of the future of the American-Mexican relationship. The Mexicans seeing a need, seeing a gap, taking advantage of a specific piece of that, and then trading back and forth across the border. When NAFTA I was put into place, this manufacturing supply chain system kicked into high gear. And under the Trump administration with NAFTA II, it's only going to intensify.

• 28:03Patrick O'Shaughnessy?

  What else do you make of what we've learned in the early months of the coronavirus? Obviously, this is a terrible thing. People are sick and dying. But it's also teaching us, I think, a lot about where the world is fragile, what institutions are doing a good job or a poor job of reacting to a scary crisis. What are your early takes on the lessons gleaned from watching this unfold?

• 28:25Speaker 03

  Well, we're... The biggest problem with figuring out the details is the data. Chinese have, to be perfectly blunt, stopped sharing reasonable data. So according to the Chinese statistics for the last two weeks, new cases across China have largely flatlined. The idea that you could have a thousand cases, a thousand known cases in a province with a population of in excess of 50 million and then that number just doesn't change for two weeks is just silly. I mean, it's statistically impossible, particularly now that we know that coronavirus is as communicable as it is. We've certainly seen that in the West, or really, we've seen that in the rest of the world. So the idea that this is over in China is kind of silly. And that takes China offline in the Pearl River Valley and the Yangtze River Valley

• 29:06Speaker 03

  until at least mid-April, which is going to have some exorbitant impacts on supply chains and trade moving forward for the rest of the year. In terms of institutions, the World Health Organization is doing OK, but they can only do their job if they have direct and unimpeded access to national authorities, and the Chinese have been less than cooperative on that. Another country that has a big outbreak is Iran, and not a country that is known for having extreme levels of international cooperation. What has really surprised me to the upside is that most countries, China-accepted, have been very friendly in exchanging data, genetic information, everything they have really

• 29:47Speaker 03

  on the virus, independent of international authorities. So the CDC, for example, has a team that's in Iran right now. That's almost unprecedented. And you don't want to promise anything that you don't know for sure, but it appears that they already have the beginnings of a working vaccine. And if they continue on their current trajectory, it'll probably be ready in time to be included in the fall's flu shot, which is great.

• 30:13Speaker 03

  But again, I can't underline this enough. When you've got a disease that is this communicable, it is really hard to get good information. The outbreak in Washington State last weekend is a good example. It appears that it's been spreading on the West Coast to the United States for at least a month. And they really didn't even register the first real cases until a couple of weeks ago. So this is going to get worse before it gets better, I'm afraid.

• 30:34Patrick O'Shaughnessy?

  What else is important to think about from the perspective of the US? We're having this conversation the day before Super Tuesday. So heavily into the primary season and the political situation seems like a bit of a horror show in many ways. Tell me what you think about how the primaries have unfolded thus far, the major candidates, and whether really any of them stand a chance against Donald Trump in this fall's election?

• 30:57Speaker 03

  Let me start with the punchline. This is Trump's election to lose. And if the Democrats cannot rally behind a moderate candidate, for example, like Joe Biden, they really don't have a chance. And they're looking at catastrophic wipeout, not just at the national level, but in the state contests. So let me back that up, to give you an idea of where we are in our political cycle overall. So because the United States has the Electoral College and because we go with a first past the post voting system, it forces everybody into two big parties. And those parties have to debate within themselves what's more important. Do we want to throw a wide net? Or do we want a more coherent alliance? And for the last 70 years, the Republicans have been the party of the coherent alliance. They have a short list of factions.

• 31:42Speaker 03

  Those factions don't argue. They all tend to show up to vote. And so it's very reliable. In contrast, the Democrats have gone for a much bigger tent. They have a lot more factions, a lot more voters, but a lot of those factions disagree when it comes to policy. And so any candidate that tries to run on the issues almost by default is going to offend some of the factions. And those factions won't show up to vote, and so the Republicans will outvote them. So the Republicans have a smaller party, but it's more coherent. But if the Democrats can put forward a candidate who can run on general promises and charisma, they'll probably win because they've got more voters. Now, the system is fine. It works. But because it's factions on both sides, sometimes the factions move.

• 32:26Speaker 03

  And whenever you have a period of extreme change technologically, culturally, socially, internationally...

• 32:33Speaker 03

  The factions sometimes jump ship. And what we've been seeing for the last few years is the post-Cold War system has finally caught up to American politics. And the factional alliances that make up both parties have broken down more or less at the same time. Now, for the Republicans, that happened three years ago. And Trump has largely excised the national security conservatives, the fiscal voters, and the business voters from the Republican coalition. So if you were one of those three factions, you're no longer a Republican. You didn't leave the party, the party left you. And now, the what's left of the Republican alliance is largely a populist alliance with Trump at its head. And he's attempting to bring in other factions to bolster it out.

• 33:15Speaker 03

  I would suggest that he's already been wildly successful at courting organized labor, for example. The unions are almost lock, stock, and barrel with Trump now. On the Democratic side, it's happened more recently, and it took the midterm elections to really drive this home. In the midterms, the radical side of the party, the Bernie Sanders wing, if you will, did not flip a single district, but they did kick out about 50 Democrats in primaries and then replace them with more radical candidates. So we've been watching this slow-motion civil war in the Democratic coalition now for about two years. And it's bursting out in the open now with the Sanders rise.

• 33:59Speaker 03

  So no matter how this goes down, whether we have Biden versus Sanders running for the nomination, no matter who wins, this is the end of the Democratic Party alliance as we understand it. And historically, rebuilding the alliance with a new, more stable, more appropriate-for-the-times factional alliance takes four to 12 years. We can start this process three years ago, the Democrats are starting it right now.

• 34:23Patrick O'Shaughnessy?

  What do you make of Mike Bloomberg and his candidacy?

• 34:26Speaker 03

  We'll know on Super Tuesday whether or not this is going to work for him or not. I understand where he's coming from. He looked at the field of candidates, he's like, wow, there's no one here that can possibly keep Trump. And I don't think that's a ridiculous position to come from. Although, the idea that a billionaire can buy his way into the Democratic nomination in a time when there's a radical uprising is a bit dubious. But really, this is going to go one way or two ways, and by the time people are listening to this interview, they'll know which way it is. So option number one. Biden succeeds, sweeps Super Tuesday, Bloomberg bows out, and then we have a race between the moderates led by a Biden who is less than inspirational and Sanders, and that breaks the party right down the middle.

• 35:09Speaker 03

  Option number two is that Bloomberg wins on Super Tuesday, or at least is strong enough to make a good showing moving on. And then we have a fight at the convention between Bernie Sanders, who says that corporate interests are taking over the party and trying to buy the election out and cheat him, and Michael Bloomberg, who is trying to buy out the election and cheat him. Either way, this ends with the end of the Democratic Party, as we understand it.

• 35:33Patrick O'Shaughnessy?

  Fascinating development that we will all watch very closely, if not with some horror.

• 35:37Speaker 03

  The Milwaukee Convention is going to be an absolute popcorn fest.

• 35:41Patrick O'Shaughnessy?

  Let's shift gears away from politics and again, back towards some of the central topics of the book. One place we haven't discussed at all yet is Africa. I'm curious, as one of my favorite places that I've explored in recent years, what role you think Africa plays in the US's future? And even not considering the US, perhaps obviously Africa's close and closer relations with China could be of interest as well. What do you make of the African continent and its future?

• 36:07Speaker 03

  Africa's future is pretty problematic. Now, Africa has enjoyed a bit of a boom since 1990, and particularly in the last 15 years, but you have to understand why. Africa is a series of kind of stacked plateaus, five of them, and running infrastructure up a series of five cliffs is as expensive and difficult as it sounds. So Africa's traditional underdevelopment is largely geographically driven, and that is something that has held back Africa throughout most of recorded history. Now, the only way you can build infrastructure in this sort of environment, and from there expand educational opportunities and build industrial plant, modernize, is with capital.

• 36:46Speaker 03

  And since 2000, the baby boomer generation has been at the peak of their working lives. They're nearing retirement, which means that most of their bills have been paid down, and their incomes have never been higher, and they're investing like they never have before. That has driven down capital costs, and some of that capital has trickled down into the African continent, and that's why we've seen this infrastructure and consumption boom, because capital costs are lower. That ends in the next five years. And then the year 2022, the majority of the American boomer cadre will have retired and these capital costs will go up because capital supplies will plummet. The boomers will go from being the world's largest supplier of capital to the world's largest consumer of capital as they stop working, stop investing and start drawing

• 37:30Speaker 03

  upon their savings and get pensions and healthcare. So, anything in Africa that is not completed within the next three to five years isn't going to be. So either you're a part of Africa that has managed to achieve a degree of self-sufficiency or you're going to be capital star for the foreseeable future. So that kind of breaks the continent into two chunks. The first chunk are those places, those few places, only six, where there's a break in the escarpments, there's a break in the plateaus and the area actually can at least get to a seaport and integrate with someone beyond the horizon at least a little bit.

• 38:12Speaker 03

  These are places like Angola or Nigeria or the Kenya-Uganda corridor. These places are likely to be the site of kind of a neo-colonial expansion as countries that are able to kind of develop into regional powers choose to go to these parts of Africa and integrate. France and Britain are likely the two countries that are most likely to participate in that way. And the rest of Africa is kind of left to be. A lot of the borders in Africa don't make a lot of sense and it's only this infrastructure boom of the last 15 years that has tried to make political entities into political economies. As soon as that is over, we go back to a colonial era experience without a lot of

• 38:54Speaker 03

  colonial powers because it's going to take countries 20, 30, 40, 50 years to learn how to do that again. And in the meantime, a lot of Africa is going to be left alone, whether that's for good or for ill, totally depends upon your own personal ideology.

• 39:08Patrick O'Shaughnessy?

  Last time we talked, I think it was still a pre-Brexit Europe. Obviously, a lot's changed since then and we haven't spent much time thus far in this conversation talking about Europe other than your reference of France perhaps being one of the top countries from a strategic positioning standpoint. Talk to me a little bit about your feelings on Europe, who the strong and weak players are, perhaps what your assessment is now of the UK post-Brexit and who stands to be successful in the coming decades.

• 39:36Speaker 03

  Well, let's start with the Germans because they're in charge of the shop right now. Largest economy, most successful, most integrated, highest standard of living, all that good stuff. However, the Germans' baby bus started half a century before everybody else's, and they now have one of the world's most terminal demographics. Right now, that works for them because their population bulge is in their late 50s. So you've got German engineers with 30 years of experience. It is hard not to succeed with a lot of people like that. But the Germans just don't have anybody in their 20s, and even fewer teenagers and even fewer children. So for the German engineers and all these German producers and manufacturers to be successful, they absolutely must have access to a broader market.

• 40:18Speaker 03

  And since the demographic picture in Europe at large just isn't positive, that means they have to have a market beyond Europe. So Europe in general, and Germany in specific, has basically degenerated into an export union. And without the American-led order, there is no economic future for this region that follows any sort of capitalist model. So we are in the final years of a Germany that is economically successful and democratic and peaceful because they lack the capacity to go out and take what they need, and they lack the reach economically to partner with the countries that might be able to help them fix this. So for now, it works. For now, it's great. But you remove the Americans and everything that makes modern Germany possible falls apart.

• 41:04Speaker 03

  France is the opposite. France has a population structure that is stable. They haven't really internationalized their manufacturing system. They don't need the global market to sell to. And they don't even face the kind of the security concerns that the Germans have. The Germans have to go more than one country away to get energy. The French can either produce nuclear power at home or just go into North or West Africa, and they have the navy to get there. So the French exposure is lower. French tools are right-sized. What they need are certainly more capable in the international arena than the Germans are. Britain?

• 41:39Speaker 03

  Britain was doing so well for so long, and I don't mean to suggest that if they hadn't gone with Brexit, they'd be in a better position. That's not it. The two things that the Brits have always depended upon, first of all, their navy, that allows them to influence regional events and global events, near and far, before and after the horizon, in ways that no other country has ever really been able to manage. But they have decommissioned a lot of their navy because of financial reasons, and in their efforts to get a couple of supercarriers so they can at least speak confidently with the United States, they've had to decommission more of their ships so their new carriers won't even have escort wings. Well, you don't

• 42:20Speaker 03

  want to send a supercarrier out into the wider world without an escort ring. So what they've had to do is reach out to the United States and basically fold in their new carriers into the American Navy until they can build out the rest of their navy. And that means that Britain has ceased to be a significant international player for at least the next 30 years. If you're France, this is brilliant, because for the first time, Britain is off the table. Now, that's the strategic picture. The economic picture for the Brits is more muddled and probably more negative. Brexit isn't going to result in a trade deal with the European Union. The way policymaking in the EU works is each individual country,

• 43:04Speaker 03

  regardless of size, has full veto power over all the big decisions, including trade deals. So what's going to happen at the end of this year is the Brits are going to lose full access to the European market, and they're going to have to throw themselves at the Trump administration's mercy in order to get a free trade deal with the United States to replace the EU. The Americans are going to have some demands. They're going to force the Brits to follow the North American manufacturing model, which will push the Brits in direct head-to-head competition with the Mexicans, which will not be comfortable. They've never faced that kind of competition before. The Americans are going to demand that American agricultural goods have full access to the British market. That should be an easy sell, because right now, the only things that have been keeping British agriculture going have

• 43:46Speaker 03

  been subsidy transfers from the European Union. That dissolves this year. Third, the United States is going to probably demand that the Brits cease participation with the Airbus consortium. Now, that can be replaced. The French and the Germans can find other ways to make that happen. But last I checked, the Brits were providing the engines and the wings and you kind of need those for aircraft. So this little pop that Airbus has enjoyed during the Boeing 737 MAX scandal is going to be very short-lived and we may very well be looking at the end of Airbus as a functional company because it's going to take the French and the Germans more time to adapt to Airbus without the United Kingdom than they likely have left in the American-led order. And then finally, there's the financial question.

• 44:31Speaker 03

  Right now, London is the second-largest financial center in the world. It serves as kind of a waystation for European money going through London and the wider world. Well, under Brexit, with all the uncertainty, that's kind of waned. But under the American trade deal that's coming, the United States is just going to take the entire financial district and move everything to New York. And if the Brits don't want to do that, then they've got to figure out how to go it alone. And they don't have the market size, they don't have the economic structure, they don't have the industrial base. And in the aftermath of Brexit, they don't have the financial wherewithal. So it's really this option, be forced into being an American satellite or the industrial less. It's a hard decision, but that's really all that they have.

• 45:14Patrick O'Shaughnessy?

  You mentioned earlier this issue for Germany of being more than one country away from an energy source and also France's strong dependence on nuclear as sort of a strategic advantage. Do you think that this new kind of world order that you've laid out will lead to the increase of nuclear power as a popular source, given the ability to house it internally? Obviously, it has scary headline risk associated with it, which arguably has held it back. But do you think that, given the scary dependence on other countries for energy, that nuclear will see a resurgence?

• 45:45Speaker 03

  Yes and no. It really depends upon where you are. Nuclear supply chains are complicated things. And building a nuclear reactor for power is a lot more complicated than building a nuclear weapon. You also need a lot more materials. So you've got a manufacturing supply chain, you've got a nuclear material supply chain. And there is always the risk that an advanced country will look at you trying to get a power system and be a little nervous that you might turn it into a weapon system. If you can run a civilian power reactor, you can easily build a bomb. So that shortens the list of the countries that can even theoretically pull it off. Pakistan and India, totally see them doing more.

• 46:25Speaker 03

  China, maybe, but there's some technical concerns that the Chinese have and they might not have reliable access to the fuel. Japan and Korea, makes perfect sense, same with Taiwan, assuming someone gives them the uranium. And if you look at the Western Hemisphere, here you've got countries that because of the shale revolution are energy flush, it's not really necessary. So for a small list of countries, yeah, nukes are the future. France is probably going to be at the top of that list. Japan will probably be second, but you know, that's where they've been already. Other countries probably aren't going to be able to expand in that space. They just lack the capacity, the connections and the sourcing.

• 47:00Patrick O'Shaughnessy?

  We haven't talked at all about South America, other than your reference to Argentina. Kind of similar to your view on Europe, I'd be curious to get your take there. Obviously, Argentina and Brazil perhaps are the, are the big headline names, but perhaps there are also other countries that you think have an interesting future.

• 47:15Speaker 03

  Well, interesting does not always mean positive. Let's just kind of do a, a once around the world down there. So Argentina's got the best territory in the world that is not part of the United States. The Pampas region is kind of their equivalent for the Midwest. It's large, it's flat, it's fertile, it's temperate, and it has a multi-vectored river system that connects throughout the territory. So it's, it's an absolutely dreamy geography. And in a world where international shipments become less sure and finance is harder to come by and rule of law breaks down. You know, the Argentines already have decades of experience living in that sort of environment. You add that into their dreamy geography and a very positive demographic structure. And no matter who runs Argentina, it's going to be successful.

• 47:58Speaker 03

  Brazil's kind of the opposite. Brazil has experienced the same population crash, it's hit places like Germany, they just started 30 years later. And so they're aging into a much more difficult position with much less consumption. And the Brazilian topography is uplifted from the coast. So you've got kind of this relatively flat area in the interior. And when you get to the coast, you have to go down cliffs. And that infrastructure presents them with an infrastructure challenge they've never really been able to cope with. You add in that the further north you go in the country, the more tropical it gets. And you have higher input costs for everything, whether it's roads or agriculture.

• 48:37Speaker 03

  And the Brazilian situation has only really been successful in an era where global capital costs are low. Global transport is safe and global demand for the products is bottomless. That has all been true since 1995. And so we've seen Brazil grow more in the last 20 years than in most of the last century. But all of those factors are now coming to an end. And so Brazil's moment in the sun is over and they will absolutely get eclipsed by the Argentines. Elsewhere on the continent, policy really matters. So the Chileans and the Colombians have decided to go out of their way, even in times of economic strength, and partner with the United States on everything they possibly can. Now, that has caused them some political blowback from time to time,

• 49:21Speaker 03

  but it has given them access to the one market in the world that is likely to be stable and growing for decades to come. There's a nationalist question there and they've swallowed their pride and gone with the obvious economic choice, and so far that's worked for them. On the flip side of that, of course, you've got Venezuela, which is a country that consistently for the last 20 years has made absolutely the wrong economic decisions and is now facing nothing less than academic collapse and famine. We now have the power grid failing. The oil company is basically in a state of not so slow motion collapse. And we've got widespread famine throughout a country that used to be a food exporter, but now imports 80% of their calories. A policy change might...

• 50:05Speaker 03

  Be able to turn this around because they do have preferential access to the US market. US refiners love the crude. But one of the little quirks about the American shale revolution isn't just that the United States is now producing more than it needs, but the crude that it is producing is super light and super sweet, whereas American Gulf refineries like super heavy and super sour crude, like Venezuela's crude. Well, since Venezuela's basically fallen off the market, and since the Canadians can't compete with US shale, the Gulf Coast refiners are ever more rapidly retooling in order to run on local crude supplies. And if we move into a world where international trade becomes more constrained,

• 50:46Speaker 03

  that is only going to accelerate. So the Venezuelans still have a little bit of time, maybe three years, maybe four years, before it's too late. And if we get to the point where American Gulf refiners can't take Venezuelan crude at all, there's no one else in the world that can take a substantial volume of Venezuelan crude. You're talking about total global demand, even assuming no security risk, is going to be less than a million barrels a day. And that is just not enough to support a country with a population the size of Venezuela's.

• 51:14Patrick O'Shaughnessy?

  So having gone around the globe, really, kind of hit major countries in the major regions, and kind of where you think things are headed, I'd love to talk about a couple very high-level trends that sort of stretch across regions and countries. The first of which is, I guess I would call military technology, where military trends generally, but maybe the means of executing a military strategy more specifically. What do you see changing in the most substantial way in that category in the decades to come?

• 51:40Speaker 03

  Well, you got two things. Let's start with the United States, because that's kind of the more familiar situation. The United States has now been fighting wars in the Islamic world for about 20 years. And we have discovered that we really don't like the whole door-to-door thing. And just as we, when we retreated from Vietnam, we changed the way we ran our military, the same thing is going to happen in the aftermath of a war on terror. We've been spending a lot of time developing technologies that allow us to be further, further removed. We've gone from using drones for tactical information support to strategic strikes. And the next generation of drones are everything from things that can loiter at 30,000 feet for a week, to a handful of drones that

• 52:24Speaker 03

  are the size of Tic Tacs that special forces can just release, and then step back and watch them kill and/or surveil. You combine those changes with a general American disdain for the world and the United States is going to be able to intervene anywhere at once in the world with a minimum of fuss using its special forces units backed up by drone warfare in a matter of hours from the point where the decision is made. So that's how America is going to be fighting its wars for the next 20 years. Not a lot of boots on the grounds, very high kinetic and then gone the next day. Compare that to the rest of the world. No one else has that technical expertise and no one else has the capacity to challenge the Americans on the waves. And since the United States is going to be gun shy when it comes to putting a lot of

• 53:09Speaker 03

  boots on the ground, they're unlikely to be engaging the United States in significant conflict. But they're out of practice and most countries of the world are now going to be rebuilding with newer technologies for the first time or trying to build for a war that they're not capable of fighting right now. It's going to be really sloppy. No one has large scale military expertise right now. Even the Russian operations in Syria are basically support operations. The countries that I think are most likely to be involved in what we would consider a peer conflict. On the one hand, you're going to have the Japanese who train like mad, drill like mad

• 53:51Speaker 03

  and actually have a very capable naval force, but that hasn't been involved in a shooting war since World War II. And as the United States steps back, the Japanese Navy is going to step forward to fill the gap in East Asia. And that will almost certainly lead to some degree of a conflict with the Chinese. The Chinese have more ships. The Chinese have more planes. The Chinese have more missiles. But what they lack is range. Most Chinese ships cannot sail more than a thousand miles from the coast. So Japan does not have to engage the Chinese Navy within range of any of its air support. It can just sail the Indian Ocean and cut the oil line and be done with it. So that war is likely to be short, it's likely to be sharp, it's likely to be very violent, and then it's likely to be over. The other one, country to keep an eye on is Turkey.

• 54:35Speaker 03

  Turkey has the largest army in NATO outside of the United States. And unlike the American army, which, you know, is scattered around the world or is in a different hemisphere from most of its conflicts, Turkey's right there, 600,000 men under arms. And it's just a question of which direction the Turks decide to go. And judging from the news in the last 40 hours, they might have finally decided that it is time to go into Syria for real. I don't want to pontificate too much about the details of that, because by the time this interview releases, we'll know one way or the other. But the Turks have the ability to shove their forces at all points of the competence, not at the same time, but to do so competently. And because of their on-again, off-again fights with the Kurds, this is a force that actually

• 55:19Speaker 03

  has recent military experience. It's inherited a lot of NATO equipment over the years, so it's not top tier, but it is second tier. And I'll take a military with second-tier tech, but a lot of operational experience over somebody with a lot of shiny toys who doesn't know how to use them.

• 55:35Patrick O'Shaughnessy?

  What about the trend of non-military technology? Any specific technology trends that you think are important for the globe's geopolitical outcomes?

• 55:46Speaker 03

  Well, let me put a bullet in one and then talk about a different one. People talk about the Internet of Things and how information transfer is erasing borders and the rise of digitization and the impact that it's going to have. I'm not saying that any of that is really wrong, but I think it's time for us to reintroduce geography to this conversation. All of the communication, all of the digitization, it is all dependent upon data flows. And if countries, for whatever reason, feel threatened, it is very easy to limit those data flows. Data flows, you just cut the cables that connect countries. For example, there's only two that go into Egypt, there's only four that go into Russia, they've put in kill switches on all of them so they can prevent information from being used against the regime. Very effective, very simple, and we're going to see a lot more of that.

• 56:29Speaker 03

  So the Internet isn't going to be regionalized, it's going to be balkanized. This isn't a decoupling issue, it's a security issue. And that's probably the face of the future. The largest of the internets will be in the Western Hemisphere, which the two Americas will probably remain more or less on the same network. And the US will probably retain a few cables to specific places. Britain, of course, is at the top of the list. I expect the Americans and the French to get along pretty well. But that's a far cry from a global system. But you don't necessarily always need digital exchange to have digitization. So one of the big advances that we are seeing in agriculture is increased data use and more effective data use to do some really interesting things.

• 57:11Speaker 03

  Part of that is gene editing, which is basically GMOs by another name that people seem to be OK with, which will increase the output per plant. But far more important is the revolution in digitization that is coming to the tending of the plants once they're there. The new combines, the new spreaders, the new sprayers, basically put multiple tanks, herbicide, fertilizer, pesticide, all on one piece of machinery. That machinery goes through the fields, digitally identifies every single piece of green that it sees, and it says, this is a weed, this is a plant that is covered with bugs, this is a plant that is malnourished. And it gives it a little squirt based on what it identifies.

• 57:56Speaker 03

  And it's not so much farming as industrial gardening. And the new gene editing techniques, plus this individual plant attention technology that's coming out, it's going to drastically increase input costs per acre, but it's going to far more than pay for itself in terms of output. So we're going to be seeing a doubling and a tripling within the next 10 years of harvests in North America and in the handful of places that can apply this technology. But that's not going to be everywhere. First of all, it's an economies of scale issue, and it's a finance issue. So you're only going to see it in places with extreme row crop agriculture, where you can use these giant combines. And you're only going to see it in places that are able to have relatively reasonable financing costs.

• 58:40Speaker 03

  And with the global baby boomer cadre moving into retirement, that's a very, very limited number of locations. The United States is at the top of the list, New Zealand, Argentina, Australia, Canada, all look pretty good. And if they can get the policy mix right, Argentina probably. But that's about it.

• 58:59Patrick O'Shaughnessy?

  What skills, if any, would you encourage young people listening to cultivate in themselves in the face of the changes that you anticipate in the world?

• 59:07Speaker 03

  Two things. You need a degree of flexibility. We are already, courtesy of the shale revolution, experiencing the greatest reindustrialization in this country's history. It's already more intense than what we went through during World War II. And the more global supply chains that break down, the more money and industrious individuals and supply chain systems are going to be coming back to North America. So the necessity to adapt to those changing circumstances is critical. And that doesn't just mean learning how to build something that the United States has not built for 30 years. It means learning to build it with the technology that exists now. We do not sew t-shirts in the United States any longer, but we have designed machines

• 59:48Speaker 03

  that can kick one t-shirt out every 15 seconds. It's a different sort of environment. It's a different way to manufacture. And that requires everything from a familiarity with power systems to interfacing with local governments who are the political authorities who make the decisions as to what's possible. Texas has a really good model for that. South Carolina has a really good model for that. Minnesota has a really good model for that. They have nothing in common. So you just have to find out what's appropriate to the area that you want to operate in. Second, learn Spanish. Absolutely learn Spanish. It's a global language. It is the second most popular language in the United States. It is the language of Mexico. It is the dominant language in potential trading partners that are outside of the NAFTA system. There is no way that you can consider yourself internationally savvy in the world

• 1:00:32Speaker 03

  that we are moving into without Spanish.

• 1:00:36Patrick O'Shaughnessy?

  Well, this has been just an amazing, I love those closing two pieces of advice for people out there. I think both make a ton of sense. My closing question for you would be, anything else that we haven't discussed that you're watching carefully, whether that be something that's an exciting potential future possibility, or maybe even something that might be a large risk?

• 1:00:53Speaker 03

  I hate to bring it back to something we've already discussed, but coronavirus. The degree of fear and concern, legitimate fear and concern, over the role of China and various manufacturing supply chains, has really been highlighted by the virus. I mentioned earlier that this is a wonderful dress rehearsal that we should treasure. I mean, this is a wonderful opportunity, a rare opportunity. And we are finding out just how much of our systems are dependent on China. And I'm not just talking like auto parts and electronics here. I'm talking like healthcare inputs, drug inputs. We are seeing the degree of exposure throughout the entire system. Now, for the United States, as much as we've noticed, it's nothing compared to what most of the rest of the world has noticed.

• 1:01:37Speaker 03

  I mean, we have got car manufacturing facilities in places like Serbia that are shutting down because of this. I mean, who would have seen that coming? But all of this is either going to be lost or replaced. And now, after a month, I think we've got a really good idea of exactly where those vulnerabilities are. So I am watching the companies who are treating this as an opportunity. I'm looking for individuals and businesses that are looking to diversify, further diversify, their supply chain system and their supply systems away from the Chinese mainland. And then I'm looking at the countries that are doing the absolute opposite, who are treating this as just a temporary disruption and are almost pathologically

• 1:02:21Speaker 03

  refusing to admit that this is going to be a long-term problem. Probably the best example around the world of all the places that are looking to take advantage of Mexico, especially when it comes to automotive, which is an industry they're already pretty good at. And if you're looking for a company that's on the opposite side, that has just pathologically refused to consider that this might even be a minor problem, that's Apple. Every tech company in the world for the last five years has been looking for ways to loosen their dependence upon Chinese supply chains. Apple is the sole exception, and they're not even going there now.

• 1:02:54Speaker 01

  Well, fascinating closing thought. Like you said, I think the silver lining of a scary and sad situation is a lot of learning, and there's no doubt that that's happening right now. So as with our first conversation, I learned a ton in this one. I really enjoy your unique perspective, so thank you for your time.

• 1:03:09Speaker 03

  My pleasure. You have a great day.

• 1:03:13Speaker 01

  Hey, everyone. Patrick here again. To find more episodes of Invest Like the Best, go to investorfieldguide.com/podcast. If you're a book lover, you can also sign up for my book club at investorfieldguide.com/bookclub. After you sign up, you'll receive a full investor curriculum right away, and then three to four suggestions of new books every month. You can also follow me on Twitter, at Patrick underscore Oshag, O-S-H-A-G. If you enjoy the show, please leave a quick review for us on iTunes, which will help more people discover Invest Like the Best. Thanks so much for listening.