At Beaufort’s live event in London back in February, I suggested that we are living through an historic inflection point triggered by Joe Biden’s weaponization of the dollar and the Swift payments system as a response to Russia’s invasion of Ukraine.

Since then, events are moving faster than even I would have thought possible. This includes pariah states being welcomed back into the fold in the name of geopolitical expediency.  Recently, Foreign ministers from Arab League member states agreed to reinstate Syria’s membership after its suspension more than 10 years ago.

Syria was thrown out of the Arab League back in March 2011 when that lovely man Bashar al-Assad ordered a crackdown on protesters that triggered a civil war. It’s thought that nearly 500,000 people died in that war and more than 20 million became displaced refugees. It seems that Jordan has taken the lead in this process of reconciliation, while Egypt, Iraq and Saudi Arabia were at the meeting so we must assume they approve of Syria’s rehabilitation.

This is just the latest step in the firming up of relationships and the burying of old hatchets, with China having persuaded Iran and Saudi Arabia to kiss and make up despite backing opposing sides in the Syria conflict. They’ve now restored their embassies as well as allowing flights to land in each other’s countries. Meanwhile Iran’s President Raisi recently went to Damascus to sign long term trade and oil deals. Not every Arab state is comfortable with Syria’s re-admittance to the Arab League and America remains unequivocal – Assad heads up a rogue state that should not be allowed to sweep its treatment of the Syrian people under the carpet.

Perhaps the underlying sentiment behind this surge of camaraderie in the Middle East is the same as is fuelling the rapid development of co-operation between the BRICS countries. Brazil, Russia, India, China and South Africa now have their own Development Bank to fund infrastructure projects while they are also creating independent financial plumbing to reduce their dependency on Washington. The scale of the threat to world harmony was recognised by the head of the European Central Bank, Christine Lagarde, in a recent speech in New York. There’s a whole industry of analysts that’s grown up to interpret the words of Central Bank governors so let me add my amateur attempts to the debate. I’ll give a series of quotes from her speech then add my translation into normal speak.

Following the pandemic, Russia’s unjustified war against Ukraine, the weaponisation of energy, the sudden acceleration of inflation, as well as a growing rivalry between the United States and China, the tectonic plates of geopolitics are shifting faster.”

No mention of the direct link between biblical central bank money printing during the pandemic and the oh-so-predictable inflation that it triggered. While it’s true that energy was weaponised, it was only the myopic energy policies of successive European governments that gave Russia the ability to reek such harm. That Germany still insists on shutting down its nuclear power stations shows the extent to which the lunatics now run the asylum.

We are witnessing a fragmentation of the global economy into competing blocs, with each bloc trying to pull as much of the rest of the world closer to its respective strategic interests and shared values. And this fragmentation may well coalesce around two blocs led respectively by the two largest economies in the world.”

No shit Sherlock!  This is the real issue – the world is splitting into two halves and countries are being invited to choose sides – between Eastern authoritarian communism led by China and Western authoritarian Marxism led by the World Economic Forum. For those of you with an interest in history, these WEF countries used to be called Western democracies. In the old days, a political party would be elected on a manifesto and would then implement the policies the electorate had voted for. What happens now is that all elected governments implement the policies they are told to by unelected elites, rebel technocrats and disruptive civil servants.

“We could see two profound effects on the policy environment for central banks: first, we may see more instability as global supply elasticity wanes; and second, we could see more multipolarity as geopolitical tensions continue to mount.”

This is where we get into the real nitty gritty. The waning of ‘global supply inelasticity’ means the end of cheap Chinese imports produced by slave labour. It means the West has to rebuild its manufacturing capability at huge cost with massive inflationary effects on prices. ‘Multipolarity’ means the cosy globalism of the last forty years is under threat as China flexes its muscles and the Middle East, Asia and South America drift away from historic ties to the West.

“Recent events have laid bare the extent to which critical supplies depend on stable global conditions. That has been most visible in the European energy crisis, but it extends to other critical supplies as well. Today the United States is completely dependent on imports for at least 14 critical minerals. And Europe depends on China for 98% of its rare earth supply”

This is where the whole Net Zero narrative collapses. We are growing strategically apart from the only source of the key raw materials needed for the energy transition. Would someone like to explain this to the Just Stop Oil protesters? Investment in fossil fuel exploration has all but dried up under the woke weight of ESG. The inevitable consequence is that every Western country will turn into South Africa by the end of this decade, with Russia being blamed for ten hours a day of ‘load balancing’, otherwise known as power cuts. No minerals means no batteries which means no Teslas. Lagarde mentions that 45% of companies now plan to regionalise their global supply chains, in other words lots of reshoring and friend-shoring.  Yet central bankers tell us inflation will neatly head back to their 2% target in the middle of all this de-globalisation? She confirms a study of data since 1900 proving that, as geopolitical risks increase, they cause high inflation an reduced international trade.  One consequence of what she calls this new multipolarity is a move away from the dollar as the worlds reserve currency and the euro as the second most used currency.

“Recent research indicates there is a significant correlation between a country’s trade with China and its holdings of renminbi as reserves. New trade patterns may also lead to new alliances. One study finds that alliances can increase the share of a currency in the partner’s reserve holdings by roughly 30 percentage points. Anecdotal evidence, including official statements, suggests that some countries intend to increase their use of alternatives to major traditional currencies for invoicing international trade, such as the Chinese renminbi or the Indian rupee. We are also seeing increased accumulation of gold as an alternative reserve asset, possibly driven by countries with closer geopolitical ties to China and Russia. There are also attempts to create alternatives to SWIFT. Since 2014, Russia has developed such a system for domestic and cross-border use, with over 50 banks across a dozen countries using it last year. And since 2015 China has established its own system to clear payments in renminbi.”

She confirms that at least 40% of US treasuries are held by countries that do not have strong ties with the United States, many of them the producers of commodities on which the West depends. They are developing their own payment systems using their own currencies with the deliberate goal of reducing dependency on the dollar. Lagarde’s solution, inevitably, is for a centralised approach whereby all Western aligned central banks adopt identical policies to counter the threat from the east. That includes accelerating the dreaded Central Bank Digital Currencies which will bring a level of control that would give Klaus Schwab a wet dream.

But what do these developments mean for us as investors? In my talk, I also mentioned that we have never gone eighty years without a major war for at least half a millennium. The word multipolarity sounds like banker speak for a high risk of conflict, while the talk about supply chains makes me think that there are going to be some major opportunities in the commodities sector as scarcity forces prices to escalate. It also begs the question, do you want all your assets in a country that will take increasingly draconian steps to maintain its power in a rapidly changing world? It may not yet be time to flee, but it’s definitely time for some genuine global diversification.