- The recent round of tariffs on Chinese imports will hit the Chinese economy hard. The repercussions of this will not be favorable for anyone.
- Volatility has skyrocketed amidst the backdrop of increasing geopolitical tensions worldwide.
- The march toward US invasions of Iran and Venezuela signals a potential surge in geopolitical risks in 2019.
The Impact of Tariffs on China’s Economy
To begin, one of the biggest geopolitical risks in 2019 involves the latest round of US-China trade tariffs. The tariffs on $200 billion worth of Chinese goods have now reached 25%.
The tariffs on imported Chinese goods have already created a significant drag on Chinese GDP – the second largest economy in the world.
The IMF estimates that Chinese GDP will decline by as much as 1.6% in 2019 as a result of the new tariffs. Singapore just cut their 2019 GDP forecast as first-quarter growth hit a decade low of just 1.2%.
Now it appears that trade talks have collapsed. Zerohedge covered the developing disaster on May 17th:
After the Commerce Department formally added Huawei to the blacklist, the Chinese media and Chinese officials turned up the rhetoric, warning that there are no plans for another round of talks. Markets didn’t take this well: Chinese stocks plunged 2.5% overnight on Friday – a big drop, though still not as bad as the 3% decline from last Monday, the market’s worst day in three years. European shares didn’t fare much better…
Zerohedge (emphasis added)
In addition, Charlene Chu, a senior analyst at Autonomous Research predicts a dramatic impact on global markets. As a result of the tariffs, the Chinese Yuan is losing value, which will set off a chain reaction of bearish events.
Business Insider reports:
“If the yuan crosses through 7, 7.2, 7.4 [per dollar]… believe that global markets will start freaking out,” she warned. “Asian currencies will start moving, global equities will be tanking, bond yields will spike, the whole world will feel this.”
Business Insider
Sounds like a bullish scenario for gold and bitcoin, being non-correlated with bonds and equities. While they could be hit initially in a rush to liquidity, we believe that capital seeking alpha will flow rapidly into these assets classes.
Even now, before this has played out, volatility is spiking again.
Volatility reaches 3-month highs
Even though US stocks have mostly been trading sideways, the VIX has jumped dramatically. Geopolitical risk 2019 is a big factor, and markets have yet to price in the full extent of these risks in my opinion.
After the chaos of Q4 2018, it appeared as though we had entered a period of relative calm and continued melt-up in stocks. Now that brief moment of stability has begun to give way to yet another bout of volatility.
Historically, there has been a pattern when it comes to wars. Things typically develop like this:
- Trade wars > Currency wars > Hot wars
When trade wars happen, currencies come into play. And at some point, as a result of clashing trade and currency devaluation, real wars or “hot wars” tend to happen.
Let’s hope it doesn’t come to that, but the possibility can’t be ruled out. This is especially true after Trump appointed known war-hawk and Iraq war architect John Bolton to Assistant to the President for National Security Affairs (NSA). I’m not sure how Trump can claim to be draining the swamp. John Bolton is the swamp.
Geopolitical Risks in 2019: Pending US Invasions of Oil-Rich Nations
All of this is happening against the backdrop of potential US invasion of both Venezuela and Iran. Both countries are moving away from the USD and Iran is one of three countries left on Earth without a central bank.
The Petro poses a threat to USD hegemony as no one needs the world’s reserve currency to trade for oil anymore.
Countries can, in theory, use their own currencies to buy Petro and then trade with each other directly without any intermediary. Venezuela is already negotiating with Russia to trade using the Petro, as stated by Jorge Valero, Venezuela’s representative to the United Nations.
If history is any guide, Venezuela signed her death certificate the day she gave birth to the Petro cryptocurrency.
In addition, Venezuela is one of the most oil-rich countries on the planet. The US has every incentive imaginable to take over, as they have already been attempting to do by using Juan Guaido to institute failed military coup after failed military coup.
And it appears a similar thing is starting to happen in Iran, only even more threatening.
Iran: the Next Iraq?
Iran is also very oil-rich, second only to Venezuela and Saudi Arabia. Noticing a pattern yet?
Last week, the US ordered the evacuation of US diplomats in Iran due to an imminent, undisclosed threat. So far, nothing has materialized, but for how long?
The President’s rhetoric has gone nuclear with regard to Iran:
US National Security Advisor John Bolton has stated on the record that he intends to “celebrate in Tehran” before 2019, referring to overthrowing the current Iranian government. Is he just a little behind schedule?
It’s a sad state of events as far as world history and peace are concerned. While we can hope for the best, investors would be wise to start hedging their portfolios in the face of this growing geopolitical risk.
Bullish for Bitcoin, Gold, and Mining Stocks
The case for gold, cryptocurrency, and mining stocks continue to grow stronger amidst geopolitical risk 2019.
The potentially destabilizing nature of current events means that investors will seek refuge in safe havens. Indeed, this has already begun.
When it comes to crypto, the consensus is that BTC does function as a safe haven, even though many skeptics still dispute this. Even mainstream outlets like CNBC are beginning to call BTC a risk-off asset.
While stocks and bonds are a part of any astute investors portfolio, they face uncertainty in the midst of geopolitical risk in 2019. Crypto and gold provide diversification. They are non-correlated with the rest of the financial world.
Gold is approximately a $7 trillion market, while cryptocurrencies are well over $100 billion and growing. Being invested in these sectors provides a cushion against declines in other asset classes.
In addition, there is an asymmetric upside in Bitcoin, gold, and gold mining stocks. In other words, the potential reward far outweighs the risks involved. With Bitcoin, it is entering the very bullish halving cycle that occurs every four years. CNBC showed the following chart to their viewers today, which demonstrates how the price of BTC trends leading up to halving events.
The next Bitcoin halving occurs in May of 2020, now less than a year away. When this happens, the inflation rate of Bitcoin will be cut from 3.8% to 1.8%, dropping well below official inflation statistics for the U.S. dollar. Of course, real inflation rates are running well above what the government claims, as they conveniently leave out some of the fastest-inflating products and services.
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