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As competent opportunists bail, empire's blind zealots are in charge.
The syndrome of decaying empires has predictable consequences - beware and prepare!
On Tuesday, 16 May I posted an article here titled, “The Center Cannot Hold” about the events surrounding Ukraine, including my own encounter with a close personal friend of one of the protagonists of the events, a high level western official working in Ukraine's corner. I mentioned that this person, like German Chancellor Olaf Scholz and some other NATO and European officials (including perhaps Italy's Giorgia Meloni) aren't very convincing in declarations of their undying support for Ukraine.
That impression would be hard to articulate, but I can at least contrast it with the impressions of individuals like NATO's Secretary General Jens Stoltenberg, German Foreign Minister Analena Baerbock or Economy Minister Robert Habeck. These individuals ARE convincing, as are the EU Commission's president Ursula Von der Leyen and its chief
gardener diplomat, Josep Borrell.
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The silent conspiracy is real
Perhaps we could characterize the first group as opportunists but otherwise reasonably intelligent individuals with inclinations that seem pragmatic and at least somewhat constructive. The other group are blind zealots and ideologues who seem incapable of correcting course, no matter the consequences or the costs. Either way, I concluded my report as follows: “I believe that in the near future we might see an abrupt change in Ukraine, perhaps a coup against the Zelensky regime and a capitulation of Ukraine’s military.”
In testimony to the surreal speed with which the events are unfolding, this conclusion got its corroboration less than 24 hours later: according to Seymour Hersh, a group of European countries led by Poland and including Hungary, Lithuania, Estonia, Czechoslovakia and Latvia, are secretly urging Zelensky to end the war even at the price of his resignation. In other words, Zelensky's government has lost support of some of their staunchest allies.
President Zelensky, who is now apparently very anxious about his future and his physical safety, could be receptive to these messages and might agree to resign if he receives credible security guarantees. Meanwhile, China has already nominated their peace envoy to Ukraine who will certainly turn up with deals that Ukraine will not be able to refuse. The circle of people who will remain fully committed to the west's project "destroy Russia" in Ukraine is shrinking dramatically.
Recall, already in January this year, the infighting among Ukraine's leading officials resulted in the downing of a helicopter, killing several top security and Interior Ministry officials. Since then, a number of high level government officials have been replaced, but Zelensky is clearly still worried about the traitors in his own ranks. The empire's agenda in Ukraine has now obviously failed and all those reasonably competent opportunists are ready to jump ship, surrendering the field to ideologues and blind zealots: not the good bunch to bet on.
Economic and financial impact to the rules-based order
Again, one of the relevant questions of this story is how it will impact the rules-based global order? I believe the hardest blow will be economic and it will manifest first in financial markets. British and European central banks will have to ramp up quantitative easing (newspeak for printing money out of thin air). The Fed will have to follow, but it will probably do so after a long delay. The results will be further collapse of the bond markets and a rise in interest rates, with rekindling of bullish trends in European equity markets and in global commodity markets, probably led by energy markets and followed by industrial metals and agricultural commodities. Read: economic recession with inflation, or stagflation.
In 2021, I made a similar prediction about the British securities in my 27 Oct. 2021 article, "The Fall of Global Britain: an Investment Hypothesis" I predicted that the pound and the Gilt would collapse and that the FTSE would probably rise. Here's what happened over the next 12 months:
The Gilt declined as much as 27% during that period and the pound some 22% (at trough). The FTSE did not rise much, but it clearly did buck the trend and continued to rise, reaching the new all-time high last month (April 2023). These developments clearly corroborate the idea that we're observing the monetary unravelling of a declining empire: its debt and currencies are progressively losing value and investors have little choice but to stampede into real assets, boosting equity prices. We should expect more of the same across the western world. Zelensky's ouster, whether by resignation or by coup, will probably catalyze the process.
It’s not complicated, but it will get bumpy
The syndrome is not complicated to understand, but it is not necessarily easy to navigate: the markets don't begin to move the day we become aware of some new fact. Instead, they start to move at some point when the critical mass of participants begins to take action. The transition will be invisible to fundamentals' analysts, but they'll become discernible in the price trajectories of relevant securities. This is why I strongly believe that the most reliable way to navigate the changes will be through systematic trend following.
Watch your bank accounts!
I’ve frequently underscored the idea (an empirical fact, really) that the best way to protect your wealth from the inflationary or stagflationary fallout is by exposure to commodity futures. A comprehensive approach should include trying to acquire some farmland (if possible), some gold and silver bullion and to use your liquid investable assets to gain meaningful exposure to commodity futures. But beyond this, I think cash could become an issue.
Namely, over the past week I’ve encountered two individuals who told me the same story: they had bank accounts with German banks and without any warning, their accounts got frozen. No reason was given and no remedy seems available - they can’t even reach anyone at the banks. I had a different but similar experience. After trying to withdraw some cash from an ATM, the ATM swallowed my card and did not give me the requested cash. Nevertheless, my account was debited for the amount.
The process of recovering the cash has already proven very difficult and frustrating. The bank’s customer support is all kindness and politeness, but the promised 15-day period to remedy the problem came and went and the money wasn’t reimbursed. Now it’s back to jumping hoops: this time the estimated time to resolve the problem is 50 days, but it may take longer… Barely 18 months ago Amazon cancelled my account and appropriated between 4,000 and 6,000 euros in royalties they owed me. Of course, if I could spend half a million dollars in legal fees and chase these royalties for the next 10 years or so, I’d probably be able to get all that back, but the system is clearly stacked against the ordinary person and rife for abuse.
Long story short: avoid holding large balances with multinational banks and other corporations that are either out of reach of your local law enforcement or too onerous to use. These outfits attract a very large clientele to themselves with very competitive and very convenient services, but once their fishing nets are full, they’ll be in position to abuse their customers’ trust: and they probably will.
Alex Krainer – @NakedHedgie is the creator of I-System Trend Following and publisher of daily TrendCompass reports which cover over 200 financial and commodities markets. One-month test drive is always free of charge, no jumping through hoops to cancel. To start your trial subscription, drop us an email at TrendCompass@ISystem-TF.com
For US investors, we propose a trend-driven inflation/recession resilient portfolio covering a basket of 30+ financial and commodities markets. For more information, you can drop me a comment or an email to email@example.com