Navigating Geopolitical Turmoil: Protecting Your Wealth

Posted by Gavin Chau

First, I’d like to welcome you all back from the holidays. I hope you all had a good rest. It’s 11:05 a.m. in Sydney, Australia, as I’m writing this. I’m still a little jetlagged after traveling to Harbin (500 km northeast of Vladivostok) and Shanghai, and I’m glad to be back home again.

Every year, I want to go on holiday near the ocean where I can’t see another person for miles (the opposite of China!). Yet, this was a very interesting trip from an academic perspective. In Harbin, where my wife Tina was born, the temperature got as low as -28C, and every time you opened the door to step outside, it became a survival situation. It is at the same latitude as Volgograd (formerly Stalingrad). It became easy to see how the Russian scorched earth policy (destroying their own buildings and infrastructure as they retreated from the German advance) during the Battle of Stalingrad in WWII on the 22nd of June 1941 was so effective. The Russians weaponized the environment. Interestingly, this is also roughly the same latitude as Ukraine, where the Russian military has begun knocking out the energy infrastructure today, just as they enter the northern winter.

2000 km south in Shanghai, I was fascinated to see how much had changed compared to when I was there 27 years ago. Back then, the city looked like something from a Charles Dickens novel, with literally every surface covered in a thin grey film of dust. The skies were perpetually grey from the air pollution pumped out of the coal-fired factories, and during dawn and dusk, they turned a beautiful fiery red, just like when we have bushfires at home.

The skies were blue this time, and the city was a strange mix between the ultra-modern and the old. There are now trees everywhere, and it has arguably become the most modern city in the world. On the roads, 60% of the cars are electric. Between my visits, China accounted for 25% of the world’s increase in leaf area. Equivalent to filling an area around 60% of the size of Victoria with trees. They also seem to have solved the autonomous vehicle problem before Tesla with driverless robotaxis moving freely around the city since 2021. There were no homeless people, and there was a conspicuous absence of a single piece of litter anywhere. No crime or graffiti existed, even in the suburbs far from the CBD.

Observing San Francisco over the same period made this change especially interesting. There are now homeless people on literally every single block, increased litter, people defecating on the streets, and graffiti. Many people obviously have mental health and drug addiction problems to the point where my friends living in the expensive Bay Area are worried about their children picking up fentanyl patches in the playgrounds. The city has been in a rapid state of decline, and every Australian I know living there talks about returning home.

What was easily observable is a clear reflection of the current macro drivers of the geopolitical landscape. On the one hand, we have the decline of America, the current hegemonic power; on the other, we can see a new one struggling to rise. These are fascinating turning points in history that have happened once every 100 years for the last 800 years. The tragedy is that nobody seems to study economic history. Each of these turning points has been marked by a great war and rapid currency devaluation as the hegemonic power loses the reserve currency status that it relied on to come to power. If history is any indication, this also has profound implications on how we should position ourselves financially to take advantage of these changes.

In Australia, we are blessed to be situated on a massive island continent with vast resources in the middle of nowhere, yet we are not immune to the games the elites play. In the past, we were a vassal state to the British Empire, and as it declined after the Bretton Woods Agreement post-WW2, we effectively became a vassal state of the US Empire. The loss of the reserve currency status of the Pound Stirling around 1945 not only saw inflation spike in Britain but also in its vassals like Australia, with inflation rising from 0% in 1945 to 25% by 1952.

This is like watching someone take 25% of your cash away in a year and 50-60% over a seven-year period. People became much poorer even if the number in their bank account didn’t fall. The only things that couldn’t get inflated away were things that were hard to produce, like property and other hard assets.

At the time, the Australian government seemed to know what was happening and issued price and rent controls on property, preventing prices from spiking. This meddling prevented the market clearing price from reaching equilibrium, and a severe lack of rental accommodation appeared. When the price and rent controls were removed, property prices snapped upwards sharply. Sydney house prices doubled in a year, and Melbourne’s house prices rose even more by 130% in 12 months.

I don’t know how long it will take to play out this time around. It could be five or ten years, but we are much closer to the end than the beginning. In any case, we need to position ourselves for it, and time is running out.

Posted by Gavin Chau, on 7th Jan 2025