"It Happened Before, It Will Happen Again" - Chamath's Last WARNING

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we're not at the even in the beginning we're at the beginning of the beginning we are now teetering towards the recession what's interesting to note is that it's not always been the case that the price of energy has risen by 50 in a recession but it is always the case that when energy prices spike by fifty percent we enter a recession chamath palihapatiya recently expressed several strong opinions about the russia ukraine war chimath is a billionaire venture capitalist famous for his early role in facebook where he helped bring the platform grow to nearly 1 billion users by the time he left he believes the war is different from conventional war and its impact on investors pension funds and cryptocurrencies will be immense this video will go into detail on how this war will drastically affect the economic outlook for investors worldwide economic sanctions are the withdrawal of conventional trade and financial partnerships between two bodies sanctions can be broad such as the long-standing u.s trade embargo against cuba or they can be specific outlawing transactions with specific businesses groups or individuals this can include trade restrictions travel bans asset freezes and arms embargoes since the 911 terrorist attacks targeted sanctions have been used more widely across the world over the past couple of weeks the us unveiled a sanctions package aimed at russia's central bank the european union also followed suit these sanctions will prevent russia's central bank from converting 643 billion dollars worth of assets that are held in u.s dollars and euros into their national currency rubles the measure also prevents russia from accessing the national wealth fund which is its emergency sovereign wealth fund furthermore the u.s and the eu have announced that all russian banks except for energy related ones will be cut off from swift swift is the largest global network where international payments are initiated cutting russian banks out of swift is one of the most severe economic actions that could be taken the u.s and the eu had previously taken a cautious approach to sanction russia trade ties between russia and the eu made policymakers reluctant to impose stringent measures on russia however in this fast-moving war it now seems possible for a complete ban on swift transactions for russian banks to occur due to the severity of the sanctions imposed on russia many are concerns that putin doesn't have a way of exiting from the invasion without losing face this means that he could lash out unpredictably when he feels there are no other options because of this it may be beneficial for the us and its allies to off-ramp which gives a way for putin to de-escalate the war this is also known as a deitant which means that the west can come to an agreement with russia and end the war but first the sanctions must be implemented to force putin to de-escalate the war in chemath's opinion this would be the desired endgame hopefully in the aperture of war memories are short in the sense that you know if you ratchet these things up very aggressively now all of a sudden something from even two weeks ago seems like a much much better place to be right and so that could be an off-ramp which is like you basically find a way to take a lot of pressure off these economic sanctions in return for de taunt i mean i don't know but i'm making this up i have no idea i think there's a lot of people there's a lot of chatter that historically economic sanctions aren't enough which is why you can't draw a very clear bright line between that and military intervention as well and i've and i as i thought about it this is why i think you can actually fight an economic battle and an economic conflict without it pulling you into a military one and the reason is actually because of what's happened in the last 40 or 50 years you know you have like the the most critical infrastructure in the world i think is the financial infrastructure whether we like it or not right because you know energy infrastructure tends to be more localized other forms of infrastructure are localized but the one real asset that is absolutely global and universal is the financial payments infrastructure and you know what has really happened is that you can really [ __ ] a country or an entity when you blacklist them from these organizations and these networks and so this is why i actually think people underestimate the severity of of economic sanctions if done correctly measures 2 restricts russia's energy exports are currently not in place because they were concerned such sanctions would cause the eu economies to crash as a result the economic impact of the currently announced sanctions will be minimal outside of russia and western companies with exposure to russia the conflict's economic impact will be felt most painfully in ukraine and russia both of which will experience severe recessions this year the eu has and will continue to face energy supply chain and trade shocks another impact is on the already contentious global transition to renewable energy tesla's mission statement is to accelerate the world's transition to sustainable energy however due to the ukraine war elon musk fell compelled to tweet on march 5th hate to say it but we need to increase oil and gas output immediately extraordinary times demand extraordinary measures obviously this would negatively affect tesla but sustainable energy solutions simply cannot react instantaneously to make up for russia oil and gas exports elon explained his thoughts further by saying that increased oil and gas production in the short term is critical or people around the world will be placed under great duress this is not a question of money it is a question of having enough energy to power civilization this is a surprising but logical statement that illustrates how russia's invasion will have knock-on effects for the global economy and will dominate the discussion on energy solutions the ceo of exxon recently told cnbc that if there is a significant supply disruption with respect to russian crude that will be very difficult for the market to make up and therefore that will lead to i think significantly higher prices in the longer term however cathy would have continued to maintain that innovation is the answer to such issues in a recent cnbc interview she discussed a certain some commodity prices like oil due to the ongoing war in ukraine this will inevitably lead to a lot of demand destruction and substitution into innovation including the transition to electric vehicles however while the west is still participating in this economic war let's not forget that ukraine is still fighting a bloody military war against russia ukraine's residential areas have been subject to russian airstrikes missiles and heavy artillery which has caused hundreds of deaths and many more wounded over one and a half million refugees have been fleeing their homes to poland hungary and other european countries putin has also alarmed the rest of the world with a dangerous threat suggesting that he is prepared to go to nuclear war against the west if we were to intervene with direct military support in ukraine specifically he said that his actions would cause his consequences never experienced before in your history this is a menacing reminder of the cuban missile crisis in 1962 between the us and the soviet union chamath discussed the positive effects of war on the crypto market in the us dollar he stated that conventional wisdom is that the war in ukraine is the crypto boom we've all been waiting for and that the us dollar is on its last legs but in reality bitcoin and the us dollar are both winning right now when bitcoin falls other cryptos fall more when u.s assets fall other non-us denominated assets and currencies get smoked bitcoin initially surged after the invasion but by the time of chamath's tweet it returns to pre-invasion levels and is continuing to tank even more chamath is referring to the power of the us dollar when talking about u.s denominated assets foreign

exchange reserves are made up of foreign currency cash and government bonds that have interest payments these interest payments come in the form of the respective foreign currency us government bonds for example pay interest in u.s dollars whereas european government bonds pay interest in euros about 62 percent of all foreign exchange reserves worldwide are held in u.s dollars the us dollar is the world's reserve currency which means that it accounts for the vast majority of international transactions even when the us is not a party to the transaction the u.s dollar is used in the vast majority of international transactions the majority of commodity markets also use the us dollar because the us government is known to back the dollar it is globally known as the reserve currency and is relatively stable and trading partners usually don't have to worry about the value of their payments fluctuating dramatically holders of u.s government bonds also take on little to no risk of the us government defaulting on bond interest payments to put this into context almost 58 of all international bank loans are made in u.s

dollars that is definitely not the case with russia's national currency since the ukraine war the ruble plummeted 41 in 11 days that is why there is a flight to safety of us dollar denominated assets or assets priced in u.s dollars we can see this in the increasing level of the dxy index which is also known as the dixie the dixie is a measure of the dollar against a basket of six other international reserve currencies the index has surged to its highest level for nearly two years in a matter of days developing the skills to invest successfully is difficult without the proper resources that's why i've partnered with skillshare an online learning community with thousands of classes for anyone who wants to invest in their own personal growth i've recently been taking a skillshare class on creative identity which i find incredibly interesting the instructor has taught me a vast array of skills on how to become more creative skillshare's diverse platform of courses is perfect for anyone who is interested in learning with courses ranging from using digital editing tools to freelance to an entrepreneurship course taught by marcus brownlee the first 1000 users to click the link in the description will get a one month free trial of skillshare thank you to skillshare for sponsoring this video and now let's get back into the current economic landscape phd macro economist and crypto market analyst tasha from tasha labs explained how the impact of the war on crypto and us dollar assets is more complicated than simply bullish or bearish the thread contains seven key points that ultimately come to the conclusion that the crypto markets will continue to be volatile on the downside going forward however the ukraine war will turn out to be a significant and net positive event for the adoption and market growth of crypto in the long run if the war induces a recession within the next year she believes that would actually be bullish for crypto and growth stocks this is because of the likely need for a change in policy at the federal reserve to enact a more accommodative monetary path the fed is currently signaling that multiple interest rate hikes will occur beginning this month if they need to change paths due to the economic effects of the war then perhaps these policies will reverse chamath believes that the likelihood of a recession in the u.s is increasing but before we get into that we have to analyze the impact of ukraine's war on the global economy the ukraine war will affect the global economy in three main ways financial sanctions commodity prices and supply chain disruptions there is a concern among investors about the effects of the world in its aftermath particularly under pension investments however investing in an emerging economy like russia was already a small part of the market and it's now become much smaller pension funds are well diversified and will likely have little to no direct exposure to russian companies only two percent of the msci emerging markets fund is in russian stocks when asked about the potential loss and value of pension funds with european and u.s investors chamath stated that he doesn't see the loss in the market valley of russian companies as an issue he dismissed the concern by saying that it's a red herring meaning that it's simply a distraction the reason it's a red herring is that the global total market cap of all of these businesses is meaningfully different than the amount of total capex that these guys represent and inasmuch as you are going to take the equity values of certain of these companies to zero it's in the grand scheme of things not that much equity value in the last two years we learned what governments are willing to do when you have supply shots and demand shocks and what they do is they turn on the money printer and they create enormous amounts of stimulus okay and what we have now is a point where if these shocks are really really really meaningful globally i think you're going to see the federal reserve and the ecb and the bank of canada and the bank of japan step in in a very coordinated way to provide liquidity to these markets and i think what that has the byproduct of doing is blunting the economic consequences to everybody but the person who is sanctioned do you think that's inflationary as well no many large western companies with russian subsidiaries have been quick to state their intention to sell off bp shell and exxon mobil have offloaded their russian energy investments which have likely been at rock bottom prices to a select group of buyers investors with exposure to individual stocks with significant russian exposure have seen a recent crash in their stock prices for certain companies the fire sale of the russian assets will lead to large losses in the short term that could cause a further crash in stock prices ray dalio the cio of bridgewater associates has two main geopolitical concerns about the ukraine war these concerns could equate to large losses for investors and increase the likelihood of stock market crashes his first concern is the possibility of an economic war between russia and the west deteriorating into a military war he is also worried about how china will respond given the support they have shown to russia as they recently reaffirmed their friendship dalio believes that there is a possibility of a regime change putin could be forced out of office as a direct result of the heavy sanctions that the west is imposing on russia although it might seem unlikely such conflict could stem from the economic pain felt by ordinary russians and the potential for them to rise up against putin as mentioned earlier putin is hinting at the possibility of nuclear war rey dalio has observed that this could be a response by putin in order to give the west a reason to stop all support to ukraine many countries that are usually neutral have supported ukraine this includes germany sending missiles to the ukraine army in switzerland breaking its neutral status to match the european union in sanctioned russia the second major unknown is the level of support china gives to russia to help them while they are enduring heavy sanctions earlier in this video we discussed how russia has been cut off from parts of the swift payment system it is possible that china could provide an alternative pathway for russia to conduct international trade while dalio thinks this is unlikely it raises the possibility of a hot war that is escalating from an economic war to a military war i actually think we are at war but it's the most positive form of it in the sense that we are learning a different kind of warfare now if you think about how we used to fight up until basically the persian gulf war it was armaments and tanks and then that evolved in the middle east because we had to fight insurgents and you know urban terrorism in many ways right i think this is a way in which we are learning that there's a different kind of warfare as well which is fundamentally economic and so you know it may not take the same shape as drones and missiles and fire and guns and bullets but i think you would be foolish to make the mistake that we are now not at economic war with russia and at the end of the day the outcome is the same which is either they survive or they don't survive and everything we've done points to that we are willing to fight um and we are willing to put a lot of economic collateral um and chips on the field in order to win this battle so i think in that respect we are kind of at war there's no amount of money that you can actually put on human life and so if we can avoid a military war i just think that there's just there's there's no red line on cost there and so if we end up running massive deficits and now we're at you know 150 250 300 of gdp uh i think that you know morally that's that is the right thing to do dalio has observed from his historical analysis that military wars are typically preceded by economic wars although dalio believes a hot war is unlikely any time soon the likelihood is still high enough for him to want to protect himself financially against the possibility he supports the old adage that it pays to buy gold and silver and sell debt in times of crisis because wars require more money printing which causes inflation there's another more concerning reason to consider increasing your portfolio exposure to precious metals dalio conducted some research covering the impact of hot wars during world war ii stock market closures were common in a number of countries leaving stock investors unable to access their funds money and credit were not widely accepted between non-allied countries during the war due to legitimate concerns about the currency's value dalio explained how because losing wars typically leads to a total wipeout of wealth and power movements of those stock markets that remained open in the war years were largely driven by how countries did in key battles as these results shifted the probability of victory or defeat for each side because the west is limiting the global impacts of sanctions it is anticipated that the most serious effect of the war will be higher commodity prices commodity prices may rise as a result of three factors supply concerns physical infrastructure destruction and sanctions although the eu and u.s haven't imposed a ban on russian oil prices for oil gas base metals and grains have risen rapidly inflation for february rose 7.9 year over year which is the highest rate since the early 1980s this is due to higher energy costs that are getting even worse from the ukraine conflict in the upcoming federal reserve meeting the fed expects to stick to their plan of a 0.25 interest rate raise such an

increase is still relatively low and could lead to high inflation and unemployment at the same time also known as stagflation raising interest rates slows down inflation but in doing so it hampers growth due to decreased business investment while chamath dismisses the concept of stagflation he does acknowledge that we are on the edge of a recession we are now teetering towards a recession nick you should throw this thing that i sent to you guys before if you look back over the last 30 or 40 or 50 years and you look at every single period of when there has been a recession what's interesting to note is that it's not always been the case that the price of energy has risen by 50 percent in a recession but it is always the case that when energy prices spike by 50 we enter a recession we will contract as an economy the government will have to become more accommodating that is the price of this economic war that we have started and i think it's a just price because what's happening is not supportable i think what's going to happen is we are going to find a way to subsidize those prices coming down and i think the simplest way to do it is for the government to step in and become a buffer and it will drive massive deficits it'll drive increasing amounts of debt but i think that is a simple way for us to make sure we put and ratchet the pressure and just to speak on this other point we have only just begun meaning just today as we started the pod uh biden came out with an incremental new set of sanctions on russian crude so we're not at the even in the beginning we're at the beginning of the beginning even though chamoth believes we're in a tight situation he does see a solution to our problems let's just say that you know between the boj bank of canada ecb and the federal reserve we all just collectively printed 5 trillion dollars you can absorb many many years of russia's export loss now it does have some gnarly implications you know you probably have to work more closely for example with iran you have to get an iran nuclear deal done why so that we can get access to their oil right so it blunts the loss of the of the russian reserves as an example russia has been caught off guard by the resilience of european leaders in the us we are at economic war with one of the world's largest superpowers although russia is facing the largest economic pain there's definitely going to be an economic cost to the west as well there's certainly a lot of unpredictability ahead and putin has demonstrated that he is willing to cause a war to make his point about ukraine let me know what you think of the economic effects of the ukraine war do you agree with chamath's stance if you enjoyed this video please hit the like button and subscribe and i'll see you in the next one

2022-03-27 21:17

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