Newsletter - 2024 Predictions and Results

Results: What follows are predictions made in January 2024 in their entirety. I have added comments written in December 2024 based on how they played out. Each new comments starts with a bolded Results heading. Overall, 2024 was a year that seems to tee up future complexities. Comparison years do not give me comfort; they include 1928 (bubble), 1856 (geopolitical complexities) and 1912 (combination of Teddy Roosevelt impact and lack of foresight to see WWI around the corner).

My name is Max Rudolph. My interests are the interplay of economics with enterprise risk management, emerging risks and investing. Much of my work is related to extending my knowledge through research projects and general reading. Topics include climate change, retirement planning and competing pressures on mortality. I am a private investor focused on individual stock selection and value investing techniques, challenged for over 10 years by the massive subsidization government has provided to the markets. I am also transitioning from aggregation to withdrawal of investments so my focus will naturally start to think about how best to create cash flow with constraints like taxation and Medicare income limits.

?My training includes math and business degrees from Michigan Tech, credentials from the Society of Actuaries and CFA Institute and worked initially in the life insurance industry. I live in Omaha so have followed Warren Buffett and Charlie Munger for over 40 years. I believe you can manage risk and return within a growing economic pie, that win-win with customers is attainable and should be the goal. I look at risk more than most, especially leverage, and try very hard not to chase yield. I am an adjunct professor teaching an online MBA elective course on ERM at Creighton University and contribute to a podcast and other CE under the Crossing Thin Ice banner for Actuarial Risk Management.

?I have a history of anticipating material risks long before they appear. In 1999 it was an essay worrying about falling interest rates. In 2004 I first wrote about pandemics and their likely shocks to the economy. In 2005 I expressed concern about RMBS securities and deferred annuities. In 2015 I wrote a paper about interest rate scenarios (both directions), in 2019 I wrote about low economic growth scenarios and in 2023 I wrote about deteriorating demographics. I’m currently looking at regime changes, climate change, and concerns about rules-based regulation and conflicts of interest in the insurance industry.

?Each January I post predictions, but they are not predictions in the classic sense. Treat them more like scenarios that you would use to build resilience. Late in the year I publicly review results and post them on LinkedIn.

Disclosure - please remember that these predictions are for fun and to encourage deeper thinking across topics, their interactions and long time horizons. If I really knew what was going to happen, I would not share that information with you! My writing is meant to be educational in nature and does not constitute investment advice. You must make your own personal investment and risk decisions, considering your unique financial circumstances, and not hold others (especially me) responsible for your own financial planning or lack thereof. If you don’t accept these conditions, you should stop reading now. Keep in mind that this is NOT investment advice. For those still with me, Enjoy!

Predictions for events tied to 2024

You can find these topics throughout this essay, but here are my top concerns.

• High debt to GDP levels
• Liquidity – when passive investors are selling who will buy?
• Spillover diseases like H5N1 and Marburg
• Climate change and our lack of willingness to learn and deal with it

?In about a year we expect a presidential inauguration in the US. When the story is if, and whether there will be violence associated with the election itself, it shows how challenged our democracy is today. ?

?I see a lot of similarities today with the late 1930s, when isolationists Father Coughlin and Charles Lindbergh were popular among a large group of voters until Pearl Harbor changed the tone of the nation. A friend once told me of a poignant scene at the end of the Band of Brothers series, where a lady who had been so proud of the German war effort finally realized what had happened to the people who were taken away. Let’s not be that woman. The Republicans hold the House and the Democrats the Senate, both with slim margins, and Joe Biden is in the White House. Will Biden and Trump both survive to the election? Will Trump be allowed on the ballot? Will any adults appear? My expectation is that something unexpected will occur and that control of the House and Senate will swap. Part of the Supreme Court is trying to stay relevant and the rest are politically motivated and could hurt the Republicans pre-election. A blowout for the Democrats is possible.

?Results: while not receiving a majority of votes, Trump will return as President with slim control of each branch of Congress. Biden dropped out, without dying, and targeted violence is escalating for both political and business idealogues. Trump’s win avoided the initial violence but threats seem to be the political capital today.

?The pandemic remains more active than many want to acknowledge and long COVID is a big concern. Bad outcomes are mostly limited to the unvaccinated, which is also a problem for children and measles. Get your family vaccinated. An el Nino year will create even more extreme weather events, made worse as wars in Ukraine and Gaza spew carbon dioxide, permafrost creates a feedback loop with temperature increases, and lower pollution levels stop reflecting sunlight back out into space (unanticipated geoengineering outcomes). It gets harder all the time for renewable energy to catch up when crypto and artificial intelligence use so much electricity. I’m still not a fan of crypto currencies, and wonder about its role in Gaza. Food insecurity and energy continue to be a concern, based primarily on the Ukraine conflict.

?Results: these statements are true today. Recent climate research shows a concern about the disappearance of low clouds (reduced albedo) and a slowing of the AMOC ocean current that warms northern Europe (see CTI 12 https://www.actrisk.com/newsletter-category/quarter-4-2024/ ). Anti-vaxxers will have heavy involvement in the next administration, reminding me that in the first Trump administration one of the first things they did in 2017 was to shut down pandemic planning efforts. Interactions between climate and other risks lead to threat multipliers. We see one playing out today in Syria. Climate, food insecurity, freshwater scarcity and regional conflict are just getting started.

Inflation has fallen below 3%, quantitative tightening is underway and an increasing velocity of money makes accelerating inflation more likely in the future although disinflation remains a risk as well (test both directions). At the aggregate level the economy is much better than the pre-vaccine main street environment of early 2021.

Government spending (Modern Monetary Theory and fiscal dominance) and debt leads to a poor long term outlook, especially as defense spending, interest and payments to/for the elderly become more important. Public and corporate debt will be stressed as low rate loans roll over at higher levels over the next several years. The same low rates move value from savers to borrowers and encourages scams as savers reach for yield. Better off are those companies that avoided leverage when it looked cheap – it’s hard to get out of it later when it gets expensive during a recession or when the Fed raises rates.

One way to think of bubbles and mean reversion is to consider a pendulum, with the intrinsic value at the equilibrium position and price at the current location of the weight. The price is rarely the same as the intrinsic value. Prices overcorrect in both ways and the farther away from intrinsic value the more likely it is for the price to mean revert.

There has been much discussion recently about the proper level of the Fed’s neutral rate. I believe it must be higher to offset existing stimulus, meaning loose fiscal and monetary policy, including the Fed’s balance sheet and QE policy.

General happenings

I see many scenarios that scare me on the not-too-distant time horizons. I worry about the rule of law being overrun by those confusing politics with gun ownership. I can come up with scenarios worse than this but a Mad Max scenario is very possible, with climate interacting with social breakdown. Feedback loops are real in a complex system. Those who want to encourage a war with China should be very aware of unintended consequences. A review of Germany in the 1930s and America in the 1850s is in order.

Climate change will continue to be the most important driver of this century behind economic and geopolitical uncertainty. Having a stated strategy should be a requirement to run for public office. When the Fed restarts QE following a recession they could buy fossil fuel based equity companies to create some constraints around their actions. Attribution science provides data that moves beyond anecdotal evidence of increasing extreme weather events. Misinformation, both inadvertent and designed to confuse, is impacting elections and doubles down against the scientific method. Why does anyone think that someone who did not study any STEM subject for their whole life understands all of these risks better than someone who has. A professor could make a lot more money from the fossil fuel industry than they do in academia. Geoengineering solutions are often used to greenwash, spending more on PR than on the engineering. Some rain dances and cloud seeding have already been done – these need to be studied to see if they worked and if they created unintended consequences elsewhere. Does rain in one place take away from moisture in another? Transparency and independent review from those who have studied the subjects are needed. I am currently learning about how the oceans work and their role in climate solutions.

There are many years where I see similarities to our current situation, some for economic and others for geopolitical reasons. The ones I am concerned about similarities are a combination of the 1850s (civil war), late 1930s (war) and late 1920s (economic).

• 1938 isolationism leading up to war, 4th Turning
• 1973 nifty 50, many years of guns and butter set the table for stagflation
• 1890s gilded age, bribe politicians, railroads financial bust leaves industry (like AI?)
• 1859 prelude to civil war – scariest of the comparisons, 4th Turning
• 1929 melt-up before collapse
• 2008 asset bubbles without transparency, regulatory capture

?Results: The role of tariffs in these historical scenarios seems especially interesting to consider. I have been reading some books about the financial history of the US and see many similarities to the period leading up to the Great Depression.

?Quantitative tightening (QT) was unwound as the Silicon Valley Bank concerns of contagion spread last spring. Now it has started back up and is a cause of uncertainty, partly because we have no historical data points. Analysts are very focused on rates and little is being said about unwinding the Fed’s balance sheet. This will interact with war, demographics and climate change to create a headwind to growth.

?I always feel more comfortable with less debt than more, but in highly rated companies it’s not as big a deal as a couple of years ago. If we go into recession individuals will want to be in good position, with low debt and an emergency fund set up. I worry about relaxed loan covenants and floating rate debt that will soon reset. Anything with low credit quality, collateralized or issued by shadow banks like private equity (especially with embedded capital calls) should be avoided in asset classes. The credit cycle has not been eliminated so be conservative. Understand what you are buying. Dividend producing assets and high quality bonds and CDs make sense, but don’t be greedy. Don’t use leverage (including derivatives unless they are a true hedge). Don’t be the sucker at the table. Assets don’t pay a net of default spread of 10% unless there is risk present. If passive investment strategies beat active strategies during times of expansion, it seems likely that they will underperform during a tightening period. Expect defaults to rise, especially on new asset classes that have enjoyed a honeymoon period over the last 10 years of stimulus. High risk, high beta, poor results coming (my opinion, not investment advice).

?Regional conflicts will increase in this decade, with broader wars possible. The methods of war are evolving, with drones and satellites changing the rules. Strong, fair, leadership is key. With all the global elections in 2024 they could tip the world into war or fascism, continuing the shift to deglobalization. What if Putin, Xi, Biden or Trump die? The uncertainty would be the story. No country is in good position financially to start a war, but it only takes one to think it’s a good idea. The cost of climate change will soon escalate as feedback loops with melting permafrost will combine with greenhouses gases growing due to wars and AI energy needs.

?Results: Rather than focus on disclosures, climate activists need to manage their own use of energy and fund carbon capture research (atmosphere and water). Mining of digital currencies and use of AI are making net zero promises much less likely. Do we really need an AI response to every google search?

?Spillover diseases become more likely as population grows. Lack of belief in science and vaccines will lead to outbreaks of diseases we have already conquered, and once they are loose they will randomly evolve. I worry about diseases frozen in the melting permafrost and Marburg type diseases acquiring an ability to spread by air. These diseases could also follow a Tom Clancy scenario and be spread by bad actors.

?The political climate in the US and abroad continues to be at a crossroads. I hope Churchill was right that we will do the right thing after exhausting all the other options. The House is clueless about governing and it will be easy to vote against my own congressman. To all politicians: just do your job and act like an adult!

Outlier (Qualitative) Scenarios

Here are some outlier scenarios I think are more likely to happen than consensus in the next several years (some may not happen for a decade or more). Due to the long-term nature of these scenarios, in some years this list might not change or only slightly be tweaked. Examples focus on the US but these are worldwide risks. Insurers should think about these scenarios at least qualitatively. Links are provided for articles I have written on similar topics.?

• Cyber-terrorism or physical attack impacts the banking system/power grid
• Space junk knocks out a satellite used for public communications or military – Star link adds resiliency
• Microplastics create die-off of food sources or human mortality/morbidity https://www.actrisk.com/newsletter-category/quarter-4-2022/
• Alternating atmospheric rivers and drought create havoc on west coast
• A severe earthquake (or volcanic eruption) hits California, St. Louis or Seattle https://www.actrisk.com/newsletter-category/quarter-2-2023/
• Super-volcano becomes active somewhere in the world (e.g., Yellowstone, multi year global crop failures) or Ring of Fire becomes active around the Pacific https://www.actrisk.com/newsletter-category/quarter-3-2022/
• Magnetic poles switch between north and south
• Carrington event knocks out electronics on a wide scale with a naturally occurring electromagnetic pulse, likely due to a solar storm https://www.actrisk.com/newsletter-category/quarter-2-2022/
• China erupts in civil war or regional conflict – power vacuum after Xi, have not managed demographics or embraced ethnic diversity, debt issues
• Democracy loses its hold on America and elsewhere– elected officials leave only after a coup or assassination
• Eurozone breaks apart – could be north/south, poor countries/rich countries or just kicking out individual members
• NATO adds members – Russia reacts
• US builds up economies in hemisphere, lessens the border issue
• A spillover virus develops drug/vaccine resistance – flu, COVID or RSV. Alternatively, a once controlled disease (e.g., polio, smallpox, measles) becomes common again.
• Antibiotics fail to work against a common bacterial infection https://www.actrisk.com/newsletter-category/quarter-1-2022/
• Iran becomes the Middle East’s consolidating superpower against Saudi Arabia
• Freshwater resources trigger a regional conflict
• S&P500 down 20-30% from YE23, combined with high defaults and commercial real estate collapse
• GDP down for 3 consecutive years.
• Inflation above 10% or below 0.
• Climate change leads to unlivable areas due to heat and sea level rise. Investors realize that some physical assets will become worthless and climate migration necessary. https://www.actrisk.com/newsletter-category/quarter-3-2023/
• Loss of insect biodiversity and vector diseases impacts health and leads to food insecurity
• Risk managers should learn about activities with unanticipated consequences – learn about higher order thinking and complex adaptive systems

?While I tweaked some of these, there were no major additions to my thoughts for this year, made in January 2024.?

• Politics and the economy: At some point in the next few years stimulus will be withdrawn and main street will be challenged. If drawn into a war runaway inflation is a possibility for all sides. Cyber-attacks will evolve after poor execution in the Ukraine war. The US is likely to see a third party candidate emerge, but without a charismatic leader it’s unlikely to do more than take some votes away from the main party candidates. The Republicans are weak on abortion rights and I’ve already seen commercials saying how great things were in Jan 2021 (they weren’t and the vast majority of covid deaths after a vaccine were those who rejected vaccines). The Democrats have been given issues on a platter but seem clueless how to use the information beyond their core voters. Results: right about the Democrats. MAGA is really a third-party candidate but overall wrong about the Republican hold on voters.
• Geopolitical: China has passed peak power and will be stressed as their economy slows and population shrinks and ages. They have used debt poorly and the property market must correct.
• Stocks and general economic conditions: Levels of many stocks need to fall, likely as stimulus is unwound. The US is overvalued relative to Europe. I continue to avoid bonds except Treasuries, CDs and iBonds since I already have fixed income exposure due to social security and a defined benefit plan. Both extremes should be part of stress tests, high inflation due to debt and deflation due to demographics and likelihood of a slowdown. I like dividend stocks (not crazy high yields) and companies using cost-plus pricing (e.g., defense contractors, utilities) but many have high valuations. I dislike (and vote against) board members over age 67, with past connections to disgraced companies like Enron or their facilitator consultants, and those who don’t own more shares in the company than I do (and proxy shares don’t count – they are not aligned with my interests).
• Jobs: If you want a job you can get a job, but it may not be the job you want and you may need more than one if you want food and shelter. If we allowed new immigrants to work they could take low level jobs and our favorite restaurants would not need to close for staffing issues. Getting a job will be a big challenge for those finishing school today. Labor force participation has yet to stabilize since the pandemic. This matters as the unemployment rate seems to change more based on how many are looking for work. We need to develop ways for the gig economy to encourage movement between jobs – today loss of seniority, mortgage and health care are road blocks. Results: correct. For those with jobs life is pretty good as wages are beating inflation, but those out of work for extended times or just starting out are finding that employers won’t pay for experience but expect you to have it.
• Residential home market: lack of supply, home inflation and mortgage rates are making it hard for young adults to buy their first house. A recession will improve this. Apartments are being overbuilt. Will the new ones be young family friendly with parks or be repurposed since there is too much supply? The commercial office space being converted to apartments/condos will provide options.
• Oil: WTI oil at the end of 2023 was about $72 per barrel, down 10% from 2022 with a range between 65 and 90. I have no ability to predict the price of oil, but expect it to be driven by the impact of war/sanctions.
• Credit risk: I worry about collateralized assets and debt issued by shadow banks like private equity, with potential spillover effects as capital calls, margin calls and redemptions are met by selling quality assets. Everyone from the NAIC to IMF to rating agencies are writing papers that focus on private equity risk in the insurance space. Traders and optimizers love rules-based regulatory regimes. The rest of us pay the price and the guaranty associations will be stressed if the underlying collateral starts to default. Results: Isolated instances of default or Ponzi schemes but not wide-spread.
• Currency/Inflation/Interest rates: IF a country were to adopt a realistic monetary policy, their currency will strengthen against the dollar. Germany is a candidate if they leave the EU or possibly the UK. The yen could crash against the dollar. In the long run demographics are destiny. We should be encouraging development of an immigration plan, welcoming those forced from their homelands by war and climate change. Aging populations need service workers that are typically immigrants. Results: this paragraph should be my elevator speech.
• Tax policy: There is growing pressure to address inequality, but no one sees taxes as part of the solution. The cap should be taken off Social Security contributions (ee AND er). The IRS audit function should be fully funded.

Emerging Risks – Concerns

• Infectious disease – Increased resistance to antibiotics (e.g., tuberculosis, staph infections or pneumonia), coronaviruses, influenza, Ebola (and similar spillover diseases), and avian flu types that are transmissible by air are all a concern, as would be variants that impact younger ages (also watch disability for virus long haulers like long COVID). Permafrost melting may hold additional bacteria and virus surprises. Vector (often mosquito) borne diseases are moving north and west in the US as areas further north remain free of frost and allow insects to survive winter. The January cold snap may slow progress in 2024 but as temperatures warm it is a losing proposition. I still think COVID ends up as the common cold. The vaccines have been amazing in their results and how quickly they were developed. Results: Correct. Those in North America should track South American Vector Based Illness outbreaks like dengue as they seem to be a leading indicator. I did enjoy the discussions about the two broods of cicadas that emerged in 2024.
• Global warming – unexpected side effects from instability. A melting Greenland ice sheet adds fresh water to the Gulf Stream, decreasing salinity and keeping the water from sinking as part of the conveyer belt so important to warming northern Europe. We’ll continue to see extinctions as conditions change too quickly for most species to adapt and decoupling occurs. Impacts to economic growth rates will increase with time as costs to repair and proactively plan for these changes will take money away from other things. Results: Research reported this year that the AMOC has slowed 15% already from its peak.
• Misinformation – if someone is cherry picking dates to make a point ask them to produce a historical chart with the data. 2024 and 2025 are likely to be strong El Nino years that spike temperature. A picture tells a thousand words.

• Earthquakes, storms and drought – the US is overdue for a major quake on the west coast and areas not normally thought of for seismic activity. There is no longer a season when wildfires are not common in areas such as California and Australia, and smoke does not stop at borders.
• Levee failures in California and on major waterways, water poisoning in big cities, cyber hackers, transportation of oil and oil-based products via rail through urban centers (e.g., downtown Chicago) are all regional risks. Causes can be man-made or natural.

• Malthus – he got it nearly right https://www.soa.org/globalassets/assets/files/static-pages/research/opportunities/environmental-essays.pdf We are no different than other animal species – we will add people until the population crashes. Too many people, not enough resources – How do complex systems interact based on changing and fast-moving inputs? We should look at GDP per capita instead of GDP, focusing on productivity growth and immigration management. In the long run we are more susceptible to war, famine and disease at current or greater population levels and this interacts with climate change issues. Results: Research estimates that 3 degree warming over 1700 will lead to extinction of 50% of species. Other research shows that Indigenous in North America wiped out mammoths soon after arriving, preferring meat to a plant-based diet.
• Migration: Inverting the problem, as Charlie Munger suggested, leads to economic solutions, making it safe for them to stay there.
• Student loans – debt forgiveness plans that reduce the outstanding amount should be tied to low income. ? Results: Biden has tried, and failed, several times. He seemed to succeed in getting the bureaucrats hired to manage the system to follow at least the rules related to providing service for debt relief.
• Concentration risk – this will be a hot topic over the next few years. Whether it is power/hubris at the top of an organization, liquidity, geographic focus or silo risk focus. The likelihood of a risk blowing up increases with leverage. Identifying concentrated exposures should be a focus during strategic planning efforts for companies and families. Less focus should be put on econometric models and more on simple exposures and their downside impacts. Clustering, where several independent events occur within a short period of time, will drive solvency and bankruptcy. Companies should rank their risk exposures and determine how many events they can survive (comparing to risk appetite). Results: More companies are focusing on clusters of events in their stress testing. Next up is considering interactions between risks.
• Terrorism – the risk of internal or foreign terrorism is high. The election has tensions high and foreign entanglements make verbal statements actionable. I have been surprised that we haven’t seen assassinations of politicians given the current environment. Results: Attempted assassinations of Trump and recent assassination of an insurance executive. With no gun controls in place I expect these trends to continue.

Top Actuarial Issues

• Defined benefit plan valuation and de-risking – valuation methods should be revamped to balance each year for both private and public plans. Assumed returns remain much too high. Scenario testing (not just Monte Carlo) should be required. Fiduciary standards should require conservatism in pension assumptions. Bailouts don’t help in the long run because it sets expectations. Lots of references to PRT and PE firms – will be interesting to see how that plays out and what they were doing – seems aggressive to be active when rates were low. Results: Need more transparency on ALM constraints and metrics (e.g., effective duration and convexity, liquidity).
• ORSA implementation – checklist implementation practices do little to reduce risk
• Product design – gross exposure is more important during a crisis, while net exposure (after hedging) drives results in normal times. Dynamic assumptions need to be revisited along with correlated assumptions like interest rates and defaults for floating rate debt. Insurers should avoid potential systemic risks and focus on risks that follow the law of large numbers where their expertise lies. Results: Complex systems will interact in unique ways as conditions change. Shadow banks contribute to and are harder to manage through a crisis.
• Health care – Antivaxxers are leading us toward antibiotic resistant bacteria. We continue to not be prepared for the next influenza pandemic. The CDC should include economic experts as part of their pandemic planning team. Will weight loss drugs like Ozempic drive private insurance plans out of business by raising premiums beyond what employers can pay? How does Medicare react? Results: Weight loss/diabetes drugs seem to have more benefits than expected. Antimicrobial Resistance (AMR) continues to increase, with more research needed with phages and using AI.
• Over-reliance on the normal distribution – life/health actuaries should learn more about power laws as they represent tail distributions better than bell-shaped (normal) distributions.

Thoughts of Charlie Munger

Munger passed just a month short of his 100th birthday in late 2023. He was not in the public eye as much as his partner, Warren Buffett, but regularly made useful comments about strategies for investing and life in general using a latticework of mental models. I didn’t agree with them all, but he definitely made me think.

?Munger talked a lot about the difference between investing for the long term and trying to win every day through optimization techniques. He believed in a combination of qualitative and quantitative metrics, but used margin of safety to avoid over-exact calculations. He seemed to recognize that buying great companies at a reasonable price meant that he would need to pay a higher multiple and was okay with that. Berkshire Hathaway would not have been able to scale up without this revelation since the other strategy would require ongoing buying and selling rather than buying and holding. The long term strategy allows Berkshire to hold large cash positions while markets are overvalued because the goal is to have more money many years from now, and keeping dry powder when there is nothing to buy is the best option.

?This carries over to politics. Both sides, but especially the Republican Party as it is led by Donald Trump, view politics as a series of transactions that can be optimized. There is no strategy except to win every battle, viewing power and winners as coming from a fixed pie. In the long run this will abdicate America’s role in the global hierarchy. A transactional president who has no strategy beyond remaining in power is a bad fit during a pandemic, war or depression but can work at other times. Ask Mussolini.

?Building a strategy would lead to economic and educational aid in South America to deal with immigration issues. Don’t ask how to stop immigrants. Ask why they are coming, willing to leave their homeland. It’s not safe, or there are no jobs, or both. Fix that and your immigration problem will go away. You still have climate migration to deal with, both internally and internationally. Anyone who lives on a coast or is subject to drought will need to move. Why are we writing 30 year mortgages in Miami?

?Results: As I think about Munger a year after his death, I’m drawn to his thoughts on mental models and the latticework of investing. He used models from all disciplines to consider interactions between risks and opportunities, looking for lollapalooza events that lead to hundred baggers. I also find it interesting that actuaries tout the capital asset pricing model and efficient markets even though for pricing insurance products we use distributable earnings which is very similar to what Munger taught.

?2018 Predictions

I posted my first annual financial predictions in 2007. Each year I look back five years and share comments I made that seem interesting in hindsight. I have deleted sections but not changed the wording in what remains. In many respects my thoughts are similar today as in January 2018.

?While geopolitical tensions seem highest in North Korea, I worry more about the Middle East, China, and Europe right now. If Trump keeps off twitter going forward I think North Korea starts to recede into the background and China will address the situation quietly. An Iran/Saudi Arabia confrontation is coming. We don’t need to be involved, but we will get pulled in. Russia is selling as much oil as it can, and asking for gold in return. Their central bank president seems to have a plan but her cards are not strong unless the price of oil increases.

?I learn more about climate change every year. It is fascinating how little we really know, and how often when something new is learned that it makes things worse. The shrinking Arctic ice sheet’s impact on the jet stream, the sinking of the ocean floor due to the heavier weight on top of it as glaciers melt and water expands, and the important role of methane (cow belches, not farts) in global warming.

?The problem is that the rate of change is destroying biodiversity (plants and animals can’t evolve quickly enough to survive). I am very pleased that I don’t live on the coasts, and would be buying up Great Lakes land if I was Ted Turner or John Malone rather than Montana due to the availability of fresh water.

?The Middle East is setting up as a battle between Iran and Saudi Arabia, with Turkey a wild card that likely determines the winner. There is little reason for the US to participate, but Israel and Europe are likely to pull us in due to reliance on Middle Eastern oil.??

• A severe virus develops drug resistance and becomes transmissible by air

• Iran and Saudi Arabia will start to provoke each other, but it will take several years before war breaks out.
• Geopolitical: as the US becomes more protectionist and less willing to guarantee the peace around the world, this means there will be more regional conflicts. Some will escalate and we may get pulled in anyway. Although I prefer to be proactive, an inward thinking US in the 1930s was able to quickly ramp up using the latest technology once we entered WW2 rather than having to scrap earlier preparations (although since it was struggling to exit a depression that might not have been a big deal).
• Unemployment: Structural unemployment has risen in the last decade as it becomes harder to go between jobs or move to the gig economy (locked into mortgage or health insurance, last in first out mentality for layoffs).?

• Global warming – unexpected side effects like new viral/bacterial attacks, along with coastal flooding, wildfire/flooding combinations, more concentrated coastal storms at unusual times of year, stronger and more frequent convective storms, and shifting weather patterns that impact farming through changes to the jet stream due to the shrinking Arctic ice flow. ?

• I worry that we are moving toward antibiotic resistant bacteria as research is discouraged, and we are definitely not prepared for an influenza pandemic.

?Hopefully these annual letters look at things from a slightly different perspective than you see from others and make you think. That is my goal.

?Happy New Year!

?Warning and disclaimer: The information provided in this newsletter is the opinion of Max Rudolph and is provided for general information only. It should not be considered investment advice. Information from a variety of sources should be reviewed and considered before decisions are made by the individual investor. My opinions may have already changed, so you don’t want to rely on them. Have fun!

NOT INVESTMENT ADVICE