3 Reasons U.S. Is Poised for Investment Retrenchment

“I would like to see us back up the Europeans against the Russians. I would like to see us refabricating the alliances that we have in Asia, but I don’t think any of that’s going to happen. The U.S. politically is set for a very serious retrenchment. We’re tired of the wars in the Middle East. We don’t trust the Chinese. We don’t trust the Russians, and we just don’t want to deal with it anymore.”

He noted that if the U.S. does adopt a retrenchment policy (and he believes it will), “it won’t be forever, but if it’s for 15 years, which is about how long our normal retrenchments take, that’s enough for the rest of the world to fall apart.”

The current stable of presidential nominees doesn’t offer much optimism, either. “You can watch the republican debates and see the contest is over who’s going to be more retrenching,” he said. “On the Democrats’ side, you’ve got Bernie Sanders, who is an old-fashioned socialist who thinks we should withdraw from global trade anyway, and Hillary Clinton, who wasn’t able to successfully push the negotiation of a single free-trade agreement when she was secretary of state.”

Zeihan acknowledged that he’s not a financial advisor, but suggested looking for opportunities in sectors that are consumption-based and led by demographics. “When you look at the United States, there’s very little in the American corporate space that doesn’t touch that,” he said. “Around the world you have to be much more careful.”

He said that there are “only a few countries that have liquid stock markets and are immune to currency risk and I think will do well in the future, and that really limits you to Southeast Asian countries, maybe to a certain degree the United Kingdom.”

Shale-adjacent industries are another area advisors might consider looking for opportunity, but Zeihan warned against investing directly in shale. “Shale production – wow, what a nightmare, there’s blood on the floor,” he said.

He noted that “50% of the natural gas that’s consumed in the United States is a waste product of oil production. It’s the highest number in the world by, like, a factor of four, so we have free natural gas. We nearly have free electricity, so I look at the sectors that are very electricity- and natural-gas-intensive. That’s everything from fire extinguishers to water for purification to petrochemicals to steel.”

Despite consumers’ interest in clean energy technology, Zeihan said it’s not yet a good investment. “Until we have a battery solution, you are putting your money behind a fad or a subsidy. It doesn’t mean there isn’t money to be made; there is. But if you can’t store it, it makes no economic sense except in very specific markets.”

Those markets include places where “peak demand and peak supply line up. That is not Minneapolis, because peak demand is February at night.”

For solar, that means Texas, Southern California, Arizona and Hawaii. For wind, the Bay Area is a “fantastic” place to look for opportunity. “You need to remember that transmission matters and storage matters. Those are two very expensive things, and we cannot yet generate a battery that is cost effective over a five-year period. Until we can, the only thing that’s pushing green tech outside of those specific markets is mood and regulation.”