Just buying index funds like before won’t cut it.

– Conflict in the Middle East
– Conflict in Eastern Europe
– Various civil wars in Africa
– Potential conflict in East Asia
– Various failed states all over

The list goes on.

We are witnessing an age of conflict within the context of ballooning debt levels. It’s a topic increasingly raised by my private clients in consulting calls.

What are some of the implications of these developments and how do we invest accordingly?

I interviewed Chris Macintosh who manages a hedge fund, and who has been warning about exactly this for many years already.

I’ve been reading Chris’ newsletter for a few years now and I recommend it. He was kind enough to extend a $1,000 discount to people who are on my mailing list.

Do I agree with everything he writes?


But do I find it important to read such contrarian thinking to balance out “normal” media?


To a World of Opportunities,

The Wandering Investor.

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If you want to discuss your internationalization and diversification plans, book a consulting session or send me an email.

Transcript of “Capitalist Exploits: Investing in an age of Conflict”

LADISLAS MAURICE: Hello, everyone. Ladislas Maurice from thewanderinginvestor.com. Today, we’ll be discussing with Chris MacIntosh, a fund manager. And we’ll be discussing a very interesting topic but a bit sad as well, which is investing in an age of conflict. Chris, I’ve been reading your newsletter for quite a while now, for, I think, two, three years or so. And you’ve been warning about these things that are happening right now, that we are entering a world where there will be more and more conflict, more and more geopolitical tension. And you’ve been positioning yourself, essentially, accordingly. 

Interplay between war and debt

What are your thoughts on the current situation generally, from a macro point of view, and then we can go into what your thoughts are, how one can translate this into investment either opportunities, or how to safeguard one’s assets for the times ahead?

CHRIS: Fantastic, thank you. It’s a pleasure to be back once again. I think I want to start with something that I see taking place, which is, I think, dangerous from an investment standpoint, and certainly somewhat myopic. And that is that whenever you go into a period of conflict, people begin to take sides. In most instances, what we’re dealing with here is that you have multiple biases and multiple people, countries, it’s best to treat them all as criminals, and simply to understand that wars come about as a consequence of debt, and debt comes about as a consequence of wars. There’s an interplay between the two.

And if we go back and we look through history, that is what continuously keeps playing out, over-indebted nations, especially those which have certain level of power and influence will go to war in order to retain or attempt to retain their influence and their power as they see their economic structure dwindling and waning. That’s exactly where we’re at today with respect to the Western world. And at the same time, wars themselves incur debt and cause debt accumulation. And so you can have other jurisdictions which get sucked into a war, and in order to defend themselves or to finance the wars, they go into debt.

Today, we’ve got a dollar-denominated system in such that the US dollar is the primary credit facility globally. And as a consequence, most nations have dollar-denominated debt that puts the US, in particular, in an extraordinarily powerful position. And they are in the process of really exerting their power through the credit markets, through the financial system, and so on and so forth. And also a point I want to make is that if you get caught up in the he’s right or he’s wrong and that sort of scenario, you can be blinded to the probabilities of outcome. And as an asset manager, that’s my primary concern. My primary concern is to make money. If I can make money, I have much more probability for my own personal circumstances and those of my clients to actually have a better outcome regardless of what might happen in the war or in any war, any conflict.

As a precursor, that’s just something I want to mention because it is– As you move through these periods of conflict, you’re going to be hearing multiple stories from multiple news outlets. And those news outlets in today’s world are mostly 99% not independent, and even where they might be independent, they will often have their own bias as a consequence of maybe their religious beliefs, or their ethnic beliefs, or whatever. There’s only a number of different biases that any individual organization can have. And so it’s really, really important to actually look at this from a macro perspective and look at why is there a conflict probable, why is it possible, and what are the likely outcomes? And the answer to most of that comes into finances. War is a consequence of economics, always every time.

LADISLAS MAURICE: If I follow your train of thought, this is going to continue?


CHRIS: We have the largest levels of debt the world’s ever seen at a sovereign level going into this. We’ve been writing about this for some years now. And simultaneously now we have an accumulation and an acceleration of that sovereign level debt, which is why there is a rush towards the implementation of central bank digital currencies. In my belief, it is designed, in part, there’s many, many aspects to why that’s wanted for central bankers and I hate to call them the elite, we’ll just say power brokers, there are many reasons, but one of the reasons is that there has to be a default.

And if you go back through history, whenever you have a default, often those that are in power lose their seats of power. Not always, but often. That’s a huge risk today in the western financial system. And they’re not stupid, they understand that. They’re orchestrating, as best as they can, to have something in place such that they don’t lose their power. Power is everything. Central Bank digital currencies will afford a level of power and control that nothing that we’ve ever experienced in our lives, certainly within the financial mechanisms has existed. In other words, they can default without anyone escaping and without having the capital flight taking place at a rapid pace, which is what normally happens. That’s a sort of framework. And we can see that rolling out.

Those that are aware of this are already moving and have already been moving capital, we’re watching that transpire. And so that’s kind of the financial mechanism behind it. 

Which sectors to consider in an age of Conflict

CHRIS: If we want to roll into where one might want to be thinking about holding assets or things of that nature, it’s quite simple, wars are never deflationary. They are, I would say, stagflationary, you could say inflationary but that’s not entirely accurate. And it’s not accurate because you’ve got a dynamic in there where you will have certain asset classes can be intensely deflationary. In a war, people don’t spend a whole lot of money on certain consumer goods, for example, where you basically have a recessionary environment but, at the same time, the cost of critical goods is rising, largely as a consequence of supply constraints. And that’s pretty much the situation that we’re in today.

The asset classes that typically benefit, that inflate rather than deflate are hot assets, commodities, in particular energy. That’s kind of a framework going into this conflict environment that we are all already in. The huge kicker to all of this is that prior to this, if we go all the way back to sort of the previous crash in the commodities, and in particular in the energy market in the sort of 2012 through sort of ’17, ’18 period, we’ve had a decimation of supply, we’ve also had a massive lack of capital investment going into these sectors. And ordinarily, that capital investment would have picked up by now, and it hasn’t. It hasn’t. And it hasn’t for a number of reasons, one of which is the woke agenda, fighting the weather by drinking your drinks through paper straws and things of that nature, which definitely fixes the weather in any event.

A lot of this has brought about huge constraints in capital expenditure. The other thing that’s, at least for us where we’ve focused, and I’m getting a little bit more detailed and sort of sectors within sectors, if you take long-cycle assets, and I mean long-cycle assets, as in ones that are very, very capital intensive and that have a payback timeframe of, say, 20, 30 years, in order to invest into those kind of assets, you’re always needing debt, because they’re very expensive. If you take, say, an offshore drill rig, they are about $1.2 billion-ish, probably a bit more now, if you could get one built. Bloody hard to get them built because the shipyards are all over capacity. You need about four offshore rigs to service it. Those are going to cost you about 70 million bucks a pop. The entire thing is very capital intensive and you have to use debt.

Now who’s going to finance that? At the moment, it’s very, very difficult to go and obtain finance for something in that space, number one. Because what you need there, Ladislas, is a certainty of outcome. To deploy capital over that timeframe, you need to know that the political environment is probably not going to change too much, you need to know that your economic, i.e. your financing environment isn’t going to be changing too much. And by the way, that’s changing a lot. Right? If you go back to, say, five, six years ago and look at what rates were then and look at what rates are now, you have to sit down and you can start calculating out and going, okay, well, if it’s a 30-year or a 20-year timeframe, what does this look like on financing level. That level of uncertainty means you have to add in a premium to what your cost of capital is likely to be not just today, but tomorrow, and the next day, and the next day.

And so what happens in as a consequence of that uncertainty is capital providers just keep pulling back, and like, “I can’t be sure. I need more premium. I need more premium. I can’t be sure. I can’t.” Anyway, so that particular space is extraordinarily interesting to us. It’s also interesting because everyone that was in that peak previously has been washed away. Like, probably, we did the numbers a little while back, it’s about 92% of the companies that existed in that space have gone away. Like, gone away. And so what you now have is a moat around the existing businesses. And guess what? Most of them are running at about 90% capacity, which is full capacity, because you’re often having to stay on stuff in care and maintenance and stuff.

I’m just kind of digging into one of the sectors but certainly in the energy space, energy always does well. It’s fought over always, which is why there is conflict in the Mackinder heartland right now. It’s why Ukraine exists. It’s why Israel and Iran are going behind the bike sheds and slapping each other in the face. A lot of this is why the US, in particular, has always had a presence within the Middle East. It’s why the Bosporus is so important, it’s why the Suez is so important, and it’s why the Strait of Hormuz is so important. All of these things are geopolitical choke points around the Mackinder heartland. And whoever controls that, to a large extent, controls trade flows globally, and that’s what’s being fought over. It’s been fought over for centuries and we’re just back to repeating that again.

To some extent, this is very easy to understand from a macro long-term historical perspective. And as such, it’s relatively easy to go and see what are the asset classes that benefit and what are the asset classes that don’t. It’s kind of an easy time to some degree to invest but, at the same time, there’s extraordinary risk because you could still get a sector right, and you could be in a particular company, for example, that lands up being nationalized and things. And that sort of stuff is absolutely going to happen. It also means you need to be very aware of what’s going on at a country political level, as well as being diversified across geographies but within sectors, if that makes sense.

CBDCs and capital controls

LADISLAS MAURICE: Sure. Let me take your two theses here and just stress test them. Let’s say, cool, we go and invest in energy. Obviously, we have to go through equities. Great, we do that. And then let’s take your CBDC thesis and potential for capital controls and issues in Western countries, we stress test this. Isn’t there a possible scenario whereby I chose the right stocks, they’re doing great but, suddenly, they get stuck behind some capital controls in some Western countries that suddenly have a current account issue or whatever. Boom, CBDC capital controls. And then, great, my money is stuck in whatever jurisdiction. One, isn’t this a risk? Two, again, if we’re going down the rabbit hole a little bit but it’s an interesting intellectual exercise, do we then have to choose specific exchanges where we believe capital controls are likely to come later or last, like the US or like Norway, and to be rather avoiding exchanges like the ones in Italy, in France?

CHRIS: There’s many answers to that. Basically, yes, it is a significant risk. It’s one worth certainly considering. My answer to it largely is, number one, pay huge attention. You’ve got to keep your eye on the ball at all times. And when you see something rolling out, you need to be aware of how that’s likely to look like. The flip side of that is that all wars are competitive. All conflicts are competitive. And they’re competitive not just in terms of like throwing bombs at each other or whatever it is, they’re competitive at an economic level. The most prosperous economic structure typically wins over time. That’s just because it allows you to commandeer more resources. It’s why the US Westphalian system basically defeated the Bolshevik system. It was an economic war of attrition, which was won. And so that’s likely to transpire.

Again, I don’t know for sure what economic system comes out of this over the next 10, 15 years but I’m relatively confident that whatever does come out is likely to be the most economically beneficial system relative to others that are being implemented. When I talk about others being implemented, certainly, from what I can tell, the European Union, in particular, is probably first on the pointy end of the stick with respect to the implementation of capital controls, central bank currencies, etc., which are, basically allow for capital controls to be implemented. And again, that’s not only just because I’m watching it rolling out, but it’s also because if you look at the economic and the debt structure, they have to do it faster than everybody else because they’re more screwed than anyone else. [laughs] Again, it’s economics that drives the necessity for the rollout of whatever they’re doing.

Now, that particular rollout will absolutely, totally cause capital flight 100%. It will be more difficult, and your average man on the street probably will get crushed and one could get out. But I grew up in Africa, I watched capital controls take place in multiple countries, and I still watched capital flee. Human beings are incredibly resilient and flexible, and they will find ways to get the capital out. Whether it be chartering barges in Mozambique, as I watched people do, and putting barrels of oil on it and sailing it to Athens and converting it. It’s going to happen. And what it does is it causes the jurisdiction that’s implementing those controls, literally just sucks, collapses, and just it gets weaker and weaker and weaker. And then, in an economic war, they can’t fight the war. They can’t fight a physical war because they haven’t got the energy, they haven’t got the fuel to fight it with.

And there’s a dynamic there whereby any enemy, if you will, that is fighting with that will see the benefits of capital coming in, or there will be jurisdictions which see the benefits of capital coming in. And what we do, as human beings, when something works for us, we tend to do more of it. And so there is a decent probability that we’re going to see that, where not only will we see a constriction in certain areas, we’re also going to see breakaways as this whole thing fractures. And there’ll be regions which just turn around and go, “Hey, we’re doing X,” and that X will be something that’s much more economically beneficial for them and for individuals with respect to freedoms of transactability and everything else.

The myth of the Dollar crash

LADISLAS MAURICE: I see your point. And also there’s a whole segment of the US population that keeps talking about the dollar crash, the dollar crash, the dollar crash. Look, guys, before the dollar crashes, the euro will crash. And when the euro crashes, most of that money will rush into the dollar.

CHRIS: The dollar can’t crash. If you understand the actual mechanisms of international finance, the dollar’s not going to crash. I understand that it sells newsletters, I understand it gets people all jittery and everything else. Now, that’s not to say that the dollar will not decline in value against certain assets. You can have the dollar imploding against gold, for example. But within the fiat currency system, the idea that the dollar is going away is not only naïve, it’s factually wrong. And I say that because it’s if you run through the mathematics and the structure of how it works, you understand that it cannot take place.

Residents vs non-residents in the context of capital controls

LADISLAS MAURICE: Yeah, I agree. And to go back to the discussion on capital controls, I think it’s important to see that, historically, governments have been very good at creating segments in terms of resident and nonresidents. Typically, capital controls impact residents, but nonresidents are generally not immediately impacted because governments know that if they put capital controls on nonresidents, then, finished, they will have zero inflows back into the country. But if they just essentially rape their own people, foreigners can still come in, they can still get FDI because FDI knows that it can get out easily in and out.

I’d say that, generally speaking, you’re less at risk, for example, if you’re investing in Italian equities from overseas, that your money will get stuck in Italy than if you were in Italy, residing in Italy, having an Italian brokerage account. I don’t know what your thoughts are on this.

CHRIS: If you think about what is it that capital controls are designed to do, they’re designed to keep domestic capital in and they’re designed to keep people in. Your tax slaves, your citizens are, in most instances, in most countries, even in wealthy countries, your average citizen doesn’t have second, third, fourth, fifth, seventh, ninth, tenth passports. They also don’t have assets or resources offshore. In other words, they have all of their eggs in one particular basket, and the government knows that. So the government can treat them like cattle, and they do.

On the country, when you’ve got some FDI, which is somebody that has invested capital in the country, but they’re not a resident, or they might be a resident, they’re not a citizen, and it is typically a portion of their capital. As such, they can pull it out, and they don’t care to the same degree that the level of exposure that they have is significantly different. Trying to capture those people is a futile event. And not only do you not capture them, as you mentioned, you shut down any inflows of capital. It doesn’t really work. The times that they do implement that is more when they’re trying to rally domestic support around a political process. In other words, “It’s the bad XYZ,” name your particular ethnic group, or income group, whatever it is, “and they are the ones to blame, and we’re going to have to do XYZ, and vote for me and I’ll sort things out. Life’s going to be paradise.”

That can and does, sometimes, happen. We’ve seen it even in certain African countries. But in general, you’re correct. And look, we’ve got the ability to do this, typically, as a sort of if you have a relative level of wealth, setting up another bank account in a foreign jurisdiction and placing some capital, even if it’s cash, or some other real estate, you do a lot of real estate around the world, things of that nature are much, much easier to do than most people think. It’s more a mental hurdle that they have to get over as opposed to the physical way to actually go about doing it. Anyone with two fat fingers and a fucking keyboard can figure out how to do a lot of this stuff, whether with even just a week’s research on a particular jurisdiction, and the methodology, and the processes, and the banking environment, and all the legal frameworks.

That stuff, if you can learn how to read, you can do that. It’s not hard. Now, it’s just a mental process of getting around why would I do that and what benefits would it afford to me? And I would suggest, in the environment that we’re in now, it’s not just smart to do, it’s almost critical.

Internationalization & diversification

LADISLAS MAURICE: Yeah. I mean, that’s what I preach constantly on my channel, on my blog, it’s internationalization and diversification, because we don’t know where the shots are going to be coming from, but at least if you’re well-diversified, well-internationalized, if I can put it this way, you’ll always be fine. I look at my own portfolio, I have a lot of international real estate, I have a lot of equities on different brokerage accounts, bank accounts a bit everywhere. At any given point, something’s blowing up in my portfolio, in any given point. But at the same time, I sleep very well at night because I’m diversified. There’s no single blow that will put me down.

CHRIS: You have no single point of failure.


CHRIS: No single point of failure. There are times when you go through history where you can pretty much put everything on black. And those times, typically, are post-war, where everything’s settled, and with a clear winner, and the governments are now basically bankrupt and/or debts have been wiped out dependent upon who won and who lost. That environment is typically an environment where you can be ridiculously concentrated on a geographical level going in, and you can probably sit for the next 20 years and just not do a lot. The environment that we’re in now is basically that all shattering, everything gets shattered. And in that environment, A, you have to be much more attentive to what’s going on and, B, you need to be much more diversified.

Where will capital go?

LADISLAS MAURICE: Yeah, 100%. Where’s capital going to go?

CHRIS: To where it’s treated best, as always. There’s a couple of things where capital will go to and is going to. Really, within, if you look at sectors, it’s going into commodity markets, it’s going into energy, it’s going into, basically, I would say Maslow’s Hierarchy of Needs. Part of that is also if you look at where we are being attacked. Flip the question, what is it that we are constantly being told is bad for us, that we shouldn’t have, that’s destroying the planet, etc., etc. Those very factors are the ones that are being constrained in supply. It’s food, we’re told to eat bugs. Meat is apparently, and cows farting absolutely destroys the planet, obviously. It’s food, it’s energy, coal, anything within that space, even nuclear. And now we’re flip-flopping on nuclear.

And this is where you’re seeing a lot of this ship breaking up, where the narrative that’s been put forward meets reality, because the narrative’s garbage and the reality is evident. And as it becomes evident, it’s increasingly difficult for your lower rung politicians to be able to sustain popularity and everything else. And so they have to, sometimes, flip flop. We’ve seen, for example, them changing the definition around natural gas, saying, “Oh, well, it’s not really a fossil fuel. It’s kind of like, it’s sort of green. There’s probably a bit of a green tinge when it comes out of the soil. And so that’s green. And nuclear is not–“ There’s a flip-flopping there. But the entire space has already been largely castrated.

And so those sectors which are being pressured are the ones which the– The demand can even fall, but if your supply is falling faster, your price goes up, that attracts capital. It attracts capital because human beings, the psychology of a human being is that they will take advantage, always, of an opportunity. That’s what we do. And so though we’re seeing capital moving into those sectors, but what’s interesting is that we’re seeing it moving in on a geographical basis. It’s very different. Largely, in the Western world, your Western banks, your Western majors even are not participating to the degree that your nonwestern participants are. Chinese banks are financing, you’d know this, they’re financing everything in Africa.


CHRIS: Why are they in Africa? Because they’re after all of the commodities. Why are they building ports there? It’s not because they want pretty ports. It’s because they want to ship all the stuff out, and they want to secure it. We’re seeing incredible shifts of capital in that space. They’re using all their treasuries to literally secure supply chains, and to secure commodities, and to secure the hard assets that they want. And so that’s significant, and there’s not enough spoken about that certainly in the Western press. The only time you see it is sort of when they go, there’ll be some hit piece basically on the Chinese are bad and they’ve, I don’t know–

LADISLAS MAURICE: The Chinese debt trap, blah, blah. Yeah.

CHRIS: Yeah, yeah, yeah. And look, there’s a part of that’s absolutely true. I’m not suggesting that Chinese are good guys. I’m just saying this is a reality of economics. And frankly, the West has done it for decades. That’s why the IMF was set up, it’s an entire debt trap situation. And it’s encumbered much of the developing world for ages and ages. And even that just seemed break up. That’s why there’s West African States all broke away, because they were under the hegemony of the French Central Bank, essentially. And what did we have, eight of them go in three years? That’s part of that breakup system.

Now, I’m not naïve enough to not consider at least the possibility that there weren’t Chinese and Russian interests and influence behind those coups. I’m quite certain there were. That doesn’t matter. And it’s not a good guy bad guy. Like I said, all these people are basically psychopaths. But that’s the reality of it. You’re talking about where is capital shifting to? That’s what we’re seeing on a macro basis taking place.

LADISLAS MAURICE: Cool. Look, very interesting, Chris. Look, guys, if you’re interested in that sort of thinking and how it translates into investment ideas, I really recommend Chris’ newsletter. I don’t necessarily agree with everything that he writes in there, but it’s very different from anything that you’ll read out there, and it’s great to balance your, essentially, normal reading that you do, so that you can see all these different sides to the same story, which can really help you make your own decisions and help you do your own due diligence on ideas that you’re researching. There’s a link below. And I think, Chris, you’re giving a discount as well to people that use my link below. Yeah, great. Chris, thank you so much for your time. Really appreciate it.

CHRIS: Glad you’re back. Good to see you again, Ladislas.