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Set Phasers to Kill: Captain Picard, Geopolitics and Financial Markets

October 17, 2023  |  Steven Place
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As an options trader, I don’t think I’m revealing too much when I say I’m a bona fide nerd.

I remember getting to the movie theater early to watch “Matrix: Reloaded.” There was no line – we just wanted to wait in the lobby with a laptop to watch the original Matrix movie.

I think that proves my nerd credentials.

I also watched “Star Trek: The Next Generation” religiously. That show is chicken noodle soup for the sci-fi fan.

And the best part was that if everyone just calmed down and talked it out, then basic diplomacy would win out, or the enemy would be annihilated.

It’s tough for me to watch those old episodes anymore, because they no longer line up with my perception of reality.

No, you can’t apply Earth principles to the Klingon empire.

No, you’re not going to make peace with the Cardassians.

No, you aren’t going to intervene in a civilization just because they’re doing a Bad Thing.

Captain Picard is an ideal – not anyone who would actually survive at this level of government.

Our world is more like “Deep Space 9.”

A completely atomized, multicultural trading post where moral grey areas are the rule, not the exception.

Corruption exists, even at the highest echelons of the Federation.

You’ve got to run a space station where there are enclaves of people engaged in ethnic cleansing in another system.

And it turns out you’ve got to work with war criminals to get what you want.

Meanwhile, in Geopolitics and Financial Markets in Our Galaxy… 

Geopolitical risk has been cranked up ever since the new State Department leaders were installed in 2021.

They’re pretending this is Star Fleet, and if you just talk it out and use soft diplomacy, everything will work itself out.

Then Afghanistan fell.

And Ukraine kicked off.

Now we’ve got a deteriorating Israeli crisis, ethnic cleansing in Azerbaijan, and half of Africa undergoing a coup.

The folks who control the political power in our country have not been good custodians. I don’t call for conspiracy. I blame the framing. 

The post-Bush neoliberalism has been a well-intentioned Leviathan, leading to multiple failed states. Because the True Believers that control policy think that if we can simply spread democracy and human rights then the world will be a better place.

How is that working out?

The people who control our financial capital find themselves in the same spot.

There have been ideals enforced onto money. Large pensions and asset managers have turned into political commissars, directing capital to only the companies that Stay In Line. Every pitch deck now has a “Commitment” to whatever cause is the most current thing.

There’s one sacred cow I hesitate to mention, as this is anathema in our industry.

Passive investing requires certain ideals to exist in the markets. 

  • That the US economy will be capable of growing capital faster than inflation.
  • That the currency underlying the stock market will maintain its reserve status.
  • That you will get better volatility-adjusted returns compared to active market timing.

Entire economic theories simply don’t work when we don’t have zero interest rate policies. And the truly structural risks that have been avoided for years are starting to rear their heads.

The long US Treasury trade is down 40%. This is the worst crash in the bond markets in the history of modern finance.

And we are starting to see issues with the plumbing of the financial system. I’m not an expert on this kind of thing, but expect to see “repo facility” in the headlines soon.

But the bigger point is the sheer size of it all. 

The US Treasury is currently issuing $2.3 Trillion of debt in a year. 

If the rate on that is 5%, it means the US has to pay $115B just in interest payments. 

At some point, this is going to add up to real money!

Yet consider the other side of the trade. Who has 2.3 Trillion dollars lying around? Where is that liquidity going to come from?

We hear a lot about bond vigilantes – the idea that there would be some politically-savvy trader who would hold off on buying sovereign debt until they fix their fiscal situation.

That’s not happening here. I don’t think there are enough investors – including sovereign entities – that are capitalized enough to be a vigilante at this scale.

If more supply comes online, and there isn’t enough demand, then rates have to go higher to entice new investors.

At some point, the buyer of last resort must step in: central banks. Risk assets should start to run after that as they chase after the inevitable inflation.

But “buyers of last resort” don’t exactly show up in normal conditions. What’s going to have to give? What kind of financial destabilization is required to get the Fed to change their policies?

I think current leadership, both political and financial, are trying to hold the entire thing together through 2024 so they can hand it off to a different party (and immediately blame them for the problems).

I don’t think they’ll be able to. Something’s gotta give.

If you’re a 100% passive investor, this should scare the pants off of you. Are you going to be able to psychologically weather the volatility by doing a little “dollar cost averaging”?

Yet if you’re willing to put a few active picks into your portfolio, ready for opportunistic situations, then you can gain faster, more quality returns compared to “buy and pray.”

I’ve put together a free training video to show you one of my all-time favorite strategies for finding tactical active picks with high potential in virtually every market condition you can imagine…  

Click here to watch it now.

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Steven Place
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