Are You Prepared for Cold War 2?

Normally, I’m a very optimistic guy. I’ve always been lucky and life has been extremely good so far. My wife and I started with nothing and we became millionaires in our 30s. We worked hard and we were lucky, but I never really appreciated the environment that enabled us to prosper so much. It’s only now that I realize the last 30 years were the golden age of globalization. After the Berlin wall fell and the Soviet Union collapsed, international trade increased tremendously. China joined the WTO and became the manufacturer of the world. At the same time, computers and the internet boosted productivity across the board. A rising tide lifts all boats. People all over the world prospered from the confluence of these events. Prospering in this environment wasn’t difficult. We got a good education, worked hard, saved, and invested. All of my friends from college also did quite well so we weren’t any kind of anomaly. Oh, and we didn’t have to worry about a nuclear war.

However, the golden age of globalization is coming to an end. At least, that’s what YouTube tells me. I’ve been watching updates on the war in Ukraine and a ton of geopolitical channels showed up on my feed. Now, I’m not too optimistic about the future. Authoritarian regimes have formed an alliance and they are pushing for a new world order. Soon, the world will be divided into two – democracy on one side and authoritarianism on the other. Welcome to Cold War 2.

Ukraine is just the beginning

I didn’t know much about Ukraine when this whole thing started in February. Yes, I heard Russia annexed Crimea in 2014, but I didn’t look into the details. It just seemed so far away and it didn’t really affect us. This time is very different.

Like most people, I didn’t think Russia would really invade Ukraine. But Putin ordered the tanks to roll in and take over. Putin wants to get rid of president Zelenskyy, a democratically elected official, and install a pro-Russia puppet government. Or maybe he wants to annex Ukraine and fulfill his imperial dream. He says Ukraine should be a part of Russia, not its own country. Fortunately, the Ukrainians prepared for this fight. They modernized and improved their military tremendously since 2014 and put up stiff resistance. Putin thought the war would be over in three days, but it is dragging on much longer.

Many democratic governments around the world condemned the invasion and the atrocities that followed. The United States, Canada, EU, UK, Australia, Japan, Taiwan, and several other countries implemented sanctions against Russia. This resulted in worldwide inflation of energy and food prices.

Russia is the third-largest oil producer and the world’s largest exporter. The war and the following sanctions caused the price of energy to spike everywhere. Ukraine and Russia are also big producers of wheat, corn, cooking oil, and other agricultural products. They are fighting each other so many farmers can’t work. Agricultural products are stuck due to the fighting and sanctions.

Food prices already increased all over the world since 2020 due to Covid. The war in Ukraine exacerbates the situation and the food price index made a giant leap to hit an all-time high in March 2022. I got a sticker shock when I went shopping for the first time in 3 months. (I was in Thailand to visit my parents.) Everything is more expensive than when I left. We’re still fortunate because the US is the largest food producer and exporter in the world. Things are more expensive, but we probably won’t starve. Some countries aren’t as lucky. Many countries need to import food to feed their people. Food insecurity will be a huge problem for a lot of people this year.

In addition, a large portion of the world’s fertilizers is stuck in Russia and Belarus. As a result, fertilizer price has increased by over 40 percent since the invasion began. Farmers all over the world are cutting back on fertilizer and yield will be reduced. Lower supply equals higher grocery bills. If you’re struggling to put food on the table now, it’ll be even more difficult later this year. 2022 is shaping up to be a bad year for everybody. Thanks Putin!

China?

Unfortunately, many countries are refusing to condemn Russia for invading Ukraine. Some have a relationship with Russia, but many also don’t want to anger China. Russia and China are both authoritarian regimes and they are forming an alliance against democracy. Yeap, the Cold War is back on. Many countries depend on China to fuel their economy and they’ll have to pick a side in this conflict.

Let’s look at Thailand for example. 11 million Chinese tourists visited Thailand in 2019. They spend freely and many Thais made a good living in the tourism sector. China is also Thailand’s second-largest trading partner. It’s understandable that the Thai government is trying to be neutral and avoid criticizing Russia. No countries in the region want to get on the bad side of the 800-pound gorilla next door. Although, Thailand exports a lot of stuff to the United States too so they’ll have to take that into account. It’ll be a tough balancing act. Coincidently, Thailand also has a hybrid form of authoritarian government. (It’s complicated…) Those guys usually don’t criticize each other.

Anyway, back to China. Xi Jinping is China’s Putin. He cultivated a cult of personality and got rid of all potential opponents. Like Putin, Xi wants to cement his legacy as the savior of their countries. He dreams of reunifying China. This means invading and annexing Taiwan.

Putin showed us what a dictator can do. He doesn’t care what a war would cost the Ukrainians or the Russian people. As long as he wins, the price doesn’t matter. Xi Jinping is the same. He’ll invade Taiwan and damn the consequences. If he reunifies China, he thinks it’ll be worth it. He’ll make it into the Chinese history books as the greatest leader since Mao Zedong. Do you think he cares what the cost would be? He would still be comfortable personally. So what if ordinary people suffer? Dictators never care about that. See the news about the lockdown in Shanghai. 26 million Chinese are suffering, but Xi will stick with the zero Covid policy to save face.

Also, we can deduce that the US won’t go to war over Taiwan. Just as the US won’t go to war over Ukraine. We will send a lot of weapons and aid, but we won’t risk World War III. We’ll implement sanctions and further bifurcate the world. Say goodbye to cheap stuff. The price of goods will increase across the board and inflation will rise again.

*This whole section about China is just speculation. Nobody really knows what Xi Jinping will do. But we should hope for the best and prepare for the worst.

The end of globalization

The people of the world had a great run for 30 years. I was lucky to catch the tide and became prosperous through investing. Life will become more difficult over the next few years due to geopolitical instabilities. If history is any indication, this next Cold War will last decades. Global trade will decrease and companies will have a harder time growing. We probably won’t be able to grow our wealth as quickly as over the last 30 years. I’m not too worried because we are already comfortable financially. It’ll be tough for our son, though.

Sorry for the gloom and doom today. I wanted to write about how to grow your wealth in the coming new world order. However, that’ll have to wait until next time because I’m exhausted from doing taxes this week. Also, I need to do more research. I guess defense companies will do quite well…

Do you think the golden age of globalization is over? Is there any good news for the world?

Real estate probably will continue to perform well. We still have a housing shortage and people need to live somewhere. Check out CrowdStreet if you want to generate passive income from commercial real estate. It’s way easier than being a landlord.

image credit: historica.fandom.com/wiki/Second_Cold_War

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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31 thoughts on “Are You Prepared for Cold War 2?”

  1. For me this really causes anxiety, almost to panic attacks. But we have been going this way for about 10-20 years now, with populists etc getting stronger and stronger. And people seem to be loosing their minds, beliving just about any crazy conspiracytheories you can make up. Why I cannot still understand, why a sane human being would vote for someone who is obviously lying.

    But, I think things have a chance of finally improving. Ever since Russias war on Ukraine the world now cannot turn a blind eye to what authorianism and populism ultimate leads to: war, murder and genocide. What gave me some hope is all the action taking against Russia, and even companies are taking a stand. Finally, people seem to be more aware of what is at stake and actually doing something about it. Hell even greedy corporations are taking a stand against this, and loosing money from it. That is what I have been waiting for, the spark that causes resistance against populism etc. Until now democracies have been more or less not resisting at all.

    Even populists in my country are now accepting immigrants (sure they are white so that probably why, but anyway) and are also leaning on voting yes to Nato. This is huge.
    Our European Union, more divided than ever now have a common enemy and are now instead becoming more united to this outside threath. This will of course not solve everything, remove the populits or make everyone friends, but it is a start for increased cooperation. Do we want peace or war, the answer here is easy. Also, everyone has noticed that Russia did not just win the war in a week or so, things are not at all going as planned. Resistance is huge, and the war is going bad. Local media here uses the word “catastrophic failure” frequently.

    On a side note I read that Amnesty International called 2021 somewhat of a year when democracy started to defend itself. Also noticed that in RetireyBy40s link to freedomhouse above, under “cause for hope”.

    But with all this, I am hugely disappointed with humanity choosing what is bad for us.
    It breaks my heart when people gor fo authoritan, did they not read about history in school, or wtf is wrong with them? Democracy is not perfect, but o my god the alternative is so much worse.

    The fight is far from over, and we need to increase our efforts to keep our democracies.
    We have done it before, and can do it again. For me, this has lead from fear and insecurity to anger and determination. Progress is not guaranteed, but possible and ALWAYS uneven. Some people say that history repeats itself, well if that is true they will loose again.

    Also dont forget, the populism surge did not take over everything, and there are signs of that it has peaked and is regressing. To quote Freedomhouse:

    “Autocrats remain determined to keep and expand their power, and they will continue to make gains so long as democracy’s proponents let them. It is time for everyone who understands the stakes to rebuild and improve upon the international norms that democracies long championed, and push the reprehensible practices of authoritarians back to the margins of human experience where they belong.”

    Or in short, vote for authoritarian populist and you are next in line to have your rights removed and family punished just because. Democracies expand everyones rights further, while autocraties goes the other way, all the way until none is left. I wish people would stop voting for their own destruction.

    Reply
    • Thanks for your input. It’s very informative to hear what Europeans really think. The media here doesn’t really show that. Maybe I can find some more opinions on YouTube or other channels. I’m just thankful we still have democracy in the US. We’ll have to fight to keep it, though. Many election deniers are running for offices. Who knows how they will influence politics if they get into positions of power.

      Reply
  2. Joe,

    If there’s one thing I’ve learned from Youtube: don’t believe all the doom and gloom! 🙂
    I understand your fear of the future since a lot is happening on a global and geopolitical scale, but I wouldn’t look at those changes negatively. Ofcourse, wars and rising energy and food prices aren’t something to celebrate, but people adapt and find solutions in the mid-to-long-term.

    With regards to the golden age of the past 30 years being over… Hardly, I think. My grandparents talk about the golden age of the 50s and 60s, which makes the last thirty years pale in comparison. Just to put your lifetime in perspective. Globalization and global trade is not all positive, but highly depends on where you live and what your specific skillset is. Less reliance on global trade could also boost certain economic activities or change the composition of our workforces.

    I, for one, try to look at the recent geopolitical turmoil as a positive thing: the European Union hasn’t been this united in my lifetime. They’re finally taking full economic sanctions on a unanimous basis, and there’s talk about building out a defense union or strengthening commitments to NATO. On top of that, China is for the first time in a long time put in a difficult position where economic growth is slowing rapidly, and their dependence on Western consumption and difficult relation with Taiwan makes it impossible to fully support Russia.

    Bottom line: chin up, you still live in one of the wealthiest countries and most free countries on earth and that’s not going to change any time soon! 🙂

    Cheers,
    NMW

    Reply
    • You’re right, but it’s hard to see the positive points with all the terrible things going on in Ukraine.
      China has a ton of problems. I think it’ll be difficult for them to become the next superpower.
      Their central planning is unraveling.

      Reply
  3. I’m on the same page as Mr. Tako with this one. I try to tune out stuff like this (to a point, obviously) and focus on what I can control.

    You might be right about the end of globalization. I guess time will tell. We’ll have to see how things play out but going down that YouTube rabbit hole can be a real brain #$%^. I try to stay away from that, but I also stay away from watching the mainstream media, too. I keep a breaking news app on my phone just for the headlines to stay in the loop but otherwise, we just continue to concentrate on our own lives… not sure if that’s good or bad. 🙂

    Reply
    • I don’t read any news at all anymore. If it was really new information, journalists wouldn’t be journalists, but rich beyond belief because they could leverage that information on the stock market.

      Books and monthly magazines (at most) is where the most valuable information is, in my opinion.

      Reply
  4. It’s tough right now but I like to see things from an optimistic point of view and focus on things I can control.

    Having said that, I’m a bit worried about Taiwan and China. It’s funny because hundred of years ago, China didn’t want anything to do with Taiwan. Taiwan was under Japan’s control for 50 years.

    I hope China won’t do anything and keep the status quo. If an invasion does happen that’s going to create major economic tidal waves, more significant than what we’re seeing with Russian & Ukraine.

    Reply
    • I’d hope for the best and prepare for the worst if I have families in Taiwan. Hopefully, Xi won’t invade Taiwan, but who knows what he’ll do. If Russia succeeds in Ukraine, China might think it’s a good opportunity to reunify.

      Reply
  5. I’m not convinced we’re headed into anything like the cold war. Maybe a ‘tepid’ war with China. We’ll see. Russia isn’t our friend and never has been.

    Also, during the Cold war the US economy actually thrived. So even if we are headed to a second cold war it isn’t necesarily bad for America financially.

    Reply
    • That would be the best-case scenario. Hopefully, Xi won’t invade Taiwan. That would cause a huge repercussion around the world. It was a different world back then. Developed countries drove a lot of the growth. Now, many companies depend on less developed countries to grow. I think many companies will have less profit if China is sanctioned. Other smaller countries probably will have to pick a side as well. Can they be neutral? I don’t know.

      Reply
  6. We are definitely experiencing an awakening in world politics . The limits of what democracy can achieve have been met at the border of Ukraine and Russia and we see the results. With climate problems, wars and mass migrations food sources will become scarce for many and more costly for others. We need to address global population which is not sustainable either. Too many people consuming too few resources will result in inflation and shortages. Nothing new here.

    Reply
    • I don’t think the global population is a huge problem. When people get richer and more educated, they have fewer children. As long as the food production is running, we shouldn’t have too many problems in the future. Many countries’ population is already slowly declining.

      Reply
      • Yes and for a long time agriculture has been improving, A LOT! We are manufacturing so much more on less space than before. The actual acres needed to sustain a population is actually decreasing, not increasing. The trend will probably increase with current development, increased automation and global population peaking and declining.

        Also since we hav more efficent production these days, raw material that each individual is using is actually decreasing aswell. So we are on the right path with some things in the world.

        Reply
    • That’s one of the reasons why the US government is encouraging companies to increase semiconductor manufacturing here. It’ll take a while, though. Inflation will go through the roof if China invades Taiwan. Hopefully, Xi Jinping isn’t in a big hurry.

      Reply
  7. Hi Joe, unfortunately, I agree with your analysis, especially since you have a wider cultural viewpoint that I respect. We have had an easy ride. Heck, my grandmother’s extended family all had to sleep in her house during the depression — many of them simply set up pallets on the floor in the dining room — for YEARS. And they were considered lucky to have a free roof over their heads.

    F.I.R.E. lessons will be helpful as we move forward, in my opinion. 1) we don’t need to continue fueling the consumer machine by buying useless junk. 2) self-reliance, learning, and social capital will be key.

    Reply
    • Those are useful things we can do. Inflation is rising and we need to control our spending.
      #2 is really good as well. We need to be more self-reliant when the world is in turmoil. Thanks for your input.

      Reply
  8. Hey Joe,

    Unfortunately it’s not really very clear anymore which side is the authoritarian one and what exactly is the definition of democracy in 2022 being cited this week? Also, when did a Constitutional Republic become a Democracy? Don’t remember seeing that on my voting card.

    I’m assuming you are referring to western democracy which is now acting fascistic. (When government controls the media, and big businesses drive narratives and gatekeep, to get around laws, all three in collusion, that is the definition of fascism) Through this alliance we are already in a Chinese style social credit system which will only get worse if it is not stopped now.

    Look at what is going on with the TWTR fiasco. Certain media Pundits claim Billionaires shouldn’t be able to own social media platforms all of a sudden? Well the truth is, most of them are owned by one or more. It’s just that only “certain” billionaires shouldn’t. Who gets to pick and choose which billionaire is allowed and which is not? That spells it out what’s really going on in an investing kind of example for you.

    I believe we are all in for a big awakening, and even us FIRE people with ESG policies that will affect us negatively in the coming years. (look at the stated goals of esg investing, they are not just environmental) Leaders always make pretty speeches about how they want to leave a better future for our children, but never define their end goal. The reason for that is the end goal is a lower living standard for all of us, except a very small group saying “you” will all be happy, not “we” will all be happy.

    IMHO you need to do some more research on what is really going on before making a post like this. It’s a lot more complex then this and unless you truly want to scratch below the surface your just repeating PR from mainstream news sources driving a narrative, not news.

    Reply
    • That’s a whole other topic. There is only so much I can cram into 1,000 words. But I don’t think we’re anywhere near Chinese socialism. We have a lot more freedom and we should appreciate it. You’re right about the rise of authoritarianism in democratic countries too. Many election deniers are running for offices now. If it was up to them, a lot of people wouldn’t be able to vote.

      Reply
  9. Excellent article, despite the doom and gloom. I think you can make a good investing case for next time. Maybe commodities? I’m putting more in consumer staples and value instead of growth. Alternatively, tech is getting hit a bit (as you mentioned in another article), so maybe it’s a good time to get a discount there.

    I think you hit on something important – there’s a generation change going on. More than one maybe. The security that you are I feel isn’t necessarily there for the next generation. I want to be an optimist though – they’ve got a lot of information and FIRE folks like us can put them in a great position to succeed. Maybe that’s a secret power of the FIRE movement.

    As for the challenges that the next generation face – that’s why I created KidWealth.com

    Reply
    • I need to do more research and see what sectors will do well with less globalization. Tech might not work that well because they depend on getting more people online. They won’t be able to grow as fast with more restrictive markets. The next generations will need a lot of help. KidWealth.com is a great first step to learn more about personal finance.

      Reply
  10. Hello it is best you don’t talk politics as it is being overly polarised by the media of west and east and so such untrue and lies here and there….everybody think their system is the best and others that don’t conform are evils sad to see how human beings are killing each others due to hagemony thinking…:-(

    Reply
  11. This is an interesting take on things. You might be on to something, but only time will tell. I do think it will be harder for the current generation to build wealth, though I hope that’s not the case. Thanks for the post that makes me think more. Off to do a bit more research.

    Reply
  12. Lots of politics in this one Joe, and lots of doom and gloom. That’s not really my bag, and neither is trying to predict the future. I certainly don’t know if there’s going to be a new Cold War. Youtube doesn’t have all the answers either.

    Instead of worry it, I try to focus on what I can control. In the case of geo-politics, that’s just about zero.

    Reply
    • That’s what I usually do. Try to focus on what we can control. However, the food and energy price inflation is real. There is a good chance we’ll have a food shortage later this year. We should try to prepare for it.
      The stuff about China is all speculative, though.

      Reply
  13. Good post, kind of woke me up a bit, i know all theese things are happening but never thought that this is or could be a huge change in “how the worlds works for the forseable future”…

    With this knowledge, how do we invest?
    Something to avoid perhaps?

    Regards

    Reply

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