I found the best way to protect
yourself from the current market chaos.
The thing is, we have no idea how
long current conflicts or uncertainty will last.
So I needed to dig deep into what
the experts in history have to say.
Meet Ray Dalio, the visionary behind
the world's largest hedge fund.
Not only is this guy rich, he's actually
pretty smart, building many of the financial instruments
and metrics that we still use to this day.
Ray Dalio has a pretty unusual way
of looking at the markets, and journalists took notice.
See, for most of his life, the
methods that guided his success remained secret.
I've been trying to make sense this morning, as
we do every morning, of where we are in
this economy and where we are in the markets.
And I haven't had the opportunity to hear
from you and ask help us understand what's
going on inside Ray Dalio's mind right now.
He said that getting a lot of attention for
being successful is a bad position to be in.
Calling it tall poppy syndrome, because the tallest
poppies in the field are the most likely
to have their heads whacked up.
But as is the case with secrets, the more he tried
to keep it hidden, the more curious the public became.
Tension was building, and then the
sensationalist media frenzy exploded, accusing Dalio
of leading this sort of cult.
Dalio needed to set the record straight, so
he compiled some of his core principles, particularly
the ones that were under media attack, into
this sort of esoteric philosophy book called Principles.
And then he made it free to
read on his website and YouTube.
I took the time to go through both of his books.
The reason I thought it was important to actually go
through his books instead of just watching a summary on
YouTube was I strongly feel Dalio has some of the
best insights in the world on investing
during times of extreme uncertainty.
The greatest rewards tend to come to the people
willing to go the extra mile.
And there's one sector of the economy Dalio
knows well, a sector that's been trending - commodities.
Not one to follow in a traditional path,
the young Dalio of the 1970s decided to
follow a very different trail, the hippie trail.
In a search for ultimate truth and enlightenment, he'd
studied under a famous Yogi, being this poor hippie
backpacker, he didn't have a lot of money to
pursue his trading dreams, so he fell into commodities.
The reason being they have low margin requirements,
meaning Dalio could get a lot of exposure
even with a limited amount of money.
And this was perfect timing.
As the draft for the Vietnam War
expanded, gold was beginning to rise.
The government assured people that
this was only temporary.
- Your dollar will be worth just as
much tomorrow as it is today.
- But with the war both in prices
in Vietnam, trust was slowly fading away.
By the spring of 1971,
the dollar reached a breaking point.
Over the next decade, the cost
of living more than doubled.
The dollar lost more than half its value.
Europeans wouldn't accept it from American tourists,
and the global financial system was in
the process of breaking down.
Then, on Sunday, August 15, 1971, President Nixon
went on TV and shocked the world.
I have directed Secretary Connally to suspend
temporarily the convertibility of the dollar
into gold or other reserve assets.
Young Dalio was about to learn an important lesson.
Don't trust the government when they assure
you a currency won't be devalued.
On the following Monday, Dalio walked into
the floor of the exchange expecting pandemonium.
And there was, but not the kind he was expecting.
Instead of falling, the stock market jumped
about 4%, a significant daily gain.
Dalio spent the rest of the summer
studying past currency devaluations, and the cycle
was as old as time itself.
If only Dalio had done his homework ahead of time.
Picture this.
Your government goes on a rampant spending spree
for years, taking on too much debt and
paying for it with a depreciated currency.
All is well for a while, but a combination of
supply chain issues, war, and inflation are not only causing
the price of oil and other commodities to spike to
record highs, but markets are beginning to retreat.
By double digit percentages, investors
are moving to safer assets.
Fear is circling that we're in a bubble
or worse, the brink of total collapse.
What I just detailed is 1973.
This is why understanding the past can give
us enormous insight into the future.
Once again in the early 70s, Young Dalio was blindsided, but
in retrospect, he saw that the dominoes had fallen
in this logical sequence. Dalio thinks that
the US dollar today could potentially lose
status as the world's reserve currency.
And this makes sense given the fact
that all empires have risen and fallen.
See, the world's reserve currency
is constantly in flux.
And not only that, Dalio believes we could be
on the verge of a new world order, suggesting
a different kind of investing strategy.
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Now, if you've tried to buy anything
recently, you've probably noticed a trend.
Could this be a complete repeat of
the 1970s or a real super cycle?
Super cycles are long periods where commodities trade at
well above their price trend. Going back 100 years,
we've seen at least three super cycles, and they all
have a common trait - ties to massive economic change.
The last super cycle lasted from the
mid 90s through the Great Recession.
China's rapid economic growth saw surging demand for
all commodities as the country expanded its cities,
pumping money into roads and Railways.
The boom lasted until 2011.
Oil peaked at well over $100 a barrel, copper more
than $4 per pound in the global economy of 2022.
Everything is connected.
The recent rise in wheat futures is
expected to hurt the entire world economy
and make costs higher for everyone.
Wheat prices surged nearly 40% this month,
hitting their highest level in 14 years
on Thursday, a result of the escalating
conflict between major exporters Russia and Ukraine.
This is a domino effect on
all other commodities and prices.
Let's say corn and soybeans go up in price.
This means the cost of feeding chickens rises.
So the cost to buy chicken
at the grocery store also rises.
Some consumers will turn to beef instead, but that
then pushes up the price of beef as demand
increases for that product and the ripple continues on.
An increase in food prices means
an increased cost of living.
People need to pay for this food.
Eventually, wages have to rise.
Increased wages makes everything else more expensive.
A concern today is wheat.
Russia and Ukraine produce nearly
25% of the world's supply.
This may be the beginning of
a crazy game of commodity dominoes.
So what's the play here?
Should we all be shorting beer stocks?
Maybe. I'll leave that one up to the comments section.
But Dalio plays the markets like a game of chess.
He sees the world as
interconnected pieces of machinery.
He tries to find the connection
between different assets or factors that
the market hasn't quite considered yet.
Here's how you can put his thought process in action.
So take a look at the current event.
Take the Russia-Ukraine conflict, research what
impacts this has on the global economy.
Ideally, things that aren't getting
a ton of press coverage.
For example, Ukraine and Russia are the
world's biggest exporters of sunflower seeds.
So you find this fact out, and then you think through
the ways that you could play it on multiple layers.
On the surface, that could be, I
don't know, shorting sunflower related stocks.
Or maybe you go deeper and look at the
industries that use sunflower oil, searching for the cog
that is most likely to see the greatest impact.
One thing that Dalio loves to do
is to find a historical parallel.
So take a look at this.
The Yom Kippur War.
This was a conflict between Israel and Arab States.
The primary effect on markets was an oil embargo.
This made it very difficult for the Federal
Reserve to get a handle on inflation.
It even resulted in widespread energy
rationing in the United States.
In my previous video, I said that
geopolitical risks are usually temporary and make
for great dip buying opportunities.
Take, for example, the Cuban missile crisis.
Surely nuclear annihilation was one of the
most significant risks that humanity ever faced.
But the market had very little reaction to
it, and it was resolved pretty quickly.
However, the Yom Kippur War's worldwide effect on
commodities caused one of the worst markets following
a geopolitical event in modern times.
So the question remains, how big of an impact
will Russia and Ukraine have on global commodities?
I'm sure you're already seeing a
frustrating change at the gas pump.
I mean, I own a moving
logistics company with big trucks.
We're already spending thousands more on
fuel than we were before.
At a certain point, that will have
to be passed on to customers.
Take a couple million businesses feeling the
same way as I do, and this
is what drives massive economic change.
The problem is the future is uncertain.
We have no idea how long conflicts will last.
But I do know that commodities definitely
have a place in a portfolio.
If not for the New World Order, then at least
as a hedge against inflation and Fed money printing.
So how do you play it?
Well, there's a few options.
The simplest approach is buying a broad
based commodity index like DBC or DBA.
DBC gives you a diversified bundle of crude oil,
natural gas, copper, and a whole lot more.
DBA has agricultural products like
corn, soybeans, and wheat.
Now, past performance is no guarantee of future
returns, but if you bought either one of
them last year, you did pretty darn well.
It's important to remember that
If you're right, you'll make a lot of money.
But I wouldn't try to time this
for the risk takers out there.
There's always buying call options
to get extra leverage.
But be very careful and only play
options if you know what you're doing.
But by far the biggest and most degen way to
play commodities as a retail investor is with futures.
You shouldn't do this, but it's
good to understand how it works.
Futures let you gain an insane amount of leverage,
so you can profit a potential massive amount if
the price of corn moves like a penny.
But that also means you can lose a massive amount.
Futures are used by people like farmers
to hedge their crops, although most Wall
Street degenerates just use them to gamble.
And when you trade futures, you have to actually
be willing to accept physical delivery of the commodity.
If you forget to close it.
Imagine getting a call from the port that your
shipment of thousands of ornamental gourds are ready for
pickup because you forgot to close your future position.
That's rare, but it's actually happened.
Well, I have no idea how this war will end.
Commodities have a proven track record
in times of inflation and uncertainty.
There could be room for this
in a well diversified portfolio.
If you'd like to see exactly how I'm hedging
my portfolio, join my Patreon linked in the description
there you'll find full access to all my investments
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I'd like to thank you so much for watching.
I'm Max Maher and I hope you have a profitable day!