Let’s face it: predicting the future is tough.
This is especially true if you’re a pessimist.
Just ask geopolitical wizard George Friedman.
Source: Amazon
Back in 1991, George Friedman co-authored a book with his wife, Meredith LeBard.
- It was provocative. It was controversial. It was anxiety-causing.
- The title of the book was The Coming War with Japan.
- It quickly became a bestseller. Attracting unusually strong interest for an academic title. Selling hundreds of thousands of copies within its first year.
So why did this book capture the public imagination? Well, I think its messaging was irresistible. It was as crunchy and tasty as a bar of Whittaker’s chocolate. Here’s what George Friedman predicted:
- The United States and Japan were on a collision course with destiny. This was inevitable. Unstoppable. We could expect to see a catastrophic upheaval within a generation.
- How would this happen? Well, Friedman connects the dots. He believed that the end of the Cold War was the pivotal event here. It would lead to America becoming fiercely protectionist, strangling trade with Japan. The marriage of convenience was over. A bitter divorce was on the cards.
- At the same time, a resource-hungry Japan would be burdened by national debt and a high savings rate. Without the ability to export to America, it would feel pushed into a corner.
- So Japan would return to its military and imperial roots. It would aggressively rearm. Embarking on Pacific conquest. Carving out a new Greater East Asia Co-Prosperity Sphere. This would be the only way to seize new materials and capture fresh markets.
- This meant that countries like North Korea, Myanmar, Thailand, Malaysia, and Indonesia would quickly fall under the Japanese sphere of influence. Meanwhile, countries like China, Vietnam, and the Philippines would remain contested.
- Naturally enough, this would piss off the United States. Unwilling to surrender their dominance of the Pacific, the Americans would do what they always do best: project power across continents. Dropping the hammer on the Japanese. Delivering shock and awe.
Ultimately, Friedman had a serious warning for us: only a miracle could save the world from a showdown between Washington and Tokyo. So be afraid. Be very afraid.
- Nonetheless, Friedman did offer us a teeny-tiny morsel of hope. If we were lucky (a big if), then perhaps we might only get a long, miserable cold war. Perhaps less serious than a rapidly escalating hot war. But even then, the odds of peace weren’t great.
- Friedman thought the consequences for the global economy would be devastating. So if you were an investor, maybe the implication was this: you needed to exit the market. You needed to run. You needed to hide.
But…ahem…with the benefit of hindsight, you already know how this story ends, don’t you?
- Of course, doomsday never happened. The apocalypse never arrived. In fact, shortly after The Coming War with Japan was published, an unexpected twist happened.
- In 1992, the Japanese asset-price bubble burst. This led to a sustained period of deflation. Causing Japan’s economy to stagnate. Ouch.
- Meanwhile, the United States was much more dynamic and adaptable. Its economy immediately took the lead. Its stock market soared.
According to analyst Ben Carlson, the 1990s were a remarkably good time for American investors. The S&P 500 delivered an average annual return of 18% over the decade.
- Indeed, 18% is strong. It’s higher than the 10.33% average that the S&P 500 has recorded since 1957. Pretty impressive.
- So forget war. Forget upheaval. Today, when Americans think back on the 1990s, they only remember optimism and opportunity. In fact, National Geographic has a great nickname for the 1990s. They call it ‘The Last Great Decade’.
- Perhaps there’s a lesson in this. A decade will seem terrifying when we’re looking ahead at it through the windscreen. However, a decade will appear nostalgic when we’re looking back on it through the rear-view mirror.
Source: Saad Alshammeri / LinkedIn
Now, what was true in the 1990s might also be true right now in the 2020s.
- At the moment, everyone is worried about tariffs. Is the situation going to escalate? Is it going to be bad? If so, how bad will it get?
- Well, I’ve noticed that when people are faced with uncertainty over the future, they will tend to fall back on primal fears. They will tend to say: ‘I think this is going to end in an absolute disaster. There’s no way in hell that we can escape the coming Armageddon.’
- Of course, that’s human nature, isn’t it? People will embrace pessimism instead of optimism. They will spend 1,000 hours obsessing over doomsday. And yet they will spend almost no time considering the possibility that doomsday may have been oversold.
So, with the first half of 2025 already behind us, I want to talk about the tariff fear events that have loomed large this year:
- Yes, negative prophecies have been made by the media. Yes, this has created emotional jitters. But — surprise, surprise — none of these predictions have actually come true so far.
- Maybe the terror has been exaggerated. Maybe we’re seeing a disconnect between perception and reality.
- If so, is the anxiety creating a value gap for courageous investors to capture? What does this mean for the second half of 2025?
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