33 THE CHANGING WORLD ORDER STOCK MARKET CLOSURES ACROSS MAJOR ECONOMIES Count Share of Global GDP 10% 20% 30% 40% 50% 0 1 2 3 4 5 6 7 1900 1920 1940 1960 1980 2000 2020 World War I World War II 9/11 Fall of USSR, reopening of China's equity markets 0% DEATHS IN MAJOR VIOLENT CONFLICTS (%POPULATION) INTERNAL AND EXTERNAL 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 UK 0% 2% 0% 0% 1% 0% 0% 0% 0% 0% 0% 0% USA 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% China 0% 0% 1% 2% 3% 1% 1% 1% 0% 0% 0% 0% Germany 0% 3% 0% 9% 15% 0% 0% 0% 0% 0% 0% 0% France 0% 4% 0% 0% 1% 0% 0% 0% 0% 0% 0% 0% Russia 0% 4% 5% 10% 13% 0% 0% 0% 0% 0% 0% 0% Austria-Hungary 0% 2% Italy 0% 2% 0% 0% 1% 0% 0% 0% 0% 0% 0% 0% Netherlands 0% 0% 0% 1% 2% 0% 0% 0% 0% 0% 0% 0% Japan 0% 0% 0% 1% 4% 0% 0% 0% 0% 0% 0% 0% 34 THE CHANGING WORLD ORDER 7 IMPACT OF TAXES ON ROLLING 20-YEAR S&P TOTAL RETURNS Pre-Tax Post-Tax (401[k]) Post-Tax (Brokerage) Avg Ann Total Return 9.5% 8.2% 7.9% Avg Drag from Taxes (Ann Total Return) -1.3% -1.6% Avg Drag from Taxes (% of Total Returns) -14% -17% Avg Ann Real Return 6.2% 4.9% 4.6% Avg Drag from Taxes (Ann Real Return) -1.2% -1.6% Avg Drag from Taxes (% of Real Returns) -20% -26% USA FINANCIAL ASSETS SHARE OF TOTAL ASSETS 40% 45% 50% 55% 60% 65% 1900 1920 1940 1960 1980 2000 2020 1929 stock market bubble WWII WWI FDR Nifty Fifty 1970s devaluation Volcker tightening/ Reagan Revolution Dot-com bubble Housing bubble 7 Tax impact for 401(k) method applies a 26 percent income tax rate (effective average federal tax rate for top quintile from the Congressional Budget Office as of 2017) at the conclusion of each 20-year investment period (i.e., tax-free investment growth). Tax impact for brokerage method separately taxes dividends (at the same 26 percent income tax rate) and capital gains, paying taxes on all capital gains (at a 20 percent rate) from both principal and dividend reinvestment at the conclusion of each 20-year investment period and netting losses against any gains. 35 THE CHANGING WORLD ORDER REAL RETURN OF BILLS (VS CPI) USA GBR DEU FRA ITA JPN CHE ESP NLD -100% 0% 100% 200% 300% 1900 1920 1940 1960 1980 2000 2020 GOLD RETURNS DURING 60/40 DRAWDOWNS Gold Returns (in Global FX) Global 60/40 Drawdowns -50% 0% 50% 100% 150% 200% 1900 1920 1940 1960 1980 2000 2020 36 THE CHANGING WORLD ORDER REAL BOND YIELD USA EUR JPN NOMINAL BOND YIELD -2% 0% 2% 4% 6% 8% 1900 1925 1950 1975 2000 2025 0% 4% 8% 12% 16% 1900 1925 1950 1975 2000 2025 Near lowest ever Near lowest ever REAL CASH RATE USA EUR JPN NOMINAL CASH RATE Near lowest ever Lowest since WWII -8% -4% 0% 4% 8% 1900 1925 1950 1975 2000 2025 -3% 0% 3% 6% 9% 12% 15% 18% 1900 1925 1950 1975 2000 2025 37 THE CHANGING WORLD ORDER NOMINAL PAYBACK PERIOD (YEARS) Cash Bonds REAL PAYBACK PERIOD (YEARS) 0 20 40 60 80 100 00 20 40 60 80 00 20 0 40 80 120 160 200 00 20 40 60 80 00 20 Will never get your buying power back 38 THE CHANGING WORLD ORDER England Portugal Habsburg Spain France Genoa Venice German (non-Habsburg) Holy Roman Empire Ottoman Empire Russia Poland-Lithuania Sweden Habsburg Central Europe Habsburg Low Countries Habsburg Italy Papal States Ming China Fragmented smaller states C H A P T E R 8 THE LAST 500 YEARS IN A TINY NUTSHELL 39 THE CHANGING WORLD ORDER BOOK/MANUSCRIPT PRODUCTION IN MAJOR EUROPEAN COUNTRIES (MLN) 0 100 200 300 400 500 600 1000 1100 1200 1300 1400 1500 1600 1700 1800 Printing press Hundreds of millions of texts produced in each of the subsequent centuries 500 600 700 800 900 UK CONSUMER PRICE INDEX 0.0 0.2 0.4 0.6 0.8 1.0 1300 1400 1500 1600 1700 Spanish Price Revolution SILVER PRODUCTION FROM MEXICO AND PERU (METRIC TON) 1520 1600 1680 1760 0 2,000 4,000 6,000 8,000 40 THE CHANGING WORLD ORDER 0 2 4 6 8 10 1360 1416 1472 1528 1584 1640 1696 1752 1808 1864 Treasure voyages and early Ming expansion Ming-Qing transition ROUGH COUNT OF TRIBUTARY AREAS (BASED ON TRIBUTARY VOYAGES OVER 30YR WINDOW) 41 THE CHANGING WORLD ORDER Level Relative to Own History (1 = Max) THE NETHERLANDS: INDEX OF KEY DETERMINANTS 0 1 1500 1600 1700 1800 1900 2000 Major Wars Education Innovation and Technology Competitiveness Military Trade Economic Output Financial Center Reserve FX Status C H A P T E R 9 THE BIG CYCLE RISE AND DECLINE OF THE DUTCH EMPIRE AND THE GUILDER 42 THE CHANGING WORLD ORDER DUTCH ARC 1550–1850 Major Wars Netherlands Habsburg Spain United Kingdom Level Relative to Other Empires (1 = Max) 0.2 0.3 0.4 0.5 0.7 0.6 1550 1600 1650 1700 1750 1800 1850 Thirty Years’ War Innovation Ships & first global corporation Rising Inequality New Order Congress of Vienna External Conflict 4th Anglo- Dutch War (1) (2) (3) (4) (5) (6) Economic Problems Run on Bank of Amsterdam Napoleonic Wars Global Empire & Military Strength New Order Dutch independence Year of Disaster (1672) Economic Prosperity & Reserve FX War of the Spanish Succession Dutch Rebellion & Eighty Years’ War HABSBURG SPAIN’S ARC IN THE 1500S AND 1600S Major Wars Spain Netherlands Level Relative to Other Empires (1 = Max) 0.1 0.2 0.3 0.4 0.5 0.7 0.6 1500 1540 1580 1620 1660 1700 New Order Union of Spain & Holy Roman Empire Innovation Ships & Age of Exploration Global Empire Economic Problems Multiple sovereign defaults Internal Conflict Start of Dutch Revolt Weak Leadership Philip II & III External Conflict New Order Peace of Westphalia Habsburgs inherit Spain Conquest in the Americas Spanish Armada defeated Thirty Years’ War Catalan & Portuguese rebellion Habsburg rule over Spain ends (1) (2) (3) (4) (5) (6)