Buttonwood

Australia has dodged many banana skins. Is it about to come a cropper?

An extended business cycle has led to an over-extension of finance




THERE ARE two ways to film the banana-skin joke, said Charlie Chaplin. The first begins with a wide shot of a man walking down Fifth Avenue. Cut to the banana skin on the pavement. Go to a close-up as foot meets peel. Then pan out to reveal the man landing on his backside. Ha ha ha. The second version is like the first except in this one the man spots the banana skin and carefully sidesteps it. Blind to other hazards, he smiles to the camera—and immediately falls down an open manhole.

The second version is funnier, perhaps because it carries a deeper truth: a mishap avoided can lead to a greater calamity down the road. This seems to be a pattern in financial affairs. Japan dodged the banana skin of America’s 1987 stockmarket crash, only to disappear down a manhole a few years later. Emerging Asia brushed aside the Mexican crisis but imploded later on. Britain sailed through the dotcom bust in the early noughties, but was damaged by the subprime crisis.


This is why some analysts believe that Australia’s economy is overdue a fall. It shrugged off the global financial crisis (the GFC as Australians call it) of 2007-09. Indeed it has dodged recession for 27 years, making fools of forecasters. But it has paid a price. By extending its business cycle, it has over-extended its financial cycle. That in turn makes it more vulnerable when trouble strikes.

To understand why, first consider how exceptional Australia has been. Its economic cycle was broadly in sync with America’s until 2001. America slipped into recession. But in Australia a sharp reduction in interest rates by the central bank lit a fire under the housing market. The saving rate declined as consumer spending rose. GDP growth sped up even as it fell in America.

When the GFC struck, Australia’s banks came through intact. Policymakers boasted that the steady profits from oligopoly (Australia’s “big four” accounted for 70% of banking assets) meant local banks could eschew the sort of risky lending that crippled those in America and Europe. A credit boom in China spurred a mining boom in Australia. When it ended in 2014, interest rates were cut and housing took off again.


Australia has not been left unmarked by these escapes. Its housing market is now one of the most overvalued in The Economist’s global house-price index. Household debt has reached 200% of disposable income (the comparable peak in America was 125% in 2007). The saving rate is skimpy. Ian Harnett of Absolute Strategy Research, a London-based consultancy, points out that wherever the value of the banking sector has risen above 20% of the overall equity market, trouble has been close behind (see chart). Others think Australia is due a “Minsky moment”, named after Hyman Minsky, a scholar of financial cycles, in which a debt mountain collapses under its own weight.


House prices have been falling for a year, led by the markets in the big cities, Sydney and Melbourne, popular spots for global investors, notably from China. A clampdown on risky lending by bank regulators acted as a trigger. It seems Australia’s banks may not have been quite as conservative as previously advertised. The share of interest-only loans, favoured by speculators, was as high as 40% (it has since fallen).

The wider damage has so far been limited. The number of permits issued for apartment buildings has fallen, but a full pipeline of projects means that construction firms are still busy. Consumers have kept spending. The Australian dollar fell by 10% against the American dollar in 2018, but its current level is not out of the ordinary.

Still, the situation looks fragile. Doubts about the durability of consumer spending have kept the Reserve Bank of Australia from raising interest rates, from their current 1.5%. A heap of mortgage debt seems wise when house prices are rising; less so when prices fall, especially for those who bought at the peak. The momentum that drove the market up, as higher prices fuelled expectations of further gains, works in reverse too.

Efforts to stabilise an economy often lead to booms in asset prices and credit, which in turn leaves it vulnerable come the next spot of trouble. The lucky country has avoided so many potential slip-ups that even long-standing bears are wary of predicting a fall. Perhaps a new round of fiscal stimulus in China will lift Australia’s fortunes. But for many people’s tastes, China is an even better example of a tragic principle. The more banana skins you dodge, the bigger the manhole waiting for you.


An Exclusive Look at the Companies Most Exposed to Climate Change Risk — and What They’re Doing About It

By Leslie P. Norton

An Exclusive Look at the Companies Most Exposed to Climate Change Risk — and What They’re Doing About It


Since taking over the global supply chain for Merckin 2012, Craig Kennedy has handled tornadoes, droughts, and powerful storms.

Hurricane Maria, which tore through Puerto Rico in 2017, was a more onerous challenge: Merck’s cholesterol drug Atozet and its chemotherapy product Temodar are manufactured on the island. Kennedy got the factory up and running in a week, but the roads were still a wreck, so he began planning for a new supply chain out of Singapore.

“We weren’t as prepared for the destruction of the infrastructure as we would like to have been,” Kennedy recalls. “You cannot predict what’s going to happen.”

Such dangerous unpredictability is only likely to increase. Stronger and more frequent storms, like the hurricanes in 2017 and 2018, are among the signs of global warming, or climate change, scientists say.

In recent years, corporations such as Merck (ticker: MRK) have been citing climate change as a risk factor in their annual filings. In fiscal 2017, some 15% of the S&P 500 publicly disclosed an effect on earnings from weather-related events, says Standard & Poor’s Global Ratings.

Only 4% of the companies actually quantified the effect, S&P says. But for those that did, earnings were affected by 6%. (Comparable data for previous years weren’t available, and S&P didn’t identify specific companies.)

According to company filings with CDP, formerly the Carbon Disclosure Project, CVS Health(CVS) incurred $57 million in losses, as 1,263 of its 9,800 locations experienced short-term closures during the 2017 hurricane season. Ten locations experienced long-term closures.

Another company, AT&T(T), had $627 million in natural-disaster costs and revenue credits to customers.

An Exclusive Look at the Companies Most Exposed to Climate Change Risk — and What They’re Doing About It
Alex Nabaum


Extreme weather affects companies in different ways. It can erase demand for products, or increase it. Physical facilities, in particular, can be at risk. And while those costs are typically borne by insurers and reinsurers, they must ultimately be considered by shareholders, given the increasing frequency of weather disasters.

With extreme weather, “you can expect physical disruption of supply chains and inventories—a major cost because the frequency of these events is unprecedented,” says Paula DiPerna, a special advisor to CDP. The organization serves as a disclosure system for companies and regions to measure their environmental impact.

“Investors are asking more and more detailed questions about exposure to environmental issues, unplanned and hidden potential risks due to disruption and unpredictable weather,” she says.

How to put a price on climate change?

We asked Four Twenty Seven, a market intelligence firm based in Berkeley, Calif., to share its climate-risk analytics and determine which of the S&P 500 companies are the most susceptible to extreme weather and climate change. The firm develops its scores using its databases of corporate facilities, as well as climate and weather data.

Four Twenty Seven looked at 24 industry groups to see which phenomena were material to each industry, and then came up with a scoring system. (The firm is named after a target set by California in 2006 to reduce greenhouse-gas emissions to below the state’s 1990 level of 427 million metric tons.) It sells its data to financial institutions and corporate enterprises that invest in bonds, real estate, and other securities.

Four Twenty Seven looked at all of a company’s physical sites, whether owned or leased, and then assessed them for exposure to climate-change risk. Some 70% of each company’s score was for a measure called operating risk, which includes heat stress (the frequency and severity of hot days), water stress (drought-like patterns), floods (the number of historical floods and the frequency of future heavy rainfall events and intensity of rainfall), sea-level rise, hurricanes, and typhoons, and socioeconomic risk (measuring a company’s geographical operating environment and its ability to recover from climate impact).

The remainder of the score combined what Four Twenty Seven calls market risk, or the vulnerability of a company’s end market to climate risk, and supply-chain risk, or climate risk associated with countries that make up a company’s likely supply chain.

What the examination discovered was that some of America’s largest companies, despite high marks for sustainability, remain vulnerable.

Many companies, including Merck, are already mitigating the effects of potential disruptions. But the advent of more-frequent severe weather could present a game of Whack-A-Mole for companies as they adjust their supply chains.

“We’re steadily moving toward a new normal where billion-dollar disasters are a regular occurrence,” says Emilie Mazzacurati, founder and CEO of Four Twenty Seven. “This combination of extreme weather events and growing pressure from asset owners and regulators is pushing a lot of businesses to look for a way to understand their exposure and start managing their risks.”

Thanks to globalization, “you’re exposed” no matter where your company has its headquarters, says Michael Lewis, head of ESG Thematic Research at DWS Group, which is incorporating Four Twenty Seven data in its equity research. “Carbon foot-printing didn’t get us where we wanted,” Lewis says. “Then we moved to transition risk. Now, physical risk is the third piece. We’re still working with this and have a lot of due diligence.”

The investment advisor oversees $788 billion in assets and is one of the world’s largest investors of insurance-company assets.

A list of the 15 most exposed companies in the S&P 500 is nearby. Barron’s asked all of them about their plans to mitigate the risk of extreme weather on their facilities. Four Twenty Seven trawled through several commercial and public data sources, but some of its findings were not current. (We updated and corrected the information where we could.)




 



























“We rely on several commercial and public data sources to obtain our business facility data,” Four Twenty Seven CEO Mazzacurati says. “Occasionally, there is out-of-date information, or facilities are miscategorized. This highlights the need for companies to be more transparent about the location of key facilities, which investors need to understand the climate risk exposure in their portfolios. Better data will provide better pricing of risk for investors and for companies themselves.”

Four Twenty Seven’s list of the most exposed, surprisingly, includes some of America’s best-run companies. At No. 14, for example, is the fund giant T. Rowe Price Group (TROW), whose headquarters sits by Baltimore’s Inner Harbor. According to Four Twenty Seven, two-thirds of the big money manager’s facilities are exposed to sea-level rise, and more than half are exposed to flooding.

It was certainly something that concerned the company after Hurricane Harvey flooded Houston in 2017, Blaise D’Ambrosio, T. Rowe’s vice president of global business continuity, tells Barron’s.

T. Rowe Price then analyzed what floods of 100-year and 500-year magnitudes might mean for Baltimore. The company is “well-prepared” to maintain critical business functions and serve clients in the event of a natural disaster, D’Ambrosio says. It has recovery sites just south of the city and an hour and a half west, as well as a backup site for global trading. It has business continuity strategies for all offices outside the U.S. It also has worked to reduce its own carbon footprint, decreasing greenhouse-gas emissions by 14.6% since 2010. “We don’t believe that climate change poses an unmanageable risk,” D’Ambrosio says.

The utility Consolidated Edison (ED), at No. 6, has a quarter of its facilities exposed to sea-level rise, particularly around New York City. According to Four Twenty Seven, the company also faces water stress at facilities in California and heat and water stress in southern Texas.

In 2012, ConEd customers suffered as Superstorm Sandy flooded the New York City subway and much of the surrounding suburbs. As seawater touched electrical systems, fires erupted. The storm damaged ConEd’s distribution system, interrupting service to 1.4 million customers. Costs topped $460 million.

After Sandy, “it was clear to us that weather patterns were changing fundamentally, and we needed to protect our customers and equipment,” a ConEd spokesman says. Subsequently, the company received regulatory approval to spend $1 billion to fortify its energy delivery systems. That, it maintains, has prevented more than 370,000 outages since 2013.

Another utility, PG&E(PCG), has lately been seen as a casualty of global warning after wildfires possibly sparked by its power lines tore through parts of California that had been hit by a prolonged drought. Citing a potential $30 billion in liabilities, PG&E recently said that it would file for bankruptcy protection. Still, PG&E was just tied for No. 46 on the list.




Atop the list was Norwegian Cruise Line Holdings (NCLH), which has several facilities in Miami, including its headquarters, freight and passenger transportation facilities, and travel agencies. All are highly exposed to floods from extreme rainfall and to hurricanes, which can lead to costly damage and disrupt operations. Norwegian didn’t respond to requests for comment.

No. 2 Western Digital(WDC) has more than a fifth of its facilities greatly exposed to floods and water stress, according to Four Twenty Seven, which “can lead to hindered operations, supply-chain disruptions, and costly merchandise damage.” A Western Digital spokesman declined to comment and directed Barron’s to the company’s sustainability practices and programs on its website.

Next was NextEra Energy (NEE), the world’s largest utility by market value, and a heavy investor in solar, wind, battery technology, and other sustainable solutions. Nevertheless, it ranks poorly because 52% of its facilities are exposed to hurricanes, with risk concentrated in a few dozen facilities along Florida’s Atlantic coast. Facilities are also vulnerable to heat stress, which can cause operations disruptions and equipment failure when energy demand rises. NextEra also declined to comment.

Micron Technology (MU), the semiconductor giant, was No. 4, with nearly a quarter of facilities exposed to floods and hurricanes. Much of the operations risk is concentrated in East Asia. A Micron spokesman said that Four Twenty Seven’s data “seem questionable.” While some locations might be exposed to flooding and storms, he said, “that does not necessarily lead to a conclusion that we are vulnerable—i.e., that Micron will sustain actual material financial impact from those events.”

The spokesman added: “A full assessment must take the next steps of looking at the actual site and structures, and what activities take place at that site, to analyze true vulnerability.”

No. 5 was Eastman Chemical (EMN), with 27% of its facilities exposed to floods in locations such as St. Louis and Houston, and 14% to hurricanes in East Asia. Floods also pose “significant reputation risk to chemical companies facing public backlash in case of flood-induced spills,” Four Twenty Seven wrote. Eastman didn’t respond to requests for comment.

Also on the list: Seagate Technology(floods, water stress); chip equipment manufacturer Applied Materials(floods, cyclones, water stress); utility Public Service Enterprise Group(sea-level rise, floods); Dominion Energy(floods, water stress); Royal Caribbean Cruises(floods, sea-level rise, heat stress), and biotech firm Incyte(floods, sea-level rise).

Seagate (STX), PSE&G, and Royal Caribbean (RCL) didn’t respond to requests for comment. Applied Materials (AMAT) said in a statement: “Environmental risk assessment and mitigation is an important part of our operations at Applied Materials and something our experts evaluate regularly, conducting ongoing assessments of our locations and maintaining detailed emergency-response and disaster-recovery plans.”

Dominion (D) responded: “We are confident in the safety and security of our facilities, and are constantly working to strengthen them on a regular basis.” Incyte (INCY) declined to comment, saying it wasn’t familiar with the data.

Bristol-Myers Squibb(BMY) is No. 15, with 29% of its facilities highly exposed to hurricanes and typhoons, particularly in southern Japan, Puerto Rico, and Florida. Bristol said it has “contingency plans in place to mitigate potential risks associated with operating globally, including supply chain, weather patterns, regulations, and energy costs.” The drugmaker added: “We believe addressing climate change is a shared responsibility among industry and governments.”

Other databases on corporate climate risk are being developed. For example, Axa Investment Managers, the investment arm of the giant French insurer, is building one about the physical facilities of companies it invests in. The system is expected to be running by the end of 2020.

“The more you can measure it [risk], the more you can manage it,” says Roelfien Kuijpers, global head of strategic relationships and head of responsible investments at DWS. “We’re at the beginning of a very significant long-term trend.”

Companies are likely to be pressured by shareholders to disclose more on their climate risks.

One driver will be the Task Force on Climate-Related Financial Disclosures, which was formed by the Financial Stability Board, the international body established after the 2008 financial crisis that includes all of the G20 major economies and makes recommendations about the global financial system. It was spearheaded by Mark Carney, the governor of the Bank of England. Former New York City Mayor Michael Bloomberg is chairman of the task force, which, among other things, recommends that companies do scenario analyses.

“There’s a tendency to look for risks that are well known, but what we’re showing is there’s exposure to any number of hazards,” Mazzacurati says.

No. 8 Merck, for example, has hurricane exposure in 25% of its facilities, including dozens of pharmaceutical preparation facilities in Japan and the Eastern U.S. A fifth of its facilities are exposed to floods, including sites in Baton Rouge, La.; Atlanta, Switzerland, Shanghai, and Seoul.

Over the past few years, Kennedy, Merck’s global-supply chain chief, has identified possible disruptions and sought ways to deal with them. The drugmaker had too many facilities on the South Asian subcontinent, exposing it to climate risk, resource risk, and compliance risk, so he began creating alternative supply chains in Europe and moving some production back to the U.S. Such major actions require painstaking planning. “Movement and sourcing of pharmaceutical supply chains is a long process because it’s a regulatorily scrutinized activity,” he says. 

Last fall, as Hurricane Florence approached the East Coast, Kennedy’s team swung into action, focusing on two factories: one in North Carolina, and another in Virginia. Both make vaccines, including a critical deterrent for measles, mumps, and rubella, as well as hospital products and pharmaceutical packaging.

The team members reviewed their disaster-readiness plans. They prepared generators and made other emergency provisions in the facilities in case of significant disruption. Some workers began sleeping at the factories. As Hurricane Florence neared, Kennedy took the precaution of shutting the factories. Then, the hurricane turned, heading toward South Carolina. Merck had dodged a bullet. After two days, the facilities reopened.

“We learned a lot from Maria that we applied for Florence,” Kennedy says. Mostly, he adds, “we learned that it can go for you or go against you, and you need to be prepared either way.

No matter what, you cannot predict what’s going to happen at the end.”


Trump’s North Korean Road to Nowhere

Less than a year after his unprecedented face-to-face meeting with North Korean leader Kim Jong-un, US President Donald Trump is planning to hold another summit to discuss denuclearization. Judging by the outcome of the first meeting, US allies in the region have good reason to be deeply concerned.

Kent Harrington , John Walcott
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ATLANTA – When US President Donald Trump meets again with North Korean leader Kim Jong-un next month, he will be staging the second act in a comedy of manners that now passes for US foreign policy on the Korean Peninsula. Between Kim’s billets-doux to the White House and Trump’s gushing praise of Kim, the script could have been written by Oscar Wilde. Like any drawing-room farce, the plot is simple enough: Kim will pledge to abandon his nuclear weapons someday, while coquettishly concealing any details about the program that produces them, and Trump will promise to shower wealth on the Kim dynasty if he does.

But, of course, this play is more tragedy than comedy. Like Trump’s threats to abandon longstanding alliances, withdraw US forces from strategically important regions, and tear up trade deals, the prospect of more presidential shooting from the hip is unnerving US allies, soldiers, diplomats, and even some politicians.

There is good reason to worry, given the outcome of the two leaders’ summit in Singapore last June. Trump’s naive acceptance of Kim’s empty promises over the past eight months has done nothing but erode the US’s leverage in South Korea and beyond. The North has continued to pursue its ballistic-missile program; and through his overtures to South Korea and China, Kim has succeeded in weakening the sanctions on his regime.

Trump has not only failed to halt Kim’s nuclear ambitions; he has also undermined America’s role as a deterrent in Asia. With North Korea’s conventional arsenal already threatening Japan and other countries that host US forces, Trump’s public intimations about drawing down troops in South Korea and elsewhere have fundamentally altered the regional strategic calculus. If asked, leaders in Tokyo, Seoul, Taipei, and Southeast Asia might dissemble and avoid stating the obvious. But the fact is that Trump has cast doubt on US defense commitments at a time when both North Korea and China are increasingly pursuing their own regional ambitions.

This problem weighs heavily on the minds of other US policymakers. Hence, whenever Trump travels abroad, a squad of senior officials follows in his wake – like street sweepers after a parade – to reassure allies. Yet, no matter how effective their talking points, they cannot undo the damage that Trump has done to America’s credibility.

Consider Trump’s statement last June declaring that North Korea is “no longer a nuclear threat.” That would certainly come as news to Japan, America’s most important ally in the region. Even if the Kim regime did agree to abandon its effort to develop reliable intercontinental nuclear missiles, it would still have thousands of nuclear-capable short- and medium-range missiles pointing at Japan.

The Trump administration is also neglecting the threat posed by the North’s conventional arms. Trump’s unilateral decision to suspend US military exercises in South Korea is a case in point. Exercises involving US and South Korean forces are vital for refining war plans, resolving operational and cultural issues, and honing military skills. As such, they play a central role not just in preparing for various contingencies on the Korean Peninsula, but also in Japan’s own self-defense. Ensuring the seamless cooperation of allied units in the region is as important to Japan as it is to the US or South Korea, and perhaps even more so now that relations between Japan and South Korea are fraying.

Whatever emerges from his next summit with Kim, it is already clear that Trump’s disregard for US alliances is taking a toll. Creating effective defense partnerships takes time and hands-on effort. If there is rancor among allies, cooperation on high-priority goals can be set back indefinitely.

For example, three years ago, US officials brokered an important agreement to facilitate the exchange of intelligence data between Japan and South Korea. Yet today, Japanese-South Korean relations have grown tense once again over the issue of wartime reparations.

So far, this renewed acrimony has compounded the fallout from an incident last month in which a South Korean warship targeted a Japanese patrol plane. In the absence of US mediation, the prospects for ongoing military cooperation between the two allies will likely continue to decline, pushing the government of South Korean President Moon Jae-in closer to North Korea and China.

In fact, Daniel Sneider of Stanford University points out that some in Japan have begun to take seriously the possibility of a US withdrawal from the region. With Trump constantly whining about allies not paying their fair share, and with South Korea going its own way, Japan’s leaders are being forced to reconsider longstanding assumptions about Japanese defense and security policy.

Trump’s disdain for US security commitments and the relationships that sustain them has not been lost on Asia’s leaders. Few find comfort in his proclamations about expanding America’s role in the world, given his more frequent threats to trash “unfair” alliances.

As it happens, Trump recently signed the Asia Reassurance Initiative Act, pledging $7.5 billion over five years to bolster US engagement in Asia. The program’s acronym – ARIA – is all too appropriate for Trump’s policies and their effects on America’s standing in Asia. An aria, after all, is a song sung alone.



Kent Harrington, a former senior CIA analyst, served as National Intelligence Officer for East Asia, Chief of Station in Asia, and the CIA’s Director of Public Affairs.

John Walcott has covered foreign policy and national security for Newsweek, The Wall Street Journal, and other publications, and is an adjunct professor in the School of Foreign Service at Georgetown University.


If You Could Design A Perfect World For Gold…

by John Rubino
 


Are you sick of your gold just sitting there when it was supposed to have long since made you rich?

Have you been fantasizing about a world in which your gold really does make you rich?

If so you’re in good – or at least numerous – company.

So let’s sketch out such a world.

Start by envisioning an America in which a handful of oligopolies have captured banking, media, healthcare and several other important industries, while a tiny group of super-rich neo-aristocrats control as much wealth as the 200 million least-rich citizens.

Toss in a US president who goes out of his way to pick fights which he then proceeds to lose, leading to both falling poll numbers and derisive headlines around the world.

That’s a good start but probably not enough to take gold to its rightful price of $10,000. So let’s add a US opposition party – which, given the above president’s declining popularity, has at least a 50-50 shot at taking power in the next election – that is skewing madly, unprecedentedly to the left. For more on the three most popular Democrats:

Elizabeth Warren proposes ‘wealth tax’ on Americans with more than $50 million in assets
Ocasio-Cortez buzz hits Davos with talk of 70% tax-rate plan
[Socialist frontrunner] Bernie Sanders set to announce 2020 presidential run

Meanwhile, imagine that that same opposition party recently gained control of the branch of Congress that can investigate the President, leading to an escalating battle between legislature and executive that adds an element of legal chaos to what would already have been a presidential campaign of off-the-charts vitriol.

Now that’s a crazy country where gold should be in demand. But it’s just one place. There’s a whole big world out there where gold and silver can trade. For precious metals to truly go to the moon everyone, not just traumatized Americans, has to desperately crave sound money.

So let’s imagine France roiled by violent street protesters with numerous but nebulous aims, forcing a rattled government to ramp up deficit spending on pretty much everything that anyone seems to want.

And let’s have misguided but at least emotionally stable German Chancellor Angela Merkel be pushed out of office in favor of no one knows what.

Italy has to be in there somewhere, of course. So let’s pretend its banking system has some insane amount of nonperforming loans. Maybe 18% of total loans – three times what would normally be considered extremely dangerous. We can’t even call that banking system a zombie.

Instead let’s go with “persistent vegetative state.”

Italian non-performing loans perfect world for gold


To sum up our hypothetical Europe, all its current problems require extremely easy money from both governments and the central bank for as far as the eye can see. Negative interest rates and an inflation target of 5% or more will soon be proposed by formerly-rational cabinet ministers and headline writers, and agreed-to by voters.

The required level of global chaos is getting close. We just need a dash of…China. Let’s pretend that it has quintupled its debt since 2008, in the course of which it recapitulated three generations of Western financial bubbles in one cycle, apparently without a sense of how those previous bubbles ended. And now it’s running out of new bubbles to inflate even as its growth slows to dangerously low levels.

China total debt perfect world for gold


That should just about do it. So let’s step back and consider our precious metals paradise:

• A US run by a trillion-dollar-deficit spender with an ever-lengthening list enemies at home and abroad, to be followed in 2020 by either more of the same or a bunch of literal, not-trying-to-hide-it socialists who institute wealth taxes, marginal income tax rates reminiscent of 1970s Great Britain and cradle-to-grave free entitlements with only “the rich” expected to cover all the bills — and who love the idea of Modern Monetary Theory, which states that governments should dispense with the whole taxing and borrowing thing and just create as much money as they need. (Can you spot this theory’s fatal flaw in the previous sentence?)

• A Europe spinning apart as the unworkability of a single monetary system housing both Germany and Italy is finally revealed.

• A China with multiple bubbles popping at the same time and no historical or theoretical framework for understanding what, why, or how.

Just in case you missed the rhetorical device, none of the above is actually hypothetical. It’s all real, and heading this way fast.

Where will everyone hide in the dysfunctional world of 2019? In the old kinds of money that the Fed, ECB, and Peoples Bank of China can’t manufacture out of thin air when their debts finally come due. Of course.

In that word the demand for real money will rise to levels that are hard to imagine (since the human mind apparently can’t visualize the concept of “trillions”). It won’t be a fun world, or a safe world. But at least your gold will soften the blow.