'Never bet against America' - Buffett's golden rule faces its greatest test

Warren Buffett is an iconic symbol of American growth and success. His vast wealth has grown from a steadfast belief in the American economy.

‘Never bet against America’ has been his famous slogan.

And he’s certainly lived up to that statement. Over the past seven decades, he’s generated enormous wealth by investing in quality US corporations.

But at age 94, you can’t deny that Buffett is now well into his twilight years. This icon of American capitalism and success is nearing his end.

And that could be far more symbolic than you think…

94 Years of Epic Growth

Fittingly, America’s most iconic living capitalist was born in the most dramatic year in US market history: 1930, the height of the Great Depression.

The bottom of the market!

Back then, the Dow Jones Industrial Average Index traded for around $210.

It’s now over $42,000.

Over his life, this US index has made a staggering 20,000% return!

Buffett has had plenty of time to reaffirm his bullish conviction about the US economy. And that’s certainly helped shape his unwavering long-term bullish outlook.

Confirmation bias? Maybe.

But Buffett is no fool.

He recognised the structural advantage held by the US economy.

For most of his investing life, America has held a supreme position in global affairs, economically and militarily.

Those advantages have filtered down into the performance of US corporations.

US-domiciled companies have access to global markets in a way that most do not—an unfair advantage if you like.

And Buffett has made a long-term bet on this US hegemony.

For decades, that bet has paid off.

Preparing for a Post-Buffet World

But will Buffet still be around when the next major market crash occurs? I’ve often wondered that.

Buffett has fostered a cult-like following in low-cost, large-cap US equity ETFs.

And when the market stumbles, he’s been a voice of reason, reaffirming his stance on the long-term outlook for the US economy.

A pillar of support.

And that’s certainly paid rich rewards for investors who have followed his advice:

The S&P 500 ETF, an index comprising America’s largest corporations, has delivered investors almost a 200% return over the last 10 years.

Or 780% from the last major market crash in 2008!

A stellar performance.

But do consider this…

Besides a brief glitch in 2020, the melt-up in US equities from the 2008 GFC lows has been one of history’s most bullish financial episodes.

It’s also been one of Buffett’s most profitable investment periods ever!

But as the old saying goes, all good things must come to an end.

And US equities are perhaps reaching the final throes of this epic era.

America’s hegemony faces its biggest challenge yet

But there could be more to this than a topping out of the US stock market.

America is destined to lose its ‘Number 1’ economic superpower status… A title China is looking to inherit.

Some analysts believe this could happen by the mid-2030s.

But this ‘changing of the guard’ could be more impactful than a simple symbolic shift.

For one, the new incumbent will not accept a ‘relic’ global currency system—the US dollar.

This has offered enormous advantages for the American economy in terms of trade and the ability to issue sanctions if countries don’t align with America’s interests.

It’s an “exorbitant privilege” according to former French Finance Minister Valery Giscard d’Estaing.

Expect China to take all necessary measures to establish systems that gradually erode the US dollar’s influence.

In fact, the US itself dethroned the former global currency… the pound sterling. That occurred after the UK buckled under Two World Wars and near bankruptcy.

And as America continues to mingle in global wars and pile up sovereign debt, its own ‘dethroning’ could look remarkably similar!

Like never before, changes are afoot.

And they’re taking place as we speak…

The World Bank, the World Trade Organization, IMF, ASEAN, and the United Nations are all bodies that serve to help US interests.

Yet, each is gradually losing its influence.

Meanwhile, China has steadily deployed its own versions of the WTO, World Bank, etc.

US hegemony is under threat, and China’s passive stance in global affairs will surely change once it becomes the world’s largest economic superpower.

Time to shift tack

The Middle Kingdom looks set to restore its historical place as the centre of global enterprise.

As that happens, it’s unlikely to accept the US Dollar as the global reserve currency—the kernel of American dominance over the last several decades.

US equities (and Warren Buffet’s stellar performance) have benefitted from this significant advantage.

But never before has America faced the prospect of becoming subservient to another global superpower. That’s the reality that awaits the USA.

Going ‘all-in’ on America has been an excellent trade over the last 80 years.

However, Asia looks set to take an increasingly larger share of growth and, perhaps more importantly, global influence.

As an Australian investor, you should view this as an opportunity, not a threat.

As China emerges as the world’s largest superpower, I expect it’ll ignite the Asian sphere:

Indonesia, Thailand, Vietnam, Korea, and India will benefit from this ‘changing of the guard’—from US hegemony to a new central Asian superpower.

As an investor, it’s time to look forward.

The future is in Asia, and that’s how you should position yourself. 

So, what’s the best way to do that?

We’ll explore some options in a future edition, stay tuned!

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