On Human Yearning to Envision the Future
Investment Commentary as of April 2026
This paper will give due attention to the US’s war in Iran, but first, we think the critical events involving the US and the emerging global economics deserve our review.
The Value of a Dollar
As we have referenced in previous commentaries, the US Dollar is recently under growing stress. Viable currencies require widespread confidence. The last time confidence in the US Dollar was shaken was in 1971. On August 15th, a Sunday afternoon at Camp David, President Nixon signed an executive order that instantly ended the dollar’s many decades of gold-backing. That surprise maneuver was big news. The dollar survived, because of the US’s dominant international business economy and its progressive income tax system. Most economists thought it was high time for the modern world to stop using an ancient gold-based method of valuing currencies. The stock market immediately loved that idea. The dollar would no longer be constrained by the “archaic” notion that a country’s gold stockpile had any rational relationship to the value of its currency in the 20th Century. But, by the turn of the 21st Century, “unconstrained” came to mean “undisciplined.” Annual peacetime budget gaps were consistently large and growing.
A Big Deal… Maybe the Biggest Ever
In the last fifty-two years, the US Dollar has been its own yardstick for measuring its value. And the rest of the world has been locked into viewing it that way. The underpinning for this global “lionization” of the dollar came about because of a very special deal made in 1974, just three years after the US abandoned gold-backing for its dollar. Secretary of State Henry Kissinger and Treasury Secretary William Simon went to Saudi Arabia with a proposal that was presented to the Saudi Crown Prince. The terms were simple: the US would guarantee military security and protection for Saudi and provide advanced drilling and refinery equipment for Saudi oil fields. In exchange, Saudi was asked to price 100 percent of its oil exports to all buyers, anywhere in the world, in US dollars. In addition, Saudi agreed to continuously re-cycle a significant part of its oil revenue back into US Treasury bills, notes and bonds. Hence the term “petrodollar” came into existence and became the heartbeat of all global economic transactions. The agreement had no time-limit, though it was understood to be permanent in practical terms. Until recently, it has been.
Debt, Deficits and Dollars
In 2008 and 2020, the US Congress blew out any semblance of economic discipline. Each year, more debt begets more deficits. The once-admired US income tax system has turned away from its broad base. Instead of the dollar-yardstick, we can conclude that gold has once again become the functional yardstick for all currencies. The United States has $40 trillion in outstanding debt. Mandatory spending plus interest on our debt gobbles up 37 percent of our annual expense budget, before a single dollar is spent on “discretionary items.” One-half of that is defense; the other half is things like homeland security, health, research, education and transportation.
Unlike the ups and downs of world economies and their currencies, gold is an indestructible, cherished element in Nature that does absolutely nothing; over thousands of years, an ounce of gold remains unchanged. Which makes it an ideal yardstick by which to measure dollars, yen, euros, pounds, etc. Today, the world’s central banks are quietly acknowledging that fact, as they are acquiring large quantities of gold. [Footnote: We do not know how much gold China is acquiring; its reported numbers are lower than expected.]
In 2025, central banks around the world bought a record 1,133 metric tons of gold…. if gold is $4,500 per ounce, that’s about $164 billion worth. And how did they pay for those gold purchases? They sold off about $189 billion worth of their US Treasury debt investments. Notably, Denmark’s national pension fund sold 100% of its U.S. Treasuries. Brazil and China completed a bilateral trade deal in which over 40% of their mutual transactions are to be paid for in China’s currency.
Even the people responsible for the system are warning about the system. Larry Fink, the CEO of BlackRock, the largest asset manager on Earth, wrote in his recent annual letter that the U.S. risks losing the dollar’s reserve currency status to digital assets like Bitcoin. US Secretary of State Marco Rubio has said publicly that the dollar is at risk of replacement.
Outcome Yet to Come
As we wrap this reading slot once again, the US has created another war, this time single-handedly in the absence of European (NATO) co-warriors who were invited to join but didn’t.
To the deep disappointment of those who plan and conduct wars, the vast investments in new, always-more-sophisticated weaponry are faced with possible failure to survive the onslaught of cheap, disposable drone aircraft. In its four-year-old war with Russia, Ukraine has engineered and constructed the world’s first highly impactful drone aircraft combat model; now it appears that Iran may have already developed a similar commitment to drone production.
Meanwhile, global investment markets wax and wane, driven by daily reactions to the impact of a war that can, and has physically choked off one-fifth of the world’s oil consumption. Although the US Congress has not authorized, or approved any military action, President Trump has told them to add a $200 billion war budget-item atop the existing $830 billion Department of War budget in 2026. That budget add-on is almost insignificant as a percentage of the existing almost-two-trillion-dollar shortfall of 2026’s revenues versus outlays.
“People love to talk about a war to end war; they do not love to talk about a peace to end war.”
— Aldous Huxley
Aldous Huxley on Predictions
He was born in England in 1894, died 1963, in Los Angeles (after a 1961 brush fire had destroyed his home and belongings).
Huxley’s fictional, forward-looking work: Brave New World was a 1932 best seller of 23,000 copies in two years. (Harry Potter books each sold 65 million, or more.) Published in 19 languages, Huxley’s book is still widely read today. It presents a terrifying, but fascinating picture of a future world where individual freedom is suppressed in the name of science and world order.
The Persistence of Wars
There is always an apparently compelling excuse for waging a war…. It’s always now! We have noted in previous papers that history proves war-making is a core aspect, or even a built-in human trait among civilizations, past and present. Military leaders in world history have typically been promoted to leadership of governments. That said, except for Washington and Eisenhower, prominent battlefield veterans in the US have not transitioned into high US political office. So, instead of Presidents Sherman, Pershing, MacArthur and Patton, we had Lincoln, Roosevelt, Harding and Truman as our Commanders in Chief.
Much of history appropriately and sadly honors the courage and sacrifice of people who fought and gave their lives and limbs in war, while those who directed them have rarely suffered casualties.
Huxley developed a no-nonsense principle about war: he said, war cannot create or lead to peace, because violent methods do not beget, or create nonviolent results. He succinctly wrapped up human viewpoints on the subject of war thusly: When World War One was being widely characterized as “The War to End All Wars”, Huxley said, “People love to talk about a war to end war; they do not love to talk about a peace to end war.”
To that idea, almost 90 years later, we can confidently summarize that throughout the ages, war remains the single, most enduring human societal endeavor.
Much of recorded human history is unfortunately viewed through the lens of constant combat. Our cynical, but proven summary is: Peacetimes in history were intervals of preparation, rehearsal and enhancement of war-making tools and tactics needed for waging the next war.
US Wars of Defense
In 1949, four years after winning World War II, President Truman and key military leaders Marshall and Forrestal pushed the US Congress to re-name the War Department as the Defense Department. Now, we’re renaming it back to the Department of War.
The US’s military defense concept, in name, has lasted for 77 years… until now. Despite that fact, from Presidents Kennedy through Biden, all eleven US presidents have overseen 48 years of foreign military campaigns, the most notable ones being twenty years of the Vietnam “Conflict”, nine years of “Operation Iraqi Freedom”, and nineteen years of Afghanistan’s “Operation Enduring Freedom”/ “Operation Freedom Sentinel”. The toll over that combined set of troop deployments and battles was more than 68,000 young Americans who lost their lives and many thousands more who were permanently wounded and disfigured. During those global military campaigns, trillions of US Treasury Defense dollars were newly minted and drained into the huge national debt pool where those borrowed dollars and the interest payments on them remain today. There is no reason to conclude that any of those war-making debts will ever be repaid. That said, persistent price inflation (dollar devaluation) will effectively devalue that debt into extinction.
If Predictions are Necessary, Make Them Often
There are few predictions for the outcome of a deep US commitment to our latest foreign war, this time in Iran. This time the US attack was done without any request for a Congressional stamp of approval, such as the 1964 Tonkin Gulf Resolution which was used to enable the US’s initial Vietnam intervention; after that, the Resolution was bent and twisted to authorize two decades of the US military’s jungle warfare. That era came to an abrupt end when the relatively new President Nixon folded the US’s tent and forced an awkward retreat. Unfortunately, it was a model for President Biden’s similarly disastrous exit from Afghanistan.
In the 2026 model that is now spreading its wings, the global oil industry is short by about one-fifth of its daily worldwide demand. This shortage was caused by the stymied transportation of oil past a choke point in the crowded, very narrow Strait of Hormuz waterway that happens to have one shoreline in Iran.
A number of investment markets are hanging on the shake-out of this intense situation. Recent months of frisky returns in non-dollar stock markets may be on a precipice because of their home countries’ dependence on imported oil. On that dilemma, the US homeland should be among the least war-affected because, since 2020, the US is a net exporter of oil, natural gas, gasoline and diesel fuels. Besides that, oil may no longer be the world’s leading petroleum; instead, AI’s suddenly boundless data-generating consumption is forcing oil to take a back seat to modestly priced natural gas. It is also clear that the enormous AI demand-surge for generating its electric power using natural gas fuel is permanent. We can perhaps take some comfort: The US supply of natural gas reserves ranks fourth, behind Russia, Iran and Qatar.
Forecasting a Narrow Rational Range of Investment Results, versus Predicting Them
As always, when the calendar flips to a new year, many investment industry trading mavens announced supposedly sophisticated predictions about what the US stock market will do this year. Why not do that? A craving audience of millions will always listen.
In our investment consulting business, the essence of our art is: (a) develop, (b) implement and (c) maintain a long-range investment plan that fits each client’s investment goals, return needs and risk tolerance. We describe investment “risk” in terms of client-defined “unacceptable outcomes” over specified future periods of years. Year-by-year consulting follow-up involves modifying the allocation of assets and monitoring of clients’ individual portfolio managers. It’s a process which keeps the investment plan in sync with clients’ emerging goals, in light of unfolding changes in their business plans and operations.
The primary underpinning of each client’s plan is the allocation and integration of investment assets among investing categories. Each category delivers a forecastable pattern of investment return and, in addition, forecastable correlation of returns among and between the various investing categories…. While clients’ investment policies are based on forecasts, they are not predictions. Forecasts are ranges of reliably expected returns in each category and volatility of those returns over spans of future years. Forecasts of the returns from various investing categories are built on patterns we can derive from a mountain of consistent, historical market details.
These data are summarized as outcome probabilities. The forecasts are reliably used to set realistic client expectations and provide basis for useful, ongoing consulting advice. In summary, it is this forecasting process that delivers reliable client-specific consulting advice which will satisfy clients’ yearning to realistically envision the future of their investment program.
Conclusions
There is significant evidence that the US Dollar’s reign as the universal medium of exchange since a 1974 global oil-for-dollars agreement between the US and Saudi Arabia is ending. The most significant reason for dollar-abandonment has been, and is the US Government’s unending, uncontrolled peacetime budget deficits which create the natural result: US Treasury debt was but no longer is considered in the marketplace to be “good as gold”.
Meanwhile, the US, with only Israel at its side, has once again demonstrated what the history of man has repeatedly shown us: the State of War is a costly, miserable mode which is persistently common, but rarely “justified”. We referred to the widely read insights of Aldous Huxley and his urging to shift from war mentality to focus on peace.
Apparently because people naturally crave knowledge of the future, US capital market outcomes are being predicted by many for 2026 (and every year). As consultants, we make no predictions. Instead, we generate multi-year forecasts which provide expected outcome ranges, developed from historically based probabilities that we can confidently use to recommend investment allocation targets.
COMMENTARY
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