Most of us fundamentally believe the system we have right now is the system that will exist for the next few decades. We see companies signing office leases for 10 years, we expect the economy that exists will continue to exist and hopefully it does. Have you ever wondered what are some of the underlying assumptions we all make?

In an article by Sam Sivarajanm, an independent wealth consultant offered an opinion we often do not think about much.

There is an old saying in investing: the biggest risks are not the ones that appear suddenly, but the ones that have been building quietly for decades – until one event makes them impossible to ignore.

Historically, geopolitical shocks always show a familiar pattern: fear-driven selling, followed by gradual stabilization as markets assess the full scope of the disruption. Carson Group analysis of 40 major geopolitical events over 85 years found the S&P 500 lost on average just 0.9% in the first month after the crisis, then gained 3-4% over the following 6 months.

The pattern assumed the underlying financial architecture – center on the US dollar – remained intact.

Since the early 1970’s, oil has been priced in US dollars and oil-exporting countries recycled their surpluses into US Treasury bonds and American equities. This petrodollar arrangement gave the US a remarkable structural advantage: lower borrowing costs, stronger global demand for its currency, and the ability to sustain fiscal deficits. Economists estimate this privilege is worth roughly $225 billion to $270 billion annually to the US economy.

At present the structure of the Gulf sovereign wealth funds, Saudi Arabia’s PIF, the Abuu Dhabi Investment Authority and Qatar Investment Authority collectively manage well over $2 trillion in global assets. Much of the investments are in private equity, infrastructure and real assets – things that cannot be sold quickly. When cash flow demands arise, the money comes from the liquid portion – US Treasuries and equities.

Trade between Russia and China settles in rubles and yuan, bypassing the dollar entirely.

Project mBridge – a digital payments platform developed by the central banks of China, UAE, Thailand and Hong Kong has settled $55 billion in cross-border transactions without using SWIFT.

The US dollar still represents 58% of the global foreign exchange reserves and no credible single alternative exists.

Linking to dividend paying stocks, we all buy into investments expecting what has existed will continue to exist and most of the time that is correct. We have seen many industries be disrupted and change happened and new industries take their place, so the economy will keep going. It is important to consider the assumptions you make when investing.

There are more questions than answers, till the next time – to raising questions.