On August 15th 1971, Nixon abolished the gold standard and ushered in the era of fiat money.

This marked the beginning of money being printed in excess of growth in the real economy.

Whilst in 1971 a household’s median annual wages could buy 36% of the median American house, today that number is down to 21%.

The household’s wages could buy 89 units of the S&P 500 in 1971, only 11 today.

The Household could buy 258 ounces of gold, or pay for 20 years of public college tuition, vs 21 ounces and 7 years today.

To make it worse, a household today works 30% more than in 1970s. More women have joined the workforce, only for the household to be worse off still.

Now of course, this is good for those who own houses, stocks, gold, and operate universities. And not so good for those who save US dollars (or any of the other major currencies by the way).

It’s because when they print money in excess of what is needed to grow the economy, they reduce the value of money. It’s as simple as that.

But, there are things which cannot be printed. Things that are relatively scarce

Scarcity is the heart of economics. Price is set where supply and demand meet. If demand is scarce relative to supply, price craters, if supply is scarce relative to demand, price explodes.

It is why, in last week’s article within which I presented my framework, resource scarcity, is identified as one of the secular themes which will dictate the regime within which we are.

Resource scarcity evokes oil, lithium, gold. And those are all interesting, they are geological scarcity.

The discussion then often segues into Bitcoin, Swiss Francs, or any other discussion on sound money.

And that is fine. To be clear, I love the idea of Bitcoin, what it represents and its potential. But it is an asset which can only be traded only on sentiment. And sentiment, through price action, currently shows a textbook distribution, along with the price dipping below both its prior cycle all time high, and below its 200 week average price.

The risk reward isn’t anything I’m excited by here.

Which is the point I want to make: investors shouldn’t be married to an asset, but they should be married to the ideas which made that asset desirable. In this case it is scarcity.

And I think that investors should take the following frame:

That scarcity can be structural (Rolex or Hermes keeping supplies tight to manufacture high prices) or it can be tactical (DRAM prices exploding as demand moved faster than you can build fabs).

Identifying sustained scarcity which hasn’t been priced, is a great way to produce returns.

Today I will walk you through an industry which has structural demand and faces scarcity throughout the next decade: the aerospace after market.

The aerospace after market

“The engine is the heart of an airplane, but the pilot is its soul." - Walter Alexander Raleigh

Whilst the quote above is undeniably beautiful, the truth is that there is an oversupply of entry level pilots.

Commercial aircraft on the other hand, are not so plentiful.

My wife and I get to fly quite a bit. In any given year, we might spend between 7 and 10 days (200 to 240 hours) in airplanes.

Below is my 2026 H1 summary, which at the very least, should reassure you that you are reading global macro commentary from someone who has seen a fair bit of the globe.

Some flights go wonderfully well. Some, less so. Problems can come from two areas: poor service, or old, less comfortable planes.

We’ve noticed there are a lot more old planes than we would have liked. As is often the case, an offhand comment from my wife sent me down a rabbit hole.

It turns out it is because the world cannot build new aircraft fast enough, so it is forced to keep the old ones flying.

Planes which were supposed to be retired years ago are still in the air because there is nothing to replace it, and this will be true for most of the next decade.

And old airplanes (not unlike old humans) need more maintenance. And the heart of the airplane, as Mr Raleigh reminds us, is its engine.

Engines are a unique business model. They are generally sold to airlines around, or even below, cost. The manufacturers essentially give the engines away. This makes sense, because engines should be thought of more as multi-decade subscriptions.

During the 30 years that an engine remains on the aircraft, it must visit a shop every few years for an overhaul, which costs millions of dollars in parts and labor.

In most cases, the manufacturer controls the parts and is the only party legally permitted to certify maintenance work or supply the components.

The airline is captive, and has no choice but to pay (or have a grounded airline).

It’s a pure Gillette razor and blade model, where you’re willing to not make money upfront so that you can then cash in for a very long time.

But unlike Gillette, there is a regulatory component which constrains these operations to a small subset of players which dominate the market. Engine maintenance is not discretionary as it is mandated by law, which enables part manufacturers to pass through any increases in costs which they might incur along the supply chain.

The longer an aircraft stays in service, the more it needs maintenance, and the more onerous that maintenance becomes.

So the big question is simply: is the world’s fleet getting older and will it stay that way?

The answer to both of those questions is yes.

A shortage with no end in sight

The average commercial airplane today is about 15 years old, which is the oldest the global fleet has ever been. Before the pandemic, record deliveries brought the average age down during the 2010s. Since then deliveries collapsed, and with them the retirement rate of aircraft.

Global deliveries by Boeing and Airbus have undershot targets every single year since 2018, The two companies have been held back by their own supply chain constraints along with labor shortages (see scarcity causing the economic mismatch, here again).

The backlog of orders is now above 17,000 aircraft, which is the largest in history and will take a decade to clear. While production hurdles have been easing, engines in particular remain in short supply and will be for the next decade.

The backlog represents 58% of the fleet currently flying, versus historical averages of around 40%, which is a clean way of visualising that planes that otherwise would have been retired are still flying.

With a record old-fleet, retirements at record lows, production that is struggling to recover and backlog that cannot clear for a decade, it is no surprise that aircraft are being flown more hours than ever in their history in order to cover the shortfall.

The conclusion is quite simple: the installed base that requires maintenance is large and locked. This will not resolve until sometime in the 2030s, in the most optimistic scenarios.

The money flows to engines

The maintenance, repair and overhaul (MRO) market was worth about $136bn in 2025, and expected to approach $193bn within 10 years, which would be double its level in 2019.

This growth is being driven primarily by aircraft age, causing more maintenance per aircraft, as the fleet itself is growing at the slow, supply constrained rate I highlighted above.

Since 2019, spending on maintenance has increased by 40% while the fleet size itself has only increased by 10%.

Every airplane is becoming more expensive to keep flying, which is the exact dynamic we would expect from an aging fleet.

Within the MRO market, the money pools in one segment more than all others: engines.

Based on Oliver Wyman (a management consultancy)’s numbers, engine work is more than half of all maintenance spend, and is the fastest growing segment within the industry.

Of all repairs, engines are the most complex, the most tightly certified, the most mission critical, and as a consequence they are the most expensive part of an aircraft to maintain.

And here is the thing: the shops that are able to do this work are full, and there is simply not enough capacity to meet demand, and there won’t be for years. When supply and demand don’t meet, price moves to clear the market.

Bain & Co suggest that if maintenance capacity grows at its current pace, demand for engine shop visits will exceed supply by more than 17% by the end of the decade.

This is a market which cannot easily clear, because there is a massive regulatory barrier to surmount just for the right to participate.

You cannot maintain or repair parts for certified aircraft engines unless you hold the right certifications and approvals, or even the intellectual property that govern a specific engine.

So whilst the incumbents are struggling to ramp capacity fast enough to meet demand, there are massive regulatory hurdles to new entries.

This creates a long lasting setup for the industry, which will benefit investors who are able to enter these trades at the right time.

And I happen to have identified 3 stocks within the theme which make intuitive sense on the micro level, fit into the macro perfectly, and which have a chart which is looking constructive.

What’s more they are spread across 3 currencies (USD EUR GBP) providing some varied FX exposure. In all my writing, my baseline assumption will be that we are operating in US dollars. The vast majority of my income comes from the USD or currencies which are pegged to it, so it serves as my baseline. Everything will always be done to maximize USD value.

Trade 1: own the engine program

Safran (SAF) is a French aerospace company, listed in Paris, which through a 50-50 JV with General Electric , co-owns the most successful jet engine franchise in history: CFM.

CFM’s previous engine, the CFM56, has been built more than 33,000 times since 1982, making it the most produced jet engine ever. While production has ended, the installed base is going through some of the most lucrative years of its life with heavy, repeated shop visits before the engines are retired.

At the same time, their new engine, the LEAP, is replacing the CFM56 at a 1 for 1 rate on aircraft around the world. The LEAP installed base is set to roughly triple between now and the end of the decade.

That’s the beauty of it, they are the market leaders, and they are not losing market share as the hand-off from the previous engines to the new are happening. Spare parts and service revenue on LEAP engines only began flowing to the income statement in 2025.

Safran generated operating income of above €5 billion in 2025, and has guided towards above €7 billion by 2028. The civil aftermarket, the spare-parts business that is the heart of the thesis, grew at double-digit rates last year.

The shares currently trade at €343 which translates to enterprise value of around €142 billion, which is not cheap, giving you a free cashflow yield over 3%.

The market is clearly counting on the current narrative to play out, for the CFM56 base entering its peak overhaul years, the LEAP base tripling by 2030, LEAP spare-parts revenue that only began flowing to profit in 2025, and management’s own guidance lifting recurring operating income.

This is not priced with a steep margin of safety, but nor does it need to be. Your margin of safety comes from the near certainty in the contracted cashflows and its expanding pace.

The stock has been in a structural bull channel since July of 2023, and as it seeks to once again make new all time highs, the path is clear for it to reach €400-500 by next year.

The setup on the chart would be invalidated if it fell to the bottom of this channel, which gives us a stop loss around the €280 level which would need to be raised as months go by to follow up the channel.

Then there is the fact that the USD’s bull market versus the Euro which started in 2009 ended in 2022, and broke below the support last year in 2025.

The chart suggests that the strength in the US dollar is short lived unless it can reclaim 0.9 Euros in short order. If the dollar stays / turns weaker, then a position in Safran benefits naturally from this.

Trade 2: Own the small parts

TransDigm ($TDG) is breaking out of its chart pattern as I type this, so lets lead with the chart. You’re looking at a stock which 8xed since the pandemic, topped at $1600 last year in 2025 and has been consolidating ever since in this falling wedge, of which it is attempting to break out of. A close above $1330 on Friday would validate the breakout, and a break above $1400 would get me more excited.

Here the failure mode is if the stock breaks below $1100, which is a similar 18% decline to the failure mode in Safran.

So that’s the chart, now, what does TransDigm do?

This is a company which has built itself around a ruthless insight: there are many small flight critical parts on an airplane which are proprietary and which have only one legal sources. 90% of Transdigm’s sales come from proprietary products which it designed and owns, and 75% are parts where it is the sole source, with no other company certified to issue them.

As is common in MRO, more than half of its revenue comes from the aftermarket, where it has a high margin replacement business.

The consequence of this is that it has margins which do not resemble that of a manufacturing company whatsoever.

TransDigm earns operating margins before depreciation above fifty percent, a figure that has marched steadily higher for fifteen years as the company has acquired more sole-source positions and pushed pricing through them.

And think about that because it’s the living proof of the benefits of having a hold on a scarce good for which there is strong demand: you can take price and it doesn’t change volumes whatsoever.

Think about what sole-source means for its customers, the airlines. A grounded aircraft might be waiting on a single small valve that only one company is certified to make.

The part might cost a few thousand dollars. The aircraft costs tens of thousands of dollars a day sitting on the ground. The airline will pay almost any price for that part, almost immediately, every time.

Multiply that across tens of thousands of proprietary parts on an aging fleet that is flying more than ever, and the pricing power becomes self-evident.

TDG raised full-year guidance again in May, to earnings before depreciation of about $5.4 billion, up 14% year over year, with organic sales up 9%. This is not the cheapest entry. At 20x earnings and 5x levered, you are paying a full price for a wonderful machine.

You’re paying for quality, and I think that’s fair.

Trade 3: own the contract

The third pick is one of the strangest, but might also be one of the most interesting for the patient investor, as the market seems to have not been able to value it properly whatsoever.

Melrose is a British company, listed in London, which owns the UK’s aerospace champion, which was formerly known as GKN Aerospace.

Buried inside this company is a pile of contracts which very few people seem to understand, called risk-and-revenue-sharing partnerships, or RRSPs.

Decades ago, when engine makers wanted to develop new engines, they needed partners to share the large upfront costs. GKN would put up capital and engineering resources to help the engine maker, and in exchange it would receive contractual rights to a share of the programme’s revenue for the entire life of the programme.

These programmes run around 50 years, the cash invested in the partnerships was spent decades ago. Melrose holds 19 of these partnerships, which touch roughly 70% of the world’s flight hours in one way or another. Of these, 17 are already generating cash, with the last 2 turning cash flow positive by 2028.

The company expects to earn around £22 billion of cash from these contracts over their remaining lives between now and 2050.

This is a pure annuity. They don’t need to build engines, to staff a repair shop, or to manufacture any parts. They hold the rights, and the collect their slice of other programme’s for the next 25 years.

But the market isn’t properly valuing this, as these engine RRSPs are hidden inside a larger duller airframe components business which is more cyclical. The Engines business is a little under half of revenue and about three-quarters of the divisional operating profit.

At about 475 pence per share, Melrose is worth about £5.9 billion in equity, or around £7.3 billion once its £1.4 billion of net debt is added. This is about 11x operating profits, which is well below the two other picks.

Melrose’s whole enterprise value at 475p is about £7.3bn, and that buys three things: the RRSP annuity, the non-RRSP Engines business (OE, repair, government work), and Airframes. Let’s run some back of the napkin numbers.

If we put fair industrial values on the two non-annuity pieces: Airframes earns £156m of operating profit but is cyclical, so let’s call it 9x earnings , or about £1.4bn. Non-RRSP Engines is part of the £520m Engines profit, say £150-200m of it on a better multiple, about £2bn. That is roughly £3.4bn for the rest of the company, which leaves about £3.9bn of the £7.3bn enterprise value sitting on the annuity.

To value that £22bn stream at only £3.9bn, you have to discount it at about 18%. On a sensible breakdown, the market is applying roughly a 15-18% discount rate to a contractual, diversified, revenue-share stream on engines that fly 70% of the world’s hours.

Is that fair? Not, in my view. A fair rate for these cash flows is somewhere around 9-11%. At a 10% discount rate, the annuity alone is worth about £7bn, which is almost the entire current enterprise value by itself, meaning the market is handing you the rest of Melrose close to free.

The stock has been range bound between 400 and 680 pence in a classic rectangle, and is now completing a downward wedge, with an attempt to break to the upside.

If it can close this week above 475, it is worth a starter position.

The failure mode here is at the bottom of the rectangle around 400, which is about 16% below the current price. Similarly the top of the range at 680 must be respected as a target, and also would correspond to the value should the annuity be valued at a 10% discount rate.

The USD has been range bound between 0.7 and 0.84 since 2017, but in April 2025 it broke below the support of the dollars 2009 to 2022’s bull market.

In my view this likely constrains the dollar into the lower half of the range, between 0.7 and 0.77 GBP in the interim. Here again, I am not afraid of owning a foreign stock (funny to call British foreign when I hold the passport) because the setup favours a weaker dollar, unless the dollar can convincingly reclaim 0.8, which I don’t think it will.

Conclusion and notes on position sizing and the use of TA.

I could have written an article on Micron (and I might). I chose for a second article to write instead on a theme which is less discussed, but nonetheless playing out as we speak.

I believe investors should deploy capital where there is the best risk-return, not where there is the most attention.

The setup in the MRO space looks interesting for these names I highlighted today.

But here’s the thing about investing, it’s not as much about the ideas as it is about the discipline.

In this industry, you’re great if you’re right 6 out of 10 times. You can be right 4 out of 10 times and still be great if you have the right discipline.

It’s easy to get married to a narrative, and narratives are dangerous, because they lure you in. Sometimes there is a 1,000 pound Gorilla ready to pounce on your thesis, and you just don’t see him.

Knowing that there are unknown unknowns which could screw us, we should turn to price as a source of truth, and as our ultimate keeper. Price action tells us the behaviour of all buyers and sellers of a security. If the chart develops into a bullish pattern which is supportive of our thesis, then this gives us a reason to enter the position.

If the chart goes against us and forms a bearish pattern, then that is when and where we exit the trade. This doesn’t mean the narrative or the thesis is wrong, but it might. And you’re much better off quitting at a price which stung you than a price which knocked you out.

If the trade is eventually good, then you can come back later when the chart is more constructive.

This becomes great to help sizing positions of bets across your portfolio. The 3 positions listed here have exit points that are between 16-19% below the current share price. That means that if we invest 10% of our portfolios across these names, then we’d lose 1.6% to 1.9% of our assets if the trade goes against us. That’s on the higher end of what I’d like, but gives us good information as to how a trade could expand if we add to it in the future.

In a portfolio, I’d probably initiate these at 2% each, with the option to add to the positions as the chart validates the breakouts and clears further levels.

What’s next

On 15 August 2026 I’ll launch the paid edition of Babylon Burns.The date is the fifty-fifth anniversary of Nixon closing the gold window in 1971, the act that set this whole chain in motion.

We’re still figuring out the exact pricing, but in the interim have set the pledges at low levels we will honor for anyone who decides to pledge now.

I will continue publishing weekly until then. Expect a mix of macro views and ideas sprinkled across.

Two asks before you go. If you want the next letter when it publishes, subscribe, the free work alone will be worth your inbox.

Subscribe now

And if this one was useful, repost it wherever you found it, or send it to one person who you think will like it.

As Babylon burns, we’ll light the cigars.

Share

Sam Kovacs

Babylon Burns is written for informational purposes and not to be construed as investment advice. I write about what I own and how I think. Your decisions are your own; do your own work before acting on anything here.

But the world on which the 20th century’s financial system was built is fundamentally fractured.

I don’t mean to say this in a “sky is always falling” kind of way. It’s simply that there are certain things, namely monetary stability and geopolitical order, which will never be the same.

During the past 50 years, the cost of the things which are the hallmarks of middle class American life have gotten out of control, while the nice to haves have deflated, keeping the perception of tame inflation.

And what’s more, the US government is actively working against its own currency.

In February 2022, the United States and its allies did something never before tried against a nuclear power: they switched off its money. Hundreds of billions in Russian central bank reserves, dollars and euros, sitting in the system, earned and saved like anyone else’s, frozen by decree.

Every central banker outside the Western alliance watched it happen and drew the same conclusion at the same moment: that could be us. The realization that the world’s reserve currency came with strings attached hit hard.

They’ve been acting on it ever since. Central banks have bought gold at double the historical pace for four years running. Foreign central banks now hold more gold than US Treasuries, for the first time since 1996.

Meanwhile, the issuer of the currency they’re walking away from is running a deficit of nearly 6% of GDP, in peacetime, at full employment, with one tax dollar in five going to interest alone.

The United States now pays more to its creditors than for its military.

As you probably know, US debt held by the public is on track to eclipse the WWII record.

The people who manage the world’s money are backing away from the dollar at the same time that America has no choice but to debase it.

Those two themes should dictate investment mandates for the next twenty years.

I’ll be referring to these two themes as debasement and multipolar fracture: the deliberate erosion of money, and the breaking apart of the world order that money was built on.

Everything I will ever publish here is downstream of those two.

Why I’m starting this Letter

I’ve published equity research publicly for eleven years, run a systematic macro hedge fund, and have advised sovereigns on capital and policy.

On 21 February 2026 I sent the report below to a short list of associates and hedge fund clients, which concluded:

The market is not adequately pricing the risk of US military action against Iran. Oil at $66-72 with two carrier groups converging on the region and a presidential ultimatum ticking down represents a significant underpricing of tail risk. The asymmetry favors long energy / defense / shipping.

I left Dubai for Cape Town that week, and avoided the subsequent strife in the Middle East.

I had been going back and forth for the past few years on the idea of starting a global macro newsletter which would synthesize the insights of my living in a dozen countries, advising global south Sovereigns on policy, and my unrelenting obsession with financial markets.

Up until today, I continually deferred.” I’m busy with the fund” ,” I don’t have the time”, “I’m content with my current businesses”, “I’m travelling too much”, “I’m learning how to surf, leave me alone”.

But finally, my good friend George Noble, a former colleague of Peter Lynch’s at Fidelity, convinced me that this would be both valuable to the investment community and for myself.

So this is the first edition, which will set the tone for what’s yet to come.

My frameworks are a mosaic of all the people I’ve read who shaped my thinking, and I’ll name them as we go. Expect the classic sitting on shoulders of giants BS lip service here and there.

Many of these people, unfortunately, are either academics with frameworks but no actionable insights, or they are married to a single asset class.

What I will offer instead, is the distillation of my macro frameworks into an actual active global portfolio, with trades which are shared, sized and time bound.

And one commitment up front: everything recommended in my letters is mirrored with my own capital. I eat my own cooking.

[ SUBSCRIBE BUTTON ]

Debasement

The world you grew up in, one dominant power (the US), one reserve currency (the US dollar), capital going wherever it earned most (mostly US equity) ran so smoothly that we stopped questioning what kept it ticking along.

What kept it ticking along is growth.

Without growth, the capitalist engine would fall apart. And this beautiful engine of ours, really only has three different sources of fuel:: demographics, productivity, and debt.

This is economics 101, derived from Solow’s growth model, and the framework has been modernized and simplified by Raoul Pal at GMI, to whom I owe a debt of gratitude for the elegance of his model.

The West rode population growth and demographics growth for two centuries, and when they sputtered, it had no choice but to choose debt as the growth source of last resort.

But today, even the debt engine is extended, yields less returns than in the past, and is starting to make the whole system lethargic.

Let me explain briefly why every one of these levers has been seized.

Let’s start with demographics. A growing economy needs a growing workforce, and for most of history that was automatic: the United States went from 2.5 million people at independence to over 280 million by 2000, with the share of adults in work climbing from 50% to 67% over the same period..

Then, both growth and participation changed course. Birth rates across the developed world have sat below replacement since the 1970s, so populations are set to shrink, and participation has fallen back toward 62%. In the US in the 1960s, five workers supported every retiree. Today it’s fewer than three. By 2050 it will be two. Japan’s population peaked in 2008, China’s in 2022. Others are following.

Productivity is the second fuel, and it’s been sputtering for fifty years. Between 1870 and 1970, output per worker grew about 2.8% a year, doubling every twenty-five years: a man’s son produced twice what he did.

Then it slowed, even as the technology got more impressive. We built the computer, the internet, the smartphone, and now AI, yet measured productivity growth fell to around 1.5%. Solow’s old line still holds: “you can see the computer age everywhere except in the productivity statistics”. Maybe AI will finally change this. I hope it does. For now, it’s not there in the data, and some research is suggesting that within organizations AI has failed to increase output. My gut is that this is because they are trying to plug AI into archaic workflows rather than rebuild the workflows natively around AI. We might be witnessing something of a productivity paradox whereby productivity declines or stalls at first as we go through a period of upskilling, retooling, and reorganization. Either way, the verdict is that productivity isn’t and hasn’t been what it was between 1870 and 1970.

So governments, households, and businesses pulled the third lever: debt. Debt is future growth, spent now. When it builds something that earns more than it costs, it works. When it papers over the failure of the other two sources of growth, or is allocated to government expenses with no credible sources of return, then we eventually run into trouble. US federal debt has gone from 37% of the economy in 1970 to over 120% today.

The last federal surplus was in 2001, the year Gladiator won Best Picture. It’s only getting worse, as there are no other sources of growth. When you add household and business debt, it’s looking even worse.

When debt gets this big you eventually run into trouble and have to work your way out.

There are exactly four ways out, at least according to Ray Dalio of Bridgewater, who is the man behind the second framework we need to lean on: austerity, default, debasement, or a mix of all three.

You can try austerity: cut spending and raise taxes until the debt falls. At the scale required, that means cutting pensions, healthcare, and benefits that tens of millions of voters depend on. No government that tries it survives the next election, and every politician knows it. Half the constituency won’t take a tax increase, the other half won’t take a benefit decrease. It’s a political non-starter.

You can default: simply refuse to pay. For the issuer of the world’s reserve currency, that isn’t a viable solution. The Treasury bond is the foundation under global trade, banking, and pensions. Choosing to default would be catapulting the US away from the global reserve currency and seriously undermine its position in the global world order. It isn’t happening because unlike Lehman Brothers, Uncle Sam has an ace up his sleeve: Debasement.

The logic is simple. Debt is $39 trillion, and counting. But if a dollar could be worth less than it is now, then the government can repay its debt in the future with funny money that’s not worth what it was when they lent it.

The numbers on your statement still go up while each dollar buys less, and the pain is spread so thin, over so many years, that no one can name the day they were robbed. That’s why it gets chosen again and again by countries in this situation.

It was chosen after the Great Financial Crisis in 2009. It was chosen again in 2020. The US isn’t the first to try this. Rome, Weimar Germany, the Soviet Union before its collapse.

Or you can attempt what Ray Dalio calls a beautiful deleveraging: a careful cocktail of the other three, calibrated to bring debt down without crashing growth. Every government aims for it. In practice it’s like landing a plane with almost no runway left, and even when it works, most of the lift comes from debasement anyway. It’s what we achieved post 2009, and which allowed us to avoid a 1929 style crisis.

So: austerity is refused, default is unthinkable, and the beautiful version still leans on the printing press. Debasement gets chosen again and again, government after government, in every heavily indebted democracy on earth.

Dollars are constantly losing value, and it goes beyond the level measured by inflation. The most sensible way to measure the debasement rate is the gap between M2 and real GDP growth (the mechanics of which we’ll go into more detail in the future).

The fiscal writing is on the wall in the US, in Japan, in China, and in the EU. Currencies have been and will continue to be debased as we attempt to engineer our way out of a debt problem.

This is the backdrop against which investing must happen, and it explains why since the GFC, investing has gotten weird, with valuations moving away from common yardsticks, and old prediction models no longer working.

Multipolar fracture

Outsourcing has been a beautiful source of growth as our participation rates peaked and dwindled. It allowed us to stretch beyond what demographics would imply, and to substitute efficiency gains for geographic arbitrage.

But that dividend has been digested, and has now reversed. The post 1990 equilibrium which brought us globalization and single markets and safe oceans is crumbling one year at a time, one conflict at a time.

Marko Papic and Peter Zeihan have each mapped this terrain from very different angles, and both run all through my thinking here.

Papic’s biggest insight is that we should ignore narratives, and instead focus on the binding political, economic, and geopolitical constraints to assess outcomes.

Zeihan’s biggest insight is that globalization is a temporary blip made possible by the US navy post WWII, but that as demographic stagnation and collapse (the same reason that is killing growth) accelerates, we will transition to a multipolar world.

I think we’re already half way there.

The clearest evidence is in what governments write about themselves. Read the recent national security and economic strategies of the United States, China, Russia, the EU, India, Japan, Iran, Saudi Arabia, the UAE, and Brazil side by side, and they agree on almost nothing, except the shape of the world they’re preparing for.

Even the United States now states plainly that it does not seek permanent global domination (NSS 2025 and NDS 2026 for those who care to check.)

The future is one in which: everyone needs to rearm, new payment rails and reserves get used, new supply chains are organized, and everyone enters a war on resources to fuel their regional economies.

A fractured world builds two or three of everything it used to build once. Multiple chip supply chains, multiple payment systems, munitions industries, etc. That duplication is staggeringly expensive, and expensive means inflationary when it comes from the top down, as it is suggested.

Debasement and multipolar fracture are the consequences of a demographic stagnation, insufficient productivity make-up, and years of pressing the debt button until it made us numb.

Investing as Babylon burns

Babylon was the original empire of accumulation: wealth, debt, grandeur, then decline.

Nothing is new under the sun, and once again it is clear that Babylon is burning.

Warren Buffett and Peter Lynch had it easy compared to you and me.

That means that investments must do two things: keep working whichever way the world splits and fractures, all while outrunning debasement (otherwise you’re just running on a treadmill, going nowhere).

If the currency loses 8% of its real value in a year and your portfolio gains 8 percent, you didn’t make money. Only the return above the rate of debasement is real.

Money has a half-life, which based on my research (which will be published also not so far in the future), the long term trending half-life is fourteen years.

A working life is forty to fifty years long which is three half-lives. Save a dollar at twenty and by your seventieth birthday it buys an eighth of what it did.

There’s only one way to clear a benchmark like that consistently: own things that grow faster than the money shrinks, or that cannot be compressed by printing money.

Cash loses by definition. Bonds pay you back in the very currency being debased. What outruns the fire is ownership of real, compounding assets, and the surest way to find them is to identify the secular trends, the forces so large and so entrenched that they’ll pull capital, revenue, and pricing power toward them for a decade or more, regardless of who wins the next election. Get the secular trend right and time does most of the work for you.

And here’s what makes this tractable instead of a guessing game: the trends flow straight downstream from everything described above. Governments that must debase create demand for assets they can’t print. A world that’s fracturing must rearm, must duplicate its supply chains, must secure energy and materials it used to buy freely. Societies that are ageing must spend on care, while younger ones build their first middle class. None of these are clever bets on what might happen. They’re consequences of what’s already happening, with budgets, laws, and demographics behind them.

The five themes

Follow that logic downstream and the field of what to own narrows to five themes.

Hard money. When governments inflate debts away, own what they cannot print: gold and the miners, silver, Bitcoin, and the few outlier currencies.

Resource scarcity. The world needs far more energy, metal, and materials for electrification, computing, rearmament, and rebuilt factories, after a decade of underinvesting in producing them. Demand is moving faster than supply can answer. Water is a resource. Oil is a resource. Cobalt is a resource. The grid is a resource. Semiconductors are a resource. This theme is defined quite loosely.

Global rearmament. Every major power is rebuilding its military at once, on a scale not seen in fifty years, and adding cyber defence on top. The spending is contracted years ahead and backed by governments. Some of the most beautiful Peter Lynch style growth stocks lie within this.

The demographic dilemma. The ageing that drives debasement also creates two trades: a rich world spending ever more on healthcare and elder care, and a young world forming its first consuming middle class. Both create opportunities of different scales

Restructured rails. The physical and financial plumbing of the world is being rebuilt for a fractured map: new factories, new payment routes, new exchanges, new places to clear capital. The owners of that plumbing get paid whichever side wins.

This was as compressed as I could do a presentation in this article, but I will obviously expand on all of them a lot in coming weeks.

It is by default a wide mandate, because in financial markets, the stories write themselves, and it would be foolhardy to lock ourselves out of too many assets.

Knowing what to own is half the job

Now of course here’s the thing. The gold bugs have been telling you to buy gold for decades. The Bitcoin maxis to go long bitcoin forever. The oil bulls to buy oil. The tech bros tell you to buy semis. The warmongers want you to buy defense stocks.

They are all right at times and all wrong at others. The greatest fallacy as an investor is to get married to an asset class, or worse an individual equity. Because known themes don’t pay out in straight lines.

A theme can be completely correct and still spend eighteen months going nowhere, or down, because it’s colliding with everything else that moves markets: interest rates, liquidity, the business cycle, sentiment.

Gold can spend years giving back gains after getting ahead of itself. Defense stocks can sell off in a recession no matter how full the order books are. Emerging markets can get crushed by a strong dollar even as their consumers multiply. Silver Tsunami investments can sometimes be just yield curve bets disguised, and not pay-off in the interim. The secular trend tells you what to own. It tells you nothing about whether this quarter is the moment to own it.

That’s why my commitment is to 1. not marry an asset class, 2. make positions time-bound with clear failure modes, 3. be brutally honest along the way.

My work will trickle down from the macro (theme, FX, rates), to the micro (fundamentals and price action).

Technical analysis will play the role where it belongs: at the last mile. At the end of the day you can have the best thesis and still lose money to poor timing. Price action is the synthesis of supply and demand for a given asset, and that carries information. My technical analysis is classical Richard Schabacker style, and it is used as a supporting tool once we’ve past an investment thesis through the waterfall of macro to micro tests.

One more thing, and it matters more than most investors realise: the portfolio is global by construction. Own a great business in a currency that strengthens against yours and you get paid twice. A portfolio confined to one country forfeits that entire dimension.

What’s next

On 15 August 2026 I’ll launch the paid edition of Babylon Burns.The date is the fifty-fifth anniversary of Nixon closing the gold window in 1971, the act that set this whole chain in motion.

Each week,there will be a macro read framed through one of the five themes and a deep dive into a single name investment. Behind it, a live global portfolio, concentrated, conviction-driven, every position disclosed, mirrored with my own money, with trade alerts,

Until then, there will be a steady run of free work. Next Letter, I put everything above on one live position for you to get the taste of the work for free: a single name where the theme, the chart, and the catalysts line up at the same time.

Two asks before you go. If you want the next letter when it publishes, subscribe, the free work alone will be worth your inbox.

And if this one was useful,, repost it wherever you found it, or send it to one person who you think will like it.

As Babylon burns, we’ll light the cigars.

Sam Kovacs

Babylon Burns is written for informational purposes and not to be construed as investment advice. I write about what I own and how I think. Your decisions are your own; do your own work before acting on anything here.