Chaos Americana: Middle East & Markets Mayhem
Schizophrenic Foreign Policy & Why I Think The Bottom Is Close For Precious Metals & Copper
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The last couple weeks have been hectic and every time I pull up social media and skim some of the headlines and different tweets, I find myself planning another run to the grocery store to make sure I stockpile as much food as possible. I stole the “Chaos Americana” title from Vince Lanci, mostly because it perfectly sums up the current situation. The US went from the unipolar center of gravity (Pax Americana) to a geopolitical strategy that has most people wondering what the hell is going on, and what the hell is going to happen next?
Before I get into my thoughts on recent events and why I think we are getting a buying opportunity in certain parts of the market, I want to say again that now is a good time to fill the freezer, grab some extra bottled water, and any other nonperishable items that can be stored easily. I think that the best way to think about this is a series of “what if” questions.
What if the Strait of Hormuz isn’t reopened in the next couple weeks?
What if that leads to weeks or months of supply chain problems for sulphur, fertilizers, chemicals, and energy?
What if that leads to a crappy planting season and lower yields?
The point is that you can “what if” your way to a scenario where oil prices ripping, along with higher prices for chemicals, fertilizers, and food. Some people are calling for famine (people called for that during the beginning stages of Russia-Ukraine as well), but the Strait of Hormuz is a whole different ballgame when it comes to supply chains. I’m not predicting the worst case scenario because we are typically able to avoid that, but this line of thinking at least ends up at the logical conclusion of “maybe it’s a decent time to buy some of the essentials.” Even if this gets resolved in the next two weeks and the Strait of Hormuz is reopened, I don’t think anyone loading up on necessities now is going to regret it in six months.
Make Inflation Great Again
No amount of futures market games in oil, or export controls, or windfall profits taxes, or other ideas that have been floated across the West are going to fix this overnight. The way I like to visualize it is that we are trying to put a bandaid on a bullet hole due to the large amount of energy infrastructure that has been damaged. A lot of that stuff is a three to five year fix, including things like the Ras Laffan LNG plant in Qatar. There’s no magic wand or switch to flip that can undo this stuff overnight. Supply chains may be elastic, but they aren’t elastic enough to conjure up enough oil and gas, chemicals, fertilizers, sulphur, and everything else that flows through the Strait of Hormuz on short notice. The spreadsheet monkeys at the Fed and on Wall Street can’t print physical infrastructure or commodities.
