Where to invest in a world of resource scarcity


The market faces something different: global physical shortages of energy and food. In this environment, what has worked in the past can backfire.

The monetary sanctions against Russia are proof of this. After the sanctions initially caused the ruble to fall rapidly by 70%, Wall Street and Western governments predicted that the Russian economy would collapse by 35% or more.

Instead, the ruble has soared from its initial low and is the world’s strongest major currency so far this year.

Sanctions backfire

Forecasts of a mild Russian recession have replaced forecasts of a catastrophic decline. Meanwhile, food and energy prices have continued to rise, and the likelihood of recessions in Japan, Europe and America has increased.

A happier surprise is that despite the sharp decline in the market, the technical chart does not portend economic catastrophe. Small-cap stocks outperformed heavyweights, a historical trend indicating inflation rather than economic disaster.

The market seems to be betting that war, and the shortages it accelerates, will force the world to come together to save the world.

I still believe that investors can make tons of money with the right stocks, but I think the intense volatility of everything is here to stay.

The possible silver lining of rising energy and food prices is that it can push the world to come together and move faster to develop a sustainable economy. I deeply hope that the war in Ukraine, terrible as it is, will be a wake-up call.

The Fed’s Futile Attempt

My main concern is that the Federal Reserve, in trying to fight inflation that is spiraling out of control, is going too far. Very serious economic consequences would then probably ensue.

So far, the Fed has raised the fed funds rate three times in 2022: a 25 basis point hike in March, then a 50 and 75 basis point hike in May and June, respectively. The June rate hike was the biggest rate hike in nearly 30 years.

Read this story: Is the Fed Waging the Wrong War?

By initially minimizing inflation and waiting as long as possible, the Fed ended up tightening aggressively. Unfortunately, I don’t think the Fed will be able to do much about the fundamental problem of resource scarcity that underlies inflation.

Tighter credit conditions will slow the economy, which could slow inflation, but at the expense of Americans’ jobs and incomes. And when things get worse, the Fed will have no choice but to relax again.

Both parties must work together

I mentioned that countries have to cooperate. Specifically, I mean that the developed world, which is financially rich but generally lacking in natural resources, needs to work closely with the developing world, which is less financially rich but richer in natural resources.

Alas, instead of cooperation, it seems that the division between the two sides (the developed world, led by the US and the EU and the developing world, led by Russia and China) is widening lately. time. The situation between Ukraine and Russia shows why access to resources is so important. By sanctioning Russia, the EU is depriving itself of critical natural gas and shooting itself in the foot.

I still hold out hope that cool heads will prevail and that leaders will realize that if they keep fighting, the future will be bad for everyone.

Products positioned to thrive

While I think the good times for the stock market (when all you had to do to make money was throw money at fast-growing tech stocks) are over. My prediction is that over the next decade, natural resources, such as energy, metals and food, will be among the best performing assets.

To go where the world wants in terms of renewable energy and for the developing world to continue to modernize, the quantities of raw materials needed are simply unprecedented. There will be ups and downs, but I believe real assets are the place to be.

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