Market Overview
Other things to worry about
By now, we’re all well aware how much our European allies depend on Russia for oil and gas. So, when Russia went rogue, the price of oil predictably shot up. Based on the fear of supply disruption – not actual disruption, just the fear of it – the price of gasoline rose sharply as well. Because the whole supply chain runs on petroleum in some form or another, we’ll all most likely be experiencing price hikes in just about everything soon.
If that worries you – and it should – here are some other thoughts to keep you up at night.
Choke hold
According to prepper outfitter Emergency Essentials, there are four choke points in the world’s supply chain. The odds are that just about any seaborne export is going to have to go through at least one of these gateways:
- Suez Canal. Accounts for 12% of world trade. A year ago, one container ship got stuck sideways in the canal and it took weeks for crews to pry it loose. That ship ended up costing the global economy $400 million every hour. The ship, called the Ever Given, was carrying goods ranging from semiconductors, which were already in short supply at the time, to garden gnomes, which saw an otherwise unaccountable price spike.
- Strait of Hormuz. Before petroleum products from Iran, Iraq, Saudi Arabia, Kuwait, Qatar and the United Arab Emirates can arrive at their destination, they have to pass through this waterway connecting the Persian Gulf with the Gulf of Oman, and then into the open waters of the Indian Ocean. The oil exports from those countries account for almost a quarter of the world’s supply, and fully one-third of its liquified natural gas.
- Strait of Malacca. This channel between Malaysia and Indonesia is the main trade route between China and India, the world’s two most populous nations. Along the way, such factory economies as the Philippines and Vietnam – as well as such developed nations as South Korea, Japan, Taiwan and Singapore – thrive largely because of the cargo moving through the strait.
- Panama Canal. Anything traveling between the Pacific and Atlantic oceans – Korean smart TVs destined for New York consumers, for example – moves through this conduit.
Of these passages, only the Panama Canal traverses a relatively stable political climate. Any of the others could be shut down due to conflict or insurrection at virtually any time.
Cornered commodities
Sometimes when someone tries to corner the market on a commodity – silver or copper, to cite a couple recent examples – it makes the news. Arrests are made. Congressional hearings are held. In other, more normal times, especially concerning agricultural products, nobody seems to notice.
This is why four companies control 84% of the beef on supermarket shelves throughout the world – JBS USA and National Beef Packing Co. in Brazil, and Tyson Foods and Cargill in the U.S. Also of note, two companies – DuPont and Monsanto – sell 71% of the world’s corn seed.
You can find similar stories of oligopolies in hogs, poultry, soybeans and virtually any other agricultural commodity. And it’s the prices for these products that, with the notable exception of gas, are the most visible to the average consumer.
National treasures
Every country on earth has its own set of natural and/or production resources, putting it at a competitive advantage versus other countries. Here’s a list of countries and their commodities that, for many, cause a good deal of concern:
- Australia mines more than one-third of the world’s iron ore.
- Brazil and Vietnam account for around 40% of the world’s coffee.
- Chile and Peru mine half the world’s copper.
- China produces more than half the world’s flax, which is refined into linens.
- China catches or farms more fish than the next 14 countries combined.
- China plus semi-autonomous Hong Kong produces almost half the world’s integrated circuits.
You might be detecting a pattern if you spot China’s increasing dominance in world trade. Let’s not forget that this is the same China that is at least half-heartedly backing Russia’s play in Ukraine. If Russia succeeds, it may embolden China to reassert its claim to Taiwan.
If worse comes to worst and the U.S. has to back Taiwan, its longtime democratic ally in the Asia-Pacific region, that could affect Americans’ access to copper, linen, fish, computer chips, and so much else.
Suffice it to say, there’s a lot going on in the world, and a lot of it isn’t good news for investors. Be sure you’re staying on top of things or working with a trusted financial advisor who is and will continue doing so on your behalf.
