By now you might be thinking we are “pro-Russia”. Nothing of the sort. In essence, what we are trying to do is point out how Russia is way more important to the world economy than it was some 20 years ago. To embargo or limit Russia’s exports will only lead to an inflationary superstorm.
Some 20 years ago Europe (and the “West”) had the North Sea, which produced as much as Russia and the US. Now it is a shadow of its former self. And if US shale continues to disappoint, it won’t be long before Russia becomes the world’s biggest oil producer “beyond reasonable doubt”.
Do you really think that Rosneft, Lukoil, or Gazprom are in trouble of being sanctioned when they supply some 36% of Europe’s oil needs?
And natural gas (not that this is unappreciated).
But there are probably a couple of commodities that few have given any thought to, coal in particular. Russia exports almost as much thermal coal as Australia (granted the chart below is a few years old but volumes wouldn’t have changed materially in that time). Russia also exports about as much coking coal as the US and about 40% of Australia.
Hmmm… switch off Russian natgas (for a theoretical exercise) and the world will need a stink load more of coal of which Russia is one of the top 5 global suppliers. Guess you could always turn to uranium?
Granted Kazakhstan isn’t Russia, but they are rather friendly. Of course, uranium produced (yellow cake) isn’t the stuff that goes into nuclear reactors. That is enriched uranium, which Russia (Rosatom) accounts for 50% of world enriched uranium production. That is absolutely extraordinary. Roughly 20% of the US electricity supply comes from nuclear. You know who’s really screwed?
Our French mates run the place on nuclear, and guess what? Over half of this enriched uranium comes from the Russkies.
And who accounts for a fair whack of grain exports?
And without fertilizer crops don’t grow.
Should the rest of the world be sanctioning Russia’s commodity exports, we’d likely see Weimar Republic-style inflation in those countries, particularly Europe. But given that our exposure to Russia is ~10% and we have a truckload of exposure to non-Russian, fertilizer, natural gas, uranium, oil, coal, and grain production to name a few. Honestly, speaking purely from a greedy capitalist standpoint, hyperinflation wouldn’t be such a bad thing. Of course, we don’t want that, and really everyone’s living standards falls but certainly, we’d rather be protected than not.
Here is a neat little picture to make this easy from a geopolitical perspective. Those available to the West from “friendly” states.
How Our Fund Is Frontrunning The Economic Madness In 2022 And Beyond
- Copper - Copper prices have to rise to address a huge supply deficit looming on the horizon.
- Shipping - Shipping is vital for the functioning of the modern world, yet is priced for bankruptcy.
- Eastern Europe - Position for the long term trend of capital moving from the West to the East with Polish and Russian equities markets.
- US Dollar - We’re bearish all paper currencies, but believe that the USD will outperform all others.
- Base Metals - Clean energy targets require more battery metals than existing global supply.
- Off Shore Oil & Gas - Offshore oil investment has been smashed, yet consumption continues to grow.
- Rare Earth Metals - A play on geopolitics and a cycle that should see a repricing of these commodities.
- Russion Oil & Gas - Virtue signaling abandonment of fossil fuels led by Western oil co’s means Russia is taking up the slack.
- Uranium - The looming supply deficit promises to pay handsomely when the market inevitably reprices.
- Gold - Gold sees the perfect storm; the turn of a cycle, supply issues, and lack of faith in sovereign currency.
- Coal - Modern society is dependent on coal, with supply continually growing. Is there a more hated investment?
- Personal Defense - Order is breaking down in the US, and the unrest is giving us an opportunity to position for asymmetry.
- Agriculture - Lockdowns and monetary stimulus have ensured food prices will rise, providing deep value.
- Natural Gas - Supply and demand dynamics coupled with dependency from the US provides a great opportunity.
- Plus much much more...
If these themes make sense to you then click the link below to learn more about Capitalist Exploits and how you can play along.