Sometimes you just need to take a step back and look at the Big Picture. The Macro picture in business language.
I do it every so often and after looking back on some of those Macro looks I realized that I really didn’t say anything that multiple talking heads on TV haven’t already said.
Blah, Blah Blah.
In this column I have tried to do something a little different. Have readers approach something from a different angle and let them create the picture they see. Sometimes it works, sometimes it doesn’t.
One of the things that I have been seeing more and more of is, economists and other very, very smart people try to force the Geopolitical into the economic narrative and while they all make some very good cases, I still don’t see it.
Yes, the war in Ukraine is important. Yes, the war in Gaza is important. Additionally, what may develop in the South China Sea might be the most important of all. However, I still do not see any of these events creating an Economic/Geopolitical armageddon some of these people see as the eventual result.
Let’s quickly recap these World shaking events and put this line of thinking to bed.
Russia invaded Ukraine on February 24th of 2022. Oil prices spiked, inflation soared, food shortages were predicted. The end was near because Vladimir Putin had his finger on the nuclear button. As I said back then and I will repeat now. Russia accounts for 8% of the Worlds supply of oil. Big Deal. The price spikes were to the tune of 20-25%. That was nasty speculation and prices eventually receded when the reality of Russia’s “importance” in the oil supply of the planet became apparent. They still sold oil to China and India and Europe worried endlessly about their natural gas supplies. The Continent was going to freeze! Didn’t happen. When it comes down to it, if there is money on the table, there will always be someone to supply something to somebody who has cash. It was a slight rebalancing of supply chains. That was it. Putin may still have his finger on the trigger but he is still supplying his troops with the means to carry out a long battle. The money to support those troops just comes from a different capital. The actual impact, has been that US and European Union defense contractors have had two very good years. To Hell with the dent it may put in anyones budget, the Military Industrial complex is doing just fine.
Hamas struck inside of Israel in a terrorist attack that shocked everyone in the World except the Israelis. They always knew Hamas was capable of such a despicable act and it finally happened. Now the Israelis have gone on the offensive and the devastation is real. World markets, with the threat of a much wider scale war, reacted for about an hour. Oil prices rose again but that was short lived. Now the Saudi’s are feeling the effects of something that has nothing to do with the battles in Gaza, they are feeling the effects of the US again, becoming a direct competitor and with this increased supply, the oil market has fallen. Even with the Saudis and OPEC+ cutting production. Geopolitics has zero to do with it. Supply-Demand is once again the force behind oil prices, as it should be.
Going around the globe and looking at what could potentially happen in The South China Sea might create that Geopolitical event that will severely impact economic activity Worldwide for a much longer term.
Again, slow the freight train down a bit on this one too. While China might be thinking about doing a merger and acquisition of Taiwan, I will bet some serious cash, they will not temp the Gods and cut off their main shipping routes by starting some sort of conflagration in the South China Sea. They ship 1/3 of everything they export and receive 70% of their oil through the main shipping channels in that part of the World. Start messing with that by militarily commandeering traffic could present that one huge Geopolitical event that will shape or reshape the World’s economy.
The Chinese are losing power and prestige around the World and forcing some sort of conflict in this area may be the second to the last nail in their economic coffin. Countries far and wide are reducing their reliance on China’s manufacturing sector and foreign investment in China has been slowing down considerably. Should they do something egregious in the South China Sea, the implications for China would be disastrous. They aren’t stupid, they know this. Building up military installations around the area might be part paranoia and part strategic but I truly don’t think the Chinese will do anything in the region specifically because they have nothing to gain and a lot to lose.
Taiwan is a different story. Some thinkers have said because they believe that Joe Biden is mentally slowing down and some can argue, weak and spineless, the Chinese will want to take advantage of our feckless leader and invade before Donald Trump possibly takes the White House back. I don’t see them doing that either simply because what will they actually gain? The mainland and Taiwan have dozens of trade agreements and Taiwan may lean towards the West regarding some transactional stuff, they still have significant ties to Beijing. Sorry, I don’t see it happening and honestly, if it did, I think it will be one of those events that the World needs getting adjusted to and life and business, would carry on.
Let’s finally face the facts. World economies are interdependent on each other. When one supply line fails, another is always found. Economics is about adjustment. Destroy a mine in Zimbabwe and another will open in Zaire. China controls 70% of all the rare earth metals, new sources are being developed around the globe to deleverage this control.
We may rally for one side or the other when it comes to regional conflicts and our hearts bleed for those most impacted but unfortunately, that has little to do with the business of making money.
No one has come up with this poll and I know I may sound heartless but those little pollsters at Quinnipiac should ask a few thousand Americans this simple question, “With the wars in Ukraine and Gaza, how much has it impacted your day to day living?” I think you will find, while Americans may have sympathy for those impacted, most Americans are more worried about their economic health and physical well being than they are about the horrific scenes they see from thousands of miles away.
The Geopolitical/Economic Venn Diagram these geniuses have created I think is incorrect when looking at the bigger picture. Americans will not stop spending money because of some distant conflict. They might tilt things a little bit towards the “Buy American” products but otherwise, if someone is going to buy a new patio set for their house, what happens thousands of miles away plays no part in the purchase.
Reality may not be pretty or just but it can be profitable.
Excellent, had to share it with believers of economic Armageddon! Thank You! I agree with, Money talks and BS walks......