How Can The U.S. Manage To Avert A Financial Crisis?
In many ways, the United States has less control of its economy than ever before. America was richly endowed with an abundance of natural resources. The U.S. economy has been running hot and profligate for so long that much of that initial natural resource endowment has been depleted. With our current leadership blocking virtually all initiatives to keep the United States ‘energy independent’ is something that every American citizen should be worried about and start to pay keen attention to what’s happening on the world stage.
The natural resource center of the world has shifted to the South East; the Eurasian continent including China & India, the Middle-East nations, several emerging African nations, and Indonesia. And this is especially true with oil production. The majority of the major oil producers are members of burgeoning economic alliances with BRICS. Moreover, the alliance plans to continue to add members – the majority of members are developing countries, which likely means greater demand of natural resources to build out infrastructure in these nations.
Fortunately, it’s in the interest of the BRICS alliance to maintain orderly markets. If there was a sudden and unexpected massive increase in oil prices – and here is the kicker – in a short period of time, the suddenness is what’s really hard to manage.
Hypothetically, if oil prices were to climb to $300 per barrel- but do it over a period of 5+ years- markets and economies could adjust. Over the past month, despite a sharp increase in geopolitical tensions, oil prices have been volatile but range bound. I believe virtually all commodities are in long-term uptrends. However, if the U.S. government were to issue one too many sanctions directed at the wrong nation, who knows what the consequences of such ‘backfired sanctions’ could be…
Geopolitics Causing Earthquakes In Macroeconomics
The horrific events in the Mid-East are the latest in a string of geopolitical events that are changing our economy. The Fed, once a critical part of assessing market trends, is no longer proactive but reactive to trends well beyond its control. The most important of these trends is natural resources. And control of commodities has shifted almost completely to the South East as evidenced by the growing BRICS economic alliances.
BRICS is mostly developing countries which means greater worldwide growth – a positive, but it will also mean a strong long-term uptrend in commodities – a potential negative. The broadest index of actual commodity prices (as opposed to future prices) has corrected a bit more than 15% from its 2022 high.
I believe the correction was mostly the result of China’s decision to run its economy in low gear to eliminate risks of a speculative real estate market. Latest data shows China’s economy is picking up, which means stronger growth for the entire BRICS bloc. The correction in commodities is near an end. The hard hit small fry players will benefit most from the corrections end.
A large chunk of our portfolio is material leveraged stocks. A new addition fits the part of the portfolio independent of economic trends.
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