Global Supply Chain Crisis: The Impact on Investments & Future Economy | Peter Zeihan

Summary

In this investment-focused discussion, the speaker emphasizes the importance of understanding the role of raw commodities in globalization and economic integration. With the current disruptions in supply chains, there's a looming risk of widespread shortages in essential materials, including food and semiconductors. The United States faces strategic choices regarding the control and distribution of resources like silicon, crucial for digitization. The conversation highlights the need for discerning investment in sectors less affected by these shortages, such as agricultural processing in countries with stable supply sources.

Takeaways

• 📚 The book covers a vast range of topics and is highly regarded by the speaker.
• 🌐 The discussion highlights the role of industrial commodities in modern globalization and economic integration, emphasizing their foundational importance.
• 🔩 The Industrial Revolution not only introduced electricity and manufacturing but also scaled the application of Renaissance lessons through the efforts of Germans, Brits, and eventually the rest of the world.
• 🚫 The current global situation is facing potential disruptions in supply chains, affecting not just finished products but also raw commodities that are essential for a modern lifestyle.
• 🌎 Access to raw commodities is becoming uncertain, which could lead to large portions of the world losing the necessary inputs for modern living.
• 💾 The speaker points out the critical importance of silicon for semiconductors, noting that 95% comes from a single mine in North Carolina, highlighting the vulnerability of digitalization.
• 🏭 The United States will need to make strategic choices regarding the control and distribution of critical resources like silicon in the coming decade.
• 🌾 The script discusses the impact of geopolitical events on agricultural commodities, with Russia's actions affecting global wheat and fertilizer supplies.
• 📉 The speaker predicts chronic shortages in base materials, including industrial commodities and food, due to various global factors.
• 💼 The financial sector is urged to be more discerning in investments, moving away from the previous era of abundant capital to a new reality of scarcity.
• 🌳 The speaker advises investors to do their homework, focusing on companies and sectors that are resilient or positioned to benefit from the changing global landscape.

Q & A

What is the main topic of the book mentioned in the transcript?

The book covers a wide range of topics, including the impact of the Industrial Revolution, the role of commodities in globalization, and the challenges of modern economic integration.

What does the speaker mean by 'the core of globalization'?

The core of globalization, as mentioned, refers to the ability of anyone to go anywhere to get anything, highlighting the interconnectedness and interdependence of global supply chains.

What is the significance of the Industrial Revolution in the context of this discussion?

The Industrial Revolution is significant as it introduced electricity and manufacturing, and scaled the lessons of the Renaissance, leading to the discovery and manipulation of elements that form the basis of our modern world.

What is the current issue with supply chains according to the transcript?

The current issue with supply chains is the breakdown at the raw commodity access level, which is the first step in creating finished products, and this is no longer guaranteed due to various global challenges.

Why is silicon important in the context of this discussion?

Silicon is crucial because it is used in semiconductors, and 95 percent of it comes from one mine in North Carolina, making it a critical component for digitization and modern lifestyles.

What strategic choices does the United States need to make regarding silicon?

The United States needs to decide how to manage its silicon resources, considering whether to continue mining and selling it to everyone, especially in a world with limited energy and food.

How does the speaker describe the current state of capital in the financial sector?

The speaker describes the current state of capital as no longer being 'free,' implying that the financial sector can no longer invest in everything without discernment due to capital constraints.

What is the impact of the Russian invasion on global agricultural commodities?

The invasion has affected the global supply of wheat and fertilizer, as Russia is a major exporter of these commodities, potentially leading to a multi-year shortage in agricultural products.

What are the implications of the current situation for investors?

Investors need to be discerning and do their homework, focusing on companies and markets that are less affected by the current shortages and have reliable sourcing for their products.

How should investors approach the building materials sector?

Investors should be cautious and consider the sourcing of materials and the geographical focus of the companies they invest in, particularly looking at regions with a boom in residential real estate.

What does the speaker suggest about the future of investment choices?

The speaker suggests that investors need to disaggregate and carefully select investment choices based on the specific conditions and potential of different markets and sectors.

Outlines

00:00

🚀 Globalization and the Impact of Industrial Commodities

The first paragraph discusses the broader implications of globalization and the role of industrial commodities in the modern world. It highlights the historical context of the Industrial Revolution and how it led to the current state of economic integration. The speaker emphasizes the importance of raw materials and the potential issues arising from supply chain disruptions, particularly in the semiconductor industry. The focus is on the strategic significance of controlling these resources, with a specific mention of silicon's role in semiconductors and the reliance on a single mine in North Carolina. The discussion also touches on the geopolitical aspect, suggesting that countries may need to prioritize their own manufacturing and resource allocation in the face of global shortages.

05:01

🌾 Investing in a World of Scarcity: Agriculture and Building Materials

The second paragraph delves into the challenges and opportunities in investment amidst global shortages, particularly in agriculture and building materials. It points out the current geopolitical conflicts affecting the supply of wheat and fertilizers, and the potential long-term implications for food security. The speaker advises investors to be discerning, avoiding broad market investments that lump together disparate economies and instead focusing on specific sectors and regions less affected by shortages. The paragraph also touches on the complexities of investing in building materials, emphasizing the importance of understanding sourcing and regional demand, especially in the context of population shifts in the United States.

Keywords

💡Investment Show

An 'Investment Show' is a type of media program focused on investment strategies, market trends, and financial insights. In the context of the video, it serves as the platform for discussing broader economic themes such as industrial commodities and their role in globalization, as well as the potential impact on investment strategies due to changing global dynamics.

💡Industrial Revolution

The 'Industrial Revolution' refers to a period of significant economic and technological change that marked the shift from agrarian societies to industrial ones. It is mentioned in the script to highlight how historical lessons were applied at scale, leading to advancements in manufacturing and the understanding of materials that make up our modern world.

💡Globalization

'Globalization' is the process of increased interconnectedness and interdependence among countries, which has been facilitated by advances in communication, transportation, and trade. The script discusses the role of raw commodity access in globalization and the potential disruptions to this process due to supply chain issues.

💡Supply Chains

In the context of the video, 'Supply Chains' refer to the networks that facilitate the movement of goods from production to consumption. The script mentions the breakdown of supply chains, particularly in the context of semiconductors, tires, and other components, which are critical for modern manufacturing and lifestyle.

💡Semiconductors

'Semiconductors' are materials that have electrical conductivity between that of a conductor and an insulator. They are crucial for modern electronics, including digital devices and vehicles. The script emphasizes the vulnerability of global supply due to the concentration of silicon, a key component of semiconductors, coming from a single mine in North Carolina.

💡Strategic Choices

'Strategic Choices' are decisions made with long-term implications, often involving resource allocation and prioritization. The script discusses how countries will have to make strategic choices regarding the allocation of resources like energy, food, and materials to support their manufacturing sectors.

💡Agricultural Shortages

The term 'Agricultural Shortages' refers to a lack of sufficient agricultural products, such as wheat and fertilizers, which are essential for food production. The script highlights the geopolitical factors contributing to these shortages, such as the conflict between Russia and Ukraine, which are major exporters of these commodities.

💡Financial Sector

The 'Financial Sector' encompasses the economy's sub-sector that is concerned with the creation, management, and distribution of money and credit. The script criticizes the financial sector for its lack of discernment in investment strategies, suggesting a need for a more value-added approach in a changing economic landscape.

💡Sourcing

In the context of the video, 'Sourcing' refers to the process of obtaining raw materials or services, and is critical for manufacturing and production. The script emphasizes the importance of understanding the origin and availability of commodities, as disruptions in sourcing can have significant economic impacts.

💡Palladium

'Palladium' is a rare and lustrous silvery-white metal, one of the six platinum-group metals, and is used in various industries, including automotive catalytic converters and electronics. The script mentions palladium as an example of a commodity whose sourcing and availability can be affected by geopolitical and economic factors.

💡Residential Real Estate

'Residential Real Estate' pertains to property developed for people to live in, such as houses and apartments. The script discusses the potential for growth in this sector, particularly in regions like the Mountain West, Southwest, and South of the United States, driven by demographic shifts and changing preferences.

Highlights

The book covers a wide range of topics and is highly praised for its excellence.

An unexplored chapter on industrial commodities and their role in the Industrial Revolution is mentioned.

The discussion emphasizes the importance of components and elements in modern globalization and economic integration.

The potential breakdown of supply chains extends beyond consumer goods to include raw commodities.

Concerns are raised about the future access to raw materials necessary for a modern lifestyle.

Silicon, crucial for semiconductors, is highlighted as a significant raw material sourced from a single mine in North Carolina.

Control over silicon could have profound implications for digitization and modern quality of life.

The United States faces strategic choices regarding the future of silicon mining and sales.

The conversation predicts chronic shortages in base materials, including food and industrial commodities.

The agricultural sector is expected to face a multi-year shortage due to geopolitical events.

Russia's role in the aluminum and copper markets is discussed, along with the impact of recent events on these sectors.

The importance of sourcing in investment decisions is emphasized, especially with capital becoming less available.

Investors are advised to be discerning and avoid broad market investments that do not reflect current realities.

Agricultural processing is identified as a growing sector, with specific regions less affected by shortages.

Investment in building materials is recommended, but with a careful consideration of sourcing and market demand.

The United States' residential real estate boom is predicted to be concentrated in warmer, cheaper regions.

The complexity of sourcing building materials and the need for careful investment analysis is noted.

Transcripts

Peter what else do you want us to know I

the book is it just covers so much and

it's uh it's excellent by the way what

else do you want to say to our listeners

and let us know about any any component

sure so since this is an investment show

I think the best way to do is to talk

about a chapter that you haven't made it

to yet there's an industrial Commodities

chapter so anything that goes into

anything that's not energy in food the

Industrial Revolution did more than just

introduce us to what we now consider to

be electricity and Manufacturing it also

took the lessons of the Renaissance and

applied them at scale first through the

Germans and the Brits and then

eventually for the rest of the world and

we figured out all these components and

elements that make up our world and we

figure out how to purify them and then

recombine them in ways we found useful

what we haven't missed in the discussion

of modern globalization and economic

integration is their role because the

very core of globalization is anyone can

go anywhere to get anything

and when we talk about the breakdown of

Supply chains we're thinking of

semiconductors and tires and widgets and

that's true but that's not the whole

story we're entering into a world where

the raw commodity access that then goes

into the process material that then goes

into the intermediate products that goes

into the finished products that very

base First Step that is no longer

guaranteed so we can look forward to

large portions of the world losing

access to the inputs that are necessary

to attempt a modern lifestyle and if you

want to talk about the sexiest of all of

them

silicon not for panels

silicon for semiconductors because 95

percent of it comes from one mine

in North Carolina

wow so it's one thing to control Global

food or Global energy yeah it's another

thing when you can control the only

input that allows digitization to even

theoretically happen

and the United States is going to have

to figure out what to do that with that

over the next decade

well why are we gonna have to figure out

what to do with that we're going to

continue to mine and right but will we

sell it to everyone oh we're entering

into a world where there's not enough

energy and there's not enough food right

and where we're going to prioritize our

own manufacturing these are all

strategic choices that we're going to

make either by choice or failure to make

one

when you get to semiconductors though

when it's all coming from one place

that's an entirely other level because

if you can't get enough energy yes your

car stops yes the lights go out this is

bad

but if you can't get any microchips you

can't even pretend to catch up in any

sector at all yeah

well that's why countries like Russia

shouldn't do what they do you know the

Russians have a very different

definition for what modern quality of

life means that is one of their biggest

negatives that's one of their biggest

strengths it all depends upon how you're

measuring it

what it is they're trying to do at the

time yeah yeah so so what's the

investment I mean what do you think is

coming next in the economy we we alluded

to that of course with the capital

drying up and and the worker shortage

continuing and so forth but just give us

like the the what do we do with that

well I'm not a CFA so let me just start

with that it's okay neither am I

let me rephrase that investing is not my

world I can tell you though that we are

looking at Chronic shortages and a lot

of Base materials that make up our world

not just the industrial Commodities I

just kind of went through uh but food

you know we've the world's top wheat

exporter has invaded the world's number

four wheat exporter and the world's top

leader exporter also is the world's

largest export of fertilizer and the

components necessary so people can make

their own fertilizer so we're in the

early ages of a multi-year shortage in

all things agricultural Russia is also a

big player in the aluminum Market or it

was not anymore they also have been

copper that hasn't gone to zero yet it's

on its way down Platinum Group materials

for example especially uh Palladium

which does double time with silicon and

semiconductors the problem as you're

looking at all of these however is that

sourcing is critical one of the biggest

disservices in my opinion that the

financial sector has done for us all

over the last 20 years it's become used

to this environment where capital is

flush and liquid and we can invest in

everything and we don't have to be all

that Discerning right because if the

money is free why the hell not well the

money's not free anymore and so the

financial sector has to actually provide

value-add in the old system the entire

developing world was in one maybe one

exchange traded fund that's asinine to

think that India and Brazil and China

and Russia have anything in common aside

from size their markets are completely

different the sectors they play in are

completely different investing in them

and it's completely different and yet

there they are all together same with

Frontier Marcus which makes even less

sense like what in the world do

Argentina and Vietnam have in common

yeah we have to disaggregate all that

now

and that goes not just for the markets

in general but for the specific products

so for example if you want to invest in

agricultural processing that seems like

the big business right now it's probably

going to get bigger

but all the major agricultural processes

that operate in the economies that are

not getting hit by these shortages I

think France Canada Australia the United

States they're also in Russia and

Ukraine

so you really have to do your homework

to carve out the parts of the world from

your investment choices that just aren't

playing anymore and that means you have

to remove companies that had been

household names I'm thinking just bungee

here to pick one out of the air that is

not an appropriate if you want to take

advantage of the kind of this boom we're

going to see in demand for those

products in a narrow of scarcity how

about building materials

uh that's messy because a lot of them

are closer to home overall I think

that's a great idea but you have to be

really really careful of what the

sourcing is and where the companies that

are producing that material are selling

into so for example if you're selling

into the United States particularly in

the Mountain West the Southwest or the

South that is where the Boom in the

United States is going to be in

residential real estate for at least the

next 15 years people are moving there

because it's warmer that's the Boomers

people are moving there because it's

cheaper that's the Millennials having

families and nobody wants to be on a

Metro where they might get coveted again

so you know everyone's moving into those

that kind of Arc that's

as a rule not how we decide where we get

the stuff that goes into it you either

have local companies that are not

publicly traded or you have

international ones that are like

bringing in wood from Canada and

untangling that mess requires a brain

that's bigger than mine

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