Commentary: Real stuff matters, because real stuff happens

A nearly empty trading floor is seen as preparations are made for the return to trading at the New York Stock Exchange (NYSE) in New York, U.S., May 22, 2020. REUTERS/Brendan McDermid/File Photo

Here’s a revealing economic fact from the astute market analysts at JPMorgan Asset Management: If you had invested $1,000 in a portfolio of “digital world” stocks – ride sharing, gaming, cybersecurity, crypto and the like – in June 2019, you’d have had $900 as of June 2022. That’s a 10% loss. By contrast, $1,000 invested in “real world” equities – oil and gas, minerals and agricultural products – would have turned into $1,700, a 70% gain.

Your digital-world equities would have thrilled you by more than doubling during the second half of 2020, as stock markets feasted on cheap money supplied by the Federal Reserve Board, remained at that level through 2021, and then plunged over the past six months as stimulus subsided. Meanwhile, the “real world” assets marched steadily upward, beating the broader market’s performance by a significant margin.

Advantage, stuff. Financial markets have “re-priced” assets to reflect both the insubstantiality of the many highflying business plans they were previously willing to fund and the indispensability of basic supplies, such as food and energy.

The lesson here is that stuff matters because stuff happens. Human beings have a hierarchy of needs, at the top of which are eating and staying warm, with internet gambling and video streaming a lot lower on the list. In a world of supply chains disrupted by unexpected events – the pandemic, Russia’s invasion of Ukraine – making stuff people can’t do without is good business.

There’s a corollary for countries and governments: It is wise policy to maintain a healthy margin of self-sufficiency in food and energy. Reliance on imports creates, as the author of the JPMorgan Asset Management report, Michael Cembalest, notes, “supply, price, currency stability and national security risk.”

Certainly, Vladimir Putin is banking on stuff – specifically, continued exports of oil, gas, grain and fertilizer – to sustain Russia despite efforts by the United States and Europe to cripple the Russian economy through sweeping trade and financial sanctions. The jury is still out on Putin’s strategy; for him, though, the inconclusive situation is already a victory of sorts, given the initial Western confidence that his regime would not be able to cope.

In fact, though Europe is trying to limit Russian oil and gas imports, its inability to do without them in the short run has turned into a significant weakness for countries such as Germany and Italy, and a source of leverage for Moscow. So has the dependence on Russian goods of Brazil (fertilizer) and South Africa (wheat) in the global south. India imports all of the above from Russia, as well as the ultimate tangible product: military weapons.

President Biden’s trip to Saudi Arabia, including his cringeworthy fist bump with that country’s dictator, Crown Prince Mohammed bin Salman, also exemplifies the power of stuff, in this case crude oil, of which the Saudis have the second-largest proven reserves in the world. Biden’s attempt to curry favor with a regime he once pledged to isolate shows what can happen, geopolitically, when a democratic country’s voters are unable to get their hands on a basic necessity – gasoline – at a price they can afford.

Nevertheless, the United States, for all its economic woes, is relatively well-positioned to weather the current crisis because it is generally more self-sufficient in food and energy than its peer nations.

This country remains the world’s tech, entertainment and finance leader. The collapse of “unicorns” and other speculative investment vehicles, while indicative of market froth, doesn’t negate all the goods and services of real value that Silicon Valley, Hollywood and Wall Street do create. The U.S. government provides one intangible – the world’s reserve currency – without which other countries find it hard to get along, as the dollar’s growing strength on foreign exchange markets suggests.

Speaking of control over stuff, and the political power it can confer: In the United States, food, energy and minerals originate disproportionately from red America, as the JPMorgan team illustrated with a map depicting all 50 states resized according to their respective 2021 production of these goods, upon which Blue American cities depend. Coal- and gas-rich West Virginia, home to Democratic Sen. Joe Manchin, looks twice as big as New York; Texas swells to about triple California.

Accelerating the transition to greener energy remains crucial. Even so, the importance of stuff will not soon diminish. Indeed, green technology requires mineral inputs – such as lithium and cobalt for electric vehicle batteries. Much of that must be imported. Lithium is available from South America and Australia. Most of the world’s cobalt comes from the conflict-plagued Democratic Republic of Congo, often mined using child labor. Russia is the second-largest producer.

This country needs a strategy for a world in which geopolitics, as opposed to the free market, might increasingly determine how, and where, we and our democratic allies gain access to strategic materials. It’s time to get our stuff together.



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