These are the Source of Wealth Creation, Geopolitical Influence and War

Jay Martins Premium Letter ☕️

Last week, in my premium letter, I explained why I enjoy investing in the commodity industry. 

To recap:

I mix passion (understanding the significance of geopolitics in the shaping of our world) 

With opportunity (identifying supply and demand imbalances in raw materials)

This gives me a competitive advantage as an investor in the commodities sector.

Power is largely distributed based on who has access to the materials the world most covets during that era.

Over centuries, these materials have shifted due to technological changes, global trade, and evolving consumer demands. An abbreviated list of such materials and their era of influence is below:

16th - 17th Century

• Spices: Including pepper, nutmeg, and cinnamon, highly sought after for flavouring and preservation.

• Tobacco: Introduced from the Americas to Europe, became a cash crop.

18th Century

• Tea: Imported by European countries, particularly Britain, from China and later India.

• Cotton: Central to the textile industry during the Industrial Revolution.

19th Century

• Coal: Fully essential for industrialization.

• Iron and Steel: Industrial and infrastructure development.

Early to Mid 20th Century

• Oil: Became increasingly important with the rise of automobiles and mechanized warfare.

• Copper: Essential for electrical wiring and infrastructure.

Other materials remain in timeless demand and are valued strictly on their scarcity or abundance, like clean water, food supply and precious metals.

Throughout history, each of the materials above has been a source of massive wealth creation, significant geopolitical influence and catalysts for war.

Understanding who controls the supply of what the world demands today will tell you a lot about why some nations are rich and influential and some are not. 

As an aside, obsessing over the supply and demand of these materials (commodities) opens up a wide array of investment and wealth-creation opportunities. 

Let me give you an example of how this works.

A decade ago, most people had no idea what a “critical” earth metal was. They're not the stuff of headlines, but they are the invisible backbone of modern society. These natural elements are crucial for everything - from the battery that powers your smartphone to the missile defence systems that nations rely on for security. They're in wind turbines, electric cars, and even on the screen where you read these words.

While in high and increasing demand worldwide, in 2010, China controlled 95% of the global supply.

The Trawler Incident: How a Fishing Boat Unveiled the Fragility of Global Supply Chains

On a Sunday afternoon in mid-September 2010, you might have been flipping through the paper and noticed a story about a Chinese fishing boat colliding with two Japanese Coast Guard vessels in the East China Sea. 

The collision was minor and occurred near some barren, uninhabited islands. 

This incident would not have made any press at all, except that these islands have been a focus of dispute since the Ming Dynasty in China, circa 14th century AD. 

But what if I told you that that seemingly insignificant fishing boat incident in 2010 has far-reaching consequences—consequences that touch the smartphone in your pocket, the electric car in your garage, and even the national security of nations? This story is about how geopolitical intricacies can ripple through the world in ways most people never imagined.

The Setting

The Senkaku Islands, as Japan calls them, or the Diaoyu Islands, as they're known in China - are a set of uninhabited, rocky islands whose ownership has been contested since ancient times. They appear on both Chinese and Japanese maps over 700 years ago.

This ancient grudge is still a point of national pride today - but in addition, the islands hold strategic influence. 

They are located close to key shipping routes, control of which provides geopolitical leverage in diplomatic and territorial negotiations within the East Asian region

The area surrounding the islands are rich in fisheries and believed to have untapped natural gas and oil reserves. For energy-import-dependent countries like Japan and China, access to these resources will always be strategically important.

The Tipping Point

When the collision occurred, the Japanese Coast Guard detained the Chinese fisherman. This seemingly small act unleashed a cascade of events - The Chinese government, furious, demanded the captain's release. Japan, unwavering, planned to take the matter to its legal system.

An international spat was ignited.

Japan, having detained the fisherman, was in “control” of the situation, so China needed to find leverage elsewhere. Overnight, they banned the export of these critical minerals to Japan, crippling its technology manufacturing industry.

The Invisible Backbone

When China closed the tap, Japan - and, by extension, the world - faced a crisis that was like draining the oil from a well-oiled machine. No critical metals? Say goodbye to your tech industry, wave a fond farewell to certain sectors of your economy, and watch your defence capabilities wither.

The Domino Effect

The moment China halted the supply of these essential elements, boardrooms from Tokyo to Silicon Valley were rattled. What appeared to be a simple territorial dispute suddenly became an existential threat to Japan's tech industry and military capabilities. And it wasn't just Japan; any country or industry dependent on these elements had to reevaluate their seemingly stable supply chains.

The Power of Dependency

That fishing boat collision was a 'Eureka' moment for global leaders. It was a wake-up call about the fragility of global supply chains and the real-world implications of geopolitics. Suddenly, governments and corporations started searching the globe for alternate sources of supply. Over the next decade, billions of dollars were invested and returned, searching the earth for new supplies of these critical metals.

This search is as critical today as it was in 2010.

The Lesson

When you view the world through the supply and demand of key materials, you are more likely to spot the significance of the “fishing trawler”.

The moral of this story is simple yet profound: geopolitical relationships matter in everyday life. They're not just the concern of diplomats and policymakers. When two nations clash over a tiny group of islands, it could set off a chain reaction that disrupts the world in unforeseen ways.

Pay attention to geopolitics; it's more connected to your life than you might think.

Upcoming Commodities 101 Course

We are producing a Commodities 101 Online Course that provides a comprehensive overview of the present-day supply and demand dynamics, risk factors and portfolio construction for anyone looking to build their knowledge and competitive advantage in the commodities sector. 

My premium newsletter subscribers will get first dibs on the course and a sizeable discount for anyone interested. We will launch the course right after Labour Day.

Now on to the portfolio.