Ukraine peace deal? And ASX investors to benefit?

Here’s a wild theory.

And it has big implications for ASX investors.

If I could sum it up briefly…

Venezuela wasn’t about Maduro, it was about Iran.

And Iran is not about the Ayatollah, it’s about Ukraine.

And Ukraine isn’t about Putin, it’s about China.

Remember the transitive property from primary school maths?

A=B=C so A=C.

So Venezuela was about China.

Remember, the US is a dominant force in the oil industry.

But China definitely has the edge in terms of new energy and the critical minerals that make new energy possible.

Meaning it’s very clear now that in the geopolitical game of Risk that’s unfolding on the board…

The Trump administration is manoeuvring for additional leverage over traditional forms of energy, i.e. fossil fuels.

For investors, these moves will have flow-on effects for at least the next two years.

As I said yesterday, money is
energy and vice versa…

Here are some facts about China’s energy mix:

• Fossil fuels generate about 62% of China’s electricity.
• Coal alone supplies roughly 54% of electricity generation.
• Fossil fuels still provide about 85% of primary energy.

On that last point, that means that 85% of all the raw, unrefined energy resources China harvests or imports to power its entire economy comes from coal, oil, and gas.

Yes, China is a massive leader in terms of renewables, nuclear, EVs, Battery Energy Storage Systems (BESS) etc…

But it remains deeply vulnerable on the fossil fuel front if Trump’s gambit works.

No more cheap oil from Maduro or the Ayatollah.

That’s going to hurt.

And it’s going to eat into the margins of the wildly productive industries in China.

These industries are so productive that China now has to restrain them through a series of measures called ‘anti-involution’.

You’ve heard about the massive parking lots of unsold Chinese EVs piling up in parking lots in Australia, right?

Source: Australian Financial Review

That’s part of what ‘anti-involution’ aims to solve.

But again, I can’t stress this enough: money is energy.

Right now though, ignore the price of oil.

For me, this is probably one of the most important economic metrics in the world right now…

This is the Reserve Requirement Ration (RRR), which tracks how much cash large Chinese banks have to keep on hand in China:

Source: Trading Economics

[Click to open in a new window]

Some China analysts get all hung up on manufacturing PMIs etc., but right now, none of those metrics matter.

(Next week I’ll be doing some more digging into the state of the Chinese financial system, and I’ll share with you what I’ve found by the way)

Anyway, if China gets boxed out on the lifeblood of its economy (fossil fuels), then things could get spicy pretty quickly.

That’s because the RRR cuts aren’t an infinite well. At some point, you risk the stability of your financial system if the money pump gets out of control.

But for now, that’s the ‘straightforward’ explanation of what’s going on right now.

Particularly around how Venezuela, Iran and Ukraine are all linked to Trump’s dealings with China.

So let’s talk about Ukraine, which barely anyone right now in the mainstream financial press is linking with both Venezuela and Iran.

The art of the peace deal?

Wild prediction here: a Ukraine peace deal is one or two months away.

I know it’s going out on quite a limb, but I did a bit of a deep dive into the proceedings of recent talks and the state of the Russian economy.

Let me suggest, for now, that things are far closer than you’d be led to believe.

Can you imagine the jubilation that could hit markets if this miserable four-year war came to an end?

And yes, right now, all the focus is on the oil that flows through the Strait of Hormuz near Iran.

But it’s always been about Ukraine, because it’s always been about China, because energy is money!

Jokes aside, consider this…

For starters, it’s edifying to note the sheer amount of natural resources, particularly in the east of Ukraine.

When the Ukraine war broke out, the first thing I looked into was lithium and graphite deposits that are found in that country.

And it told me all I needed to know — the age of commodity wars is upon us, as I’d assumed would eventually happen about 8 years back when I first started looking at resource companies for a living.

Here’s what it boils down to…

Chokepoints — the places where capital needs to flow on the global board in order for adversaries to get leverage.

For ASX investors, we’ve got a great wicket here.

Did I mention I was following an ASX company with a large graphite deposit in eastern Ukraine many years ago?

Anyway, case in point — ASX investors might be some of the best placed investors right now.

We excel at geology, resource development, mining and for ASX small-caps I can confirm that many of the people involved in the mining-financial apparatus of this country are simply world-class.

So it’s no wonder that the US tariffed us at relatively low rates when this all kicked off.

The Americans need Australia, big time.

And that’s a major advantage to you as an ASX investor.

If you want to see what all the fuss is about — be sure to read my recently released special report — Pax Silica: 5 Stocks to Buy as AI and Commodities Converge.