Agricultural Squeeze, Unrealized Gains, and Copper's Discovery Drought
The global economy is facing an agricultural squeeze due to the brutal heat across Europe and the destruction of Black Sea grain corridors. This has led to record highs in EU corn, soymeal, and wheat prices.
However, it's not just consumers who will feel the pinch. Rich sovereigns may complain but still pay a premium for supply, while emerging markets that rely heavily on raw commodity exports are already being squeezed hard.
A similar scenario played out during the Arab Spring last time around, and analysts warn that this could have far-reaching consequences.
Meanwhile, JPMorgan Asset Management has highlighted an alarming trend in S&P 500 earnings growth. A significant portion of this growth is coming from unrealized valuation gains on stakes in Anthropic and OpenAI, rather than actual operating performance.
This raises concerns about the market's underlying strength, as aggregate EPS growth is soaring but median stock EPS growth is lagging behind.
The copper market is also facing a supply crunch. According to S&P Global Market Intelligence data, there have been only 263 major copper discoveries since 1990, with the discovery rate plummeting in recent years.
Explorers are spending more to find less, and most of the older discoveries are already operational. This has significant implications for global supply and demand dynamics.
The mining industry represents a tiny fraction of the global equity market, but it's poised to play a much larger role in the coming years due to factors like AI infrastructure build-out, onshoring, and critical metals demand.