Don’t confuse “material economy” with the Materials Sector of the market.

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America’s narrow escape last week from a major rail-worker strike brought home an important truth: people who make and ship real things – let’s call them material workers – now hold the whip hand over our supposedly ‘post-industrial’ economy. Firms trading non-tangibles – currency, bits and bots – may still hoard the most cash. But when it comes to eating, staying warm and, for many, making a living, the material economy is what matters most.

Necessities always lag in the boom times as people consider that hard years may never come again, but when things get tight, suddenly everybody wants to eat and stay warm in the winter. FYI, that rail strike may not be totally averted yet. The workers are a brotherhood; if one company strikes, they all likely will.

Yet the material economy has been hugely constrained in recent years – and deliberately so. This has become all too apparent since the war in Ukraine. Back in the pandemic era, thanks to the recurring lockdowns, the biggest winners were the tech giants and their supporters in Wall Street. Now Silicon Valley, suffering from the worst IPO market in 20 years, resembles something akin to a psychiatric ward, while Goldman Sachs is contemplating mass layoffs. Today, many green-energy projects and ESG funds (that is, funds rated as environmentally sustainable) are languishing, despite benefitting from massive government subsidies and relentless public-relations campaigns in recent years. Meanwhile, oil companies, once demonised by climate-obsessed politicians and activists, are now enjoying bumper profits, as are some commodity firms.

Massive subsidies and relentless propaganda don’t change physics or any reality.

The conflict between the material economy and the economy based in ephemera – such as the creative industries, tech and financial services – is likely to define the coming political conflicts both within countries and between them.

Economic wars can be devastating. Outside of the OPEC embargoes of the 1970s, America has only faced internal economic conflict allowed or initiated by its own government. There may be other instances; let us know. We’re not sure how the author is using the term conflicts. Also, consider ‘politics by other means’ in the same vein.

All wars have an economic component at least, and most, at their root, are a struggle for resources. Note carefully how the term “limited resources” was purposefully omitted from that statement. The US has no lack of resources and needs nothing from Ukraine or Eastern Europe.

The US first offered allied status with Ukraine. Then Russia offered a better deal, but Ukraine told the world they would like to stay independent. Oops, global bankers don’t like that. So, the US facilitated a coup in ’14. That was the start of the current trouble. Readers here at TCJ probably have more details to fill in about that bit of history.

Some investors look for disconnects between the broader stock market and certain sectors that should be bucking the trend. Despite the growing war, wall street does not appear to be gobbling up defense stocks. The three main Defense ETFs shot up in July ’21 but have since languished, giving back all or nearly all of their gains. XAR, run by State Street, has more midcaps and smaller defense firms, making it more volatile (stock price rises and sells off faster) than the largest by total assets, ITA, which is run by Fink’s Blackrock. PPA is the second largest by assets and is managed by Invesco. Wall Street doesn’t think Ukraine will amount to much for US Defense stocks, apparently. That may be true, but we consider that the war will likely spread into a regional conflict or possibly a situation involving much of the northern hemisphere. This is not investment advice. Keep reading.

The biggest threat to the material economy is likely to be the green agenda. Even before Russia’s invasion of Ukraine and the global energy crisis, problems with often unreliable and expensive renewable energy were accelerating the deindustrialisation of the UK and much of the EU – including Germany, which had long been an industrial powerhouse. Energy rationing could be on the horizon in Europe this winter. Globally, energy-price inflation threatens to drive far more bankruptcies than the 2008 financial crisis. And food inflation, which in some countries has been driven by green agricultural policies, has led the percentage of people worldwide experiencing food insecurity to double since 2019.

Speaking of Clausewitz: