A new resource boom 20 years in the making

Wednesday, 16 November 2022 — Albert Park

[7 min read]

Dear Reader,

I believe we’re approaching an opportunity that may only come once every 20 years — I’ll explain more below.

But before we do anything, I’m delighted and proud to announce that today…at precisely 1:00pm…we officially launched the all-new Diggers and Drillers advisory letter.

CHECK IT OUT HERE.

This presentation lays out why I’m so bullish on commodity stocks.

While it’s easy to get caught up in the inflation and interest rate jitters, as resource investors, we need to look beyond current volatility and keep our gaze firmly fixed on critical supply issues underpinning growth in the resource sector.

The fundamentals haven’t changed. Underinvestment means the industry hasn’t been able to deliver additional reserves to meet future demand.

Market fear has presented us with juicy opportunities for accumulating high-quality stocks. Companies with superior grades and long mine lives are rarely discounted like they are RIGHT NOW.

Few investors have the audacity to pull the trigger and buy against a wave of bearish sentiment — but for those that do, a potentially life-changing wealth opportunity awaits.

Capitalising on market nerves

Is the market turbulence keeping you up at night?

You wouldn’t be alone.

In times like this, it’s important to build your own conviction. This is the best strategy for investing against the crowd because, right now, the crowd is either selling or sitting on cash.

Should you be doing the same in the resource sector?

In order to answer this question, it’s useful to analyse past bear markets — particularly those echoing what we see today.

Examining historical market movements is an excellent strategy for building conviction and developing confidence to invest against mainstream sentiment.

Anyone that has studied the markets for a period will understand that common themes tend to re-emerge. It’s like that adage, ‘there’s nothing new under the Sun’, or so they say.

So let me walk you back to October 2002.

If you don’t remember, this was a volatile time in the markets and the world more generally.

Just like today, the world is facing geopolitical risks.

It was a tense period following the September 11 attacks.

Fear, based on the perceived risk of being attacked by terrorists, deterred travellers from boarding flights or catching public transport. Holidays were taken locally.

But it was memories of the 2001 dotcom bust that had investors perpetually resenting stocks and anything speculative.

The heavily tech-weighted Nasdaq Composite Index fell a staggering 78% from its 2000 peak. Investors that took big stakes in new IPOs and zero-earning stocks suffered the biggest losses.

Sound familiar?

The experiences back then mirror those today.

The market is decidedly pessimistic right now with discounting across the board.

Tech stocks have been hit especially hard, and for a good reason.

Valuations, just like in 2000, were overblown, and it took a slight increase in rates to push the sector over the edge into, what I believe will be, an ongoing secular bear market for the industry.

The outlook for tech is not strong, but this doesn’t mean all sectors are setting up for a multiyear downturn.

Stepping back to the year 2002

Almost 20 years ago, on 10 October 2002, the US S&P 500 Index made its final low.

While I’m not claiming we’ve reached the final major low in today’s market, what followed back then was an enormous opportunity for those who entered the market against a tidal wave of fear and anxiety.

But only if they knew where to invest.

The ability to recognise a new class of assets to follow the next big trend allowed early investors to amass a fortune.

I look back on 2002 as a major transitional shift in asset allocation.

The global financial fraternity moved from tech companies to stocks with exposure to real assets. That’s mining, real estate, and banking.

History is most certainly rhyming, as you will see right here.

The early movers made enormous multiyear gains

Alongside banking and real estate, mining stocks played a pivotal role in helping the ASX 200 Index post a 150% gain from the dotcom lows.

It was one of the best-performing index’s globally — but individual stocks profited the most.

Even blue-chip miners grew exponentially over this time.

From the dotcom low, BHP Group’s [ASX:BHP] share price rose more than 500%, while Lynas Rare Earths [ASX:LYC] posted a whopping 1,200% within a short burst later in the boom cycle.

Have a look for yourself at the charts below.

2002–07 BHP Group

2002–07 Lynas Rare Earths

It’s not often we see blue-chip stocks clocking gains akin to a small-cap growth company, but this is exactly what happened for many of the large mining producers at the time.

2002 marked an important transition.

As the market digested the events from the end of the tech investment era, investors poured into this ‘new’ asset class.

The events that transpired back then are precedents for what you could expect over the coming years in commodities.

Again, this is the very reason we’ve launched a brand-new service dedicated to helping readers take advantage of it.

What will push investors back into this market?

We’ve experienced a decade of low interest rates and modest inflation.

This was a great period for technology stocks, fuelling a 7–8-year bull run that started in 2013 and peaked in early 2022.

The economic environment nurtured growth stocks, operating on minimal cash flow, and surviving on cheap debt.

But the tide has most certainly changed. Investors are continuing to jump out of equities as systemic inflation breeds fear of how far interest rates will climb.

Of course, this fear won’t last. Cash is a terrible investment during inflation.

Despite global central banks lifting rates, those sitting on cash continue to receive a negative rate of return.

This will push investors back into equity markets. Assets that can taper the effects of inflation will benefit the most.

The traditional playbook for investing in this environment typically means owning physical assets or company stocks tied to producing physical assets.

However, for the moment, ALL asset classes have cooled, including those that we’d expect to outperform in an inflationary environment.

Stocks tied to real estate, mining, and utilities have fallen hard, along with the broader market.

But the rules haven’t changed.

Holding cash right now equals wealth erosion.

The exodus from cash into ‘real equities’ will be rapid and unexpected.

The ‘Great Asset Transition’is imminent.

Learn how to position for it right here.

Regards,

James Cooper,
Editor, The Daily Reckoning Australia

Dear Reader,

Last week was marred by elections.

Polls showed that 44% of voters said they were worried about ‘democracy’. About as many are worried about inflation. Democrats said they thought Republicans posed a threat to democracy. For their part, Republicans were sure inflation was the fault of the Democrats — specifically, Joe Biden.

It was all nonsense…and fraud.

Democrats and Republicans need each other — like a pair of professional wrestlers, they entertain the voters with a clumsy farce. When one punches, the other must get a bloody nose. When one hits below the belt, the other must cry foul. Together, they distract, mislead, and betray the American public.

The two parties may square off against each other. But both share the same core beliefs. They believe that government is a way to transfer wealth and power from ‘The People’ to the elite. They also believe in democracy; it gives voters the illusion of being in control while allowing the two parties to take turns ripping them off.

They, the other people

When Donald Trump won the election of 2016, the Democrats insisted that democracy was broken. The Russians had taken a sledgehammer to it, they said. They spent the next four years trying to prove it. And even after a lengthy investigation showed what everyone knew in the beginning — that the Russians had probably not turned a single vote — Hillary Clinton and her fellow Democrats still clutched the fantasy near to their hearts…a talisman to ward off the evil MAGA spirits.

Then, when their man, Biden, won in 2020…democracy worked for the Democrats again, they were keen to protect it. But not just by counting the votes more carefully. They aimed to make sure their candidates won, whether ‘The People’ wanted them or not.

From Axios:

‘In one of the highest-profile gubernatorial battles in the country, Georgia Democrat Stacey Abrams is leveraging a vast pool of out-of-state money.

‘Why it matters: Abrams’ fundraising profile — which consists of huge backing from wealthy coastal Democrats and a massive base of small-dollar support — is more typical of a leading national candidate than a gubernatorial contender.’

By the end of June, Stacey Abrams had raised almost twice as much money as her Republican rival. ‘The People’ are supposed to elect their own representatives. But 85% of Ms Abrams’ money came from meddlers who were not ‘The People’ of Georgia. Apparently, there were a lot of people who wanted to elect someone else’s governor.

Deny, deny, deny!

And talk about election deniers! Ms Abrams set the pace. She lost the last election in 2018 and refused to concede. From National Review, August 2019:

‘Stacey Abrams defended her refusal to concede last year’s Georgia gubernatorial election on Monday, arguing that adhering to the democratic norm of conceding to a victorious opponent would make her “complicit” in a “rigged” system.’

Rigged? Of course, it’s rigged up real good. ‘The People’ are supposed to choose their own representatives. But the two parties put up the dumbest, most undesirable, and scurrilous candidates…and then insist that it’s the voters’ duty to elect one of them.

Want proof? From The New York Post:

‘Democrats have spent more than $53 million to boost far-right Republican primary candidates in nine key states as part of a controversial election strategy — despite publicly screaming about the threat posed to the US by such would-be officeholders.

‘In some races, Democrats have spent more than 30 times what the GOP candidates were able to scrape together themselves, according to a Washington Post analysis.’

What kind of democracy is this? The political elite goes into the primaries with millions of dollars to support candidates nobody really wants.

Democracy for sale

Buying votes — especially with the taxpayers’ money — is another venerable way to get your man in office. After the votes were counted last Wednesday, for example, Mr Biden was quick to thank young people. James Bovard explains:

‘Biden deluged them with federal dollars to bail out his Democratic allies. His $500 billion+ student-loan forgiveness scheme was widely condemned — even The Washington Post editorial page slammed it as a “regressive, expensive mistake.”

‘But the handouts helped buy Democrats their biggest boost among voters — a 28% advantage over Republicans in voters age 18 to 29, improving on Dems’ 2020 performance. It won’t matter if federal courts strike down the loan forgiveness as illegal: The votes have already been delivered.’

While the Democrats’ idea that Republicans are uniquely a menace to democracy is absurd, so is the Republicans’ idea that Biden is uniquely to blame for inflation. We remind readers that Donald Trump increased federal spending three-times faster than Barack Obama and 10-times faster than Bill Clinton. He added to the national debt twice as fast as Obama and 12-times faster than Bill Clinton. And Trump’s runaway spending and borrowing required the Fed to ‘print’ money at twice the rate of the Obama years…and almost infinitely faster than during the Clinton years.

It is Trump, not Biden, who bears most of the responsibility for today’s inflation. Biden just made it worse.

But on the key issues — war and spending — the two parties collude seamlessly. Like heavyweight professionals, they put on a good show — pretending to maul and mangle each other. And with so much gouging and thumping on stage, the fans hardly notice when their wallets are stolen.

Regards,

Bill Bonner,
For The Daily Reckoning Australia