Thursday, 23 May 2024

By James Cooper Editor, Mining: Phase One and Diggers and Drillers

Twitter (X): @JCooperGeo

[6 min read]

Dear Reader,

In 2010, Ric Battellino, former Deputy Governor of the Reserve Bank of Australia, gave attendees a history lesson  on commodity super cycles.

For many investors, the early 2000s commodity boom was viewed as an unparalleled event, something we’d never see in our lifetimes again.

Yet, as Battellino outlined, commodity-wide booms are nothing unusual... they have been a recurring theme throughout modern history.

Driven by inflationary pressures, including war, rising energy costs, migration, and trade tariffs.

Battellino highlighted the immense metal and energy price inflation occurring in the late 1960s to early 1970s as a prime example.

Adjusted for inflation, copper reached US$15,000 per tonne in 1968.

And in 1973, more than 50 years from today, OPEC enforced the infamous oil embargo against the US.

This was OPEC’s response to America’s support of Israel during the Yom Kippur War. Oil prices quadrupled from $2.90 to $11.65 a barrel.

History shows commodity supercycles are rooted in war, rising migration in the West, emerging market growth, trade breakdowns, tariffs, and energy embargoes.

Today’s economy has a smattering of all these elements.

It was inevitable then that resources would start to emerge from the dust in 2024. But does that really mean we’re embarking on a new super cycle event?

Dr Copper (and Dr Gold) flash green

Earlier this year, gold led the commodity pack, surging into new all-time highs. Copper and silver are now hot on gold’s heels testing their own record levels.

This is important for one key reason… Precious Metals and copper tend to lead in a commodity-wide bull market.

Follow them, and you’ll have a better understanding of the broader landscape forming across the resource market.

This is good news for resource bulls and investors looking to ride ongoing momentum.

But there is another way to view this... If we are embarking on a broad lift in commodity prices, are there sectors lagging and perhaps ready to play catch-up?

The oil and gas sector stands out as a clear opportunity.

Despite disappointing share price performance, these companies have built a track record of delivering strong free cash from established oil fields and offer enticing P/E multiples for investors.

As copper, silver and gold tick higher, oil and gas stocks remain unloved and, I believe, deeply undervalued.

An unlikely alliance

It may seem unwieldy to compare copper with a seemingly unrelated commodity like crude oil.

But, resource super cycles are characterised by a broad lift covering virtually all commodities.

If Dr Copper is correct and we are sitting at the precipice of a commodity-wide supercycle, this could be an ideal time to focus on beaten-down energy stocks.

Take the last commodity boom as an example… As copper climbed to new extremes, oil prices followed closely reaching almost US$150 per barrel by 2008.

So where does that leave us today?

Over the last 12 months, gold has jumped 22%, while silver has increased 35%.

Copper is up almost 40%, while tin has gained 38%.

Meanwhile, zinc has risen 32% and aluminium is up 22%.

You get the picture. This is what a multi-commodity boom looks like, broad lifts across commodities with vastly different supply and demand fundamentals.

The tide is rapidly shifting in this once-beleaguered market.

A mega-investment theme is evolving… We remain in the early stages of this tectonic shift BACK to commodities.

Until recently, commodities remained extremely cheap relative to U.S. stocks:

While that gap has closed slightly in 2024, there’s still plenty of value in this market.

Right now, the biggest gap looms within the oil and gas sector.

To help you get started, I’ve just finished putting together a free report that will help kick-start your investment journey into the relatively unknown oil and gas sector.

You can access my latest report by clicking here.

Until next time.

Regards,

James Cooper,
Editor, Mining: Phase One and Diggers and Drillers

James Cooper has been a working geologist in mines across Australia, Canada, and Africa since the early 2000s. He’s led the operations of tiny explorers through to huge producer outfits. He’s seen booms and busts firsthand and he also understands the cyclical nature of individual commodities. For example, James was right there when Barrick Gold launched an enormous $7.5 billion takeover bid for Equinox. That was the peak of the last cycle.

With his background as a geo and finance professional, he brings a unique insight and experience to Fat Tail Investment Research. He writes the broader resource-focused investing letter Diggers and Drillers and the ultra-speculative explorer-focused trading service Mining: Phase One.

The government of the world’s most prosperous nation — the US — can-not pay its own way; it finances nearly a third of its spending — on credit.

By Bill Bonner Editor, Fat Tail Daily

[2 min read]

Bill Bonner, writing today from Dublin, Ireland

A bird in the hand is worth two in the bush

CNN:

The Dow Jones Industrial Average closed above the 40,000 mark Friday for the first time in its 139-year history. Wall Street has been boosted in recent days by renewed hopes of rate cuts from the Federal Reserve that would loosen monetary conditions for consumers and businesses. 

We sing the praises of the US economy. It has made millions of people very rich. It has accommodated millions of immigrants, who still pour over the border looking for a better life. It built shopping malls coast to coast. 

And, for excitement, the Kitty roars...  

You probably have better things to do than to think about the strange world of ‘meme’ stocks. But they — along with dot.coms... cryptos... NFTs... Nvidia... and campaign speeches — show us how weird and wonderful our economy can be.  

Earlier this year, meme stocks — stocks that seem to have little real value but still exert some magic appeal — had fallen from the headlines. Then, suddenly, “Roaring Kitty,” an influencer with 1.3 million followers, sent forth a picture of a gamer leaning forward in his chair.  

That was all it took. Aficionados interpreted it as telling them that it was time to buy. AMC, a chain of movie theaters, rose 308%. GameStop, an electronic game retailer, rose 271%.  

And then, easy come, easy go. By the end of last week, the stocks had crashed again. 

This kind of market action has little to do with capitalism. Meme speculators were not guided by an ‘invisible hand’ to make others’ lives better. They were not funding more theaters at AMC or creating more games at GameStop. They were just having some fun — with money.  

Henry Ford showed how real capitalism used to work — on cash, not credit. In 1914, he doubled the wages of his workers in his Piquette Street auto plant. At $5 a day they were now among the best paid of America’s working class. And with a price tag of about $700, they could buy one of Ford’s Model Ts for the equivalent of about 140 days on the job. 

The common working man bought his two main assets — his house and his auto — with his savings and remained largely debt free.  

Today, Ford’s best-selling vehicle is the F-150 pickup with a base price of $36,000. Three out of four buyers pay “on credit.” And without credit — car loans and mortgages — few people could afford either a house or a car. 

Last year, Newsweek reported on a new wage settlement for Ford workers: 

New recruits at Ford are in line for a 68 percent hike in their starting salaries, positioning their hourly rate at more than $28 ($58,240 annually). However, the crown jewel of the agreement is the change planned for Ford's lowest wage earners. Throughout the contract's span, low-wage employees can expect their compensation to soar by 150 percent.

According to these numbers, it now takes longer (more hours spent on the job) for the autoworker to buy his ride than it did 110 years ago. Why? Despite the achievements of Alan Greenspan, Mark Zuckerberg, Roaring Kitty et al, is there something wrong?

The government of the world’s most prosperous nation — the US — cannot pay its own way; it finances nearly a third of its spending — on credit.

And the public bought everything from autos to cheeseburgers on credit. Now, who’s going to pay its $65 trillion in debt? Tomorrow’s public?

With what? More credit?

The answers to these questions are at the heart of our hypothesis. We’re wondering how come the US has run up so much debt... how come its economy seems to serve the rich, very well, but not the rest of the population... and how come it now seems to be headed for at least a crisis, and probably a catastrophe. Looking ahead, what we’ll see is that when the US switched from cash to credit it mistook the new credit dollar for a bird-in-hand dollar.

But credit is not cash. And what we will find out, eventually, is how much the credit dollar, in the bush, is actually worth.

More to come.

Regards,

Bill Bonner,
For Fat Tail Daily