Wednesday, 19 June 2024

By Callum Newman Editor, Small-Cap Systems and Australian Small-Cap Investigator

[3 min read]

Dear Reader,

An old colleague of mine used to say there are real estate people…and stock market people.

What he meant is that the two groups act as if each is separate from the other.

But it’s not true.

That’s why it pays to pay attention to what’s happening in BOTH markets.

Yes…I know. More work. More hassle. More investigating.

It’s also why I found myself sitting in the RACV club in Melbourne last week.

Admittedly, it was rather nice. I put on my best jacket. There was a lovely entrée too.

I kept to the spring water though.

I wasn’t there to feast like a Greek god. I was listening to commercial property king Warren Ebert.

Warren is as sharp as a tack. That’s why he runs a property funds business with $2 billion under management, called Sentinel Property Group.

Warren is buying up as many properties in North Queensland as he can get his hands on.

He made the point that a good chunk of people in QLD make Sydney wages, but have lower housing costs. That leaves them with more discretionary income.

That’s money they can spend in his shopping centres. That keeps his tenants happy and profitable. And delivers him a tidy stream of rents.

Smart man, that Warren.

But…why is North Queensland the place to be?

One reason – and this is a big one – is mining.

You only need to look at a map to see the Sunshine State is huge. There’s coal, gold, gas, copper – you name it, QLD’s probably got it.

That means high wages for the QLD regions. Warren is tapping into this wealth via the property market.

We can do the same thing in the share market.

I’ve made the case for small cap shares many times here in Fat Tail Daily.

But which small cap shares? God knows there’s a lot of them.

One sector increasingly looking like a slam dunk is small cap resource stocks.

The team at Firetrail did some sleuthing here. Look at what they discovered…

‘Our analysis from earlier this year illustrated that the 3-year earnings growth outlook for resources would be the major driver of the Small Ords 3-year earnings growth…

‘For those wanting to invest in small caps to participate in strong forecast earnings growth of ~15% per annum over the next 3 years (compared to just ~2.1% for the ASX100) it stands to reason that it is important to invest in the sectors of the small cap market that are delivering this growth.

‘This includes, most importantly, resources. Looking forward, we continue to see exciting opportunities in this space despite the recent rally.’

Indeed!

Now let’s follow through this line of thinking…

Our man Warren Ebert is buying up QLD property because he knows these assets will have a high, recurring and growing stream of rents underpinned from mining wages and profits.

So…who in the mining resource space is also thinking like this?

What I mean is that small resource companies are likely to become takeover targets as bigger firms swallow up their assets.

This is perfectly in accord with the current mining cycle.

The Lion Investment Clock is one way to measure this. The team at Lion put us smack bang in the “mergers” phase now…moving toward cash takeovers.

See for yourself…

I gave my readers one idea on this back in May: Spartan Resources [ASX: SPR].

Spartan is a gold explorer/developer.

What’s interesting here is that SPR is up about 20% since that recommendation went out even though the gold market is mixed in the same timeframe.

Why?

One reason is that Spartan has released some nice drilling results. Another is that fund managers are likely assessing it as a potential takeover target from a bigger gold company.

A little mining knowledge helps here. Many Aussie gold majors have tens of millions of cash on their books.

In other words, they’re cashed up like a bogan in Bali, and ready to party.

Care to learn more?

We have just released our much-anticipated report detailing why mining stocks from across the resources (and gold is a big one!) could be about to enter a cyclical bull market.  

Increased merger activity is a tell-tale sign.

There are a number of other factors at play, though. They aren’t necessarily good for many industries, like utilities, airlines and infrastructure companies…but miners exploring for key commodities and the producers…well, see for yourself.

We have a playbook to go by too. An entire DECADE playbook.

See what I mean, right here.

Best,

Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator

Callum Newman is a real student of the markets. He’s been studying, writing about, and investing for more than 15 years. Between 2014 and 2016, he was mentored by the preeminent economist and author Phillip J Anderson. In 2015, he created The Newman Show Podcast, tapping into his network of contacts, including investing legend Jim Rogers, plus best-selling authors Jim Rickards, George Friedman, and Richard Maybury. He also launchedMoney Morning Trader, the popular service profiling the hottest stocks on the ASX each trading day.

Today, he helms the ultra-fast-paced stock trading service Small-Cap Systems and small-cap advisory Australian Small-Cap Investigator.

By Bill Bonner Editor, Fat Tail Daily

[3 min read]

Dear Reader,

‘Look at China, with 1.5 billion people. India probably has more than that. And there are other nations in Southeast Asia...Indonesia...Pakistan...Bangladesh. It seems that the trends in development are gradually shifting in that direction.’

Vladimir Putin 

America stands like a colossus on an increasingly slippery world.  

Last week, more grease was added. America’s landmark deal with Saudi Arabia expired. It was the deal made in the 1970s by Wall Street bond dealer extraordinaire, William Simon. In essence, it solved two problems at once — one for the US, the other for the Saudis.  

The US needed to export dollars. The Saudis needed to export oil. The agreement said that henceforth, if you wanted to buy Saudi oil, you had to pay in dollars. Then, the Saudis could immediately exchange them for US Treasury bonds.  

But there was one other important point. The US would provide ‘security’ for the Saudi government.  

Presto! A ‘foreign entanglement’ of the sort the founding fathers warned against. TipRanks: 

‘The petrodollar agreement, formalized after the 1973 oil crisis, stipulated that Saudi Arabia would price its oil exports exclusively in U.S. dollars and invest its surplus oil revenues in U.S. Treasury bonds. In return, the U.S. provided military support and protection to the kingdom. This arrangement was a win-win situation for both; the U.S. gained a stable source of oil and a captive market for its debt, while Saudi Arabia secured its economic and overall security.’  

The ‘deal’ was secret. The Saudis did not want the rest of the Arab world to know how closely they were working with Israel’s ally, the US. And even today, the ‘fact checkers’ say the deal was ‘fake news’, that nothing formal ever existed which mandated the Saudis would sell oil only in dollar. 

Formal or informal, the actual terms of the relationship have been away from the public for more than 40 years. But the sweetheart deal was part of the reason the US attacked Iraq rather than Saudi Arabia, following 9/11. The perps were almost all Saudis, not Iraqis. But Saudi Arabia was a major holder of US debt with a special status. That deal expired on June 9th, according to reports.  

Decline of the West

Yesterday, we gave our opinion. The two leading candidates for the White House are equally unqualified for the job...but perfect for the mega-political challenge ahead.  

That is, we believe the ‘decline of the West’ began around the end of the 1990s. In 1999, you could have sold the 30 stocks in the Dow index and gotten enough money to buy 41 ounces of gold. Today, you’ll get only 17 ounces. In other words, the real value (measured in the gold) of America’s leading businesses has been more than cut in half. That’s a sign of decline. Not definitive...but suggestive. 

In 1999, the US and its allies were on top of the world. The richest country in the world. The most admired. With the best technology. Coolest culture. The US had a balanced budget. And except for bombing the hell out of Serbia, it was more or less at peace. The Soviet Union had recently given up...leaving the West without a rival.  

It was at that unlikely moment that America lost its footing. Elite firepower lobbyists took control of Congress. Balanced budgets and peace were soon things of the past...  

In 1999, the US owed $5.6 trillion. A lot of money. But still manageable. Now it owes $35 trillion. Much of this debt – a total of nearly $100 trillion, public and private – cannot be repaid. Instead, it and the fictitious wealth it represents will disappear as the credit cycle runs its course.   

Nature is full of patterns. Once astride the world, a hegemon must find the hapless, hopeless leaders who will help it slide off. The US has found them. Neither Biden nor Trump will cut spending. Neither will withdraw from the role of global Alpha Nation. Neither wants to restrain the firepower industry or break the war mongers' grip on Congress. 

How significant the end of the Saudi deal will be, in the near term, we don’t know. As a practical matter, the world's oil markets function in dollars. Both buyers and sellers have dollars and know that dollars are easily converted to any other asset they want. 

But the slippage is underway. Here’s this from Responsible Statecraft: 

‘Global opinion of US goes down the toilet 

‘Dragged down in important part by disapproval over the U.S. position on the Gaza war, the popular image of the United States abroad has declined over the past year, according to a new poll of public opinion in 34 countries released Tuesday by the Pew Research Center. 

‘The survey, the latest in an annual series that dates back more than two decades, also found that international confidence in U.S. democracy has fallen. A median of four in ten of the more than 40,000 respondents said U.S. democracy used to be a good model for other countries to follow but no longer is. That view was most pronounced in the ten European countries covered by the poll.’ 

When you’ve got the gun in your hand, you don’t necessarily care what others think of you. But if the Top Gun, butt-kicking nation could remain in charge forever, we might be part of the Roman Empire, not the US empire.  

More to come...  

Regards,

Bill Bonner,
For Fat Tail Daily