Now is the time to invest like an insider

Thursday, 8 September 2022 — Albert Park

[7 min read]

In today’s Daily Reckoning, we bring you a warm introduction to our newest member of the Fat Tail Investment Research team, James Cooper. James worked as a geologist for a little over 10 years, and his insight into the mining space will be incomparably helpful with resource investing. It looks like he joined us just in time because James thinks right now is a prime opportunity to jump into this sector. Read on for more…

Dear Reader,

Do you remember the once-in-a-generation commodity boom that topped out in 2012?

That was one heck of a boom.

It lasted 6–8 years (give or take) and made a fortune for some.

As a geologist in the mining industry throughout that era, I can only say the feeling was feverish on the ground.

Just like the tech boom of late, it made its fair share of millionaires AND some prominent billionaires too.

Least of which was Andrew ‘Twiggy’ Forrest, a virtually unknown businessman in the early 2000s.

But just 3–4 years later, he was a household name across Australia.

He became part of the mega-rich fraternity.

Now an iconic business magnate, he, like many uber-rich Australians before him, benefited from the vast quantity of minerals that lie below YOUR feet.

And whether you love him or hate him, his success was very much down to timing and intricate knowledge of the industry.

Twiggy had the experience to capitalise on the opportunity that sat in front of him, or more aptly, below him.

And whether it was well-planned business shrewdness or just sheer luck, his bold move into the iron ore sector, challenging the only other iron ore players at the time — BHP and RIO — was a feat of impeccable timing.

The Chinese-led boom fuelled commodity prices across the globe, and this had an enormous impact on boosting Australia’s Terms of Trade at the time, not to mention Twiggy’s back pocket.

If you’re unfamiliar, the Terms of Trade is a ratio of the prices of exports to imports. It’s a good measure of how strongly a country performs, particularly in a resource-rich nation like ours.

I’ve highlighted the boom years in the chart below:

Aussie boom years were a bust for Aussies

For most Australians, the answer was an overwhelming no!

National wealth grew exponentially from 2004–10.

But for the average Australian, the boom years did little more than change the morning newspaper headlines.

The boom came and went.

It didn’t make an ounce of difference for the majority.

Twiggy, the billionaire, and many other ‘unnamed’ mining executives created companies, pooled investor funds, and generated the necessary cash flow to turn minerals bound up in hard rock into cold, hard cash.

They absorbed the bulk of the country’s prosperity during this ‘once-in-a-lifetime windfall’.

But you deserved it too.

Unfortunately, this is how commodity booms work.

The majority of the riches sitting below all of us fall into the golden hands of the well-connected few who have experience in the mining game and understand how to play with investor funds.

And, whether we like it or not, so much of Australia’s wealth comes from mining.

But more on that later…

A brief introduction

For those who don’t know me, I’ve recently joined the Fat Tail Investment Research team as the in-house commodity analyst.

I’m genuinely excited to be part of a like-minded group of independent thinkers and can’t wait to share with you some of the big themes that are set to take place across the commodities sector over the coming years.

By way of introduction, I’ve worked within the mining and exploration space for a tad over 10 years, primarily as an exploration geologist.

I’ve spent many years in the field, be it on the side of a dusty drill rig or mapping rock outcrops through remote Australian bush.

The career of a geologist is a wild ride of adventures, booms, and busts. And my career has been no different.

I’ve experienced mergers, takeovers, redundancies, and everything in between.

It’s an exciting career, but certainly not for the fainthearted.

On any particular day, I might have been directly involved in influencing company decisions at the top, the next, driving out in remote bush and pulling up under the stars with just a swag and a Land Cruiser or, if I was lucky, a caravan.

On top of all that, it is a career that took me around the world. From the WA outback to the African jungle, there really isn’t anywhere a geologist doesn’t go.

And this is what got me started in the field.

But my biggest adventure is just beginning, and it’s right HERE with you…

I intend to walk you through the minefield of resource investing. Avoid the traps that catch everyday investors who buy into the director hype.

As an Australian who works, pays taxes, and lives in a nation that easily provides enough wealth to abolish income taxes, it is your right to benefit from the future gains that come from unlocking the vast mineral wealth that sits under your feet.

But, as always, it will take INSIDER knowledge and TIMING to capitalise on the coming boom in commodities.

Don’t buy into the threats of rising interest rates and Chinese slowdowns.

This is simply a distraction from the enormous opportunity presenting in the mining sector.

A multiyear commodity boom awaits!

In fact, it’s already underway.

The same executives who got rich from unknowing investors in the last boom are quietly building new companies.

They understand we’re entering a new phase in this commodity cycle and are gearing up for a rinse and repeat.

There are numerous boards like this.

Ever notice the same non-executive director appearing on three, four, five, or more companies?

They’re specialists in mining the stock market.

In fact, there’s only a very select number of directors and managers who are experts when it comes to adding shareholder value.

These are the people that know how to find deposits.

It’s in their genes.

These are the people I’ll be following. The ones I know and trust.

Over the coming weeks and months, I’ll detail how this boom is likely to play out, how we can capitalise on this multiyear trend in rising commodity prices, and what it takes to invest like an insider.

And our timing couldn’t be any better.

Until then...

Regards,

James Cooper,
Editor, The Daily Reckoning Australia

Dear Reader,

Let’s turn to the New World. Yes, it’s time to check in on one of the world’s daffiest, most mismanaged, and most entertaining economies — Argentina.

Today, we’ll visit the land of the pampas, the tango…Piazzolla and Gardel…gauchos…llamas…pickpockets…and slums…

…the vast country at the foot of South America, where 45 million people live, a third of them in and around the capital city, Buenos Aires.

We’ve been visiting Argentina for 25 years…invested in property there 15 years ago…and typically spend two or three months a year there, mostly trying to keep the locals from stealing our property.

During that quarter of a century, the Argentine currency — the peso — has gone from 1 to 1 with the dollar…to 3 to 1…when we bought our property…to 150 to 1 now. (At the parallel ‘blue’ rate — which is to say, the ‘unofficial’ or black market — the rate is almost twice that; 270 to 1.)

In 1910, Argentina was the seventh richest country in the world. Now, its GDP per person puts it at #65, below Kazakhstan, Turkey, and Guyana.

Whee!

But not everyone is enjoying the ride. Associated Press is on the story:

‘A man tried to kill Argentina’s politically powerful Vice President Cristina Fernández outside her home, but the handgun misfired, the country’s president said.

‘The man was quickly overpowered by her security officers in the incident Thursday night, officials said.

‘President Alberto Fernández, who is not related to the vice president, a former president herself, said the pistol did not discharge when the man tried to fire it.’

A close call!

Broken promises

Many think the attempted murder was really a stunt to bring attention and sympathy to Ms Fernandez. You might wonder, for example, why a fellow who really intended to kill the VP of a country wouldn’t make sure he had a working pistol in his hand.

But what sadness it would have brought if the man had actually killed her. And what joy too!

Ms Fernandez is one of the most corrupt figures in Argentine history…which offers some pretty heavy competition. She is a ‘Peronist’, a follower of Juan Peron, who was no slouch at corruption either. He was also a master politician, a skill he learned by observing Benito Mussolini in the 1930s.

Immediately after winning the Casa Rosada (the Rose House, Argentina’s answer to the White House), Peron headed down the wrong track, developing a ‘Five Year Plan’ that put the government in charge of the economy and doomed the nation to slow growth and fast politics. Since then, it has been a long slide into on-again, off-again recession, poverty, and inflation. By the early 1990s, consumer prices in Argentina were rising at a rate of more than 20,000%.

Inflation was brought under control by Carlos Menem when he pegged the Argentine peso to the dollar. But it didn’t last. Menem broke the peg in 2002. Since then, inflation has increased amid episodic and bizarre financial crises.

A friend of ours, for example, a lawyer in New York, was once hired by the Argentine Government to try to get back an Argentine navy ship in 2012. It had been tracked as it crossed the Atlantic then, by court order, was seized when it went into port in Ghana. It was the first time in history that a naval vessel was captured by a hedge fund.

Only possible outcome

Today, the inflation rate is supposed to be around 70%, with more than a third of the country living in poverty. And the inflation rate is rising. Argentines keep their money in dollar deposits — if they can. But now, the government is getting desperate. The ‘treasury secretary’ gave up trying to match income with outgo; he resigned suddenly in July. But what he was doing was idiotic.

Mises.Org explains:

‘After the pandemic was over, instead of returning toward a path of fiscal balance and debt reduction, Guzmán accelerated the path toward high deficits, which can only be sustained by money printing…As a result, public spending currently is increasing more rapidly than revenue, and it is uncertain whether the country will meet the deficit target that was agreed with the IMF only last year in order to avoid defaulting on its debt.

[…]

‘But if government policies on public spending stay the same, they will drive Argentina’s economy toward hyperinflation, which is the only possible outcome for a country with perpetually high deficits and no access to debt markets.’

The Argentines have seen this show before. Bloomberg: ‘Argentines Withdraw $1 Billion From Bank Accounts During Turmoil’:

‘Savers started pulling out their dollars from bank accounts at a fast pace when former Economy Minister Martin Guzman resigned on July 2, plunging the government deeper into crisis.

‘Argentina’s third economy minister since then, Sergio Massa, enjoyed a brief market rally upon arrival before deposits declined again.

‘Deposits offer an almost real-time pulse of Argentines’ economic expectations.

‘In late 2001 during one of the country’s worst crisis, the government banned large ATM withdrawals, helping to fuel social chaos.’

Hereditary kleptocracy

But this weekend, crowds gathered outside Cristina Fernandez de Kirchner’s apartment. They claimed they were there to ‘defend democracy’. Why they wanted to defend the system that has ruined the country was not explained. Besides, Argentina functions more like a hereditary kleptocracy. Like ‘Isabelita’ Peron before her, Ms Fernandez was elected to take the place of her dead husband.

‘Why do you stay there’, people ask?

Maybe we’ll have a better answer some day. But for now, we can only say that we like the food, the wine, the challenge, the people, and the learning experience. Yes, we’ve had some financial losses, but at least we’ve learned to ride a horse and yell at cattle in Spanish.

‘Aiiihuuurrup! Vamonos!’

Regards,

Bill Bonner,
For The Daily Reckoning Australia