Thursday, 23 November 2023 — Melbourne, Australia

By Greg Canavan Editor, Fat Tail Daily

[2 min read]

Dear Reader,

I first recommended Origin Energy [ASX:ORG] to my subscribers in April 2021. The share price was around $4.75. It promptly plunged to below $4.

In 2021, the bull market was in full flight. Just not in energy stocks.

After all, who needed ‘old energy’ in a world powered by windmills and solar panels?

But a funny thing happened. After the lockdowns, demand for energy kept growing. Investors began to see how cheap the energy stocks were. Share prices increased.

Companies like Brookfield noticed. They lobbed a low-ball offer for Origin. They won everyone over by promising to spend $20 plus billion on Australia’s energy transition. What a good corporate citizen!

What’s less mentioned is the government-guaranteed return they get on that investment, financed by businesses and households paying higher electricity prices.

But AusSuper is the bad guy for voting against the offer. They’re threatening Australia’s energy transition!

If you believe this nonsense, you’re an idiot. The simple fact is that Brookfield wants irreplaceable Aussie assets on the cheap. And they will only commit investment dollars to the transition if they get a guaranteed return.

Speaking of which, the Financial Review reports today (with my emphasis):

‘The Albanese government will supercharge its struggling 82 per cent clean energy goal by dramatically expanding its underwriting of green generation and storage, effectively replacing the Renewable Energy Target favoured by some wind and solar proponents.

‘The shake-up, which specifically excludes support for gas projects, aims to accelerate investment in wind, solar and batteries by giving proponents certainty over their revenues.’

Taxpayers subsidies used to underwrite higher electricity prices for the taxpayer money spent on this transition is obscene. All for no discernible difference to the climate. But it will have a big difference on your energy bills and standard of living in the years to come.

On that cheerful note, I’ll hand over to Diggers and Drillers Editor James Cooper for today’s essay…

By James Cooper Editor, Fat Tail Daily

Twitter: @JCooperGeo

[4 min read]

Dear Reader,

Electric guzzling EV’s, trucks, trains and busses will soon move billions of people and cargo around this planet each day.

So, what’s the best strategy to play this multi-decade investment theme?

Commodities tied to solar panels, wind turbines, or nuclear plants…does it really matter?

Whichever technology political leaders select, ending fossil fuel reliance means mass electrification.

And the consequences of this are poorly understood.

You see, surging energy demands are already proving a major headache for the early adopters.

As a state, California leads the world in the global race towards carbon neutrality.

According to the Los Angeles Times, ONE IN FOUR new cars sold in California are now EVs.

That’s an all-time high.

But California’s role as an early adopter is presenting problems…a missing link if you like.

According to a recent article in the Wall Street Journal electric powered trucks are being recharged with diesel generators!

The state’s power grid is buckling under the strain from an enormous surge in demand.

That’s what early adoption is showing.

Now add in the impact of extreme weather events and this problem could get far worse.

Heat waves in Australia means dialling up our air conditioning units.

In normal times, power grids are strained but can usually handle demand surges.

But what happens when the millions of cars, trucks and businesses are added into the mix?

Well, again California offers some clues…

According to a report from Politico, 10 days of triple-digit temperatures across California brought the state’s power grid to the brink.

Investigations showed state regulators were preparing forced blackouts right across California.

A state home to the mega-rich, the world’s largest tech firms…a symbol of wealth and prosperity...

Could barely keep the lights on!

That would have been deadly for the sick and elderly.

It would have been political suicide for California’s governor, Gavin Newsom.

But it offers a timely reminder…power networks built during the ‘age of oil’ are not designed for mass electrification.

California is a posterchild for the green energy movement, yet this early adopter is painting a rather major flaw in the world’s attempt to reach Net Zero.

As I wrote to my Diggers & Drillers subscribers recently…

‘Net Zero is preoccupied with energy generation…whether that’s solar panels, wind turbines or nuclear.

‘It’s also heavily focussed on transport…EV’s.

‘But very few have considered the limitations of the existing energy grid…The critical link that connects power generation to the end consumer.

‘The nuts and bolts of the green energy movement.

‘Bloomberg NEF, estimates nations will need to spend at least US$21.4 trillion to upgrade their existing grid networks.

‘A sum that’s equivalent to the United States entire annual GDP.

‘Existing grids are not designed to support the huge power demands coming from an electrified economy.’

Power grids might not have the same appeal like a sleek Tesla or fast action lithium stock…

But the potential windfalls from this megatrend should have you excited.

But what’s the best investment angle?

Utility stocks owning the grid networks?

Engineering contractors set to re-build the infrastructure?

They might do well.

But investing in the copper miners supplying the raw materials in this US$21 trillion megatrend is a leveraged bet to gain maximum upside.

Thanks to its supreme ability to conduct electricity and form minute strands of wire…

Copper remains the key metal in electrification.

Things look increasingly optimistic for this metal too.

2023 has been a year of poor sentiment…

A slowdown in Chinese housing construction, persistently high inflation, concerns of global growth and looming recession in the west…

A tidal wave of bad news that should be sending copper prices lower.

Yet, the commodity is up more than 7% over the last 12 months!

It’s why I believe the window of opportunity is closing on steeply discounted copper plays.

For all these reasons, you should have copper stocks on your radar.

But is Australia the best place to invest?

There are some solid ASX-listed opportunities.

Yet, Australia is a minnow when it comes to copper production. The choices here are limited.

In fact, it only produces around 4% of global supply.

If you’re looking to capture the biggest opportunities, you must seek out the companies holding the world’s largest deposits.

That’s what our latest recommendation at Diggers & Drillers has done…

A giant copper, gold, silver resource.

One of the largest of its kind anywhere in the world.

But the really exciting part is this…

In April 2023, the company drilled untested ground less than 10 kilometres from its flagship project.

The first hole returned 60m at more than 5% copper.

Plus, 2 grams per tonne of gold, AND 44 grams per tonne of silver.

At the time it only had the capacity to drill eight holes…every hole returned strong thick grades.

But the company hasn’t had the opportunity to follow up this potential discovery….

Until now.

Investors have eagerly waited more than six months to get rigs back over this target.

With a fully funded drill program underway, the company could be on the verge of adding a SECOND major copper deposit to its coffers.

And we won’t need to wait long for the results…

Lab assays from the drilling are expected before the end of 2023.

This is an exciting time for the company and its investors…an opportunity to be involved in a major discovery.

Full disclaimer, there’s no guarantees this will happen!

The initial drill hit from April might have been a vein or some kind of small-scale geological feature…a false positive if you like.

But this is a proven discovery area.

A large-scale porphyry deposit sits just 10km from the target area.

Another major deposit owned by a neighbouring company also sits next door.

The company has a sniff of what lies below, it now has the means to fully understand it.

This is how BIG discoveries start.

If there was ever a time to get on board, now is the time to do it!

If you’d like to learn more and access the name of the stock, you can do so here by joining Diggers & Drillers.

Regards,

James Cooper,
Editor, Fat Tail Daily

By Bill Bonner Editor, Fat Tail Daily

[3 min read]

Dear Reader,

The wind howled. A light rain fell against the windshield. It was dark as pitch. A fine night for an ocean voyage!

Yes, we’re on our way back to the USA. The trip began last night as we drove up to the ferry at Cherbourg to take the Stena Line back to Ireland.  

This time of year, ferry service is reduced to a few hardy ships with a few intrepid travellers. There was no line waiting to board (in the summer, it can take hours). And once on the ship, we found it almost deserted…eerie, like an empty hotel.  

Curiously, the only other cars getting on the ferry had Ukrainian licence plates. The Irish have welcomed Ukrainians with open arms, sympathising (perhaps to excess) with their plight. By contrast, they have not been very ‘solidaire’ with the Israelis. Maybe they have a race memory of when they were Palestinians…massacred, dispossessed, and turned into second class citizens in their own country by English invaders. For whatever reason, the Irish tend to side with the Palestinians.

We are still on the ferry, with limited internet service. But we turn to the financial news.

‘More Bubble’

The US stock market is delighting in what appears to be the end of the Fed’s tightening cycle…and a big drop in inflation. Barron’s reports that…

The Stock Market Just Had Its Best Three Weeks Since 2020.

Even the S&P 500 tech sector is back…up 48% this year, more than twice the S&P 500 itself.

But we see no reason to change our outlook. In this century, it took $27 trillion worth of net federal stimulus, financed on credit at ultra-low rates, to bring us to where we are. It seems extremely unlikely that the trends of the last 23 years can continue now that the cheap credit has been cut off. 

And amid all the diamonds of good news, we find some rough gravel. Manufacturing, industrial production and retail sales are all in decline. And US debt…we can hardly keep up with it. It was just last week that we reported a $33.5 trillion national debt. Now, it is $33.7 trillion, with the interest soon to top $1 trillion for the year.

The top of the credit cycle (the high water mark for bonds) came in July of 2020.  Since then, bond investors have lost about a third of their money. We’re in a different Primary Trend now. While it is impossible to know exactly what it will bring, ‘more bubble’ is probably the least likely. Instead, the dip in inflation rates will probably prove ‘transitory.’ Most likely, too, the rise in stock prices will prove disappointing. And most likely of all, the moronic things our leaders are doing — deficits, military meddling, sanctions, tariffs, etc — will bring the kind of trouble they usually bring…inflation, poverty and war. 

Eternally Optimistic

But this is a long-term forecast. In the weeks and months ahead, anything can happen. So, we will keep our eyes on the ball, our shoulders to the wheel…and our thinking caps firmly on our heads…

And what luck! We have an important ball to keep our eyes on — something for the history books.

Eternal optimists, we see in Milei’s victory a potential save for the Western democracy. In Argentina, universal suffrage was put into place early in the 20th century. Not only were all adults allowed to vote…they were required to do so. A few years later, the downhill slide began.

Requiring people to vote meant that a lot of people who might otherwise have gone about their business without harm to the public weal, had to pay attention to politics — at least for long enough to figure out which side of the bread had the butter on it. This simplified the job for political hustlers. Each vote was equal to every other vote, so they went after those voters who would sell their votes most cheaply — the urban, often unionised, ‘leftist’ proletariat.  

A Matter of Principle

People are neither always good, nor always bad, but they are always subject to influence. And the promise of free money was decisive. Thus, did the teeming masses elect one populist big-mouth after another…and thus did the politicians inflate the currency to cover the costs of their own corruption. And then, finally, on Sunday, after seven decades, the appeal of ‘something for nothing’ lost its purchasing power. That is what turned the election to Milei. He promised nothing. And as far as we know, it is the first time in history that a popular democracy has voted to reduce the power of government itself.

(You might say that voters wanted less government in the US when they elected Ronald Reagan in 1980…and again in 2016, when they elected Donald Trump.  But Reagan believed it was important to increase military spending to counter what he saw as the threat of communism. Trump expanded both social and military spending shamelessly. Only Milei has vowed to cut back government as a matter of principle.)

Again, where this will lead, we don’t know. But it is worth watching…

Regards,

Bill Bonner,
For Fat Tail Daily