Why it’s an EV world for the next dec ade

Monday, 27 June 2022 — Albert Park

[6 min read]

Dear Reader,

Three weeks ago, I was in Queensland at a conference for resource companies.

One of the managers presenting, Dale Henderson, is the chief executive of Pilbara Minerals [ASX:PLS].

I doubt this stock needs much introduction. It was around 15 cents in 2020. It went to more than $3 recently.

Now the general market is under pressure.

However, one of the points Dale Henderson made in Queensland was that Pilbara was still seeing incredibly strong bids for any lithium supply they could offer.

That comment was validated last week when PLS released the latest price per tonne it bagged for its next shipment — a record US$6,350.

You wouldn’t know that going off the recent price action across lithium stocks, however.

PLS is down 27% since January. Some of the more speccy lithium names are much lower than that.

Such a sell-off always looks inevitable when it happens because the preceding boom was so gigantic. But the timing is never so easy.

Throw in the big dump across the ASX and it’s hard not to see some of the lithium names rallying back up from here. They already started on Friday.

I just put together a report on my three favourite battery plays.

I was wary of a sell-off in the conventional lithium names and told my existing readers as such in that report.

The three I found were much less obvious but no less compelling in my book if you’re prepared to look out 1–2 years.

Mining timelines are long ones. But that’s how you hunt for the big percentage gains.

It’s not as if the themes of electrification, decarbonisation, and ESG are going away.

Plus, we know that the mega miners like BHP and Rio see their future in metals like copper and lithium and have gigantic financial resources to go shopping here.

Rio was already thwarted in Serbia with their lithium project over there and BHP has multiple headaches in Chile with its copper operations.

They can buy up whatever they want, as long as it suits their style and operations.

Anything in Australia would surely be on that list considering the increasing sovereign risk around the world.

One of my battery stocks in that report could be one of the most exciting nickel projects in the world. I’m not kidding. I urge you to check it out here.

Think about the COVID 2020 collapse in the ASX. That turned out to be the biggest gift to mining investors.

I doubt we’ll see an equivalent opportunity like that for years to come. But any sell-offs are opportunities to add, not get out.

After all, the net-zero targets around the world are for 2030, usually. There’s a long way to run yet.

And, yes, the world may go into — or be in — a short-run recession. However, the US went into recession in 2001 as well.

But that didn’t stop the rise of China, right? And resources went into a giddy bull market until the brick wall of 2008.

That’s my playback for the next five years, anyway. You don’t have to limit yourself to lithium, or even battery metals really.

There’s been so little investment into future mineral production that supply is likely to be an issue for the next decade.

Now we have that becoming acute as the WA labour shortage and rising costs start to hit some of the more marginal miners.

This is an explosive combination for any mining project at the low end of the cost curve for their metal, and the resources to hold on to their staff.

Governments will likely exacerbate this because any economic downturn is never allowed to run for long before they push back with more fiscal stimulus.

That usually involves central banks playing funny with the money supply and juicing everything even more.

The whole dynamic reminds me of a Jim Rogers line from a few years ago.

I don’t have the direct quote, but it went something like this:

If the world gets better, commodities are the place to be because of the shortages developing.

If the world doesn’t get better, they’re going to print money. It’s the wrong thing to do, but they’re going to do it anyway. Commodities can protect you against this devaluation in money.

Sounds like wisdom to me.

Regards,

Callum Newman,
Editor, The Daily Reckoning Australia

Dear Reader,

Stocks were green again yesterday…but the bounce faded far short of the 33,000 Dow half-way point. There’s probably more bounce left. As they say on Wall Street, even a dead cat bounces more than this.

We take the thud to mean Mr Market has more work ahead…dismembering Frankensteinian businesses…deworming the market of the Fed’s vile parasites…killing off the zombies…and generally deflating everything that gets in his way.

Steel prices have been cut in half in the last six months. Existing house sales and housing starts have both fallen to their lowest points since we masked up and locked down in 2020. Junk bond yields have doubled, making it very difficult for the zombies to borrow more money and survive. Fertiliser prices crested in late March and are now headed down (food prices should follow). Oil is slipping. So is copper. And even used cars are falling in price. They’re down 6% since early this year.

But when it comes to price cuts, nothing quite matches the tales of woe and worry coming out of the crypto sphere. Trying to keep up with them is a challenge; like broken-down hulks on the side of the road, there are now nearly 20,000…out of gas, flat tires, or they just won’t start…and no tow truck in sight.

Luna meets Terra

The whole universe of cryptos was said to be worth almost US$3 trillion. But where was the value in any of them? Where were the earnings? Where was the output? What made any of them worth a damn?

The Luna coin, for example, lost 99.9% of its value over the last few weeks. Luna was part of a pair of star-crossed lovers; it was connected to Terra (as the Moon is to the Earth)…so that one ‘guaranteed’ the value of the other. As if you could make one worthless thing valuable by adding another worthless thing to it!

The whole show was so preposterous…it required as much suspension of disbelief as the New Testament. It had all the mystery and magic, but no socially redeeming message…no hope of redemption…no promise of everlasting life. It was all backward. Cryptos turned wine into water…and sane investors into lunatics.

Even the most stable and respectable of the lot — Bitcoin [BTC] — got cut in half last weekend, at one point trading below US$18,000. If you bought the coin when we first suggested it, back when the crypto world was Eden, you’re still way, way ahead. But fake money (money you don’t earn honestly) is always subject to the Cantillon Effect. That is, as with any Ponzi scheme, you’ve got to get in early. And then, don’t forget to leave the party before the band packs up.

But enough of crypto. And who knows? One or two of the coins might still rise from the tomb…and prove to be valuable. It might be a curiosity, like an Elvis-on-Velvet painting. Or a surprisingly successful third marriage.

It’s axiomatic here at the Letter that real wealth comes from hard work, diligence, forbearance, innovation, saving…and all the other things we don’t especially enjoy.

If you could create real wealth by passing a law, printing money, creating a crypto, running deficits, or slathering an IPO with incomprehensible mumbo jumbo — well, there’d be a lot richer people!

Dollar divorcees

But the unstable coins neither began with cryptos, nor will they end with them. When gold was divorced from the dollar in 1971, all the world’s major currencies were orphaned. The pound and the still-unborn euro, for example, had no daddy to paddle their little derrieres. They were no longer subject to monetary discipline. Instead, they could run wild.

They were connected…linked to the world’s reserve currency — the dollar. But what was the dollar linked to? Who rapped the greenback’s knuckles when it got out of line? Who taught it to say please and thank you?

Nobody.

Instead, it was ‘anything goes’. And anything went. In the 21st century, US GDP doubled. But the Fed’s balance sheet (serving as a proxy for the supply of dollars) was multiplied by 10.

But what interests us especially is what will happen when the stable dollar gets the same treatment as stable crypto coins.

Crying for Argentina

As with so many things in the financial world, Argentina has already been there and done that. Here’s Daniel Lacalle at Mises.org:

‘In Argentina there was no dollarization: there was a deception in which it was declared that one peso was equal to one dollar. Like the stablecoins crashing on the market today, the so-called dollarization was simply a fallacy, and when the bubble burst, policymakers went on to further destroy the currency’s purchasing power.’

Oft recalled in these pages was our visit with then Argentine president Menem in the 1990s. He had ‘linked’ the peso to the dollar. Like Luna to Terra. One to one. The peso was stable because the dollar was stable. Which worked beautifully…until it came under stress. Then it didn’t work at all. People discovered that the ‘link’ was just a promise. And a deceptive promise at that. And as it turned out, that promise was broken only a couple months after Menem assured us that it would never be. And then, Lacalle continues:

‘In aggregate terms, money supply, including all the currency in circulation, has shot up in Argentina by 2,328.09 percent in ten years, while in the United States it has doubled. In other words, the aggregate money supply in Argentina in the last decade has increased at more than eleven times the rate of that of the United States. Only Venezuela has conducted such madness.’

How’s that for a ‘stable’ peso?

In Argentina’s case, the link that held the dollar and the peso together was no more than a political promise. But what if the gravity between Moon and Earth — between euro and dollar…or gold and ‘paper gold’ — were little better?

We’ll look at that tomorrow…

Regards,

Bill Bonner,
For The Daily Reckoning Australia