The 40-Year Party Is Over

• The year everything stopped going right
• Natural resources: Scarcity = opportunity
• Before the commodity boom…
• … And about that strong dollar
• Feedback on “A Totalitarian Bureaucracy Within Our Shores”

2022: The Year Everything Stopped Going Right

From 1982 until last year, the global economic climate was perhaps the most benign in human history. “Almost everything that could go right, went right,” observes Rick Rule.

Mr. Rule is the founder and former CEO of Sprott U.S. Holdings, an elite asset management firm. He’s made fortunes over and over in energy and mining companies across a 45-year investing career.

He was also our special guest speaker during the Paradigm Shift Summit at the Bellagio in Las Vegas — an event attended by 500 of your fellow readers on Tuesday.

It was heartening to hear consistently positive feedback from the attendees — during the event, in the hotel lobby the day after, even on the airport tram as we all went our separate ways. (I’m back in my Upper Midwest home office, looking out the window and marveling at the amount of leaf drop in the 72 hours I was gone…)

During his talk, Rick rattled off a list of all the things that “went right” in the four decades up until 2022 — the good aspects of globalization, advancing technology, a demographic tailwind and declining interest rates.

As you might surmise from that windup, Rick believes the most important of those trends — declining interest rates — is at an end. Talk about a paradigm shift.

Falling interest rates made possible the stupendous advances in computer technology over the last 40 years — generating a windfall of tax revenue that the U.S. government used to embark on all manner of claptrap schemes. Or as he put it pithily, “Our collective ingenuity has funded our collective stupidity.”

Over the last 40 years, the number of people worldwide mired in desperate poverty has fallen from 3 billion to about 1 billion. But for the last 30 years, there’s been massive under-investment in the raw materials that helped to bring that change about. There’s not even enough drilling and mining to maintain current supplies — much less enough to lift those last billion souls out of destitution.

Result? Among other things, “Fossil fuels aren’t going away,” says Rick. While the climate change hustlers confidently predict oil demand will peak in 2030, Rick says a more likely target is 2065.

Meanwhile, surging demand for copper will come not from first-world electric vehicles, but from the electrification of the third world — at a time the world’s most prolific copper mines are long past their prime.

And gold, you wonder?

The Midas metal “does well during periods of economic uncertainty,” Rick said — and there’s plenty more uncertainty around the corner.

By his calculations, the precious metals and the companies that mine them comprise less than 0.5% of all financial assets. That contrasts with an average of 2% over the last four decades. Simple reversion of the mean translates to a quadrupling of demand in five years. “You have very little to lose,” he concluded, “and a lot to gain.”

Natural Resources: Scarcity = Opportunity

Staying with the general theme, “The Earth is a big place filled with energy and mineral resources — but getting resources out of the ground is a long, complex, expensive process,” said Paradigm’s energy-and-mining authority Byron King.

Over his career, Byron has trekked over every continent in search of investable opportunities in natural resources — even as far as Madagascar, that big island nation off the east coast of Africa.

Even under the ideal circumstances, it takes many years to bring those resources to market — and with government obstacles, circumstances are never ideal. It takes eight or more years to bring an oil or gas pipeline into service. It takes 20–30 years to bring a nuclear power plant into production. A small mine takes 10 years. A big mine, 15 years. A large oil refinery? Nobody’s built one in the United States since the late 1970s.

Where are the best resource opportunities right now? Byron sees three of them…

For starters, Byron agrees oil and gas aren’t going away. “The world runs on diesel,” he reminds us. Diesel-powered trucks and trains deliver nearly everything you rely on for your first-world lifestyle. “You take diesel away, the world stops.”

Uranium prices are up 30% in just two months; they might be due for a rest short term, but Byron says the long-term trajectory is much higher: China needs more uranium and the United States is keen to wean itself off supplies from Russia (about 25% of U.S. uranium supply transits through Russia).

And then there’s copper. Building on what Rick Rule said, Byron pointed out that the only ways to goose the supply of copper is 1) expanding production at existing mines even though the ore quality will keep deteriorating or 2) exploring new sites in countries where the government might up and decide to nationalize a mine that a company spent many years to create. Either way, that translates to rising costs.

The common takeaway for all three of these categories: “Well-run companies with capital discipline will make money, pay dividends and buy back shares,” says Byron.

He rattled off nearly a dozen names for the audience’s consideration — many of them too tiny to mention here. That said, you can’t go wrong with two of the U.S. oil majors: Exxon Mobil (XOM) and ConocoPhillips (COP). “They’ll sell their kidneys before they cut their dividend.”

But Before the Commodity Boom Gets in High Gear…

So of course, oil prices would fall out of bed the day after the conference.

A barrel of West Texas Intermediate fell 5% yesterday after JPMorgan issued a report warning of global “demand destruction” — a handy two-word description for If the economy is slowing down, people won’t consume as much oil.

A week ago today, crude traded briefly for $95. Looking at our screens this morning, it’s under $84.

This drop serves to highlight a caveat to the commodity boom we’ve been discussing today.

After everyone’s individual talks in Las Vegas, your editor moderated a natural resources panel featuring the aforementioned Rick Rule and Byron King along with Paradigm macroeconomics maven Jim Rickards.

A consensus quickly emerged: Yes, natural resources are set for a boom long term… but in the nearer term, they could take a whacking from 1) a recession 2) a financial crisis and 3) persistently strong dollar.

The U.S. dollar index has traded over 106 all this week. That means the greenback is stronger, relative to a basket of other developed-market currencies than at any time since last November. The global trade in most commodities is priced in dollars; ergo a strong dollar keeps a lid on commodity prices.

That’s one reason gold has been moribund of late. Looking at our screens this morning, gold trades for $1,819 and silver at $20.85.

As for stocks, they had a lousy day on Tuesday while our conference was underway, a teensy recovery yesterday, and another slump today. The S&P 500 is down nearly half a percent on the day at 4,245 — better than Tuesday’s close, but no better than it was in June of 2021.

About That “Strong Dollar”...

The problem with the “strong dollar” relative to other currencies is that it’s still pitifully weak relative to the stuff you actually buy.

So said our income investing specialist Zach Scheidt at Tuesday’s Paradigm Shift Summit. It’s dollars you need for your day-to-day expenses — to say nothing of your taxes.

“The very best way to handle this problem,” he said, “is to generate income” — day after day, week after week.

Income-producing investments are especially valuable at a time like this when the broad stock market is chopping sideways. If you have income steadily rolling in, you can use that cash to take advantage when a stock you particularly like has sold off — so you can buy more shares in anticipation of the next move up.

Zach served up three names for the crowd. Out of respect for the attendees, we’ll keep two of them close to the vest today — but like Byron, Zach likes ConocoPhillips. True, a 2% dividend yield pales to what you get from a T-bill — for the moment. But when that 5% T-bill matures, you have no guarantee you’ll still get 5% if you roll it over into a new T-bill. In contrast, COP will steadily raise its dividend even as the share price continues to appreciate. (And yes, it regularly buys back shares, too.)

Of course, as we showed recently, dividend-paying stocks are only one side of a “barbell” strategy Zach employs to generate income.

The other one is familiar to readers of his Income Alliance trading service — in-the-money option contracts.

Zach described to the crowd the red light-green light system he uses to select these option recommendations — the very trades he executes in his own portfolio. He evaluates the macroeconomic picture, the company’s fundamentals and the stock’s chart action. If all three turn up green lights, he recommends call options. If they’re all red, he recommends put options.

During his talk, Zach illustrated the strategy using two plastic cups filled with golf balls and ice cubes. Frankly it’s hard to describe without the visuals from the conference — if you’re curious, we’d suggest checking out this presentation instead.

And if you’re wondering… No, we’re not offering streaming video of the conference sessions for sale. Frankly, this event has been so well-received by the attendees that we want to keep a certain mystique about it for everyone else — the better to build up interest for any future events we might host.

That said, we’ll likely release some of the talks piecemeal toward the end of the year — perhaps as a “thank you” to folks who renew a subscription, or as holiday bonus content when our team takes the week off between Christmas and New Year’s.

In the meantime, we have many more Summit highlights to share tomorrow and Monday — Alan Knuckman, James Altucher, Sean Ring, Ray Blanco and of course Jim Rickards.

But right now, let’s catch up on a quickly filling mailbag…

Feedback on “A Totalitarian Bureaucracy Within Our Shores”

We got a lot of feedback to last Friday’s edition — a freshened version of some reflections we published for the 20th anniversary of 9/11.

“Very good analysis,” says one reader. “Outstanding piece of writing,” says a second.

“I really appreciate the financial insight from all of the Paradigm resources,” says a third, “but just wanted to reach out and say thanks for the depth of additional insight, history lessons and commentary from all of the contributors. You guys are really good at what you do! Please keep it up!”

“You earned your salary this week in one opus, Dave,” says a fourth.

“That article is so on point, I wish you could make a printable version available to we readers. I have a few UN-representative congress critters I would like to share it with.”

“Your article was a difficult read,” writes a combat veteran of Vietnam.

“We were not told why America was involved in an Asian civil war but we believed it was our duty to serve. I served seven months in Vietnam followed by seven months in an Army hospital.

“The debacle in Kabul on full display to the entire world, followed by Joe Biden looking at his watch while 13 coffins were offloaded at Dover Air Force Base enraged me, drove me to a dark place I thought I had left behind. These endless wars, the enormous cost in blood and treasure thrown away for little purpose must stop.

“Thank you for your article.”

“You do realize that a lot of people think that the Saudis were behind the 9/11 attacks,” says our final correspondent today. “At least one of the pilots was proven to be a Saudi.

“And since al-Qaida and the Saudis hate each other, it was a little too easy to point the finger at a known enemy instead of accusing our petro allies, right? 

“Other people blame Mossad for the attack to create trouble between the U.S. and the Saudis.

“And of course, you have a group of ‘conspiracy theorists’ that think that the CIA was behind these attacks so that Bush could push through the Patriot Act (about 130 pages thick) that appeared miraculously barely a few weeks after the attack, in the middle of the night, and without giving a chance for the Congress critters to take a deep look at a clear attack against our civil liberties.

“Can't wait to read your reply to this message.”

Dave responds: We’ve mentioned it before, but two days after Sept. 11... President Bush smoked cigars with Prince Bandar, the Saudi ambassador to the United States, on the Truman Balcony of the White House.

In 2016, we finally learned from the redacted “28 pages” of a joint congressional inquiry that there was a fairly direct money trail leading from Bandar to the San Diego cell of hijackers that crashed into the Pentagon.

Heck, the U.S. military captured an al-Qaida leader in Pakistan in 2002... and found in his contact list the phone number for a cutout company that managed Bandar’s palatial spread in Aspen.

Is that enough evidence to nail Bandar in a court of law? Probably not. But it is reason to be infuriated at the sight of one U.S. president after another prostrating himself before Saudi potentates…

Best regards,

 

 

 

 

Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets