Times are interesting to say the least.
Issues that are causing stress in equities, commodities and bonds include:
- Supply constraints in energy and other commodities.
- War in Eastern EU and potential conflict in South China Sea area.
- Sovereign Banks struggling in multiple countries.
- Rising interest rates that are crushing the economy but not solving the inflation problem.
- The first leg down in Equities is due to rising interest rates. A second 20% to 30% drop could be in front of us from a corporate earnings collapse in 2023.
In the above environment, we believe in investments with a theme around Oil & Gas, Precious Metals and Bitcoin is warranted.
Oil & Gas:
ESG regulations and attitude are preventing exploration of Oil & Gas. This is still happening with the United Nations influencing U.S. banking’s lending money for USA domestic Oil & Gas production. See link. The issue at hand is the closing down of an existing source of energy, oil & gas, before we have a reliable replacement for that supply of energy. The world is nowhere near replacing oil & gas without causing supply problems and bankruptcies for businesses and individuals. It takes a year or more to bring on a new well in an existing field but about 10 years to bring on energy from a new oil field. Oil Prices will remain high for years. Wind and solar cannot provide base load energy to replace fossil fuels, period. Micro Nuclear reactor is the potential baseload replacement but it will be 2028 before the first Micro Nuclear site becomes operational. When China becomes functional again, post covid lockdowns, demand for oil will spike and prices will run higher. The Strategic Oil Reserve will run out of supply shortly after the November elections. Oil will spike higher.
The war between Russia and Ukraine could end, and the world starts using Russian oil and gas again. Maybe.
Precious Metals & Bitcoin.
Sovereign Banks – Countries, which can print money, will not go bankrupt. When in trouble, as the Bank of England is today, they will print more paper money. This is what England is now doing and the USA did in 2020. This depreciates the value of existing paper money. We call it inflation. A number of sovereign banks are struggling. These include Italy, Korea, Japan, England, the EU and China. Japan and England are now printing. More will follow. Probability says the USA will also begin printing again. Total global debt is about $400 trillion dollars. Global GDP is about $100 trillion dollars. This debt will not be paid, nor will it be defaulted on. It will be inflated away. The other option is massive global depression.
Why Precious Metals and Bitcoin? Any asset with limited supply will increase in value. In such a way you can protect your purchasing power. Gold and silver supply historically grows about 1.5% per year. Far less than the current inflation rate. Gold and Silver miners are the cheapest they have ever been in relationship to physical metal prices. Bitcoin is limited to a maximum 21 million coins. At the same time, its current supply is being taken off trading exchanges and placed in cold storage. The supply of bitcoins available to sale or trading is contracting. More and more people are treating Bitcoin as safe haven asset.
It is our opinion that at this time the risk of sudden change in market valuation is high. Growth investing will eventually return but that was the focus of the last decade. This is a new era. Until there is a reason to change, we think it is prudent to focus on tangible assets or limited supply related investments. Scarcity has value or soon will.
Quotes from Jamie Dimon – JPMorgan/Chase CEO
Beware, there are technical terms in this you might not understand.
- “President of the United States needs to stand up and say we may not meet our 2050 climate objectives because this is a fucking war.”
- He also said, “time to stop going hat in hand to Venezuela and Saudi and start pumping more oil & gas in the USA”
- Echoing what he has said before, Jamie said this is the way the USA maintains its standing, is by pumping more oil and gas and using energy security to ensure Western unity.
- And he did say when it comes to ESG “investors don’t give a shit” warning not to “cede governance to do-gooder kids on a committee.”
Link to one article with above quotes
Link to second article with related comments
Written October 21, 2022, by Tom Linzmeier, for Tom’s Blog at https://lotm.substack.com/.
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