Monday, 7 March 2022 — Albert Park

By Callum Newman Editor, The Daily Reckoning Australia

[6 min read]

• Imagine an oil strike at today’s prices!
• The first casualty of war…
• Plus, uranium bulls: time to step in?

Dear Reader,

1) I hope you drive a Toyota Prius or a Tesla the way petrol prices are going. It’s going to get worse too. Brent crude is now US$118 a barrel. It’s up 80% since December.

A war involving Russia will do that.

And yet, oil juniors on the ASX aren’t going as bananas as you might think. It’s hard for me to get my head around that.

It’s possible the market views the spike in oil as temporary, and therefore due to settle back. Or it may be purely that the money is going into the bigger names that benefit first and fastest.

However, I’d urge you to keep watching here.

It reminds me of last year when iron ore went to more than US$200. Some of the trades in the junior sectors were ripping.

But they didn’t all happen in the first five minutes, either. I’m talking 50–100% gains in a few weeks.

I’d expect the same for the oil sector if this situation is not resolved soon. And why would it be?

The Western media is united in condemning Russia and Putin. I know enough history to know things are never as simple as they seem.

Plus, the US has bullshitted us all so many times, from Vietnam to Iraq to Afghanistan that, I, for one, am not going to assume their ‘intelligence’ is suddenly as pure as Mother Theresa.

It’s interesting to observe how little dissent or questioning of this overarching narrative (Ukraine ‘good’, Russia ‘bad’) there is in the mainstream media. Further proof that 99.95% of it is a waste of time.

It’s not as if this is coming out of nowhere. Back in 2014, the West was meddling in Ukraine too.

I don’t pretend to understand most of it. All I know is I don’t trust anything I’m hearing, on either side. Truth is the first casualty of war.

However, we do have to wrestle with its effects on the markets. I’m getting wary. The rise in commodity prices is pressuring inflation up…and up again!

Stocks, in general, at least historically, don’t like high inflation. High costs eat into margins and profits, and the outlook for earnings becomes unstable.

But I can’t deny commodity producers are getting a windfall if they can get to market at these current prices.

There’s a wave to be surfed for now. I have two oil trades for my service, Catalyst Trader. Both are drilling for oil when oil is trading at more than US$100 a barrel. This is how you get share market fireworks!

2) You might also want to keep your eye on uranium stocks. They were hammered last week when news broke that Russian soldiers were attacking near a Ukrainian power plant.

However, if you’re a long-term believer in uranium, it’s not clear this is a problem. You can get very good prices when everybody panics out like that. The volume in Paladin on Friday was huge!

The issue for me is I don’t know anything about uranium. I’m aware of the general run of the argument for the sector (it’s ‘clean’ energy, supposedly, and starved of investment since 2007, etc.).

If I was less cautious, I might just swoop in on the odds they revert to where they were at some point.

However, none of them are profitable, at least as far as I know, and whether the uranium bull runs again, I haven’t the slightest confidence.

It’s hard to believe, but in 2012 a noted resource investor made his case for buying uranium stocks. I watched his presentation.

Here we are in 2022, and they only just showed some spice last year. The previous 11 years were a wasteland. That’s the risk you run buying into themes like that and what keeps me out of them now. I just don’t know enough to hold confidently and indefinitely. If you do, drop us a line and tell me why!

And don’t forget to tune in to my podcast on Spotify here too. I’m talking to an international energy analyst this week to see where he thinks oil and gas are going. I’m not sure if he covers uranium, but I’ll be sure to find out.

Until then!

Best wishes,

Callum Newman,
Editor, The Daily Reckoning Australia

PS: My editorial director Greg Canavan sent around an email last week. With everyone watching Russia and commodities, he said, where isn’t the market looking? Often the best values and opportunities will be there.

My colleague Ryan Dinse says this is where you should be watching for the long term!

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

‘The surest way to ruin a nation is to debauch its currency.’

Vladimir Lenin

The first thing we noticed were the zeros. Where did they get so many of them? Imports from Venezuela? We don’t know. But we’d like to own the company that makes them.

When we first came to Argentina more than 20 years ago, a trip from the airport into town was about 35 pesos. Now it is 7,600. Every whole number is followed by at least one zero…and usually a whole line of them. A digit without a zero is worthless since it takes at least 10 pesos to equal half a US penny.

How do you destroy a country…ruin its economy…impoverish its people…and corrupt every institution in the nation? Just add zeros.

Last week, we wondered about how cutting Russians (and many others too) off from their money might blow up in our faces. The Washington Post wonders too:

‘One former Obama administration official that worked on sanctions, who agreed to talk on the condition of anonymity to speak candidly, said the scale of the restrictions on Russia has been so huge and unprecedented — so its knock-on impact could be huge and unprecedented, too. The former official noted that Russia’s central bank, which had its assets frozen by the United States in a Rubicon-crossing move, had more assets than the entire economic output of Iran.’

Yes, the ‘shock and awe’ financial attack is having an effect.

Oil trades at more than US$112 a barrel. And Sberbank, the largest bank in Russia, swirled closer to the drain yesterday. The stock trades at only 90 US cents, down from US$20 in October. But what did Sberbank shareholders do wrong? Why are they being punished?

A large Russian stock fund, based in London, in which we have a small investment, sent out a notice; if we wanted to get our money out, it said, we can go fish. It’s too late. Trading has been halted. We don’t know what our investments are worth (probably not much), and we can’t sell them anyway.

Debauching the dollar

US markets, meanwhile, rallied; investors were said to be buoyed up by the latest news. As expected, Fed Chair Jerome Powell told the world that he is getting serious about whipping inflation now. He’s calling up a platoon of very mean girl scouts to lead the charge. Fox:

‘“With inflation well above 2% and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month,” Powell testified before the House Financial Services Committee, saying that he is “inclined to propose and support a 25 basis point rate hike” at the Fed’s March 15-16 gathering.’

Is he kidding? A quarter-point increase? That will bring the Fed’s key rate to about MINUS 7%. Is this ‘tightening’? Of course not. Powell is not fighting inflation; he is enabling it. And he’s debauching the dollar, not the ruble; he’s ruining the US, not Russia. (Russia’s central bank is lending money at 20% interest!)

Once again, the elite — media, experts, universities, politicians, Wall Street — line up like zeros behind the feds…as they have every time this century. Yes, there were ‘weapons of mass destruction’ in Iraq in 2003. Uh-huh...no question about it. Yes, in 2008, ‘we may not even have an economy on Monday’. Sure. If Ben Bernanke says so. And yes, again in 2020; ‘shut down the economy or COVID will kill us all’.

Now…Putin has a devil’s tail, the press reports. He’s a ‘killer’. And yet, it was only 10 or so years ago that the media celebrated Mr Obama because he approved the ‘kill list’, himself. Apparently, he — along with George W Bush and Donald J Trump — were good killers. Mr Putin is a bad killer. Sure, whatever.

But there are always more dots to connect. And now we have a new war…a new enemy…and a new reason to print money!

Up until fairly recently, the misdeeds of politicians were settled in political ways — by bullets, ballots, bombs, backstabbing, etc. — directed at the malefactors themselves. ‘The best form of government is monarchy’, said Voltaire, ‘with an occasional assassination’.

But this time, US authorities are using ‘soft power’. No assassinations. No bombing. No killing.

Just stealing.

Soft bombs

Led by the US, the busybodies aim not at the people who squander wealth — politicians, and the military/industrial/surveillance industries — but at the people who produce wealth — consumers…banks…manufacturers…and raw material producers. (For purely selfish reasons, they have spared the energy companies…but subjected them to severe collateral damage. Gazprom, for example, one of Russia’s state-owned energy producers, has watched its stock fall from US$10 a month ago to just US$2.)

By sending troops to Ukraine, Mr Putin has violated the ‘rule of law’, sayeth the papers and the politicians. In retaliation, sanctions have been imposed. People with money in Russia cannot get it. Russians cannot get their money from abroad. Russian companies cannot sell their products. Western consumers cannot buy them.

By long standing convention, the rule of law requires certain procedures before a ‘taking’ can occur. You must be charged with a crime. You are entitled to a swift and fair trial. Only then, should the judgment go against you, is your punishment meted out. But here, billions of dollars have been taken away, sequestered, or lost because of the sanctions. What was the charge? Where was the jury? Did we miss something?

Thousands of innocents — businesses, households, investors who had nothing to do with Russian politics or the invasion of Ukraine — have had something taken away from them without due process. Where was the rule of law?

We raise the issue not out of a sense of counterfeit moral outrage; there’s plenty of that already. We’re just trying to connect the dots. And it looks as though the sanctions — like the US’s other misbegotten wars of the 21^st century — could do more harm to itself than to the Kremlin.

The soft bombs don’t fall on Putin or his army. Instead, they explode on key elements of our prosperity — energy, money, and commerce. Cutting off trade with Russia puts energy supplies and essential raw materials in jeopardy. Imposing sanctions on the Russian economy takes wealth from innocent people without due process. And by ‘weaponising’ its own money, the world sees that the dollar can no longer be trusted.  

Here, we don’t pretend to have any real idea where this will lead. Our high-probability hunch is that we’ll end up with a lot more zeros.

And next week, we’ll deepen our wondering…are we entering a New Era, where energy will be hard to come by, you can’t trust the money, and you can’t depend on the rule of law? What kind of world is that?

Stay tuned...

Regards,

Bill Bonner,
For The Daily Reckoning Australia