Hidden Megatrends — Investing in the $21 Trillion Grid Overhaul |
Thursday, 7 December 2023 — Melbourne, Australia | By James Cooper | Editor, Fat Tail Daily |
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[6 min read] Dear Reader, Broken supply chains, geopolitical tensions, war, inflation, rising energy costs, food crisis, droughts, famine, depleting mines…Welcome to the 2020s! The patterns defining this decade suggest more volatility is on the way…especially in the things that matter most…food, energy and shelter. It’s why investors should be focusing on commodities. A perfect storm of tight supply that spans minerals, oil, gas, food and water is approaching. This has been the key theme behind my Diggers & Drillers service since launching 12 months ago. As a former geologist I’ve had a front row seat to the future problem of supply. Just take a look at the graph below showing the number of copper discoveries over the last 30 years. It’s simple maths: as populations continue to grow we’re finding less of the things we need most. The SUPPLY problem is crystal clear. But what’s not so easy to predict is DEMAND Of course, there’s the green energy transition. Any number of analysts have declared a five-fold, ten-fold or even 20-fold increase in demand for any particular future facing commodity. But these projections are guesses. They’re meaningless statistics. That’s why I’ve kept my focus on supply. Yet, there is one aspect to the green energy transition where DEMAND is clear…. Power grids built in the ‘age of oil’ are useless in an electrified economy. As you know, governments are set to phase out fossil fuels and replace them with wind turbines and solar panels. But there’s a problem…renewables are NOT energy dense. First, wind and solar farms HAVE to be big — way bigger than traditional power stations to generate the same output. That’s also why they’re typically found way out in the country, because you need a lot of empty land. Even then, you can’t just put them anywhere. Wind farms have to be where the wind blows, typically at altitude. Solar farms need to be where the sun shines. That’s why there are currently 18 solar farms in rural Queensland, the ‘Sunshine State’, but only seven in Victoria. Basically, to make renewables work, you need a lot of wind, a lot of unobstructed sun, and a lot of uninhabited land. By definition, those are places where nobody lives. To bring this electricity from rural areas to the CITIES — where over 90% of Australians live — we’ll need 10,000 kilometres of NEW transmission cables. That’s more than the entire width of Australia, coast to coast, twice over. But the story doesn’t stop there. Governments in Asia, North America, and Europe require even larger projects. For example, Sweden just decided to replace 16,000 kilometres of cabling to enhance their national electrical grid. In India, this number goes up to 27,000 kilometres. Meanwhile, in the United States, they’re constructing over 75,000 kilometres of new cables to meet the demands of Full Electrification. But here’s the big problem — these new cables don’t exist yet. The Net Zero ‘movement’ has been preoccupied with energy generation…whether that’s solar panels, wind turbines or nuclear. It’s also heavily focused 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. But replacing decades old power lines won’t come easily or cheaply… According to Bloomberg NEF, nations will need to spend AT LEAST US$21.4 trillion to upgrade existing grid networks. This is why you only need ONE metal in your portfolio No doubt, technological advancements will smooth out the bumpy ride to Net Zero. Engineers are focused on developing renewable technologies that eliminate certain critical metals. Take the iron-air battery…it’s expected to cost just one tenth of a traditional Li-ion battery. As the name suggests the primary metal uses iron, a highly abundant metal in the earth’s crust. If commercial trials prove effective, this could wipe out the outlook for lithium and graphite miners currently feeding the Li-ion battery revolution. Technology remains a key threat to critical mineral developers. But the laws of physics ensure ONE metal will hold its throne in the adoption towards electrification. Thanks to its unique properties, including supreme ability to conduct electricity and form long strands of wire… COPPER will be the only option available in rebuilding global power grids. Electrification is a megatrend. It offers enormous opportunities across tech, mining and infrastructure. But copper is a clear bet in this multi-trillion dollar undertaking. As part of my brand new presentation, I’ll be profiling TWO Aussie explorers set to gain upside from this trend. Both companies hold large, high grade copper deposits in one of the safest places to mine on earth. From my experience, these are the factors that drive juniors up the development cycle, into production. That makes them ideally positioned to deliver copper to market just as the world needs more of it. The sweet spot of the mining life cycle when miners hit maidan production just as prices begin to rise. That’s what a copper company I worked for in the last mining did…Equinox Minerals. A small junior that rose into a $7.5 billion giant as it entered production on the back of surging copper prices. I believe these two explorers are about to re-play the Equinox handbook… Watch this just-released presentation for more info. Enjoy! Regards, James Cooper, Editor, Fat Tail Daily James Cooper has been a working geologist in mines across Australia, Canada and Africa since the early 2000s. He’s led the operations of tiny explorers through to huge producer outfits. He’s seen booms and busts first hand and he also understands the cyclical nature of individual commodities. For example, James was right there when Barick Gold launched an enormous $7.5 billion takeover bid for Equinox. That was the peak of the last cycle. With his background as a geo and finance professional, he brings a unique insight and experience to Fat Tail Investment Research. He writes the broader resource-focussed investing letter Diggers & Drillers and the ultra-speculative explorer focussed trading service Mining: Phase One. Advertisement: THE FATAL FLAW IN ‘FULL ELECTRIFICATION’ Australia and 139 global governments are now marching in lockstep. We’re moving towards Full Electrification. But there’s one fatal flaw everyone is conveniently ignoring. And Aussie investors who spot it first could stand to benefit. CLICK HERE FOR THE FULL STORY |
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| By Bill Bonner | Editor, Fat Tail Daily |
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[4 min read] Dear Reader, Out of the crooked timber of humanity, no straight thing was ever built. ~ Immanuel Kant Today, we write about a straight thing…that got a kink. Financially+ says: Warren Buffett's Advice To Nervous Investors: 'Incredible Period' For US Economy Growth Is Coming To An End Buffett’s recent cautionary remarks mark a significant departure from his usual optimistic view of the US economy. So, what has led to this change in perspective? It’s a combination of several factors, including persistent high inflation, escalating interest rates, and an ongoing banking crisis. These challenges have collectively contributed to Warren Buffett and his longstanding business partner, Charlie Munger, adopting a more prudent stance regarding the prospects for investment returns in the upcoming year. Munger succinctly summed it up by saying, ‘Get used to making less.’ The duo’s cautious outlook for the economy is also mirrored in Berkshire Hathaway’s investment portfolio. The company was a net seller of equities in the first quarter of 2023, generating $10.4 billion in proceeds after accounting for purchases. Consequently, Berkshire’s cash reserves swelled from $128.6 billion at the end of the previous year to approximately $130.6 billion. Yes, Buffett and the late Charlie Munger were both geniuses. But they also had the good fortune to be alive and investing at a time when America’s central bank was pumping trillions in new ‘liquidity’ into the markets. That period is over. And Buffett is doing what we recommended: going to cash. This new phase began in July 2020. Its actual shape and distinction? We don’t quite know yet. But it is different in every dimension from the period that made Buffett and Munger rich. Let’s look back. Financialisation and politicisation The period, 1950–1980, was arguably the high water mark for America. It was then that Buffett learned, from Ben Graham, to buy good companies cheap…and hold them for a long time. Later, he learned from Munger to buy them at fair prices; getting them cheap was nice but not necessary. But in 1971, the US straightened out its money system…and by 1980, the new system was already bending and twisting the entire economy. Before 1980, almost all the comparisons and all the measures were favourable to the US. Trade, exports, jobs, incomes, art, culture…you name it; America was number 1. After 1980, almost all the indicators slipped and slid… Among them were these not-much-noticed but revealing details. Real wages for ordinary people rose about 2.3% per year in the first period. In the second — since 1980 — they’ve been flat. The October 2023 report on inflation-adjusted wages in the goods-producing sector shows no gain since October 1978. Second, government transfers as a percent of GDP were less than 10% before 1980. After, they rose to almost 20% by 2020 and have now settled back down to 15%. There was a twist. After 1980, the percentage of the total output that was spent by someone who didn’t earn it went up. The post-1971 money system favoured ‘financialization” and politicization – not new products and services. If there was an increase in overall wealth, it did not go to the wage-slaves who earned it. It went to those who got the ‘transfers’…and to Wall Street. Crooked Timber The real economy is composed of people who offer goods or services to others…in exchange for money…which they use to buy goods or services from others. That was how the pre-1980 economy did so well. Providing better goods or services increased real wealth. So wages rose. Post-1980 was a different story. The new paper was more flexible...and more easily persuaded to go into the pockets of those who controlled it. This new money system was largely Milton Friedman’s creation. He thought he could eliminate inflation and deflation by taking gold out of the picture. Henceforth, people would have no option but to stick with the government’s paper…and no reason not to. Friedman was a brilliant economist, but not a very good judge of crooked timber. In his theoretical world, economists at the Fed would allow an increase in Fed holdings (which replaced gold as the system’s ballast) of 3% per year. No one would have any reason to fear inflation — because the geniuses at the Fed wouldn’t overdo it. And no one would have reason to fear a Great Depression-style meltdown either…because the Fed could feed an infinite amount of ‘liquidity’ to the banking system, making a system-wide deflation almost impossible. New Money, Old Habits But in the real world, people are neither always good, nor always bad, but always subject to influence. And the influence of being about to ‘print’ money has always triumphed over prudence and propriety. As we saw yesterday, the Fed consistently increased the money supply above and beyond the rate of GDP growth…reaching nine times Friedman’s 3% target during the worst of the Trump years. This new money wasn’t earned; it was borrowed. Mostly by Wall Street and the federales themselves. And here we see the result: Total debt to GDP was about 150% in the first period, 1950–1980…and went to 350% in the second period, 1980–2020. The new ‘money’ directly increased our collective debt, indirectly increased prices for stocks and bonds….and made Buffett and Munger a lot of money for themselves and their shareholders. That chapter has now come to an end. Today’s story — economic, financial, political — is different in almost every way. In particular, the new liquidity has been borrowed and spent, but the burden of debt remains…along with the inflation/deflation debt crisis that Milton Friedman thought he had avoided. Tomorrow…we’ll let Former Ambassador to the Soviet Union, Jack Matlock, explain how the US has changed politically. Regards, Bill Bonner, For Fat Tail Daily All advice is general advice and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment. |
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