Thursday, 16 February 2023 — Albert Park

By James Cooper Editor, The Daily Reckoning Australia

[7 min read]

Dear Reader,

Now here’s a fact that might surprise you…

Amid 2022’s financial chaos, North America’s largest steel producer Nucor [NYSE:NUE] was booming. While many analysts and economists were predicting a construction and housing price crash in the US, this steel giant was delivering its best year on record.

That’s according to Nucor’s latest earnings report, indicating the company had its most profitable year, eclipsing prior records set in 2021.

So, what gives?

It’s been a long time since steel manufacturers experienced boom conditions. The last period was during the early 1970s when steel production reached a peak in the US.

Steel production is not a sector that garners much attention in this tech-focused nation. 

Especially so when the US has just experienced a prolonged period of unrelenting rate rises. Construction would normally be the first casualty in this type of environment.

But Nucor’s stellar performance over the last few months would suggest otherwise.

According to the company, it produces steel products ranging from beams, structural tubing, electrical conduit, steel racking, steel joists, concrete reinforcing steel, steel fasteners, overhead doors, steel grating, and wire mesh.

Basically, any steel component used in US construction is manufactured by Nucor.

Given the recent earnings results, it’s not surprising that the company is experiencing unprecedented demand for these products.

But Nucor’s stellar run over the last few months has likely astonished many market observers…

Particularly those that believe we’re on the verge of economic calamity, thanks to persistently high inflation and record levels of government debt.

Yet right now, the US’s largest steel manufacturer, a company whose revenue is entirely dependent on economic growth, continues to post record-breaking earnings.

It’s why the stock is trading at near-all-time highs:

But is this the top for Nucor?

For the moment, there’s no sign investors are looking to jump out of Nucor’s stock any time soon…that’s despite strong consensus of US recession in 2023.

Nucor isn’t the only US based steel producer defying analyst expectations.

Reliance Steel & Aluminium [NYSE:RS], a producer of steel alloys and aluminium for the construction industries across North America, is experiencing similar growth.

The stock was up more than 30% in 2022 and has added a further 17% to its value this year.

See for yourself below:

With the company’s latest earnings report due shortly, recent price action suggests positive results are on the way.

So, why are US steel manufacturers defying the rather pessimistic outlook for the US economy?

One key reason could be this…

The US…in the fight of its life to maintain economic dominance

Many analysts have their eyes firmly fixed on China’s reopening.

It marks the ‘reawakening’ of an economic powerhouse that has sat in stagnation over the last three years thanks to self-imposed lockdowns.

But could this reawakening be the final leg up before China takes economic dominance away from the US?

Perhaps…but don’t expect the US do go down without a fight.                          

Some commentators suggest the brewing power struggle will insight war between the two nations. Instead, I believe it’s setting up for a major economic showdown, where both superpowers attempt to stamp their authority over supply chains.

How they undertake this power struggle will be vastly different.

For China, it means reigniting its multitrillion-dollar Belt and Road Initiative (BRI) to secure trade routes throughout Asia and Africa.

Of course, the country will need to work through its domestic issues first. Stimulus will play a large role in strengthening the country’s beleaguered housing industry.

No doubt, though, once these issues have been dealt with, President Xi Jinping will be ready to re-exert his authority over international supply chains.

That’s the primary goal of the BRI development.

It means extending highways, shipping lanes, and railways from China all the way through to the Middle East, Russia, and Africa. 

But for the US, reimposing its influence in the global economy will look quite different...

It means replacing its crumbling infrastructure. Roads, bridges, ports, hospitals, airports, and utilities neglected for decades will need to be rebuilt if it seeks to hold its position as the world’s largest economy.

You can bet the US will do all it can to make this happen.

Both China and the US are set to throw trillions at their respective ambitions.

According to a recent White House statistic, the US Government has already approved more than 20,000 infrastructure projects that are set to come online over the coming months and years.

It’s part of a US$3.5 trillion ‘Biden Agenda’ that aims to rebuild critical infrastructure across the nation.

That’s good news for companies like Nucor and Reliance Steel & Aluminium that continue to defy the odds. As the nation looks to rebuild, there will be a focus on using ‘American made’ steel.

However, Australian resource companies are set to benefit in a big way too.

Mining companies here will be feeding the raw materials to China and the US as each nation attempts to take the lead in this coming economic power struggle.

No doubt, the situation in China has been well reported. The country’s emergence from lockdowns late last year have been a boon for commodity prices in 2023.

It’s offered strong tailwinds for copper, causing many analysts to suddenly flip on their long-term outlook for this strategic metal.

However, analysts are underestimating the US’s role in this power struggle.

US preparing to restamp its authority over economic dominance

According to many observers, China is destined to overtake the US as the world’s largest economic superpower.

That’s because, until recently, the US has been benign to the China growth story.

While it’s been slow in reacting to the power challenge, the US will not give up its century-long economic dominance easily.

Importantly too, unlike China, the US still has a growing population.

The US added the equivalent of Australia’s entire population in the last 10 years. That’s around 25 million people.

The US continues to take on the lion’s share of global immigration. That’s in stark contrast to the communist Chinese Government that shuns outsiders.

In terms of demographics, the US sits in a far stronger position.

But what’s sorely lacking in the US is competitive infrastructure.

Suffering from decades of underinvestment, much of its neglected utility and transport facilities wouldn’t look out of place in a third-world economy.

That’s in stark contrast to its bygone years where it represented the shining beacon of democracy and infrastructure that was the envy of the world.

The US has an enormous task ahead if it’s to avoid economic decay. Modernising its vast infrastructure will be the springboard that rejuvenates its economy for decades to come. 

Utilities, fibre optics, railways, bridges, and roads are the fertile grounds that allow businesses to flourish…efficient transport and reliable supply chains are the lifeblood that fuel economic growth.

That’s why the US will move Heaven and Earth to act on its multitrillion-dollar commitment to rebuild and retain its status in the global economy.

It simply cannot afford to let its roads and bridges crumble.

So, how do you prepare for this situation as an investor?

These colossal nation building ambitions will place enormous pressure on raw materials.

History’s largest economic power struggle is about to begin…now is the time to own resource stocks.

Have a great week,

James Cooper,
Editor, The Daily Reckoning Australia

PS: Supply chains sit at the heart of this brewing economic power struggle. My colleague Jim Rickards has just released a book SOLD OUT! that focuses on this very issue. You can find out how to secure a copy here.

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

How are all those sanctions working out? Bloomberg reports: ‘Russia Did Most Oil Drilling in a Decade Even as Sanctions Hit’.

Another headline tells us that India’s imports of Russian oil are ‘soaring.’ And here’s Russia-briefing.com: ‘Russia’s Rail Freight Volumes Heading East Exceed Westbound Freight for the First Time’: 

‘Russia’s Eastbound rail freight shipments exceeded westbound shipments for the first time in 2022, at 80 million tonnes compared with 76 million tonnes, according to Russian Railways (RZD) Chairman Oleg Belozerov, commenting during a meeting with Russian President Vladimir Putin.

‘The reversal shouldn’t really be a surprise as the European Union has reduced access to its markets by Russia and blocked passenger trains. However, it does symbolize the extent of the ‘Pivot to Asia’ that Russia has gone through in little under 12 months, itself a quite remarkable feat.’

No peace on Earth

These headlines tell us what sanctions have wrought; they’ve caused a ‘Pivot to Asia’. And now, a whole new ballgame is taking shape. A week ago came a persuasive report that it was the US who blew up the Nord Stream Pipeline…an unequivocal act of war. Then, by the weekend, US fighters were shooting down unidentified objects. One of them floated lonely as a cloud off the South Carolina shore. The others, we don’t know. But this confirms our observation, made years ago, that no sparrow can fall anywhere on the planet without the Pentagon scrambling jets in response. And there’s no peace on earth…or even in the stratosphere.

More important, great empires gotta go into that good night somehow…gently or kicking and screaming. That is the ‘bigger picture’ we think we’re seeing. Not only has a 40-year trend of rising asset prices and lowering interest rates finally reversed itself (in July, 2020)…so has a two-centuries trend of growing US imperial power (circa 1999). And now the combination…bad money, bad policies…and the natural tendency of white shoes to look for mud…will set off a whole ‘cluster’ of terrible things. One of them is the creation of a huge new rival — India, China and Russia combined — aiming to take the US down a peg.

Power corrupts. And now the corruption has gotten into the heart of the US system. Here, we admit a prejudice. We rather liked the Old Republic…the one we were born into. It was far from perfect, but it was still tolerable.

The long march

But we’re an empire now. Citizens do not influence it; they are influenced by it. They do not control it; they are controlled by it. And they don’t use it to pursue their own happiness; they are used by it, for the happiness of others.

The others are the elite. From universities to the Deep State, they form what Italian economist Antonio Gramsci described as a ‘hegemon’. That is, they all believe more or less the same things…and work together, the great and the good, to make sure the imperial power expands…and rewards them all.

And they do this no matter who you vote for. A new book by David Rothkopf, American Resistance, (inadvertently) lets the cat out of the bag. In it, we see that Deep State insiders are not about to be put off course by democracy.

Donald Trump was clearly elected president in 2016. The people spoke; the feds didn’t listen. Mr Rothkopf is grateful to the Deep State for thwarting the president. Instead, according to Peter Spiegel’s review of the book, in the weekend Financial Times (FT), Deep State functionaries ‘stood up for their institutions and made sure they did the important and sometimes difficult work of governing properly’.

Governing properly means getting the results the Deep State elite wanted. Not what the voters wanted. Mr Rothkopf was appalled when the Trumpers contested the results of the 2020 election. He, along with almost all elite commentators rushed to tell us how the protestors ‘endangered democracy’. Perhaps they didn’t notice…or want to admit…that the US’s democracy had already been corrupted, by themselves…into a government of the elite, by the elite and for the elite. Americans still vote. But the Old Republic disappeared years ago. And the system of checks and balances, written into the constitution, has long since gone too.

Unchecked imbalances

The FT review tells us that Anthony Fauci had to find ‘workarounds’ to ‘keep the American pandemic response from veering out of control’. Then, Fiona Hill, a ‘Russian expert’ on the US payroll, had to prevent Trump from ‘warping American foreign policy’. Ms Hill describes how she and Rex Tillerson, Mr Trump’s own Secretary of State, manipulated the president:

‘So, we tried to find a way we could work, in some way, with his desire… to have an arms control deal, while still kind of keeping his other impulses [for having a civilized relationship with Putin] under control, managing how he got information and how choices were presented to him.’

So, thanks to these Deep State apparatchiks, we didn’t get an arms control deal with Russia. Instead, we got sanctions…and war. Well done, all!

And today, Hill, Fauci, Tillerson…and thousands of others — are not ashamed of having perverted democracy. They’re proud of it. Because they know better than ‘the People’. It is the will of the Deep State elite that matters.

More tomorrow, on what the elite want…and where it leads…

Regards,

Bill Bonner,
For The Daily Reckoning Australia