Friday, 11 November 2022 — Albert Park

By Brian Chu Editor, The Daily Reckoning Australia

[7 min read]

Dear Reader,

Over the past three weeks, we’ve seen major political events in some of the world’s most important countries.

Brazil, Israel, and the US held elections that saw a potential change in power dynamics. China held its 20^th National Congress, where the party confirmed a third term for President Xi.

In the case of the US, the midterm elections saw a twist, with the anticipated ‘red wave’ (a massive surge for the Republican Party in both the House and the Senate) manifesting differently from what many thought.

The Republican Party appeared to have taken control of the House of Representatives but picked up fewer seats than what pundits from both sides of the aisle estimated. However, the Senate remains up for grabs.

Even our own Jim Rickards’ predictions turned out too bullish on the side of the Republicans. But to be fair, I was looking for an even bigger victory for the Republicans. Oh well.

So, the next two years could see the US Congress being split once more…a recipe for a political logjam.

From Wall Street’s perspective, this outcome wouldn’t bode well for the economy.

And indeed, the US market traded down strongly on Wednesday night as vote counting pointed to a higher possibility of a divided Congress.

While market pundits were guessing how investors would respond to the midterm election by way of how the markets will move, they’ve missed the true extent of the problems faced by the US economy, and the global economy for that matter.

Frankly, there’s a gap in the global economy, so big government and business leaders worldwide will take years to solve. And that’s if they take the right course of action. But the leaders in this day and age aren’t of one heart and mind. They’re divided by differences in ideology, values, and goals.

Worse still, they appear to be going in the wrong direction with their agenda. Many are on board the green energy revolution, while their environmental agenda places more obstacles on developing new mining projects.

It’s like going on a weight-gaining program while insisting on eating only one meal a day.

This type of thinking is ridiculous at the outset.

But throw into the mix a global supply chain crippled by almost two years of on and off lockdowns, labour shortages, an undersupply of fossil fuels, and governments rushing to close fossil fuel power plants to meet carbon emission targets…

…and you’ve got yourself a clown show of epic proportions.

But don’t sit there, popcorn in hand, and have a laugh; instead, take the opportunity to ride what may be the next commodities supercycle.

The uranium nuclear winter — will other commodities
face a similar fate?

Most of you may remember the massive earthquake and tsunami that struck northeast Japan on 11 March 2011. This freak natural disaster caused the death of almost 20,000 residents and billions of dollars in damages.

The world mourned the deaths, but the sorrow soon gave way to fears over the potential meltdown of the Daiichi nuclear reactors at Fukushima, which could turn into a major environmental disaster. Engineers worked around the clock in short shifts going into the reactor to inspect the damages to the plant infrastructure and monitor the core temperature to ensure it was under control.

The world waited with bated breath for almost a month.

While no meltdown occurred, evidence showed that some radioactive waste leaked into the Pacific Ocean, affecting marine life, and contaminating the water.

The response to this disaster was the widespread suspension of nuclear power plants around the world. Environmentalists took advantage of this situation to push governments to curb nuclear energy and uranium mining, despite its cleanliness and relatively solid track record of safety.

The price of uranium fell dramatically and remained at depressed levels for more than eight years, as shown in the figure below:

Uranium went through a nuclear winter, pun intended. Many uranium mining companies went broke. Even the largest players in the market, including Australia’s own Paladin Energy [ASX:PDN], were forced to sell some of their assets and raise capital to stave off bankruptcy.

Some of you may have done what I did and invested in uranium companies during those years, expecting the recovery to come earlier, only to end up with bleeding hands from repeatedly catching a falling knife.

But years of underinvestment caused a chronic shortage in uranium supply (see below):

In early 2021, the chickens came home to roost as the price of uranium started to make a dash. Many countries started to look at nuclear energy once again as a source of clean baseload power.

There’s a uranium bull market underway now. How long will it last? And how big will the windfall gains be for those who ride it?

I’m raising this example of uranium because we may be on the brink of something similar for the broader commodities market.

I mentioned earlier in today’s piece about how we’re facing a perfect storm in the supply of commodities thanks to a combination of bad luck, poor planning, and unrealistic goal setting.

We all know about the mad dash to phase out internal combustion engine cars and replace them with electric vehicles. Battery technology is also attracting a lot of capital investment.

That’s what is driving the lithium boom and the scramble by Western mining companies to find cobalt deposits outside of Africa.

But many base metals like aluminium, copper, iron ore, lead, and zinc have been in a bear market thanks to a hobbled global recovery, especially with China battling to open due to sporadic shutdowns. On top of that, debt has weighed down governments, businesses, and households. Central banks worldwide have added petrol to the fire by raising interest rates, thus prolonging economic stagnation.

Mining companies worldwide are resuming operations now that many countries have opened reopened. However, they’re competing in a tight market for skilled labour while also battling inflation and rising operating costs.

Some have resorted to reducing the scale of their operations, even temporarily suspending them to minimise losses.

What do I see happening in the coming years?

A chronic undersupply caused by low prices will give way to much higher prices as reality sets in.

Introducing ‘The Age of Scarcity Attack Plan’

Most of you know my expertise is in precious metals mining, though I know a thing or two about the broader commodities market.

But when it comes to identifying which commodity is hot and the movers and shakers, I prefer to step aside and let someone more qualified take the lead.

Last week I spoke about our newest member of the team, James Cooper. He’s our resident resources guru.

For more than two months, James has been working with the team to develop our latest project, ‘The Age of Scarcity Attack Plan’.

It’s just as well he’s come on board now, as you’re at the edge of the upcoming boom. James has been researching commodities that will benefit from the supply crunch and finding specific stocks best positioned to take off when the market comes around.

I welcome you to register here for the event and hear what James has to say.

Don’t miss out on this excellent opportunity. It could be life-changing!

God bless,

Brian Chu,
Editor, The Daily Reckoning Australia

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

‘Fools’ names and fools’ faces always show up in public places.’  

Old Saying

Here’s the latest from Bloomberg:

‘A 48-hour crypto drama ended in shock Tuesday as Binance Holdings Ltd. agreed to acquire its most formidable rival, FTX.com, after helping whip up an investor exodus from billionaire Sam Bankman Fried’s three-year-old exchange.

‘The sharp turn of events will reshape the more than $1 trillion industry amid a possibly prolonged market downturn. The two founders made the announcement on Twitter concurrently. “To protect users, we signed a non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch,” Changpeng Zhao, CEO of Binance, said in a tweet. Terms weren’t disclosed.

‘“A huge thank you to CZ, Binance, and all of our supporters,” said Bankman-Fried, CEO of FTX.com, on Twitter. “Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in.”’

Poor Sam. He that did ride so high…just got unhorsed.

Sam Bankman-Fried (SBF) had become such a big name in the crypto space, with his double-barrelled moniker and his mane of curly dark hair; he’s shown up in the press almost constantly over the last three years. Just a few months ago, he was generously bailing out troubled crypto firms such as BlockFi and Voyager Digital, using his US$32 billion FTX much like JPMorgan, who used his own fortune to bail out Wall Street in the Panic of 1907. And in August, Fortune magazine’s cover was a photo of Bankman-Fried with the headline: ‘The Next Warren Buffett?’:

But today, Bloomberg tells us that his fortune has been ‘eviscerated’.

Here, we have a warm heart for bankrupts, drunks, diehards, and lost causes (there but for the grace of God!).

Doubt and cynicism

But our sympathy for Mr Bankman-Fried is tempered by doubt and cynicism.

First, we are suspicious of people who hyphenate their last names. It suggests a kind of schizophrenia…as if they are not quite sure who they are. Mr Bankman…or Mr Fried? And pity the poor secretary who has to answer the phone:

‘Hello. This is Mr Bankman-Fried’s office.’

‘Is Mr Bankman there?’

‘No, I’m afraid he is at his home in the Bahamas…’

‘Well, can I speak to Mr Fried?’

‘No, I’m afraid he is away too.’

Second, here was a man who was born with a silver spoon in his mouth and a laptop in his hand. He entered the world in 1992, never once suffering the pangs of un-connectedness of a pre-internet world. He grew up in the dotcom bubble…lived in a Bay Area bubble of wealth and privilege…and then graduated from MIT and went to work on Wall Street just as another huge bubble was forming.

His parents — Mr Bankman and Ms Fried — were both professors at Stanford Law School. This alone would have put him on an inside track. But he was also gifted at arithmetic, arriving in young adulthood just as maths skills were much in demand.

He soon was trading ETFs…arbitraging Bitcoin [BTC]…and by the time he was 26 years old, the bubble prodigy had founded FTX, which quickly became one of the biggest crypto exchanges in the world.

So successful was he that, before turning 30, he already had a fortune that it would take most men a whole lifetime to acquire — US$24 billion.

Carnegie…Rockefeller…Bankman?

US$24 billion is a lot of money for a 29-year-old. And it’s another source of sceptical curiosity. Money is meant to reflect one’s contribution — in terms of goods or services — to the wealth of others. Andrew Carnegie gave us steel. Rockefeller struck oil. What was Sam’s contribution?

Whatever it was, it had a short half-life. Ars Technica adds detail:

‘The bailout of one of the biggest and most prominent companies in the global cryptocurrency industry by its chief competitor reverberated across the market. Bitcoin, the most actively traded token, fell as much as 17 percent while smaller coins faced steeper falls. US-listed crypto exchange Coinbase dropped about 14 percent.

‘FTX hit a valuation of $32 billion at the start of this year, with blue-chip investors including BlackRock, Canada’s Ontario Teachers’ Pension Plan, and SoftBank backing the company. In an industry that has been called the “Wild West” by Wall Street’s top regulator, FTX was widely considered to be one of the better-managed players, with its founder Bankman-Fried regularly lobbying lawmakers in Washington.

‘Known as SBF and noted for his unofficial uniform of shorts and T-shirt, Bankman-Fried had a paper fortune of an estimated $24 billion only six months ago. He is among the best-known crypto executives, often appearing at conferences where he has interviewed the likes of Bill Clinton and Tony Blair.’

‘Out there’

That’s another thing that makes us unsympathetic. SBF was ‘out there’. In public. He seemed to thrive on getting his name in the paper…and attending events with celebrity politicos. There is clearly something wrong with people like that.

Another thing that made us suspicious of SBF was his disregard for money. It’s all very well for a man to buy a lottery ticket, win big…and spend his money on fast cars, fast women, and fast-talking hustlers. Then, he could waste the rest of it. But SBF, like Bill Gates, wanted to waste it all — by giving it to good causes. It was like inviting your friends to a good debauch but taking them instead to a prayer meeting. The unearned wealth will still ruin their lives…but with none of the fun that makes it worthwhile. ‘Effective altruism’, he called it.

And the money he did manage to give away went down the biggest rathole of all. In the last presidential election, he was the second largest donor to Joe Biden — giving the candidate US$5.2 million.

But now, SBF’s bubble has popped.

Thank you, Mr Market.

Regards,

Bill Bonner,
For The Daily Reckoning Australia

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