Monday, 8 August 2022 — Albert Park

By Callum Newman Editor, The Daily Reckoning Australia

[5 min read]

• BMW moves to catch up to Tesla
• Gold: overinvested in, relative to other metals
• Plus, the folly of the Greens policy…

Dear Reader,

1. Recession? Rate rises? War? You name it, we’re dealing with it. And still, the battery mineral deals keep coming.

In these pages, we’ve been tracking the global carmakers’ push into Australia to lock up their future supply chains around lithium, nickel, copper, and rare earths.  

What’s true of Western Australia is true of Europe too.

Last week, ASX-listed lithium developer European Lithium [ASX:EUR] announced an early ‘memorandum of understanding’ with the BMW Group.

EUR’s project is in Austria.

Again, we see another example of a big auto brand reaching out with an eye to supply for future years. They must be worried.

This is exactly the premise of my recent presentation, which you can see here. The race is on to secure whatever metal offtakes could be on offer in 2024, 2025, and beyond!  

The future is coming fast and there’s no way the mining industry can supply everyone rushing into the space. Grab the stocks with a chance while you can, I say.

Why is that?

The previous investment into the space just hasn’t been there. That makes the stocks already some way near to production into juicy targets or potential partners.

Plus, it’s going to get harder for new projects to get going, or at least in time.

The mining industry now has to contend with rising labour, diesel, and supply costs as they try to bring future projects to fruition.  

That gives investors pause because the lead times on mining projects are so long.

How can anyone accurately forecast the costs to go from a deposit to producing mine in today’s economy? Good luck with that!

You reap what you sow, or so they say.

One of the quirks of the mining industry is so much investment and capital goes into the gold sector.

That’s fine, but more gold doesn’t cut emissions or help the industrial economy.

Warren Buffett has a point when he says gold mining doesn’t do much because most of the gold goes back underground into a vault somewhere.

I’m not saying there’s no role for gold, mainly because of the ridiculous monetary system governments and central banks have created.

But it absorbs an abnormal amount of labour and capital, in my view.

That’s fine when commodity prices are low, which can often be for years.

But right now, it’s not so helpful.

However, for mining investors, that’s created shortages elsewhere. Now’s your chance to keep having a crack at the long boom in battery metals.

2. A little bit more on gold…

It can’t be denied that the yellow metal is one escape hatch from the collective madness we call the finance industry.

Right now, investors are more preoccupied with the utterances of Federal Reserve officials instead of the sales, revenues, and balance sheets of companies that actually produce something other than hot air and keyboard strokes.  

But that’s the way it is.

The other week I did a podcast with a guy who used to work at the Fed trading desk in New York, Joseph Wang.

Joseph pushed back against the current market narrative that the Fed would be cutting rates in 2023.

He also told me he expected Fed officials to appear in the media shortly to say their inflation fighting isn’t done and the market is moving too early.  

Bingo!

Check this out from the Australian Financial Review last week:

‘US Federal Reserve officials poured cold water on the idea the central bank will wither in its fight against inflation if economic growth slows too sharply, undoing the optimism that sparked a rally in shares and government bonds last week.

‘In two speeches delivered on Tuesday in the US, Fed officials played down the prospect of a pivot to an easing cycle to snap the central bank from its current tightening path that has pushed the US benchmark rate from almost zero to 2.5 per cent at the top of its target range in just five months.’

Hang for more of a rollercoaster in 2023 as far as the stock market goes.

You can tune into the interview with Joseph yourself at our YouTube channel.

3. A fascinating report crossed my desk this morning. Embedded was a warning that US natural gas prices could surge as producers over there send their production out to the world market to capture the windfall profits available. That’s thanks to Russia cutting down gas to the EU and sending prices higher and higher.

This could quickly turn into another energy crisis. And in the background here we have the Greens calling for no new oil or gas projects.

Thank goodness that Labor has the numbers in Parliament to block that move. Low energy prices are the bedrock of a healthy economy. You can’t just cut that off and expect the economy to continue on its merry way.

The world’s energy market has brought the markets down already this year. There’s no reason it can’t happen again. Last time I checked, the war in Ukraine is still going. Something to watch for.

Regards,

Callum Newman,
Editor, The Daily Reckoning Australia

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

We came back to Ireland last night, flying from Dulles directly to Dublin. Dulles Airport was strangely quiet…as if everyone knew it was about to be bombed by terrorists — everyone but us.

But no bomb went off. Instead, it was much like the old days. Few people wore masks. There were no long delays. The Homeland Security crew were even polite.  

A fluke? A trend? We don’t know.

On Friday, we looked at the US$739 billion Inflation Reduction Act, IRA.

What the heck is it? An attempt to control the world’s temperature? An effort to reduce deficits and inflation? Is it meant to save lives…increase GDP…boost jobs? Or is it just another Democratic Party giveaway to favoured groups and artful lobbyists?

Robbery, flimflam, and jackassery

Yahoo!News focused on the environmental angle: ‘Climate change bill would cut U.S. air pollution deaths by up to 3,900 per year, study finds’:

‘The budget reconciliation bill that Sen. Joe Manchin, D-W. Va., agreed to with Senate Majority Leader Chuck Schumer, D-N.Y., could save up to 3,900 lives per year by 2030, thanks to reduced air pollution, according to a new study from the nonpartisan think tank Energy Innovation.

‘The bill, known as the Inflation Reduction Act (IRA), contains $369 billion in spending to address climate change over 10 years, in addition to other provisions, including closing tax loopholes and holding down the rate of increase in the cost of prescription medication.’ 

But wait, there’s more:

‘“The IRA provisions could also generate enormous public health and jobs benefits,” the report states. In addition to preventing between 3,700 and 3,900 premature deaths from air pollution in 2030, Energy Innovation found it would lead to a net increase of up to 1.5 million jobs in 2030 and increase the United State’ gross domestic product by 0.84% to 0.88% in 2030.’

What kind of morons do they take us for?  

This grab bag of boondoggles will increase US GDP by 0.84% eight years from now? It will save 3,700 to 3,900 lives? Really?

The technocratic precision is breathtakingly absurd. There is no way on Earth to predict the effect of this collection of robbery, flimflam, and jackassery on our US$24 trillion economy…eight years in the future. And to two decimal points! If passed, it will be doctored up, interpreted…bent and persuaded to suit the people in control of it. And then…it will run into the real world. Like an invasion of Russia…no Great Campaign ever survives the initial shock.

Politically correct hypotheticals

The number of saved lives, too, is screaming claptrap. There again, the nonsense mounts on stilts…with a projection that the ‘low’ estimate for Black lives saved is 0.14%. The ‘high’ estimate is 0.14%. And yet the ‘moderate’ estimate is 0.13%. (We’re as puzzled as you are. But if the maths is curious, at least the numbers are politically correct; 0.02% more Black lives are saved than White lives!)

How can democracy function with such gobbledygook dressed up like ‘science’? What’s a poor voter to think? How can he think at all?

But no matter. Here come the heavies…five former treasury secretaries…throwing their weight behind the IRA. From Business Insider:

The former treasury secretaries backing the proposal are:

• Larry Summers, who served under President Bill Clinton
• Robert Rubin, who served under President Bill Clinton
• Hank Paulson, who served under President George W Bush
• Tim Geithner, who served under President Barack Obama
• Jacob Lew, who served under President Barack Obama

That does it for us. If they’re for it, we’re against it.  

The Wall Street Journal, meanwhile, looked at the tax angle, renaming the bill ‘The Schumer-Manchin Tax Increase on Everyone’. The Journal says the bill will make Americans poorer. 

Of course, making people poorer is the effect (but not the intention) of almost all federal legislation. The feds take from the many (thus making them poorer) and give to the few (making them richer). Result: most people are poorer.

All the other promises, projections, and estimates for the IRA will fail. Poverty will triumph.     

Regards,

Bill Bonner,
For The Daily Reckoning Australia