Jeffrey Evan Brooks on socialism

Socialism is like Neil Diamond music.  It's not good and belongs in the past, yet there's a group of people who think that it will eventually catch on if only they keep playing it.

~ Jeffrey Evan Brooks

Kevin Duffy on gold

“Gold,” says Jim Grant, “is not so much an inflation hedge as an investment in monetary disorder.”  Havoc is the unfortunate consequence of creating money out of thin air in a desperate attempt to let governments spend more than they take in.  Expenditures on war and luxury, and popular support for their continuance, are the genesis of all fiat money experiments, past and present. 

The tidal wave of extravagant spending in response to Covid got its start under the Trump administration and continued under Biden.  That both men, well over the retirement age, are vying this November to influence the federal purse strings is not lost on goldbugs.  Frugality is not on the ballot.

~ Kevin Duffy, "Gold's Epic Breakout," The Coffee Can Portfolio, April 15, 2024

Cathie Wood on supply and demand slowing Nvidia's growth

Q: What other factors could drag on Nvidia’s growth? 

A: China is working hard on developing its own chips, and so are the cloud-service providers such as Google, Amazon.com, and Microsoft.  Tesla is also designing its own chips since they are mission critical for autonomous driving.  Tesla has already pulled some Nvidia chips out of its cars. 

A lot of demand for chips was pulled forward as companies double- or triple-ordered from Nvidia during the chip shortage, trying to get enough supplies.  That cyclical dynamic could play out in the next few months.  Elon Musk recently said that he’s not having trouble getting chips anymore.

~ Cathie Wood, "Cathie Wood Thinks Nvidia Has More to Prove. Her Favorite AI Stocks—and Why She Still Loves Tesla.," Barron's, April 13, 2024

Alasdair Macleod on BRICS (China's Plan B)

Anyone who's got debt is in trouble.  Anyone who hasn't has counterparties who have debt and they're in trouble.  It also means that the valuation of credit is going to suffer hugely.  If you look at the collateral side of things, collateral for the whole system is basically property and financial assets.  And if they go down in value, commercial banks are going to go out of business, they're going to have nonperforming loans as the euphemism is.

Our Chinese friends are looking at this.  Now they do have a Plan B.  We don't.  Our Plan A stopped at getting rid of gold back in 1971.  But the Chinese have a Plan B.  They have been accumulating, off balance sheet as it were, hidden in various national accounts like the youth wing of the Communist Party, the PLA and so on and so forth.  I reckon that by 2002, when they set up Shanghai Gold Exchange and allowed people - ordinary Chinese people - to buy gold, that they'd already accumulated some 20,000 tonnes.  Remember, there's a big bear market, which allowed them to do that.  From 1983, when the legislation in appointing the People's Bank of China to manage the government's monopoly on this - and not only that, they became invested in becoming the largest gold miners in the world - Russia didn't do this until fairly recently.  But they've now accelerated.  My sources tell me that there are two other funds - call them sovereign wealth funds if you like - that hold precious metals, and the Russians have probably got in the region of 12,000 tonnes.

Their Plan B is quite simple and that is to cut themselves off from all the risks in the West.  What they are doing is quite simple: They are building a trans-Asia industrial revolution based on communications, silk roads, electrification, bringing in the energy providers.  These people aren't woke.  They know what they're doing and they are after developing their economies and improving the conditions for all their population...

It's about 60% of the world's population and 30% of GDP are tied up in Asia, BRICS, Shanghai Corporation Organization and those who have applied to join BRICS.  This is a global anti-Western assembly of nations escaping from the problems we have created for ourselves.

~ Alasdair Macleod, "Ready for the Gold Roller Coaster?," Gold Forum Europe, April 9, 2024

Rick Rule on the disconnect between gold price and equities

Q: Gold is now at an all-time high, but the majority of gold stocks are around 5-year lows.  Can you explain the disconnect?

Rick Rule: Absolutely.  And first of all, gold is only in all-time highs in nominal terms.  In real terms, against the U.S. dollar at least, gold is not at all-time highs.  And people need to understand that when they think about where gold might go.  The second thing is, with regards to the underperformance of the gold price, it's worth noting that the buying of gold is not widespread.  You are not seeing retail buying of gold except in China and India.  The gold purchases that you're seeing are central bank purchases.  And those central bank purchases are really looking for an asset that could be a medium of exchange outside the U.S. dollar.  It's the weaponization of the dollar, rather than the fear of inflation, that is the driver of gold itself.  These gold buyers, central banks, are not buyers traditionally of gold equities, or equities at all, for that matter.  So it makes perfect sense... to say that the gold bull market and the market in gold stocks thus far is disconnected because while the buyer has a need for gold to circumvent the U.S. dollar, the buyer doesn't have a need for gold stocks.

But there's a second reason that I think is worth discovering and that is the chronic underperformance of gold mining companies as businesses for the last 50 or 60 years.  Lucijan, if you were as old as I, which I can tell you're not, you would remember the decade of the 1970s when the gold price went from $35 to $850, the best bull market for gold stocks probably in recorded history.  The hangover from that, if you will, is that the gold stocks the most in that bull market were the ones that exhibited the most leverage to gold.  And the most leveraged companies, ironically, are the most marginal.  If you're a high cost producer and the gold prices goes up, your margin increases faster, ironically, than a more efficient producer.  When the investor, which they have now for the last... 50, 60 years, looked at gold investments, they looked for the most leverage, which is to say the most marginal.  And the industry became very very marginal.

If you look back to the decade 2000 to 2010, the gold price in U.S. dollars was up more than seven-fold and yet free cash flow per share among the XAU [PHLX Gold and Silver Sector Index] in the U.S. declined!  It took real skill to screw up a market where the selling price of your product increased seven-fold and you reduced free cash flow per share.

So the expectations that the investment community has around gold mining companies are extraordinarily low.  From my point of view, that's good news.  It's good news because I don't have much competition on the bid for gold mining stocks.  And I would suggest to you that some investor expectations have become more rational.  I would suggest that most of the management teams that presided over the destruction of capital in the period 2000 to 2010 have been allowed to pursue other employment opportunities.

So I think that the gold industry is held in ill-repute, ironically, right at the beginning of its renaissance and I regard this as a particular opportunity.

~ Rick Rule, interview with Lucijan Valkovic, 7:20 mark, March 28, 2024

Rick Rule on the long bull market in commodities

If you look around a range of commodities over the last two decades; pick one: oil, coal, copper, nickel, even the ones that are down substantially in the last 18 months like lithium.  We are clearly in a bull cycle.  And the reasons for that are really simple: There are eight billion of us on the planet; every day there's more.  For 40 years we've done a great job lifting the poorest of the poor worldwide - 1.5 billion people - out of dire poverty, making them merely poor, as opposed to extremely poor.  Is there a lot more to be done?  Absolutely!  But we've done a great job.  The consequence of that, Lucijan, is that when poor people get more money, which has happened on a wonderful scale for 40 years - the stuff they want to buy is made of stuff.  When you and I get more money we buy some little gadget from Apple or we buy a service.  But when poor people get more money they replace a thatched roof with a metal roof, they replace mud waddle with concrete, they go from barefoot to shoes to bicycles to 55cc motorcycles to a Toyota Hylux.  And this is going on around the world.

Is the bull market going to continue?  Of course!  There's a billion people with no access to primary electricity... a billion!  There's another 2 billion people on earth with access to either intermittent or unaffordable power.  And the same can be said for calorie counts.  The same can be said for the whole range of the material standards of living.  Meanwhile, you want to live better, too.  You want your children to live better than you do.  All of this requires stuff.

~ Rick Rule, interview with Lucijan Valkovic, 5:10 mark, March 28, 2024

Jim Grant on Asian central bank buying of gold

Not everyone cheered when Western authorities immobilized some $350 billion of Russian foreign-currency reserves following the Putin-ordered invasion of Ukraine.  Nor does everyone agree with recent Western proposals to commandeer that cash to shore up Ukraine's defenses.  China, in particular, has withheld its applause, and it may not be coincidental that March marked the 17th consecutive month of Chinese gold purchases.  [The People's Bank of China bought a record 735 tonnes of gold in 2023 according to The Gold Observer.]  Even such central banks as Singapore and Poland, the governments of which harbor no known extraterritorial ambitions, have been stocking up on the legacy monetary asset, the World Gold Council reports.

"The U.S. is essentially throwing its weight around, maybe a little too much," Pierre Lassonde, a cofounder of Franco-Nevada Corp. and a dean of the Canadian mining community, opines to deputy editor Evan Lorenz.  "Looking at the finances of the United States and the enormous budget deficits, just interest on the debt is more than the defense budget.  The dollar used to be called TINA, i.e., There is No Alternative.  Gold is the new alternative.  I call here GINA."

~ Jim Grant, "Gold rush," Grant's Interest Rate Observer, April 11, 2024