Podcast Summary
Gold's Outperformance in 2020: Increased Money Printing and Economic Instability: Invest in well-managed, value-priced gold companies for stable returns, while being cautious of individual gold stocks and mining companies. Consider ETFs for gold exposure, but be aware of shifts in capital allocation within the sector.
Gold has outperformed most other asset classes in 2020 due to increased money printing and economic instability, making it an attractive investment. However, investors should be cautious and not take excessive risks by investing in individual gold stocks or mining companies. Instead, sticking to well-managed, value-priced companies like Equinox Gold can provide similar or even better returns with less volatility. Additionally, the flow of capital into gold through exchange-traded funds (ETFs) has been positive, but there has been significant outflow from funds focused on gold miners. This shift in capital allocation may indicate that the performance of gold miners is not keeping pace with the underlying price of gold, and investors should carefully consider their investment strategies in this sector.
Consider tax implications and potential underperformance when investing in gold or related sectors: Stick with low-cost gold producers, sell a portion for taxes and risk, keep the majority for long-term gains. Explore rare earth metals investment opportunities due to US supply gap and infrastructure projects.
When investing in gold or related sectors, such as the GDXJ or GDX ETFs, it's essential to consider the tax implications and potential underperformance of individual stocks once they enter the index. The best approach is to stick with low-cost producers and sell a portion of your position to reduce taxes and risk, while keeping the majority for long-term gains. Another investment opportunity is rare earth metals, which are crucial for various industries, especially with the expected increase in infrastructure projects due to massive stimulus packages. The US currently lacks the production, refinement, and manufacturing capabilities for rare earths, making it an attractive investment area for those looking to diversify and potentially profit from this supply gap.
Growth in Rare Earth Elements Sector Due to Supply Chain Reshoring and Security Concerns: The rare earth elements sector is experiencing growth due to the reshoring of supply chains and the need for secure and stable supplies, despite the complexities of mining, permitting, and refining. Political trends towards reducing reliance on China are driving investment in advanced and permitted projects.
The rare earth elements sector is poised for growth due to the reshoring of supply chains and the need for secure and stable supplies, despite the complexities and lengthy process of mining, permitting, and refining these elements. The global economy is experiencing significant fiscal stimulus, which is propping up markets and driving growth. Regardless of political affiliations, the trend towards reducing reliance on China for rare earth elements is expected to continue, making advanced and permitted projects attractive to investors. The infrastructure for rare earth elements production is not yet fully in place in the US, but it is coming, and the market will find solutions to secure its needs. The liquidity provided by fiscal stimulus is a key component to the overall market behavior, and it is unlikely to disappear anytime soon.
Learning from a Community and Staying Informed: Joining a community of investors can enhance learning and portfolio growth. Useful tools like Yahoo Finance help stay informed about market news and trends. Companies in the oil industry are extending and pretending during downturns, and the upcoming US election could impact the number of wells being reclaimed.
Investing in the stock market can be a challenging and isolating experience, but joining a community of like-minded individuals can accelerate learning and portfolio returns. The TIP Mastermind community, for instance, offers weekly live Zoom calls, access to special podcast guests, and opportunities to build lifelong relationships. Additionally, having reliable tools like Yahoo Finance to stay informed about market news and trends is essential for successful investing. On the topic of the oil industry, Stig Brodersen discussed how companies have been extending and pretending during the downturn instead of taking market share pain. He also mentioned that the industry is currently experiencing a surplus of oil, and the outcome of the upcoming US federal election could lead to a significant number of wells being reclaimed. Overall, being informed, connected, and patient are key to navigating the complexities of investing.
Strategies in the Commodity Sector: Vertical Integration and Discipline: Smaller commodity sectors face cut-to-kill strategies, but larger sectors like gold remain competitive. Gold is expected to face inflationary pressures, and industry leaders are staying disciplined to avoid overspending.
The commodity sector, particularly in the resource industry, can be highly competitive, with smaller sectors being more susceptible to "cut to kill" strategies. For instance, in the uranium market, smaller countries have tried to vertically integrate production to refinement and build nuclear power plants to control the market. However, larger sectors like gold, with numerous owners and over 700 operating mines worldwide, make it harder to execute such strategies. Despite deflationary pressures in certain areas, gold is expected to continue experiencing inflationary pressure due to increasing costs, taxes, and wages, making it harder to bring on new production. The industry leaders are staying disciplined and avoiding overspending and overcapitalization, leading to a more prudent approach. It's important to be aware of the risks in the sector and the challenges of developing new projects, especially in countries with no permitting history. The gold sector has changed significantly in the last 10 years, and the price of gold could see explosive growth as it approaches its all-time high, with no resistance above its current level. The MACD on the daily or weekly level suggests a consolidation that could be ready for another move to the upside.
Focus on profitability and quality of gold mining companies: Invest in select few high-quality gold mining companies, prioritize profitability and liquidity over gold price speculation, and use discounted cash flow models for evaluation.
Investors should focus on the value and profitability of gold mining companies at current gold prices, rather than relying on speculative price projections. David Trainer emphasizes the importance of investing in companies that are profitable at lower gold prices and have strong management teams in tier 1 jurisdictions. Jerome Maldonado adds that liquidity is a crucial factor to consider, as market caps can be significantly impacted by large holders selling their shares. Stig Brodersen agrees, stating that discounted cash flow models should be used to evaluate investments, rather than relying on lofty gold price projections. Overall, the experts recommend investing in a select few high-quality gold mining companies and focusing on their profitability and liquidity, rather than trying to time the market or chase after the latest price trends.
Fed's Embrace of Modern Monetary Theory to Support Gold Mining Industry: The Fed's commitment to MMT and efforts to prevent deflation and maintain high employment levels will lead to lower interest rates for longer, making gold an attractive investment.
The monetary policy, specifically the actions of the Federal Reserve under Chair Jerome Powell, is expected to continue supporting the gold mining industry due to the Fed's embrace of Modern Monetary Theory (MMT). MMT holds that debt is not a constraint, but rather an investment into the economy. Powell has signaled that he will do whatever it takes to prevent deflation and maintain high employment levels, even if it means significant stimulus measures. This stance is expected to lead to lower interest rates for longer, making gold an attractive investment. The bond market, which is often overlooked, is a key indicator of this trend, as it is much larger than the equity market and provides valuable insights into monetary policy. The experiences of Japan and the Eurozone offer insights into the potential outcomes of MMT implementation. Ultimately, the Fed's commitment to MMT suggests that budget deficits and stimulus measures will continue to be a part of the economic landscape, making the gold mining industry a potentially profitable investment.
Fed Prioritizes Fighting Deflation Over Inflation: The Fed prioritizes preventing deflation over inflation, emphasizing the importance of investing in markets to prevent unemployment-induced deflation, and criticizing stock market inflation and government guarantees for buybacks.
Key takeaway from the discussion with Jerome Powell is that the Federal Reserve prioritizes fighting deflation over inflation. Powell warned about the negative consequences of prolonged unemployment post-COVID and emphasized the importance of investing in markets to prevent deflation. He also criticized the stock market's inflation and the use of government guarantees for stock buybacks. Powell's shift in strategy marks a significant change in the Fed's approach, as they continue to fight natural inflation and the deflationary pressures that could arise from unemployment. The Fed's focus on preventing deflation is crucial because it can bring out market truths that governments and the economy may not be prepared for. Additionally, high-yield cash accounts like the one offered by public.com can provide a higher interest rate for investors looking to earn on their cash.
Impact of COVID-19 on Economy: Deflationary Pressures and Challenging Landscape: COVID-19's impact on industries like hospitality and real estate could lead to deflation. Unemployment and financial instability could worsen these pressures. Recent stock market funding influx could lead to selling pressure. Gold is a potential hedge against deflation. Consider portfolio upgrades during market volatility.
The current economic climate is experiencing significant deflationary pressures, which could have major implications for various sectors and markets. Jason Brett discussed the impact of COVID-19 on industries like hospitality and real estate, and how the resulting unemployment and financial instability could lead to further deflation. Stig Brodersen added to this discussion by explaining how the recent influx of funding into the stock market could lead to significant selling pressure once the restrictions on trading are lifted. These factors, along with the ongoing shift towards software and technology, make for a challenging economic landscape. Gold, as a traditional safe haven asset, is seen as a potential hedge against these deflationary pressures. Additionally, during times of market volatility, it's important for investors to carefully consider their portfolio and potentially upgrade to higher quality, discounted assets.
Buffett's Barrick Gold Investment: Not a Straightforward Move for Smaller Investors: Buffett's investment in Barrick was not a value play and smaller investors may find better value in gold companies with discounts to net asset value, as the market may be missing geopolitical risk in the gold sector.
Warren Buffett's investment in Barrick Gold, while significant for the industry, may not be a straightforward move for smaller investors to follow. Buffett's investment was reportedly made by one of his portfolio managers and represents a small portion of his fund. The size of Buffett's fund means that he can only consider investing in large companies like Barrick or Newmont. The investment was not based on a value play, as Buffett is paying above net asset value for Barrick's production and infrastructure. Instead, smaller investors may be able to find better value and upside by investing in gold companies with discounts to net asset value. The market may be missing the mispricing of geopolitical risk in the gold sector, which could present opportunities for those willing to look beyond Buffett's move.
Analysts' Discrepancy in Discount Rates for Mining Projects: Analysts' lack of experience and knowledge in geopolitically risky mining regions leads to inconsistent discount rates. Seek independent research for informed decisions.
There's a significant discrepancy between the discount rates applied by analysts to mining projects in politically stable regions versus those in geopolitically risky areas. This issue stems from a high turnover rate among analysts who lack experience and firsthand knowledge of the risks involved in mining in unstable regions. As a result, they fail to adequately account for these risks in their discount rates. This trend is particularly concerning because the institutions and investment bankers make money from financing these projects, which may lead them to downplay the risks. Investors should be aware of this issue and seek out independent research and analysis to make informed decisions. Brian Bradley of Katusa Research emphasizes the importance of disciplined and thorough research, and his approach involves being the lead investor in every financing and allowing investors to sell their stocks before he does.
Exclusive deal from KataSa Research for podcast audience: Maureen from KataSa Research shared an exclusive deal for podcast listeners to check out their newsletter at katusaresearch.com/tip. Her insights were valuable and listeners are looking forward to having her on the show again.
Maureen from KataSa Research shared an exclusive deal for the podcast audience to check out their newsletter. The offer can be found at katusaresearch.com/tip. Maureen's insights were valuable as always, and we look forward to having her on the show again. That's all for this week's episode of The Amazda's Podcast. Remember to visit theinvestorspodcast.com for show notes, courses, and forums. Please note that this podcast is for entertainment purposes only and should not be used as the sole basis for making decisions. Always consult a professional before making any investment choices. The podcast is copyrighted and cannot be syndicated or rebroadcasted without permission.
