As in past years, doom and gloom was the predication coin of the realm at FreedomFest 2012.
Rounding out the panel was the noneconomist and Agora Vancouver favorite, Rick Rule, the world-class resource investor who describes himself most positively as a “credit analyst,” and at other times, a “shylock” or “pawnbroker.” Rule credits reading Benjamin Graham and David Dodd’s Security Analysis for saving him from going to law school.
The founder of Sprott Global made only one prediction, and that is that markets will be very volatile. He sees the potential for “a true psychotic break” in the markets, like 2008. This is a situation he relishes. A market gully washer inspires Rule like a trip to the Ann Taylor outlet excites my wife. Rule loves buying stocks on sale.
Rule contends that nothing has changed since 2008. None of the market dislocations have been addressed. Market turbulence is dead ahead. But the crisis will bring opportunity. Investors must be contrarians, or they will be victims as citizens and lumpen investors get what they deserve “good and hard,” Rule said, paraphrasing H.L. Mencken.
While governments meddle and distort, “markets always work,” says Rule. And the opportunity in resource markets is that millions of people around the world are enjoying a higher standard of living. As these people climb out from under the thumb of oppressive governments, their living standards rise – not to buy iPads, but to buy stuff requiring natural resources.
So while demand for metals, energy and food worldwide is (and will continue to be) on the rise, the last two decades have seen an underinvestment in natural resources. The hard-nosed pawnbroker Rule sees this as an opportunity.
However, Rule often cautions that the majority of companies in the exploration and natural resource spaces are worthless. As prolific as the Fed’s Ben Bernanke is at creating currency, the free market is even more efficient, says Rule.
Environmentalists, politicians and drivers may rail at the big oil companies for high prices and increasing the carbon footprint, but the majority of energy production comes from sovereign oil producers.
Saudi Aramco, Pemex and the rest of the government oil producers have been using profits to fund government social programs, instead of investing in oil exploration. Peak Oil or no Peak Oil, this means that long term, production will fall, while demand will increase.
In the short term, Rule says there’s a “three-way dumb presidents contest” ongoing between President Obama, Benjamin Netanyahu and Mahmoud Ahmadinejad that could cause a closure of the Strait of Hormuz. This could send oil prices soaring.
Rule loves uranium because the Fukushima disaster has made uranium and uranium stocks “cheap, cheap, cheap.” The Chinese are still building nuclear plants, and Japan must have uranium. He sees “light at the end of the tunnel” for natural gas prices, but thinks LNG will be cut in half.
The resource market has been brutal for investors. The stock prices of [US] companies that have secured natural resource deposits are unloved and may get more so, setting up what Rule thinks will be the “best resources M&A [mergers and acquisitions] market ever.” That is, unless that cataclysmic market break occurs.
The Sprott Global founder doesn’t earn his living making predictions, but instead by making good investments for his clients and himself. Resource markets “are as bad as they’ve ever been,” says Rule, “and for me, that’s as good as it gets.”
for Markets and Money
From the Archives…
The Biggest Load of China Bull
13-07-2012 – Greg Canavan
Using Gold as Wealth Preservation, for Self Preservation
12-07-2012 – Greg Canavan
The Grapefruit Currency Hindering China’s Economic Growth
11-07-2012 – Dan Denning
The LIBOR Alarm – When Governments and Banks Disable An Early Warning System
10-07-2012 – Dan Denning
Australia’s Economic Boom in Reverse
09-07-2012 – Dan Denning