Many of my social media followers have asked me for this blogpost, so here it is.
First of all, if you follow my work, you understand the economic environment we are in: stocks will be going up backed by central banks (mandate is now to keep assets propped). President Trump going into re-election wanting to use “Keeping America Great” platform, and finally because there really is nowhere else to go for yield as interest rates become suppressed.
I have outlined why I believe BONDS will be a great investment, not for the yield, but for the price appreciation. I am expecting western central banks to CUT rates, meaning bond yields will go down, and inversely, bond prices will go up. Of course, there is a re-investment risk with coupon payments, but as I said, the price appreciation will be massive. Eventually, there will be a time when bonds will fall and rates will spike. There will be a great opportunity to SHORT bonds when we reach this environment. Some are saying that shorting bonds WILL be the trade of a lifetime when all the signs align.
Until this event occurs, stocks will also go up as well as bonds, in what confounds some institutional and market analysts. Once the central bank begins cutting rates, this will also keep stocks propped and keep them moving up as bond yields will drop.
For the average investor, being long a market ETF will suffice, and I also say go long the US Dollar (outlined on my blog many times on why the Dollar will go higher). Shorting the Canadian Dollar and Australian Dollar will also be great trades (also going long Australian and Canadian bonds- both countries which I believe will cut rates to keep their real estate market propped up).
Now here are 5 opportunities for the long term that I believe warrant your attention:
It is no surprise that fresh water, and water treatment is on this list. Many have spoken about a fresh water crisis occurring in our lifetime, and even Netflix has a documentary speaking about issues occurring in Mexico. Some analysts claim that we will begin seeing this crisis begin unfolding as early as 2024.
Asia will be pivotal for this. India and China have disputes over India’s northern border because that is where the most fresh water in Asia is located: the Himalaya’s. China has even begun building desalination plants, where salt is removed from salt water, however the issue is that water demand just keeps growing and even desalination cannot keep up to this.
People forget that water usage is not only limited to bathing but also is used for pretty much every industry, especially the agriculture industry. The water required to produce meat is very high. This is the issue for Asian nations: as the Asian middle class grows the demand for more protein also increases as the middle class adds more protein to their diet.
There are talks about monetizing water as a commodity…but if that occurred, McDonalds Big Macs would go up to $30 per burger. I believe in human ingenuity, and some sort of solution will be found, the question is will it come before the crisis, or will the crisis have to happen before we take notice?
On the geopolitical front, I believe this is why the Russians are claiming parts of the Arctic, yes for oil too, but mainly for water. Russia, Canada and Brazil have the largest fresh water reserves in the world, while Qatar has the lowest. It will get really complicated as fresh water that originates from Canada, heads down river to the United States and Mexico. When this water issue/crisis occurs, fingers will be pointed regarding who actually owns the fresh water, and is it fair that the water coming down from Canada barely makes it to Mexico due to American usage.
Finally, Water rights is becoming a popular investment strategy in the States. There are some places where you cannot even collect the rain water because the water technically belongs to who holds the water rights. This tells me that people know that water issues are coming.
Netflix has some good water documentaries now, their series “explained” has a good short episode on Water and Mexico. I also recommend the book “The Age of Stagnation” by Satyajit Das.
The great thing is on the TSX, we have a water index fund. Ticker symbol “CWW”.
Agriculture is a big one, and it closely also follows another trend of homeopathic medicine and healthy living lifestyle which is just getting popular and more popular (homeopathic will probably be much more popular once the baby boomer generation passes away).
It is no secret that western soil is not that great anymore. Crops have less nutrients in them, and are composed of more pesticides and other things to make them grow. It is claimed that our usage of pesticides and sprays have destroyed western soil.
To my knowledge, the best soil is in Central America (nations like Costa Rica), South America, and Eastern Europe. Russia became the largest exporter of organic food, which is something that warrants your attention.
As the weather gets more extreme in America, and we see more forest fires etc, crop cycles will fluctuate causing price disturbances.
So how to invest in this? Well, any farming or agriculture company is obviously a start. One that emphasizes organic food is recommend. I personally played the Stock Village Farms, which had quite the move, more to do with its Marijuana business.
Phosphate and potash companies are a good choice as more farms will look for more of these materials to ensure crops grow with sufficient nutrients.
A more speculative play would be Zinc. Zinc has been proven to replenish soil. In fact California became the first US state to begin using Zinc to replenish California’s soil. This trend will continue.
Since we are speaking about Zinc, it has one more ‘green’ play: air pollution. Many know that Gold can be sprinkled in the air to fix pollution issues, but it is too expensive. Zinc is the other option. The Chinese used Zinc to get rid of their pollution and smog for the Beijing 2008 Olympics. This idea nicely leads to the third investment…
Before I begin, I must put a caveat to this. I believe clean energy infrastructure will be the next large scale infrastructure project that governments will issue to try and boost the economy. However, how they raise the money will be an issue. Will they just increase taxes on everyone while debts are rising and incomes are not keeping up? Government love the idea of green tax because the people can subsidize these projects…and they don’t think people will complain for fear of being labelled a climate denier etc. However, if you look what happened and is still happening in France, it all began due to clean energy. The people took to the streets after France decided to shift its 75% nuclear energy dependence to modes of clean energy by increasing energy and fuel costs on the people to subsidize all of this.
This is why rich nations will be able to implement these projects because they do not need to tax the people. Places like Saudi Arabia, the UAE, and Qatar are launching large green projects funded by their Monarchs. Again, the West will have to do it with taxation… when people are getting pinched…not a good environment to do it.
Will the private sector do it? eventually, but right now the Return On Investment (ROI) isn’t something the private sector will do, unless through philanthropy. But, we will eventually get to that stage. Right now, solar and wind panels cannot handle base load power yet. As the technology improves, they will be able to. It is much easier currently for an individual to use alt energy to power their own home than some larger government grid project.
California has a huge solar panel grid, but they found out that there is something called night time, and people’s usage at night couldn’t be handled by the solar panels alone. Toronto installed a wind generator and found out that on some days, the wind does not blow. Eventually these projects will need to be rebuilt which shows us the incompetence in government at times.
I believe this shift may be coming quicker than people are imagining. Canadian company Innergex Renewable (ticker INE) acquired Alterra Power Corp for 1.1 Billion in 2017. Quite the sum for a clean energy company. This is telling me that people are beginning to pay attention to this sector.
So how to play this?
Copper is the green energy metal. Gianni Kovacevic believes it will be the new “oil” for an electrification economy. Solar panels and wind turbines require copper. The grid will require copper to as we electrify. Copper is also used in electric cars.
Onto electric cars…will Lithium battery be the top battery? Maybe not. Studies have shown that Lithium batteries lose their charge faster in cold temperatures, while Hydrogen fuel cell vehicles do well in both cold and hot temperatures. It would be more sensible to drive a Hydrogen fuel cell car in colder climates such as Canada, but a lithium battery car is fine in California.
The issue is that replacing the Lithium battery is still costly. The big environment threat is also mining Lithium Brine which is very destructive to the environment. We have just begun mining Lithium in mass recently, so the technology will improve…but the question is, will some other battery take the spot before Lithium batteries are good to go. This is why I believe Tesla spends more money on research and development rather than increasing production on their vehicles. They know about this issue.
The large copper mines, Escondida and Grasberg, are running out of higher grade copper. Clean copper is also very important. If we go down this green path, new copper will have to be mined. The Northern Dynasty story is one I follow because it contains one of the largest undeveloped copper deposit in the world up in Alaska. The company has had issues with environmental permits and licences so it will be interesting to see where this goes. Do your diligence when researching copper, again, I emphasize the importance of clean copper.
To end this section, I quickly want to speak about the intermediary from where we are, to green energy. I believe it will be nuclear power and LNG. Nuclear energy really is the best green energy we have because it emits no CO2, the issue is the storage after usage. India, China, and Middle Eastern nations are creating new Nuclear plants, and talk is that Japan will re-open their plants. The Russians essentially run this. They build the plant and then even provide the Uranium for the plant. The big player though is Kazakhstan’s Kazatomprom. They are actually even considering an IPO. People know that Saudi Arabia controls about 18-20% of the world’s oil supply…Kazatomprom controls 40% of the world’s Uranium supply. They have made deals with Russia, and today, the Uranium 1 scandal gets a more deeper meaning when you realize the Americans sold 20% of their uranium supply to the Russians. It really should be a strategic commodity for the Americans.
I know Uranium gets this stigma due to Fukushima. However, the media does not tell you that people actually ran to the NEW nuclear power plant for safety during the earthquakes. The plant that went down was made in the 80’s. Modern nuclear power plants are safe. The technology has improved but western nations do not want to upgrade their infrastructure. It is similar to oil pipelines. Oil gets a bad rep for pipelines, but the thing is that in the west, we do not want to upgrade our oil pipeline infrastructure. You look at the modern pipelines the Russians and the Saudi’s are using and they are state of the art. Any leak can be detected by a computer.
We cannot escape this, but as we go more digital, AI will play a larger role. My only worry is that AI will be used for a much more authoritarian and larger government. Digital currency, as I have discussed in previous posts, will be happening after the next financial crisis. Again, it provides a way for government to tax everything especially small business income.
I will not discuss this topic too much, I recommend you all read Kai-Fu Lee’s book on AI.
It talks about how AI will pose many changes in the world. Many argue that new technology creates new jobs, however the author states that the time lag allowed new jobs to be created, with AI changes will come far quickly and will make many professions obsolete.
He speaks about how the gap between nations will widen. America and China will be the real winners, every other nation will be left far behind. Third world countries and emerging markets will lose out because their precious cheap labour, will not be required anymore.
There will also be an immense concentration of wealth in a few Chinese and American companies that will be unparalleled in world history. This is our opportunity.
An interesting note is that the author suggests a program like universal basic income…which would be paid by taxing these rich AI companies. This book is definitely worth reading and also has overtones of a potential geopolitical race between China and the US…the author suggesting China may come out ahead.
I honestly believe Silver may be the most undervalued asset in human history. Yes, big words, I know.
In terms of usage, Silver is used in pretty much all electronics…because Gold is too expensive and valuable to do so.
An interesting note is the Silver-Zinc battery. Could this be the battery to take the throne over lithium batteries? Boeing has been testing this battery.
But I think Silver will do well because of these reasons:
Firstly, Commodities are the most undervalued they have ever been. Jeff Gundlach has spoken about this a lot.
I believe, there will eventually be a run into hard assets, mainly commodities, when the confidence crisis over central banking occurs. You need to remember, money managers cannot just hold cash for a long period of time. They need to be in the market. They are paid to create yield. Yes, some money may run into bonds, but I argue that bonds will be yielding close to zero as western central banks cut rates, maybe even to zero and negative if they have to. It will not make sense to run into Bonds. I believe this money will run into commodities.
Secondly, the Silver market is TINY. The Gold market is valued at 7 Trillion, Silver is just a fraction of that. This means that when money runs into silver, the move will be immense, easily retesting $50 and likely taking it out.
The fact is that there are not many primary silver miners. Most silver is mned as a by-product. Even some of the primary silver miners only make 40% of their profits on silver. Most of the silver production is based in Mexico. Pan American Silver became the largest silver producer in the world after acquiring Tahoe Resources. We have Hecla, MAG, Great Panther, Endaevour Silver, Fortuna Silver, and First Majestic Silver.
There are even some silver projects that I keep my eye on, mainly Kootenay Silver, Alexco, and Silvercrest. Again, these juniors are more speculations, so do your due diligence.
If not, you can always buy the Silver ETF. Finally in regards to the Silver-Gold ration, historically, it has been around 15-16:1. Today we are way above that, around 80-85:1. I don’t put too much importance on this ratio, but Silver actually has a longer history of being used as money than Gold. The Chinese used Silver for a longtime. The word for bank in Mandarin has the world silver in it, Japanese as well (Giniro, Ginkou). The British Pound was named the Pound, because the currency was equivalent to 1 Pound of Silver. Of course the Romans and the Greeks also have a long history with Silver.
I will stop here before I delve into a historic rant, but Silver is something I am excited about. The price of Silver currently, 14.94 at time of writing, is almost at the cost of break even for producers.
As a bonus, I will add a 6th opportunity…
A sector I have paid more attention to lately. Geek culture is coming in strong with Twitch and Social Media. It is becoming cool to be an Otaku.
The Video game industry really needs no discussion. The prize money is getting insane, and now even celebrities like Drake, are sponsoring E game teams. Competitive gaming is getting big, here in Richmond BC, they are building a large stadium specifically for e-gaming. Even sport teams such as the Vancouver Canucks are also sponsoring teams. This has the opportunity to be a huge mania like Crypto’s and Marijuana.
Boardgames are under the radar right now. People do not understand the what is going on in the gaming community between companies like Fantasy Flight Games (FFG), WizKids, and Wizards of the Coast. These companies are bidding on game designers and offering more money to take them from their competitors. A bidding war.
Kickstarter, raised 1 Billion last year for projects. Money that people donated and used to support and ‘kickstart’ projects. 67%, or 670 Million dollars of it went to Boardgames! Amazing! There is even a secondary market where these kickstarter boardgames are flipped at double or triple the price.
Why are boardgames getting more popular? I think they provide good social entertainment. As costs rise and people feel the pinch, people would rather chip money together to buy a boardgame that they can enjoy with a few friends for a long time, instead of going to a bar and spending money on drinking every week. Essentially people would rather stay indoors or at home than go out and spend money.
Watch this space. I certainly am.
I hope this was helpful for many of you.