Jul 28, 2021
We had the honor of sitting down with the newly "semi-retired" Rick Rule to get his latest takes on the economy, technology, and of course the mining sector. He sees the state of the real economy as showing surprising underlying strength, some of it false and much of it due to technology, which effectively reduces capital requirements. The pace of technological change and implementation keeps increasing.
Bond market and consumer spending are two areas that are largely artificial. However, the underlying strength in frontier markets, such as Africa, is leading the way. But it's not all rainbows and unicorns. Rick thinks we’re overdue for a day of reckoning, or just a reversion to mean. He suspects that the economy's growth since 2008 is more due to stimulus than real economic growth factors.
What will happen if the US Treasury reverts to mean? 6% rates would have a devastating impact upon the Pandemic Recovery - real or imagined. Why in this environment aren't metals going through the roof? Rick believes that people are extremely complacent and believe that things will only get better. Can we really stick-handle our way through any rough spots? Perhaps not. Rick thinks the precious metals markets are just going through their normal gyrations, especially when compared to prior bull markets. The current malaise was triggered by the Fed backing off yield management, but that appears to be over, for now anyway.
Stock prices in the mining sector look very weak, is this a major buying opportunity? Rick reviews the Barrons Gold Mining Index and advises that it’s very instructive and there’s nothing surprising going on here. Of 2000 junior mining companies, only 300 are viable. Keep your portfolio in the sector down to a manageable risk.
The mid-market on an npv value is the biggest buy now. The fundamentals behind higher metal prices are in tact and the gold price will go higher, and he doesn’t see any reason to change that opinion. PM bull markets are decade long affairs. Gold could go to 5000-6000 per ounce, it’s certainly possible. In addition, a bull-market in base metals is baked in the cake.
You need to prepare yourself for what is inevitable. The industry has brought on many of its own problems, politically, enironmentally and financially. Investors have taken a hike. It’s always going to be messy.