By Chris Berry (@cberry1)
With events moving faster than ever, many questions are raised which most are ill equipped to answer in the sense that many have never lived through a simultaneous social, economic, and financial crisis. This confluence of events seems likely to intensify barring a miracle from both Central Banks and mother nature.
I have worked through the dot com bust in 2001, the global financial crisis (GFC) in 2008, and the commodity bust in 2012. All were unique, but at the end of the day were financial and economic in their composition. At risk of simplifying greatly, both fiscal and monetary policies helped to get the global economy back on its feet after each bubble had popped. The effects on all of us of COVID-19 are hard to fathom as the virus threatens economic activity through both a supply and demand shock of indeterminant proportions. The light at the end of the tunnel is that this will blow over eventually, but what we thought the future was going to look like may change markedly. As such, you owe it to yourself to ask tough questions and challenge your beliefs as the external environment we operate in continues to evolve.
Every day seems to bring more and more questions on the path forward. Equity market valuations, gold prices, and bond yields which go parabolic one day and collapse the next do investors no favors in terms of holding fast to a long-term vision…..and that long-term vision is important.
In that vein, I thought I’d take the next few weeks and lay out some of the questions I’m wrestling with and in the interest of information-sharing, layout my own ideas on navigating a path forward around supply chain issues. This is arguably a therapeutic exercise for me, but hopefully can challenge your own views and thoughts on both the macro and micro with Energy Metals supply chains. I readily admit I don’t have the answers, but hopefully 25 years of successes failures and everything in between can stimulate debate as we navigate through this truly historic and uncharted time in history.
The questions or issues to be debated in the coming weeks are:
· How does COVID-19 affect the thematic of de-globalization and supply chain regionalization? Is the result inherently inflationary or deflationary?
· How does COVID-19 affect the cost structure of the lithium ion supply chain and what is the true cost of the “marginal molecule” (h/t to Deep Basin Capital)?
· Does the collapse in oil pricing and a race to the bottom in global interest rates slow down or accelerate the transition towards electrification?
· What will raw material producers need to do in order to ensure the viability of their businesses going forward (from juniors to producers)? What is the optimal capital structure and what do companies do to manage costs with ESG pressures only set to increase?
There are no doubt more issues to be debated and thought through and I’ll be sure to address them as necessary.
Stay tuned for the first piece early next week.