By Chris Berry
Separate and Unequal
In a note I wrote last week, I discussed the danger in assessing all critical metals together rather than individually. I am just back from serving as the Chair of the 6th Lithium Supply and Markets Conference hosted by Industrial Minerals. Of the many takeaways, this idea of analyzing the prospects for these metals separately is no more evident than in the case of lithium.
In the wake of Tesla’s (TSLA:NASDAQ) Gigafactory announcement, many lithium junior companies, who were left for dead, were given a new lease on life. I have written in the past about the challenges I think must be overcome to make the Gigafactory a reality, and am still unconvinced that a junior mining company not close to production can participate and benefit its shareholders, but we shall see. I try and make a habit of not betting against terminally successful visionaries like Elon Musk.
It is clear that the automotive sector is the real growth driver for lithium, as David Merriman of Roskill pointed out in his remarks:
By Chris Berry
There are convincing arguments to be made for both embracing and shunning the junior sector at this point in the cycle. At risk of flip-flopping, our take is more nuanced, but throwing the “baby out with the bathwater” at this stage is an unwise move.
I have said since Q4 2013 that I believe most commodity markets have finally bottomed. This does not mean that we have turned the corner and the commodity super cycle will pick up where it left off. That said, I think it’s worth examining the forces that brought us to this point and determining how to navigate in the current market environment.
A Band Aid on an Amputation
Recent attempts by global central banks to “fix” the global economy have clearly failed. One wonders if they can succeed in this task given their present set of tools. Flooding the global economy with excess liquidity thanks in part to a low (or zero) interest rate environment has only masked the challenges we face.
By Dr. Mike Berry
Chris and I have spent several months redefining our approach to the natural resource, life science, and high tech discovery markets. Chris is focusing on Energy Metals and has honed his attention to portfolio trading strategies across the entire value chain. We believe that we are still in the midst of an economy that has not, and will not, achieve escape (growth) velocity for many months or possibly several years.
Given the Fed’s money printing proclivities we should be seeing significant and sustainable economic growth. That is not yet the case. The Fed, through the FOMC, is now walking on egg shells. Members of the FOMC are as divisive on the Hawk / Dove spectrum as ever. The Fed’s goals are constantly being redefined.
By Chris Berry
- With the commodity super cycle changing its complexion and looking for direction, we continue to believe that the metals markets don't have the "wind at their backs" anymore.
- It has been surprising to see many metals prices either bottom or shoot higher in the face of a slowing China and a sluggish global economy haunted by the specter of deflation.
- Can this upward bias in select metals prices continue given this backdrop?
- We continue to argue for SELECTIVITY amongst metals and companies as a crucial component of your investment selection until the next leg up of the cycle begins.
We're Still at a Bottom…But for How Long?
After enduring two terrible years in the metals markets, it has been a welcome respite to see several....
- Despite the Fed continuing to taper the pace of asset purchases, it appears that Emerging Markets (EMs) have rebounded from their initial sell off.
- Has the crisis “vanished” as Bloomberg recently claimed or is this a lull in a secular downtrend?
- There are a number of indicators we can look at, but none are more telling than the direction of currencies and interest rates – higher rates will hurt growth prospects.
- Regardless of the “crisis talk”, EMs will continue to lead global growth, albeit at a slower pace than many would like.
- Does this, coupled with slow and presumably steady growth in the West augur for higher interest rates going forward? This is anathema to Central Bankers.
Are We Out of the Woods Yet?
In May of 2013 when then-Chairman Ben Bernanke announced his intention to eventually start tapering asset purchases in the United States, Emerging Market equities and currencies were the first, unwitting victims.
The thinking goes as follows:
In accordance with the roll out of our new journal offering next week, and our goal of increasing your “value added,” we will begin publishing a quarterly review of the Discovery space. Specifically, today we will analyze the overall macroeconomic picture and how it has affected select Energy Metals. We'll highlight the key themes which have driven many of the companies involved in exploration, development, and production to double digit returns YTD.
As the West Sputters Along…..
In mid 2013, it appeared as if the US and Euro Zone economies were picking up steam based on accelerating PMI readings and falling unemployment.
