With government (as well as corporate) debts at nasal bleeding levels and interest rates at the lowest point in the last 140 years, today we face a unique dilemma …
What if we raised interest rates like Volcker did in 1980, when inflation raged? As we discussed in a recent issue of Insider Weekly, there are two ways to get out of this mess:
“A few have considered it, but I think it could be a mistake. But first, the option that many have considered.
Limit rates and let inflation drop. Rates cannot be obtained, so no. You realize the interest rate is fictitious, but what happens? Then you will get an economy in two steps. One with real rates (i.e. you and I borrowing money) and another for the government. Basically, this is what we have today for most people to understand.
The other option is to eliminate the debts and start over. A debt jubilee. I think this is actually the most likely route, although I haven’t seen anyone consider it. The pointed shoes have been building the narrative of the need for a “debt recovery,” even taking out Mario Draghi a few months ago to defend the idea. In any case, this would be combined with a digital currency of the central bank. It would provide the perfect cover and the sheep would have no idea what was going on. It would be the biggest robbery in history if they got it. “
The good news for you as an investor is that, in both scenarios, the most practical thing is to get out of cash and your own productive assets to protect you from inflation and the loss of confidence in the monetary system.
💰 HOW TO INVEST FOR THE GREAT RESET
Chris joined George Gammon on his Rebel Capitalist podcast earlier this week to discuss the massive geopolitical and economic changes that are taking place today and the best places to capitalize on your capital with those changes. The conversation has only been on the interwebs for a few days and has already received a string of positive comments (which made Chris blush).
Listen to the whole conversation here.
📈 THE COAL IS DEAD. LONG LIVE COAL.
If you’re a longtime reader or an Insider member, you know (because we keep talking about this as an upset woman when you’ve left your panties lying around) we’ve been looking for coal opportunities.
While the left and right tell us that coal is a thing of the past, the Wall Street Journal reports:
“Coal prices have risen to their highest level in a decade, turning fuel into a hot commodity in a year in which governments are committed to reducing carbon emissions.
A shortage of natural gas, a rise in electricity consumption and low rainfall in China have raised the demand for thermal coal. Supplies have been reduced by a closed mine in Colombia, flooding in Indonesia and Australia and distortion of trade flows caused by the Chinese ban on Australian coal.
Both benchmarks on coal prices have outpaced gains in the oil, copper and other commodities markets that benefit from an explosion of economic activity caused by vaccines. “
In April, we highlighted to Insider Weekly one of the companies best positioned to benefit from the rising price of coal, Peabody Energy:
“Peabody was once the largest coal miner in the world. It now has the microlayer status. To say that one does not love oneself is an absolute euphemism. It has an essential price for bankruptcy.
Peabody’s big problem was late last year as they were selling debts, which needed restructuring. Debt was restructured and now Peabody’s closest maturity is in 2024. It should be a long enough track.
What is the essence of the call to Peabody? Well, about 84% of its product is thermal coal and 60% is consumed in the US.
So the “call” to Peabody would be that power production from U.S. coal-fired power plants will increase in the next 5-10 years. And why would that be? Because natural gas is facing. And why would natural gas prices rise? Supply constraint due to declining shale oil by-product. And US thermal coal supply? Well, to cut a long story short, resources are running out much faster than substituted ones.
If Peabody were to return to a valuation close to the rest of the American coal miners (which are cheap in the first place), it would be at least double the price of Peabody’s shares. “
That’s exactly what happened. Although, to be honest, we didn’t expect to have “luck” so quickly. Peabody is insured at $ 8.19 today, double the time we talked about it. But, as you can see in the chart above, it is still well below the 2018 highs.
♉ THE CASE OF “SMALL” SECTORS
Staying with the coal another time …
If you’re wondering why we’re as bullish in “toxic” sectors as coal, this Bloomberg article does a good job summarizing our thesis:
“The world has said we want to reduce the amount of thermal coal production, mining companies definitely don’t invest in more coal thermal mines,” Glasenberg told the Qatar Economic Forum last week. “What you have is to interrupt the supply and no new offer enters the market. However, the demand is still there.
The key driver of demand remains Asia. Despite President Xi Jinping’s commitment to bring the economy back to zero by 2060, power plants are burning at full capacity this year as demand from factories tightens the power system. A maximum is not expected until 2026 and, in the meantime, the International Energy Agency predicts that demand will continue to increase by around 0.5% annually. Consumption is expected to increase even faster in India, averaging 3.1% annually.
Along with sharp increases in Southeast Asia, this is more than enough to offset the fall in burning rates in Europe and the United States. The IEA estimates that the world will consume a little more coal in 2025 than this year.
Reference prices in Australia have risen by around 66% this year to over $ 136 a tonne, the highest since 2008.
The offer will not respond because the investment in new mines has become an anathema for the banks and many mining companies ”.
And yet, for the most part, most investors should view coal stocks (along with oil and gas, shipping, uranium, etc.) as toxic waste. So we keep buying …
👎 THE GLOBAL PROSECUTOR COMETH …
And finally, seeing that the Biden administration has just consolidated 130 countries in its 15% minimum tax rate system, we thought it appropriate to share with you our views on this. Warm up the press, in this week’s Insider Weekly:
“What this global tax is, if anything, is protectionism for big business and big nations (which are now run as technocracies) like the G7. This only benefits the old pockets, already big and rich, that make up the G7.
None of this does anything to small and medium-sized businesses, which is the soul of any middle-class society, nor does it do anything to small nations. It effectively penalizes the productive aspects of society while simultaneously paying people to sit on their ass (Covid / UBI relief) by producing sweet “pha-call” and then channeling billions to low productivity sectors (green and ESG) and creating bubbles (which We will participate through our land of nickel, copper and rare). The fact that their previous large-rights spending programs have been an unmitigated disaster, or that the government’s sovereign weight in small and medium-sized enterprises has generated structural imbalances in the economy that are shown in greater inequality the minor. These idiots have no mirrors.
As for the big corporations that, if you haven’t been paying attention, are the ones that stand out, they’re unlikely to be affected. Remember, taxes have risen in recent decades in the West. How has this gone for Microsoft or Amazon? “
Here’s something else to think about … What does all this mean on an international playing field? It will be terrible for all small countries that need to attract capital investment. If they are forced to join this group, their economies will be affected so that the aforementioned technology giants occupy a large part of the market share. Everyone loses, but the big multinationals get rich. Now!
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