North American Natural Gas is "Felony Cheap" — Rick Rule
Plus: why he doesn't "invest" in gold, why the "big money" is likely ahead in silver, and why the most bullish factor for uranium probably isn't what you think.
North American natural gas is “felony cheap,” the US dollar is “the worst currency in the world, with the sole exception of all the others,” and the CPI “is best described as the CP Lie,” the eminently-quotable Rick Rule told me yesterday on Talking Markets.
Rick had a lot to say, so without further delay…
North American Gas is “Felony Cheap”
Rick says that North American natural gas “which is in oversupply and enjoys political disfavor, is felony cheap.” “Particularly north of the border - if the Canadian voter would thank and excuse their prime minister, those Canadian gas stocks would double,” Rick said. Regardless of the Canadian prime minister’s job security though, Rick thinks the market will take Canadian natural gas higher.
🪢That marks more bullishness for natural gas, adding to what
🪢And bullishness for Canadian resource stocks in general, as
said last month: “One of the greatest trades out there right now is buying Canadian resource stocks [HQ’d in Canada].”Fossil Fuels Aren’t Going Anywhere
Despite more than $5 trillion being invested in alternative energy over the last 40 years, the market share of carbon-based energy has only been reduced by 1%, from 82% to 81%, Rick said.
Instead of peak oil happening in 2030, Rick says: “Peak oil demand occurs in 2065 or 2070. So net present value calculations that taper off demand in 2030 cut the price of oil companies in half relative to what their net present value suggests they should be going for.”
💡 “For investors, not for speculators, I would suggest that the best single sector of resource markets and probably the second best sector available to investors of all types are the large North American energy companies,” Rick says. “You don’t need to get too fancy. The very top of the list in terms of market cap, and I would say overall desirability too, is ExxonMobil (XOM).”
The Politics of Gold
Rick is bullish on gold in the long-term, although it wouldn’t surprise if it “took a rest” in the short-term.
Why so bullish?
First, Rick pointed out that US on-balance sheet liabilities are approaching $36 trillion, with off-balance sheet liabilities exceeding $100 million. “We’re going to inflate away the net present value of the obligations,” he said. “This isn’t a Republican answer, it isn’t a Democratic answer - it’s simply arithmetic.”
And things are “worse” in the rest of the world, he said. “The US dollar is the worst currency in the world, with the sole exception of all the others. Ironically, we're in better shape than the rest of them.”
Meanwhile, the real impact of inflation is hidden by what he describes as “the CP Lie.” The CPI “doesn’t measure for me the deterioration in the purchasing power of the US dollar relative to the basket of goods and services I buy,” he says. He estimates the real decline in purchasing power to be closer to 7.5%, meaning U.S. Treasuries are guaranteeing a loss in real terms.
Additionally, Rick says that the U.S. government's “weaponization” of the dollar (e.g., seizing Russian assets) and its declining purchasing power are driving foreign central banks to seek alternatives, with gold being a primary beneficiary
Gold as Long-Term Insurance
An important point is that Rick doesn’t consider gold to be a true investment. “I own gold the same way I own life insurance or auto insurance or home insurance,” he said. “If you think of it as insurance, think how you get paid. Life insurance means somebody died. Auto insurance means you wrecked your car. There's nothing in the world that I would like more than not making money on my gold.”
Additionally, he views it as a long-term insurance policy:
Gold Stocks and Miners
He does invest in gold stocks and speculate in miners, though. “If past is prologue, a gold bull market is led by gold,” he said. After gold has “established the leadership,” the biggest and best of the miners move.
“We've already seen moves in Wheaton Precious (WPM), Franco Nevada (FNV), Agnico Eagle (AEM),” he said, “but sentiment hasn’t moved down to the poorer producing seniors, including both Newmont (NEM) and Barrick (GOLD).”
💡Rick currently holds Barrick and is “hopeful,” but “disappointed by their inability to reduce their sustaining costs.”
💡Newmont has had 6 bad quarters and “the market, myself included, is tired of misses,” Rick said. However, he added that their stated plan for dealing with their ongoing issues (which suggests that they will sell off their two tier two deposits and use the proceeds to reduce debt) is “intelligent” and that he “will become a Newmont holder again should I see those plans coming to fruition.”
The “Hate Trade” is Done in Silver But “the Big Money is Likely Ahead”
Silver stocks were “hated” and so Rick expected (and was correct about) that spring uncoiling with a “dead cat bounce.” “For people who really like the gate trade, like me, you need to have taken some profits off the table.”
However, he says, going on previous previous metals bull markets, “the big money is likely ahead.” He lays out how precious metals bull markets have tended to move:
The metal (gold) moves first - the trade is established by the fear buyer.
When momentum is established and the generalist investor comes into the market, the first thing that moves are the big gold stocks.
When the generalist investor gets more comfortable, silver begins to move in preference to gold
Then, towards the end of the bull market, there can be “stupefying” moves in silver, and the biggest upside is likely to be in speculative, small silver stocks.
🪢Silver’s known as the “rich man’s casino” so it’s smart to consider the bear case too, which Dale Pinkert brought to Talking Markets when he said he could see $25 silver if the dollar strengthens.
But the Hate Trade in Platinum and Palladium May Be Only Getting Started
Rick says he’s attracted to platinum and palladium “precisely because they’re hated.” He says the price of both are down massively because “the big picture thinkers think that the internal combustion engine is going away, so there won’t be any need for auto catalysts.”
He disagrees with that thinking, saying that platinum and palladium “enable a sale of an internal combustion engine with decent air quality.”
Then there’s the geopolitical element. “[Platinum and palladium] are produced really in three countries. South Africa, a basket case. Russia, arguably a basket case. And Zimbabwe, an aspiring basket case. They wish they were only a basket case,” he said. “If there was to be a political or sociological disruption in any of Russia, Zimbabwe or South Africa, you could have real shortages in supply, which wouldn't reduce demand so much. So as a speculator, I'm very attracted to both platinum and palladium.”
The Most Bullish Factor for Uranium Probably Isn’t What You Think
Uranium is “a crowded trade” and “the current narrative that has people in a tizzy is the increase in demand for uranium from small modular reactors,” Rick says. “I agree that this will be a factor, but it’ll be a factor 7 years from now. Most investors have an attention span that’s limited to a long weekend.”
What Rick thinks is actually most important for the uranium bull trade is:
The removal of plans to shut down reactors (example: Diablo Cannon in California)
The ongoing pace of new reactor construction, particularly in China
The emerging term market in uranium which provides producers with price and volume certainty, therefore reducing risk.
To watch the full episode, right this way.
Enjoy,
Maggie
Important Disclaimer: It is crucial to remember that this article is for informational purposes only and should not be considered investment advice. Consult with a qualified financial advisor to assess your risk tolerance, investment goals, and determine if an allocation to oil aligns with your overall financial plan.