Monitoring the macro-geopolitical situation
I think everyone wants my thoughts here, so here they are
I’m not a financial advisor, not qualified to help with financial planning, etc, etc, I just notice connections between things.
So, basically it appears as though gold tanked substantially today on fears the fed will raise rates. The thing is, no one is paying attention to the important things.
Most importantly,
The USA is now spending about as much on yearly interest as they are on this war in Iran (annualized).
The USA debt, is going to cross 39 trillion sometime next week.
So gold crashed because “Oh no! What if the federal reserve raises interest rates”. So here’s the thing: they can’t.
Suppose the USA cranks rates to 20% to tame inflation, which was done before. Well, the last time they did this, the debt to GDP was like 30%. It’s now over 125%.
(TL;DR context: Paul Volcker dramatically raised interest rates to combat 1970s "stagflation," peaking the federal funds rate at a record 20% in June 1981.)
What this means is that the interest the government would have to pay is more than the current federal budget. So this just isn’t going to happen. The USA has only one road out of this situation, and it’s to let the money printer go brrrrrr. There is virtually no path forward where the USD doesn’t get massively diluted. Naturally, a massive dilution to the USD results in tailwinds for gold, priced in USD. So overall, things really look locked in to push gold prices higher in the long term.
Furthermore, with the coming slowdown in the global economy due to widespread fuel shortages, and civilizations being forced to use even less oil than they used during the COVID-19 pandemic lockdowns and curfews, jobs will be lost en masse. There will be massive layoffs globally. This results in pressure on governments to lower rates.
So what’s going on in the short term?
It’s likely the rumors are true: gulf states are selling gold to stay liquid, since their oil revenues have been decimated. It’s likely that simple.
Overall, I am personally not worried about my main miners, being Minera Alamos MAI.V MAIFF, or Patagonia Gold, PGDC.V HGLD stocks. I have no idea how much volatility there will be short term, but I truly believe gold prices stay above $4000 when averaged over the next 3-4 years. With those prices, these two stocks are set to perform very well, and in particular, Minera Alamos should fetch premiums for many reasons. The main one, is that the coming diesel shortage will cause mines around Earth to declare force majeure as they can’t find fuel, or are told by their government that gold mining isn’t important, and told they aren’t allowed diesel because farmers need it, etc. This will result in a substantial premium for Minera Alamos shares, because there’s no way the USA will run out of diesel or fuel. There’s just way too much North American supply between Canada and the USA.
My oil hedges, being a 60% net worth position in Suncor, and I bought some out of the money calls entitling me to (after execution) another 60% net worth position in Suncor, and my small positions in Murphy oil MUR, Cenovus CVE, Strathcona SCR, and tiny position in Petrotal are all performing the way I want them to. While Minera and Patagonia have pulled back, my oil positions have managed to prevent my account from going too negative over the last 4 weeks.
I also should mention, I’ve been slowly adding (about 1% net worth per day) in shares of Calumet CLMT stock. I may put out a post about it, but they seem to have a potential path for extreme upside via both refining, and renewable biodiesel and renewable jet fuel. The coming fuel crisis should surely boost their profits from refining and renewable fuels. Overall I expect their EBITDA to grow by almost 100% because of this war, and certainly, the shares haven’t baked this increase in yet. It depends a bit on the EPA, but anyway. I’ll perhaps go into that in depth in a paid article later.
Some more thoughts are below. I talk about the probability of a USA export ban on oil or fuel, how WW3 could start here (and why you want to own things that aren’t electronic assets more than ever), and some things people don’t know about why a fuel crisis is now inevitable.
