The last couple weeks have been hectic and every time I pull up social media and skim some of the headlines and different tweets, I find myself planning another run to the grocery store to make sure I stockpile as much food as possible. I stole the “Chaos Americana” title from Vince Lanci, mostly because it perfectly sums up the current situation. The US went from the unipolar center of gravity (Pax Americana) to a geopolitical strategy that has most people wondering what the hell is going on, and what the hell is going to happen next?

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Before I get into my thoughts on recent events and why I think we are getting a buying opportunity in certain parts of the market, I want to say again that now is a good time to fill the freezer, grab some extra bottled water, and any other nonperishable items that can be stored easily. I think that the best way to think about this is a series of “what if” questions.

What if the Strait of Hormuz isn’t reopened in the next couple weeks?

What if that leads to weeks or months of supply chain problems for sulphur, fertilizers, chemicals, and energy?

What if that leads to a crappy planting season and lower yields?

The point is that you can “what if” your way to a scenario where oil prices ripping, along with higher prices for chemicals, fertilizers, and food. Some people are calling for famine (people called for that during the beginning stages of Russia-Ukraine as well), but the Strait of Hormuz is a whole different ballgame when it comes to supply chains. I’m not predicting the worst case scenario because we are typically able to avoid that, but this line of thinking at least ends up at the logical conclusion of “maybe it’s a decent time to buy some of the essentials.” Even if this gets resolved in the next two weeks and the Strait of Hormuz is reopened, I don’t think anyone loading up on necessities now is going to regret it in six months.

Make Inflation Great Again

No amount of futures market games in oil, or export controls, or windfall profits taxes, or other ideas that have been floated across the West are going to fix this overnight. The way I like to visualize it is that we are trying to put a bandaid on a bullet hole due to the large amount of energy infrastructure that has been damaged. A lot of that stuff is a three to five year fix, including things like the Ras Laffan LNG plant in Qatar. There’s no magic wand or switch to flip that can undo this stuff overnight. Supply chains may be elastic, but they aren’t elastic enough to conjure up enough oil and gas, chemicals, fertilizers, sulphur, and everything else that flows through the Strait of Hormuz on short notice. The spreadsheet monkeys at the Fed and on Wall Street can’t print physical infrastructure or commodities.

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If you have a chance to make any large food purchases (half of a cow, a full pig, etc), I would recommend doing it now. Even if it is smaller purchases, I would recommend stocking up the freezer sooner rather than later. This is financial advice, because a resolution with Iran and the Strait of Hormuz isn’t going to make food any cheaper than it is right now, but if things drag on for months, the fertilizer and chemical supply chains are going to lead to higher prices. For better or worse, our food supply chains have been industrialized, and unless things are resolved quickly, prices could get ugly over the next several months.

Value Hive w/ Calvin Froedge

For anyone interested in the various supply chains that will feel the closure of the Strait of Hormuz, last week’s Value Hive podcast with Calvin Froedge is a must listen. They talked about oil, which is the obvious one, but they also get into chemicals, fertilizers, and how that feeds into other parts of the supply chain. They also cover some of the geopolitical changes have impacted the political environment, and the tribalism that has started to become more apparent in recent years. This one was recorded on Monday, so a lot has happened since then, but if you need some food for thought on the second and third order effects on what is going on, you will like this one.

Macro Voices w/ Jim Bianco & Anas Alhajji

This one is a long one, but it’s definitely worth your time. The conversation with Jim Bianco goes into the different macro pieces, from interest rates to energy and inflation. They also talk precious metals, changes in AI, crypto and stablecoins, and the political environment as we head into the midterms. I’m sure that investors might be more interested in what Dr. Anas Alhajji has to say about recent events, and if you’re trying to get a handle on the impact on recent events on the energy markets, you might want to skip to the middle where their conversation starts if you’re limited on time. They get into transportation, logistics, sanctions, and how all of the recent events could play out. Both conversations will give investors something to think about, and it was one of the best podcasts of the last week.

The Shitshow Continues: No End In Sight

On Friday, March 13, 2020, Trump declared a national emergency for COVID. Six years later, also on Friday the 13th, Trump hit Kharg Island, which is something I talked about last week. There is also talk about boots on the ground, but those are just rumors for now. With the pace of recent events, we could see that happen this week for all I know. Everyone remembers the impact on supply chains the economic shutdown had in 2020. I think recent events have the chance to be much messier as far as markets, supply chains, and the shakeup of the geopolitical chessboard that comes with it.

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At a high level, I know it’s tempting to take some chips off the table after some of the recent moves, but I keep going back to the companies and running the numbers and deciding that now is not the time, at least for me. If we do see silver in China and the US trading near parity, I think we will at least get a pause if not a pullback, but for now I think it’s just time to sit back and watch. If you don’t have any silver miners, some of them are still jump off the page cheap. I also wanted to include a podcast that is worth a listen below. There are too many good quotes to include every one, but he makes a compelling case that silver is still “The Big Long”, and we could see some bodies floating to the surface, especially with some of the European banks.

America’s Gold & Silver

Because I will be in the area next week for my research trip, I figured I would start America’s Gold & Silver . Investors looking silver miners and USAS in 2026 are going to start to figure out why two silver majors were born in Silver Valley over a century ago, and the company has plenty of cash to go to work in 2026 on restarting the recently acquired Crescent Mine by the middle of this year. Hecla was founded in 1891 and Couer in 1928 (close enough), but USAS actually owns the Couer Mine now.

I was wondering why the market didn’t react much to yesterday’s news update on the production numbers for America’s Gold & Silver, but it looks like it was just on a one day fuse. Is it time to buy it in the very short term? Maybe not, but if you expect management to execute in 2026 by increasing production, lowering average costs, and bringing the Crescent Mine online by the middle of this year, in the middle of a bull market for silver, it seems like a good recipe to me. In twelve months the business will be gushing cash and I wouldn’t be surprised to see shares above $20 sometime in 2027.

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Looking back on 2025, I was too zeroed in on one specific situation and missed plenty of better opportunities that should have been obvious at the time. Some things haven’t changed since last year. I’m still bearish on Europe, and I’m still bullish on South America. I think we could see major political unrest in major European countries this year, and I still think the European Union will break apart by the end of the decade. I have mixed feelings about what happened in Venezuela, but there have been major political changes in South America in the last year, and Brazil and Colombia are set for elections in 2026. I still think investors will still look at the US as one of the primary destinations for capital, despite highly valued equity markets.

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Last year I was too bullish on oil, and not bullish enough on precious metals and the miners. I still hold the physical metals that I have bought over the last couple years, but I should have had more exposure to the miners and the leveraged expressions on precious metals. I’m not planning on making the same mistake this year because I think we are far from the end of the run in precious metals, and we are also seeing signs of life in other commodities and sectors as well.

Major Themes For 2026 (And Beyond)

One of the biggest themes from 2025 that I think will continue in 2026 is the physical reality asserting dominance over paper markets. You have already seen this in gold, you’re starting to see it more recently in silver, platinum, and palladium, and I think you will start to see signs of it in other commodities. The big one is obviously oil, and I think we will eventually see the Brent Crude contract become irrelevant. That piece isn’t a 2026 prediction, because it will take years to play out.

I will put my tin foil hat on for a moment for this next piece. I think we will continue to see London, including the City of London (the corporation, and yes, they are different things) have less influence over financial markets as a center of gravity, just as we have seen Europe continue to decline. That’s a rabbit hole for another time, but it’s an interesting intersection of markets, politics, money laundering, and the international crime syndicate that has significant influence across the West.

This is not a 2026 prediction either, but eventually the LBMA and their paper games with precious metals will blow up. I think we will also see the end of the SWIFT system. The crypto types are convinced that the blockchain will replace it, and some think that Ripple (XRP) has the bank backing to make it happen. If that version of events does come to pass, the City of London can say goodbye to the vig on the forex market they currently enjoy on 38% of global forex transactions ($4.7 trillion daily).

I think this year will also be interesting for debt markets, especially when it looks like the Fed will become an arm of the Treasury when Powell is replaced this year. Short term rates might come down, but I still think we are in a secular bond bear market. Inflation (not CPI) isn’t going to really bite until energy prices start to rise, but it will be interesting to see how the “run it hot” thesis plays out. The real purchasing power of fiat currencies will continue to decline, and there are several different ways to protect that purchasing power as an investor.

Gold: The New Measuring Stick

As far as risk/reward, if you have a time horizon of three to five years, I think the new measuring stick is gold. I think we are still going to see strength in the precious metals this year, but I don’t know if it will match 2025 in percentage terms. I’m sure everyone is familiar with central bank buying in recent years, and the argument for a neutral reserve asset as trust has broken down since Russian reserves were seized, but I don’t see any reason for a wipeout in gold. If we do see fiscal responsibility from politicians around the world, then I might reevaluate, but for now, that seems highly unlikely. I will be curious to see what happens with gold paper markets (especially in London), but I think we will see at least $5,000 an ounce. $6,000-$7,000 is more likely in my opinion, unless we see some major geopolitical and economic changes.

Silver: Triple Digits?

Over the last month, silver has started to get a lot more attention, for good reason. I wrote a month ago that I thought we would see gold/silver at 60 at some point in the next couple years, and here we are a month later sitting at that level. My guess is that we will go below 50 on that ratio in the next couple years, but I will talk more about that tomorrow. We will probably have some periods that frustrate bulls, but I think we see triple digits on silver this year. I do think we will see the miners catch up at some point in 2026 as well. Many of the miners aren’t even pricing silver at $50 an ounce, and I like to think that none of the miners that I own aren’t anywhere close to pricing $60 or $70 an ounce.

This is one market where you’re seeing the market for physical exert significant pressure on paper markets. People that are plugged in have talked about the US cutting off Chinese supply of silver concentrate from Latin America, and you even have public company CEOs talking about how they are calling all of the producers in the area. Does silver need to digest the recent run a little bit? Probably. But I’ll ask the question again: when a commodity breaks out to fresh 45 year highs, what happens to the price over the next three to five years?

Platinum: $3000 Incoming

Silver gets way more eyeballs than platinum, but I wouldn’t be surprised to see platinum outperform silver this year. I wrote about platinum in more detail in a couple posts below, but I think this run is far from over. It’s amazing what can happen when you get a physical market pressuring Western paper markets as far as price discovery. Martin Armstrong mentioned recently that platinum has not had capital controls in the past like gold and silver, and that is part of the recent run. I don’t know if we will get capital controls for platinum, but I wouldn’t be shocked to see platinum showing up in the news more as a important commodity as powerful countries scramble to secure the supply of different resources.

My guess is that we will continue to have stretches where platinum chops sideways, and then the price will run hard for a couple weeks or a month. I think we will end the year over $3,000 an ounce, but I feel pretty confident about new all time highs for platinum this year. I’m not as bullish on palladium, but as long as platinum and palladium are trading at significant premiums in Chinese markets, I think we are going to see prices grind higher. If those premiums close, then it’s probably time for caution near term.

The Base Metals: Copper Leads, But Others Follow

Copper has been rolling lately, and I think that is going to continue in 2026. I don’t have a guess on where price might go, but I don’t think we will break out to all time highs above $6 per pound and then get stuck in the mud. I don’t know if that’s $7-8 per pound or more, but a lot of investors have seen what has started in precious metals and wonder what’s next. Copper is at the top of that list. I think the miners will continue to run, and all it takes to move some of these stocks is a trickle of investor capital. Some of them will be acquisition targets, but I think investors will take a look at what has happened in the precious metals space and start to move down the size ladder fairly quickly for copper and other base metals. Spreading out from there, you have several different base metals that are interesting for different reasons.

The only one that I think might struggle is iron ore, because you have Simandou ramping up to 5% of global supply over the next couple years. For anyone that follows shipping, it’s definitely going to be a tailwind for dry bulk companies. Nickel is getting more interesting as Indonesia is planning to cut production, which is kind of a big deal for a country that produces more than 60% of global supply. Some investors have highlighted aluminum as a place to look, and I think zinc is interesting here as well. I have a couple silver miners that have a zinc byproduct, but I haven’t found any companies that I like in these areas, or they have just run too much already. Tin probably has the best supply and demand of any of the base metals, and it’s definitely under the radar, but the problem is that there are very few options for investors in the sector. I do have a podcast that will be focused on one of them, so stay tuned for that.

Oil & Gas: Rotation Within The Sector

I will talk more about what happened in Venezuela tomorrow, but sentiment on the oil price is probably about to go from bad to worse after recent events. Increased production from Venezuela is obviously not going to happen overnight, but it could delay the bull case for oil prices. This is where the narrative could be important in coming weeks. For the producers, you’re probably going to see the market be a lot more excited about American majors like Chevron and Exxon-Mobil compared to Canadian companies.

If the US does effectively take over Venezuela and the supermajors can move into Venezuela, they will certaintly benefit, but there is a healthy debate on the impact on the Canadian companies. It will take months if not years to see the fundamental impact, but the Canadian energy sector might not be much fun to own in the near term, even if it turns out to be just fine on a fundamental basis.

Narrative driven investors will take one look at recent events in Venezuela and say “buy and Schlumberger ” or some other variation of that trade, even if it will take two quarters (bare minimum) to see any material change in the underlying businesses. This goes back a bit to the flows argument, but Schlumberger is 20% of that ETF. As far as natural gas, I still can’t bring myself to be super bullish long term, but I do have a bit of a shorter term trade on. Fingers crossed for a cold snap here in the US in the next month (and maybe a little bit of snow for the skiers out there).

Assets Classes To Avoid

I’ll wrap up by talking about some of the assets that I’m avoiding for a variety of reasons. The first three fall in the toxic sludge category. This includes private equity, private credit, and long duration bonds. I’m grouping the first two together, and I’m sure there are individual funds that will be the exception to the rule, but I think the next couple years won’t be kind to private equity and private credit as an asset class. As far as long duration bonds, I can understand why some investors like it as a shorter term trade, but it goes back to the Dave Collum question: what interest rate would you require to hold this until maturity?

For me, it’s a lot higher than 4%. Real estate is a mixed bag, and it depends on location and the type of real estate, but I think the asset class as a whole has significant headwinds. My recent conversation with for anyone interested in residential and commercial real estate is worth a listen, but I think 2026 could bring cheaper real estate prices. As far as equities, they certainly aren’t cheap, but on a nominal basis, the government seems determined to make sure everyone gets their S&P welfare. I would rather own equities than long duration bonds and real estate, but I think the truly undervalued opportunities are still in the commodities space.

Conclusion

With all of the stuff that has happened over the last twelve months, 2025 seemed a lot longer than a year. I think 2026 will be more of the same on several fronts. We certainly live in interesting times as they say, and I’m sure there will be plenty of geopolitical events to follow up on what happened this weekend in Venezuela. Major powers will continue to jockey for position when it comes to resources. We will see if it turns into a hot war between major powers, but I think there are certain areas to avoid geographically when it comes to investments, as well as a couple sectors.

I’m bullish on precious and base metals, and some of the miners in those areas, and while we might see new leadership this year, the risk/reward is very attractive for investors. As far as energy, I’m waiting to see what happens in Venezuela, but certain subsectors will benefit massively from a production ramp in the country, while others could struggle. Trump has certainly created some volatility in the last year, but I think there are plenty of opportunities for value investors to choose from as markets continue to rotate in 2026.

• Platinum has had a monster 2025 and is up roughly 70% YTD, and I think we are still in the second or third inning of a secular bull market for the metal.

• Platinum has a couple parallels to where uranium was in 2021 before it had its monster run. I think the narrative is changing on PGMs, and there are some similarities between the two as far as inventories and supply and demand.

• There are several reasons that we will continue to see supply deficits for platinum and the above ground inventory will continue to shrink.

• There are several ways for investors to get exposure, from buying the physical metal, owning a platinum ETF, or buying PGM miners.

I have talking recently about expecting a pullback in the precious metals space, and we finally got a bit of a pause across the metals. Platinum was no exception with a ~10% pullback from recent highs. Platinum was flying from May to July, and then it went to sleep for a couple months. It picked up again near the end of September, and I think we might be in the middle of a pause over the next couple months. I bought some of the physical metal in May of this year, but I think the setup is still very attractive here.

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I’m partial to owning the physical metal, but there are different ways for investors to get exposure to platinum depending on your time horizon and risk appetite. There are some similarities between the setup today for platinum and where uranium was in 2021 before it really started to move, but I think we are still in the early stages of a secular bull market for platinum that flies under the radar for many investors.

Uranium In 2021 vs. Platinum Today

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From a 30,000 foot view, everything moves in cycles. Anyone who is a student of history will know that history doesn’t move in a straight line. Civilizations rise, typically growing through conquest, and bring prosperity to the whole society. Hard times create strong men, and strong men create good times. This lasts for a while, but generations will change, society will decay, and a plethora of bad ideas will be implemented. The good times roll until they are running on fumes, and then the weak men will create hard times. The empire gets overextended, and typically the civilization has to collapse, usually in a spectacular display of violence and/or degeneracy, before the cycle can start anew.

I’ll try to avoid getting derailed on a political rant (I’ll save that for a later date), but I hope the US can avoid the collapse part of the cycle, or skip straight to the rebirth. That might be naive to think it’s possible, but I’m optimistic about the direction of the US over the next several decades. If you look hard enough, you can see cycles all around us. At the highest level, for civilizations and cultures, all the way down to the individual. You also see it for the changing of the seasons, and you definitely see it in financial markets if you look closely. The problem is that many investors are myopically focused on short-term movements, and they lose sight of the big picture.

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Bubbles Create Anti-Bubbles

Since I started writing the Substack a couple years ago, I have explained why I think we are in a secular bull market for commodities, but today I want to focus in on oil. I think we are nearing the end of a cyclical pullback in that secular bull market. I’m reluctant to call a bottom, but I think we are going to see the start of the next leg higher in oil in the back half of this year or sometime in 2026. Oil has spent the better part of the last three years bouncing around the $70 level (give or take 10 bucks), and the consensus narrative has been bearish pretty much the whole time. Price drives narrative, and once investors realized that the situation in Ukraine wouldn’t stop the flow of Russian oil to the market in summer of 2022, it was downhill from there, and quickly.

That was the end of the first wave of inflation, and the market has started to price in a “return to normal” over the last couple years. The S&P is back to grinding higher, many investors think rates are going to come down, inflation is going back below 2% (CPI is fake anyway, but I won’t get distracted on that here), and commodities are going to stay cheap. That would be great, but gold has been sounding the alarm over the last couple years, and has doubled since October 2022. Gold tends to lead commodities bull markets by 12-18 months, and some of the other commodities are starting to wake up. Platinum and silver are just a couple examples.

A lot of people focus on the demand driven commodities bull markets, like we saw in the 2000s driven by Chinese growth. I think what we are going to see over the next decade will look more like that 1970s, where supply constraints and bottlenecks are a bigger driver for commodities than rapidly rising demand. It might not be the whole commodities sector moving higher in unison. This is where if you zoom out again, you can see how bubbles create anti-bubbles. Years of ZIRP created a bubble in bonds that is deflating now (the US bond market is in its longest drawdown in history), and stocks keep going higher as passive investing and flows keep pumping money into equities. For the most part, commodities are on the other end of that spectrum, and many sectors have been starved of capital for the better part of a decade.

The Bearish Consensus & The OPEC Boogeyman

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What The Hell Is Going On?

The oversimplified answer to this question is that all roads lead back to the Trump administration’s economic and geopolitical agenda. Whether it’s the revival of the Monroe Doctrine and the focus on Greenland, Canada, and the Panama Canal, to reciprocal tariffs on Liberation Day (April 2) this week, or trying to resolve things in Ukraine and the Middle East, the geopolitical agenda is another important piece of the puzzle. I have a fuzzy picture in my head of what the Trump administration master plan looks like, but it’s clear that the status quo is not it, and they have had four years to build a plan of attack.

I try to stay up to date on everything going on around the world, and it seems to me like things have accelerated since the start of 2025. The headlines have been coming fast and furious, and are showing no sign of slowing down. We aren’t even done with March, and Trump has only been in office for two months. The California fires that were two months ago feel like they were two years ago, unless you live in the area. We have seen a flurry of executive orders, which is setting up a showdown between the executive and the judicial branch.

Apparently removing people that are in the country illegally using laws that already exist, and not allowing people that don’t know their own sex to serve in the military are problems for district court judges in DC (1/3 of which weren’t even born in the US). How the Trump administration navigates this problem will be interesting to watch, but he will have to figure out how to deal with these clowns in the judicial branch that want to run the executive branch. Feel free to dig into the Plenary Powers of the President when it comes to the military and immigration if you need a legal rabbit hole to go down.

Unlike the recent Signal chat leaks (literally more noise than signal if you ask me), the judicial system interfering with Trump’s agenda will be something to watch moving forward. That is important, but I think one of the most important things to watch will be what the Trump administration does to cut wasteful and fraudulent government spending. As they say, follow the money. Two notable Department of Government Efficiency targets have been USAID and the National Endowment for Democracy. Cutting off the funding for these so-called Nongovernmental Organizations is going to have a lot of interesting downstream effects, and I think it is near impossible to even map them out today. Going after “media” like NPR, PBS, and other outlets that have been receiving funding, and shutting down the Department of Education are two other examples that I will be keeping an eye on.

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All Roads Lead To Trump & The US

For better or worse, the Trump Administration has become the center of the universe as far as geopolitics and financial markets go. A lot of sharp people think that we are going to see one (or both) of the current major conflicts expand, and from some of the stuff I have seen coming out of Europe, it looks like Ukraine might be the leading candidate on that front. We are seeing a massive amount of gold flowing out of Europe into the US, which is something that also happened ahead of WWI and WWII. It’s enough that it is actually having a material impact on GDP, and there has also been talk of issues at the LBMA. On top of that, there have been rumblings of gold revaluation. Other people are more qualified to talk about those topics than I am, but you can go back to podcast a month ago with Vince Lanci if you want a refresher.

Tariff: The Most Beautiful Word In The Dictionary

The constantly changing nature of the tariffs are a big driver of the uncertainty that many investors are feeling. A couple guys that I talk to think that Trump wants the tariff uncertainty to bring the stock market down (without crashing it), and send bonds up (yields down), so they can refinance the long end at a lower rate. That might be the case, but I think we are watching a shift from economic policy to economic statecraft. I stole that from a future podcast guest, but it looks like national and economic security will be a priority, while financial markets going up and to the right looks like it might take a backseat for the foreseeable future.

A lot of people have argued that tariffs are a tax, paid by the producers of a product. They will try to pass as much of those costs on to consumers, and prices go up. Some say tariffs are inflationary, while others will say that it’s a one time step up in costs. Some things will get more expensive. Which products, and by how much, is something I will leave to someone else to figure out. I’ll let other people pontificate on tariffs being a horrible idea (though these people only complain when the US is implementing tariffs and are quiet when other countries implement them), but one thing I will point out is that paying the tariffs is optional.

If you want to build products and components here in the US, congratulations. You have just opted out of paying the incoming tariffs. Admittedly most businesses cannot make these changes overnight, but the motivation behind the tariffs is pretty clear: the Trump administration wants to shift things away from a hyper-financialized economy (where you can now buy Doordash burritos on installments), to an economy that creates things again. They want to create jobs and bring back industries that have left over the last four decades, some of which are crucial for national security. We will see if this reorganization of the economy is successful, but here is a list of tariffs that should be in place by April 2. Admittedly this list will probably be out of date in a week or two due to the rapidly changing nature of the tariffs, but here goes:

• 20% tariffs on China

• 25% on Canada and Mexico

• 10% on Canadian energy and potash

• Reciprocal tariffs (raising tariff rates to match other countries on specific goods)

• 25% on steel and aluminum

• 25% tariffs on automobiles

• Rumors of 25% copper tariffs

• 25% tariffs on any country that buys oil from Venezuela

• Rumors of 200% tariffs on European wine (just to piss off the cat ladies)

GoldFix

Tariffs: What April 2nd Means in 545 Words

Contents…

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a year ago · 8 likes · 4 comments · VBL

We will see how long some of these tariffs are in place, but Vince’s piece linked above is worth checking out. When you combine tariff uncertainty with Treasury Secretary Bessent talking about a detox period in markets, and tack on geopolitical uncertainty, it makes it a hard environment to read as an investor. I’m going to jump into the three regions that are in flux right now, which is another source of uncertainty.

The Americas: Return Of The Monroe Doctrine

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How broad are tariffs going to be? Are we going to target China? Europe? What happens if Trump pulls the US out of NATO? The WHO? The UN? Is the US going to buy Greenland? Or annex a piece of Canada? Is artificial intelligence the holy grail, the next evolution of the internet? Or is it artificial, and not all that intelligent? Is inflation dead, and the CPI on its way to two percent, or was last year the calm before the storm? Is the secular bear market in bonds set to resume? Is the Permian Basin about to roll over? Or will Scott Bessent’s 3-3-3 plan be able to increase US oil production? Is the commodities cycle on hold, or is never going to come?

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Those are all questions that have been floating around my brain for the last month, but I think we are going to get some fireworks this year in financial markets. There will be trends moving forward, but I think it’s wise to avoid extrapolating trends indefinitely into the future. I said last week that we live in interesting times, and we certainly have interesting financial markets to go with it. I have started to change my thinking on how markets work over the last year, but it comes back to one main question:

Where is money going to flow?

This part is up for debate, but if I invert and work backwards, I think there are several places to avoid. At the top of the list is long bonds. I don’t have any issue owning short term debt (1-2 years), but I still think we are in a secular bear market for bonds. I just see owning long bonds right now as trying to pick up pennies in front of a steamroller. It might work out as a short term trade if we see more rate cuts in 2025, but it hasn’t worked so far. We have had 100 basis points of rate cuts since September, and is down roughly 15% since then. We could be due for a short-term bounce from what I have seen on sentiment, but I think the move in bonds since the start of rate cuts should at least be a warning.

A couple sharp people I have talked to have pointed out that we are a couple rate cuts away from an upward sloping yield curve if long bonds stay put, but my bias is that long-term interest rates are headed higher over the next several years. Consensus is that we have at least a couple more rate cuts coming this year, but it will be interesting to see how that plays out as 2025 develops. I think inflation might rear its ugly head in 2025, and with the current debt levels and the deficit, I have a hard time getting excited about bonds right now. I will say that I would much rather own US debt than anything in Europe, but I will spend some more time on Europe later.

Stocks

I said last year that the valuations were unattractive, but the passive money flows overpowered that in 2024. While the valuations have me skeptical that the gravy train will continue in 2025, it’s hard to be bearish for two main reasons. The first is the passive investing cycle, which keeps money flowing into the S&P 500 and Nasdaq 100 , even if it is extremely concentrated in large cap tech names. The second reason is that I think capital from overseas will continue to flow into the US, which is one of the reasons that I’m bearish on Europe.

I do think we could get a chunky selloff in indices, but as long as passive money keeps flowing and more international capital keeps coming into the US, we will see if markets rebound. I have a hard time getting bullish due to valuations, but I’m pretty much neutral on broader stocks at this point. I do want to zero in on a couple sectors and geographic themes because I think we will start to see a narrative shift on several fronts in 2025.

AI Capital Cycle, Quantum Computing & Bitcoin

I think we are going to start to see some cracks in the Artificial Intelligence narrative in 2025. The tech giants are spending money as fast as possible to develop data centers and AI, investors are busy hunting AI beneficiaries, and I keep hearing about a potential productivity miracle. This is one place where I see people taking trends and extrapolating them out into the distant future, which is usually a good reason to have at least a little bit of skepticism. I do wonder what the long term impact on a company like Google is. They have had the search engine cash cow for well over a decade, and language learning models could spell trouble for their golden goose over the next several years. That’s not a 2025 prediction, but something worth watching as things develop.

In all seriousness, I still haven’t heard a compelling argument on what is going to be the end result of the massive spending going into AI / data center buildout. Yes, it can process data quickly, but what is the end result if the data fed into LLMs has biases or if the data is garbage? I would have loved to have AI write essays on some of the boring books in my high school English classes (Great Expectations and Pride and Prejudice are at the top of that list), but I’m in the wait and see camp on the actual impact of AI and LLMs.

Part of my skepticism on AI is on the philosophical side. I’m not sure that anyone is going to be able to put a divine spark (or whatever term you want to use) into a machine, and we end up with artificial general intelligence that is similar to the way a human brain functions. I’m also skeptical because I wonder how much is already priced into the market when it comes to AI. The other question I have is this: are we just going to have an infinite boom in computers, AI, processing? There will definitely be winners and losers from AI / Language Learning Models, but are we going to shovel money into the computational economy indefinitely? What does it actually produce? Is it profitable for the companies involved, or just the picks and shovels plays like Nvidia ?

Bearish On Europe

I said in my post last week that I think the EU is probably going to collapse by 2030. An argument can be made that we are already seeing cracks, but I have also seen people talking about how cheap European stocks are. At this stage, I have a hard time getting bullish on European stocks or bonds. It turns out that importing the third world, de-industrializing, over regulation, and climate change insanity is not a recipe for a strong currency or a strong economy. Add in the potential for tariffs from the US this year (Europe could be the biggest loser from from US tariffs in my opinion), and I just don’t see a good reason to own assets in Europe.

A strong dollar and higher oil prices could spell serious trouble for Europe, but I have heard several people make compelling cases that the dollar (DXY) will end 2025 at a lower level than it is today. I can also see the dollar going higher with all of the uncertainty in the world. Bond yields have been headed higher across the West (while Chinese bond yields have been headed lower), but I think money will continue to flow out of Europe and into the US over the next couple years. I’m still long-term bearish on the Euro and the Pound, which make up roughly 2/3 of the DXY, but there are going to be so many moving pieces with the Trump administration, tariffs, and a variety of other factors that make it hard to get a read on that front over the next several months.

The most interesting geopolitical puzzle piece to watch in my opinion will be Europe’s access to cheap energy. After the recent regime change in Syria, there have been rumblings of a pipeline from Qatar to Turkey, but Europe’s reliance on LNG after the sabotage of the Nord Stream pipeline has been an issue, especially for the manufacturing sector in Germany. The pipeline from the Middle East is just speculation for now, but the other potential solution is a resolution in Ukraine that allows gas to start flowing from Russia into Europe again.

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Bullish On South America

On the other hand, I think there are a bunch of opportunities in South America right now. I will be writing about one in particular next week that is basically trading near the same price it was during the COVID panic with a double digit yield, but countries like Argentina, Brazil, and Colombia have several interesting opportunities. I’m still kicking myself for passing on around $9-10 when I was looking at it along with companies like Petrobras and Ecopetrol a couple years ago.

One of the reasons that I think South America will be an interesting pond to fish in is the potential for political changes. Milei has been in power in Argentina for just over a year, and I think we could see Lula in Brazil and Petro in Colombia get replaced in the next couple years with more business friendly administrations. Some of these opportunities might be in companies focused oil, steel, iron, or even financials, but I think we could see things line up for a move in several commodities as well

The Brazilian real for example is at 25 year lows, and I know a couple sharp guys that are starting to get bullish on Brazil. If you get a weaker dollar and some help from the underlying commodity, I wouldn’t be surprised to see huge returns in some of the South American stocks. A lot of the valuations are extremely cheap, and it wouldn’t take much as far as financial flows to get things moving. Investments in South America do come with some political risk, but I think it’s an interesting pond to fish in for 2025.

Commodities

I still think the commodities cycle is coming, and I still think it’s going to sneak up on a lot of investors. I think inflation will also sneak up on people, but oil prices will play a part on that front. I have started to revise my thinking in some ways, but I think for the most part, commodities are going higher in dollar terms between now and the end of the decade. Instead of a bull cycle driven by broad demand for all commodities, I’m starting to think that we could see price moves driven by supply shortages in specific commodities. I’m not married to this view, but I am watching several different commodities and sectors for 2025.

Oil: Is 2025 The Year?

This is the question I have been asking myself for the better part of the last three months. Sentiment on oil was completely bombed out in the fall, financial market positioning was more short than it was during COVID lows, and the gold to oil ratio (admittedly not a timing tool) was at all time lows outside of oil going negative in 2020. I even saw recently that Asset Managers were short and Dealers were long when it came to energy.

Oil is up roughly $10 a barrel in less than a month so it’s probably time to cool off a bit, but I have a bunch of questions. What is the impact of sanctions on Russian oil companies along with tankers and the so-called dark fleet? Is Trump going to tariff oil imported from Canada? How much spare capacity does OPEC actually have? Is the Permian rolling over? The answer to the last question is far more important than any of the other ones in my opinion, but I think we will start to find out this year.

Some think it’s a geological issue for the Permian Basin, others think that it’s not an issue at all. That’s part of why I’m so excited about several upcoming podcast guests, but I think that 2025 will be the year oil starts to play catch up with gold. People have also started to talk about earthquakes and water issues in the Permian, but there are so many moving pieces with oil right now. I think if the Permian is starting to rollover and demand continues to hold up, it will put the supply glut narrative to bed pretty quickly.

Scott Bessent has a 3-3-3 plan that was to increase US production by 3M barrels a day, but that was quickly (and quietly) changed to 3M barrels of oil equivalent. I am skeptical that the US has another 3M barrels without opening up California or another new basin, but we will find out if existing fields can ramp production in 2025. Before I move on from oil, I wanted to highlight the Canadian Oil Sands as another sector to watch for oil bulls.

Canadian Oil Sands: To Tariff Or Not To Tariff?

I haven’t made it any secret that I’m very bullish on Sable Offshore in California, and I think that stock starts flying as soon as they get to first production. I’m also a bull on several names in offshore oil services. They would obviously benefit from booming oil prices, but I think Canada also has several opportunities for investors that are expecting some political changes up north. They’re also interesting if you want to prioritize long-lived assets. The wildcard is what happens with the proposed 25% tariff on all imports coming from Canada.

I find it unlikely that the heavy oil we need to feed US refineries gets a 25% tariff, but it’s not a 0% probability. I think it is probably prudent to wait a little bit to see what happens, especially when you have the Premier of Alberta, Danielle Smith, warning that tariffs are coming with no exceptions for oil. The joke for people that know the ins and outs of Canadian oil sands is to just buy Canadian Natural Resources and forget about it. I also know some people that are bullish on Suncor Energy , as well as some of the smaller oil sands names. I’ll be waiting for now, but I think we might see some very attractive opportunities in Canada pop up this year for investors.

Natural Gas & LNG: Bullish With Questions

This is another place where I think investors are extrapolating current trends indefinitely into the future. I’m leaning bullish on natural gas, but I have questions about the AI & Data Center power demand that is expected to boom over the next several years. I do think some of the equities are interesting, but I haven’t found anything that really caught my eye. On the LNG front, I think investors will have decent returns from the sector, but I have a couple questions that make me hesitant to actually buy any of the LNG infrastructure names.

This report on LNG will be food for thought for investors interested in LNG, but I wonder what the returns will be on the investment boom going on now in the sector. I just don’t know if LNG will be able to compete with pipeline gas over a long time period. Is any economy going to be able to compete using more expensive LNG, which needs to be shipped all over the world, and loses volume in transit, between facilities that cost billions to build? The other hypothetical question I have is related to the geopolitical state of the world.

If Ukraine doesn’t start to wind down, and things go the other way and actually escalate with Russia for example, wouldn’t the LNG terminals be a high value target? If NATO gets involved directly, and Russia wants to hit Europe’s economy, wouldn’t LNG terminals be near the top of the target list? It’s just a hypothetical and it’s highly unlikely, but something I have thought about when it comes to LNG.

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Precious Metals: A Repeat For 2025?

Gold and silver both had very good years in 2024, and I wouldn’t be surprised if 2025 is another solid year. I still think gold is headed much higher over the next couple years, and I wouldn’t be surprised if we see $3,000 and then some this year. Like gold, I think silver is on its way to all time highs in the next couple years, but probably not this year. $40 isn’t out of the question, but we will have to wait and see how that plays out. I do think some of the miners are interesting, but I have avoided them for a couple reasons.

The miners are usually crappy businesses, and they are basically a long gold or silver, short oil position in a stock, and they only seem to work for six months at a time. I do think the miners should have a solid 2025, but I’m watching from the cheap seats. The precious metal that I’m most bullish on is platinum, but that might take longer to play out than 2025. Eventually platinum prices are going way higher in my opinion, and if I were buying physical metals today, platinum would be at the top of the list. I own relatively small amounts of all three precious metals, but that’s my only position in the precious metals for now.

Other Commodities On The Watchlist

Coal is another commodity that I’m generally bullish on for the next several years, but I think it makes sense to be picky in that sector. I will be looking to add to one name in particular at some point in 2025, but I think coal stocks will be somewhat similar to tobacco stocks from two decades ago. Copper is one that I’m more neutral on because I have questions on how much electrification demand will impact things. I understand the long-term supply deficits, but I haven’t found any equities that stood out to me. Uranium is another one where I’m neutral for now. Like copper, I understand the long-term story, but I would have a hard time owning anything but the Sprott Physical Uranium Trust if I was a buyer.

There are several other spots that I’m watching, especially depending on what happens with tariffs. At the top of that list are steel companies based in the US, or with a significant chunk of their operations in the US. The US Steel merger has been an interesting story to follow, but there are other names that look cheap. I’m not sure if a steel cycle is imminent, but I think there is a margin of safety in several steel companies. I’m also curious to see what happens with lumber, agriculture, and fertilizers, but to be perfectly honest, that’s outside my wheelhouse, at least for now.

Conclusion

I’ll be back next week with a writeup on one of the stocks at the top of my watchlist, but I wanted to write up a summary on what I’m seeing in the market and where I think money might flow this year. If you made it this far, the TLDR summary is that I think it would be wise to avoid long-term bonds and Europe, and focus on digging into opportunities in South America. If a California oil company like Sable is too much hair, the Canadian oil sands producers are interesting, but I would wait for some clarity on tariffs. There are several other companies and commodities on the watchlist, but I think 2025 is set up to be an interesting year in the world and in financial markets. Trump coming in could create some volatility in markets and commodities, and I think there will be buying opportunities for investors paying attention.

In a lot of ways, the 1930s, the 1940s, and World War II was the founding mythology of Western society, and I think that is in the process of crumbling before our eyes. This might just be par for the course for a Fourth Turning, but over the next decade I think we will the Overton Window shift on a variety of societal and cultural issues. One of those that I covered in Part 1 was immigration. I’m going to bounce around a bit, but today I’ll be writing about the increase in frequency and scale of violent events, the Generational Divide, the death of DEI, and a variety of topics on health and medicine. We aren’t even a week into 2025, but after the way the year has started, I have to lead off Part 2 with the obvious question.

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What The Hell Is Going On?

One of the predictions I have talked about privately is that I think we will see an increase in the frequency and magnitude of violent outbursts across the West, and I think the start of 2025 isn’t a fluke. Jason Mironchuck, who I’m hoping to have on the podcast at some point, has started calling it the Age of the Vengeful Son. It seems like countries across the West are sitting on a political powder keg right now, and I think we are going to see more bursts of violence moving forward. I think these will generally fall into four buckets: vigilante justice or targeted acts of violence, terrorism, random acts of violence, and other events that just make you ask “What the hell is going on?”

This is one of the places you can see the reverse fishbowl dynamic of social media that I talked about in Part 1. In the last week, we had the New Orleans truck attack, a bomb threat in South Carolina, a shooting in Washington, D.C. and one at a nightclub in Queens, and the weird Cybertruck bombing in front of Trump Tower with a story that makes absolutely no sense. You can see it all on Twitter, in near real time. Just about everything I have seen on the Cybertruck bombing in Vegas with the Green Beret creates more questions than answers. You have a Special Forces member (who was on a military reality TV show) with a Cybertruck, filled with an IED made of fireworks, who supposedly shot himself with a Desert Eagle before detonation, complete with a singed military ID and passport (which reminds me of another famous event).

Then, he might or might not have sent an email to a recent guest on the Shawn Ryan Show (“former” Navy SEAL and CIA), which talked about Chinese “gravitic” drones, US war crimes in Afghanistan, and Iranian agents here in the US with surface to air missiles, among other things. If gravity powered drones were a thing, I would think we would have seen a SPAC for it by now. In all seriousness, I have no doubt that foreign agents have made their way into the US over the last four years with the state of the border, but I have a hard time believing that Iran is interested in kicking things off with the US via an attack on US soil. Basically, the whole thing smells and I think it’s smart to take all of this stuff with a grain of salt. If you want more on the Las Vegas bombing, and why that Shawn Ryan Show episode might be predictive programming, you can listen to the most recent Coffee and a Mike episode with EM Burlingame.

I think we are in a durable bull market in so-called conspiracy theories, which is a term invented by the CIA by the way. I try to avoid information overload and take a skeptical view, or a distrust but verify approach to events like this. The terrorist and random acts don’t require a deep dive, but I do think they will increase in frequency as well unfortunately. I do want to spend some time on the vigilante justice or targeted acts of violence though. One of the recent acts of targeted violence happened in 2024, with the killing of the United Healthcare CEO by Luigi Mangione.

I’m not going to opine on the shooting, but I wouldn’t be surprised if we see more targeted violence or vigilanteism in 2025 and beyond. This goes back to the breakdown of the legal system, the wealth divide, and the frustration of different parts of society with the way the system is working right now. We will see if that means more CEOs will be targeted, or if we will graduate to politicians and other powerful figures. There is an interesting split in opinion on the shooting based on ages, which brings me to the Generational Divide topic.

Generational Divide: One Rises, Another Falls

I’ll lead this section off with the NAXALT fallacy disclaimer: not all Boomers are like that. I know at least one reader started down that path, but I think the Generational Divide is a topic that America and the West will have to deal with over the next decade. I think we are going to see the post-war consensus get weaker and weaker as time goes on, and part of that is due to the generational transition happening now. The Generational Divide is one of three main divides we have today, along with the racial divide and the divide between men and women. To some extent, all of these things are tied together, so I will focus primarily on the generational aspect. If we start with the economic side of things, it’s hard to say that the American Dream is alive and well for younger generations.

Upward social mobility continues to decline, housing affordability is at record lows, and finding a woman worth keeping (or a man, but I assume most of my readers are men) is like trying to find a needle in the haystack these days. The American Dream was always a family and house with a white picket fence in a safe neighborhood, typically supported by the father’s income so the mother could stay home and raise the kids. If you worked hard you could succeed, because America’s the land of opportunity. Over the last couple decades, that is truer depending on which demographic boxes you check, but I’ll save that part for later. It’s also wanting a better life for future generations, and Millennials and Zoomers are the first American generations with deteriorating standards of living.

The median family income in the US has gone from 10K in 1971 to 55K today, a gain of 5.5x. However, the median cost of a car has gone from 4K to 48K, an increase of 12x. The median cost of a house has gone from 25K to 357K, an increase of 14x. The median cost of an Ivy League college has gone from 3K a year to 87K, an increase of 29x. The average cost of healthcare per person has gone from $400 to $15,000, and increase of 37x. Basically, the average person in the US is worse off today than in 1971. So much for "progress".

In 1971, a gallon of gas cost 36 cents. Today $3.00. Up 8x. A slice of pizza in NY cost 25 cents. Today $5. Up 20x. A Big Mac cost 65 cents. Today $6.99. Up 11x. Fine dining for 2 cost $30. Today $300. Up 10x. Stanford cost $2,400 a year. Today $66,000. Up 26x. A Dental check up cost $20. Today $200. Up 10x. A 2000 sq. foot house cost $27K. Today 425K. Up 14x. A 5 star hotel cost $60. Today $700. Up 11x. A doctor home visit cost $20. Today $300. Up 15x. A Ford F100 pickup truck cost $2400. Today the same truck (the 150) cost $36K. Up 15x. A Porsche 911 cost $8000. Today $120K. Up 15x. No matter how you look at it cost of living is up 10-20x.

- @dotkrueger on Twitter

I can’t lay all of the blame at the feet of one generation, because some of these things were set in motion by the Greatest Generation and the Silent Generation. I do think residential real estate will get more affordable in coming decades, especially if we can get our act together on immigration and deportations. Older Americans are projected to sell 9M homes or more over the next decade as they pass on, but I’m not interested in owning nothing and being happy, and I’m definitely not the only one.

It’s not just an economic mess that younger generations will have to clean up with debt levels continuing to rise. We will have to deal with the geopolitical dumpster fire left behind by the gerontocracy. Whether they are just too old, drunk, or lost in a retirement home, they have left us on the doorstep of multiple foreign conflicts, with 36T (and counting) of national debt, not to mention the three headed monster of Social Security, Medicare, and Medicaid, which also have trillions of unfunded liabilities. I always found Boomers had an interesting view on those programs.

They all pretend to be capitalists until you mention the Big Three of Social Security, Medicare, and Medicaid. I know it’s basically one of the third rails of politics, but I think that is going to start to change as well over the next decade. Just because you paid into one of the world’s greatest Ponzi schemes for decades doesn’t mean you deserve to get anything out of it. Social Security, Medicare, and Medicaid aren’t going anywhere anytime soon, but even the financially illiterate under 40 know that we won’t see a penny from any of them.

This is something that could be easily fixed if there was an opt out on all three programs. If you don’t pay into any of them, there won’t be any money waiting for you in later years. At the end of the day, someone will be left holding the bag on the debt and the entitlement programs, and if the gerontocracy has any say, it will be younger generations holding the bag, just like it has been for the last couple decades. It is worth asking a simple question: what happens to societies that subsidize the old at the expense of the young?

Whether it’s right or wrong, a lot of people under the age of 40 think they got sold out by older generations. It’s not just the hollowed out economy, the 2007-2008 financial circus and bailouts, and a decade of ZIRP on top of the ridiculous debt levels. It was also the beginning of the slippery slope on the societal side. Whether it’s egalitarianism, feminism, abortion, immigration/invasion, perpetual warfare, poisoning the food and water supply, or the growth of the pharmaceutical mafia (more on these two later), a lot of the issues that are coming to a head today started decades ago. Boomers also gave us the gift of “diversity is our strength”, which leads me into my next topic.

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The Death Of DEI: It’s About Time

This is another topic where the Overton Window has already started to shift, but I think the DEI agenda really ramped up after 2010. Whether it was affirmative action, disparate impact, or just flat out discriminatory hiring practices, the meritocracy that might have been real decades ago has been dead for at least 15 years. Colleges and businesses that fell in line with the DEI agenda basically decided that white men need not apply. Older generations might argue, or say it hasn’t been that bad, but over the last 10-15 years, it has been that bad, especially for the positions to get your foot in the door and start working up the so-called career ladder.

This cycle continues to play out on a variety of different topics, but for the better part of two decades, the focus has been on what boxes people check instead of how competent they are. I do think we are past the peak of this insanity, and you have seen companies like Boeing start to get rid of DEI departments. If it wasn’t frustrating enough, Bloomberg decided it was a good idea to brag about large companies and their hiring practices.

There are countless examples (#1, #2, #3, #4) of this, and I have seen it from my friends and people around me, whether it was in college or public accounting. Eventually if you get enough anecdotes, it’s hard to pretend it isn’t happening. So the “diversity is our strength” narrative is definitely going into a bear market, but trying to pretend that people aren’t tribal (it’s hard wired) is just another example of the reality distortion bubble across the West. Is diversity our strength if it leads to lower birth rates, lower GDP growth, and increases in crime?

There’s a reason the H-1B topic blew up on social media. There’s a reason the topic of grooming gangs in England blew up on social media. To translate from the Orwellian doublespeak, diversity is code for “not straight white men”, and grooming gangs is code for “migrant rape gangs”. If you look at the fruits, it’s not difficult to come to the conclusion that DEI is certainly a poisonous tree. People aren’t just economic inputs that you can swap out for a cheaper input from another country, and new people coming to America (or the West) don’t automatically assimilate and adopt our language, culture, and values because we have magic dirt.

Health Topics: Time For The Tin Foil Hat

This section doesn’t fit in neatly with anything else, but I wanted to write about several health topics because I think food and medicine will be something that becomes a bigger focus in the US as well as globally, and not just in 2025. I think the Overton Window on health will continue to shift on a variety of health topics, from what is in the food, the safety of vaccines (not just the COVID shot), Ozempic side effects, and potential cures to a variety of ailments. I’m not a doctor, but if you’ll allow me to put my tin foil hat on for a bit, we can get right into it.

I know that what happened with COVID basically got memory holed, but I think the COVID story is far from being done. I could rant on this one for a long time, but I will try to keep it tight. Basically, I look at the COVID virus, shots, masks, and lockdowns as a massive science experiment on a scale that is hard to believe. I want to focus specifically on the so-called vaccines, because I think some of the health consequences of the jab that was “safe and effective” are going to keep popping up in 2025, and become more obvious as time goes on.

I think we will hear more about turbo cancers, heart issues and heart attacks, as well as potential fertility issues as a result of the jab. Of course the manufacturers got total immunity from legal liability from the government, but I’m not sure how that might hold up in a fraud case. The point is that I think we are going to be hearing about the side effects and long-term health impacts of the jab for years to come. This might not be a popular opinion, but time will tell if the potential side effects become more widely known.

So I think Moderna might be in a tough spot at some point in the next decade, but I do think there is some good news on the health front. I think we will continue to see more information about Ivermectin as a potential cancer treatment. I have started to see several studies about Ivermectin (one suggested combining it with Mebendazole and Fenbendazole) being an effective treatment for cancer. It has been used for decades (more than 3B doses worldwide), won a Nobel Prize, and it happens to be affordable. So much for being a horse dewormer.

While COVID was a rough time, I think it did wake a lot of people up on a variety of topics. One of the bigger Overton Window shifts that I think is coming has to with the childhood vaccine schedule. I think we will see people start to question all vaccines, not just the COVID shot. I’ll leave it up to other people to figure out if vaccines cause autism, or food allergies, or other ailments that have continued to increase as the number of shots that kids receive on recommended vaccine schedule has exploded since Reagan signed the National Childhood Vaccine Injury Act to give vaccine manufacturers immunity for vaccine injury claims. Just like with DEI, once you get enough anecdotes about vaccines leading to autism, it’s hard to ignore what might be going on.

It’s a rabbit hole for sure, but it would be interesting to compare to an unvaccinated control group like the Amish. Another rabbit hole that I have started down more recently is the potential health impact of Ozempic (and other GLP-1 drugs). For many, the weight loss is temporary, and I think we are going to start hearing more about other potential side effects. I have seen several things on gastrointestinal issues, muscle loss, and bone density issues. This might or might not lead to heart issues (the heart is a muscle), and I have also seen people talking about “Ozempic Face”, or the gaunt look with increased signs of aging that can happen from taking these drugs. We will see if this has any impact on companies like Eli Lilly or Novo Nordisk , but neither of those stocks look particularly cheap at first glance.

I think people would have a better time experimenting with a Carnivore diet for a month or two if they wanted to lose weight, but that brings me to my final health topic: the state of the food and water supply. In short, it’s not pretty and I think it’s a huge contributor to the poor health of the average American. I’m not a huge fan of fluoride in the water (it’s worth switching to fluoride free toothpaste in my opinion), or the estrogen from birth control pills and other sources that filters back into the water supply. The food supply isn’t any better, with herbicides like Glyphosate (which is banned in many countries in Europe) and fertilizers (stick with organic food if you can) that have an impact on health.

The food itself isn’t much better, with a bunch of processed food complete with soy, seed oils, and/or food dyes. It’s tough to avoid all of these things, but I think the discussion on what is healthy and what isn’t when it comes to food and water is just getting started. I have dialed in my diet over the last couple years where it’s basically meat, eggs, dairy, and organic fruit, but I think it’s worth taking the time to try to avoid the harmful ingredients that many Americans eat on a daily basis. Some of these health topics might be controversial, but I think the Overton Window shift on health, medicine, and food is going to accelerate in 2025 and beyond.

Conclusion

I’ll keep my tin foil hat on for a little bit longer before wrapping up. My last prediction that is completely random is that we will see some movement on the P Diddy / Jeffrey Epstein story. We will see if that means arrests or just new developments on the story, but the child trafficking and blackmail situation is one of the darker rabbit holes in geopolitics, and I think 2025 might shine a little bit of light on the situation. I wrote last year that it feels like something big is coming in 2024, and last year certainly set the table for the rest of the decade. I have that feeling again now that something big is coming in 2025. It feels a little bit like a geopolitical powder keg, and everyone is waiting to see who is going to make the first move.

I think all the topics I wrote today will be issues in 2025, but I think there’s a good chance that each one will last for more than a year. A lot of these topics are connected, and it’s hard to get a comprehensive view of the world or financial markets without paying attention to the geopolitical chessboard. America happens to be center stage, and I think we are going through a paradigm shift in more ways than one. I’m optimistic that they will be changes for the better, but there are plenty of things that could go wrong. I’ll be back as soon as possible with by 2025 outlook for financial markets, but I wanted to do this one first to set the table. There is a lot of uncertainty in the world right now, but I am confident about one thing: we certainly live in interesting times.

Call it a vibe shift, call it woo woo, call it whatever you want. I just have a gut feeling that something major is coming, something that is going to be a culture shock. The last one we had was the government response to COVID (not the actual virus itself, I want to be clear on that), and I just have this feeling that we are going to experience another important event (or series of events) over the next 12 months. Recently, we have bounced from one crisis to the next, and it seems like things have been accelerating over the last couple years.

- 2024: The Beginning Of The End Or The End Of The Beginning? (Part 1)

I wrote that a year ago, and after Trump’s recent election, I’m optimistic about the direction of the US (and the world) for the first time since the start of 2020. That optimism might be misplaced, but I think a lot of people have woken up in recent years. I like to think that I’m being as objective as possible (I know my biases), but the last four years were eye opening. We went from lockdowns for a cold and experimental “medicine” that was safe and effective, to proxy wars in Eastern Europe and the Middle East, an intensifying economic cold war with China, all while our government and NGOs were opening up the border and importing people into the country as fast as possible.

Did I miss anything? Oh, just a near miss assassination attempt on President Trump. It’s a total coincidence that the first Trump rally in three election cycles with a CNN camera crew happens to be the one where someone takes a shot at him, but I digress. I was hoping it wouldn’t happen, but I did say last year that I wouldn’t be surprised if we saw an assassination attempt in 2024. So all of this has happened in less than four years, and now I’m getting optimistic?

I’m not the pie in the sky type that thinks Trump is going to fix everything overnight. “Emperor Trump will be inaugurated in a couple weeks, end all of the wars and fix things so we get an American Utopia. The S&P is going to 10,000, the economy is going to rip, and 2025 will be smooth sailing from here.” That would be nice, but I don’t think this year is going to be that simple. I think that a huge portion of the US (and a large chunk of the world, if I’m being honest) breathed a sigh of relief when Trump was elected. There has been a spike in small business optimism, but we will see if that lasts. That’s not the only place I have seen Americans being more optimistic, but I think the vibe shift is just getting started.

I’m not superstitious (maybe a little stitious), but last night was New Year’s Eve, and the Capitol Building, the Washington Monument, the Empire State Building, and One World Trade Center all get hit with lightning, right before we kick off 2025? It’s not an omen, it’s just a coincidence, nothing to see here. Absolutely nothing to do with the vibe shift.

Anyway, if you want to go back to review the other topics I was writing about a year ago, I included links above. I will get into the financial market topics next week, but this piece always gets longer and longer until I have to break it up into multiple pieces. We are a couple weeks away from Trump’s inauguration, and I think he will get into office without incident. With the election results, Trump has his mandate: end the wars, reduce (ideally eliminate) immigration and start deportations, and improve the American economy. There are other things that need fixing, but those are the big three. I don’t think he is going to be an emperor figure (or an American Caesar), but the way I see it is that Trump’s second term is a bridge to whatever comes next. One of the big shifts that is starting become apparent is a realignment of the political sphere in the West.

If he can pull us back from the brink and stop the flood of immigrants, he will have ticked two of the most important boxes for many Americans. Whatever happens, I think we are watching the death of both political parties as we know them. As the younger generations rise in influence, we are going to see massive changes in both parties.

2024: The Beginning Of The End Or The End Of The Beginning? (Part 2)

People talk about The Fourth Turning, cyclical changes, and political upheaval, but I think what we are watching is a shift from the current political establishment towards two main camps: Nationalists and Globalists. It is happening across the West and it will only accelerate as we see a generational changing of the guard. As an aside on tariffs, the all-knowing economists only seem to complain when America starts threatening tariffs versus when other countries put their own tariffs in place. Tariffs are a political tool, and for Trump, it seems like they are an opening point for negotiations and conversations with other countries. I have heard several people say that it’s better to take Trump seriously instead of literally when it comes to his policy proposals.

The Overton Window & The Reverse Fishbowl

One of the biggest themes of the election this year was the continued decline of mainstream media. It hasn’t been a secret that cable networks have been on the decline, but I think we will continue to see platforms like Twitter, Substack, as well as podcasts increase their influence. Twitter in particular does create a bit of a reverse fishbowl dynamic, where you can look out at the world and see and comment on anything and everything, from financial markets, geopolitics, to pop culture and memes.

Substack and podcasts will continue to play a big role, but Twitter has turned into the de facto town square, especially since Elon Musk bought Twitter. I’m not a huge fan of his, and I certainly won’t be buying an electric vehicle or signing up for a brain chip anytime soon, but it’s hard to overstate the impact he has had on the overall discourse with the changes he has implemented at Twitter. None of the up and coming platforms are perfect, but they are far superior to existing news sources in my opinion. In short, the shift from centralized mainstream media to decentralized forms of media is a trend that is set to continue.

We will see if Trump and RFK can make pharmaceutical advertising illegal (which might be unlikely if you look at Congress), but if he can, it would be a death blow to the cable networks and a big hit to pharmaceutical companies. Two birds with one stone, as they say. I have seen a couple sources that say 75% of ad spend on large news networks comes from pharmaceutical companies, but let’s play it safe and say it’s more than half. When you combine that with the fact that the average age of cable news station viewers is 70 years old, and they haven’t been able to capture a younger audience, it paints a grim picture for establishment media.

This does have drawbacks, however. The shift to Twitter has accelerated the 24 hour news cycle to the constant chase of the shiny object. While this doesn’t help with our collective ADD, it does accelerate the shift in the discourse. Some people like to comment that Twitter’s not real life (and they’re right), but it has turned into the town square. I think we will continue to see the Overton Window (the range of subjects and arguments that are politically acceptable to the mainstream population at a given time) shift rapidly. Topics that were taboo even a couple years ago are probably going to become serious topics of discussion in 2025 and beyond, like we saw in 2024 with immigration.

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Immigration / Invasion: Still A Focus For 2025

I predicted that immigration would be one of the biggest topics of the Presidential Election cycle, and it looks like it won’t end there. We went from “they’re eating the dogs, they’re eating the cats” to what we saw on social media in the last couple weeks with the H-1B debate. It turns out that Heritage Americans don’t view our country as just an economic zone, or just a shared set of values. We will see what Tom Homan (Trump’s new border czar and owner of the best title in the new administration) and Stephen Miller, who is expected to be in charge of immigration policy, can do once Trump is in office.

Despite the fact that Elon was on the wrong side of this one, it is worth noting that this debate would not have happened on pre-Elon Twitter. The short version is that Trump wasn’t given a mandate just so he could change the source of mass immigration, and at the end of the day, the only difference between legal and illegal immigration is a signature. If you want a preview of what America might look like, take a peek at Canada, where population has exploded over the last 4 years. Feel free to ask them if they think unlimited H-1Bs is a good idea.

Now I know that recreating Silicon Valley in India isn’t going to happen, but Elon eventually did walk back his position on H-1Bs, and I have seen some people suggest tariffs on H-1Bs (if that happens, Cognizant is probably a short). Some people tried to compare Operation Paperclip to the H-1B program, but that was even more selective than the O-1 visa. The point is that a lot of discussions around immigration are starting now and I don’t think that it will stop in 2025. If you haven’t been on Twitter, or you want a good breakdown, you can check out the podcast below.

This was just one example of how fast the Overton Window can shift, and I think we might see that continue in 2025 when it comes to immigration. Below is a list of several things related to immigration that could become hot topics next year:

• Deportations

• Birthright citizenship

• A moratorium on immigration

• The Naturalization Act of 1790

• The Immigration Act of 1924 (Johnson-Reed Act)

• The Civil Rights Act (aka the US Constitution of 1964)

• The Immigration and Nationality Act of 1965 (Hart Celler)

• The Immigration Act of 1990 (the start of the H-1B program)

Geopolitics: More Questions Than Answers

I said last year that 2024 would set the table for the rest of the decade, and I think we are we are going to see several big picture shifts by 2030. Like I said earlier, there is a shift happening across the West, a realignment of sorts. Republican or Democrat, conservative or liberal, and other dividing lines are probably going to become obsolete in coming years. Moving forward, I think the political sphere in the West will basically sort into two groups: Nationalists and Globalists.

Over the last decade we have effectively had a uniparty, but as we see generational change in the political sphere, I think that will take a backseat to a different set of priorities. People want leaders that have the best interests of the people and the country in mind, and I think that shift is going to continue to happen across the West. I’m optimistic that Trump is just the start of that change here in the US, but we will have to wait and see how things develop in his second term. I do think he has a chance to accomplish a lot more this time around.

This is where I get back to the quote at the start. Don’t listen to what they say, watch what they do. Is Trump going to slap tariffs on a bunch of different countries all at once on day 1? I doubt it, but I think he is using as an opening salvo of sorts for negotiations with different countries. The same can be said of his demand that NATO member states increase defense spending to 5 percent of GDP. I’ll talk a bit more about the potential impact of tariffs on different investment ideas next week, but I think the first 100 days will tell us a lot about what Trump has planned for the next four years.

I’m optimistic about several parts of Trump’s Agenda 47, but I’m less optimistic about Trump being able to end foreign wars (or at least America’s involvement). There are entrenched interests that seem to want to escalate in the Middle East against Iran, as well as in Eastern Europe against Russia. If wars expand unpredictably (like what happened in Syria recently), and Trump can’t negotiate his way out of those conflicts, then the US is on a collision course with Iran and Russia through proxies in those respective regions. I think that there is a much higher probability that the situation in Ukraine gets resolved in 2025 compared to the Middle East. It will be tough to keep Ukraine limping along next year without direct NATO involvement (some might say we already got involved when “Ukraine” started launching ATACMS into Russia), but hopefully the US can avoid getting dragged further into direct conflict with Russia.

I don’t think China is interested in a hot war over Taiwan, but I think the economic cold war will probably continue. China will probably be one of the main targets of tariffs (not an outlandish prediction), but we will see how effective they are. I know that a huge portion of the D.C. establishment are big China hawks, which shouldn’t be that surprising. I do think a direct confrontation with China is unlikely, because it basically flips the economic and geopolitical game board, and trying to predict what the world looks like if that happens is a fool’s errand (at least for me).

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Return Of The Monroe Doctrine?

One of the things that I was thinking about the other day was Trump’s comments on the Panama Canal, Greenland, and Canada. I’m not saying we are going to get a return of the Monroe Doctrine where the US de facto colonizes a huge portion of North and South America, but I think it is interesting to see Trump focusing on areas closer to home. I do think it would be good for the US to stop throwing resources into the void in the Middle East and Ukraine, and turn our geopolitical focus to the Western Hemisphere.

Sticking with the Western Hemisphere, I have to comment on the possibility of an American Civil War since I brought it up last year. I wrote that a Trump victory would probably lower the odds of internal conflict here in America. I’m sticking with that view, and the country is still very divided, but I think there is a path to avoid having the country breaking into several smaller countries. I also think we will see Trudeau get tossed out in Canada in 2025, so I don’t think the Canadian political situation will get worse (admittedly a low bar). We will see if it gets any better, but I do have a couple longer term predictions past 2025.

Long Term Predictions

My first prediction has to do with the European Union and NATO. I think the EU will probably collapse by 2030, and NATO probably won’t be around if that happens. Shorter term, I do think we will start to see cracks in the EU this year, especially if economies like Germany stay weak, and we get more political upheaval in several countries. Just look at Germany’s energy policy, which doesn’t just impact Germany. I’m not saying this is some massive problem today, but Europe has a bunch of problems, many of which go back to the outside reliance on commodities like energy.

If Europe can manage to get a natural gas pipeline from Qatar, through Syria and Turkey and into Europe, then maybe they will be able to replace cheap gas from Russia. That won’t happen overnight, but it is an interesting development to watch when the price of natural gas in Europe is significantly higher than it is here in the US. It will be interesting to see what their economy looks like in a couple years if they have to rely on LNG shipments. If things get bumpy in Europe next year, we will see what happens with Ukraine, the EU, and NATO, but it will be interesting to watch from afar here in the US.

The other long term prediction is one that I can’t put a date on, but I do think it will happen in my lifetime. I think the US will absorb some of Canada. This won’t happen anytime soon, but if you look at how the West subsidizes the East with equalization payments, it doesn’t look like something that will go on forever. Basically, I view Canada as very similar to the US, but they are further down the path we have been on over the last four years. As an American, I wouldn’t mind adding British Columbia, Alberta, and Saskatchewan to the US, but that might take decades. With the way things have been going up there lately, there might be a lot of Canadians that wouldn’t mind joining the US.

Conclusion

Like the posts last year, this one got long enough to break into multiple pieces. The next post will touch on the death of DEI, the Generational Divide, and some of the health stories where I think we will also see a shift in the Overton Window in 2025. The change in the pace of the media environment flows through to all of the different topics that are quickly coming into focus, and I think that is a durable change that we will see over the next several years.

Some of the post will also build on the topic of immigration, but all of these topics directly or indirectly impact financial markets. The geopolitical landscape certainly has an impact on financial markets, and there are just so many moving pieces that it’s hard to put together a comprehensive picture on where we are at today, while keeping a long-term view in mind. I do think 2024 set the table for the rest of the decade, and I think in 2025 we will start to see some of the puzzle pieces start to fit together. We will see what the vibe shift looks like in 2025, but I’m optimistic that things are headed in a better direction for the US.

I wouldn’t be surprised to see an assassination attempt on Trump next year.

I said that in my 2023 year end post, and sure enough Trump literally dodged a bullet about a month ago. I also talked about Biden not being the candidate for the Democrats, and I still think Kamala is unelectable, no matter what the polls have been saying lately. If you want to read what else I was talking about, here are the links to all three of those posts.

I had a decent draft of this piece last week and had to scrap almost all of it. It was too focused on the short term and I wanted to zero in on some of the things that could be on the horizon longer term. I’m not immune to paying attention to short term events, whether it’s in markets or geopolitics. Would it have been nice to wait to write the post I wrote last week about offshore until after the selloff driven by some of the yen carry trade unwind? Yes. Is there any fundamental change in where those businesses are going over the next couple years? No. It’s easy to get caught up in short term noise in politics and financial markets, and some of my recent travels helped me take a step back and look at the bigger picture.

I still think 2024 is going to be the year that sets the table for geopolitics and markets. The US as a country sits at a crossroads. I see shades of the Spanish Civil War, Weimar Germany, and late Roman empire in our country, and I think we are definitely in the “weak men create hard times” part of the cycle. I have a rough idea of how it might play out, but if we zoom out and look at where we are on a scale of decades and centuries, I think the US is going to radically different twenty years from now. The average person has no understanding of history, and plenty of people that think they understand history believe a completely fabricated version of events, especially when it comes to the 20th century.

So here we are, set to repeat a similar cycle of events that has happened throughout history. We have an oligarchy that wears a democratic republic as a skin suit, and I wouldn’t be surprised if we have a monarchy or something similar in my lifetime. We have financial markets distorted by passive investment and a decade of ZIRP (and apparently Yen carry trades) where the fair value of assets takes a backseat to things like momentum and trend following. We have a degenerate culture that shows signs of rot everywhere, from Hollywood, to the media, to our politics. You even see it at the Olympics with the opening ceremony. I could rant about everything that’s wrong with modern society for a long time, but the point is that we have signs of decay everywhere you look.

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Gaining Perspective: Invert, Always Invert

One of the best ways to understand the upside down world we live in Charlie Munger’s saying: invert, always invert. It helps with markets, it helps with current events, and it helps to figure out the interesting times we live in. Another way that some people try to figure out our interesting times is Hanlon’s Razor.

It drives me nuts when people talk about Hanlon’s Razor. It sounds intelligent, but I’m not sure how anyone paying attention since 2020 thinks this still works. In my opinion, it underestimates people’s intelligence and overestimates their benevolence. If this made sense, laws of probability would dictate that our leaders would occasionally do something in the best interests of the country. If we invert, it looks like this:

Looking at certain events through this lens, like the Trump assassination for example, might give you a different perspective on things. Your mileage may vary on this one depending on your worldview, but it’s an interesting thought exercise when you look at what is going on around the world, and some of the powerful factions that influence markets and geopolitics.

Trump: The Obvious Frontrunner

Now that I’m done pontificating on the state of the world, let’s get into the election. I wasn’t all that surprised to see Trump targeted, and I wouldn’t be surprised if we see another assassination attempt on Trump. I’m not here to take you down the rabbit hole on what happened, but there are a lot of coincidences surrounding the events on July 13th. Just like what happened with JFK, I don’t know if we will ever get an accurate version of the full story.

I thought Trump would be back on Twitter by now, but I still think he’s going to win come November if they don’t cook the books on the election. I didn’t talk about JD Vance as a VP pick in my year end post, but I have been talking about him more recently in some of the podcasts I have been putting out. I don’t know if Trump’s VP pick changed after the assassination attempt, but I think Vance is the best pick he could have made. He has some very interesting connections to Silicon Valley and the so-called PayPal Mafia, but I will be having a guest on the podcast soon to discuss the implications of picking Vance as the Vice President.

Kamala Harris & Tim Walz

Like the assassination attempt on Trump, I wasn’t surprised to see Biden get thrown under the bus and announce that he is dropping out of the Presidential race to endorse Kamala Harris (on National Ice Cream Day no less). I didn’t think she would be the replacement, but she is still just as unelectable now as she was in 2020. You can go into some of her time as attorney general, her policies, or Willie Brown, or her intelligence, but that hasn’t stopped the media apparatchiks from firing up the spin machine for her. I’m curious to see what happens at the Democratic Convention and any debates that might or might not happen. Recently we got her VP pick, Minnesota Governor Tim Walz.

The VP pick was a bit of surprise but needless to say, I’m not a huge fan of him either. Just look up the mostly peaceful protests in 2020 in Minnesota, or his thoughts on the First Amendment, free speech, and misinformation. For the military guys that might be reading, you can look into the allegations of stolen valor. I’m admittedly biased on the topic, but I don’t think the Democratic ticket for 2024 is a strong one.

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Geopolitics: Escalating Proxy Wars

The election is only going to get more eyeballs moving forward as we are less than three months from election day, but the geopolitical situations in Ukraine and the Middle East don’t look like they will calm down any time soon. Ukraine has recently made a push into the Kursk region of Russia, and the Western powers seem content to continue the proxy war and fight to the last Ukrainian. The Russians don’t seem like they are in any hurry, and the West has continued to draw down munitions stockpiles while Ukraine is running low on men to send to the front. I thought that we would see things wind down in Ukraine because there is clearly no path to victory, but now I think we could see it grind on for months and potentially longer.

I’m more worried about the situation in the Middle East, as it seems like factions in the US and Israel are itching to get into a war with Iran. The most recent provocation was the assassination of Hamas negotiator Ismail Haniyeh in Tehran. Iran’s retaliation a couple months ago seemed like theater, and we are still waiting to see what their reaction will be this time around. You also have the Houthis in Yemen, Hezbollah in Lebanon, and Hamas in Gaza that make the whole situation complicated to say the least. I’m hoping the US can avoid getting dragged into another war in the Middle East, but needless to say things aren’t trending in the right direction on that front. I have no idea what the rest of 2024 looks like in the Middle East, but I have a hard time seeing a path for deescalation, especially with some of the recent actions from Israel and rhetoric from the US. At least for now, I think the best we can hope for in the Middle East is some sort of uneasy stalemate.

Illegal Immigration Or An Invasion?

In my year end post, I talked about illegal immigration being one of the most important issues of the election this year. I think it’s an issue that falls under the geopolitical umbrella that often flies under the radar. It’s not just an issue in the US. England and Ireland have seen protests in recent weeks, and the rest of Europe is in a similar position (except Hungary thanks to Viktor Orban). I thought that Europe was five or ten years ahead of the US on this front, but we seem to be doing everything possible to catch up.

I have seen headlines saying that a majority of US voters are in favor of mass deportations (ranging from 51% to 62%). I have heard that as many as 1 out of every 6 people in the US are here illegally, which sounded to me like it might be on the high end. I wouldn’t be surprised if it’s as high as 10% though after the last four years. It’s just an educated guess, and good luck trying to find any accurate stats. The point is that the US will have to make a decision on the border and what to do about removing people from the country that shouldn’t be here.

If you want a preview of what might happen if nothing is done, feel free to go read The Camp of the Saints. I haven’t even mentioned the fentanyl coming across the border. More Americans have died from fentanyl overdoses since 2020 than Americans that died in all of World War I or Vietnam. If you want to go even further, you can look into the child trafficking and sex trafficking that is happening in connection with the stream of people crossing the Darien Gap. No matter what politicians in DC say about Ukraine or our greatest ally in the Middle East in Israel, the biggest threat to America is what is going on at the southern border right now.

Will Trump actually follow through on closing the border and mass deportations if he’s elected? I honestly have no idea. I don’t think he is going to repeat some of the mistakes he made with personnel in 2016, but I have a “show me” attitude towards a Trump second term. The issue should be near the top of the agenda if he is elected come November, along with deescalating the situations in Ukraine and the Middle East.

Questions On The Election

There is a lot of uncertainty about what happens depending on the outcome of the election. I think one similarity of the two candidates is that we will probably continue to see large deficits, albeit with different policy focuses. If Trump wins and follows through on some of the campaign promises, there are a lot of changes on the horizon. I’m curious to see if the talk about tariffs is bluster, but that could have an interesting impact on markets. If Harris wins, it probably looks a lot like the last four years of Biden.

One of the other wild cards for the rest of the year is around the integrity of the election. The US is very divided today, and some people have talked about the idea that neither side will accept the other side’s candidate winning. Others have floated the idea of a civil war, which I still think is unlikely. The calculus on that changes depending on the circumstances around the election, especially if we get a rerun of 2020 for some of the swing states. I said in my year end post that a Trump presidency would actually decrease the probability of a civil war, and I think that’s probably still the case. I hope America isn’t past the point of no return and that we can start to fix the divide and some of the problems in the country, but we will find out over the next couple years.

Conclusion

We will see how the rest of the year plays out but I figured it was high time to write an update on my year end post. There are a lot of moving pieces in the world today, whether it’s in markets, the Presidential election or geopolitics. Believe it or not, I’m optimistic about the future of America, but I think the next couple years could get bumpy. If we are going through the Fourth Turning, the next couple decades look a lot brighter to me after we make it through the next several years. I think that the rest of 2024 will chart the path for the rest of the decade in a lot of ways. It will set the table for the political picture here in the US, the geopolitical picture for the rest of the world, along with financial markets. Whatever happens, the next three months leading up to election day on November 5th will certainly be interesting to watch.

The last CPI inflation print below 3% was in March 2021. That’s more than three years ago. It’s also the CPI, which is barely connected to real inflation and dramatically understates the actual increase in the cost of living over the last couple years. My point is that I think we are already in a cycle where inflation will be higher on average, and we will see periods where inflation surges like it did in 2022. I don’t think we hyperinflate for a variety of reasons, but I think we are probably in for a prolonged period of inflation or stagflation. This view is a big reason why I’m bearish on bonds and bullish on commodities.

By the end of this cycle, I think investors will look at (20+ Year Treasury Bond ETF) as the toilet paper ETF. That will probably be a good time to buy, but we have a long way to go from here to there. Investors have continued to pile into TLT, with huge inflows for most of 2023. For decades, investors have been trained to buy the dip and that the bond side of the 60/40 portfolio will save them when the stocks are underperforming. The problem with that idea is that stocks and bonds become correlated when inflation is running hot, something we saw in 2022, the worst year for the 60/40 portfolio since 1937. The last asset you want to own during an inflationary cycle is long bonds, and our government’s current financial situation doesn’t exactly instill confidence that they are going to get spending under control.

Commodities tend to be a good diversifier in these periods, but I should mention that there is a difference between holding bonds long-term and trading them. If rates do come down later this year, like many investors expect, long term bonds will perform well, at least near term. I don’t know what path interest rates take from here until the election. If I had to guess, we stay where we are. I wouldn’t be surprised to see a 0.25% cut or two this year, but I would be surprised if we get a hike. I’m more confident about the path of interest rates longer term.

If you asked me if I thought interest rates would be higher or lower in 2030 than they are today, I think rates will be higher. I don’t see how markets can have four decades of declining interest rates, with about a decade of ZIRP as the cherry on top, and follow it with a couple years of increasing interest rates before going back down. The elephant in the room is the potential for the Federal Reserve coming in to cap rates with yield curve control, but we will have to wait and see on that. If we do go down that route, I think it will be a good time to own commodities and stocks in the sector.

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The Metals

Gold has been on a tear to start 2024, so I’m feeling pretty good about my educated guess that we will see $2,500 per ounce by year end. Silver is above $30 an ounce and I wouldn’t be surprised if it follows gold higher over the next couple years. Copper has been on a tear and there was talk of a short squeeze recently, but it looks like we might get the pullback I was expecting if yesterday’s move is any indication. I’m still a long-term bull on copper, and I have started to dig into a couple stocks in the sector, but I’m not chasing (or buying) any of them yet. If copper prices continue to rise, I wouldn’t be surprised if we see more urban mining, like the recent theft of Tesla superchargers.

The supply side for silver and copper looks very favorable for long term bulls, and central banks have spent the last year buying gold in large quantities. Platinum and palladium are showing signs of life, and unless you think we are all going to be driving EVs by 2030, it’s going to be hard for supply to meet demand for catalytic converters moving forward. I think some of the recent moves for the metals are just the beginning, and I’m bullish on all the metals to varying degrees over the next two to three years.

Natural Gas

I have started to change my mind on the outlook for natural gas in recent weeks. This might be a case of the price changing my sentiment on commodity, which is up more than 50% in the last month. It’s still cheap below $3.00, but one of the things that I found interesting was how the natural gas producers held up in recent months compared to the spot price. Peabody Energy and other thermal coal producers certainly stand to benefit if the nat gas rally continues, but I don’t think natural gas will be below $3.00 by year end.

There are two things on the horizon that are bullish for natural gas for longer term investors in my opinion. The first is increased demand from the electricity grid for AI and data centers. Nvidia (and their 10 for 1 stock split) will benefit from the continuation of massive capex spending from the tech sector, but I think if you look at the derivatives of the AI trend, energy is setup to be a beneficiary as well. We will see how things develop for the grid, data centers, and AI, but natural gas is the logical solution to fill a potential gap in power generation over the next couple years.

I have started to look at a stock that would benefit from this trend, but I need to do more research there. The other thing is the expected increase in LNG capacity on the horizon. There are several projects set to come online by 2027 that could vie for natural gas supply here in North America. I’m curious to see how these two trends play out, but I think natural gas has an interesting setup moving forward. One of the other things to watch for natural gas is the associated gas from the Permian Basin continuing to increase, but I think these trends will be keys to what happens with natural gas in coming years. We have had cheap energy from natural gas for most of the last decade, but that might change over the next couple years and bring inflation along with it.

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Oil

This one has been interesting to watch in recent weeks. I still think investors are missing the forest for the trees on oil as far as supply and demand, but I think we are in the early innings of a flight to real assets, and stocks tied to oil look very attractive to me. With 2024 being an election year, we are going to see powerful people pull out all the stops to make sure we don’t see rapidly rising oil and gasoline prices. One recent example to prove the point is the draining and closing of the Northeast Gasoline Supply Reserve, conveniently timed to be finished by June 30, just in time for the 4th of July.

To be fair, the 1 million barrels they are releasing over the next 6 weeks are a drop in the bucket, but it’s emblematic of the short-term thinking from the political class. If we do see oil rally into the summer, I wouldn’t be surprised to see them tap the Strategic Political Reserve, applying a temporary solution to a longer term problem. If we do go down this path, I think we will look back on it in a couple years as putting a bandaid on a bullet hole. We will see what happens with the Permian Basin (I talked about some of the things to watch recently), but that is going to be the key for oil, and could potentially be a driver for inflation moving forward.

Conclusion

I’m pretty confident that we are going to see inflation or stagflation, and it’s just a matter of when and how much. Oil is going to be a driver, which is what makes the timing difficult. I don’t have a crystal ball for interest rates near term, but I think we are in a secular bear market for bonds, and I find commodities to be a much more attractive asset class. I have been looking at a couple new companies recently, but I want to add some exposure to gold, copper, and a couple other sectors. I haven’t found anything directly exposed to natural gas that has caught my eye, but my outlook on the commodity itself has started to change for the better over the last couple months.

Markets move in cycles and I think we have a long way to go in this new regime. When more investors will start to figure it out is up for debate, but I think more and more people are starting to wake up to changes going on in the market. Whether it’s the government debt situation, underinvestment in commodities, or changing market cycles, I have come to the conclusion that all roads on the current macro situation lead to inflation. If it looks anything like prior inflationary periods, commodities and stocks in the sector are going to outperform and see massive inflows in coming years. I’m curious to see how the rest of the year plays out, but it could be an interesting election year if inflation starts to rear its ugly head again.

Disclaimer

I own shares of Peabody Energy. I also own calls on Peabody. You should do your own research before making any investment decisions. Different investment strategies have different risk/return profiles which should be considered before making any decisions.

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Petrobras Dividends

I have written about the political risk involved with owning Petrobras a couple times, and at least for now, it looks like the risk was overblown. Shares have rallied about 15% over the last six weeks, so congratulations to anyone who decided to buy the dip. As long as oil is in the $70-90 range, I think Petrobras will continue to pay out $0.40 to $0.50 per quarter in regular dividends. The good news from last week is that it turns out shareholders are getting the cherry on top with special dividends after all.

They have decided to pay out 50% of the special with the next quarterly payout. That puts the payout at $0.55 for May and $0.55 for June. The record date has passed for the regular dividend ($0.21 for each of those), but investors buying before May 2 can still receive the $0.34 special payout for the May and June dividends. It sounds like they will be paying out the other 50% of the special dividend over the rest of 2024, but we will see how that develops in the second half of the year.

Offshore Update

Transocean’s earnings report didn’t do anything to change the bullish thesis on the company or the rest of the sector, but I’m curious to hear what they have to say on the earnings call. I haven’t changed my opinion on the sector or the company, but I do want to hear from management on the recent refinancing and what they have to say on day rates. I have also started to see rumblings on Twitter of longer term contracts with day rates of $550,000 to $600,000 on the horizon. Just like anything you see on social media, feel free to take it with a grain of salt, but new contracts in the $600,000 per day ballpark would be very bullish for the deepwater sector.

The other thing I wanted to highlight from Twitter is @tommydeepwater’s most recent Deepwater Insight. If you’re on Twitter and you don’t follow Tommy, you should. His weekly updates are must reads for offshore investors. This week’s version was focused on news out of Namibia, where Galp announced very good news with their Mopane drill results. Shares of Galp are up almost 30%, and Sintana Energy (a smaller company which owns a smaller stake of that block, as well as small stakes of other adjacent blocks) shares have more than doubled in the last couple weeks.

We will see how things develop, but if Namibia turns out to be a black gold mine for some of the companies that own offshore blocks, Galp and Sintana Energy are probably still cheap, event after the recent pop. For the deepwater and OSV sector, this is definitely a bullish development. This is more of a long term story than the potential for new contracts at higher day rates in the second half of 2024, but when you look at the relatively fixed supply for the sector, it’s just another reason to be long-term bullish on offshore.

The Permian Basin

The last topic I wanted to touch on is the Permian Basin. A recent Wall Street Journal article was an interesting read, but there were also a couple charts from Twitter I wanted to include as well. The article talks about water use, shifting ground, and earthquakes in the area.

I’m not sure what to make of more earthquakes and shifting ground in Texas, but the charts I saw on Twitter were more interesting to me, and probably have bigger implications for investors.

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I’m curious to see what this chart looks like by the end of the year. I’m not here trying to call the exact timing on production in the Permian Basin rolling over. I have said it before and I’ll say it again: trying to time this perfectly is a fool’s errand in my opinion, especially using government statistics. I’m not a geologist or someone with hands on experience in the oil sector, but I think it’s highly unlikely that we get through 2025 or 2026 with investors still talking about production growth from the Permian.

The other chart is from Luke Gromen, who is one of my favorite podcast guests to listen to, and he has been all over the chain reaction that a shale production decline could set off. I’m not going to reiterate that here, but I think this will be something to watch for the rest of 2024 and beyond. Poking through the replies was interesting, where some of the people closer to the industry said breakevens for US shale is closer to $85. For me, these charts reinforce the idea that the offshore sector will be the place to be for investors in the energy sector. It’s much harder to put a timeframe on it, but as long as I can keep a three to five year time horizon, I don’t think I have to nail the timing to nail the landing.

Conclusion

It’s been a bumpy start for my portfolio this year, but I think the rest of 2024 is going to be an interesting ride. It looks like the decision to hang onto Petrobras will turn out to be the correct one for now with the payout of half of the special dividend. I’m curious to see how the rest of 2024 turns out for the company, but as long as the dividends keep flowing, it will be hard to sell any of my shares. I continue to remain bullish on the offshore sector, and I think some of the recent developments just reinforce the bull case. The offshore sector is very long cycle, so it’s not going to happen overnight, but I think the sector is going to richly reward patient investors.

Disclaimer

I own shares of PBR.A and RIG. I also own calls on RIG. I do not own shares of Galp or Sintana Energy (unfortunately). Any time I talk about Petrobras shares I am referring to the American Depository Receipts (ADRs). You should do your own research before making any investment decisions. Different investment strategies have different risk/return profiles which should be considered before making any decisions.

In the past, it was Black Tuesday after the Roaring 20s, the Nifty 50 in the 60s and 70s, the Dotcom bubble in the 90s into 2000, or real estate into 2008/2009. Even if you go back further, to Tulip Mania, or the South Sea Bubble, you have exuberant sentiment that drives prices far beyond any rational level. Eventually, it starts to feed on itself and prices go parabolic shortly before collapsing. I’m not going to try to call a blowoff top, or short any of the stocks that I think are extremely overvalued, because your guess is as good as mine on timing. I do think we are seeing signs of exuberance today, specifically around certain stocks in the semiconductor industry. While past manias were driven by sentiment and human psychology, there are other distortions in today’s financial markets that are layered on top of this dynamic.

Trading algorithms and high frequency trading, derivatives, 0DTEs (Zero day to expiry options), and last but not least, passive investing, have all had an impact on the market. I would argue that all of these things distort financial markets and actually make them less efficient. It is definitely frustrating for active investors with a long-term time horizon, but I do think it creates an opportunity for those that are willing to go against the grain. This post was prompted by a recent podcast where well-known hedge fund manager David Einhorn argues that passive investing and fund flows have broken financial markets, and he talks about the impact that passive investing has had in recent years as it has continued to grow. He also goes through different things he looks for now when picking investments, and how he thinks about the influence of passive investing on his own investment decisions. If you have the time, it’s definitely worth a listen.

Passive Flows & Index Investing

This has been a topic that has become more and more prevalent over the last couple years due to the extreme concentration in large indices like the S&P 500 and Nasdaq 100. If the trend of the last couple years continues, it’s a topic that is likely to get more and more attention over the next couple years. Mike Green, a frequent guest on several financial podcasts I listen to, has touched on this topic several times recently. He likes to call it the mindless machine that acts in the background of financial markets. If you give Blackrock or Vanguard money to invest (or ask them to sell one of your holdings), it’s not an employee that turns around and transacts for you. If you give the machine money, it buys, if you ask the machine for money, it sells.

This approach relies heavily on the idea that markets are reasonably efficient due to the active investors that make more informed buy and sell decisions every day. Green estimates that passive has about 44% market share today, and he thinks that share will continue to grow. If you think about all the money in 401k plans and IRA that is on autopilot and buys index funds every two weeks, it’s not surprising that the market share of passive investing is set to grow, but I think it could cause problems sooner rather than later. Like a lot of things in financial markets, I think that strategies that worked for the last 40 years will probably have mixed results over the next decade. I’ll paraphrase a bit to get the point across, but a recent quote from one of the podcasts lays out Green’s opinion on passive investing.

Q: Thinking five years and beyond, what has you most worried and what has you the most optimistic?

A: What I’m most worried about is the dynamics around passive investing. It’s really frightening that as Americans we have outsourced our retirement to the market. That’s not what markets are supposed to do. Markets are not supposed to deliver a return to individuals that allows them to be supported into their old age. It could be part of the solution. I can choose to allocate capital into public equities as a component of my portfolio, but this somewhat ridiculous idea that I should just mechanically put money into stocks for the long run, and that I should get returns delivered to me that allow me to achieve those objectives is fundamentally flawed….

If you’re not putting in the work and you’re not paying for the product, you are the product. What they want is your assets, and they’re marketing to you. So when Vanguard is offering you a three basis point index fund, and encouraging you to put your money aside on a continuous basis, they may think they are working in your best interests, but if everybody does it at the same time, and everybody does it together, it creates systemic risks that hadn’t existed before.

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Bubblicious: Signs of Froth In Semiconductors

If you pay the slightest bit of attention to financial media, you will probably be familiar with the darling stocks in the semiconductor/AI sector. Nvidia and Super Micro Computer are two stocks that have basically gone parabolic, but recent IPO ARM Holdings has also had a strong run in recent weeks. I was trying to have this post finished yesterday, but I’m glad I waited. Nvidia reported earnings on Wednesday, and the stock was up more than 16% yesterday. Super Micro Computer was up almost 33%. By tomorrow, both could be down double digits, but who knows? I prefer to watch from the cheap seats on stocks like these, even though it is tempting to short or buy puts.

Nvidia

Nvidia is the 800 pound gorilla of AI semiconductor chips, and I’ll be the first to admit that the business has had impressive operating results over the last couple years. I wrote a bit about Nvidia in my post last June on Artificial Intelligence, where I opined that while AI is an important technological evolution, I think it is closer to a bubble. I was obviously wrong on the assertion that investors buying and holding Nvidia would probably regret it (at least for now), as the market cap has grown from one trillion to just under two trillion dollars today.

Nvidia’s revenues and profits have exploded over the last couple years, but I think if you take a step back and look at the valuation, it doesn’t make a whole lot of sense. With the stock’s 16% move yesterday, the stock added approximately 300 billion in market cap. For reference, Nvidia’s revenues over the last 12 months are approximately 60 billion. Short-term, I wouldn’t be surprised if Nvidia plays round number bingo and goes to $1,000 per share this year, but I just can’t understand a bullish thesis based on long-term fundamentals and valuation.

They will have to answer questions as far as the business goes. Do competitors catch up in the next couple years? Semiconductors are notoriously cyclical, so will we see margin compression over the next couple years? Can demand for AI chips continue to grow at a rapid rate? My answer to those questions is I don’t know. I don’t think the current growth rates are sustainable though. I might be wrong, but I do wonder what Nvidia’s market cap will be in 2026? 5 trillion? 10? 20? Before I move onto the other stocks, I wanted to make a couple comparisons that show the absurdity of the valuation.

I’m comparing apples to oranges here, but a chart like this only makes me more bullish on the energy sector. That was from a couple weeks ago, so the gap is only wider today. The other comparison is that Nvidia now has a larger market cap than the entire Chinese stock market. I’m not interested in buying Chinese stocks (I learned my lesson on that one), but I don’t understand how Nvidia grows into its valuation from here.

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Super Micro Computer

SMCI is one of the only stocks that has outperformed Nvidia over the last couple years. It’s up over 1000% in the last year and more than 240% since the start of 2024. We will see if the run can continue, but I think the move in the stock price is just as unsustainable as Nvidia. I’m not going to go into as much detail on this one since it’s a smaller company, but I did see some posts that show the exuberant sentiment surrounding the sector.

Speculators, call buyers, and market makers have probably enjoyed SMCI’s run, but one speculator last week blew up his account buying short term calls on the stock. SMCI was down approximately 20% in one day last week and I wouldn’t be surprised if the stock stays volatile. If your investment strategy is begging for help on Reddit after buying weekly options, you might have better luck in Vegas. My favorite part of this is “Things seemed risk-averse with the steady price movements.” This isn’t something that typically happens unless sentiment on a stock or sector is overheated. If you want to speculate, I would stick with Valaris warrants, but that’s just me.

ARM Holdings

ARM Holdings is the last stock I wanted to briefly highlight. If I remember correctly, Softbank still owns over 90% of the shares, so the low float probably had something to do with the massive move after earnings a couple weeks ago. I’m going to point readers to another great Substack, which laid out the differences between ARM, and a stock that I own, Peabody Energy . Both companies had $724M of cash flow for 2023. Peabody now has a market cap of $3.24B, and they are sitting on more than $600M of net cash. ARM is sitting on $2.4B of cash and the market cap is just under $127B. Do cashflows from a coal company deserve the same multiple as the multiple of an AI company? Definitely not, but should ARM be worth nearly 40 times more than Peabody? I don’t think so, but I’m probably a bit biased with that opinion.

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Conclusion

So are semiconductor stocks in a bubble, or are we on the edge of the AI revolution? I’m skeptical that AI will play out how some of the bulls think, but I’m very skeptical of the current valuations on the semiconductor stocks. I also think that this is exacerbated by passive flows, with Nvidia accounting for more than 3% of the S&P 500 and nearly 5% of QQQ. As the stock gets more expensive, that percentage will only increase. With SMCI and ARM we have the rich valuations like Nvidia, but I think we are also seeing signs of exuberance that won’t last forever. Like I said, I’m not trying to call a top, but I think watching from the sidelines on these stocks makes more sense than trying to participate in continued upside, or short on the downside.

I think watching from the sidelines on the large indices like the S&P 500 is also the best approach, but the valuations, while still rich, aren’t as egregious as the valuations on the AI semiconductor stocks. If the financial markets aren’t broken by passive investment, they are at the very least distorted by it. I think that passive investment and fund flows have been a virtuous cycle for the largest stocks for years, but if it that dynamic reverses and investors start selling index funds, it will turn into a vicious cycle as that same dynamic starts to work in reverse. It’s an interesting market dynamic to keep an eye on for the next couple years, but I think it sets up a contrarian stock picker’s paradise for investors willing to go against the grain.

Disclaimer

I own shares of Warrior Met Coal, shares and calls of Peabody Energy, and Valaris warrants. You should do your own research before making any investment decisions. Different investment strategies have different risk/return profiles which should be considered before making any decisions.

• Sentiment around energy and the offshore sector in particular has been down in the dumps, and I think it is a good time to be looking to add exposure to the sector.

• Oil prices still can’t catch a bid, despite conflict in the Middle East spreading beyond Israel/Gaza, and Yemen and the Red Sea, along with the Bakken production being down significantly due to freezing weather over the last couple weeks.

• The recent Yet Another Value Podcast with Judd Arnold is a must listen for anyone interested in the offshore sector.

• I talk briefly about Transocean, Valaris, Noble, Tidewater, and Borr Drilling.

• Tomorrow I will take a look at some warrants in the sector that look like an asymmetric bet.

Over the last couple weeks, I have been watching as oil prices have chopped around and sentiment on the offshore sector has been extremely poor. I think now is a good time to revisit the sector to see how things have developed since my first big picture post on the sector. It was one of the first things I covered when I started up my Substack, and the bullish fundamentals for the offshore sector are still intact, despite the recent selloff.

Sentiment swings are a part of investing in any asset class, and energy and offshore services are no exception. Sentiment on oil seems pretty bearish, and positioning among investors is in an interesting spot. We have the geopolitical conflict heating up in the Middle East, and the response from the oil market was a collective yawn. We also have production in the Bakken field in North Dakota down due to the recent cold snap here in the US. That production will come back online sooner or later, but it’s interesting to watch all of these things happening at once, and oil continues to chop sideways in a range. While sentiment on oil seems too negative in my opinion, the sentiment on the offshore sector seems like it is even worse right now. A recent Twitter exchange on the sentiment surrounding the offshore sector is what prompted me to write this post.

If sentiment is this bad among all the people (all 6 of us) that understand what is going on, who is left to sell? These stocks are going to be somewhat correlated to oil in the short-term, so it’s not too surprising to see the stocks struggle over the last couple months, but I think now is a good time to be looking at the sector. The whole point of having a contrarian investment approach is to go against the grain in an attempt to get outsized returns. I’m not here to say “this is the bottom, the stocks are only going up from here”, but I think we are at a pretty good entry point for investors looking past the short-term noise.

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If you have a 3 to 5 year time horizon, and you think the fundamentals on the sector spell attractive returns for investors like I do, now is a good time to go against the grain and buy into the weakness. I also wanted to include a recent podcast I listened that covered the offshore sector. They talk about Tidewater and the potential upside there, as well as the main deepwater players and the sector in general.

I wanted to include the video so readers could get a chance to listen to someone who has had an eye on the sector for over a decade. If you have the time to listen to the podcast, you will get a good idea of what Judd sees for the offshore sector moving forward and what he thinks about some of the main stocks in the sector. I think we are still in the early innings of a long cycle, but it’s going to take some time for the bullish thesis to play out.

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I might have been a bit melodramatic with the title, but I think 2024 is going to be a wild ride as far as geopolitics go. I talked about the main issues of the election, the candidates, and conflicts that could get worse next year. Today, I’ll be writing about what I think 2024 holds from the perspective of markets and macroeconomics. I think we are looking at a three headed monster for the macro picture: we have the debt problem of the 1940s, the inflation problem of the 1970s, and valuations similar to the 2000 tech bubble.

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This Time Is Different

I know, I know. These are four of the most dangerous words in finance and investments. I want to make it clear that I’m not saying that you can ignore valuations, and just buy big tech or and set it and forget it. I’m saying that this time is different, because we have a bunch of different problems all at once. Every situation has its own nuances and pressure points, but today’s situation looks like slow motion train wreck waiting to happen. We have the debt problem of the 40s, and we seem to add a trillion to the national debt every couple months (the total now sits above $34T).

I think we are also going to have the inflation problem similar to the 70s. I talked in more detail about inflation in a post last April, and despite the CPI coming down in recent months, I think inflation will come back with a bit of a lag when oil prices go higher.

Stocks (S&P 500 & QQQ)

The last problem (and potentially the most dangerous to broader markets) is the overvaluation, which in some ways mirrors the valuations from the dot com bubble. We can debate whether AI is the latest bubble or if it’s the holy grail for some of the megacap tech companies, but you certainly can’t buy stocks like Apple , Microsoft , or Nvidia at cheap valuations. The concentration of major stock indices like the S&P 500 and the Nasdaq 100 have only served to exacerbate the rich valuations.

As long as the money keeps flowing into the market cap weighted indices, the valuations can keep getting more ridiculous, but I think investors looking to buy and hold will probably be disappointed with their returns in three to five years. The concentration in the largest tech stocks is a double edged sword. What works on the way up (lots of buying for the largest companies), works in reverse on the way down, as those same stocks will see lots of selling. With the current fundamentals and valuation, you won’t have many active investors looking to buy these stocks unless they get a lot cheaper in my opinion.

Bonds

Bond funds like have had a nice bounce over the last couple months, but I think investors could be playing with fire owning long bonds in 2024. Interest rates could come down in 2024, and if they do, bonds will perform just fine. If interest rates stay flat, I think investors owning long bonds looking for returns will be trying to get blood from a stone. While many are expecting a Fed pivot and lower interest rates this year, I will believe it when I see it. If inflation comes back like I think it could, it could press the issue. I just see owning long bonds right now as trying to pick up pennies in front of a steamroller.

It might work for a while, but the risk/reward doesn’t get me excited like it does for some commodity sectors. I don’t have any issue owning short term debt (1-2 years), but I’m staying away from the longer dated bonds. If you are looking for a short-term trade, that’s one thing, but I think the long-term bond holders are in for a rough time. I prefer to stick with a money market fund for simplicity’s sake, but it is basically the equivalent of owning short-term Treasuries. I wanted to repeat a quote I included from a past post on bonds.

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Commodities

We are in year 5 of this decade, and I think that we are going to look back on this decade as a wild ride in financial markets, including the commodities market. While I think most other asset classes are going to see outflows and poor performance, I’m expecting commodities to be one that has inflows and outperformance. Some have predicted a commodities bull market of epic proportions and I certainly wouldn’t complain about this outcome.

Even if we don’t get the “greatest commodities bull market of all time” (insert your own hyperbolic description here), I think the commodities bull market is going to sneak up on a lot of people, investors included. If you’re still reading my posts and haven’t figured out that I’m a huge commodities bull by now, I don’t know if I can make it much clearer at this point. With that said, I think that certain commodities (and the related equities) have a better setup over the next couple years.

Oil

Because it is the most important commodity, I have to start with oil. The last couple years have been volatile to say the least, with the oil price bouncing all over the place, giving investors a bumpy rollercoaster ride. Oil went negative in 2020 due to financial market shenanigans, and it only took two years from there for the price to touch $120 in 2022. Over the next year, the price was basically cut in half, briefly dipping below $70 in June of last year. It took all of three months to get back above $90, and now we sit just above $70 again. We have also had the Biden administration draining part of the Strategic Petroleum Reserve through the first half of 2023, putting downward pressure on prices.

I don’t have some short to medium term prediction on oil prices. I think it’s foolish to say that oil will be at $87 per barrel (pick your exact price) in 12 months. What I will say is that the oil price will trend higher in 2024 and beyond in my opinion. I think we are headed for a major imbalance in supply and demand over the next decade. At some point in the next couple years, we are probably going to see Permian Basin production peak and start to roll over. Demand has continued to grow at a steady pace, and I don’t think that pattern will change. Would a recession slow oil demand for a time? Yes, but I don’t see it being catastrophic for oil bulls.

We also have the added complexity of a potential flareup of a larger conflict in the Middle East. We have already seen some ships heading around the Horn of Africa, instead of the shorter route through the Suez Canal, to avoid the being targeted by the Houthis in the Red Sea. There have been more than 20 attacks since October, and they hit a Maersk container ship this past weekend. The US and the rest of the usual suspects issued a statement warning of “consequences”. We also had news break yesterday that Saleh al-Arouri, a Hamas leader, was killed in a drone strike, along with six others, while in Beirut, Lebanon.

If you want frequent updates on geopolitics, I would strongly recommend following Mark Wauck’s Meaning In History Substack. It’s free for now, and the value he provides is worth a lot for people trying to stay on top of current events. Trying to keep up with all of the important events going on that might impact markets is like drinking from a firehose, and his Substack gives a concise breakdown of all the questions you might have on geopolitical events: who, what, when, where, why, and how. To be clear, the oil bull case doesn’t rest on the Israel/Gaza situation spiraling out of control, but with oil at $73 per barrel on the WTI contract, I don’t think there is much (if any) geopolitical risk in the current price of oil.

How I’m Playing It

If you agree with my opinion that the Permian Basin is due to roll over, that makes it tough to get bullish on American oil producers, especially the ones that primarily produce from the Permian Basin in Texas. If shale production is set to peak in the next couple years, the obvious next question is Cui Bono? Who benefits? Two of the companies that I think are still attractive are Petrobras and Ecopetrol . They both pay large dividends to patient investors, the worst of the political uncertainty appears to be behind us, and they both are cheaper than their American counterparts. I have talked about them in detail in previous posts, but I’m expecting continued double digit yields with potential for capital appreciation as well.

I also own Frontera Energy, which has been a dud so far. If their offshore block off the coast of Guyana pans out, the stock is going to work a lot better than it has over the last year, but that is a much smaller position for me than Petrobras or Ecopetrol. The other sector I have been focused on is the offshore services space. I think that offshore is in for a long bull market, and despite the large moves in some of the stocks off the bottom over the last couple years, I think the valuations are still attractive. Transocean is my favorite deepwater pure play, despite its levered balance sheet. I think they have the best combination of management and deepwater assets, and I plan to exercise my $5 strike calls that I own in the next couple weeks to buy more shares.

Valaris is the other one that I own with a focus on deepwater, but they own jackups as well. It is a small position relative to the other companies I hold, but I find the warrants that expire in 2028 attractive, with a very asymmetric setup and a long time for the offshore thesis to develop. Borr Drilling is one of my more recent purchases, and they are a pure play on jackups, which looks like it could benefit quicker than deepwater rigs from rising day rates. They termed out their debt in the last couple months, and have started a significant capital return program, with a $100M buyback authorization and a quarterly dividend of $0.05. Tidewater is my last holding in the space, and they are one of the main OSV (offshore service vessel) plays. Shares had a monster run in 2023, but I have no intention of selling my shares because I think we are still years away from the end of the offshore bull market and fair value is much higher in my opinion.

Coal

I talked about the coal sector in a recent post comparing it to the tobacco sector in 2000. I think we are headed for higher prices on average over the next couple years, but it will be hard for thermal coal prices to rally unless natural gas prices head higher. Metallurgical coal prices have been on a tear over the last several months, and while we could see a short term pullback, I’m still constructive on prices with a longer term time horizon. The stocks are still cheap and out of favor for ESG reasons, but I think the opportunity is still very attractive and the downside is relatively limited. Part of this is due to valuations, as stocks across the whole sector are still cheap. Capital returns are going to be a driver for investor returns, as many companies are buying back gobs of stock at dirt cheap multiples. Most of the companies have debt free balance sheets (or very low debt levels), and I think stocks in the sector are going to make investors a lot of money over the next 3 to 5 years.

How I’m Playing It

Each company in the sector is a little different, but I think you could throw darts at stocks in the coal sector and you would probably do just fine. I’m sticking with my picks of Peabody Energy and Warrior Met Coal , which gives me exposure to thermal and met coal alike. I have complained about Peabody Energy lagging the rest of the coal sector in 2023, but I think 2024 could be the year we see some catchup. They are buying back a lot of stock, but they also have the catalyst of activist investor Elliott Investment Management selling their stake. They have continued to sell in recent weeks, so we will see how long it takes for them to completely exit, but I think higher share prices are ahead for Peabody in 2024.

Warrior has been a monster since I purchased shares, and I’m still kicking myself for not buying the December 24 $70 call options, which have basically doubled since I was looking at them a couple months ago. Warrior is a metallurgical coal pure play, and they are set to bring the Blue Creek mine online in a couple years. I think that the risk/reward on Warrior is potentially the most attractive of any stock that I own, especially since I’m expecting higher coal prices on average on a long term timeframe. I don’t want to get too far ahead of myself, but I think shares are headed for $100 in the next 3 to 5 years (probabably sooner), with the potential for a nice upside surprise.

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Natural Gas

There is a reason natural gas is known to be the widow maker for commodity traders. You have massive swings in price and sentiment, and I will be surprised if natural gas has a monster year in 2024. Natural gas has been the redheaded stepchild of the energy sector, which I think will continue this year. One of the problems with natural gas is the amount of associated production from oil here in the US. The shale wells get gassier every year, and those companies will generally continue to produce oil and gas as long as oil is priced high enough for them to make a profit.

On top of this, a lot of the companies that produce primarily natural gas have shown a lack of discipline over the last year, continuing to overproduce despite low gas prices. One of the bullish catalysts that will take a couple years to develop is the LNG (liquid natural gas) export capacity coming online. We will be able to send gas to Europe, and I wouldn’t be surprised to see Henry Hub (aka US nat gas prices) start to converge with European gas prices in a couple years, which are much higher. That will take time but it is something to keep on the radar.

The energy content of natural gas is approximately 1/6 of a barrel of oil, so if you convert the current Henry Hub price ($2.76) to the oil equivalent, it’s equal to $16-17 per barrel. That’s very cheap, and normally I would be looking to buy the equities when a commodity is cheap. I do think natural gas (and the related equities) will be a potential trade to revisit in the future. I just don’t have the same conviction for natural gas participating in the commodities bull market to the same degree as oil or coal, so I’m waiting and watching for now.

Uranium

Uranium has been on a tear over the last year, and I think 2024 will be more of the same. I wouldn’t be surprised to see a pullback, but my base case is that Uranium prices head much higher over the next couple years. I have been focused on other ideas in my own portfolio (and been short on dry powder at times), so I wasn’t able to get on the Uranium train before the large run up in the second half of 2023. I was able to purchase a nice chunk of the Sprott Physical Uranium Trust and the Sprott Uranium Miners ETF in the John Doe portfolio before the run, but I’m not participating in the Uranium bull market just yet because I didn’t want to chase it. If we do get a large pullback, I will be a buyer because I think the trade has at least another 2 to 3 years to go. The supply and demand gap is large, but I wouldn’t make it a large position because I would be showing up late to the party on this one.

Gold

Now we get into the precious metals segment, starting with gold. Gold is already knocking on all time highs to start 2024, and I think we eventually head much higher. I wouldn’t be surprised to see gold at $2,500 per ounce by the end of the year, and at $3,000 or $4,000 per ounce in the next 3 to 5 years. If this happens the miners probably go berserk, but mining is a crappy business and the mining stocks only work for brief bursts. When they work, it can be explosive, but I haven’t dipped my toe into the mining sector.

I am interested in some of the gold royalty companies, which don’t have the same cost inflation as the miners. Franco-Nevada , the 800 pound gorilla in the royalty space, is down from $160 to $110 per share due to issues and protests with the Cobre Panama mine, and I think is one of the few stocks in the gold sector that you can hold through full cycles, despite recent negative headlines. Sandstorm is a smaller royalty company with a couple large assets coming online in the next couple years, but many investors have been frustrated by their management team, which has had several missteps over the last couple years. If they get their act together, there is definitely upside there, but I’m still watching from the cheap seats on the gold sector.

Silver

Silver is an interesting case, and I would say it’s a hybrid between a precious metal and an industrial metal. I wouldn’t be surprised to see silver outperform gold in 2024. I think if we see silver break through the $30 level, it will head much higher. It’s not a matter of if, it’s a matter of when. If things don’t get moving in 2024, silver probably stay stuck in the current trading range. If silver prices break out, I think we could easily see $35 per ounce or higher by the end of the year. I haven’t found any silver stocks that interest me yet, but I am looking to purchase physical silver, especially if the silver spot price drops near $20 per ounce. With the physical premiums it will be closer to $25 all-in, but I think it’s good to have some silver on hand for disaster insurance.

Copper

I have a hard time getting excited about copper. It’s an industrial metal, and many market watchers call it “Dr. Copper” as a good indicator of how strong the global economy is. We are definitely headed for an imbalance of supply and demand at some point this decade, but I don’t know if the gap will be as wide as many are predicting. One of the main drivers that people keep talking about is EV demand, but I don’t think we will get anywhere near many mainstream projections for EV volume. Part of this is due to the cost of the vehicles, but part of it will be the shortage of other commodities required for batteries, like nickel and cobalt to name a couple.

The obvious large cap copper play is Freeport-McMoran , but there will be smaller companies with top tier deposits that will make investors a lot of money over the next decade. Like natural gas, I will be digging deeper into copper over the next couple years, but I don’t think 2024 will be a great year for copper prices and copper companies. This doesn’t mean buying now won’t work, but I just like the risk/reward in oil and coal over copper for now.

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Residential Real Estate

I’m starting to come around to reasons to be bullish. There are a lot of homeowners locked in at low mortgage rates (3% or less), and that means there won’t be a lot of movement from these homeowners. We will see what happens with supply, but homebuilders have been on an absolute tear over the last year, so if you like to look at those stocks as an indicator of how the housing market is doing, you might end up in the bullish camp. However, sales volumes have been dropping, and if we head much lower, we could go below where we were between 2008 and 2010.

With that said, I think that mortgage rates being higher is going to be a drag on the asset class on the whole. Housing affordability is at an all-time low, which I talked about in my post last week. I think it will be an important issue for this year’s election. Residential real estate is between a rock and a hard place in my opinion. You either need lower interest rates to keep prices high, or you need prices to come down if rates stay at their current level.

Commercial Real Estate

I think the commercial real estate sector is full of potential landmines. I have heard multiple people involved in the space say “Survive until 25”, meaning a lot of them are banking on interest rates coming down so they won’t have to roll debt over at much higher rates. I think multifamily apartments will be fine, but I think there are a lot of bodies waiting to float to the surface in the office sector. This could have an impact on the banks, but it’s something to keep an eye on. If we do get another selloff, I will probably be looking to get back into Vornado , and potentially some Apartment REITs, but I’m fine sitting on the sidelines for now.

Conclusion

I want to make it clear that I try to look at each investment with a 3 to 5 year time horizon. This doesn’t mean I will hold for that long, but if I can’t see a path to attractive returns over that timeframe, I try to look elsewhere. Personally, I’m avoiding broader stock markets, including big tech companies, bonds, and real estate (except for a couple REITs). I think we are headed into a commodities cycle that will become apparent in the next couple years, but I think several commodities sectors, like oil and coal, are going to be big winners over the next several years.

History doesn’t repeat, but it does rhyme. Could the rest of the 20s rhyme with the 1970s for these commodities? With the way my portfolio is built, I certainly hope so. I think we are in for a broad commodities bull market, and I will be looking to add exposure to uranium, gold, silver, and copper opportunistically, but I think the whole commodities space is an attractive space to be looking for investment opportunities. Could commodities take a hit if we get a severe recession? Absolutely. At the same time, I think the stuff that I am invested in is very cheap, which gives me a margin of safety that I’m comfortable with.

With my investments, I take a value oriented approach and keep a contrarian mindset. That has led me to the commodities sector over the last couple years. My approach isn’t for everyone, but there might be a stock or two that is interesting enough to take flier on. If things play out like I think they will in 2024 and beyond, my portfolio will dramatically outperform, while the broader market languishes over the next several years. You check the box for cheap valuations, huge capital return programs, and add in the expectation of rising commodity prices, and you have a recipe for returns that could be explosive without taking on too much risk.

Disclaimer

I own shares of Petrobras, Ecopetrol, Frontera Energy, Transocean, Borr Drilling, Tidewater, Peabody Energy, and Warrior Met Coal. I also own calls on Transocean and Peabody Energy, and Valaris warrants. You should do your own research before making any investment decisions. Different investment strategies have different risk/return profiles which should be considered before making any decisions.

Today, I will be doing a breakdown of the Presidential candidates, and how the result of the election could have an impact on the rest of the decade. Before I do that, I have to start with a rant on the state of the political world.

This may be a cynical view on our politicians, but I just assume they’re lying until proven otherwise. Part of this is due to the time I grew up in, but part of it is just paying attention to what has happened to our country over the last two decades. If you want to understand politicians, ignore what they say and watch what they do. Their actions speak louder than words, and the actions of most politicians in Washington, D.C. show that they do not have the best interests of America as their primary motivation.

Take immigration for example. Many politicians use immigration as a campaign issue, but that hasn’t led to a change in policy. Over the last two decades, no matter who gets elected, immigration has continued to be a problem, despite what politicians may say on the campaign trail. Another thing that hasn’t changed is America’s foreign policy. I still haven’t heard a satisfactory explanation of what we were doing in Iraq or Afghanistan, and I think most Americans today are not interested in supporting boondoggles like Ukraine or Israel. That hasn’t stopped our government from stirring things up in the Middle East and more recently with Ukraine. For our politicians, war is a question, and the answer is almost always yes.

Their approach to the economy is more government spending. It’s an oversimplification, but neither party is interested in cutting spending, despite our country’s dire budget situation. Jason Burack of Wall Street For Main Street likes to call it “stagflate, tax, lie.” Outside of the main talking points, I don’t think there isn’t much of a difference between Republicans and Democrats. Some call it the Uniparty, or the Blob, or the Deep State. While the people that run for election talk a good game to get their base riled up, many important people in our government are not elected, and we will never know their names.

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Right Vs. Left

Just so you know, I’m not a Republican or a Democrat, and I don’t fit neatly into the two party box that sets the American people up for the classic divide and conquer tactic. The problem with liberal politicians is that most of them hate America and everything it stands for, and many of the things they support are absolutely insane. I don’t have the time to go into it here, but I’m sure many of you are familiar with some of the things that have only become more prevalent over the last couple years. The problem with conservative politicians is that the only thing they conserve is the liberal agenda from 10 or 15 years ago. Now, on to the candidates.

The Candidates

There is Trump, and there is everyone else. There is a reason that Trump gets the most heat from the media, while the controlled opposition candidates fly under the radar. It’s not a popular opinion, but I’m going to spend most of my time in this post on Trump for three reasons: I think he is going to win, he’s the most interesting candidate, and I think the rest of the candidates are essentially all the same.

Trump: The Revenge Tour?

Trump is certainly not the most polished Presidential candidate we have had. He’s arrogant, shallow, and easily distracted. He’s also responsible for the rushed COVID vaccine rollout, which is going to prove to be a disaster when we look back on it in a decade. For all of his flaws, I think that he is the most likely candidate to win the election in 2024. People hate him, and many will struggle to give you a legitimate reason. Is it because of Russian collusion? Immigrant kids in cages? The January 6th “insurrection”?

Logic doesn’t work on people who just hate Trump because he’s not on their team. I’m not on either team, but for those that still play that game, he’s the best option in 2024. Trump’s responsible for waking a lot of people up to just how corrupt the large media outfits are, along with the corruption of large swaths of the Federal Government. More recently, you have the lawsuits against him and news that he is going to be taken off the ballot in Colorado for 2024. We will see if any of these slow him down, but I think it only makes him a stronger candidate, and attacks like this will probably add new supporters to his base. We will see how next year plays out, but I have a couple predictions for Trump and his campaign next year.

The first prediction is that Trump will return to Twitter. I would be surprised if he isn’t back by the time the campaign is in full swing, given how effective he was on Twitter in the past. Social media, especially for a political campaign, is not purely about sharing information or content. It’s about eyeballs, emotions, and charisma. The information or the content of a social media post takes a backseat. He will definitely get more eyeballs on Twitter than he will on Truth Social. He certainly creates strong emotions in people, good or bad. Not many people who are still in the middle on Trump. He absolutely has charisma, and people can’t help themselves when it comes to paying attention to what Trump did, or what Trump said, etc.

I try to avoid the news like the plague, but some of it always leaks through. I have seen multiple posts saying that Trump will be an authoritarian, or he will become a dictator. It sounds messy on paper, but I’m more results oriented than process oriented. Is Trump going to get us out of Ukraine, stop supporting Israel, and close the border? Sounds good to me. Don’t know if that automatically makes him authoritarian, but my opinion is that our government in its current form can’t get much worse.

My second prediction is that Trump will win the presidency, assuming we have a legitimate election. I’m not here to debate the 2020 election and voter fraud, because that’s in the past and it’s a deep rabbit hole, but if you think Biden actually got 81 million votes in 2020, I have a bridge to sell you. The path from here to there is murky, but there is a reason the Trump is the gambling odds favorite in next year’s election. The last point is a possibility, not a prediction. I wouldn’t be surprised to see an assassination attempt on Trump next year. I would hate to see it because I think the chaos created will be massive and unpredictable to say the least.

The last couple years have proven that there are groups that will stop at nothing to bring down Trump. If all of the legal shenanigans fail, I don’t know what the next step would be. Again, I’m hoping it doesn’t happen, but I think it is a possibility heading into 2024. People will still vote for Trump, and some of you might wonder why. The way I look at it is this: the people that hate me (and people like me), hate Trump. Voting for Trump is like pulling the pin on a grenade, throwing it at Washington, D.C., and hoping it goes off.

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The Field

I said earlier that I think all the other candidates are essentially the same. It’s an oversimplification, but my point is that I think electing any of the other candidates is probably going to end up with a very similar result. I’ll start with the Democratic candidates before moving on to the remaining Republican candidates.

Democrats: Weak Candidates Across The Board

If the Democrats were a sports team, they have a weak lineup and no depth on the bench. I would be shocked if Biden is at the head of the Democratic ticket in 2024, but we will have to wait and see. What I will say is that there is a reason we see new headlines in the mainstream media on Joe Biden’s corruption or Hunter Biden’s extracurricular activities every couple weeks. I think Gavin Newsom is the most likely candidate to win the Democrat nomination in 2024, but he has some issues that will cause problems for him on the campaign trail.

Gavin Newsom

The first is the state of California. Things have been going in the wrong direction for California on many fronts, and it would take too long to outline all of them here. One recent example that stands is what happened in preparation for the APEC summit. Xi Jinping, the President of China, was in town in November, and they decided to clean up San Francisco. The fact that they haven’t bothered to clean up San Francisco until the recent economic conference shows that they could deal with the problems, they just choose not to. Newsom has a couple things going for him. He’s a tall, telegenic white guy, which has been a formula for success in the past. He has the charisma, and unlike Biden, he can consistently string together a full sentence, but he seems like the political equivalent of a used car salesman. At the end of the day, Make America California is not a winning campaign platform.

Joe Biden

I doubt we will see Biden run in 2024, but as the current President, he is worth mentioning. Even if you think that the election was fair and square, I think that people considering voting for Biden next year should revisit the contents of the Hunter Biden laptop (which was not a hoax, despite what people said before the 2020 election), and ties between the Biden family and foreign business dealings. On top of 10% for the big guy, we have the issue of his cognitive decline and old age. In the unlikely event that Biden wins another term, we are in for another 4 years (if he lasts that long) of an unknown group of people running the country while Biden makes the occasional PR appearance.

The Wildcards

Like Biden, I think Kamala Harris is unelectable. We will see how 2024 plays out, but she has an interesting role as the current VP. She’s the fly in the ointment for the Democrat party. It will difficult for the Democrats to push her out in 2024, but I don’t see a path for her to be the Democrat nominee in 2024. The other two wildcards are Michelle Obama and Robert F. Kennedy, Jr. From what I have heard, Michelle Obama is not interested in campaigning in 2024, but we will have to wait and see. RFK Jr. has been a vocal critic on COVID, vaccines, and several other issues, but I don’t see how he has a real path to victory. He has switched to running as an independent, and some have compared the potential outcome in 2024 to Ross Perot’s campaign in 1992, drawing votes from both sides.

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Republicans: Running For Second Place

Like the Democratic candidates for President, I think the Republican candidates are weak across the board. I don’t think any of the Republican candidates outside of Trump are going to be able to get the conservative base to the polls. We will see how this develops in 2024, but I think the most likely outcome is that we see the candidates vying for VP and potentially cabinet positions. I think the only Republican Presidential candidates except Trump worth mentioning are Nikki Haley, Vivek Ramaswamy, and Ron DeSantis.

Nikki Haley

Nikki Haley (aka Nimarata Nikki Randhawa) looks like she is going to be the main challenger to Trump for the Republican nomination. If she does win the nomination and the Presidency, I think that we are in for 4 years of the same policies that we have seen over the last couple decades from the so-called conservatives in the Federal Government. She has been gaining in polls in recent weeks, and she has been getting more support from big donors.

Add Wall Street and other deep pocketed donors, and I think Nikki Haley as President will probably be an empty suit that will do whatever her handlers and donors want. It’s an oversimplification, but I have heard people compare her to Dick Cheney in heels. I would be disappointed if she wins the nomination, and I think many conservative voters would feel the same way.

Vivek Ramaswamy

Vivek says a lot of the things you would want to hear, but I don’t trust him. He is better on rhetoric than Trump, with a quick wit and a sharp tongue, but I have my doubts on him due to his past in the pharmaceutical industry. I remember seeing a post that pointed out Vivek’s lack of criticism for Trump, and I think he is positioning himself as a potential VP pick or for a cabinet seat. He has been critical of US involvement in Ukraine and Israel, and I think his anti-war stance is refreshing for conservative voters. I think he is the best Republican Presidential option outside of Trump, and I think he would probably be a good pick for Vice President. I would love to see General Doug MacGregor as Trump’s VP, but I have also seen people floating Tucker Carlson as a potential VP. It’s hard to put odds on who would be Trump’s VP, but I think Vivek is one of the mostly likely picks.

Ron DeSantis

Ron DeSantis came in as the favored challenger to Trump, but he has been fading fast in the polls in recent months. His policy record as Governor of Florida gave him an advantage, especially on COVID, but his lack of charisma has been a problem for him. Call it the “it-factor” or charisma, or whatever you want, but DeSantis doesn’t have it. I thought he had a real chance to give Trump a run for his money in 2024, but I think he can do more good by being Governor of Florida in my opinion. I don’t think he will be a potential VP or cabinet pick, but we will have to see how 2024 plays out to know that for sure. I think he jumped the gun by running in 2024 and should have waited until the 2028 election to run for President.

Where Do We Go From Here?

I think 2024 is the year that will set the table for the rest of decade, and that starts with the Presidential Election. If one of the Democratic candidates wins next year, it probably looks like more of the same. More immigration, continued involvement in foreign wars, and more government spending (this last part depends on what happens with the House and Senate in 2024). If one of the Republican candidates win, it probably won’t look much different. What the Republicans say they will do, what they should do, and what they actually do when they get elected have been very different over the last couple decades.

They should go after the parts of the government that are corrupt after the election. This includes government agencies, parts of the judicial system, and the military and Defense Department. I don’t think they will do anything dramatic to rock the boat, so I’m not optimistic on changes for the better on that front. If Trump wins, I do think we get some version of a revenge tour. How effective that will be is up for debate. I don’t think that we will see a complete “drain the swamp”, but I do think Trump will be aware of the den of vipers he is going into, instead of flying by the seat of his pants like last time. I’m not saying that Trump is going to do this out of some sense of right and wrong. I think he will do it because they wronged him. Will we get to see him go scorched earth if he gets elected? I don’t know, but grab your popcorn because 2024 is set to be the most interesting election in my lifetime.

Geopolitics

The election is going to be an important event, but what else could happen in 2024? A repeat of COVID lockdowns? Proxy wars expanding into direct conflict? I have seen multiple people float the idea of World War III, or an American Civil War. This isn’t a scientific observation, but it seems like the frequency has been increasing in recent months. I’m not here to say the sky is falling and the end is near, but there are a couple possibilities that are worth mentioning.

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Another Scamdemic?

I doubt we see something similar to what happened in 2020 with lockdowns and vaccines, but I can’t rule it out. If someone tried to tell you in 2019 that a coronavirus was coming with a 99% survival rate (or higher depending on who you ask), and we were going to put everything on hold, and then rush an experimental vaccine out, you would look at that guy like he was crazy. It reads like a terrible movie script. As a side note, you should look up Event 201 if you think I’m blowing smoke.

I don’t think we will see another round of COVID or something similar. I think enough people will react and push back faster because we have seen this movie before. To be fair, most people don’t pay attention to what is going on in the world, and COVID has already been put in the rear view mirror as far as the news cycle goes, so I could be too optimistic on how the average Joe might react to COVID 2.0. I have started to see headlines from World Economic Forum and United Nations types about “the next pandemic”, so we can’t rule it out.

American Civil War?

Could we see Americans fighting Americans in 2024? My gut instinct on this one is not yet. America is as divided as it has ever been, which is by design, but I don’t think we are past the point of no return yet. Now that could change next year with the Presidential Election, and the potential circumstances surrounding the election, but I think that states seceding and a Civil War is an unlikely outcome. Depending on how 2024 goes, this outcome could get more or less likely. Believe it or not, I think that a Trump Presidency actually lowers the likelihood of a Civil War (if I’m wrong on this, I will be the first to admit it).

We might get another round of Soros-fueled “mostly peaceful protests” that flame out within a week, but I don’t think we would see states seceding if Trump wins. If we get rerun of 2020 with voter fraud, government agency misconduct, and a Justice Department making up reasons to go after political enemies, I think the likelihood of a civil war increases. If it becomes obvious to parts of the country that their votes no longer matter, then they will stop voting. At the end of the day, we either vote with ballots or we vote with bullets.

World War III?

I think World War III is unlikely, but I do think it has a higher chance of occurring than another pandemic and lockdown, or an American Civil War. The proxy wars we have seen in different parts of the world might end up in direct US/NATO involvement. There are plenty of interest groups that have interests in getting the US involved overseas for a variety of reasons. It seems like Americans are finally figuring out that we shouldn’t be getting involved in conflicts halfway around the world. That doesn’t mean our government has figured it out, and depending on who gets elected, I think the odds of a broader conflict could change dramatically.

I think that if Trump or Vivek get elected, that reduces the probability of conflicts spiraling out of control. As long as they aren’t blowing smoke on their anti-war stance, this would be the best outcome. If Nikki Haley gets elected, I think the chance that something spirals out of control actually goes up. With the rest of the Presidential candidates, I don’t there is any material probability change on a broad conflict. This is just based off my impression of the candidates, and all of this could change on a dime depending on what is going on in the world. I’m not just trying to hedge my bets, but I am saying that a lot can happen between now and the November election, and it’s impossible to foresee all of it.

Conclusion

As far as the other impactful events of 2024 go, what I will say is that we will know it when we see it. The things I talked about above are just three possibilities, not the only possibilities for what could happen. Civilizations go in cycles, and if the Fourth Turning proves to be accurate on which part of the generational cycle we are in, things are going to get messy between now and 2030. I think the Presidential Election is going to be a very important event next year, and 2024 will set the table for the rest of the decade. I think we will see a chaotic election news cycle next year, but I think Donald Trump will win next year’s Presidential Election. We will have to wait and see if we get a Trump revenge tour that starts in 2025, but it will be interesting to watch.

I haven’t decided who I will vote for in 2024, or if I will vote, but the only candidate I would consider voting for today is Trump. I think the best reason to consider voting for Trump is that the likelihood that America gets involved a massive conflict, foreign or domestic, goes down in my opinion. If he can pull us back from the brink and stop the flood of illegal immigrants, he will have ticked two of the most important boxes for many Americans. Whatever happens, I think we are watching the death of both political parties as we know them. As the younger generations rise in influence, we are going to see massive changes in both parties.

I’m not optimistic about the near term future for America for a variety of reasons, but I think that America will come out the other side as a much stronger country than it is today. We have a lot of geopolitical problems right now, and I think the Presidential Election will determine the path we are on for several years. I don’t think 2024 will be the beginning of the end. I think it’s the end of the beginning, and the events of 2024 will set the table for the rest of the decade.

I hope all of my readers had a Merry Christmas, and are looking forward to a Happy New Year’s. As we look forward to next year, I think we are headed for a year of chaos in geopolitics as well as markets. Despite all of the turmoil in 2023, I think this year was the calm before the storm, and I think 2024 could be a slow motion train wreck as far as geopolitics and markets go. While I could be wrong, I think that next year is going to be chaotic to say the least, and I think it will set the table for the rest of the decade.

Call it a vibe shift, call it woo woo, call it whatever you want. I just have a gut feeling that something major is coming, something that is going to be a culture shock. The last one we had was the government response to COVID (not the actual virus itself, I want to be clear on that), and I just have this feeling that we are going to experience another important event (or series of events) over the next 12 months. Recently, we have bounced from one crisis to the next, and it seems like things have been accelerating over the last couple years. I thought this was going to be a one part article, but the post kept getting longer and longer, so I decided to split it into two parts.

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Setting The Table For The Rest Of The Decade

I think 2024 is going to be a fork in the road that will have a big impact in setting the table for the rest of the decade. The Presidential Election is the obvious geopolitical event on the horizon for next year, but I have a feeling that it won’t be the only important event in 2024. We can’t travel into the future, but I think we might look back in a couple years and trace things back to 2024 as a potential turning point. Today’s post is going to talk about what I think will be the main issues of next year’s election. Tomorrow, I will go into my opinion on the main candidates, and talk about how the outcome of the Presidential Election could have an impact on the rest of the decade. Next week, I will go into what I think is coming for financial markets, with a look at different asset classes, commodities, and sectors.

I haven’t made it a secret that I think commodities will be the place to be invested over the next several years, but I have been focused on a bunch of different things as 2023 developed, and now the year is drawing to a close. Ukraine started the year as the primary focus of the West, and that dramatically shifted after events in Israel and Gaza kicked off and put Ukraine on the media back burner. I talked about this shift in a post in October, and my mindset on the current thing.

Since then, we have seen the Houthis attacking vessels in the Red Sea, impacting trading routes and sending day rates (and many shipping stocks) soaring. Many ships transporting goods have opted to go around the Horn of Africa, instead of using the Suez Canal. This is a much longer trip, but many ships have opted for this route to avoid issues in the Red Sea. I have seen a couple people say that World War III has already started, but we just haven’t realized it yet.

I’m not here to cause panic and raise the alarm, but I do think we are in for a tumultuous decade on the geopolitical side. At first I started this post by writing about stocks, commodities, and other asset classes, but I realized that just focusing on the market side of things would be an incomplete look at things moving forward. If you want to be an active investor, I think you have to be aware of what is going on in the world, whether it’s elections, wars, or cyclical changes, and factor that into your investment process.

Despite all of the things that I think are coming in 2024 and the rest of the decade (some would call it a Fourth Turning), I’m very optimistic about the future of America. If I thought America was a lost cause, I would be preparing for the worst and heading to South America or Southeast Asia. It’s going to take time, and huge changes on a cultural, societal and political level, but I think that things are going to get much better for Americans in my lifetime. I have unorthodox opinions on many topics, and American politics is no exception. The American Presidential Election is set to be the most important geopolitical event on the 2024 docket, and I think it is going to be one for the history books.

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The Election

Political pundits always say “this is the most important election in history.” I’m not going to do that because those people are unserious people, but I do think that the outcome of this election is going to have a significant impact on what path America and the rest of the world takes for the rest of the decade. I don’t really fall neatly into one of the two parties, so I’m sure I will say something to piss every reader off in one way or another, and I’m fine with that. If I don’t do it with today’s post, I’m sure I will with tomorrow’s. The time for censoring ourselves to avoid hurting feelings is past. I’m going to tell you exactly what I think about the slow motion train wreck that could be coming in 2024, and that starts with the Presidential Election.

Key Issues

There are three key issues that I think will be themes of next year’s election news cycle. The phrase “It’s the economy, stupid” applies to every election, but I think that it will rank third among the dominant issues in this news cycle. A couple years ago, it seemed like COVID, experimental vaccines, and the government lockdowns would dominate the 2024 election news cycle, but it seems like most people are fine with putting that nightmare in the memory hole. Whether it stays there permanently is another debate, but it doesn’t seem like the topic will take center stage next year. The most important issues in my opinion will be illegal immigration and American involvement in foreign wars.

Illegal immigration

Illegal immigration has been a contentious topic for some time in American politics, and I doubt this election will be any different. However, there have been some changes recently to immigration that mirrors some of what has started to happen in Europe. When most of the immigrants are military age males, many of them from Africa and Asia, not South America, that is an invasion, not immigration.

The immigrants hit the welfare state immediately. They are given a $2,200 per month allowance or a $5,000 debit card, bus and plane tickets, housing, food, and medical services. “They used to do the monitors on the ankles, and those were being cut off. So now they give them phones.” Unmarked buses deliver them to destinations in the middle of the night to avoid blatant detection and minimize the optics.

- Dave Collum’s Year In Review, page 94

You can’t have a bloated welfare state with open borders, at least not for long. This has long been an issue for states like Texas and Arizona, but it has started to become a problem for liberal leaning states as well. While bussing immigrants to New York City, Washington, D.C., and Chicago makes for a good headline, it’s not a real strategy for either side. I’m of the opinion that America needs to restrict immigration, legal and illegal, but at the very least, we need stop the invasion at the Southern border and everything that comes with it.

Build the wall is a oversimplification, but I think we will see immigration be one of the keystone issues of the 2024 election. If you had a dedicated military branch that was dedicated to the closing the border (we have a Space Force, why not a Border Force?), I doubt you would have trouble recruiting for that branch like we have seen recently for the other 5 branches of the military, which brings me to my next topic.

American Involvement In Foreign Wars

While lying our way into wars is a time honored tradition in America, I think the average Joe is finally starting to realize that America’s involvement in Ukraine, Israel, and other places around the world is not in the best interests of America. The military has had significant problems recruiting enough people to fill the ranks, and it doesn’t show any signs of getting better. Some have even suggested that we start enlisting immigrants, which is another slippery slope that we should avoid. If you want to get a feel for what the younger generations think of joining the Military, look no further than the Army’s recent “Be All You Can Be” ad.

The post got more than twice as many comments than likes (which is an achievement if you know anything about social media), and the noticeable absence of the diversity, inclusion, and equity theme (DIE) of past ads was conspicuous. I don’t usually spend my time reading comments on social media, but there were a couple that show what a lot of people think about joining the Military today.

• An ad full of straight white men? I guess we are going to war.

• I will not die for Biden, I will not die for open borders, I will not die for Ukraine, and I will not die for Israel.

I don’t think you’re going to get young white men to sign up for the military meat grinder, in a period where it looks like we could be headed for multiple major conflicts around the world, for a culture that hates us. Society today seems like it is as divided as it has ever been, and I don’t see any signs of that changing in 2024. There are divisions along racial, generational, and economic lines, and it’s frustrating to watch as our culture continues to show signs that late stage empires have shown in the past near their collapse.

It’s not just on the subject of the economy that we see a generational gap. It’s also in attitudes on we see on Israel, Ukraine, politics, the economy, and many other topics. The American Empire has been busy over the last two decades stirring things up in the Middle East, and I think Americans are fed up with the perpetual wars that our country has been involved in. I think our so-called elites will have a hard time getting most Americans to continue to support the conflicts in Ukraine and Israel, especially younger generations. While these conflicts have the potential to lead to a wide scale conflict, I don’t know how likely it is. There are just so many moving pieces. Looking at social media for these things isn’t some scientific process, it’s just an observation of today’s zeitgeist.

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The Economy

How the economy is doing is always an important election issue. While the condition of the economy in 2024 is a confusing problem to address, I think that unless we see a dramatic change (better or worse), the economy could take a backseat to the other two issues in the election news cycle. Inflation has started to come down (not that prices are actually coming down, but the rate of price increases are slowing), and while I think that it is a temporary condition, it makes the economic outlook more stable for 2024. I still think the actual inflation is much higher than the CPI reflects. It just won’t be a constant part of the news cycle in 2024 unless it starts to get worse next year. It’s definitely possible, especially if oil prices start to surge again (inflation tends to follow oil prices on a 3-6 month lag in my opinion), but I don’t think inflation is going to be the dominant economic topic of the election news cycle.

One of the other topics on the economy that is sure to come up in an election cycle is the wealth gap. This is not me whining about how hard younger generations have it, and that our country needs commie government policies like wealth redistribution or universal basic income. Each generation has a different set of challenges, and people my age have an interesting problem set to say the least. What I will say is that if you start to see the same thing over and over, where people in their 20s and 30s are complaining about housing prices, cost of living, and other economic issues, it’s worth paying attention to. Whether you agree or not, I think you would have a hard time convincing the majority of the under 40 crowd that the American Dream is alive and well.

Personally, I’m glad we have rising interest rates, because it will start to flush out all of the malinvestment we have seen over the last 15 years of near zero interest rates. Interest rates have been held steady for several months, but markets are expecting a pivot and lower interest rates in 2024. We will definitely see solar, wind, and other areas prone to malinvestment struggle unless we go all the way back to 0%, which I find highly unlikely. Hopefully, we also get lower real estate prices, an opinion which is heresy to older generations. I will talk more about residential real estate in my post on markets next week, but I think housing affordability is going to be an important subtopic on the economy in the election news cycle.

Housing Affordability

Housing affordability is at an all time low and I think there is a disconnect in the real estate market. If you want to see prices stay level or go higher, I think you basically need sustained lower rates. You probably need the Fed Funds rate back in the 2-3% range, with mortgages at or below 5% for affordability to get better without real estate prices come down. If you don’t get lower rates, I think the natural outcome is lower prices. I have had some version of this conversation on real estate with several boomers, and you will almost certainly get a very similar conversation.

“Back in my day, our mortgage rates were in the teens.” My simple response is that homes were priced at 2-3x median income back then versus 8-10x median income like they are today. If you say that, most of them look at you like you just grew a third eye in the middle of your forehead. Back in their day, you could pay for college with a summer job, and spend the leftovers to buy a car for a couple grand. They also didn’t have institutional investors and older generations buying up homes because number goes up.

One of the other things that could bring residential real estate closer to fair value is the simple passage of time. It’s a morbid subject, but I think that as the Boomer generation continues to pass on, you will start to see a lot of houses (and other assets) get passed down or sold onto the market. This could potentially fix the housing supply deficit, but it is going to take time and I wouldn’t count on it before 2030 and maybe 2035. The last thing that could help with housing affordability is actually putting serious restrictions on immigration. If you stop the flow of millions of illegal immigrants that come into the US each year, that could have a significant impact on real estate prices.

Conclusion

Like I said earlier, I have a feeling that next year is going to be even more eventful than 2023. The Presidential Election is the big event that we all know about, but I don’t think it will be the only impactful event next year. What the other events could be is hard to predict. For example, I doubt many had the Hamas paraglider attack on their bingo card for 2023. I certainly didn’t. Before taking a look at the Presidential candidates tomorrow, I wanted to lay out the keystone issues that I think will dominate the news next year. Illegal immigration has been an issue for decades, but for those paying attention, it has changed dramatically for the worse over the last couple years. Some might be reluctant to call it an invasion, but that is what it looks like to me.

Another issue that could come to a head in 2024 is American involvement in foreign conflicts. It’s another issue where we see a generational gap, and I don’t think younger generations are going to fall in line and support what is going on in Ukraine or Israel. The American Empire looks overextended, something that has happened to empires throughout history. What typically comes next isn’t pretty. I think the economy will be fine in 2024, but I think several topics on the economy will come up frequently in the election news cycle. Whether it’s the wealth gap or housing affordability, the economy will be an important topic next year, but I think it could take a backseat to topics like immigration and foreign wars.

I love writing about investments and individual stocks, and that will always be my bread and butter, but I think a quick detour into the Presidential Election is warranted. I think there are a lot of things that could create chaos next year, and I wanted to throw my two cents out there. I couldn’t do it justice without laying out some of the important issues for next year’s news cycle before talking about the candidates. I try to be as objective as possible when I’m forming my opinions, but at the same time, I won’t sugarcoat anything once I have formed my opinion. No matter what happens, I think 2024 is going to be a year to remember.

While it’s important to be very familiar with each company for individual investors, I think it also makes sense to zoom out and take a look at the big picture. Each industry and company is different, but I think there are some interesting factors that make for an interesting comparison between the tobacco sector in the early 2000s and the coal sector today. Both sectors are routinely villainized and targeted by holier than thou investors and institutions. Both sectors have cheap valuations that provide a wide margin of safety for contrarian investors. The last, and most crucial point, is that the coal sector has the potential for massive capital returns in the future, similar to the dividends and buybacks that drove outperformance for tobacco stocks for the last twenty years.

When the perception of an industry is different from reality, that creates an investment opportunity. There is a lot of money to be made when the perception of an industry or stock goes from peak pessimism to a more balanced view on the prospects for an industry or that stock. Peak pessimism in the coal sector is already in the rear view mirror, and many of the stocks in the sector have had massive runs in the last couple years, but I don’t think we are anywhere close to fair value or a balanced view on the sector. I don’t think the market beating returns are done, and there is still plenty of meat left on the bone when it comes to coal stocks in my opinion. Each sector and company is different, but I think there are some similarities between the situation the coal sector is in today and the tobacco sector from twenty years ago.

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The Beginning Of The End For Big Tobacco?

The Tobacco Master Settlement Agreement (MSA) was entered on November 23, 1998, originally between the four largest United States tobacco companies (Philip Morris Inc., R. J. Reynolds, Brown & Williamson and Lorillard – the "original participating manufacturers", referred to as the "Majors") and the attorneys general of 46 states. The states settled their Medicaid lawsuits against the tobacco industry for recovery of their tobacco-related health-care costs. In exchange, the companies agreed to curtail or cease certain tobacco marketing practices, as well as to pay, in perpetuity, various annual payments to the states to compensate them for some of the medical costs of caring for persons with smoking-related illnesses. The money also funds a new anti-smoking advocacy group, called the Truth Initiative, that is responsible for such campaigns as Truth and maintains a public archive of documents resulting from the cases.

The settlement also dissolved the tobacco industry groups Tobacco Institute, the Center for Indoor Air Research, and the Council for Tobacco Research. In the MSA, the original participating manufacturers (OPM) agreed to pay a minimum of $206 billion over the first 25 years of the agreement.

- Wikipedia

Shares of Altria (known as Philip Morris at the time), the owner of Marlboro and several other brands, sold off significantly after the settlement. Shares were down more than 60% over the next two years, going from approximately $14 to bottom out under $5 in spring of 2000, right as the tech bust was happening. Contrarian investors that took advantage of Altria’s selloff and negative sentiment on the tobacco industry from 1998 to 2000 set themselves up for massive returns over the next couple decades. To show how cheap shares got at the bottom, the quarterly payout of $0.48 in 2000 translated to an annual dividend yield over 38%. I’m sure it looked like a yield trap to some at the time, but the company also had a track record of double digit dividend growth. Even if investors didn’t pick the bottom below $5, there were plenty of opportunities over the next three years to lock in a yield over 20%.

For a quick recap of what happened with the company after the settlement, there are a couple noteworthy events. In early 2003, Philip Morris rebranded to Altria (probably to distance the company from prior history). In 2008, Altria completed a spinoff of Philip Morris, which operates primarily in international markets. At this point, investors who bought at the point of peak pessimism now owned shares of both companies, which both have paid growing dividends for years. The spinoff makes it difficult to calculate total returns, but the point is that long-term investors who bought Altria (and/or other tobacco companies) anytime from 2000-2005 made a small (or large) fortune over the next couple decades by taking a contrarian view on the investment.

Hindsight is 20/20, but if you can learn some lessons from the past and hindsight, you might be able to turn it into some degree of foresight. That’s why I think the coal sector offers a similar opportunity for investors today that tobacco offered two decades ago. Like the tobacco industry in 2000, investors willing to buy coal stocks today that are priced like they are going bankrupt in the next 5 years could be set up for huge returns over the next decade.

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Similarities vs Differences

While tobacco isn’t going anywhere (humans have used tobacco in some way for generations, and that will continue), coal demand is actually growing. The tobacco stocks have actually performed very well in a period of secular decline for cigarette smoking, but I wanted to lay out some things that could be similar between the coal industry today and things that might be different.

Similarities

If it isn’t obvious by now, tobacco stocks had a dirt cheap valuation and bombed out sentiment in 2000. While coal stocks have rallied significantly off the bottom a couple years ago, the valuations across the sector still provide a wide margin of safety. Another similarity is that they have been targets of the ESG movement (Environmental, Social, and Governance), albeit for different reasons. ESG investing was just getting started at the time, but it has grown into the disaster it is today. The tobacco industry was one of the first targets, primarily for social reasons. Tobacco use has negative health side effects (they aren’t all negative, but that is a separate discussion).

Institutional investors avoided the sector, limiting the flow of money into the stocks. Not only did equity become more expensive, the debt side became more expensive as well. This restricted the flow of capital into the sector, despite the potential returns. Coal is one of the primary targets of the ESG movement today, and political leaders push for “decarbonization” of the hydrocarbon industry with an overly simplistic mindset. I could poke holes the idea that the world will stop using coal by 2030 (or by 2050 for that matter) all day, but the point is that capital coming into the sector has been restricted. Investors avoid buying the stocks, and many banks outright refuse to offer debt financing to the sector.

If you need any convincing, just look at some of the recent M&A activity in the coal sector. Teck Resources arguably sold their best segment to Glencore for a song, and Whitehaven Coal stole the Daunia and Blackwater mines from BHP but had to get creative on the financing due to the lack of capital available to the sector. One of the other things that is similar between the tobacco sector and the coal sector is that once operations are up and running, it doesn’t take a ton of reinvestment to keep the business operating. This brings us to the capital returns that drove returns for tobacco stocks for two decades, something that I expect will drive returns for investors in coal stocks for at least the next three to five years.

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Capital Returns

Investors in coal stocks can’t count on multiple expansion, despite the cheap valuations. Cheap stocks can be cheap for a reason, or they can stay cheap for longer than most investors can stay patient. There needs to be some catalyst, whether it’s dramatically improving operating results, or capital returns. Depending on the coal stock, buybacks have already created huge returns for shareholders, or have the potential to create huge forward returns for patient investors.

Just think about how accretive it is to buy back your shares at a low-single-digit multiple of cash flow and a fraction of replacement cost of your assets. Especially as there are now constraints on ever adding more capacity in many of these industries. The accretion is just insane, and shareholders are starting to wake up to this fact when they decide which “deplorable” to invest in. It makes me wonder why anyone would ever issue a dividend, yet these management teams keep doing it….

It’s time that we hold these management teams accountable and tell them to just smash the buyback button. If someone will sell the shares cheap, then take advantage of those idiots. Look at some of the coal companies that have bought back huge percentages of the shares outstanding over the past few years. Despite that, they still trade at between two and four times cash flow!! Imagine how much worse the share-price performance would have been without the buybacks?? Guys aren’t selling these coal companies because they’re no longer cheap—they’re the same cash flow multiples that they were a few years ago. Rather, guys are selling because they have redemptions. Just keep taking advantage of this fact, until the situation changes. Smash the buyback button…

- Kuppy: Just Smash The Buybacks

If you have the time, I would strongly recommend reading Kuppy’s post that lays out his thoughts on buybacks. I’m fine with Peabody’s and Warrior’s token dividend payouts, but I want to see them follow in AMR’s footsteps and plow the rest of their excess cash into share buybacks over the next couple years. I have talked about this with other investors, but the companies that are repurchasing 15-20% of their shares each year are effectively going private via buybacks. I wouldn’t be surprised if we see more consolidation over the next couple years, and potentially a bid to take one of these companies private. Eventually we get to the point that these companies almost have no choice but to start paying larger dividends, but at these valuations, buybacks are the obvious best use of capital.

Differences

One of the main differences is that the tobacco industry was on its way to a secular decline two decades ago, while the coal industry today is actually seeing record demand. This is mainly driven by demand from China, India, and Southeast Asia, which are expected to account for 3 out of every 4 tons of coal consumed worldwide in 2023. This is one of the largest disconnects between perception and reality. Just because the US and other western nations are stubborn in their efforts to phase out coal for electricity generation and steel production doesn’t mean that the rest of the world will follow suit. The fact remains that coal is one of the cheapest ways to generate electricity and accounts for 70% of the world’s steel production.

Another difference worth discussing is the different margin profile of tobacco companies versus coal companies. Tobacco companies have historically been high margin cash cows. With tobacco companies, if you have a view on growth and margins, you can have a pretty good idea of how profitable they will be. The coal companies, like other commodity sectors, are very cyclical. Their margins will fluctuate with coal prices, which can be problematic at the trough, but very profitable as the sector improves. With the long term underinvestment in the sector, I think we are going to see higher coal prices over the next three to five years.

One way to think about the difference between the two sectors is the price maker vs price taker dynamic. Tobacco companies typically fall in the price maker category, with significant brand power and ability to consistently raise prices. Just look at Altria’s Marlboro brand. The Marlboro brand has been around for 100 years, and I wouldn’t be surprised if it is still around 100 years from now. Coal companies on the other hand, fall into the price taker category. Companies that need coal to produce electricity or steel aren’t going to be picky based on the company producing the coal. They don’t care if the coal is produced by Peabody, AMR, Warrior, or any other producer. As long as they are getting the right type of coal, they are going to be more focused on the price.

Charlie Munger, who recently passed away at the ripe old age of 99, said this about hydrocarbons:

While civilization would march on without tobacco, the world be a very different place without hydrocarbons. This includes oil, natural gas, and last but not least, coal. Coal still accounts for over a third of the world’s power generation and 70% of the steel production. It would hard to be as bullish as I am on coal stocks without growing demand for the underlying commodity. As much as the “green” narrative might say that we are going to stop using coal in the near future, the fact remains that coal will play a key role in electricity generation and steel production moving forward.

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Conclusion

Do I know for certain that coal is going to produce two decades of huge returns like tobacco did? No, but I think the risk/reward is still very attractive for at least the next three to five years. I will be reevaluating along the way, but the fluctuating margins and commodity cycles make it much harder to predict where things will be far into the future for the coal stocks. With a stable business that is a high margin cash cow like Altria, investors buying at a dirt cheap valuation could expect huge returns from the dividend alone.

This all happened with the tobacco industry was in secular decline. Demand for coal today, while it isn’t booming, is still growing. Coal consumption is probably going to set another record in 2023 after hitting an all-time high in 2022. As an investor, I think exposure to both thermal coal and met coal makes sense. That is why I own Peabody Energy, which has a mix of thermal and met coal, and Warrior Met Coal, a met coal pure play, which has the potential to significantly grow its met coal production in coming years. I’m wishing I had bought those Warrior calls as shares have had a strong November, but I’m already very overweight coal stocks today.

Peabody is just getting started on their buyback program and I think that their shares have some catching up to do to the rest of the sector. Warrior hasn’t announced a buyback program yet, but I think there is a good possibility that they are debt free and buying back stock in 2024. If they follow AMR’s playbook, I think share prices for both companies will be much higher over the next couple years. The tobacco industry and coal industry are different for a variety of reasons, but I think there are enough parallels to compare the two at different points in time.

In 2000, Altria was priced like it was going bankrupt in a few years and sentiment was in the toilet. Today, coal stocks are priced like they are going bankrupt before the end of the decade, and sentiment doesn’t reflect the potential of the actual businesses. In both cases, the reality on the ground for the sector is very different from the perception of most investors. This wide gap between perception and reality is what makes coal stocks a compelling opportunity today.

Hindsight is 20/20 and foresight is a much foggier picture. For investors, being able to learn from the mistakes of others and the lessons of the past is what develops foresight. That foresight is what can potentially lead to outsized returns. Hindsight shows that the tobacco industry was a compelling investment opportunity in 2000. Will foresight prove that the coal industry was a compelling investment opportunity today? We can’t know the future, but I think so.

Disclaimer

I own shares of Peabody Energy and Warrior Met Coal. I also own calls on Peabody Energy. You should do your own research before making any investment decisions. Different investment strategies have different risk/return profiles which should be considered before making any decisions.

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I. Don’t. Care.

These three magic words could end so many arguments.

Most appeals in the name of social justice rely on an underlying assumption of universal altruism. They assume that you care if something bad happens to anyone, anywhere, and advise you to take some sort of action to ease or prevent their suffering.

People react by questioning whether or not that stranger, somewhere, is really suffering, or if they are suffering any more than anyone else. They examine the circumstances of the alleged suffering and the motives of the people bringing the alleged suffering to light.

They argue about the details and the proportion of the suffering and point out their own allegedly comparable suffering or the suffering of some person or people who are allegedly suffering more.

Once you’re arguing, they’ve already got you.

Once you’re arguing, you’ve agreed that you could care, or would care — that you should theoretically care — given satisfactory evidence and argumentation.

But what would they say if you stopped pretending to care at all?

There would be no point in arguing about the details.

Of course, as normal humans, we can always imagine ourselves in another humans position. We can empathize with others — that’s what makes movies and novels work. But we can’t really care about the suffering of every single man and woman on the planet. The idea that we should is insane and inhuman. So much of what people say they care about is just emotional pornography that can springboard them into an acrobatic display of moral and political posturing.

I see all of this propaganda online telling me what is NOT OK, and how I am supposed to feel about strangers and other groups of people. If they get me to agree that I care about these strangers and their unhappiness, Im supposed to accept responsibility for that unhappiness and do whatever I can to alleviate it.

This is all manipulation — a political plucking of one bit of human suffering out of an unimaginable expanse of human suffering, all to serve this agenda or that one.

Some kid in Africa probably got his head sawed off with a butter knife while some chick named Shoshana experienced the nightmare of catcalling in New York City. No one cared, because they weren’t told to care. Given their perceivable social class and sex, the guys who were expressing their admiration for Shoshana have probably experienced far more brutality than being propositioned for sex. And no one cared when it happened. Shoshana is just the squeaky wheel who wants to be lubricated with your tears.

If we really cared about everyone, we would never even register feelings or microaggressions or First World problems because our brains would be blown out from watching Third World ultraviolence. We’d be watching and liking and sharing nonstop videos of prison rapes and basement executions and reading stories about sex slavery and child prostitution. We’d be OUTRAGED at the injustice of it all, 24 hours a day, 7 days a week.

Those things are happening right now and they have more or less been happening at varying levels for all of human history.

(If violence is actually decreasing worldwide, as Steven Pinker suggests, then it is probably in part because due to high incarceration rates and widespread fear of sanctioned violence threatened by increasingly omnipotent surveillance and police states in the First World. And omnipotent surveillance states are NOT OK.)

The reason that people care about the same thing at the same time — whatever todays outrage or viral video is — is that we have all have to pick and choose. We decide, if not consciously then by our choices, that one persons suffering is more important than another. Who we — or maybe you, because I’m not talking about me here — decide to care about is almost completely arbitrary. Whatever human tragedy passes our eyes or ears.

I don’t care what happens to everyone, everywhere.

I don’t care what happens to strangers.

It’s an admission that sounds barbaric and unspeakably taboo.

It’s taboo because people have been conned into believing that they are supposed to do something they can NEVER do — care equally about everyone, all around the world.

I care about what happens to my friends and my family and my tribe. I care, and even at this point I am using care very loosely, about the kind of people I generally like, respect or support. People who are like me, or who are like the people I like.

When someone registers an opinion or tells me I am supposed to care about something, if I am even thinking about caring, I look them up. I ask myself if I would be interested in what this person had to say if they were sitting in the same room with me.

Sometimes, I would. Usually, I would not. I probably wouldn’t even have a drink with them, or give them a single moment of my time.

If they’re telling me that something bad happened to them, I have to admit that in most cases I probably don’t care. Why should I care about the suffering of this stranger instead of that one?

If they’re telling me that I should change, I ask, “why?,” and if the only answer is to theoretically prevent the alleged and future suffering of some other group of people I don’t know or care about…then…my answer is: “why bother?”

I’ll change to some extent to gain honor in the eyes of men I respect, personally or in the abstract, but why would I change to prevent the unhappiness of some stranger?

This idea that we are all each other’s shepherds, that we are all responsible for the happiness of all humankind, is paralyzing nonsense. At best, it keeps men busy arguing about things over which they have almost no control. At worst it makes men vulnerable to all sorts of manipulation by people who have already decided that they are disposable rubes — like naive retirees giving away their savings to charity grifters or high-living evangelists. Men end up giving away everything worth having to people who are ideologically incapable of even acknowledging their sacrifice.

I’m not encouraging people to stop caring about anyone, I’m encouraging them to stop trying to care about everyone. If you say you love everyone, you don’t really love anyone. Love is a choice, a discriminatory act.

If you don’t pick your team — if you aren’t willing to draw a line between who you care about and who you don’t, between “us” and “them” — then you’ll be like all of these other suckers who care about whoever and whatever they click on every morning.

Care passionately, but discriminately.

And if you don’t really care, then say it.

“I don’t care.”

It’s simple, but powerful.

It’s liberating, but also dangerous and heretical.

The idea that we are all in this together and are working in good faith to solve the world’s problems is an illusion that traps us in a crisscrossed, impenetrable web of synthetic yarn. If you pull that fuzzy pink string — that completely unwarranted assumption of universal good will — civil society collapses into a Hobbesian war of all against all where no one trusts anyone.

When, free from our attachments to everyone, everywhere, we find ourselves adrift in a staggering, confused mass of drooling and covetous humanity, we can make sense of it all and find our bearings only when we form discriminatory alliances and new tribes built on trust, common interests and mutual admiration — instead of being bound by the great lie of love for all neighbors.

- Jack Donovan

Ask Yourself: Why Am I Seeing This?

Why am I seeing a certain picture or series of events at a certain time? Why is this on the news, or on social media? If it’s on social media, know that the apps will feed you content that is designed to keep you on the apps. Most of the content created today is designed it create engagement and/or clicks depending on the medium, by pushing your emotional buttons. Is this a jaded way to view the world? Probably. Does it give me a more realistic view of the way the world really works? I think so.

If you must pay attention to what is going on halfway around the world, try to filter events through a lens that works for you. You might think that I’m too cynical, and that could be true. I think people should look at the news, social media, and pretty much anything you see on the internet with a healthy dose of skepticism. You might not get to the “I don’t care” attitude, but that’s not for me to decide. I care about me, my family, my friends, and my country, and people outside of that circle are not my problem.

Am I aware of what is going on? I try to be. I also try to figure out what is actually happening, not just what “they” want me to think (who “they” are is another topic for another time). I’m in the distrust but verify camp, and it saves me a lot of time in the upside down world we live in today. I assume that CNN, The New York Times, Fox News, or MSNBC are lying to me, or at the very least are not giving me the full truth on many important topics. This is why we are in the middle of a boom in independent podcasts, YouTube videos, and even Substack. People are looking for truth and authenticity, something that is sorely lacking in our mainstream media outlets today.

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The Current Thing

Over the last several years, we have gone from one manufactured crisis to another. I’m very skeptical of the mainstream narrative on any topic. I do more than the surface level research, and I give current events some time to play out instead of reacting quickly and emotionally. That’s why I wasn’t rushing to weigh in on what started last week in Israel. Starting in 2020, COVID (and the ridiculous government response) dominated the news for years, until the Ukraine situation came along. Putin became the villain, and the West poured billions of dollars into Ukraine. We were supposed to believe that Ukraine could defeat Russia, and it was near impossible to get a read on the situation due to the fog of war. I think we will look back on Ukraine as a complete and total disaster for the West. Now the current thing has shifted to Israel and what is going on in Gaza.

Last week, the situation that has been bubbling up for years between Israel and Gaza popped off. The media frenzy was predictable, as it always is when it comes to anything involving Israel. I don’t have much insight other than Hamas started an offensive after what happened at the Al-Aqsa mosque. It sounds like Israel is going to retaliate, but the whole situation is powder keg in the Middle East. I have found Scott Ritter and Ryan Dawson to be contrarian sources for news outside of the typical media outlets, and they have been focused on what is going on in the Middle East. Another Substack worth following on geopolitical events is Meaning In History by Mark Wauck.

Like I said earlier, I don’t care, but I find it interesting. It is also worth following for me personally because of the potential impact on the global financial markets. Because I wanted to be a little bit informed on what is going on, I did some digging into some of the background on the conflict. For example, most people don’t know that Israel is responsible for creating Hamas. It’s an interesting parallel to the US funding the Mujahideen in Afghanistan to fight against the Soviets in the 80s. Both cases have obviously come back to bite later on down the road.

Personally, I care more about the thousands of immigrants that continue to flow into the United States because that actually has an impact on me and mine. It’s funny that our military is supposedly for protecting American interests, but the one place we can’t seem to get them to go is to protect our borders. Another conflict going on right now is in Sudan, and the total casualties are actually much higher than what has been going in Israel. The civil war there has been going on for years. The fact that it’s not in the news should at least beg the question: what makes Israel different?

I’m paying attention, but I don’t care.

The Wait & See Approach

With all of these things, I take the wait and see approach. With the COVID vaccine, it was “safe and effective”. In case you were wondering, I’m still waiting to see any convincing evidence that it is safe or effective. In Ukraine, there was a ton of fake news and fake headlines flying. One that I remember from the early days in Ukraine was the Ghost of Kyiv, a Ukrainian fighter pilot that supposedly shot down multiple Russian fighter jets. With Israel, I have seen plenty of bad takes and misleading headlines. One notable headline circulating recently that there were 40 beheaded babies. It is unconfirmed at best, and completely fabricated at worst. The point is that waiting for the dust to settle on current events is a better option than reacting emotionally to the current thing.

Conclusion

I know that this is not the typical post on investments, but I sat down to write yesterday and this what ended up on the page. A lot of what I see on social media is people letting their emotions get in the way of rational thought. Whether its COVID, Ukraine, or Israel, there have been numerous examples of misleading news and headlines, all designed to manipulate to get a certain reaction or create an emotion. I take a wait and see approach. I’m not here to tell readers how to think, but I think slowing things down helps me make better decisions (both with investments and day to day life). In my opinion, this has to be an intentional mindset if you want to counteract the 24 hour news cycle.

Over the last couple years, our society has bounced from one crisis to the next with no signs of this pattern stopping. The media keeps the cameras rolling, the lies flowing, and the outrage growing, just to generate clicks and views. I’m not going to stick my head in the sand and ignore everything going on in the world. I’m not going to get worked up over it either. There are over 8.1 billion in people in the world. It’s important to remember that there are a lot of good people out there, but there are a lot of evil people out there as well. With all that has happened in the world over the last couple years, it is just as apparent as ever.

I have found that watching current events is like watching a slow-motion train crash. There’s not much you can do to change it, but at the same time, you can’t look away. I’m pretty pessimistic about the the short-term, but I’m very optimistic about the longer-term future of our country and the world. At the end of the day, I think that all you can do is figure out who your tribe is (your family, your friends, and your country), and care for those groups of people. I’ve said it a couple times, and I’ll say it again:

I’m paying attention, but I don’t care.