Podcast & Video Of The Week
Thoughts On Tariffs, Iran, The Supply Chain For Metals & Two Earnings Updates
The last week has been chaotic, but it looks like the US is back to an aggressive posture in the Middle East, and Trump is creating more tariff drama. The Supreme Court decided that tariffs were illegal for the most part, but Trump’s response to the Supreme Court’s ruling was to declare a tariff increase to 15%. It will be interesting to watch how it plays out, but I have been hearing that the trucking market here in the US is starting to pick up. One of the things I saw working in the family business is that trucking tends to be a leading indicator, especially for the physical (or real) economy. If the trucking sector has finally seen the bottom, it might be a leading indicator for an accelerating US economy.
The other thing I found interesting on tariffs was that Cantor Fitzgerald (aka Howard Lutnick) has been busy buying up tariff refund rights for pennies on the dollar. I guess I shouldn’t be surprised when Cantor Fitzgerald was also buying airline stock puts before 9/11, but I digress. We have also seen the buildup of US military assets in the Middle East and rumblings about potential strikes on Iran. You have people talking about the Strait of Hormuz again, which probably means we are due for a pause in oil after the rally over the last month. Mark Wauck’s piece below on the geopolitical happenings is definitely worth a read. Private credit is also back in the spotlight again with Blue Owl Capital, and I still think that private equity and private credit is a toxic asset class on average. Whether it is systemic or not is to be determined, but when Jamie Dimon has openly talked about cockroaches in the sector, he probably knows what he is talking about.
Money Of Mine w/ Craig Tindale
This was the best podcast of the week, and for anyone interested in the supply chains for the different metals, it’s a must listen. Over the last several decades, the efficient pricing model has hollowed out Western economies, specifically for the supply chain for the different metals. State capitalism has given China pricing power, and they are now in a dominant position when it comes to silver refining, rare earths, and the ability to handle zinc and copper concentrates, just to name a few. This feeds into our industrial sector, impacting everything from car production to the defense sector and other manufacturing capability.
So nobody can refine copper in the West according to our values because they can’t make a profit because they’re being price targeted by Chinese refiners, so we end up with all the critical metals being monopolized in the refining stage by Chinese refiners. And it multiplies out because it has massive consequences…. 70% of our silver comes from copper smelting, and lead smelting, and zinc smelting in China. If they want to cut the silver off, they can do it in five minutes. They have 70% of production. We are in a 5,000 tons per year deficit per year.
Was it inevitable that we got here?
Yeah, absolutely inevitable. What happens is we create incentives for the rivals to take advantage of. And if those rivals don’t take advantage of it, it’s not rational…. What I’m interested in is equilibrium between the parties. If you push those incentives too far, we end up as vassal states of China, and we have got very few ways back to normality.
- Craig Tindale
Value Hive w/ Tomasz Nadrowski
If you didn’t get enough with the first podcast, this one is the perfect follow up. Nadrowski runs a fund focused on the mining sector, and they invest exclusively outside of China. He talked about the bifurcation of the mining sector, and how the focus on NPV in the West has allowed China to dominate the supply chain for the metals sector. China Northern, China Rare Earths, and Shanghai Resources as the three main players in China, which has allowed the Chinese government to control different parts of the value chain, specifically their dominance in the refining space. I think 99% of America has no idea how far behind the US is on this front, but I think we will be able to figure it out.
So this free lunch either is not going to happen on the West because of the structure of the industry and the problems that the West has maintaining its smelting and refining capacity. Glencore is shutting them down from the Philippines to Canada. Australia and US have to really incentivize and almost socialize the risk of some of these facilities to keep them going.
Chile is trying to salvage some of the carcasses of those that lost their competition with China. And China controls massive volumes of them in terms of aluminum smelting. There’s about 89 aluminum smelters in China versus four in the United States. There’s 68 copper ones, there’s two in the United States, there’s 48 zinc ones, there’s just one in the United States. There’s not a single nickel refinery in the United States. So this is where NPV took us over 30 years of globalization.
- Tomasz Nadrowski
