John Rubino, {Substack https://rubino.substack.com/}, joins us for another wide-ranging discussion around the macroeconomic forces at play between monetary policies and fiscal policies, both domestically and internationally. This is accented by the geopolitical ramifications on the inflation outlook, especially as it relates to the energy sector via rising oil and diesel price trends. We also get John’s outlook on key metals like copper, gold, silver and what kinds of resource stocks that he is animated by in this environment.
We start off dissecting the opposing policy initiatives and stated goals of fiscal policy from the US Treasury Department, versus the monetary policy approaches and messaging by the Federal Reserve.
- US Treasury Secretary, Scott Bessent, recently showed a bit of desperation by intervening in the Japanese Yen in early August to stave off potential runs on US treasuries, and tried to intervene in long-dated bonds, to try and bring down the long-end of the yield curve.
- Kevin Warsh roiled markets some in late August, where his remarks from the Jackson Hole banking symposium were taken as hawkish by the markets, where he has signaled being open to hiking rates to fight the effects of persistent inflation above their stated goal.
- John points out the incoherent approach in the US between these 2 opposing forces.
Next, we got John’s take on the energy sector, in lieu of continued conflict in the Middle East and Persian Gulf, and how it may play into rising inflation.
- John points out how diesel prices are woven into the fabric of everyday life through freight, manufacturing, farming equipment, and how the record crack spreads from refining are going to result in higher inflation metrics.
- At the same time the US is having a “war of choice” that is causing inflation in the form of higher oil prices and higher crack spreads on diesel pricing; the Fed is still considering hiking rates to fight inflation. Those 2 forces could lead to a recession if the trends don’t change in the near-term.
This leads into the observation of the continued strength in the copper price, holding up near all-time highs, despite what should be macroeconomic and geopolitical headwinds.
- John shares why he remains longer-term bullish copper price appreciation due to the compelling supply/demand fundamentals.
- He also shares why he is short-term constructive on copper producers and key junior development assets that may become acquisition targets by the senior companies.
- The caveat John mentions is the unknowable nature of the medium-term. If there is an economic recession brought about by the softening in AI data center buildouts, or a rolling over of the lofty valuations in US equities, then this could also still pressure copper and copper stocks to the downside.
Wrapping up, we review the strong financial health of the gold and silver producers and highlight that metal producers will need to look to growing production through purchasing more mineral inventories in the ground via advanced development projects or currently producing assets.
- PM producers and royalty companies just reported a great Q2 earnings season in August, continuing to highlight increased revenues and rising cashflows, despite many companies seeing flatlining or even declining production metrics.
- The strong metals prices have been seemingly more germane to earnings than strong fundamental growth has been. Cashed up gold and silver producers will eventually need to replace their depleting reserves, so the environment is present to start seeing more mergers and acquisitions for the balance of this year and next.
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