There’s an epic scene in The Wolf of Wall Street you might’ve seen…
In it, Matthew McConaughey’s character is describing the stockbroking business to his eager new employee over a fancy lunch.
‘It’s a fugazi, it’s a woozy, it’s a weezy, it’s fairy dust…it’s not real’, he explains to the budding new broker, played by Leo DiCaprio.
Fugazi is Italian slang for ‘fake’.
McConaughey’s character is basically saying the investing industry is one big fraud.
Well, let me tell you this.
The whole system of finance is a fugazi, including the banks, and the very concept of money itself!
This week’s events have laid this out plain as daylight…
Money printers go brrrr
On Friday, Credit Suisse, a bank worth US$8 billion, was the latest bank bailout. It got a US$54-billion lifeline from the Swiss National Bank to shore up its balance sheet.
By the way, that’s 6.75% of Switzerland’s entire GDP (the economic output of a country)!
But get this…
The now ‘cashed-up’ Credit Suisse plan to use some of these funds to buy back their own debt.
It’s all a bit like this:
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Source: Twitter |
What a fugazi of a system!
[Editor’s note: On Sunday night as I was writing this, it was looking likely that even that huge lifeline wasn’t going to be enough to save Credit Suisse. Rival UBS is set to buy them out today in a deal underwritten by the SNB, so taxpayers are on the hook — yet again — for the mistakes of banks just like in 2008.]
Look, I don’t want to go into the details of all this today.
I just want you to realise that this is what central banks around the world always do when the banking system goes into meltdown.
They’re a one-trick pony.
I mean, forget ‘tightening’, the US Federal Reserve expanded its balance sheet by US$297 billion last week.
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Source: FRED |
This was the fourth-greatest weekly increase ever.
Let’s be clear what this was…
This is money willed into existence in order to save bankers (and the Fed) from mistakes of their own making.
Of course, they’ll try to pretend the problem’s isolated to just a few banks, or that taxpayers aren’t picking up the bill, but that’s all baloney.
The fact is, when the banking system fails, the currency gets debased.
And WE all pick up the tab through inflation, increased banking costs, and huge future tax bills to pay off these debts.
Even worse, in the aftermath of a financial crisis, we usually end up giving even more power to the bureaucrats and central bankers that helped create the mess in the first place.
On that note, I sat down with my colleague Greg Canavan on camera last week to explain what really happened and why central banks have reacted so savagely.
I expect more twists and turns over the next few weeks.
Everyone is looking around to see where the next dominoe in the overleveraged and unsafe financial system is set to fall.
No doubt we’ll see central banks intervene to an even greater extent than what they are now.
This is why I’m a huge proponent of Bitcoin [BTC].
It takes the immense control over money away from these unaccountable people.
At the very least, it creates a level playing field. A system where you earn money through hard work or ingenuity, not from being closest to the money spigot.
But this isn’t the topic I want to dive into today…
You see, I’m a realist too.
For now, this is the system we’ve got.
Hopefully it’ll change one day, but until it does, you’ve got to play the game as it is, not how you want it to be.
Which brings me to a quote from entrepreneur and bitcoin advocate Jeff Booth:
‘Abundance in money creates scarcity. Scarcity in money creates abundance.’
We’re definitely in the first part of this quote right now.
So, I want to finish off today’s piece by asking an important question.
In a world awash with money, where are the biggest investment opportunities? What is the scarcest thing you can buy?
The answer?
It could be in our own backyard…
Crack-up boom incoming!
As Jeff Booth says, if money is abundant, everything else becomes scarce.
The logical conclusion to that fact is to buy hard assets.
What do I mean by that?
Well, hard assets are assets that can’t easily be replicated.
And you can’t get harder assets than the mineral resources that sit under the dirt over much of Australia.
You can’t ‘imagine up’ copper, nickel, rare earths, or other critical materials the same way you can money.
You can’t produce it en masse by using cheap labour or other economies of scale either, like you can with manufactured goods
And even worse (or better for mining investors), it’s getting harder to actually find this stuff in commercial quantities.
Which is a problem…
You see, demand for key metals such as nickel, zinc, lithium, and copper are expected to soar in the years ahead.
A lot of this is put down to ‘electrification’ and the green agenda which all major governments have now signed up to.
For example, there’s four-times as much copper required in an electric car than a conventional one.
But the demand factor is only one side of the equation and, arguably, supply issues are more important.
For starters, there’s the fact China is a major supplier of many of these materials, especially rare earths.
With worsening geopolitics, this is a major worry for Western companies.
But the simpler fact is that we’ve just not spent enough in recent years in exploring for new deposits.
Check out this chart of expenditure from Australia’s 20 leading miners:
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Source: Global Data |
You can see the huge declines in exploration spend from 2012 didn’t start to reverse in earnest until last year.
Add to that the fact it’s getting harder to find new commercial deposits (no matter how much you spend), plus the time it takes to prove a deposit, we’re talking about a potentially huge supply shock a year or two down the line.
In short, we’ve got the potential of a huge crack-up boom in mineral prices — the likes of which we haven’t seen in Australia since the heady days of 2002–06.
So how can you play it?
It’ll pay to have a geologist on your side
Late last year, we hired a new editor named James Cooper to run our resources newsletter.
The interesting thing about James is that he’s an actual geologist who has spent many years in the field.
Not only has he turned out to be a great writer (even I can follow his technical points!), the insights and details he’s provided to our team so far have been unreal.
For example, I didn’t know — until a recent editorial meeting — that Australian miners tended not to dig as deep as Canadian miners, historically.
Our early explorers were blessed with an abundance of ‘near-surface’ materials, so they didn’t need to bother about the ‘harder’ stuff below.
Which kind of means, we could be sitting on a lot of hidden value that’s as yet untapped.
This is just one of the reasons why James is in the process of launching a new project called Mining: PHASE ONE.
It focuses on the TINIEST explorers.
The riskiest ones.
The ones most sane folks would think you’d be mad to invest in.
But stocks that, not by fluke, have done pretty well in the small-cap market over the last year or so.
James Cooper has worked for these companies from the inside. He’s not an oracle by any means, but he knows a thing or two when it comes to pre-empting possible drill results.
And, pretty soon, he’s going to apply his geologist’s perspective to the most risky layer of the mining stock universe.
More information will come in the next week.
Good investing,
Ryan Dinse,
Editor, Money Morning