Imbed These Images in Your Head

The following images persistently race through my mind and are poised to profoundly influence you as well. Familiarize yourself with these images.

Oil

“Total world liquids production expected to peak around 2025 and decline gradually.” Huh?

Over the next decade, more people are entering the “S” curve of petroleum consumption than at any other time in history while oil markets are tightening, and yet supply is going to dwindle?

An oil bull market is inevitable… and once it takes hold, given its pivotal role, it will catalyze an even bigger commodity bull market, causing a seismic shift across markets.

And while progress has been steady thus far…

When the oil market truly gains momentum, the broader stock market, currently at historically lofty valuations akin to 1929, 1972, and 2000, could face another lost decade as commodities surge.

Oil prices wield significant influence over inflation, with interest rates following suit. Elevated interest rates favor equities boasting robust short-term cash flows (like meticulously chosen oil producers with cash and reserve abundance) over those relying on lofty multiples and future cash flows like high growth tech stocks.

We naturally hold top-tier assets within the oil sector run by the best management teams.

Natural Gas

Two mental snapshots concerning natural gas also warrant your attention:

We’re heavily reliant on natural gas for the next decade and beyond. Having transitioned from coal in 2001, natural gas stands as our foremost baseload fuel source. Its significance will only grow in the years ahead.

Electricity costs have surged by 28% per kWh over the past four years. However, the full potential of AI data centers, electric vehicles, and bitcoin mining remains untapped.

Before these emerging applications further strain our grid and energy resources, the U.S. is poised to add 5 to 7 billion cubic feet per day of LNG export capacity by year’s end! Where will the necessary natural gas supply come from to meet this relentless demand?

Record-breaking natural gas demand already exists, yet our hunger for it will intensify in the years ahead. As electricity bills inevitably climb, our strategy to offset rising costs entails investing in the premier natural gas producer, with an additional allocation to another company poised to stay ahead of the curve.

CNX Resources has been our primary conduit for natural gas exposure, delivering consistent returns despite temporary softness in spot prices, thanks to their strategic hedging practices.

The future holds promise for undervalued natural gas producers, prompting our inclusion of another company with less hedging, offering greater leverage to ascending natural gas prices in the coming years.

Household and manufacturing inflation spurred by higher oil and natural gas prices and an overloaded grid is imminent over the next few years, and our profits are still in the early innings.

Uranium

Uranium/nuclear power accounts for 20% of the United States’ baseload energy. With a substantial supply deficit in uranium, the equilibrium between supply and demand has no chance to be achieved this decade without Nexgen Energy and Dennison Mines coming online.

Nexgen and Dennison Mines hold all the cards, a fact almost no one knows. The ban on Russian uranium may lead to unforeseen developments and prices could get wild.

Since supply and demand can’t be met any time soon, holding spot uranium is also a shrewd holding of ours.

Precious and Base Metals

The secular metals bull market has commenced. Silver’s outperformance vis-à-vis gold, up by 30% in the last six months, often foreshadows impending inflation.

As oil experiences a boom, diesel costs soar, along with labor and equipment expenses, invariably driving up spot prices for all commodities. Silver serves as an early warning indicator, and it’s a favorable prospect.

Silver’s contribution from scrap and recycled metal is reversing, marking a pivotal shift in the market landscape.

In “The Great Financial Shift,” I underscored that while the conflict between Russia and Ukraine may conclude, the financial paradigm shift will endure. Gold has outpaced the S&P 500 since the onset of the invasion, with various central banks including Russia, China, Brazil, and India divesting U.S. Treasuries in favor of gold.

With a permanent alteration in international fund flows, coupled with energy-driven inflation and escalating government debt, the purchasing power of the dollar is poised for a substantial decline over the next few years.

Hard assets are an attractive proposition at present. We possess a robust portfolio, featuring ample exposure to real assets.

Those low on exposure in the assets listed above are likely to have a much less prosperous time in the years ahead than those like us that have studied and understand these secular shifts.

Bitcoin

FMT anticipates a potential 200% price surge for bitcoin in the next year or so. However, this bullish cycle might cease in 2025 when grid overload and costs become a pressing political issue, and the price of bitcoin outpaces its hash rate, indicating a peak.

We’ll be sellers at that point.

For now, the midterm outlook is exceptionally bullish, and the forward trajectory of bitcoin’s power-law price trend bodes well for investors today.

Conclusion

The mental images we’ve ingrained are more than mere passing thoughts; they serve as vital signposts of the transformative currents shaping our tomorrow. As the investment adage goes, “it’s not where the puck has been, but where it’s going.”
From the impending shifts in oil and natural gas markets to the resurgence of precious metals and the evolution of digital currencies like Bitcoin, we stand on the cusp of profound change.

By comprehending and embracing these shifts, we position ourselves not just to weather the challenges ahead but to flourish amidst the opportunities they afford. As custodians of our investments and guardians of our financial destiny, let us remain vigilant, informed, and adaptable to the dynamic landscape unfolding before us.

Best Regards,
Nicholas Green, CIO