"Out at Any Cost" - A Dislocated Market, ft. Anthony Milewski
Anthony Milewski, Chairman of Conic Metals, joins the Minerals Manhattan Project on a historic day: one day after oil prices went into negative territory.We discuss the relationship between power and minerals, and the difference between the stock market and the real economy. While governments can print money and stimulate the economy with excess liquidity in financial assets, the phenomenon in oil shows that there is a dichotomy between the financial paper world and the real physical, tangible things that have to go somewhere. Over the past decade, technical investment strategies have defined the stock market. Anthony describes how in a post 2008 world, risk management has moved money away from exposure to illiquid assets especially in periods of volatility, as well as into ETFs and algorithmic trading rather than active management.In a COVID19 environment in a technically driven market, all assets become risk assets. This shift has hit mining companies more than other players, as large pools of passively managed, risk-intolerant capital can't provide the growth equity mining companies need. As Anthony puts it, for passively managed capital, "There's no one to call up."Oil's dive into negative territory illustrates how risk is being quantified by the market - everyone wants liquidity at any cost, and fund managers want out at any cost. When you add leverage to the picture and the entire market grosses down, the de-levering process can cause the whole asset class to go down.As central banks around the world jump in to backstop economies across the world, the relationship between currencies and commodities is going to come into focus. Anthony shares his thoughts on the USD as the global trade currency, and whether or not this will be a tipping point in unwinding US dollar hegemony. Linking that back to the US dollar, this ties into the geopolitics of large oil exporting nations tied to an unfriendly currency. When you consider the role of energy in mining a cryptocurrency like bitcoin, or mining gold, there are relationships between these activities.We go into whether the outcome of COVID19 will be deflationary or inflationary, with Anthony making the case that technology is inherently deflationary, while printing money in the long term is inflationary. The unintended result of government intervention will be that people who are long financial assets will become richer, which will compound income distribution inequality and fuel populism.And so - where are the opportunities? As things normalize, there will be runs on metals like copper or nickel where a supply crunch is inevitable due to time from discovery to mine. If we hit an inflationary cycle, commodities will all benefit, but they might not have hit their lows yet. Infrastructure spending will benefit copper, iron ore, and maybe even coal. Saving the stock market is less a master plan and more of need to prop up a system, but will not in the long run benefit the majority of Americans. Anthony sees further supply chain consolidation from China as financial actors in the United States continue to prioritize short term quarterly and annual goals rather than long term goals.