This past week I was interviewed by James Stafford at Oilprice.com.
We discussed, oil, gold, lithium, other natural resources, global opportunities, and even biotech plays.
Here is the full interview, conducted several days ago.
Think Beyond Oil And Gold: Interview With Mike ‘Mish’ Shedlock
The energy sector was certainly a bargain in January, but no one really knows where oil will be around Christmas. While we may have already seen the bottom, stock prices are not the bargain they were.
There are other plays. Think electric vehicles and even driverless cars. Find what’s undervalued now and get in on some of the games that will dictate glorious future wealth.
In an exclusive interview, Oilprice.com talked to Mike “Mish” Shedlock, an award-winning economic commentator who has been providing millions of readers with investment advice for years.
In this interview, Mish discusses:
• The oil bounce
• The confluence of events that brought oil down
• The manufacturing recession
• The battery revolution
• Lithium, EVs, and driverless cars
• Demographics
• Opportunities in beaten up stocks, bios, potash
• Global opportunities, Brazil, Russia, Japan
Oilprice.com: What do you see as being next for oil prices? Is the rally here to stay? Where do you see oil prices at Christmas?
Mish: I certainly don’t know, and no one else does either.
Early this year, many resource plays were massively undervalued and priced for possible bankruptcy. Had I known the precise timing, I would have sold everything 2-3 years ago and bought in December.
My intent was to buy a lot of energy companies when oil dropped into the 30s. I didn’t. Instead, gold miners and other resources were a bargain at the same time. I did pick up more of those.
In regards to oil, there are a lot of companies still going bankrupt. With the slowing global economy, oil prices may simply level off here. I am inclined to think that the bottom may be in, but one never knows with these political pushes against petroleum and fossil fuels.
It’s interesting that when oil fell from $100 to $80 to $70 to $60, people kept saying the bottom was in, every time oil bounced a few bucks.
I was thinking $35-45. Oil went even lower.
Then when oil broke $30, people threw in the towel. Writers started talking about oil in the teens!
The same thing happened in gold. When gold fell from $1,900 to $1,050 people started talking about gold in the $600 range again.
Neither oil nor is gold is going to zero.
The best energy plays are companies that have little debt and are profitable at or near current levels. They will survive another trip south in oil prices. Debt leveraged companies may not.
Oilprice.com: Do you buy into the theory that Saudi Arabia has been pursuing a strategy to bankrupt the U.S. energy sector and maintain its own market share?
Mish: No. We had a confluence of numerous things made for a “perfect storm” in the oil sectors.
1. The Fed drove down interest rates to ridiculously low levels.
2. Companies saw an opportunity to get cheap financing and they got it.
3. Extraction technology improved.
4. President Obama worked out a deal with Iran to end the embargo. This added to global oil supply.
5. Cash strapped Russia pumped more oil to support its economy in the wake of EU and US sanctions.
6. Growth in China slowed.
Drill baby drill!
The U.S. drilled like mad and so did everyone else.
Despite the crash in oil, production in the U.S. dropped only 6 percent, maybe 8 percent. So we have huge numbers of bankruptcies already filed and pending, and companies are struggling—yet, they are all still pumping.
The Fed kept these companies alive artificially.
Oilprice.com: What do you see happening at the June OPEC meeting?
Mish: A lot of talk and nothing else. We see the same thing with trade discussions. Every year there are two rounds of trade discussions and nothing ever happens.
Even the Trans-Pacific-Partnership (TPP), looks like its dying on the vine. It will die if Trump is elected, maybe even if Clinton is. She stated on 45 occasions while in office that she was for it. Now, she isn’t.
TPP is a massive monstrosity, all done in secret. Few have read it outside those working on the deal. Only 20% of it relates to trade.
I believe a proper trade agreement would be to drop all tariffs and stop all subsidies regardless of what anyone else did.
Any country that did that would see investment pour in. But no one wants to try that. Everyone claims they are for free trade except when it hurts their exports.
So here we are. This is another one of those “we have to pass the bill to find out what’s in it kind of things.” No thanks!
I have written about the TPP many times, here’s a pair of them:
- Obama’s Trans-Pacific Partnership Fiasco vs. Mish’s Proposed Free Trade Alternative; How Will TPP Function in Practice?
- Hillary Clinton, Dead Rats, Toilet Paper Politics
Oilprice.com: As you’ve seen over the last few weeks we’ve seen an increase in demand and many supply outages. Is this the end of the glut or will it hang over the market for a while?
Mish: Supply will hang over the market for a long time to come. China is slowing way more than people realize. What little rebound there was in Europe appears to be on its last legs.
The oil market crashed to take falling demand into consideration, likely overshooting. The rebound is to a more natural level. If I had to guess a range, I would say a $35-$45 range. It could be higher. I have no bets on it.
Oilprice.com: Goldman Sachs’ top-end estimate is $60 or above. How would that impact the economy?
Mish: Let’s approach that question from the opposite direction.
All the people who said that falling and low oil prices are “unambiguously good for the economy” were wrong.
If oil rebounds to $65, then maybe my idea that the global economy is slowing rapidly is wrong.
But $65 or higher could also happen with some sort of war-caused supply squeeze in the Middle East or if OPEC and Russia voluntarily made huge cuts in production.
In general, if oil is going up in the absence of a supply shock, then it usually means the global economy is improving.
The dip below $30 was likely an overshoot. If so, the subsequent rebound to the mid-$40s was just a bottoming event. Judgments need to be based on what happens next, not a rebound from the depths of hell.
Europe has huge migration problems and voters are fed up. You see it in the rise of some fringe parties all across Europe.
In the U.S., Donald Trump beat all expectations. If the economy was really doing well, people would not be so angry everywhere you look.
Oilprice.com: How big of a stimulus do you think low oil prices have had on the economy?
Mish: At best, little to none, and more likely negative. The economists thought that people would go and spend all their gasoline savings on consumer goods but that didn’t happen.
Instead, the savings rate rose. People did spend more on rising rents and rising healthcare costs, not where the Fed wanted consumers to spend.
We lost a lot of high paying jobs in the energy sector and some of the local economies are struggling.
The net effect of all of this was certainly negative as it played out. Last month, we saw a good report or two in manufacturing, but they went down again this month. Manufacturing is undoubtedly still in a recession.
Oilprice.com: What about renewables, and particularly, battery technology? If battery technology improves rapidly, and the driverless cars accelerates, would oil be hit hard?
Mish: It could, but the timeline is in question. I don’t think a massive switch to batteries will happen any time soon in most consumer cars.
There are plenty of variables here and more questions than answers—especially when it comes to time frame and reverberations.
Are people going to stop buying cars and go to Uber? Are those cars going to be battery, gasoline, or hybrids of some sort? I don’t know.
I propose a phased progression.
First, long haul truck driver jobs will vanish, then taxi driver jobs will vanish.
When the average person in the city says “I don’t need my own car anymore” remains to be seen.
Oilprice.com: How do demographics fit into the picture?
Demographically speaking, millennials don’t see things the same way as the boomers do.
Mish: Millennials don’t care much about cars – they’re content to do other things that aren’t as energy intensive as their parents did. They don’t want big houses as they’ve seen their parents lose houses to debt. They live with parents and don’t eat out as much. This all cuts into demand energy.
So does a mountain of debt. Yet the economists are still trying to figure out why the economy is growing slowly.
I discussed that in Household Debt Still Below 2008 Peak.
As of March 31, 2016, total household indebtedness was $12.25 trillion, a $136 billion (1.1%) increase from the fourth quarter of 2015. Overall household debt remains 3.3% below its 2008 Q3 peak of $12.68 trillion.
Check out the trend in mortgage debt vs. the trend in student loan debt. The two items are not unrelated.
Household formation is low because of student debt, boomer demographics, and changing attitudes of millennials.
Oilprice.com: Outside of gold, where do you see undervalued investments?
Mike Shedlock: I like Lithium but some of the plays in that space have had a big run-up.
There could be a pullback. In terms of market timing batteries, three to four years away may as well be light-years from now. The markets typically don’t care much about things more than a year away.
I am in some tiny companies. And I am willing to be patient. My intention is to hold them until I think they have met their value.
I am in a couple of biotech plays. I like Sarepta (SRPT), but pull up a chart. Volatile does not begin to describe the gyrations. I caught an entry in the teens. The next day it fell to $8. Earlier this year it was at $38.
This volatility is a sad testimonial to the power of the FDA.
Doug Casey calls the FDA the “Federal Death Agency”.
Sarepta has a drug for MD that patients say works, but the FDA says doesn’t.
A Group of Senators Wrote the FDA seeking approval. Janet Woodcock, who heads the FDA Center for Drug Evaluation and Research said to an overflow crowd that included hundreds of kids in wheelchairs “It’s possible to reach different conclusions based on the data presented today … Failing to approve a drug that actually works in devastating diseases — these consequences are extreme.”
This play could easily double or halve depending on the next “Federal Death Agency” review. I make no recommendation, but my point is twofold.
First, look outside the box for opportunities. The FDA created a panic opportunity when it issued a preliminary ruling against the drug. A final ruling is expected later this month.
Second, I wanted to mention the perverse influence of the FDA approving drugs that have serious side effects and not approving one where an overflow crowd of parents turned up begging the FDA to approve something that they believe does, especially when there have been no serious side effects.
The key is not to buy into blind plunges, but rather to see if unexpected news creates a favorable opportunity.
From a Libertarian standpoint, the decision on Sarepta was pure nonsense.
[OilPrice note: On Wednesday, the Wall Street Journal reported Sarepta: FDA’s Decision on Dystrophy Drug Delayed.]
Oilprice.com: What about cobalt and other resources?
Mike Shedlock: I haven’t looked at cobalt, but perhaps I should. I am in a Potash play now.
These are the kind of plays that aren’t on mainstream media radar. It takes a bit of research. The smaller companies are kind of like lottery tickets. They are also similar to cheap options that don’t expire.
If you don’t put a lot on these plays, and can take a bit of volatility, you only have to be right on one in 10.
Oilprice.com: How close are we getting to a real breakout with autonomous trucking, which you’ve written about recently?
Mike Shedlock: Four ex-Google engineers broke away and started their own Driverless Vehicle Company Called “Otto”.
They’ve been testing driverless trucks in Nevada without a backup driver. The “Otto” approach is a little different: They retro-fit existing trucks with their technology. The clincher is that “Otto” will soon be commercially ready.
I bumped up my timeline for driverless trucks from 2020 to 2019. I now expect we will lose millions of jobs by 2022 instead of 2024.
Oilprice.com: Do you see the EV revolution taking place sooner than many are projecting?
Mish: I do. I bought a couple of lithium stocks – one on the Toronto exchange and one here in the U.S. But yes, I believe people need to look outside of gold and energy as to how this will take hold.
My opinion on these things is if it takes a government subsidy to work then it doesn’t work. And we are not seeing subsidies going into this industry (unlike wind for example).
The free market seems to be adapting on its own to deal with emission issues.
Oilprice.com: What about global opportunities?
Mish: Brazil is going through huge turmoil right now. When the political dust settles in Brazil there will be opportunities.
Why buy a general basket of stocks in the U.S. when Median PEs are near the highest ever?
I like Russia and Japan. With Japan, one needs to think about Yen hedging. Who knows what crazy thing Abe might do?
Think globally! But be prepared for a currency crisis. Don’t give up your gold.
Mike “Mish” Shedlock
By James Stafford of Oilprice.com
Mish, This is out of left field. There is a lot of buzz on the net about a plan to
crash fiat currencies in an attempt to ease debt burden but also loss of credibility in US Dollar- Peter Shiff types, but many predicting a bank holiday over long weekend, some type of reset relative to the SDR or Gold / Silver. Is there anything to that? It doesn’t seem any of the mainstream or markets are at all concerned – just another round of naysayers, pessimists, fear mongers?
I ignore all such nonsense except to occasionally make fun of it.
Supplimental low visibility item on the TPP.
http://www.americanthinker.com/articles/2015/12/obama_will_use_tpp_to_enforce_his_climate_agreement.html
The Millennials I know who own homes have a first priority to pay off their homes. I am amazed at the number who have paid them off by age 30-35. They live frugally and drive used cars. They use swap groups to sell items to each other on Facebook and go camping instead of taking big vacations. They also love AirBnB for lodging when they travel and are the most likely generation to use Uber. Does any of this sound like it will help the economy.
If by “the economy” you mean actual living standards, or what economists would call “individual utility functions”, absolutely.
But if “the economy” is instead taken to mean currently fashionable trumped up metrics devised to justify ever greater resource grabs by banksters, lawyers, apparatchiks and other redistributors, probably not so much.
Sure. Those who have to struggle through the leftovers of someone else’s binge to secure their own survival will hopefully tell the rest to get lost when they are forwarded the tab.
Wastage is not economy.
“I believe a proper trade agreement would be to drop all tariffs and stop all subsidies regardless of what anyone else did.
Any country that did that would see investment pour in. But no one wants to try that. Everyone claims they are for free trade except when it hurts their exports.”
I suppose it only makes sense that in a war (and we are in an economic war) that after decades of losses we finally decide that the best strategy is to abandon our arms and surrender in the hopes that our pacifism engenders like responses from our former adversaries.
Or we simply are “eaten” and find ourselves in a steaming pile of pooh.
I cannot imagine a world where our industry is destroyed by cheap foreign imports compounded with the highest business taxes in the world, becoming a magnet for any industry beyond salvage, undertaking and bankruptcy lawyers.
Pacifists of all stripes have been preaching this surrender forever, and yet where are they? Where is their pacifistic Utopia today? If it were a viable option, rather than a idealized dream, we would see proof of its success, just like we would see the raging success of centrally controlled economies, socialism and communism. China BUILT and MAINTAINS their economic might specifically BECAUSE of their protectionist policies (most far in extreme to what we could imagine).
This is the same crap we hear from all elitist tyrants who see the “final solution” as one where all are forced to surrender their arms, their self interest, their self defense, for the sake of a larger, more collectivized notion that demands they heel to leadership of blind obedience.
The singular POWER granted our government is for our DEFENSE, trade being only second in threat to outright invasion (which we are currently enjoying as well), yet we are supposed to simply lower our guard, ignore REAL statistics showing continued job loss, INDUSTRY loss, and BANKRUPTCY.
Our only hope is through government protectionist interventions as we, The American People, have REFUSED to act in our own self interest. Intent on buying the cheapest deal, the something for nothing, regardless of if it ultimately costs us our neighbor’s job, our brother’s job, or even our OWN job, as we have been assured by a corrupt government that it will NOT, and have been backstopped by unending debt, private and public, to levels incomprehensible and unpayable.
And I have yet to hear ANYONE explain how in any medium to long term period how taking our trade from a hugely negative number to zero is a loss….as that IS the claim of those resisting protectionist policies. We keep hearing comparisons to Smoot Hawley, a policy of protectionism that was imposed upon us at a time when we had a substantial POSITIVE trade balance. We had lots to lose in that scenario….not so much now by my math.
The “country” which has shown by far the most resilience against foreign invasion over time, is what is currently called Afghanistan. Which never really had much of an army at all. Nor any centrally collected taxes to build one with, of course, since that particular form of theft is much tougher to pull off without an asymmetrically armed state.
A rifle, cannon, or nuclear arsenal “behind every blade of grass” is a much bigger deterrent to a prospective invader, than if they are all concentrated in the hands of a bunch of corruptocrats that can be bought on whim.
Protectionism requires a massive central bureaucracy to enforce it as well. Requiring massive, efficiency and competitiveness destroying, taxes. Which then requires a police state and standing army to enforce those. Etc., etc. Nothing but a giant pyramid of oppression, just so a bunch of know nothings can preen around and pretend “Dear Leader” and his hangers on, are somehow worth vile life forms, as they go about pretending to do something useful by “managing” others. At gunpoint. Unopposed.
I agree about protectionism enforced by the State, but given all other burdens imposed by our “protectionist” government, and given we as a society refuse to act in a self “protectionist” manner, it leaves me willing to submit (on some limited means) to this “oppression” until such time as we can actually educate the public as to where our real interests lie. I do not believe that we will ever be shed of some form of government oppression, but that which governs least governs best.
We had a full blown protectionist trade regime in the late 1800’s and early 1900’s and ran a positive trade balance and it paid for almost all of our federal government….and we had virtually no federal income taxes on persons or business. That was then and I’m not suggesting that we can roll back history, only that protectionism could provide some cover until we get back on our feet. As I say, it IS one of the few constitutionally granted powers given to our federal government and in a time when they abuse their powers in EVERY venue, why should we insist on restraint in this crucial area? How about we eliminate the IRS and allow protectionism in its stead? It seems incredibly insane that we will continue to tax our own production as these extreme levels (and threatening to go higher with Hillary) yet refuse to tax those imports that are directly contributing to the loss of our jobs and industries.
“until such time as we can actually educate the public as to where our real interests lie”
The American consumer isn’t given a reasonable choice. I used to buy Craftsman hand tools at Sears in the day. They were well made in America. Since Eddie Lampert and his PE thugs took the place over, they are now mostly made in China. I stopped buying them. So now my choice is to go with much more expensive commercial grade equipment or much lower grade Chinese brands. My reasonable choice was taken away by a fellow American. I wasn’t asked or given a choice. And I, like the vast majority of my fellow Americans, are fully educated on the subject.
People are voting Trump because they are educated and want change. It is the ownership class in the country that makes these decisions. Not working class folks. It can only be resolved politically, not economically.
So Jon, do you think Craftsman tools would have continued to manufacture in China if Americans had refused to buy Chinese tools? Do you think Craftsman would have made the choice to move to China if Americans had made clear through their purchasing “votes” that they would not buy ANY Chinese made goods as long as they were allowed to undercut American producers?
Most people have made the DELIBERATE choice to buy imports, and now as you say, there is not much choice. We could take it back, but it would first require a government to acknowledge the the problem actually exists. I hear endless tirades about the falsity of claims that imports and illegals are costing us our jobs, when it is demonstrably true and OBVIOUS.
We would like to pretend it was simply the greedy and malicious acts of corporations to enhance their profitability, rather than their deliberate actions to meet OUR demands. CHEAPER at any cost.
I don’t buy it and I don’t exclude myself from these actions, but I do make an effort to buy domestic when I see a reasonable choice. Ultimately it will be left to those with the money to choose higher priced domestic over cheap imports, as the unemployed and poor do not have those luxuries in many cases.
As an American manufacturer myself, I find it disheartening that my customers, large corporations like Exxon and AT&T, are now choosing import furniture over domestic. If THESE purchasers don’t feel like they have a choice, then we are truly cooked.
Surging oil prices are a proxy for silver not gold. Since this is “real oil” being produced in the USA it’s also NOT a proxy for the petro dollar…meaning interest rates hit their lows YEARS ago and basically the whole world is being “dollarized.” This would normally strike me as VERY bearish for oil prices actually as it implies a global recession and indeed coal prices have collapsed which in theory is a proxy for diesel fuel and a direct and deadly competitor to “the goo.” So far that’s only been true in China though…of course I should say “only” since that’s where all the oil bulls claim to be selling their oil too. Ironically Venezuela has become a big importer though…perhaps a sign of things to come.
“The oil market crashed to take falling demand into consideration, likely overshooting. The rebound is to a more natural level. If I had to guess a range, I would say a $35-$45 range. It could be higher. I have no bets on it.”
Possibly … but I think price of oil going lower … much lower.
For several reasons. As the recession the US is in (or about to enter) becomes more apparent demand will fall…higher fuel prices only exacerbate the growth problem. NOBODY seems very interested in cutting production … instead waiting for the OTHER guy to cut. Finally, the shenanigans the banks are pulling (parking oil offshore in tankers for instance) to keep prices up so energy companies can raise equity to retire the debt the banks hold.
Don’t know how long the prop can be held … but will collapse at some point.
“My opinion on these things is if it takes a government subsidy to work then it doesn’t work.”
I’m going to write that down. Unfortunately, no one running for office will.
Government builds the paved roads which are a direct subsidy to the auto industry. Without that subsidy, the automobile industry is a tiny fraction of what it is today, and we are all taking streetcars. Without a big auto industry, the oil industry is a tiny fraction of itself.
Without government built and run airports and radar systems, the airline industry is a tiny fraction of itself, and possibly non-existent. The government essentially built the train industry by expropriating people’s land and clearing the land of native americans and buffalo.
Without those subsidies, modern America doesn’t exist.
Government spending of private money is a business that is supposed to work at a scale that is beyond individual accounting except for the appreciation that a majority will find the result better for the whole amd hence ultimately themselves , in spite of their own cost.
I am not sure you could label that, in its purest form, a subsidy, but for the non-voluntary nature by which it might be enacted.
In theory it would be possible to carry out all that has been done by private enterprise and subsequent levy on use to repay participants, but even there legislative approval would be necessary. You could not have one property delaying a project, for example.
Nor is it unknown for groups of people to contribute volantarily towards communal projects without paid reward.
On the other hand, how are we ever to be able to compare how the evolution of the nation might have been if there were no central authority of the current nature ?
We could be way ahead, or way behind, and each depending on individual parameters of success… which would have evolved differently under each avenue also.
“Government builds the paved roads which are a direct subsidy to the auto industry. Without that subsidy, the automobile industry is a tiny fraction of what it is today, and we are all taking streetcars.”
Henry Ford built a car the masses could afford, paved roads or no paved roads. ALMA, an auto producers association, tried to prevent Ford from building a car for the masses. They wanted to control who was allowed to build cars. Ford had to go to court. Ford prevailed.
The automobile industry became what it did, because Ford created the modern assembly line and thus increased the availability and affordability of cars to the average person.
During Henry Ford’s lifetime, most people still used rail systems and streetcars to get around. Automobiles did not finally come to dominate domestic travel until the building of the interstate highway system in the ’50’s under President Eisenhower.
And there is a reason for that. The Interstate Highway System was dreamed up in the 1930’s under FDR as a way to create suburbia for the masses. FDR needed to put millions of people to work and homebuilding was the ticket. He created FNMA to finance the construction, and Eisenhower built the IHS to facilitate it. Ford’s progeny of course helped build the cars.
Little thought is given today to how much those 2 presidents are responsible for how wealthy and powerful the U.S. became in the subsequent decades. Nor how much a poverty of imagination exists in recent American leaders which have left us where we are today.
Somehow we were able to build these roads and infrastructure while avoiding the massive debt and government spending as a portion of GDP we now have. We paid people to build things with our tax dollars, things that could be a benefit to all. Today we have massive government bureaucracies that do NOTHING but burn money, and they have burned a lot, and not accomplished a damned thing, but meanwhile they cronies on the receiving end of this largess have made out like bandits. we now have huge debts and crumbling infrastructure and money is being spent on restroom studies and faux investigations of government criminality and malfeasance. How many hundreds of millions have we spent on Obama vacations so far?
Roads are paid for by gasoline taxes. So the drivers of vehicles are paying for the roads. The government is only the intermediary, collecting and redistributing the money. But it fits Obama socialist arguments to claim otherwise.
Ditto airline industry. $5 per ticket added on to pay for TSA. Other taxes in ticket prices and airline fees pay for the other stuff. There is no government subsidy, just redistribution of money via government, which is the middle man and rakes off administrative overhead. Airline “taxes” such as those on passenger tickets could easily pay for radar and control towers if the monies went through another entity (e.g. an airline or airport consortium).
Government subsidy is a political term, propaganda for the socialists in the case of roads and airports. Which is not to say that there are not true government subsidies.
Eisenhower built the interstate highway system for strategic/military reasons based on his wartime experience in Europe so military equipment and armies could be moved around in the defense of the country. Ike had absolutely no interest in connecting the Chicago suburbs with the Los Angeles suburbs, as well as everything in between. Indeed, a lot to American towns died because they were not on the route or were bypassed; just a strategic necessity. Saudi Arabia copied the Ike example, and Desert Storm used the highways to move troops across Saudi Arabia and into Iraq. No Saudi suburbs to connect.
There was more home building underway in the 1920s under Harding, Coolidge and Hoover than under FDR. The 30-year mortgage to buy the homes built pre-FDR was the bigger FDR administration accomplishment. FDR gave people a lot of hope and change, but his biggest government project was named after his predecessor who started it. Goes by the name of Hoover Dam, which even has a nice little museum explaining it all minus the fantasy fictional nonsense..
Very interesting Mish. Lithium and Potash.
I just started picking up POT last week. Supposed to be a great company, 6% div yld, and ags seem to be picking up.
As for lithium, Cramer of all people noted FMC Corp last week. Ag chemicals and, you guessed it, lithium. 2d or 3d player after Albermarle, which is now # 1, and also a high quality outfit.