Do You Own “Stuff”?

News out of Switzerland caught our collective eye a few days ago:

Q4 2022 hedge fund letters, conferences and more

Watches of Switzerland Group Plc, the top Rolex seller in the UK, plunged the most in more than two years as sales of luxury timepieces and jewelery in the US missed analyst forecasts.

The stock dropped as much as 16.5% in London after the company reported weaker-than-expected sales for its fiscal third quarter on Thursday, particularly in the US. The shares pared losses and were down 8.5% as of 11:15 a.m. London time.

The results could be an early warning sign of a potential slowdown in the red-hot luxury watch market that has been driven by US consumers rediscovering luxury mechanical timepieces during the pandemic.

This dovetails into one of the themes we’ve been nattering about in our Insider service — the importance of owning “stuff.” And by “stuff,” we don’t mean shiny Rolex watches, as nice as they are.

Rather, it’s about the two components of the economy — the service sector economy and the “stuff” or raw materials component of the economy.

More importantly, it’s about how, in our view, we’re heading into a period where Maslow’s hierarchy of needs will remind humanity (and by extension, investors) of what really matters: “stuff.”

To better illustrate our point, here’s an example…

No matter how fancy your hair dryer is or how many settings it has, it doesn’t work without being plugged into the wall, which is to say plugged into an electrical grid run on fossil fuels. Take away the fossil fuels or indeed the components required to build, maintain, and operate the electrical grid (copper, steel, etc.) and the hair dryer is as useful as a politician — not so much.

   MORE ON MASLOW…

Not to go all Tony Robbins on you, but the above also ties into something Chris touched on in a recent issue of the Insider Newsletter — the importance of relationships vs. “superficial” things (such as the bling bling on your wrist).

Here’s an excerpt:

We talk about Maslow’s needs. Certainly it plays a part in our portfolio construction and that’s all dandy, but I’ve been thinking about this a lot. It is rather obvious to us that food, water, shelter, warmth, and security are all up there and necessary for survival. There is something else equally important. To explain how important it is, consider this.

When individuals are isolated from others, they suffer. It is why parents send their kids to their bedroom when they’ve been naughty, isolating them from the family. This is very painful for a child, but it’s not unique to children. In prison solitary confinement is used to do the same thing.

The link between isolation and suicide rates is well established and documented with literally hundreds of papers published on the topic. Realise these suicides are often not a result of a lack of food, shelter, etc. While those factors can certainly contribute to depression, it is evident that we as humans require intimacy for our soul.

It is why superficial “stuff” is not nourishing to humans. Owning big houses and driving luxury vehicles is fun, but not nourishing, trust me. I’m not in any way suggesting these things are bad but simply that relationships and community are equally, if not more important.

My belief is that we will go through a time where those who are truly nourishing themselves will come out much, much better than those who are after the superficial. In fact, I think it’s always been that way but will become much more important.

In a nutshell, build networks of good wholesome people. Support them, encourage them, and this will be very valuable to you. If I’m wrong about all of this, I really see zero downside to this.

   ALL THINGS TRANSITORY…

Feels like a lifetime ago, when — back in February 2020 — we started warning that lockdowns will bring about inflation and shortages. Fast forward to today, and this pesky stuff is now part of our daily lives. We recently set up a dedicated inflation channel in our Insider private forum, where members can share their own experiences with all things “transitory”.

Member Anissa shared this from New Zealand:

Another member, Stefan, was quick to point out that the math doesn’t add up:

That makes no sense, limiting it to 1 carton of 6 eggs or a tray of 30 eggs…

If it was 5 cartons of 6 or 1 tray of 30 then fair enough……

These are the same people who sat down in restaurants to eat but stood up and put their masks on.. 

While member Vitalie came up with an ingenious “hack:”

Just identify as three persons, and how dare they discriminate against the other two!

Problem solved!

   THE GREEN DELUSION

We recently stumbled across a brilliant Twitter thread where 40-year mining veteran John Lee Pettimore (@JohnLeePettim13) ran a Mac truck through Greta Thunberg’s “renewable” delusion:

As a miner for 40 years I have worked in various mines around the world. Gold, platinum, copper, coal, lead, zinc, oil and salt. I’m going to tell you something, and here it is. We will destroy the earth in the name of “Green Energy” Follow along and I will explain. 

MiningWatch Canada is estimating that “[Three] billion tons of mined metals and minerals will be needed to power the energy transition” – a “massive” increase especially for six critical minerals: lithium, graphite, copper, cobalt, nickel and rare earth minerals

Over the next 30 years 7.5 billion of us will consume more minerals than the last 70,000 years or the past 500 generations, which is more than all of the 108 billion humans who have ever walked the Earth.

Mining requires the extraction of solid ores, often after removing vast amounts of overlying rock. Then the ore must be processed, creating an enormous quantity of waste – about 100 billion tonnes a year, more than any other human-made waste stream.

Purifying a single tonne of rare earths requires using at least 200 cubic meters of water, which then becomes polluted with acids and heavy metals. On top of that, imagine the destruction and energy required to obtain these essential metals:
18,740 pounds of purified rock to produce 2.2 pounds of vanadium
35,275 pounds of ore for 2.2 pounds of cerium
110,230 pounds of rock for 2.2 pounds of gallium
2,645,550 pounds of ore to get 2.2 pounds of lutecium
Also staggering amounts of ore are needed for other metals.

By 2035, demand is expected to double for germanium; quadruple for tantalum; and quintuple for palladium. The scandium market could increase nine-fold, and the cobalt market by a factor of 24. (Marscheider-Wiedemann 2016 ‘raw materials for emerging technologies’.

The potential demand for rare metals is exponential. We are already consuming over two billion tonnes of metals every year — the equivalent of more than 500 Eiffel Towers a day.

There is nothing refined about mining. It involves crushing rock, and then using a concoction of chemical reagents such as sulphuric and nitric acid, a long and highly repetitive process using many different procedures to obtain a rare-earth concentrate close to 100% purity.

As rare metals have become ubiquitous in green and digital technologies, the exceedingly toxic sludge they produce has been contaminating water, soil, the atmosphere, and the flames of blast furnaces.

Do you think solar panels are “Green” Think again. There is nothing green about solar panels. Did you know we clear cut forests, not for panel placement but for the wood needed to produce the panels. Don’t believe me, have a read.

https://hiddenhistorycenter.org/wp-content/uploads/2020/01/BurningCoalTreesToMakeSolarPanels.pdf

I have seen the destruction of mountains, lakes and pristine waterways all in the name of #GreenEnergy. A recent report by the Blacksmith Institute identifies the mining industry as the second-most-polluting industry in the world. Soon to be Number # 1 Why? Green energy.

Green’ technologies require the use of rare minerals whose mining is anything but clean. Heavy metal discharges, acid rain, and contaminated water sources — it borders on being an environmental disaster. Put simply, clean energy is a dirty affair.

Wind turbines guzzle more raw materials than previous technologies: ‘For an equivalent installed capacity, solar and wind facilities require up to 15 times more concrete, 90 times more aluminum, and 50 times more iron, copper, and glass than fossil fuels or nuclear energy.

Think of China. One-fifth of China’s arable land is polluted from mining and industry. Mining the materials needed for renewable energy potentially affects 50 million square kilometers, 37% of Earth’s land (minus Antarctica). Now imagine that number 10 fold.

If you’ve gotten this far still believing that renewables are clean and green, well, I have a bridge to sell you. We thought we could free ourselves from the shortages, tensions, and crises created by our appetite for oil and coal.

Instead, we are replacing these with an era of new and unprecedented shortages, tensions, and crises.

The last sentence is where the rubber meets the road for us all.

It is going to be difficult to escape the consequences of these actions taken, but our job as investors is to position ourselves to profit from the folly and inevitable shortages, crisis, and tensions.