Melt Up: Inflation & Icicles
by Nick Hodge
Today we’re going to talk about inflation, icicles, rates and gold.
You have assets still inflating, commodities in particular with copper now at nine-year highs.
And you're seeing energy prices inflate rapidly as we get a weather event in the central part of the country, with snow blanketing Texas and oil production coming offline.
(Click to play this article as a video.)
Natural gas production has come offline as well and the cost of electricity as a result has risen quite fast. Inflated, if you will.
So energy prices were already going up and here you have a weather event exacerbating it.
And before I talk about the market side of things, let me talk about the grid for a second, because there's been a lot of funny memes going around and a lot of not-so-funny finger-pointing — partisan finger-pointing of course — about what caused the blackouts and there's a lot of things to blame.
There was not enough fuel for the natural gas plants and you had natural gas plants coming offline as natural gas was diverted to homes to heat them. You had a nuclear plant come temporarily offline, and you had wind turbines that were frozen because of the weather.
Then you had a grid that was unable to handle it all.
And you had a government — not a left or right, but a government — that had failed to keep the grid up to date, to have the grid ready for the challenges of the 21st century, and for the challenge of climate change that brings those "unprecedented events".
And you hear about how, "Oh, well it's expensive to do that stuff to the grid and to have the assets up to date and to have them ready for these sort of weather events in Texas."
But you know what?
There's plenty of money because the federal reserve can print it digitally, right? And is doing so to the tune of +$100 billion dollars a month to buy bonds.
And we're about to get a $1.9 trillion stimulus on top of the trillions that have already been spent for PPP loans and a prior stimulus.
So there's plenty of money to buy bonds and assets. But not enough to keep the power on.
Really shows you where the government’s priorities are.
Oil at $60 for the first time in a year. Natural gas prices going up.
I've been telling you that energy was going to be one of the best sectors for the early part of 2021.
I had premium readers of Foundational Profits rotate into XLE, the energy fund in December. It’s been the best performing sector of the S&P, and I expect that to continue.
Also, on the energy front, we have to talk about uranium because uranium stocks are absolutely flying all the way from producers like Cameco (NYSE: CCJ)(TSX: CCO) to developers — companies that can produce — like Energy Fuels (NYSE: UUUU)(TSX: EFR) and Uranium Energy Corp. (NYSE: UEC) — also doing very well. So I have to tell you to just take a look at uranium stocks. Premium readers, of course, are getting specific names to invest in.
And let's talk about the inflation in the other related metals to all this as all commodities inflate, and softs as well — corn and cotton is up — but I specialize in the harder commodities or resources.
Let's talk about copper. Like I said, at a nine-year high, the highest it's been since 2012.
Rare earth stocks are absolutely ripping as China says that it's thinking about limiting exports of rare earth elements again.
Lithium stocks are absolutely on fire. Again, big ones to small ones, Orocobre (TSX: ORL)(OTC: OROCF) all the way down to small ones I help finance that are now up 300-400% in the past couple of months, like Critical Elements Lithium (TSX-V: CRE)(OTC: CRECF).
And so there's lots of places to make money out there.
I don't think that this bull market, this inflation, or these highs are done yet.
We had a bit of a move in rates this week, moving higher real rates. And that stomped on gold, again, sending gold down below $1,800. That's going to continue. Gold can't go up until rates go down.
And then I just wanted to spend a quick second on icicles because it seems counterintuitive that these things can keep going up or that SPAC deals and commodities can continue inflating and going up relative to these valuations, which are nonsensical.
And it's like the icicles that are now forming on my house and my kids thinking that they can't get any bigger because they're 8, 9, 10 inches long. They think they’re going to fall off any second. My kids are watching them nervously.
But I've seen those icicles in past years, grow to two, three, four feet in length. Sometimes even longer as we melt and refreeze cycles.
So call it a melt up if you will, I guess, but the icicles can grow bigger.
This bubble — er, this bull market — can grow bigger as well. We'll look for signs that it's going to go the other way, but for now, we're going to keep making money where we've been making money.
And that's in inflating commodities and inflating energy prices.
We'll check in again next week and premium readers, of course, are getting guidance throughout the week and month on specific recommendations to play what's going on.
Call it like you see it,
Editor, Daily Profit Cycle
Nick Hodge is the co-owner and publisher of Daily Profit Cycle and Resource Stock Digest. He's also the founder of Hodge Family Office, the umbrella organization for his three premium services: Hodge Family Office, Family Office Advantage, and Foundational Profits. He specializes in private placements and speculations in early stage ventures, and has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world.
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