Bizarro World Podcast,
with Nick and Gerardo
Jan. 31, 2023
This week we were at the Vancouver Resource Investment Conference. Nick gave a talk about where we are in the commodity cycle, and what he's doing with his money as a result. This espisode of Bizarro World offers a preview of that talk, including an overview of the CRB Commodity Index, copper and gold. Plus an update on Gerardo's recent huge win in Patriot Battery Metals.
Gerardo Del Real: I am Mining Investor and Editor of Resource Stock Digest, Gerardo Del Real, here with my partner Mr. Nick Hodge, who, as you know, is also an investor, a damn good one at that, and the publisher, and a damn good one at that, of Daily Profit Cycle.
This is the 203rd episode of our weekly therapy session that we call, Investing in Bizarro World. We're going to talk markets. We're going to talk about what we're investing in. We're going to talk about a lot of the madness that's going on, that seems to continue to escalate every week.
But before we get into that, Mr. Hodge, how are you today, sir? Great to be back on with you. It feels like it's been a month since I chatted with you.
Nick Hodge: Well, there's so much going on. Thank you for the kind words. It's easy when the cycle goes your way, and the stocks go your way, and remember never to confuse a bull market with brains. But I'll take the compliment. I'm doing great. I just told you I had a root canal, so got a little bit of a sore mouth. Happened yesterday. But good to get that taken care of. How are you doing?
Gerardo Del Real: Other than dealing with allergies, which is fine, if that's the least of it in 2023, we are good to go. I'll deal with them all year long. But puffy eyes and raspy throat, which is my voice is always raspy anyhow. But everything that comes along with living in Austin, or near Austin, during cedar fever time. So outside of that, things are fantastic. I was going to say, everybody's feeling smart this week. Let's get right to why we're feeling smart.
Overall, indices continue to go sideways. Less bad is the new really good, I think Tesla proved that. Tesla came out and said, "Look, we did less worse than we thought we were going to do." And the stock’s up some 10%. Now, we're not talking some small junior that's got a $10 million market cap jumping 10%. We're talking Tesla jumping 10%.
And correct me if I'm wrong, I've only been watching it very superficially. But I think Tesla's up 40% from its lows here, from 30 days ago. And again, we're not talking to junior miner that found some lithium somewhere. We're talking Tesla, folks. So less bad is the new good, I guess. What are your thoughts on the overall markets?
Are we starting to see... I'm going to use the stupid words that the mainstream financial media uses. Are we starting to see the roots of spring blossom?
Nick Hodge: Green shoots?
Gerardo Del Real: You knew where I was going. Are we starting to see the green shoots?
Nick Hodge: I'm not so sure, Gerardo. You know me, I'm a half empty kind of guy anyway. But you're right in that Tesla, a very large company, obviously, is up 30 to 40% in the past month basically since the flip of the calendar year. But don't forget that they were down 65% from their peak last year.
It takes much more than that just to get back to even, certainly much more than the 40% that it’s run this month. I think we're in the middle of another bear market rally. I don't think that we're out of the woods yet. You know me, I sound like a broken record. I think Mr. Powell is going to talk next week. He'll likely hose down some of this fire that's been building under the market.
You're going to get reminded that the Fed is still hiking. And I don't think the indices are going to continue to go up. Though I do see the giddiness in the traditional financial media, chart chasers, the people that need stocks to go up, the CNBC crowd, all that. But no, I haven't taken the bait. How about you?
Gerardo Del Real: Overall indices, absolutely not. There's no reason for me, as a resource guy, that's what I do. I'm not smart enough to trade crypto. I'm not smart enough to trade the overall indices. I feel out of my league in that space.
And frankly, even in the oil space, where I defer to you, on energy. I just don't feel qualified. But I tell you what, when it comes to lithium and gold and silver and copper, you're not going to get them all right. But we're going to make them count. And this is one of those weeks where it's easy to confuse a bull market for brains.
I say all that to say that all of my capital, and all of my attention, and all of my energy this week and for the past several years has been in the resource space. Because the setup is one of the most beautiful setups that I've seen in the resource space, in my almost 15-year career of watching the markets. It's starting to be very consequential.
Let's get right into Patriot Battery Metals (TSX-V: PMET)(OTC: PMETF), which is the one that makes all of us feel smart because it keeps making new all-time highs. It was new all-time highs. Every month was the pattern before. And now, it seems like it's new all-time highs every day. It's at least breaching new all-time highs for the past three days in a row. It closed just shy of C$13.
It's January the 26th. I suspect that by the time this week is over, it'll be closer to C$15. Then, look, we got some very important drill results that I think, I think, with conference season kicking it, we get probably next week. We had a week break in news, as far as drill holes go. But the company is positioning beautifully.
They just hired a new CFO, who is absolutely brilliant. Brought on an executive chairman. The stock is flying. The institutions, this is important, the institutions are starting to realize Patriot’s not going back to the market to give you shares with half a warrant. It's just not going to happen. You're going to have to buy them in the open market.
This last run up from that seven, C$8 level to the C$13 level has been on a lot of volume, specifically the last $3 move in volume to the upside. Where I see the shorts play with the stock every day, it's on small volume that you see 2-3% drops and immediately it's getting gobbled up. That, to me, is a sure tell sign that the institutions that weren't able to participate early on and can't afford not to have this in their portfolio.
If you're a resource fund, there's no way that you're going to be able to justify, because you have a mandate, a fiduciary duty to try to outperform your peers. There's no way they're going to be able to justify to their base why they don't have money allocated in what's now starting to be described as potentially, could be, end up being, what we always said could possibly be, which is the largest hard-rock lithium deposit on the planet.
We're a little bit away from that obviously, but I think we're halfway there. I think we're really close to 200 million tons. Those important drill holes that we're waiting on, hole 93 specifically, which is a hundred-meter step out from hole 83, which returned 25 meters of over 5% lithium amongst a broader hit. Everything that Darren, the geologist, the VP of exploration, was describing that release screams that the grades are getting better to the east.
Look, there's lithium bearing spodumene in about 40 to 50 meters of hole 93, which is a 100-meter step out to the northeast. Maybe we get 10 meters of 5%, maybe we get 20 meters of 5%, maybe we just get a meter of a 5%. But we know we're going to get a pretty decent run of mineralization and we know it's going to extend that strike length another a hundred meters.
When you're looking at those widths on a hundred-meter step out and I see new all-time highs with zero real material news. Look, the CFO signing was an important one, but it's more administrative and on the corporate level. It's not what really gets the juices flowing. That hole 93, that a hundred-meter step out, is an exciting one. I can't wait for it.
Look, I haven't even started talking about CV 13. I'll leave that for another time. But for those of you that tune in for your Patriot update, figured I'd give it to you right off the top here. I think it's going to be a quick run to 20. Did it take an extra month from when I thought it would happen, folks? Yes. I'm sorry.
Did it end the year in double digits like I thought it would? No, it didn't. Is it ever going below double digits? I don't see that happening. And again, for those asking, my shares are not for sale yet. They're there. They're sitting there, I haven't sold a share, so some of that's blind luck. Some of that's just knowing what we have. Again, let's not confuse a bull market for brains.
We have a bull market in Lithium. Albemarle CEO came out this week and said, "Look, we're going to have sustained high prices. You need even higher prices to incentivize governments and corporations to get the supply chain that's necessary in order to advance the emission goals and the energy transition goals that we've stated we're committed to."
These prices, he doesn't see them going backwards anytime soon. He actually sees prices that could rise another 40% from these levels. So a company like Patriot decides to go at it, become a Pilbara and set up its own production facility and maybe partners with the major that's willing to pay for it in exchange for supply at the spot price… That's where that $100 price target starts becoming really reasonable, really reasonable. With a C$4-5 billion market cap, C$10 billion market cap, you're talking between C$40 and a C$100 a share. Not unreasonable. Again, Pilbara has been as high as $15 billion here recently. They have a smaller deposit. They don't have the infrastructure, they don't have the energy input and the energy costs that Patriot’s going to have access to.
And look, it's going to be a fun ride. But again, to everybody out there that's been a long since the beginning, congratulations. And nothing wrong with taking a little bit of profit. You have a tax bill. If you just got divorced unfortunately, and you need to take care of the husband or the wife, go take care of that. But holding the bulk, not selling a share right now, that's for sure.
Nick Hodge: Are you telling me, Gerardo, that there's an energy transition underway and a global effort to decarbonize the energy infrastructure and that they're going to need the natural resources that come out of the ground to do that, to make the batteries and to make the wind turbines and the magnets and the motors?
Because I've never heard this anywhere before and so I just want to make sure that I'm understanding correctly that the Albemarle CEO, which is one of the largest lithium miners in the world, is saying that there's going to be sustained higher prices because they can't get the raw materials needed to satiate or sate all the demand coming from these global auto manufacturers, which by the way, isn't just Tesla now. It's Hyundai and Ford and all the-
Gerardo Del Real: Volkswagen.
Nick Hodge: ... all the European ones. Exactly, Volkswagen, BMW, Mercedes. Is that what you're saying?
Gerardo Del Real: There's this really smart guy that I went to... I go to conferences and I speak sometimes, and obviously you're there often. I saw this presentation, I think it was 2016 or 2018, this guy was talking about the coming electrification of everything. And it was a phenomenal speech and it was given by yours truly, Mr. Nick Hodge.
That's not just what little Gerardo Del Real sitting just outside of Austin, Texas, is saying. The biggest companies, CEOs and CFOs are out there telegraphing. They're not even disguising the fact that they want large scale lithium projects and they're willing to pay a pretty penny. It doesn't get any more simpler than that, folks. It just doesn't, the investment thesis is laid out as clearly as can possibly be.
We have a raging, raging lithium bull market that's going to be here for years. It's not slowing down anytime soon. You can make a lot of money for yourself by playing it. It's not just lithium. It's going to be copper as well. It's not just copper. It's going to be uranium as well. Hell, we might even get a gold bull market that's sustainable for more than six or seven months.
Gold's looking pretty good at $1930. The dollar's still above 100 on the US index. So I mean, everything but silver really, to me is looking really, really bullish. And again, why do I care what Goldman Sachs has to say or what their earnings are when I can just look at the resource space and look at the portfolio?
Every now and then you have a moment where you feel smart, be humble. Take a little bit off the table everybody. But definitely this is the kind of market where you let your winners ride for a while, and hopefully for a lot of you, it's been a generational pitch and a generational investment for you.
Nick Hodge: Fastball down the plate. You saying there's not going to be a silver squeeze to the moon? Is that what is I just heard? And look, it's not just...
Gerardo Del Real: I'll believe that one when I see it, let's put it that way.
Nick Hodge: Not just the James Bay region. It's not just Canada, it's South America, it's Europe, it's Australia. There's a lot to do out there as it relates to these base metal, energy metal, commodity inputs, and I guess I'll talk about commodities for a second, because that's what I was writing about today.
We're in the middle of a supercycle. I'm starting to sketch out my talk for this Vancouver Resource Investment Conference, and-
Gerardo Del Real: They'll see this after that. So you'll be all right.
Nick Hodge: It doesn't quite feel like that because we had a pullback, frankly. I mean the supercycle started in 2020 after the completion of the last one, which went up from 1994 to 2008. Then it took another 12 years to come back down to 2020 and bottomed really with the onset of COVID.
And then we know what happened after that. All these commodities took off like a bat out of hell. And not just the metals. You remember talking about lumber was going to the moon and corn went from $3 to $8 a bushel and wheat went from $4 to $12 a bushel. All these components of the CRB index were just screaming higher.
Then what happened is this recession started to manifest, this double whammy recession, as we talked about in previous episodes. The yield curve inverted, the inflation got too much to bear. The Fed started raising rates, and then the commodities got chopped in half. Oil went from negative, literally negative if you remember, to $120 and then back down to $60, literally getting cut in half as these recessionary fears manifested.
Now what's happening is there's a bifurcation, or a divergence where these different components of the index aren't all going up they were, but certain ones are. I was parsing out the CRB index today.
Gerardo Del Real: As one does.
Nick Hodge: As one does, and corn and wheat have come back down. Natural gas I mentioned on the last episode down from a high of $10 back down to $3. Meanwhile, copper has found footing and gone up, and so the analogy is hunting or fishing. If you're out there looking at deer in a field or something like that, not all the deer are going to be huge wall hangers or trophy animals or something like that.
You got to let some pass. But when the ones come that are shooters or that have the characteristics that you're looking for, those are the ones that you don't pass on. That's sort of where we are in the commodity market right now. There's ones that are breaking out and there's ones that are breaking down. That doesn't mean that we're not still in a supercycle.
The up leg of a supercycle is 10 to 15 years, and we're only two, two and a half years into it, and so-
Gerardo Del Real: Music to my ears.
Nick Hodge: It can pull all the way back to its trend line. I was looking at the CRB index. Last time it kicked off a bull in '94, it ran really hard all the way until like ‘98 when the softness started coming in from the dot-com bust or whatever, and it retraced all its gains all the way back down to the 1994 level.
Didn't go bearish. It turned around and went right back up after that recession got past us and that market selloff, and so I think that's very analogous to where you are right now. You have these tech stocks that are facing woes, laying people off. We talked about Microsoft (NASDAQ: MSFT) last week. IBM (NYSE: IBM) was out this week saying they're laying off several thousand people.
Gerardo Del Real: Bed Bath and Beyond (NASDAQ: BBBY) candles are going to be very cheap soon.
Nick Hodge: If people can smell them without their COVID. I was reading some funny reviews of Yankee Candles, people saying they couldn't smell them, but they didn't realize it was because they had the COVID.
But anyway, there's commodities that are bullish, and there's commodities that are bearish, and there's some that aren't in the CRB index. Like lithium and uranium aren't even in the index. So it's a fun time.
Gerardo Del Real: Get it while it's hot. Look, again, everybody feels smart this week. It's not always going to be like that and nothing goes straight up. But again, I'm trying to really be careful with the recommendations in the paid service and Junior Resource Monthly and the trades that I put on.
I've been very selective on the trading side, but it's time to get aggressive. We made a recommendation for Junior Resource Monthly subscribers three weeks ago that nearly doubled in those three weeks. No coincidence. It's in the lithium space. We helped finance that thing at 10-cents like a month or so ago. It's at 70-cents today and that company just announced a C$10 million financing that is oversubscribed, and that even we're being cut back from, which I completely understand. It's what happens in bull markets. But it speaks to your point about the supercycle that we're in.
Again, the message I'm trying to convey to everyone isn't how smart Nick is, and he is, or how smart I am. It's that they're-
Nick Hodge: And you are.
Gerardo Del Real: Every now and then. I joke with my wife and everybody, I do five things well, everything else, it's all her. She deserves all the credit.
But look, there is good money to be made in this cycle. For those of you that write in and reach out and comment, continue to, and for those of you that are curious about the resource space or sectors that Nick's involved in, reach out. If we can have a conversation, if we can help point you to some of the better names and letters in the space outside of ours, happy to do so. There's a big enough pie for everybody and it's a damn good pie, y'all.
Nick Hodge: Last point on commodities before you move on. Some of these are insulated. I mentioned the recessionary fears that take down, like oil and natural gas. Uranium is a long lead cycle, relatively insulated from recessions. These utilities got to come back in and contract.
These reactors have to keep running. You don't shut them down and turn them back on. You keep them running. In that respect, some of these commodities are relatively insulated from the recessionary pressures that we're seeing out there. Make no mistake, there's still recessionary pressures. That yield curve is still below zero.
Gerardo Del Real: Can you imagine what the copper price and the lithium price is going to look like once we actually have increased demand?
Nick Hodge: Like a bull market and the broader indices and back out of the recession, sure.
Gerardo Del Real: Everyone's really going to think they're smart then, stay humble, folks. Stay humble. That was really good, Nick. I am looking forward to your presentation. Both Nick and I will be in Vancouver. By the time y'all re read this or watch this, we'll probably be on our way back. So we hope that we get to bump into some of y'all. We told you last week, if you see us come say hi, I want to stick with markets a bit before we pivot. Gold, what are you thinking?
Nick Hodge: Gold looks good. Tell me where it closed today.
Gerardo Del Real: $1933 ,I believe, but let me verify that for you. $1930, my apologies.
Nick Hodge: Gold is looking good. Needed to take that $1920 level, which it's done now. I'm confident in gold. I'm looking at some of these developers again that have permits and I'm looking to get back into them. I won't tell you all my names, but the Artemises of the world, for example, run by the Steven Deans of the world. Some of those, it's time to get back into, and so
I don't know what else you want me to talk about for gold. But I think it's definitely bullish and can see it getting back to that $2,000 level in the next couple of months over the course of the summer and into the fall. Again, those equities are still relatively cheap, so there's a lot to like there. You have a little bit of time. That's the other thing I was going to talk about in my presentation.
Well, let's talk about Tesla, back to Tesla for a second. I'm meant to make a point and I forgot. Just like trees don't grow to the sky, the roots don't grow straight down either. You need these bounces in the bear market to sideways consolidate to get bulls back interested or whatever. Then the next leg down comes.
Just like in a bull market, you get a consolidation period and then it goes back up. So I think that's what we're seeing in Tesla right now, an extended upward bounce that's going to consolidate and then it's going to move lower again. You're going to see that with commodities on the upside as well. Gold doesn't go to the sky. It doesn't grow straight up.
You need to be using those pullbacks that we're seeing. I told you we're in a pullback in the CRB index because of the recession. Those are gifts to you if you're a commodity bull, and you can see the cycle. If you can see the forest for the trees, gold's going to go back down to $1920 or $1910, perhaps, before it goes to $2000, and those are the times you need to be buying.
They say blood in the streets, you should always be buying on red and selling on green, and not that $1920s is blood in the streets for gold. But on a short term relative basis, those are the pullbacks that you need to be using to your advantage if you're not properly positioned or you want to get better positioned.
Gerardo Del Real: I love it. I was going to talk about the five Memphis police officers, horrible excuses for human beings that were indicted on first degree murder charges. This has flowed so well. I'm going to keep it strictly markets and keep it short and sweet this week.
I was going to talk about George Santos and how symbolic he is of the state of our political class. I just figured, you know what? Just Google George Santos, everybody. I don't care. I didn't even know what party he was from initially until I actually dug in a little bit more. It doesn't matter what party he's from, it's the-
Nick Hodge: He's a character.
Gerardo Del Real: He's a character. Well, literally, he's a character.
Nick Hodge: He plays one on TV.
Gerardo Del Real: And in Brazil, Google that one, George Santos Brazil, if you want to have fun. But look, I'm going to keep it short and sweet, Nick. I don't have too much to say, too much social commentary this week. I want to keep it more markets.
I do want to encourage all of you to write in. I want to start having a Q&A segment on this podcast. Not every week, but whenever the questions merit it, I think there's value there, and obviously, there's no way for us to answer everything ahead of time. So we give you our take on what we're buying and what we're looking at and where we think things are going. And sometimes we're right and sometimes we're wrong. And hopefully you find some insight in that, people.
Nick Hodge: Awesome. We can do a whole social episode next week, because there's a lot of cop stuff to talk about. Not just those people, but there's a cadre of folks in Tennessee doing some naughty things. Then there's an important litigation or case this week with a journalist from, I believe it was Florida, a Latina journalist, it might have been Texas, either way, who the cops were-
Gerardo Del Real: Same thing.
Nick Hodge: Who the cops arrested because she was continually basically writing articles about their business, the things that they were doing, and they didn't like that too much, and so they tried to squash her freedom of speech. Reason Magazine has been doing a great job writing about it. So we can talk about all that stuff in a subsequent episode.
Gerardo Del Real: I have a positive story. I want to keep this one light and positive. Earth received as a radio signal, I read, sent from a galaxy that is 9 billion light years away.
Nick Hodge: Is that all?
Gerardo Del Real: 9 billion years. It was captured by what's described as a giant radio telescope that includes a field of 30 dish antennas all pointed skyward with each dish about 150 feet in diameter. That is fascinating. What does it mean? Who knows? I mean, they basically said we have UFOs and aliens are real and nobody even blinked last year because it was such a crazy year.
So what are you watching in the markets this week, Nick? We'll be in Vancouver. We're looking forward again, as we said, to seeing a lot of you there. Catching up, I know, on a lot of due diligence. I know we have the dinner schedule, the lunch schedule, all the schedules are packed, but what are you watching in the markets this week outside of...
You know what I'm watching, Patriot. I want to see a whole 93. I want to see if this thing is really getting that much better as far as the grade goes. And if we're going to be able to retain 30, 40 meter widths over 2-5% lithium oxide. Because if that's the case, you ain't seen nothing yet, folks.
Nick Hodge: On the speculative side, there's a lot of news releases because it is conference season. I'm on the West Coast and even though I get up early, by the time I open my email, I've got 20, 30, 40 press releases in there every day for the past week. And so I'm sifting through news, deciding what's worth paying attention to and what's not, and making my list, like you say, of who I want to talk to in Vancouver.
Then on the macro or the broader indices side, I'm watching these corporate earnings, which continue to trickle out and haven't been great, as I was telling you they weren't going to be. Now I know the market, the stocks, the S&P has held up relatively well, but again, I'm not sure that's going to be the case forever. We'll get a Fed meeting next week, I believe it is, the last day in January.
Gerardo Del Real: We shall.
Nick Hodge: And then February 1st. And I'm watching that in conjunction with the VIX, which everybody has fallen asleep on and is backed down below 20. And I don't think it shall remain there for long.
Gerardo Del Real: Things tend to break when people get complacent, everybody. Not a positive note to leave on. Just telling you to be aware, especially in the broader indices. There's a lot of debt that is maturing very, very soon. I don't think it is serviceable debt at current levels, especially corporate junk bond debt that is not going to be able to get refinanced at a rate that allows for that debt to not cause an implosion.
So word to the wise out there, I don't think it's a coincidence that the Goldman Sachs of the world are laying off analysts by the thousands. I think they're smart enough in some capacities, clearly not in lithium, but in some capacities to know what's coming down the pipeline. I think they're getting ready for it.
Nick Hodge: Have to agree.
Gerardo Del Real: All I got. Nick, anything else?
Nick Hodge: No, I put some more stories on there, but we'll talk about it next time.
Gerardo Del Real: Let's do it. The next one's going to be a long one, y'all. I want to make sure that everybody goes to DailyProfitCycle.com/subscribe to get the updates, to get the episodes in your inbox. You guys keep commenting, liking, doing all the things that let us know that you're watching. Appreciate the kind words.
A lot of you have reached out about my 2022. I appreciate it. Thank, y'all. Have a great week. Be kind to each other and stay tuned. I think we're in for a fun week this week, guys and gals.
Nick Hodge: I know you want me to send them off, which I typically do. So let me read this email that just came in yesterday. It's from a member named Sean G. He says, "You and Nick are the best," you is you, Gerardo, "you and Nick are the best. I really enjoy Bizarro World and watch every episode." He's taken a nice stake in a company that you've recommended and he wanted to know how you feel about it. But he says to keep up the amazing work.
So people are out there watching, people are out there reading, and hopefully people are out there making money, and so this is one of the free tools we provide. Of course, we provide some paid ones as well. So check those out, like Gerardo said, at Daily Profit Cycle or digestpublishing.com.
Gerardo Del Real: And Sean G, to answer your question, since you listen and thank you for listening, I had a conversation with that CEO this morning. I forwarded your email and the very short version is you're going to see drilling soon. Geologists and the team are in the field as we speak. It's not affecting anything as far as exploration goes.
They're a long way from production, because they're at the exploration stage and those companies in that country are going to be the least affected regardless of how the upheaval around the political situation ends up. So that's the answer to your question. You should expect an interview with that gentleman within the next couple of days.
We have a conversation planned for tomorrow, and you'll see it probably early next week. So that's it. Send us off, Mr. Hodge. I know you did that already, but send us off again.
Nick Hodge: No, that's it. See you later.
Gerardo Del Real: Be kind everybody.