Bizarro World Podcast,
with Nick and Gerardo
Jan. 9, 2023
We’re getting back into the swing of things for the new year and happy to bring you the first episode of Bizarro World for 2023. It just happens to be our 200th episode! We give a macro market update about stocks and earnings. We discuss whether gold strength can continue and how the dollar and bond yields factor into it. We talk about how the US government is now a direct buyer and funder of critical metals projects, including antimony and uranium. You’ll also get a robust update on the lithium market. And you’ll learn about a new meme coin that our readers have already made a pretty penny on.
1:36 Macro Market Update: S&P, Energy, Earnings
5:28 Can Gold’s Strength Continue?
8:14 US Government Pays Up for Critical Metals: Antimony and Lithium
15:17 Speaker of the House Debacle
18:39 Lithium Market Update
23:20 Where Is the Bear Market Capitulation?
25:39 BONK!
Gerardo Del Real: I am mining investor and editor of Resource Stock Digest, Gerardo Del Real here with my partner Mr. Nick Hodge, who's also an investor and publishes Daily Profit Cycle. This is the 200th episode of our weekly therapy session that we call investing in Bizarro World. We talk markets, we talk what we're investing in, we talk about what we're watching, and we talk about all the craziness going on in the world today. This week we're going to talk about Germany, their climate goals, Russia being the scapegoat. We're going to talk about the government being the new Oprah. We'll talk markets, we'll talk about the Speaker of the House debacle. But before we get into all of that, Mr. Nick Hodge, how are you sir?
Nick Hodge: I'm doing great Gerardo. It's a new year but not a new cycle as it were. Stocks down over 1% to start the year. It's only been three days. Lots of negative headlines out there. We'll go through a bit of them. How are you doing?
Gerardo Del Real: I am happy to ring in a new year. 2022 as a lot of, and you don't know the half of it, but it was an absolutely eventful one. I am excited for new beginnings. I want to wish everybody an absolutely great 2023. I hope it's a profitable one. I hope it's a safe one. I hope it's a healthy one for everyone. Long-winded way of saying I'm looking forward to new beginnings. I'm looking forward to a phenomenal 2023. Thank you for asking.
Macro Market Update: Bear Market for Stocks, Energy, Earnings
Let's jump right into it. You kind of teased for what I wanted to start with the overall indices. We're recording on January the fifth here on a Thursday, we had a robust jobs report. The narrative around that is that the markets are going down because now the Fed is likely to continue hiking.
Nick Hodge: Who knew?
Gerardo Del Real: Yeah, who knew, right? We've been calling this for, I don't know how long specifically you've been calling this on the major indices. Look, I've been saying we're in a recession. I think Amazon's (NASDAQ: AMZN) proving to us that we're in a recession, 18,000 layoffs. I think Bed Bath and Beyond (NASDAQ: BBBY) is proving to us that we're in a recession. They're talking bankruptcy now. Earnings are starting to trickle out. Oh my God, people are missing on their numbers. Imagine that. Let's talk major indices. Nick, what do you see?
Nick Hodge: I see a continued bear market. It's worth recapping a bit of 2022 where we had multiple bear market rallies, traps, as it were, and we were calling them in real time for the past year. I believe there was one in March. There was one again over the summer in the June timeframe, and then again into October and November leading up to that December Fed meeting. And all those bear market rallies were based on a potential pivot from the Fed that lots of people were calling for, hoping for, and probably even praying for. And that never materialized. And in fact, Jerome has continued to be hawkish. They raised rates again in December. He said, don't expect any rate cuts in 2023 and you're likely going to get a couple of more rate hikes. So that Fed pivot narrative was just that. It was a narrative that never materialized and each time you got a little bear market bounce, stocks turned around and sold back off.
And now they're doing that again after the most recent sort of run up in November and early December. And what's going to come next is earnings, which we've talked about a couple of times and I've written about, in fact, a good portion of the last issue, the December issue of Foundational Profits was about an earnings recession and why on a comp basis, these earnings that are starting to come out now, which are for Q4 2022, we're going to show basically negative earnings growth. Whereas the previous quarters were showing positive earnings growth because energy prices were strong. And so the earnings from the oil and gas companies were so strong that they were buoying or lifting up the entire S&P to show positive earnings growth.
But that's not the case anymore. And so if you subscribe to me, you would've known this a month ago or maybe even more. And now you're starting to see it in the mainstream, right? With Bloomberg out with an article this week about how Exxon (NYSE: XOM) is warning about their earnings. And that's exactly what I was saying. These big oil and gas company earnings simply can't be as strong because oil's $75 — because there's a recession — and not a hundred and some dollars it was a year ago. And so now-
Gerardo Del Real: Less demand leads to lower prices, leads to a recession, leads to lower prices.
Nick Hodge: That's how it goes. And so Exxon is saying now that lower oil and gas prices and Q4 is going to lead to a $3.7 billion hit to their earnings. And so you're going to see negative earnings and that's going to keep a lid on the major indices. And then like you said in the beginning, NASDAQ stocks are still having a really rough go of it outside of the whole crypto thing. You mentioned Amazon laying off a ton of people. And that's going to be the theme. You just don't turn the calendar and turn the economic cycle. Unfortunately, we still have some things to grind through here for the next couple of quarters.
Can Gold’s Strength Continue?
Gerardo Del Real: Couldn't agree with you more. Look, gold closed the year out on pretty strong footing, right? It's trading around the $1835 level this morning. It's down about $20 or so, but flirted with the $1860 level pretty convincingly and is off to a pretty solid start and a great close to 2022. I'd love to get your thoughts on the gold price. The precious metals in general. Silver kissed $24 and hung out and flirted for a little bit before I kind of retreating a bit this morning. But both had an excellent close technically into 2023. Follow through there?
Nick Hodge: Oh, I think so. So the first half of this cycle or the first half of this contraction, however you want to frame that, was dominated by rising interest rates, specifically on the shorter term of the curve, the U.S. two year. What we've seen now is we get into the mid cycle or back half of this recession/contraction is a softening of the 10 year yields, which ultimately can dictate the price of gold moreso than the dollar can. So you've got a softening of the 10 year, which continues to happen. I made some notes, it was the 10 year yield peaked in October at 4.3% and you're sitting there on the 10 year yield now at about 3.6%. That's a big move for the U.S. 10 year bond in a couple of months.
So now the market is more worried about recession than it is about rising rates, I think. And so we can start to get into that part of the cycle where gold becomes more attractive because the rates, especially on the longer end of the curve, aren't going up as fast. The other thing that's interesting is that the dollar remains in a bullish trend. So it got down to around 103 or so on the DXY but didn't break trend. It's still in an uptrend or an upcycle. And in fact, to start the year here and January, what is it, fifth, January, second, third, fourth, gold screamed to $1,860. It's added $250 in two months-
Gerardo Del Real: Short order. Absolutely.
Nick Hodge: While the dollar remains bullish trends. So if you look today, you'll see that DXY has spiked back up. Spikes might be a strong word, but ticked back up to 105 and gold remains strong. So the last thing I'd add there is we saw significant central bank buying in the fourth quarter. And so there's a reason that they do that. And so I think gold is looking pretty strong and will continue to be so and the miners as well.
US Government Ponying Up for Critical Metals: Antimony and Lithium
Gerardo Del Real: If that's the case, look, we've talked lithium in the past, I think that's going to be a trend that absolutely continues. I think Uranium's going to have itself a heck of a year. I talked about government being the new Oprah. I couldn't help but notice as I was writing the most recent issue of Junior Resource Monthly where we not only do we do alerts and new recommendations, but we also follow up on all the news of companies that we're covering and companies that are in the portfolio. And so I'm looking and I look at Perpetua (NASDAQ: PPTA)(TSX: PPTA) and I go, oh wow, okay. Perpetua got itself $24.8 million from the Department of Defense to help with cleanup efforts that will ultimately lead to the mining of antimony, which is a critical medal as designated by the U.S. government. And then I looked at UEC (NYSE: UEC) and I noticed they got a contract, I believe some, I don't forget the exact number, but they were awarded the opportunity to sell uranium to the government at a fixed price.
Smart move. By the way, Amira, because I know as recently as a couple of months ago, he was out there buying all the uranium that he could buy at $35 a pop. And if I'm not mistaken, UEC's going to get to sell it back to the government for right around $70 a pound. And then I look at Encore Energy (TSX-V: EU)(OTC: ENCUF), which was also awarded a $7 million contract where the government will pay it for some of its production at high fifties spot price, right? Mind you Amira your spot price today, trade that around $48. So if you can sell it to the government for $60 in Encore's case or right around the $60 level and $70 in UEC's case, that's pretty good business. Just to correct myself, UEC was $17.85 million at 59, 50 a pound. Encore was $7 million to sell at $70.50 a pound. Perpetua was $24.8 million under title three of the Defense Production Act.
So you get some money, you get some money, you get some money. Government's jumping in the game. Government's realizing that we have a cold war with China, we had a cold war with Russia. But the Cold War today from the U.S. standpoint is most definitely with China. And I think the U.S. and North America in general is realizing that when it comes to critical metals and energy independence, we are vulnerable, vulnerable, vulnerable. And is it too little, too late? Am I encouraged by the capital that's being spent and their willingness to actually use counterfeit money to buy something tangible. If they're going to counterfeit it anyway, they might as well buy something that the country needs and start building these reserves that we need. Maybe it doesn't solve things in the near term, but maybe in the five to ten year horizon there is a better position of strength for the U.S. government, for North America in general to develop these critical metal supply chains that I think are, pardon the cheesy pun, but critical to a more secure future. Any thoughts on that Nick?
Nick Hodge: No, I think you summed it up really well. It was only a matter of time, it sort of had to happen. We've been talking about the revenge of the miners, we've been talking about being the lithium barons or the new green barons. And when you looked at the charts that showed how much, not just the mining, but the processing of these metals come from China, you knew something had to give, right? Because if we have all these ambitious plans for electrification and electric vehicles and reduced emissions, all the inputs for that have to come from somewhere. And this is probably old hat to some of our listeners, but it's not just the lithium and the uranium, but even nickel getting bullish this week, PGMs, specifically platinum, looking good and copper's starting to strengthen up as well. All those things have to come from somewhere.
And then if you looked at the scoreboard of production and processing the United States was losing across the board. I mean in lithium there's only one producing asset or one area production in the U.S. in Nevada. Rare earths there’s MP Materials (NYSE: MP) is the only game in town. A little bit of refining from Energy Fuels (NYSE: UUUU)(TSX: EFR). And on down the line… I mean the U.S. produces zero uranium and that's going to change here soon. But yeah, it's playing out exactly as I think we've said it would over the past couple of years. And while you mentioned it might be too little too late, well I think it's just the beginning. There's more to come from the government and investors should take that signal as how this is going to play out. Don't forget those are DOE awards you were just mentioning as it relates to uranium, but there's still a lot of things that are coming down the pipeline as it relates to bills that were passed last year, infrastructure bills, Inflation Reduction Act, all that sort of stuff. So there's still tax credits that are going to come for nuclear energy and all that still has to play out.
Meanwhile, we're seeing across the pond, it's probably a good transition into Germany, which the news out this week is that surprise, surprise they're going to miss their climate goals for 2022. And that's sort of exactly what I'm saying here… They got this energy pinch in Europe last year. The Nord Stream got blown up, cut off the Russian gas, the sanctions, all that sort of stuff. They're having a heat wave now. But let's put that aside for a second. Europe was wondering how are we going to stay warm this winter. Wood prices were through the roof, they were burning lignite, and what did Germany do? They opted to fire up the coal plants instead of the nuclear plants.
And I guess it might be a different debate why they did that, but it was clearly the wrong decision. I was saying it at the time, they should be firing up the nukes, not just having them on standby, which is what they chose to do. And lo and behold what happened? They opted for coal and they missed their emission reduction targets, their climate goals for 2022. And that's going to continue to be the case. You can't hit these goals like I mentioned earlier, the EV goals, the electrification goals, the decarbonization goals, you simply can't meet those without extracting metals from the ground that you need for inputs for those batteries. And by getting back to embracing nuclear power and those are trends that are going to continue to play out for this year and beyond.
Gerardo Del Real: It was a great quote on the build out of North American battery capacity and I'm not sure who to attribute it to, but they said “the plane took off, but the landing strip still needs to be built.” And I think that's well said. The landing strip most definitely needs to be built. So no, well said Nick. I think that's a good summary on that front.
Speaker of the House Debacle
We got to talk U.S. politics a bit because my God, just when you think you've seen it, oh have you seen the debacle on the house of speaker?
Nick Hodge: Well no, as always I'm behind on the politics but I saw that they didn't get a speaker for the first time in however long-
Gerardo Del Real: 100 years. They're on the seventh vote. We are the United States of America. The Republicans have the majority. This is for speaker of the house. This is not for speaker of the party. I want to emphasize that, right? This is the speaker of the house. You win the majority, you get the right to vote for that. It's one of the perks, right? Along with the-
Nick Hodge: That Pelosi's position.
Gerardo Del Real: Correct. And so along with that comes the ability because this is America to hand out cushy positions to your buddies and your party in exchange for a vote. Kevin McCarthy's so hated amongst his own party that he can't garner enough votes and get on his knees for long enough and plead and beg and hand out party favors. Can't get enough votes to push it through. They're on the seventh vote, this is the third day of this. If that doesn't signal Fourth Turning to you all out there and the implosion of the American political system, one vote at a time, one year at a time, one election at a time. I don't know what's what it's going to be.
So for all my left leaning friends that just swear by every liberal code that was ever taught to you and all my Republican friends that swear by every Republican code that you're supposed to abide by, it's okay to have our own thoughts. It's okay to like some things from each party. It's okay to dislike some things from both parties. Man, I hope we get to a place where the institution is completely rebuilt, as I've said many, many times, because this one is on its last leg, Nick.
Nick Hodge: So who are the other contenders?
Gerardo Del Real: They're just making it up. They're just making it up as they go. So they go, okay, hey, we don't want Kevin, but we kind of like Mike. So then they vote on Mike. No, we don't like Mike enough. Mike isn't going to give us enough party favors. Okay, all right, well we don't like Mike. How about Debbie? Do we like Debbie? Debbie was nice to me last week. She kind of winked me. She's cute too. Let's go talk about Debbie. No, Debbie ain't got enough pull. All right, well let's go back to Kevin. Let's go back to Kevin, Kevin, Kevin. Hey, I'll vote for you if you give me that cushy office, that salary and that position, Kevin. Okay, okay, okay. You can do it, you can do it. And somebody else gets mad. Fuck Kevin, now I'm taking my vote back. So at this point it's open ended bribery. They call it negotiations. It's just bribery at this point on C-SPAN. You could turn on C-SPAN right now and just watch the bribery go on the floor. It's an absolute shame. It's a critique of our system. I love this country. I love the opportunity this country presents. I want it to be a better country and re-envisioning the way the American political system is set up is a must if we're going to be a better America moving forward. This thing is a shit show.
Nick Hodge: Which is one of the reasons I've stopped rubbernecking and watching it so closely. But that's all very interesting and par for the course. Unfortunately, an utter lack of leadership and a literal lack of leadership in this case.
Lithium Market Update
Gerardo Del Real: What else is on your mind, Nick? I know that this week tends to be a week where a lot of people are off. By the time you all get this, it'll be back to normal as usual. So your next episode, you're going to expect a whole heck of a lot more in depth insight from Mr. Hodge and a little bit from myself. But anything else on your mind that you're wanting to talk about, I'll give a quick Patriot Battery Metals (TSX-V: PMET)(OTC: PMETF) update whenever you're ready for that because I know a lot of you check out the podcast for my thoughts on that.
Nick Hodge: Go ahead and then I'll check back in.
Gerardo Del Real: Yeah, listen, short version is still my largest holding, still haven't sold one share. I've added here in the last couple of weeks. For everybody that thought that the amount of shares that came free trading, including my own from the voluntary one year lockup, were all going to hit the market simultaneously… You were way wrong. But for the shorts that thought that high of that C$10.50 spike got ahead of itself and it was going to pull back and you actually had the nerve to short it, you made some money. So kudos to the shorts because they piled on pretty good here in the last couple of weeks. Again, just worth reminding everybody, less than a month ago this stock made new all-time highs. And if you just look at a 14 month chart, it's new all-time highs almost every month.
And then a pretty severe retrace. And that's just the way it goes. This is coming off of a one month quiet period, month and a half quiet period of no news. We're starting to get news finally. We had an excellent release here about a week and a half ago. I suspect there's a whole heck of a lot more coming down the pipeline. There's 30-some holes still pending. We're going to get some assays from CV13, which is a new discovery that's going to add tonnage really, really quickly. There's a new drill program that'll be initiated here over the next week or so. It'll be the most aggressive in company history ultimately leading to five rigs turning — some of those dedicated to filling in the gaps for a maiden resource estimate in early 2023. And some of those rigs out there exploring the 50 kilometer plus trend, 60 kilometer plus trend that the Corvette property boasts.
I want to remind everybody that only a tiny portion of this property has been explored and it would be lucky if the company just happened to drill out the best pegmatite outcrop cluster in that entire property just by luck on the first go around. So I say all that to say, look, if you find another CV5, if you find another 150, 200 million ton pegmatite cluster, all of a sudden you have what is already a monster, becomes the best hard rock lithium deposit in the world if you can gets that 400 or 500 million ton mark, which is ambitious, but I'm pretty confident we're headed towards 200 million tons really, really quick. And if that's all they ever find, this thing is going much, much higher. Didn't close the year double digits as I hope definitely didn't close at the C$20 mark where I thought it could. It's in the cards when it happens, really is not material to me. I'd rather see it sooner rather than later like everybody else. But the company's very well cashed up and there are a ton of catalysts coming up.
Nick Hodge: Yeah. Looking at the chart I'll give you my 2 cents. It really needs to hold that $6 level on the Canadian side or you could get a replacement down to C$5.40, C$5.50 or so and that would give it the energy it needs to get back to $10 in my opinion. And the other thing I think I see there from a more macro perspective is, and this relates to the economic cycle and the wealth effect and all that is Patriot was one of the few bright spots in the market and had some shares come free trading in late December that I have to imagine people are tapping just because all their other positions are down. I haven't personally sold any, but I could see where people would be doing that because they also have warrants to exercise. And so you just have a little bit of that shaking out with Patriots specifically more broadly in lithium. You saw Tesla this week had to renegotiate contracts with Piedmont Lithium (NASDAQ: PLL) to pay higher prices. So this macro driving behind the lithium sector isn't going anywhere anytime soon. Musk wasn't out there contracting for other types of battery materials. I mean he needs the lithium.
Where Is the Bear Market Capitulation?
But further on Tesla, and I'm going to make a transition here is, and as it relates to the broader markets, we haven't seen full capitulation, I guess is one of the things I wanted to say. In this bear market, every time the S&P gets sold off, as I was mentioning earlier, we get a hope for the pivot and stocks go back up and people are still willing to buy the dip. So I think Tesla's (NASDAQ: TSLA) lost something like, oh gosh, I don't even know if I want to say off the top of my head, but it has been down significantly and continues to basically crash. Let me pull up a chart real quick and I can get some specific numbers for you and then I'll give you an anecdote.
So TSLA, this is a stock that was just in October, was a $255 stock. And today it's $107 stock. So losing well over 50% in the past three months, and it's down from over $375 earlier in 2022. And I still see people content to buy the dip. Just anecdotally, I met some buddies recently here that I hadn't seen in a long time, was going waterfowl hunting earlier this week. And one of their first questions was “are you buying Tesla after this crash? We've recently bought some shares.” And I was thinking to myself, man, people are still willing to come in and buy the dip. And two, there's still significant headwinds for these big tech companies that still have a lot of market cap that they could lose as the bear market continues to play out.
So as far as the broader indices are concerned, you're not going to get a true bottom fundamentally until we work through this negative earnings growth that I was talking about. But two, until the dip buyers of the world, until the Reddit crowd has truly learned their lesson and isn't rushing in to buy every dip — you need people to be scared of rushing in to buy before you get a bottoming out process. That's just market psychology 101. If these people are content to still rush in and buy the dip, it's not the true bottom. And so just last point there on capitulation.
BONK!
And the only other thing I wanted to mention was Bonk.
Gerardo Del Real: That's right, Bonk.
Nick Hodge: Which was trending on Twitter yesterday. But Mr. Chris Curl recommended it even before that. So just to set the stage a little bit, you've had another crash of Solana.
Solana was down to $8. Was I think a couple of hundred bucks in 2022. And the FTX debacle really took down Solana, like I say, to a low recently of $8. And what happened is some Solana engineers released a token, basically a meme coin equivalent to Doge or something, that was built on the Solana blockchain and it started going up very fast. So you'll like this, I think a hundred trillion is the limit of coins that can be printed. So if you think about that share structure, that's a fuckton in technical terms of shares that can be printed of this coin. So it starts out that I'm not going to get it right, but a bunch of zeros, right 0.00008 or whatever. And Chris Curl puts out an alert to his readers that, hey, this meme coin was just born. I think it looks a lot like Doge, which is the coin that he made 91 times his money on.
Let's transfer some of our Solana into Bonk. And he put that alert out on, it was the first of the year I believe it was, or the second of the year, and nailed it. I mean, so the Bonk has been up 2500% in the past week and he called it after the first 300%, right?
Gerardo Del Real: That's good work.
Nick Hodge: Right, he nailed it for his readers. I haven't looked at the account to see how much he's actually up, but that's what he's here to do is get the insight for you on these new coins, alt coins, meme coins, et cetera, and figure out which ones are going to do good. So I guess just kudos to Mr. Chris Curl for getting ahead of that one. He sent out an alert to his readers before it was even trending on Twitter and you know how fast Twitter is. And so that's Bonk. And then I guess just quickly, I was reading his issue yesterday and he's writing about Central Bank digital currencies and this new ISO standard. If you remember last year, Swift, which is the international payment system, announced that they're switching to new standards of communication this year.
So certain countries are going at different times. Europe's going to go in March, I think in the U.S. later this year in the third quarter or something. But they're building these new standards on top of altcoins. There's a couple of them, and I'm not going to tell you because he was writing about them to premium members, but there's only a handful of coins that are certified to meet this new international standard that they're building the platforms on. And funny enough or not funny, one of them is facing a major lawsuit by the SEC and has been dropped by Coinbase.
So you can't store this coin in a Coinbase decentralized wallet anymore. And Chris's theory was that they don't want the common person owning these coins that this new payment standard is going to be built on top of, but he's got other exchanges that he recommends that you can buy these coins on. And that's what his last issue was all about. So between Bonk and this new Swift banking payment system, Mr. Chris Curll had a good couple of weeks in the crypto market and I definitely learned some things by reading his last two updates. So some things for you to Google if you're interested in that space is the Bonk memecoin and the new ISO standard for Swift international payment communication. And he's got a new report out talking about three altcoins that he would buy in this environment. So you should check that out as well.
Gerardo Del Real: We should have Chris back on soon. I think just to kind of segue a little bit, we talked earlier about the lithium trend and the uranium trend and we talked about people wanting to come in and buy the dip despite the fact that we haven't had true capitulation yet. And look, it's okay to be wrong on a narrative as long as you're still making money while being wrong. I thought the Fed would've slowed down by now. I was wrong, but I had my best trading year from a net value and percentage perspective ever last year, largely due to Patriot, but that wasn't the only one.
It was a great year on that front. And so look, it’s okay to get the narratives wrong, but you should be hedging appropriately. And there's some mega trends out there right now where you can make a lot of money. And even the crypto space, which is just viewed as bearish, I think Chris’s 2500% gain in a couple of weeks is proof in the footing that you can still do very well in that space if you know what you're doing and you're hedging your bets appropriately. So kudos to Chris and looking forward to an exciting 2023, Nick.
Nick Hodge: Me too.
Gerardo Del Real: I like it. For those of you that have not yet subscribed, I'm supposed to tell you that you should subscribe, you should click all the buttons, you should give us all the likes and you should definitely check us out at dailyprofitcycle.com/subscribe. You'll get all the updates, you'll get the market commentary, it'll hit your inbox. You can press play, you can listen to me rant, and Nick will give you great insights. That's all I got. You want to send us off Mr. Nick Hodge.
Nick Hodge: That's it. Have a good week. I'll be back in my normal environment next week.
Gerardo Del Real: Have a good one, everyone, be safe. Be kind to each other. Make it count.
Nick Hodge: See you.