Economic Collapse or Boom?: Rick Rule Reveals What No One Is Telling You

James Connor 0:05
Hi and welcome to Wealthion. I’m James Connor. At Wealthion we are always striving to introduce you to experts, speakers who can provide insights on where to invest. And we’re always looking for new speakers to expand our knowledge base. So if you have any suggestions on who you would like to see on the wealthy on channel, or any subject matters that you would like to see us discuss, please let us know in the comments below. Our guest today is Rick Rule of Rule Investment Media. And we’re going to get Rick’s views on the economy, the markets and where we should invest our capital in the resource sector. Rick, thank you very much for joining us today. How are things in the great state of Washington?

Rick Rule 0:43
James, things are wonderful, the better for being on with you. I’ve been a longtime fan of Wealthion

James Connor 0:48
Well, it’s a pleasure to have you on So Rick, before we dive deep into the economy and the markets, I want to ask you one question. Many people are moving from various states and they’re going to the state of Florida because the advantageous tax base there and including your neighbor, Jeff Bezos, he just left Seattle and he’s moving to Miami. And I’m curious, why did you leave California and move to Washington State?

Rick Rule 1:12
I did it for a few reasons. One was arithmetic. Mr. Bezos is anticipating the fact that the Washington Governor Inslee, as he is called Grimsley, as I call him, is proposing an income tax in the state of Washington or more precisely, an excise tax on income since the state of Washington since the law doesn’t permit an income tax. And Bezos is anticipating that moving to Washington, I moved from California to Washington for a couple of reasons. One was arithmetic. California had a capital gains tax in California had an income tax and Washington didn’t. Pretty good arithmetic. I also attended university at the University of British Columbia and began my my business career as an American immigrant into Canada. And I developed a real fondness for the Northwest. So it was always my intention, after I became less active in business, to relocate to the Pacific Northwest, where despite the rain, I really like the circumstance. I like the people here. I like the terrain here. I even like the weather here. So a combination of arithmetic and lifestyle is what brought me to Northwest.

James Connor 2:23
Yeah, it is a beautiful part of the world. And maybe one of these times when we do one of these interviews, we can do it in your part of the world on a fishing trip,

Rick Rule 2:31
I look forward to that I absolutely look forward to it, if not in Washington, than up in Vancouver where I also frequent.

James Connor 2:39
So Rick, let’s move on and discuss the economy. There’s a lot going on in the world. And it doesn’t matter if you’re looking at Ukraine or the Middle East or the Red Sea, or what’s happening in China and in the implosion there, but why don’t we begin with the US economy continues to be very strong, and it’s catching many people off guard, it’s growing at about 5%. The jobless rate is also very low, we had a very strong CPI number come out recently. And that would imply that inflation is still a problem. And just on the back of that CPI number, the Fed funds market was projecting six rate cuts this year in 2024. Now it’s projecting three rate cuts. And so why don’t we just start here with the US economy? What’s your view? What’s your sense of what’s happening?

Rick Rule 3:24
Well, as you point out, the US economy is performing by most standards very well. I, myself, am amazed that the key stats have hung in as well as they were against what is really a doubling of nominal interest rates over the last two and a half or three years. In truth, it is an economy that isn’t benefiting all people. People like me, with readily marketable skills, and access to credit, are doing extraordinarily well, in this economy. There are other people, people who operate in a service economy that will say, yes, there’s a lot of jobs, I have to have three of them to make ends meet. So the benefits are probably not being distributed in the economy as well as people would want. I think it needs to be stated too, that part of the strength, at least at least of the US economy has to do with the continued availability of liquidity and credit. And if we have a circumstance, who knows what might cause that, that would cause confidence in in itself to fail. When confidence fails, liquidity falters. And so I think that the there are areas of concern around the domestic economy United States for me, the primary area of concern is absolutely out of control spending at the federal, state and local level, which is to say to me, the biggest risk in the US economy absent. The unspoken risk of nuclear war, of course, is the absolutely out of control level of government spending. There are other risks too. But I need to say at the beginning, that the strength in the US economy is really truly surprising. Again, it doesn’t benefit all people I’ll say, of interest in the little town where I live, there’s such a labor shortage, that entry level workers at the local supermarket Safeway are paid $20 an hour. That seems like a stupendous wage until you consider that the median rental in the town that I live in, is $2 a foot a month, which is to say, a $20, an hour entry level worker at Safeway still has to live with his or her mommy and daddy, because they can’t afford the rents in our town. And I think that’s sort of a way to describe the current state of the US economy.

James Connor 6:05
Now, you raised some very good points there. And I just want to go back and talk about inflation. Because we saw this CPI number that came out recently, there was a lot of strength there. And I think a lot of the strength came from the Services section or the services sector. And once again, the prices of everything that we consume is going up.

Rick Rule 6:24
That’s right. And I think you and I have discussed before the fact that the CPI while it’s a commonly referred to standard for the rate of inflation isn’t. The CPI first of all, is hedonistic ly adjusted, which means that the people who put together the index, assign arbitrary values, to the places that you live in the technology that you buy, not with the price you pay, but rather the value that they ascribe to it to when it’s inconvenient, that doesn’t include food or fuel, which makes it to me a useless index, because I drive I fly and I eat. The scariest thing about the CPI is that it doesn’t include the largest household expense that Americans face, which is tax. The idea that you have a cost of living index, that doesn’t include a sector that consumes 40% of many household budgets, seems very silly to me. When I attempted to create a crude index, for the basket of goods and services that I consume, what I come up with is that the purchasing power of my US dollar savings seems to be deteriorating by about 7% compounded. That’s gonna, that’s gonna vary from viewer to viewer, but I would really consider that both the strength of the CPI is a concern. But a larger concern is the fact that for most people, it’s an absolutely irrelevant index. It’s a flooding abstraction. It’s a talking point. And one threat that I think investment markets have is that if more people need come to understand the pernicious nature, of the deterioration of the value of their US dollar savings in terms of purchasing power, that that in and of itself, might create a risk. I remember, James, I’m enough older than you that I would remember firsthand the fact that in the early part of the decade of the 70s, well, the hallmarks of inflation were everywhere. Nobody paid attention, because they lived through the 50s and the 60s, they’d lived through 20 years of benign economic climate. So their expectation of the future was set on a particularly benign past. And I think that we have a bit of that today. I think that what is likely to happen is that at some point in time in the future, people look at the impact of inflation on their savings and their wages. And notice the discrepancy between what they experienced and what’s stated in the CPI. And that the then expectation of and fear of inflation, changes very much in the way it did in the decade of the 70s. And I think that that might that might involve a change in investor and consumer behavior. I’m not trying to be an alarmist I, I look at the strength of the US economy. And I think the conclusion that I come to is that despite our faults in the West, that we still have a relatively free society and economy and that we still exist in a place where a bunch of pimply faced kids can take over a garage in Sunnyvale, California, and out pops Google or out pops Apple or out pops Microsoft, which is to say, I’m delighted and surprised at the fact that our individual initiative and Uh, you know, resourcefulness and capacity, still can finance our collective stupidity. I don’t know how long that lasts. But I’m delighted that it has.

James Connor 10:10
No, you raised some very good points there. And when it comes to the CPI, I agree 100% Anything that government, whatever the government says I just double it, right. So if they’re saying inflation is running at 4%, I just round it up to 8%. Right. And even that might be quite conservative. Now, you mentioned something about debt in the record debt levels really concerned you. But we’ve heard people talk about debt levels now for decades. And even though the numbers keep going up by trillions every year, it really doesn’t seem to slow down the economy, it doesn’t really have a negative impact on the economy. What are your thoughts on that

Rick Rule 10:48
Problem is not a problem until it is a problem. Right now, we exist in a market that’s dominated by confidence, the old parable that if you have obligations of a million dollars, you have income of $50,000, you have expenses of $55,000. But you’d have $10,000 in your pocket, you weren’t Broke Till the 10,000 wears out. And then in fact, you are broke. My concern is that the impact of the debt won’t be felt until it is. My concern is that at some point in time, I’m not saying it has to happen soon, or that it has to happen at all. My concern is that at some point in time, we have a 2008 style event. But unlike 2008, we no longer have the financial flexibility to print and spend our way out of it as easily as we did, then, it’s worthy to note that the fiscal measures that occurred subsequent to the 2008 global financial crisis occurred in the context of a US government debt being less than 30% of GDP. US government debt is now 115% of GDP, which is to suggest, first of all, that the problem is larger. And second of all, the scope for dealing with the problem either by way of quantitative easing, or by way of fiscal policy, which is to say, expenditures is substantially more constrained. I’m not trying to say that this necessarily bites us or if it does bite us into bites us next week. I am suggesting that individual investors and savers who don’t take into account both debt and deficits and the possibility of a confidence inspired liquidity squeeze, are doing themselves a very broad disservice.

James Connor 12:47
You’re concerned about the US market and the high debt levels. What about when you look outside of the US? Let’s look at Europe. Let’s look at Asia. I guess there’s, from what I read Germany’s slowing down right now Japan is slowing down. Are you concerned about any of these events?

Rick Rule 13:02
Yeah, I mean, Germany is an own goal. It is their own decisions that have contributed to their demise. The idea as an example, that you rely on Russian gas, or even stranger that you rely on solar in a place where the sun doesn’t shine seems extremely odd. The basics of the German economy, German ingenuity, the newly liberalized when I say nearly 20 years ago, liberalized labor markets, mean that if the Germans stopped being stupid, they could start being prosperous again, pretty immediately. The difficulty they have as part of the Euro community is the bifurcation of Europe, which is to say, the Northern Europeans which generate wealth, and the Southern Europeans that consume it, and it would seem that the Southern Europeans can consume well faster than the Northern Europeans can generate it, particularly given the own goals that the Germans in particular, but also the Dutch seem to be inflicting against themselves. I need to say that the relative strength of the US dollar relative to the euro says a lot about the relative performance of the US economy relative to the European economy. If the US economy is sclerotic, I don’t know what that really means that the European economy is, but whatever the word is, it isn’t a very pleasant word. I am increasingly attracted to the performance of emerging and frontier markets economies. I’m not trying to say that there aren’t risks there. But when I look at the growth of the middle class and the gradual liberalization of economies in places like India, and Malawi, and Nigeria and Indonesia, I’m impressed with what we have the ability to achieve. When I say we, I mean our species has the ability to achieve over the next 10 years. You know, It’s important that we look back over 30 years, and we ascribe much of the increase of global wealth. All the way back to Dong XIAO PING saying to be rich is glorious, and the incredible advances that we’ve enjoyed as a consequence of the increasing liberalization, urbanization of the Chinese people. And I think one of the undercurrents that we’re seeing around the world is, the places that were desperately poor, are now merely poor. And I think part of the undertone that gives me a bit of hope is that emerging and frontier markets will provide a greater boost to the economy over the next 10 years. Than is broadly supposed This is an important part by the way of the commodities investment thesis to in order for those economies to function. There is a whole bunch of material consumption of infrastructure that needs to be consumed. If you look at the impact of on commodity production, around the urbanization of China, you will get some sense of the investment that will be required to bring that level of urbanization as wealth to countries like India and Indonesia and Nigeria. But I do think it’s going to occur in fits and starts. And that I think, is extremely bullish.

James Connor 16:30
So that’s a good overview of what’s happening in the global economy and how you see it. I want to move on now and discuss the assets on on how we can invest and how we can make money because at the end of the day, that’s what it’s all about. The last time we spoke in q4 of 23, you were very bullish on oil and very bullish on nat gas. Are you still? Absolutely,

Rick Rule 16:51
I mean, the easiest theme to follow for the next five years or so is oil and gas that isn’t to say, global synchronized recession wouldn’t slow down the train. But the truth is, at today’s commodity prices, the oil industry in particular, makes a lot of money. And the discrepancy between NBCU pricing between natural gas and oil likely means that that delta resolves upward for natural gas, rather than downward for oil. The big thinkers would have you say, and believe that peak oil demand will occur in 2020 30. For political reasons, they neglect to say that if that happens, they won’t be able to fly their private jets to Davos because there won’t be anything to fuel them. As we said in the last interview, James, but for those people who didn’t listen to it. Their prescription for the future is alternative energies, we have now spent $5 trillion on alternative energies. And we’ve reduced the market share of hydrocarbons from a high of 82%, all the way down to 81%. Which is to say a $5 trillion investment has made an infinitesimal impact on the market share of fossil fuels, as we bring the 3 billion people on the world at the bottom of the demographic curve up the demographic curve. Part of the ascent of humankind in a material sense is all around energy and energy density. The oil and gas business I think will continue to be a very good business for 40 years. But the companies are being priced like the half life of their economics is in six or seven years, which is absolutely wrong. An intelligently constructed portfolio even of oil majors, but better, including mid caps on both sides of the 49th parallel will outperform I think almost every index equity index available in the next five to 10 years.

James Connor 18:55
And why do you say that?

Rick Rule 18:57
Well, for a bunch of reasons. First of all, these companies despite the best efforts of their governments direct them are horrendously profitable. They are making boatloads of money because of the political headwinds that face oil and gas. Many companies particularly state controlled companies, Pemex ped of Asa YPF, aren’t making the sustaining capital investments necessary to maintain their production, which means that we will have production shortfalls two or three years out, which means that prices will stay firm. Even at these prices, intelligent companies are making a whole bunch of money. And there are a bunch of companies on both sides of the 49th parallel that are making the sustaining capital investments that will maintain production, two years from now three years from now, five years from now. And paradoxically, the political policies of Biden and Trudeau guarantee that this will be an immensely profitable business, despite all of their efforts to the contrary. This is a business that’s doing incredibly well does by the efforts of the politicians to wreck it. And I believe that voters on both sides of the 49th parallel and in Europe, too, will come to their senses. So I think that the politics of oil and gas will get better. The business couldn’t get better, although it might. You have the bellwether as an example, this is not a buy recommendation, although I own it. The Bellwether, Exxon, probably the best track record in capital deployment. Among the majors going back 30 years, is selling at a very low multiple, two free cash flow, a very low multiple to earnings, they are making enough investment to maintain their production profile, while saying that they’re going to increase returns to shareholders via dividends and buybacks by 14%. This year, at the same time, that they made an extraordinary $60 billion investment in Pioneer over and above their sustaining capital investments. And well, they have a series of discovery offshore Guyana, 11 billion recoverable barrels, that’s actually big enough to move Exxon, I’m not using Exxon as a buy recommendation, I’m using it as a sort of a classroom style way to describe the overall attractiveness of the oil and gas business. In investor’s portfolio. I wrote a paper about 30 years ago, which got fairly broad distribution, then, and it called about it talks about the discrepancy between yield investors and growth investors. And I talked about some of the mature companies and resources, the title of the paper is yield or growth. Why not both? And the beauty I think of the oil and gas industry on both sides of the 49th parallel, is that for the next five to 10 years, there is a subset of companies that will deliver both free cash flow and net present value growth and extraordinary current yields. That’s a lot of fun.

James Connor 22:09
And Rick, the the price oil has been hanging in relatively well, it’s hanging in between 70 and $80 a barrel. And given everything that’s going on in the world, I know you don’t like throw in a price targets. But are you surprised it’s not higher? No,

Rick Rule 22:24
I’m not surprised it’s not higher. We have a fair bit of oil. The price of oil spiked to 90 or 95. On the fear of Russian sanctions. What happens is that we only politically sanctioned Russian oil, the Russian oil is flowing very well. It just has come to be called Indian oil or Indonesian oil or some other kind of oil. It is true that the flow of Russian natural gas has been constrained, which is why the differentials in European natural gas pricing and North American natural gas pricing. We actually have adequate supplies of oil at these prices. What we have is unrealistically low market capitalizations and unrealistically high cost of capital as a as a consequence really of politics. large institutional investors are being asked to reduce their oil and gas portfolios, because the portfolios are run by managers not by investors. Increasingly, they’re complying, which lowers the market capitalization of companies and also increases the cost of their debt capital. For capital providers like myself, people who buy oil and gas shares or lend money to oil and gas companies. This is the best possible circumstance.

James Connor 23:43
So you’re really bullish on oil and also not gas. Let’s move on to something else that’s very near and dear to your heart. And that’s gold. And I’m also a holder of gold and gold equities. But I have to admit, I’m a little frustrated with this trade, and physical gold was up 10% Last year, give or take, but a lot of the stocks were underperforming big time. And even now like you were only two months into the new year, new ones down 20% of the Year bears down 20% on the year. It doesn’t look good. Give me your thoughts on gold and gold equities.

Rick Rule 24:19
Well despite my age, 71 years of age, I’m trying to become richer, and trying to become richer involves buying high quality assets at fairly inexpensive prices. So while you’re discouraged by the gold trade, I’m elated by the gold trade. I would like to buy more gold stocks in particular high quality gold stocks. And the fact that they’re selling at prices which I consider to be attractive is wonderful for me. I realized that I’m different than a lot of people I want to differentiate to between investing in gold itself and investing in the gold stocks. I own GOLD as insurance and I own it because I’m afraid. I began adding substantially to my physical gold holdings in 1998, admittedly a couple years early. But I noticed that since 2000, the gold prices gone from $256 An ounce to something like $2,000, an ounce, an eight or 8.2% compound annualized rate of return, gold did exactly what I asked it to exactly what I asked it to. And it did it in a circumstance where, first of all, the denominator, the US dollar also did well against every other currency in the world, which is to say, if you were saving in any currency other than the US dollar, including the Canadian dollar, you did better in gold than I did. But it also did well, in a circumstance where people weren’t concerned, people weren’t fearful. What really moves the gold price is a lack of faith in savings instruments denominated in fiat currencies in particular in the US dollar. And my suspicion is that as the really truly pernicious impact of inflation, true inflation, not the CPI, begins to bite people that their theory of inflation and their receptiveness to inflation oriented investment techniques, including gold will increase. In our last interview James, I mentioned that the market share of precious metals and precious metals related securities in the US market, I can’t comment on the Canadian market, but in the US market was less than one half of 1%, which is to say that the market share of golden silver precious metals related assets relative to every other asset class is less than one half of 1%. The four decade mean market share was 2%. If the fear of inflation, among other things, begins to catch people’s notice. My suspicion is that the market share of precious metals will revert to mean it’ll go from one half of 1% to 2%. That would generate a four fold increase in demand for precious metals and precious metal securities. And that’s precisely what I think is going to occur. Will it occur tomorrow, likely not. I don’t expect a US interest rate cut in the near term. And I don’t expect an immediate diminishment in confidence in the US market, which means that 2024 might be fairly benign. And then and hence demand for gold could be constrained. That doesn’t really matter to me, I have come to learn that my life seems to be denominated in five to 10 year cycles, not five to 10 week cycles. Now, the gold stocks are different than gold. The gold stocks have the gold stocks are trading as cheaply relative to the gold price as they have ever been in my career. Partly, I think that’s a function of the fact that speculators don’t own gold for the reasons I do. They don’t care about 8% compound returns, they want some number like they experienced in the 1970s. And they think that the fact that they want something is somehow relevant, which it isn’t. But I think too, that the structure of the gold stock market, which is to say the performance of the of the gold mining companies as companies, has left a lot to be desired in the period 2000 to 2010. The gold price as you recall, ran from something like $250 to something like $1,750 and the free cash flow among an index of senior Gold and Silver’s stock, silver producers declined. It took amazing skill to take a seven fold increase in the selling price of their product and turn it into a decline in free cash flow. The consequence of that is that gold investors in general, and particularly generous investors, look at the gold mining sector as a place where capital goes to die in the event that you would want a rapid increase in the gold price delivered a decrease in the first year cash flow. Now, I would like to point out to investors that the institutional investors are keeping the gold mining companies on a much tighter lease now. And most of the management teams that provided presided over that diminishment and value have been allowed to pursue other employment activities. They’re doing something else coming down from there, all the way down to the junior companies. We’ve talked about this before. If you You invest in that sector as a sector, you will go broke. The 2500 or so companies that populate the global universe of junior mining companies, were you to merge them all together, call them junior, junior explorer CO or something like that, that company in a very good year would lose $2 billion in a bad year, it would lose $8 billion. So the sector as a whole is where capital goes to die. That obscures the fact that maybe 5% of those issuers generate such superb returns, that they add legitimacy and sometimes luster to a business that loses between two and $8 billion a year. This is all about stock picking. This is all about disciplining yourself as an investor. This is all about regarding gold mining companies as companies, not merely as proxies for gold. And I think that we’re in a uniquely good period to do that. Because there’s no competition among other investors. Let’s look a little arithmetic just for fun. To illustrate this. Franco Nevada, from my point of view, the preeminent gold mining equity on the planet, lowest mining, lowest management expense ratio, highest operating margin, loses colbray, Panama at least temporarily, which accounted for 15% of net asset value, and the stock declines by 42%. Now, let’s make this dollars and cents you start with $1 Bill, somebody takes away a diamond nickel, somebody takes away 15 cents. And the consequence of that is that the company now sells for 68 cents. What kind of arithmetic is this in particular, because if you look at the colbray Panama situation, you come to understand that there’s $8 billion invested in that mine that the mine constituted 25 or 26%, of Panama’s export earnings and seven or 8% of GDP. And if they actually have to go through international arbitration, there will almost certainly be a judgment against the Republic of Panama in favor of First Quantum and Franco Nevada. But more likely, over two or three years, there will be a political resolution to the dispute. But even if there’s not a political resolution, you have a circumstance where sentiment caused a market where 15% of net net asset value came off to declined by 42%. This is a wonderful circumstance. If you are an investor that doesn’t require the psychological support of a market. If you understand that a market isn’t a source of information, but is rather a facility for buying and selling fractional ownership and businesses. The idea that these better businesses get sold off continually is if you are a true investor, a huge benefit to you.

James Connor 32:57
Yes, he you bring up a lot of good points there. I mean, Franklin, Nevada is one of the premier royalty companies in the world, if not the premier royalty company, but very unique situation. So I want to go back and look at the producers. Okay, let’s look at Newmont. Let’s look at barrack and depending on whose research you look at, the stocks are trading at $1,600 Gold, okay. And meanwhile, the actual spot price is around $2,000 Gold. Do you think the price of gold has been artificially kept up by buying by the central banks because they they have been very aggressive buyers in recent years. And to your point earlier, all they’re trying to do is protect their reserves of US dollars. But I guess my question to you is if the if the central bank stopped buying the price of gold that would think would drop quite significantly and therefore, producers like Newmont and barrack are really factoring in the true gold price.

Rick Rule 33:53
I disagree with that, from two points of view. The first is that I think that we are coming into a period where while US dollar hegemony does not end, it becomes less important, I think the export of US political will through the weaponization of the US dollar and the weaponization of the US securities markets means that countries outside the US increasingly have to buy gold to trade with each other outside the US dollar. I don’t believe that the BRICS currency will ever get off the ground because I don’t think those companies trust each other. Increasingly don’t trust us either. And I think that gold will, in terms of international trade regain its status as money. I don’t think that the Chinese are buying gold because they want to I think the Chinese are buying gold because they recognize that they have to. They don’t want to settle trade in Russia with rubles. The ruble is a worse floating abstraction than the US dollar. People who buy crude oil from Nigeria certainly don’t want to receive naira. The Naira seem to decline at 25% compounding year in year out. They want to do business because they have to outside the US dollar because the US government is making them do business outside the US dollar. And the only medium of exchange that has some price stability, and some liquidity is gold. So I personally see as long as the United States continues to pursue its obnoxious foreign policies, that demand for gold will be strong. Let’s look at a couple of the producers and let’s talk about the decline. Beric was a horrible underperformer for 10 years. And it it’s viewed by institutional investors historically the same way that they would view aids. Meanwhile, the company has made remarkable efforts to become a better company. But part of those efforts has been that Mark Bristow has pursued assets where they are as appears to where the market would like them to be. So his moves into places like Pakistan have from the markets point of view led to the perception of increased risk. If you look at the suggested Bristow had before coming to Barrick at RAND gold, which emerged into Beric, what you will see is that he is remarkably astute in doing business in places that other people would define as risky. So I think the market is mispricing the political risk around Barrick. It is true that Beric will have trouble maintaining production, if they don’t increase their development spend and increase it fairly rapidly. In the case of Newmont, I think what you have is Newmont acquired new crest, there were a bunch of holders of new crest, who own new crest because they were looking for a transaction when they got the transaction they sold. And they sold a new month shares, which is what they acquired. If Newmont is successful doing what they say they’re going to do, which has focused on their tier one assets, and sell their tier three assets in some of their two tier assets, so that they can improve their balance sheet and improve their ability to focus on their tier one assets. I say if I’m not saying they’re going to do that, but if they do what they say they’re going to do, Newmont will really surprise people in the next five years. So I view the sell off in Newmont is very much a one off event associated with the acquisition of new crest, which I believe by the way, it was a good thing. I think you need to it’s important, I think that you need to look at these companies one at a time. I don’t think it’s useful to look at the gold mining industry as a group. I have said before traditionally it’s been poorly enough managed. And there’s been enough variability in commodity price. And if you invest in the sector, you go broke either quickly or slowly. If however you do, as I’ve done over 50 years, and I’m not trying to say I have made some horrific mistakes. But if you have done as I have done, which is to say invest counter-cyclically, and invest on the basis of real true securities analysis, not merely looking to companies as a proxy for upside in the commodity price, this is a very good business and the fact that cheap makes this a good entry point.

James Connor 38:24
So just to summarize, you are bullish on gold in the long term, not so much in the short term because you don’t expect a cut in interest rates. What about silver? What are your views there?

Rick Rule 38:34
My experience in silver has been that it lags gold that in a precious metals, bull market, gold leaves and gold leads and then silver follows. And usually by some time what happens however, is that after the narrative and a precious metals bull market is established by gold, when silver does move, it moves further and faster. And the real jackrabbits are of course the silver stocks the last movers Silver has to move before the silver stocks move. When the silver stocks move, or when the narrative extends to silver, what seems to happen is that the combined the combined market caps have the real silver companies, you know not the Little Penny Dreadfuls. Not the silver pretenders that are looking for silver but don’t have any. But rather the development stage companies, the advanced explorers, the producers, the senior producers, there is not enough market capitalization, the silver space to handle the influx of generalist money when it comes and the upside explosion that you get in silver prices. Silver equities prices. I’ve seen it happen three times in my career is truly staggering. Although I don’t expect this event to occur for a couple of years. Because I have three prior examples. I can’t resist the beginning to buy those stocks. Now. There’s a flaw in my character, which means once they’re up off the bottom, I’m psychologically unable to buy them. I’m a perpetual cheapskate, and a credit guy to boot. So I have to be early, or else I missed the move entirely. What that move means is that I am assembling a basket of silver equities, with the view that I get rewarded in late 2025, early 2026. Something which many people don’t have either the psychological or the financial ability to do?

James Connor 40:31
Yeah, I’m one of those people, especially from a psychological point of view. Now, Rick, why did you attach 2025 2026 on to this trade? Well,

Rick Rule 40:43
if you follow the logic, that it’s unlikely that you get a major move in the gold price, without a move down in US interest rates without the Fed capitulating. And you believe that gold has to leave LEED silver, you can find you can sign 2024 to be a consolidating rather than a rising year in gold. And by nature, if you think that silver is delayed, that takes that trade up to 2025 or 2026. If we have some exogenous shock to the system, if we have some sort of liquidity panic, and the Fed reacts the same way it did last time by opening up the spigots, then all bets are off, I think you’ll see this thing take off in the same way that gold took off in 1975. Remember, however, that I said, if the if the current trends stay in motion, I suspect that we’ll have a lackluster year a sideways here, I’m buying nonetheless, things are cheap enough. And in my experience? Well, Bernard Baruch once said, The only investor who absolutely bought the bottom and sold the top was a liar. It didn’t happen. And I suggest that market timing, that is that assigns a higher value to anything that being approximately right, is a joke. You can’t do it, particularly in capital intensive cyclical businesses. You have to remember the dictum that which is is inevitable is not necessarily eminent. The fact that you wish it was doesn’t matter wishes aren’t profits, you’d have to pay attention to the markets as they are not to the markets as you would wish them to be.

James Connor 42:36
So I just want to summarize your views on commodities for 2024. very bullish on oil, very bullish on nat gas. You’re bullish on gold and silver, but more longer term, you’re expecting a rather benign 2024 for those metals. And do I have all that correct?

Rick Rule 42:57
Yeah, I rather not be constrained to 2024. Although I think 2024 will be a lackluster time for precious metals. I don’t see a huge upside breakout in the oil market, I just see a stupidly good business, where your current income from dividends, finances your quest for long term capital gains. It’s the juxtaposition of risk to reward that I love so much about the oil business.

James Connor 43:22
And I can’t let you go without discussing uranium. In our previous conversations, you said the easy money for uranium has already been made. We’ve seen massive moves here in the last couple of years. Maybe you can just tell us briefly what do you think of that sector right now?

Rick Rule 43:37
Yeah, when a commodity goes from hated to tolerate it, the easy money has been made in a basket of uranium juniors is up two or 300%. It was impossible to talk people into buying uranium in 2022. And now that the price is up, everybody wants to buy it. I believe that there are structural changes in the uranium business, which we could discuss in a subsequent interview, it takes 15 minutes to get through the status of the uranium market as we as we sit. But the structure going from a spot market to a term market has profound implications for some uranium stocks, and they’re all bullish. The idea that you have price certainty around the selling price of your product for five years or 10 years or 15 years means that uranium is unique among commodities, businesses, this should for the right, companies lower their cost of capital because of the revenue certainty and provide unusually accurate forecasting around the equities on a company by company basis. What I think it means is that structurally, the short money is ahead of us, well, the big money, or at least the easy money has already been made.

James Connor 44:46
And Rick, if there was another sector like uranium was 2,3,4 years ago, what would it be?

Rick Rule 44:52
Well, I think if people are looking for really dramatic upside in the equities, they need to begin to pay attention to the silver equities. I think you’re really, I think you always need to be early. If you and I are having a discussion 12 months for 18 months from now, the commodities that will be hated then which is to say the commodities then that you’ll want to be invested in our platinum and palladium, which have really underperformed and will continue to underperform and nickel. Remember that my investment thesis is to love hate look for hate. And looking ahead, people are going to hate the nickel stocks, they’re shutting down nickel production capacity worldwide. And I think once the commodity becomes really and truly hated that it will provide the same type of upside, perhaps not as dramatic as uranium did. Always look for hate.

James Connor 45:45
So Rick, so far discussion has been focused on resources, but many people might not know. But you’re also very familiar with the US banking system. And I want to get your views on New York Community Bank it. It’s kind of ironic, because a year ago, that’s when we had the regional banking crisis. And we saw the collapse of Silicon Valley Bank Signature Bank, and also the demise of First Republic as we knew it. But it’s kind of ironic that New York Community Bank is also getting into trouble because of the assets of bought from Signature Bank. I’m curious to hear your thoughts on on this situation? And do you think there’s more to come?

Rick Rule 46:24
I think there is more to come. But I think the banking business is a uniquely good business. The temptation in the banking business to be stupid, because of the leverage that’s available is very high. There’s a few things that can go wrong with a bank. One, you can make loans against assets that you don’t understand well, because the assets themselves have performed well in years past, which does not necessarily make you a more knowledgeable banker. The second thing that could go wrong, and this goes wrong much more frequently as time spread. Banks that buy long term assets, long term bonds or loans, with six or seven or eight year durations, that are funded with short term liabilities, which is to say overnight deposits, if the interest rate goes up, your cost of capital goes up. Well, the capitalized value of the distributions that you bought goes down. This is truly an ugly circumstance. And this is what brought down the US savings and loan industry. This is what brought down first republic, this is what brought down Silicon Valley Bank. And it’s likely what brought what brings down Community Bank of New York, there are a lot of institutions that have done that, which is really truly profoundly stupid. The prevailing deposit interest rate in United States is about 4.15%. The prevailing lending rate in the United States geared to prime is some number, around eight and a half or 9%. The idea that you can fully fund floating rate assets with floating rate deposits, and enjoy a 400 basis point spread in the middle with 10. To one leverage. If you don’t do anything stupid, is of profound interest to me. I mean, that’s, that’s why at age 71, I’m starting another bank. Unfortunately, the temptation to do something stupid in the banking business to employ excessive leverage an employee these time spreads to get into lending sectors that are hot, rather than lending sectors where you have specific expertise is too high. And there is more sin in the community banking sector, you can expect more problems, because there are more stupid bankers than there are smart bankers.

James Connor 48:38
interesting comments, and it’s going to be interesting to see what happens here in the coming weeks with this whole situation. Rick, as we wrap up, you and your team are always holding various events, what events can we look forward to in the coming weeks and months from you and your team?

Rick Rule 48:54
As you know, James, we do boot camps, which are eight and a half hour eight to eight and a half hour long, deep dives around various subjects. We did uranium when you should have been buying uranium. We’ve done silver we did royalty and streaming we did develop and stage companies because exploration is so roundly hated. The next boot camp that we’re going to do is around exploration. I love hate. And I think we’re going to have a real exploration resurgence in the next couple of years. So we’re doing a prospect generator bootcamp, which is a unique form of exploration company, company, pardon me, be April 20. We’ll do an eight and a half hour long deep dive about how to analyze exploration companies, how to invest in them. A couple of case studies. You can attend this conference in the luxury of your own home you don’t have to come to some exotic location. Importantly, the tapes the recordings will be available for a year after the event because there’s no way you can absorb over eight hours all of the information we’re gonna give you importantly to the tuition which is 99 US dollars. It comes with a absolute gold plated money guarantee back guarantee if for any reason, you don’t think that you got your $99 Worth email me, I’ll give you your $99 back. Now it’s important to note in 30 years of money back guarantees, I’ve had to refund less than one quarter of 1% of the tuition payments paid me, because we focus so much on delivering value. Beyond that, of course, we have our annual Volker return investment symposium July 7 through 11th. I humbly believe this to be the finest natural resource investment conference on the planet for various reasons. Again, you can obtain, you can go in person to book a return, or you can attend like 1100 other people did via livestream at home. In either circumstance, you’ll have access to the recordings for a very long time. And once again, the tuition is 100% refundable. If for any reason, you don’t believe that you got value for your subscription. I’ll give you your money back.

James Connor 51:01
Well, though, sounds like amazing events, Rick, and I want to thank you very much for spending time with us today. And if anybody has an interest in either one of those events we’ve built with details in the show notes below. Rick, once again, thank you and I look forward to our next conversation.

Rick Rule 51:16
Thank you, James. And I would once again invite all of your listeners if you care about my thoughts around natural resources. You can have my thoughts about your natural resources, go to RuleInvestmentMedia.com. List your natural resource portfolios, please no crypto, please no pot stocks please no tech stocks, natural resources only all rank them no charge no obligation, RuleInvestmentMedia.com list your natural resource stocks all rank them and send you back the rankings by return email. James, I’m a big fan of Wealthion, thank you for having me on.

James Connor 51:50
Thank you very much for making the time we do appreciate it. Well, I hope you enjoyed that discussion with Rick Rule. We seek out experts like Rick to help you navigate the financial markets. But if you need assistance in doing that, consider having a discussion with the Wealthion eendorsed financial advisor at Wealthion.com After providing some basic information Wealthion will put you in touch with a vetted adviser. There’s no obligation whatsoever to work with any of these advisors. It’s a free service that Wealthion offers that anyone who has an interest. Don’t forget to subscribe to our channel, Wealthion.com and also hit that notification button so you be kept up to date on future events. We have some amazing interviews coming up in the coming days and weeks. Once again, I want to thank you for spending time with us today and I look forward to seeing you again soon.