Letting the Thesis Play Out
This week HAI is on the road at the Rule Symposium in sunny, hot, and humid South Florida. This natural resource investment conference is the product of famed natural resource investor Rick Rule, and HAI would like to thank Mr. Rule for what is a truly fantastic event.
Given the resulting time constraint, this week’s HAI will be brief and to the point.
In recent weeks, HAI is seeing growing evidence that two long held theses are indeed now engaging. The first is that artificial intelligence (AI) is likely going to be a very serious job killer with potentially severe societal consequences. The second is that we are on the precipice of a new paradigm of real asset outperformance over paper financial assets.
As to AI, last week a Wall Street Journal article titled, “CEOs start saying the quiet part out loud: AI will wipe out jobs” was a shot across the bow of the economy as we know it. According to the Journal, “CEOs are no longer dodging the question of whether AI takes jobs. Now they are giving predictions of how deep those cuts could go.” The Journal quoted Ford Motor Chief Executive Jim Farley saying that, “Artificial intelligence is going to replace literally half of all white-collar workers in the U.S.” He added that, “AI will leave a lot of white-collar people behind.”
As the WSJ put it, “The comments echo recent job warnings from executives at Amazon, Anthropic, and other companies.”
“Amazon CEO Andy Jassy wrote in a note to employees in June that he expected the company’s overall corporate workforce to be smaller in the coming years because of the ‘once-in-a-lifetime’ AI technology.”
Troublingly, the WSJ added that “Anthropic CEO Dario Amodei said in May that half of all entry-level jobs could disappear in one to five years, resulting in U.S. unemployment of 10% to 20%, according to an interview with Axios. He urged company executives and government officials to stop ‘sugarcoating’ the situation.”
HAI doesn’t want to overreact to the AI disruption threat, but a structural threat to the societal norm—abundant employment—that takes the unemployment rate from just over 4% now to between 10%-20% sustained—would be an extremely devastating hit to a completely unprepared modern society.
As to the shifting preference of real asset ownership over financial assets, HAI can confirm that the Rule Symposium just had its strongest attendance in the last four years—by far—so attention to the hard asset thesis certainly appears to be growing.
But far more importantly, at the most basic level, we are now clearly seeing global resource nationalism. At the sovereign level, we are seeing resource acquisition accelerate to a point that clearly implies that real resources are being valued more dearly than their paper asset equivalent.
Back in September of last year, China announced a ban on all shipments of antimony ore (used in every military application from armor-piercing bullets to night vision goggles to explosives and nuclear weapons) and finished products originating from China and exported to any country in the world, including the United States.
Then consider the following recent headlines from the last two weeks. Just before July 4th, the Financial Times penned an article titled, “China’s tighter export controls squeeze wider range of rare earths.” Rare earths are another set of minerals essential for a wide range of military technologies, from missile guidance systems to advanced radar and communication systems. Then a New York Times headline read, “Russia seizes key lithium field in challenge for US-Ukraine minerals deal.” That was followed this week by an FT article titled, “China boosts nickel reserves as tensions with US simmer,” and then the headline, “China snaps up mines around the world in rush to secure resources.”
Then, yesterday, a CNBC article titled “Pentagon to become largest shareholder in rare earth magnet maker MP Materials” detailed the U.S. strategic investment in a domestic rare earth magnet maker to help secure the future U.S. military supply chain for rare earths (dominated by China) critical for munitions.
In other words, a global scramble for raw materials is now underway, and the U.S. government just joined—and confirmed—that scramble.
When the bond market figures out that governments now want the real assets, not the paper that theoretically could buy them (the same signal sent by global central banks reducing Treasuries and buying gold for over a decade), the bond market will likely twig the appeal of real assets—and fast.
That implies the $140 trillion bond market squeezing awkwardly into, most notably, the $22 trillion gold market—at an accelerated pace. After all, as the game shifts from paper to real, the primary global reserve asset shifts from Treasuries (the paper reserve asset) to gold (the real reserve asset). In HAI‘s view, the dynamics of this transition will continue to support the outperformance of gold over the vast majority of other asset classes on a secular basis.
We now have a combined threat of AI job losses materially threatening society, the economy, and the construct of the modern financial system architecture coupled with a sovereign shift away from financial assets and toward real assets. That’s an environment in which to own gold and other scarce hard assets for both the safe haven and store of value rationales.
As the hard asset thesis is just beginning to play out, this is the perfect time to revisit the wisdom of famed stock trader Jesse Livermore. As he put it, “It was never my thinking that made the big money for me, it always was sitting.” In other words, in HAI‘s view, the thinking is largely done. We’re in the right place at the right time. Now, the “big money” is in “sitting” and letting the thesis play out.
Weekly performance: The S&P 500 was off 0.31%. Gold was up 0.86%, silver was up 4.13%, platinum was up 5.84%, and palladium was up 11.96%. The HUI gold miners index was up 0.81%. The IFRA iShares US Infrastructure ETF was higher by 0.24%. Energy commodities were volatile and mixed on the week. WTI crude oil gained 2.87%, while natural gas was down 2.61%. The CRB Commodity Index was nearly flat, up 0.15%. Copper was up 8.65%. The Dow Jones US Specialty Real Estate Investment Trust Index was off 0.79%. The Vanguard Utilities ETF was up 0.60%. The dollar index was up 0.71 to close the week at 97.87. The yield on the 10-yr U.S. Treasury was up 6 bps to close at 4.41%.
Have a wonderful weekend!
Best Regards,
Morgan Lewis
Investment Strategist & Co-Portfolio Manager
MWM LLC
