Ferg's Finds

This is a short weekly email that covers a few things I’ve found interesting during the week.

Article

Memos from Howard Marks: The Indispensability of Risk

I love how paradoxical the whole topic of risk is. I often get the comment that what I do is too risky based on the rearview mirror (recently bankrupt, massive losses, terminal decline, and stranded assets all come to mind). Some assets that consensus views as low risk or even risk-free are super risky, i.e., long-dated treasuries, indexes with a high concentration in specific companies, or housing in Australia/New Zealand.  

It reminds me of the bushfire analogy: frequent fires (volatility) are viewed as risky when the real risk is a prolonged period of no risk, where the volatility hasn't been removed; it's just hidden/suppressed and far more damaging when it does show up.

You also can't opt out of risk. As Howard points out below, there is a big risk in not taking risks.

Podcast/Video

The Money of Mine YouTube channel has been knocking out quality lately.

What Tin Price Satisfies Demand? (Mark Thompson + Hadley Natus)

Quote(s)

“All courses of action are risky, so prudence is not in avoiding danger (it's impossible), but calculating risk and acting decisively. Make mistakes of ambition and not mistakes of sloth. Develop the strength to do bold things, not the strength to suffer.”

-Niccolò Machiavelli

Tweet

Housel nails it as usual.

Charts

I finally have some gold exposure to hedge the chance that I'm wrong about the energy sector being the big outperformer in commodities.

Something I'm Pondering

I'm pondering the effect draining stockpiles, combined with the sugar rush of high decline ISR and high grading, will have on the coming commodity bull market. 

Having just written about how I'm playing tin, I wasn't aware of the size of the US tin stockpile until Mark Thompson mentioned it in the linked podcast. US stockpile of 360,000 tonnes of tin being slowly fed back into the market had no small effect. When it was worked through, Myanmar burst on the scene in 213 with several large open pit mines which are now largely depleted.

It isn't hard to draw the parallel with shale appearing on the scene to add all the additional supply the world required plus the drawing down of stockpiles in the form of SPR and DUCs).

The uranium market is the prime example of this, with the Megatons to Megawatts Program representing around a quarter of supply when initiated in 1999. I couldn't find any chart illustrating this, so I got out my crayons below. It's a big reason that the market was actually in surplus during the last uranium boom, while today, the projects simply don't exist to balance this market to the tune of over a quarter if you go out a few years.

Cheers,

Ferg

P.S. I now have a directory for all my articles (free and paid). Or if you’re interested in my story and why I started this Substack, you can read the story here.