Beyond China and beyond gold

On Friday, INK Ultra Money released a Real Vision Jim Grant Series video which covered a lot of ground with value manager Jim Litinsky. One of the most insightful elements of the conversation centred around Litinsky's big bet on rare earths located in the United States. Why the bet? In nutshell, he envisions a shakeup in global supply chains which he believes policy makers in the United States now recognize as being too dependent on China.

In such an environment, elements that go into the chain of production will come in focus, particularly those that are of strategic national importance. According to the Reuters transcript, he says:

We need to have onshore manufacturing. Okay, I'm mean the US and that the supply chain needs to change, and that we need to see the real economy, the manufacturing economy grow at the expense of the financial economy.

Litinsky believes the investing environment is entering a transition from a focus on the financial economy to the real economy. If he is right, things like mining and manufacturing could come roaring back on the radar screens in 2020. In such an investing world, it is not a big leap to view buybacks as a sign of business weakness instead of financial astuteness as investors scramble to get on board a global supply chain restructuring story.

Unfortunately, a recession could come first before such a remake gets in full swing. Indeed, one could see how a recession could be the catalyst for American policy makers to see supply chain reconstruction as a way out of the next turn. As Litinsky suggests, it may be prudent to be "long inflation combined with a put on collapse".

Canadian insider Club Ultra members can watch the interview by clicking on the bowtie picture below. If you are not a member of the Canadian Insider Club, join today and save $99 on an Ultra membership. Redeem coupon BLACKBOX at checkout to receive your $99 discount towards an Ultra membership, a discount which you get to keep every year until you cancel (offer only available for new Club memberships).

Jim Grant interviews Jim Litinsky

Should 2020 deliver a bit of inflation as we expect and a renewed focus on American industrial national security, gold and gold miners will come to mind as traditional hedges against such disruptions. However, there are risks in holding gold stocks, particularly the ones that are not well managed. Meanwhile, if value chains become a key national security focus in 2020, value chain inputs could be as fashionable as unicorns were earlier this year. Consequently, we believe there is a case to look beyond the gold as a hedge against the uncertainty associated with the New Year.

By looking beyond gold, we do not mean replacing gold and gold miners in a portfolio. Instead, we suggest it may make some sense to include exposure to both precious and critical metals. As it turns out, less than two weeks before the Litinsky interview, we published an INK report highlighting NioCorp Developments (NB) which is striving to mine and produce three critical metals in the United States. It fits nicely with the core global supply chain restructuring story in the Litinsky interview and is one of the few vehicles that I believe may provide exposure to US critical metals via the public markets. We have posted the video summary of the November 28th report on our YouTube channel and you can watch it below.

NioCorp Developments (NB) in focus

In full disclosure, after the listening to the Litinsky interview I bought a modest amount of NioCorp Developments. There are plenty of risks with the stock, particularly their need for a large billion dollar plus investment to get the project going. If the global supply chain restructuring story fails to gain traction, the company could well find itself starved of needed capital. Nevertheless, the stock appears to be consolidating after a brief surge to 52-week highs. For those who believe the Fed is going to remain looser for longer, monetary liquidity could well find its way into a supply chain makeover. Should liquidity flow in that direction, stocks that align with the national security goals of America could benefit.

INK Research does not accept payments for stock coverage. A version of this post also appeared on INKResearch.com.