I've spent the past few years explaining that the next big wave of capital flows would be away from public assets like government bonds and into private assets like real estate in low-tax states, dividend-paying blue-chip stocks, gold, and the related equities.
The combination of a near-record-high stock market that throws a tantrum every time the Fed or politicians delay more stimulus, negative real rates, and an election that promises to have tax consequences (we're either getting higher taxes or bigger deficits) is accelerating capital flows in interesting ways.
Fears of a second wave of COVID-19/government lockdowns have prompted U.S. companies to hoard cash. S&P 500 companies' holding of cash/equivalents is up 35% year-to-date.
The odds of that capital being deployed to increase capital spending instead of buying back stock and increasing dividends are slim.
Those who are investing capital are increasingly doing so in tax-friendly states. States like Texas.
Earlier this year, Tesla announced it was building a gigafactory here in Austin, Texas.
Development plans on the 2,100-acre site will lead to new development of 8 million square feet which will employ over 5,000 people.
Earlier this month, the company purchased an additional 381 acres adjacent to the 2,100-acre site.
Over the weekend, it was announced that Piedmont Lithium had signed a five-year deal with Tesla to supply high-purity lithium ore.
The initial five-year agreement implies that Piedmont will supply about a third of its planned 160,000-tonnes-per-year spodumene concentrate produced from its deposits in North Carolina.
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Both companies have an option to extend the deal for another five years.
This morning, Benchmark Minerals confirmed that Tesla will build a lithium hydroxide chemical plant in Austin, Texas in what is the first move by an automotive company into lithium chemical production.
Tesla will build a spodumene conversion facility adjacent to the Terafactory / Gigafactory 5 with a start-up target of Q4 2022.
As Benchmark Minerals reported, the new conversion and refining plant will turn hard rock spodumene ore into lithium hydroxide for direct use in its battery cells - a process that traditionally occurs in China using Australia-sourced spodumene.
Capital goes where it is treated best. We do that well here in Texas.
Soon we'll see a similar flight into the better gold names that prove to have more than a story to tell.
The combination of record deficits, central bankers obsessed with stoking inflation, historically low interest rates, and severe underinvestment in quality exploration over the past decade has led to an opportunity that we may not see for decades.
An opportunity I plan on taking full advantage of.
To your wealth,
Gerardo Del RealEditor, Junior Mining Monthly and Junior Mining Trader.
For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.