Must-Know Market Trends from Adrian Day at 2024 Rule Symposium

Adrian Day, how are you? I’m fine. Thank you very much for having me, Andy. It’s great to see. It’s been like 30 years, uh, which you don’t remember. It’s, uh, I’ve met you 30 years ago at a different forum, but we’re at the 2024,  uh, rule symposium. And, uh, what are your initial thoughts so far? Well, it’s a, it’s a very, um, uh, engaged audience. 

 

I think it always is engaged at Rickroll seminar. He gets a very good quality audience. But I think with what we’ve been seeing with gold and then more recently a little bit in the gold stocks, people are a little more excited and really quite engaged. I think in the past few years it’s been wandering around trying to figure out, is there a reason I should sell something I own?

 

Now there’s more, is there something I should be buying?  That’s a great point. And we, we saw like really a bottom, um, maybe in March, if you would, equity shares. And do you expect a, uh, that continuation if you would to flow through to the end of the year? Yeah, I mean, two things. One is, um, I think the juniors, the exploration companies could be soft in the summer.

 

They often are. We’ve had a huge amount of equity raises, as you probably know, from the juniors this year, and particularly even just the last month. I mean, sometimes I get literally a dozen invitations in a single day to invest in the last month. And I think these companies have been trying to take advantage of the rally  while they can.

 

So there might be a bit of a pause during the summer where investors, um, you know, just simply don’t have any money to buy anything. And of course people go away. But I think overall,  I mean, overall, a lot depends on the price of gold. Um, but, but overall, I’m extremely bullish for the rest of the year. And the thing about the gold stocks is a, uh, remarkably inexpensive.

 

We can get into that if you want, but remarkably undervalued relative to their, relative to their own historic valuation levels, the undervalued relative to the broad market.  Which itself is unusual because gold stocks normally traded higher multiples and lower yields than the broad market But that’s reverse now.

 

So despite the 30 percent rally we’ve had or whatever it is today from from below  They’re still they’re still very undervalued and the thing that is the thing I’d like to get across the thing that is really  Oh, I shouldn’t say it’s different this time. Sorry. Take that back. The thing that is very unusual this time is that you, people have an opportunity to buy gold stocks right now when gold is at records, when the outlook is very strong, when margins are robust, when the gold stocks are undervalued, but they have the opportunity to buy these great companies when they have actually lagged the gold price.

 

That is very unusual. Normally at the beginning of the market, go back to 2001, for example, gold was up in three months, 12 percent from the low. During that time, the gold stocks were up 50%.  The gold stocks, once gold starts to move, the gold stocks normally take off. You saw it in 2009. If that’s, that’s the normal pattern, that’s not the, that’s not the anomaly.

 

This is the anomaly. Over the last 12 months, gold is up 25%.  Do you know what gold stocks are up?  I would. Yeah.  25%. Yep. If you look at this year, it’s 16 percent on the, on the, on gold. It’s 60, 17 percent on the gold stocks. So you have this, and normally the gold stocks would be two, three, four times. So even in the first few months of a bull market.

 

So we have an incredible opportunity to buy great companies, very undervalued in a good environment and a good outlook before the bull market has even started. So I had Rick on the show maybe a month ago and it really coincides with what you just said. He said, Andy, this is really, I see the perfect time,  environment to be, become an investor.

 

And it sounds like you’re agreeing with that. No, absolutely. Because I mean, normally at the beginning of a market, especially for, it’s often the gold bugs of miss  for beginning of the market, because you’ve been hanging around for so long waiting and then suddenly you think you’ve missed it. We haven’t missed anything.

 

Yeah. So let’s talk about that is it’s again, it seems like, as you just mentioned in the summertime is usually we see a low or a softness in the gold stock market. And then your expectation then, and that, that would be my expectation, but I’m assuming your expectation would be in the fall going into the end of the year, we’ll have a lot of strength and possibly money come back into the sector.

 

I think, well, I think absolutely. But let me.  I think I think the softness will be more in the juniors. If you look at the senior gold stocks, you looked at the first quarter. We had very strong cash flows from most of the companies, a couple of companies like Barrick missed their guidance, but but frankly, they still had strong cash flows, but most of the companies had strong cash flow. 

 

The second quarter people haven’t really focused too much on this, but the second quarter average gold price 250 more  Average gold press in the first quarter. Remember, it was only in March that the gold press really took off. And so the average price in the first quarter was 2, 070. If the gold companies had such stunning, strong, let’s say strong, if they had such strong cash flow results in the first quarter, With gold at 2070 with the average selling price in the second quarter, 250 higher and with the oil price only marginally higher and costs in general, more or less flat.

 

Actually, they should have stunning cash flows in the  second quarter when they report. So I think I think a second quarter back to back of strong cash flows might might Start to attract the interest of some generalist investors might. Okay. So that leads me to really two different questions. Really good questions.

 

How would the average investor, what would you recommend them when they’re evaluating a stock? That’s number one. And the second question is, is there anybody here that you like, um, or that you’re looking at or considering or in the, you don’t even have to be here. What are you looking at?  Well, all right. 

 

I’m not a technical person. I’m not a geologist. I’m not a mining engineer. And so I look at companies maybe a little bit differently than say Brett Cook does or Joe Mazumda, people I admire, admire tremendously.  Have you had them on the show? Yeah. Joe, I’m having Joe on tomorrow. He’s following you. So, I mean, I really respect these people, but I’m not a geologist, so I have no edge in that.

 

But the way I analyze companies is first of all, they’re on the sheets. I want to know that a company has a strong enough balance sheet to have to see through their plans for the next 18 months minimum. And, uh, and also to protect them if things go wrong because things can always go wrong. A number. So an, an, an equal with balance sheet will be people.

 

People to me are critical. People are critical in any business. I mean, you look at Apple, you know, is it the largest or the second largest is it goes up and down, but It’s one of the largest companies in the world, but nobody can pretend that a single individual did not play an overwhelmingly dominant role in making that company what it is, right?

 

And that’s true of every company is true of Hong Kong Bank. For example, we used to own Hong Kong Bank when they used to, when they used to pick their CEOs from within people who had been at the company for 40 years and imbued  the culture of the company.  In fact, one of their CEOs actually started in the mail room, believe it or not, but he had, he was bright.

 

He had 40 years of experience with the culture when they started picking their CEOs from American investment bankers. That’s when the company went wrong. And so people are critical, even with large companies now with HSBC or with Nestle, which is one of my largest holdings. I don’t have the opportunity to, you know, uh, play chums with the CEO.

 

But, but the CEOs are critical with the gold mining companies. I think it’s true to say, I know every CEO in the business and some of them, I know very, very well in terms of dinner, lunch and as well mining trips. So people are critical people and balance sheets to me. Um,  I think the lower down the food chain you go, obviously the people become even more important because you’re normally relying on a single person,  right?

 

With many of the companies in the show here. It’s really one entrepreneur with good people backing him, but no one who could take his place.  Um, yeah, there’s a lot of companies here I like, both the seniors and the juniors. I mean, some of the seniors aren’t exhibiting, but they’re speaking. Sean Boyd, who, you know, 40 years at Agnico and the chairman emeritus right now.

 

I mean, Agnico is  such a good company. And in terms of people, they have a very, one of the things that really impresses me about, about, um, Agnico, even over Newmont Barrick, Franco, which I love, Wheaton, which I love, is they have a really strong depth of, of very, very strong people. So the new CEO that took over from, from Sean,  um, I won’t gobble his name, I’m sorry, but, uh, incredibly strong.

 

So Agnigo is a great company, great balance sheet, great assets, well diversified, great pipeline, strong jurisdictions, you know,  low, low political risk profile and so on. So that’s, that’s one of the seniors among the juniors. Um, oh my gosh,  I,  I prefer on an interview like this, or if I’m writing something for another publication, I prefer to, if I mentioned the company, I prefer to be a company. 

 

I’m not going to be embarrassed about a year from now. It’s not necessarily my best pick for right now, but you don’t want to pick something that in a month might change. And I have no way of  telling people. Um, I mean Altius is what a great company Altius, which is a royalty company diversified into,  uh, diversified across the commodity space, not just resources, but across the commodity space, including phosphate, for example.

 

So I’m a huge fan of royalty companies. Yeah. And Brian Dalton is such, he’s one of the smartest people in this business. Um, and, and you don’t necessarily, when you first meet him, I, well, this might sound rude. He doesn’t come across as a great intellectual, let’s say that, but, and I’m not trying to be rude.

 

He is one of the smartest, most insightful people in this business. And he, he, he has the same.  Great attribute that say Franco Nevada has had, which is to be a contrarian. Rick talks about in this business, you have to be a contrarian or you get slaughtered and too many. We know the big mistake in the mining business.

 

You know, when prices are high, people start going out buying assets. Brian Dalton, just like Franco has had periods of multi years when they’ve done nothing. But harvest and say, this is now a time to harvest. We’re not making new investments unless we’re looking, but we’re not making them unless something outstanding comes along.

 

This is a and and that is key in this business and it’s key for investors. Frankly, there are times to be harvesting and there that tends to be sewing and at times to be harvesting. Anyway, that’s one that and I think this is a good price. Is it a great great price? Probably not. But if you can buy What I think is a nail in stock.

 

I mean, it’s one just to keep, um, at this price. Um, I, I, I would definitely do it. And then origin is one I like a lot. That’s smaller. And I go from Altius to origin because they each have a royalty separate royalty, but they each have a royalty on Anglo Gold’s big discovery in Southern Nevada, the Silicon Merlin deposit.

 

Um, they each have a royalty. It’s a different royalty. I’m having Patty on. Oh, are you? Okay. Well, Patty’s a great guy. Um, and they have a 1 percent royalty on the silicone, which has grown. He’ll tell you it’s grown from essentially nothing when they acquired in 2020, I think it was, um, they acquired Renaissance, which had the ground, but it was, you know, a hope and Anglo has, has grown it to, um, Sorry, I don’t like using that as an intransitive verb.

 

But anyway, it’s grown, it has grown to 13. 2 million ounces right now. 13. 2 million ounces in Nevada. This is run by Anglo, you know, tier one jurisdiction, tier one, um, company and, uh, 13. 2 million ounces. Clicks all the boxes. Absolutely. And, and  I can say this, I don’t know if Paddy will, cause he’s got disclosure issues.

 

I think it’s going to get much, much bigger. Anglo, for example, they drilled a water hole north of the deposit. They didn’t even know there was mineralization. It was a water hole. They hid mineralization. They’re drilling out to the west where they know there’s mineralization. They haven’t even dug deep yet.

 

Though,  I would be surprised if there were not sulfites. Will they be economic? Who knows? But there’s going to be mineralization at depth. So this thing’s going to expand. Yeah. Excellent. Well, I want to get your, I want to get your thoughts real quick on, um, the rest of the year here. We got it. We had a very tight Fed.

 

They seem to be softening here. Um, what are your expectations going into the, obviously we don’t.  know exactly what the Fed is going to do. But if they do, if they do come out dovish, things could really get interesting in this sector. So yeah, what are you? Yeah, no, it’s, it’s interesting. I honestly thought they, they would have initiated the cut by now.

 

I wasn’t one of, I really wasn’t one of those who, you know, was, has been calling for cuts for the last three years. Um, like some of my friends, but this year I thought we would have seen the cut in, in, in March or June, to be honest with you.  I’m not. This is not original. The Fed really has a dilemma and there is no winning.

 

There is no winning. If they keep rates too tight, they risk the economy. They risk unemployment  and equally important. They risk the financial system because of the debt levels and and and that’s for that’s for absolutely to me. That’s the most critical thing. A normal recession we could tolerate. I mean, people who aren’t throwing out work, it’s tough for them.

 

But I mean, the, the economy can, can, can accommodate a normal recession. But when you’ve got, when you’ve got the interest rate on the federal debt, which is now the largest single item in the budget, that is a danger sign. We’re spending more on that than we are on, on Medicare, more on, on defense.  And we’re not even at the peak yet.

 

This higher for longer mantra, you know, they say, well, we don’t need to raise interest rates, just keep them higher for longer. But as, as time goes by, more debt is captured, is moved into higher interest rates. So for example, with the federal debt, um, Brown London just said that the average on all federal debt right now, the average payment is 3.

 

3%. Take, take a T bill, a T note that was issued in 2019.  It was less than two and a half percent, right? Right. They roll it over, uh, next month at five percent. Yeah.  So  that, that interest payment on the debt still has a long way up to go a long way up to go if they keep race where they are. And of course it’s not just the federal government, it’s commercial real estate, it’s corporations, a corporation that did the same thing and needs to just roll over that. 

 

Maybe they’re profitable paying, let’s say libel plus three.  For maybe they’re profitable paying paying 5 percent on their debt. But when it goes to April 9 percent on the debt, suddenly that becomes a problem. Yeah, and that applies to individuals and households, you know, the the car the used car that you bought eight years ago and has worked until now and you need to buy a new used car and you need to finance it.

 

You’re going to have to pay a lot more now than you did on that old pile of junk.  So it the longer we keep interest rates where they are The more and more people get into trouble. I haven’t asked you a question, have I? So that’s the dilemma. I mean, if, if, if I were Jerome Powell, which thank goodness I’m not,  um, that’s what I would be looking at.

 

And yet you start to cut rates. He knows full well that inflation is not under control yet. I mean, even with the latest numbers we’ve had that have come down a bit, 3. 6 on the CPI, 3. 3 for people who don’t need to use any power. Um,  it’s more than 50 percent above their, their own arbitrary target.  And let’s not forget 2 percent inflation.

 

If you could keep inflation at 2 percent forever, that’s not stable money. Right.  But of course, if you have it at 2%, it doesn’t stay there forever. But so, so even their own arbitrary target, they are missing miserably. And he knows that you look at oil price going from, what was it? 71.  Six weeks ago to 83.

 

Correct me on the numbers. I’m not an oil analyst. So you’re right. I mean, you look at that jump. Does anybody seriously think that rise in the price of oil is not going to feed into the price of goods in the stores? Every every good in the store  is transported.  It might be a short distance, it might be a long distance.

 

So that’s going to feed into Into the price of goods in the stores. So, um, you know, we’re only going to see the number. And of course, if you look at September, October, November last year, we had, we had low numbers, which means that the year on year comparison is going to look only worse. That doesn’t affect the reality, but it affects the newspaper headlines for three months when the year on year comparison has gone up.

 

So yeah, I, I think in us, well, let’s get back to your question. Sorry. In answer to your question, they truly have a dilemma.  Either way they go is bad.  I would be surprised, frankly, if they cut rates, unless they do it, um, They have a meeting this month, right?  Unless they do it this month,  unless they do it this month.

 

We don’t have one in August. I would be surprised if they do it two months before the election. That just, I know Powell says they never consider the election, but that’s, that’s just BS. Of course they think that. At the minimum, they know it’s there, right? Right, right, right. And they don’t want to be accused of political interference.

 

So cutting race for the first time, you know, two months before the election would, would be, would, would be controversial. Let’s put it that way. Yeah. So if they don’t do it this month, I think we have to wait till after the election. Yeah. It’s interesting. Uh, what is, What is that saying? What’s that saying is may you live in interesting times.

 

Yes.  That’s where we’re at. Adrian, if people want to do business with you, how do they find you? And what’s the best way to reach you? Uh, well the website is AdrianDay. com And that shows us, you know, the newsletter or the money management. Um, that’s probably the best way I can give, I can give an email. 

 

Assetmanagement at AdrianDay. com Excellent. I will put all of this in the show notes on both the YouTube channel as well as on Apple and Spotify. Adrian Day, it’s always a pleasure. It’s always a great talk when I talk with you. So thank you so much. Well, thank you, Andy. Thank you very much. You bet.

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