Once a decade, let’s go crazy

I hated my name when I was a teenager. I despised hearing “… What?” whenever I introduced myself, and didn’t like standing out during my formative years.

In fact, I abhorred “Boaz” so much, that when I spent a year in Edinburgh in my teens I took the opportunity to go by a completely different, and much more ordinary name. I still use that handle whenever I meet folks from back then for convenience, but eventually I just grew up and accepted reality and my actual name. Now, I actually like it.

But it seems that BlackRock, the £5 trillion asset management company, has begun to go through a similar phase as I did in my teens. Or at least, it’s begun to despise black rocks.

From a letter from Larry Fink, BlackRock’s CEO (emphasis his):

Climate change has become a defining factor in companies’ long-term prospects. Last September, when millions of people took to the streets to demand action on climate change, many of them emphasized the significant and lasting impact that it will have on economic growth and prosperity – a risk that markets to date have been slower to reflect. But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.

… because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself. In the near future – and sooner than most anticipate – there will be a significant reallocation of capital.

… In a letter to our clients today, BlackRock announced a number of initiatives to place sustainability at the center of our investment approach, including: making sustainability integral to portfolio construction and risk management; exiting investments that present a high sustainability-related risk, such as thermal coal producers; launching new investment products that screen fossil fuels; and strengthening our commitment to sustainability and transparency in our investment stewardship activities.

Coal is an interesting one. It’s despised by politicos, greenies, and mainstream financial types like Fink, and is one of the first things the term “climate change” or “global warming” bring to mind. Yet all of the above parties won’t bring themselves to criticise China’s taste for the black stuff, relying on it for 60% of its massive energy consumption.

China’s produces more Co2 emissions from burning that coal, than all the emissions produced by Europe, Africa, and Latin America combined – but apparently it’s the rest of the world’s job to give it up.

This contradictory mix of politically correct hatred makes me think coal is being undervalued, and that a strong rally will arrive at some point, to shrieks from the commentariat that can be heard for miles.

We saw yesterday how coal has been crushed in price. But the same is not so true of energy companies which use it. Uniper, an energy company that produces 30% of its output from coal, and is effectively a holding company that other energy companies have dumped their coal assets into, has almost trebled in value since 2016:

Source: Yahoo Finance

Ironically, it has just been cleared to open a new coal plant in the supposedly green land of Germany, which goes to show you how you should pay attention to reality and what’s actually happening, than what politicos like to say to look good.

I think we’ll see a rally in coal in the future, but we’ll leave it on the back burner for now – there are more urgent rallies to be attended to.

The Metallic Melt-up is here

We’ve been looking into commodities this week, those tangible assets which have been so shunned by investors in recent years. But in the metals space, prices have started to pick up. And in the niche metals space – prices have begun to explode.

In December last year, I made a prediction in The Fleet Street Letter Monthly Alert that platinum group metals were going to have a wild year, and specifically rhodium was going to explode in value.

It’s up more than 30% since January began, each ounce becoming $2,000 more valuable in a matter of days. This market has been wound so tight with supply so little, that when it goes, it goes.

It’s almost $8.5k per troy ounce at the time of writing – five times the value of gold. If this supply squeeze continues at this pace, that will put it in line to hit its all-time high of $10k in no time. To drive the point home, when I was writing the issue a month ago, it was less than $6k.

“Once a decade, let’s go crazy” is the rhodium investor’s motto. This thing trades more like a crypto than an inert metal:

Source: Bloomberg (green line is 200-day moving average)

And it’s not the only one.

Christmas appears to have come extremely early for me this year, as another of my predictions from that issue, that palladium would continue to soar, is also coming true in spectacular fashion:

The crypto community phrase “to the moon” comes to mind.

But what about the namesake of the platinum group metals?

Here’s Charlie Morris in his section of that December issue:

Hydrogen-powered EVs currently need an ounce of platinum in a fuel cell. This will likely fall to 0.3 ounces as efficiencies improve, but still, the platinum market will recover from diesel gate. The loss of confidence in the emissions tests caused the market to crash.

With platinum being a key component in the catalytic converter, the price slumped. Historically, you’d expect it to move in sync with gold, but since 2014, demand has waned. Hydrogen will see this change, especially since hydrogen-powered EVs solely emit water, making them idea for urban areas.

Naturally, vast infrastructure needs to be built to support the hydrogen economy, and some say it can’t be done. They probably said the same about petrol and broadband. It will happen, it will just take time.

Not only is platinum used in vehicles and various other medical and industrial uses, it is a precious metal. It is rarer than gold and has an even higher density at 21.45 as opposed to 19.3. The majority of production comes from Russia and South Africa. It is hard to find and difficult to extract using automation. The negative sentiment surrounding platinum will likely turn next year, boosted by demand for gold.

And lo and behold, just on Wednesday, platinum breaks out of a 12-year line of resistance:

Source: Otavio Costa, on Twitter