General Market Commentary
General Market Commentary
How This Resource “Insider” Is Positioning Now
Publisher’s Note: Below, you’ll find the most prescient interview I’ve read of late about the current state of the resource markets. It’s between my partner, Gerardo Del Real, and our mentor, Jeff Phillips. Jeff is a strategic investor and consultant in the space, and has seen several cycles before. If you’re wondering what to do with your resource positions, have lost money recently, or are wondering where the bottom is… the following 2,000 words of advice couldn’t come at a better time. Lots of high-net-worth investors and companies would pay a shiny penny for these insights. Around here, because of the significant skin we have in the game, it’s just Wednesday.
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me once again is one of the best contrarian speculators in the resource space, among other sectors — Mr. Jeff Phillips. Jeff, great to have you on again. I've gotten some incredible feedback from our conversations. How are you doing?
Jeff Phillips: I'm doing great, Gerardo. How are you today?
Gerardo Del Real: I am very well. Thank you so much for asking. We're definitely living in interesting times. And interesting times aside, the markets are most definitely interesting. And so, as someone that has seen multiple bear and bull cycles, right, you've seen the dot-com fever, then you saw the dot-com bust. You were there for 2008, 2010, the rare earths craze.
I could go on… but you've seen these types of cycles in the past. And I wanted to get your take on the overall indices and the recent pullback, which you cautioned about the last time that we spoke. What are your thoughts? You think we’re headed lower… you think we’re headed higher? And then, obviously, I'm going to ask you how you protect against that.
Jeff Phillips: Well, Gerardo, I like to say, ‘I'm not a pessimist, I'm an optimist with experience!’ As you and I discussed before… I'm going to be slightly upset no matter what happens because I have a healthy cash position right now, which is going to do well if the markets keep going down even with inflation because I can buy things.
I think the markets are falling faster than inflation is going up. And then also, on the other side, if the markets rebound, I suspect the resource sector will do well. We have a liquidity problem to the point where people are looking to sell whatever they can. Whether that be gold or tech stocks or large caps or whatever… people are starting to want to raise some capital. So you have a liquidity problem.
But if I'm wrong and the markets take off, or the Federal Reserve reverses course and pumps another $6 trillion into the economy, I'll do very well in the resource sector because I think that leads to hyperinflation. But I don't know what they're going to do. If they stay the course and continue to raise interest rates, the market is going to have a hard time the rest of this year. I suspect we probably aren't near the lows yet. And again, I'll be happy that I have lots of cash but I'll be slightly upset that I could've bought some of these stocks cheaper.
Gerardo Del Real: Let's talk about that cash position. You've been very vocal with me… I’ve made no secret that you've been very generous with your time and in helping to pull the curtain back on a lot of the inner workings of the markets, thereby expediting my learning curve. And I'm thankful for that. But you've always been very vocal to me about the importance of having a cash position so that, regardless of which way the market goes, you're in a position to benefit from it. And you touched on that just now.
But can you just speak to that a bit more for someone that's maybe newer to the resource space or the stock market in general and has some trepidation about stepping in and buying the lows? It's a fear and greed market, and we know that a good bulk of the money that's made is made when everybody's selling. But that's also really hard to do. It's why it's called being a contrarian, right?
Jeff Phillips: Yeah, it's very hard no matter how many cycles you've seen. And I love hearing people say, ‘I called this right, I did this right!’ Unless you're incredibly lucky, you never call everything right. And again, when things sell off, we all feel that fear. And then, when the market goes up for a day, everyone thinks, ‘Oh, gee, I'm going to miss out!’ So there's plenty of articles written for new investors.
I mean, the simple fact is that averaging in the market over time, depending on your age, is a good deal. But every decade or so, you have a market that really cuts into people's portfolios. And the bull market we just witnessed expanded faster than any market I've ever seen. We've seen a huge amount of money pumped into the system. We’ve seen interest rates at the lowest level ever… and ever is a long time, as you like to say.
Really, this has gone on for 20 years since the dot-com bubble. If you look at the federal debt and the out-of-control money printing… I mean, they talk about inflation. Well, inflation is the increase of the money supply, period. That's what inflation is. So that's been going on for 20 years. What you're seeing people talk about now is price inflation, which is things that they buy. I mean, there's always price inflation… we've had inflation for 20 years… we've had asset price inflation. It’s just at a much higher level now.
So I suspect when this does end, it's going to be a lot worse than what we've seen so far. I don't think they can keep giving more medicine to the patient before the patient has problems. And I think we're at that point. The Fed is intent on raising interest rates, and we'll see if they stick to that. And I think that makes for a difficult market for the next six or so months.
Gerardo Del Real: So I know you don't give personal financial advice but what is Jeff Phillips buying right now or what looks attractive right now? Specifically, in the resource space, which is my bread and butter and where I've been fortunate enough to speculate for the past 13, 14 years now.
Jeff Phillips: That's a difficult one. I've not been buying a lot lately. I own some very large positions in a dozen or so companies that I consult for. I've sold off most everything else I own. I do a lot of private placements as you know. As for the companies I consult for, I really like the assets and their long-term plays for the next bull cycle. I’ve bought additional shares in a few of those lately.
But really, I'm looking at this summer to be a time to be able to buy some size and quantity. I think there'll be more panic selling. Nothing to do with the underlying companies — just the liquidity needs of people. And I'm happy to help them with that on the other side. So I don't think you need to be in a rush necessarily to buy resource stocks right now especially if you have some solid positions in companies with great assets.
If you look at the dot-com bust of 2000… I think the market bottomed in 2001 or '02. Then, starting in '03, we had one of the best resource markets that I've ever seen where making 10X your money was somewhat expected. Later, coming out of the real estate crisis or the little depression or whatever you want to call it, we had one of the best resource markets in '09, '10 and the first half of 2011.
Again, it was fairly easy to make a lot of money in the resource sector. I joke that you only make money in the resource sector a couple years out of every decade. The rest of the time, you're questioning why you're in it! So right now, I think we're coming to that time where we'll see a lot of investment in the resource sector when liquidity finally settles down. But again, I think the markets are going lower.
But if I'm wrong, I have large positions in a select number of quality resource stocks. And one of my mentors, Jim Dines, a dear friend of mine who passed away earlier this year, had a saying that I loved, ‘Rich or poor, it's good to have cash.’ And another one I like is, ‘The market can remain irrational far longer than I can remain solvent.’ And that basically means don't over leverage oneself.
So again, there are buying opportunities. But it all depends on the individual. Leverage isn't a good thing when leverage starts to unwind… so you want to have cash. Everyone's different. My plan is to start picking away. We're coming into June… I think there's going to be some great buys and some funds having to sell this summer. So I'll be adding to my large positions and probably starting a few new positions. I'm happy to talk to you about that when I start doing that.
Gerardo Del Real: I'm looking forward to that. I think the message today was loud and clear. Be careful with leverage. Don't do it. Have a healthy cash position. And it's a fear and greed market, right? And you think we're still in the fear part of it.
Jeff Phillips: Yeah, and again, I still think there's some great resource stocks. There are tons of good gold deposits and some copper assets that are extremely cheap right now. For those that are flush with cash, I'd start picking away at those resource stocks now because I don't know that the markets are definitely going lower. I know these things are cheap. And I know that in the next few years, they're going to be a lot higher. But if you're trying to call a bottom, that's pretty difficult.
So again, there are companies that are selling very inexpensively. And if you have the cash and aren't going to deplete your entire cash position, there are buys out there. So we can talk about that next time.
Gerardo Del Real: I'd love to. You mentioned Mr. Dines, who passed recently, and I know he was a mentor to you. You've always been very clear in explaining that you have to have the right timeline, especially in the high-risk, high-reward resource sector in order to see the type of gains that make this kind of risk worth taking, right?
Let's get some names next time. Can you speak to that last point that I just referenced that you've made to me many, many times? It's… you have to be able to stay in the game in order to be able to see the upside. If not, it's not worth getting in and taking the kind of risk that comes with these stocks, right?
Jeff Phillips: Yes, you should be happy if you really like a company and believe in the asset and the management team. If it gets cheaper, it's on sale; you get to buy more cheaper. I'm not that worried about companies that I own that are down.
You and I both know, I won't name names right now, but we've recently had a lithium discovery in a company, and the stock has gone up tenfold in the last five months. And another company that I'm involved with, it just made what appears to be another lithium discovery. And we're not sure what that is yet, but I've owned that company for eight years. And now, all of a sudden, I'm up in the position. If it turns out to be what I think it is, it could be a tenfold return. So you just have to be patient.
And the point is, in the resource sector, most everybody is not really trying to build a mine. They're mining shares. It's a game of people selling shares. And a lot of these deal structures are set up for the insiders and the family and friends, and you really have to be careful with that. Because if a company doesn't make it through a down cycle and they restructure, you're not in the game anymore. You've been diluted.
So I tend to buy companies that I know management teams have been through cycles and are going to do what's best for shareholders. So I don't mind buying the stocks as other people panic or as the markets have a liquidity crunch. It's really important to have patience and belief in what you're invested in.
Gerardo Del Real: Lithium has been kind to us here recently. I suspect that's a trend that’ll continue to be favorable. I would love to have you back on in the next couple of weeks, Jeff, to touch on some of those names and speculations that you see as bargains and/or emerging potentially significant lithium discoveries that you think still may have some room to run. Thank you as always, Jeff. Appreciate the time.
Jeff Phillips: Thank you, Gerardo.
Call it like you see it,