Rick Rule Election Mayhem and Gold: Protecting Your Wealth in Chaotic Times | Paradigm Press

Irrespective of the presidencies. Sadly, I believe that precious metals and precious metal stocks will do well for all the wrong reasons. I think that people need to buy gold to protect their purchasing power, which I think is declining much more rapidly than other people believe. Hi everyone. Welcome back to Paradigm Press’s YouTube channel. My name is Sean Ring. I am here tonight with a great friend of Paradigm Press. You’ve seen him before quite a few times. I’ve had the privilege of interviewing of at least three times already. Rick Rule, who is obviously one of the world’s great resource investors, co founder of Battle bank, mentor to wannabe mining investors like myself, and all around great guy.

Rick, thank you so much for coming on. How are you, Sean? I’m fine and I’m a big fan, as you know, of paradigm, so I’m delighted to assist in your information distribution in any way that I can. Well, thank you very much for that. As we went out of the green room, everybody, Rick and I just had a little bit of a good chuckle because our good friend Doug Hill, who is Paradigm’s executive vice president, number two in charge, asked me to ask a question to Rick. I’m going to rephrase it for Doug. I’m sorry, I’ll be having Doug in the meantime to kick off with gold because that’s pretty much front and center for everybody.

If we’re looking at gold versus the GDX and even the juniors, I guess from 2007 to now, they’re kind of flat. Over the last six months the juniors have actually underperformed the medal itself and the GDX has barely kept up with it. I’m just wondering what you expect over the next interval with gold versus the miners. Some of the people listening to this podcast will remember our last podcast where we went over this in a little bit of detail. Its worth pointing out that gold bull markets are generally led by the metal itself. The primary motivation for gold markets is fear.

And the fear buyer doesnt buy penny stocks, thats the greed buyer. In a typical bull market the market is led by the metal and the metal outperforms the shares as the metal continues to move and the narrative gains more credibility both with the gold community but more importantly with the generalist investment community. Leadership changes to the senior gold stocks. The increasing gold price over time increases the margin of the people who produce it. Not as fast as some people might suspect, because while inflation moves the gold prices, it also moves the cost of producing gold so there isn’t a lockstep increase in the margins and the earnings.

But over time, if the move in the commodity price is durable, that increase in the commodity prices shows up in the operating margins, which shows up in the earnings, which moves the senior gold stocks. When that momentum is established, momentum in the equities markets, the senior gold producers begin to outperform the intermediate producers in the market. And two things change. One, some people move downscale in anticipation of repeating the gains that they enjoyed with the seniors. And for those intermediate companies who don’t perform in the markets, the seniors take them over. There’s an arbitrage between those with a lower cost of capital and those with a higher cost of capital.

As the liquidity from those transactions and the confidence engendered by those transactions becomes more broadly appreciated in the market, market leadership goes lower and lower and lower in the sector. Now let’s turn that around. The GDXJ and the indexes that represent the canadian, pardon me, the global mining juniors are inherently risky. And I would go so far as to suggest as a whole, this is controversial, but as a whole, they are valueless. If you merged every junior mining company in the world into one company, we’ll call that junior explore company. You took those 3000 global public juniors, you made them into one company.

That company would lose about $2 billion a year in a good market. They would lose five or $6 billion a year in a different market. So one wonders, what is the index worth? Sean, how much do you pay to lose $2 billion a year? Do you pay six times losses? Do you pay twelve times losses? In a bull market, do you pay 15 times losses? Paradoxical, of course, that pessimism, the pessimism engendered by that math ignores the fact that 5% of those issuers, 5% of the 3000 public companies generate so much performance that they add legitimacy and sometimes luster to the whole sector.

Two lessons here. The juniors move last and don’t participate if you aren’t willing to do the work to separate the good, the bad from the ugly. If you buy the junior index and hold it for a decade, you absolutely, positively, without a doubt will lose money. If you go further up into the XAU, as an example. It doesn’t need to be this way. But what you will learn if you examine history is that in the period 2000 to 2010, when the gold price went up, effectively sevenfold, the free cash flow per share of the Xau declined.

Yeah, I remember you telling me that. That’s shocking. I mean, it’s disgusting. And again, that hides the outperformance of a subsector of the index. So I would argue that for most of your listeners, Sean, if they believe the gold price is going to go up, which I do, that they construct a portfolio around buying gold. If you think it’s gold that’s going to go up, buy gold if you are willing to do the work. It doesn’t take much work with the seniors to separate the good from the bad, from the ugly. Rather than buying the XAU, try to buy the five or six best seniors and I’ll name them in this interview if you aren’t.

I believe in a gold bull market. In fact, if you are nimble, that the XAU will do fine, which is to say, I don’t think that we’ve really entered a bull market yet. And if you own the index with a view to selling it fairly early in the bull market, you will do fine owning the index. How do you identify we’re in a gold bull market? I would argue that when the GDX, or in particular the GDXJ, the junior index, begins to outperform gold, when leadership changes from gold to what are in effect, gold derivatives, the gold equities, that we are finally and completely in a gold bull market.

After that, while gold can go much higher, there isn’t an argument that it’s cheap or a contrarian investment. In other words, when you are comfortable with the momentum, when you think you’re smart, begin to think about selling some and harvesting the gains. That indeed is great advice. And may I say, if you go to rural investment media folks, Rick will grade your mining picks for you free of charge. And I have participated in this and it has helped immensely. And thank you very much for that, by the way. It has moved my portfolio around. I really appreciate that.

It’s a pleasure, Sean. And I’ve graded somewhere between 80 and 100,000 portfolios in the last eight years, which is an amazing number. Yeah. But I have to say I’ve learned a lot grading the portfolios about how people invest. I’ve learned the things that people do right. I’ve learned the things that people do wrong. It’s been enormously beneficial to me as a teacher to have graded so many exams. I bet it has been a bit. It has been. That’s amazing. So one of the things that we also talked about the last time was right now, the holdings in the of gold in portfolios is about a half percent on average worldwide.

If we go back to the historical mean of 2% gold, should it affect forex itself? But now that gold is we’re already at all time highs. Really? So you think the best way to play this is just to be in gold itself, is that. I think that depends on who you are. I don’t think there’s a one size fits all answer to that. And I would contradict you on a couple statements. The first is we’re not at all time highs. We’re at nominal all time highs. If you adjust the dollar for purchasing power, it would appear that the price necessary in nominal dollars to be at a real all time high would be at something like 2850.

It’s important to understand that. It’s important to understand that the thesis for gold involves the deterioration, the purchasing power of the dollar. If we measure the dollar in gold terms going back to 1970, the dollar has already lost 98% of its value. That’s the argument for owning gold and carrying that forward. When people say to me they’re impatient, they want an Nvidia type move in gold. When they say, rick, when is gold going to move? They say, well, two answers to that. Either 1970, it’s up from dollar 35 to dollar 2500. More recently, the year 2000.

Gold in the year 2000 was at $250 an ounce. Now it’s at 2500. That’s a pretty good move, you know, tenfold. It’s moved up about 8.5% a year. Compounded. It’s done its job. Now, I’m not trying to say that the gold move won’t go parabolic. It might. What I’m trying to say is that people understand, first of all, why they own gold, that most of the gold in one’s holdings should be in the liquidity insurance bucket. If in addition, you want to hold some in a speculative bucket, I get it. But understand it’s not inherently a speculative asset.

It’s inherently an insurance asset. I think it’s important to understand that. The second thing is that the number that you talked about, the market share of precious metals and precious metals related securities, is at one half of 1% of total investable assets in the United States. The global percentage is about 1%, possibly because most of the rest of the world doesn’t have as many investment alternatives as the United States has. The four decade mean market share in the US is 2%. So if we had reversion to mean in the us market, which, by the way, I believe we will, I in fact believe we’ll overshoot it.

But for our purposes, we could be conservative in our assumptions. That means that demand for precious metals and precious metals related to securities in the biggest savings market in the world would grow fourfold. I have no idea what a fourfold increase in demand would do to the gold price. Remember that prices are set on the margin. A fourfold increase in the gold price might have a truly stupid impact on the gold price. I don’t know. I don’t think that people ought to be buying gold itself in anticipation of a j curve. I think that people need to buy gold to protect their purchasing power, which I think is declining much more rapidly than other people believe.

Yes, we talked about that CPI not including the cost of borrowing or taxes or all those things that are so important. But if we can jump to politics. I know you reminded me many times that you’re a credit analyst and, you know, yeah, you don’t care about this stuff, but Trump and Harris, I mean, it’s. It’s going to be interesting either way. I know. Every time I say it, my head just starts swiveling as well. How do you think gold reacts one way or the other? Or does it not move at all? Is it going to be so inflationary that I think in the very near term presidency would be better for the gold price than a Trump presidency? I remember when Clinton was elected, all the country club republicans freaked out, figured out the world, figured the world was going to go to hell in a handbasket, and for about six weeks they bought gold.

Ultimately, what matters is concern by savers about the maintenance of their purchasing power in us dollars. Trump will be bad for the budget. Harris will be bad for the budget. Kennedy would have been bad for the budget. None of the three stooges will be good for the budget. And I’m sorry to be a sloganeer, but as Menken said, elections are always advanced auctions of stolen property. The purpose of politics is to steal from one group in society and give to another group. The part of society that’s always stolen from are the unborn. That’s just the way it works.

So neither Trump nor Harris have any sense that they’re going to cut government expenditures. None of them are going to be good for the budget in the way that Sean rings family would be good if their expenses began to exceed their income. You would do something rationale, you change your lifestyle. That’s not what governments do. So irrespective of the presidencies, sadly, I believe that precious metals and precious metal stocks will do well for all the wrong reasons. Fair call. Fair call. If we could just turn our attention for a second. Another great question in here about uranium, because uranium is kind of falling by the wayside.

But my good friend Matt Inslee said, when will AI electricity demand take uranium to the next level? Is there a next level for there? Are there any catalysts you see for another big run up in uranium? The Agora subscriber, including the paradigm subscriber, is a high net worth western citizen. And so AI and the marginal increases in demand from rich white folks in the west is important to us. We need to look at electricity demand on a global basis. Sean, a billion people on earth, many of whom Matt doesn’t come in contact with, have no access to primary electricity.

Another 2 billion people on earth have access to intermittent or expensive electricity. The big power driver for the next 20 years will be the expanding utilization of electricity across the demographic spectrum. AI will be important. Electric vehicles will be important. Of course, the energy price itself will moderate demand. If the price of energy gets too high relative to the value generated by AI, I would ask Matt to understand that AI is the icing on the cake as opposed to the cake itself. If AI were to fail in November, the case for increased energy consumption and for the need for more inexpensive, baseload, non carbon generating electricity is unchanged.

AI takes it from good to perhaps super good or some other copywriter’s adjective. But even in the failure of AI, this is baked in the cake. The ascent of the material well being of humankind has gone on with challenges occasionally for 6000 years, and not even Trump or Harris can derail it. I like that positivity and optimism. That’s fantastic. I guess I wrap up with one last question again. I know that you’re not a fan of any of the above. I think you might even perhaps write it Ron Paul for this election. But do you have a number one election trade that you’re putting on? Any sort of Volga or anything like that? No, Sean, I have learned it’s ironic at age 71.

At age 71, I’m much more patient than I was when I was 21 and I had a lot of time left on earth. Not because I don’t want immediate gratification, but because 50 years of investment experience has told me that those are your irrational expectations. So many people that you and I know, Sean, are correct about long term trends. They’re correct about narrative, but they implement a three month or four month strategy. If you are operating around a five year paradigm and you attempt to affect a three month strategy, it doesn’t make a lot of sense.

I believe that the upcoming election is between Tweedledum and Tweedledummer. I believe that despite them, life will go on and that those people who adapt themselves to circumstance and add value in their jobs or their careers will do fine. I believe that the divisions of society in society, between those who have the experience to generate utility for others who will do well, and those who don’t have the experience or the education to add value for others in society who will do poorly. I believe that that chasm will continue to grow. And I don’t think that there’s anything that Trump or Harris can do in the near term to increase the utility to others of human beings that don’t currently have the ability to do that, which I think is tragic, but I think it’s real.

The consequence of that is that irrespective of political narrative, I tend to look at arithmetic, facts, things like the fact that the global economy probably grows at 1.8% to 2% gdp a year for a very long time, that underlying electricity demand and energy demand continues to grow despite the fact that the big thinkers don’t like hydrocarbons, that most of the world, when they turn the ignition switch on their car, would like the car to start. Most of the people who walk into a room and hit a toggle switch want the lights to come on. That means that irrespective of who the candidate is, if you have a five year vision, as an example, hydrocarbons, oil, despite the fact that it’s politically incorrect, will do well.

Power generation will do well, irrespective of who the candidate is. If I may, I was going to wrap it up, but you brought up oil. And we have been sitting in the editorial slack channel, kind of spitballing back and forth. We’re trading around 75, $80. It’s been for a long, long time. Some of us are like, well, it’s because the United States is producing so much oil that it’s oversupplied the planet. And for me, and I’ll say this out loud, you know, I’m like, man, if we were on any other timeline, and I told you there’s a war going on in the Middle East, a war going on in the Ukraine, you know, saber rattling in Taiwan, a bunch of Houthis shooting down US Navy drones and stuff like that, oil be traded 100, 5200 bucks, probably, but it’s not doing that.

Do you have any insight on, on that, in terms of why oil is just kind of found its sweet spot at $75? Well, a couple things. The first is that the russian sanctions didn’t work. Oil is fungible. So we used to ship russian oil, a whole bunch of places including to the United States. It isn’t getting shipped there. It’s getting shipped to India, where it’s getting turned into gasoline. And indian gasoline is finding it around the world. Russian oil that used to go to places like Germany and Great Britain now goes to China. And oil from other places like Nigeria that used to go to China are going to Britain and Germany.

So the sanctions are political theater. They’re just political theater. The second thing is what you pointed out. There have been tremendous advances in oil field technology, mostly in the United States and Canada. And the United States went from being the largest oil importer in the world to being an oil exporter. Our production after 15 years of peak oil has doubled. And we need to work through that. And by the way, we are working through it. It is estimated that the oil industry worldwide, including the state sponsored oil companies, PETA, Vesa, PMEX, people like that are under investing in sustaining capital to the tune of about a billion dollars a day.

That doesn’t get felt in three months or six months. And the over investment, the people that are making sustaining capital investments or new capital investments are almost exclusively located in the United States and Canada. What that means is that two or three years from now the ability of these other entities to maintain production at current levels is constrained by historic underinvestment. If you look at the long term impact of that, both Pettivesa and PMEX have reduced their productive capacity by 80 and 65% respectively over the last 15 years. Actions have consequences if they follow the oil and gas theme has to pay attention to companies that are maintaining sustaining capital investments which are not always the ones with the highest dividends.

If you are paying out all of your free cash flow to your shareholders, what you’re doing is cannibalizing the capital of the business which constrains your ability to produce in the future. That does two things. Declining competitive production keeps the oil, quote, relatively high. I mean, that’s just sort of the way you have to look at it. The other note that I have to make, Sean, for investors is that north american natural gas is anomalously cheap. North american natural gas is produced as a byproduct of oil drilling. In large measure, oil production has doubled. Gas production has increased, and it’s free in the permian basin.

I mean, they even burn it at the wellhead. They flare it. So natural gas that sells at the Alberta gate Aco for a buck and a half or at Henry Hub for $2 per million Btu. That same gas landed in Seoul or shanghai or Tokyo or Frankfurt or Rotterdam, sells for $8. It costs, in round numbers, a buck and a half to get it from the wellhead to those ports. There’s a six dollar per million Btu. Well, but differently, there’s a four and a half dollar, five per million Btu arbitrage there. Billions of dollars are being spent shrinking that arbitrage.

The european fertilizer and petrochemical market is relocating from Germany to the US Gulf coast as we speak. Billions of dollars of gathering and transmission liquefaction, infrastructure being built, that gap, call it a 3.5 to eight. So a four and a half dollar arbitrage will disappear over the next five years, and most of that will inure to the benefit of North America natural gas producers, who are currently dirt cheap. So as an investment idea for those people who believe that they’ll still be on earth five years from now, I, at 71, happened to be one of those.

If you can take the volatility, and by the way, take the public hate involved in being involved in the oil and gas business, these are no brainers. That’s amazing. And I guess, again, I want to stop. But just one more thing, because I live in Europe, and I just noticed on Bloomberg, they were showing that Thyssenkrupp now is trading at a negative enterprise value. Germany is completely de industrializing as we speak. We take things easy on this side of the alps, but it seems like Europe is falling apart because of, like you said, the sanctions don’t work anyway for Russia.

Do you see any way out of this for Europe, other than going, all right, we’ve had enough, uncle. No more. We got to cut a deal. I think you’re talking about with the Russians. I can’t believe we were stupid enough to go to war to begin with. And my hope is that western society and russian society imposes checks on the morons who run both blocs. I’m inclined to believe that Putin is a smart guy, and I’m inclined to believe that if he was offered a way out that was consistent with some part of his vision for Russia, I hope that a deal could be made.

The deindustrialization of Europe, that’s going to require more economic hardships for Europeans. Europeans believe that they’re rich enough that they can substitute high quality nuclear power as an example for solar power in Germany, where the sun doesn’t shine ever. Yeah, somebody’s going to have to work through the legacy of Angela Merkel and all of the big thinkers in Brussels who’ve worked so hard to destroy Europe. Unfortunately, they’ve destroyed Europe with the concurrence of Europeans, much as the United States is being destroyed at the, at the insistence of american voters. Incredible stuff. Incredible stuff. All you can do is look after yourself and your family.

You know, too often I talk to people and they get so depressed, you know, they say, I can’t succeed, Trump is going to be president, or, I can’t succeed. Biden’s going to be president. Neither Trump or Biden know you existed. Succeed despite them, or in my case, in spite of them, and you succeed by being good enough at your work that you generate more utility for other people and you consume yourself. The delta between what you produce and what you consume is called savings. And after you have saved, you hopefully invest it wisely or speculate aggressively and perhaps foolishly, and you take care of yourself.

Reliance on the commonwealth is idiocy. We have come to rely on society. We have come to believe that we have rights to wealth that we didn’t cause to occur. And other people who have, in fact, created wealth believe in some fashion that they have a requirement to subsidize the lifestyles of others, which is stupid. They became wealthy by generating more utility than they consumed. The rich have already demonstrated they’re generous by becoming rich. And, you know, it sounds harsh, but individuals need to learn that they need to take care of their customers, themselves, and their families.

If that happens, everything else falls into place very, very nicely. Yes, indeed. Indeed. Those are wise words. Let me leave the last words with you, though, because we often talk about battle bank and rule investment media. What’s next on the menu for Rick? Rule. More of that. The first time we talked, I said that I didn’t know what rule investment media was going to be when it grew up, that I wanted to form an educational channel so that I wouldn’t have to write a book. Rule investment media is now solidly profitable. We do four deep dive boot camps a year into various aspects of natural resource investing.

We charge for them, much like you charge for newsletters. We have a great built in audience. We give great value for money, and we make good money. We also do an annual conference, which you should come to, which, again, is solidly profitable. So that business is sort of on autopilot where we go from here. I think in that business, we’ve got about 82,000 double opt in subscribers, and I think where we go is applied knowledge. You’re familiar with the television program Shark Tank. We want to emulate Shark Tank, where we have public natural resource companies come online for two and a half hours, spend 20 minutes giving the corporate overview and presentation and then subject themselves to an hour of Q and A, real Q and A, not advertising Q and a, real Q and a conducted by a panel led by myself.

And then we open up the process to all of the investors who care to be on the call. One of the most enjoyable aspects of being an investor myself is going and listening to corporate presentations and asking them questions. It’s interesting, it’s exciting, and I want to open up the ability to participate in this process to as many of my customers as want to participate in it. And that’s the thrust at rural investment media with regards to battle bank. We have fought it out with the FDIC for a very long time. Our current strategy is to acquire an existing small bank.

I didn’t want to do that because I didn’t to pay attention a premium to tangible book. But there is a time value of money. We’re fairly well advanced. I can say that because nobody can trade on that information. We expect to be able to announce something for those of your listeners who aren’t familiar with battle bank if they remember back to a very popular bank with Agora subscribers called Everbank. Same people, same idea. Online bank, no branches, much lower cost structure pay you interest on all your savings, including those in your checking account. Constructing iras that can own llcs which can invest in real estate.

In other words, structuring iras that are your iras, not Fidelity’s iras or Merrill Lynch’s iras. And importantly for your subscribers, if people want lending money against their holdings of physical gold, silver and platinum and palladium, the idea that no other bank in the United States seems to believe that gold is good collateral is amazing and delightful for me. And I propose to address that market failing myself. So any of your listeners who aren’t happy with their current bank, I suspect that probably means all of them. Any of them who believe that they ought to be paid market rate interest on their savings should check out Battlebank.com or go to rural investment media.

List your natural Resource stocks. I’ll rank them for free. That’s realinvestmentmedia.com. and in the question and comment section, just write bank and I’ll send you the information on battle bank. Fantastic folks. I can’t encourage you to do that. Enough. Rick does reply, and he does great it himself. It is fantastic just to learn, in fact, on my own, learn how badly I was doing it. I need to say my rankings are very hard. If you look at the fact that between mining and oil and gas, there’s probably 3500 public companies in the world. I grade 700 of them.

The ones that I don’t think are worth grading are the ones that populate the lower stretches of that one to ten thing. So if you see a five, a mid range ranking, understand that’s mid range of the 700 who have survived the sieve. The other thing is, understand that the ranking is a snapshot in time. That information isn’t timeless. Something could change with the company positively or negatively. Next month. I would change the ranking and you wouldn’t know. So don’t rely on a ranking that you received in February as being accurate today. That’s good. I’m going to resend my stuff.

By the way, interestingly, our picks from the Las Vegas conference, you are leading with origin royalties. I am right behind you with Palantir, but you’re pulling away now. I’ll prematurely congratulate you on that. I don’t know enough about Palantir to comment. I’m delighted with the share price escalation at origin, and I believe it continues. Yeah, that’s great. I belatedly took your advice on that. I’m very pleased with it. Thank you for that. Rick, again, always a pleasure to talk to you. Thank you so much for sharing your wisdom and all of your generosity is just overwhelming.

I’m thrilled to spend time with you, even though it’s very early. Your time on the west coast, I imagine. Well, I look forward to seeing you in the flesh somewhere sometime. And thank you for allowing me, through you to address the paradigm community. Our pleasure, everyone. Rick, rule, definitely head to rule investment media. It’s fantastic. And sign up for battle bank if you haven’t already. It’s available to us and canadian customers and I think british as well. I’m going to try to sneak in there with that. Thank you again for joining us and we’ll see you soon.
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