[00:03:22] Tavi Costa: I don’t think that the bottom line analysis was a big deal. And then the other thing I would say is given the fact that we’ve been in a 30 year declining kind of inflationary environment where disinflation has been the case for many decades, we are also not, we’ve been in a very globalized world, peaceful, not, not a lot of issues.

[00:03:43] Tavi Costa: The problems we had in terms of wars were really a big country versus a smaller economy. Nothing of the case of of, you know, us and China starting to heat up some issues and things that we saw back in the forties and the seventies and the 1930s and the [00:04:00] 1910s. This is very similar to those decades and so we’re at the beginning of a deglobalize world, which will disrupt completely the supply chains and, and how countries trade with each other.

[00:04:12] Tavi Costa: Partnerships and b, balance of powers and countries that have, there are commodity exporters are probably going to be more in a better environment versus commodities importers that will probably have some issue. And so we have to think about that on a macro level today in order to be a successful investor.

[00:04:29] Tavi Costa: But there’s still going to be a lot of opportunities. But opportunities change. So the last 10 years, the, the, you know, the investment approaches that worked in the last 10 years are probably not going to work in the following 10 years. I e the growth investing approach of, you know, really looking for companies that are completely focused on top line metrics and ignoring really the bottom line side of it, which is profitability.

[00:04:54] Tavi Costa: I think that’s about a change. And the same goes in a larger scale for countries and so [00:05:00] forth. And so, yeah, I do think understanding of the macro backdrop will drive better decisions for investors over time, especially in this decade that we’re entering, which I think it’s an inflationary decade.

[00:05:12] Tavi Costa: That’s so 

[00:05:12] Rebecca Hotsko: interesting because it seems like no matter which guest I bring on at this point, everyone kind of talks about those same points where we’re heading to this deglobalize world. We’re going to have to go back to fundamental analysis and do things differently over this next decade. And that was one thing that I wanted to ask you, because I had a guest on Louie gov and he said that we aren’t going to be able to invest the same way that we did last year.

[00:05:37] Rebecca Hotsko: It’s a new bull. And so what worked in the previous bull market isn’t going to be what worked in this one. And so I was going to ask you which segments of the market do you think are left in the last bull run? But you kind of answered that then. The growth stocks you believe are going to be kind of left in the past?

[00:05:55] Tavi Costa: I think so. I think there’s going to be some growth stocks to my do. Okay. Like to [00:06:00] biotechnology businesses and so. So I don’t want to be so stubbornly, I dunno, ignoring some of some parts of the markets that I think will still attract capital in general, in attention. I think biotechnology inevitably will attract that as well.

[00:06:16] Tavi Costa: I’ve invested in biotechnology companies in and out. Like it’s not a a, a percentage, a large, in significant percentage of craske at all. In fact, right? As of today, we’re not invested in. However, I do think that that’s one side of the growth and you know, there are going to be other opportunities that, that is not to say that technology is not going to continue to advance.

[00:06:37] Tavi Costa: We will see that continuing to advance. Just like we saw commodities market. The commodities industry is still alive. It’s just they didn’t attract capital. So it was a very, and we’ve been in the winter for the last decades and, and now that is shifting. So the opportu. Are probably going to be yes in more what some folks would think.

[00:06:55] Tavi Costa: It’s maybe more boring types of businesses. But I do think that natural [00:07:00] resources is, is we’re going to find most of the opportunities. And when I look at the commodities space right now, I do think that given the fact that how precious models have really lagged the commodities market in the last two. I think that that’s going to be leading the way here in the next 12 months or so.

[00:07:16] Tavi Costa: I think we’ve probably bought ’em in that market and it’s probably going to lead the way to the upside. But there are opportunities in every part of that market, and I’m happy to explain why later on. 

[00:07:25] Rebecca Hotsko: I do want to get into the opportunities that you see in the commodity space, because when we talk about commodities, there’s so many different commodities we can invest in.

[00:07:36] Rebecca Hotsko: And so for our listeners who are maybe new to commodity investing, where do you see the greatest opportunities going forward? And then why? 

[00:07:45] Tavi Costa: First of all, it starts with, yes, there’s a capital trend of a declining CapEx in the overall market for natural resources, but also a under allocation of capital into the largest funds and, and capital [00:08:00] allocators in the world have really underallocated into commodity businesses in general.

[00:08:05] Tavi Costa: And so now we’re seeing also on top of that, along with the capital trends, there’s a labor trends, there’s a secular decline of interest in geosciences in general, which is related to geologists and so forth. And so there is a lack of folks that I really know how to navigate the space of commodity and businesses in general.

[00:08:25] Tavi Costa: And so it is also causing a problem of lack of discoveries of those natural resources and. That is a big problem in general because it creates this, this scarcity of, of raw materials that we’re having and really I think it’s a long-term problem. In my opinion, the issue of this capital and labor trend in tandem being a problem for this market is creating a lot of inefficiencies in different parts of the market.

[00:08:53] Tavi Costa: So there’s pockets of the commodity space that look very attractive. I think that the mining space is probably [00:09:00] the one given the fact that the cycle, it has a, a longer length than other cycles, and that is mostly because of the nature of the business. The nature of the mining cycle, usually it takes you a very long time to go from acquiring a property to finding a, to actually having a discovery, to then developing a mine and then going into production.

[00:09:20] Tavi Costa: That process can take between 10 and 15 years, depending on the. And that is really because of the timing for not only developing itself, the mine, not only finding the difficulties and the challenges to finding the, those discoveries, but also to get the approvals from governments and other institutions to be able to develop those projects.

[00:09:41] Tavi Costa: And so the cycle of them tends to uh, tend to be a lot. And so it creates a lot of opportunities in some parts of that business cycle. I think that the mining space is what is the most attractive one, and, and that is really because not only prices are, I think, mismatched relative to where the fundamentals [00:10:00] are.

[00:10:00] Tavi Costa: But also we’re seeing companies today with incredible discoveries that are being priced as, as they as, they don’t have any discoveries right now, or companies that are onto discoveries. Most likely in terms of probabilities. They have found very interesting, intersects through drill holes and so forth, and are not being priced accordingly.

[00:10:20] Tavi Costa: And so there are a lot of opportunities like that, which I find it very attractive as an investor. On the energy space is a little bit different, the energy space. We’ve had a two back to back years of incredible performances too. So 2021 was the best performance for exploration and production companies in the energy space in 30 years.

[00:10:41] Tavi Costa: And then 2022 we’re beating 2021. And so the question the bags is, well, can we have a 30 year like, And the answer is it’s more difficult. But in the seventies, we did see energy go up three, four or five years in a row. I wouldn’t bet against it. I don’t think it’s a [00:11:00] position question, it’s a sizing question.

[00:11:01] Tavi Costa: So I, we’ve been sizing that differently. Now, energy is a smaller portion, but there are a lot of companies that trade a very attractive multiples. And then lastly, there’s, we touched on uranium before starting to record this. Uranium sounds, you know, it’s another interesting part of the market, and agricultural commodities to me is even more interesting.

[00:11:21] Tavi Costa: But the cycle is a lot shorter, shorter than energy as well, because it, it’s a lot quicker for you to get supply under control relative to other parts of the commodity business. Those are also very attractive. They’re also selling a very cheap multiples in general. It’s really a basket of commodities that we hold at K Sket.

[00:11:39] Tavi Costa: So we hold a lot of mining stocks along with some energy, along with some agricultural, and then we have a space for little bit of uranium and some other countries that we believe are going to benefit from this environment. Which one of them is. Hey, 

[00:11:53] Rebecca Hotsko: I have a number of things I want to cover with you that you just highlighted there.

[00:11:57] Rebecca Hotsko: First, I think I want to talk about the [00:12:00] position sizing because for investors who maybe follow like an all weather approach to investing, or just think about commodities in terms of them being a diversifier or a hedge against inflation, it’s only typically weighted a very small portion of your total portfolio.

[00:12:15] Rebecca Hotsko: But with the context of perhaps being in a persistently high inflationary period and hard assets may be viewed differently, should we be thinking of weighting our commodities differently in terms of our total portfolio? 

[00:12:30] Tavi Costa: I don’t know if I suggest what I’m doing to everybody else, but what I’m doing is essentially I have long positions and short positions and the chart that really, I think it was the most relevant one for positioning was the commodities to equity ratio.

[00:12:46] Tavi Costa: When I looked at the chart being at a 50 year low, starting to turn, in my opinion, that’s the positioning I want to. And I run a global macro fund, a long short fund as well, and also Precious Metals Fund now, which is long [00:13:00] mostly. And the idea of this, well, let’s just think about the Global Macro Fund is really focused on replicating this idea of being long commodities and short equities.

[00:13:10] Tavi Costa: I think that’s the most interesting one. So, on the long side, I am solely, basically long commodities. I have other things in my long exposure that are not related to commodities, but it’s a very small portion. I think there are room for maybe some other things, perhaps like defensive stocks, but like biotechnology companies and so forth.

[00:13:32] Tavi Costa: But I hold no technology companies. I have a very large basket of about 50% of what we hold is in mining, so we have a very large percentage of mining stocks and those are mostly precious metals. There’s a lot of base metals, there’s nickel, cobalt, and so. That is really where I think our niche is in this business is where we hire a geologist to help us.

[00:13:56] Tavi Costa: They can choose those companies, and then we hire another geologist to help [00:14:00] us with the oil side of it. So the energy sector is maybe, you know, used to be about 25 to 30%. Now it’s between 15 to 20% of exposure to our portfolio, and then agricultural commodities will also switch between 15 to 20% of our portfolio.

[00:14:18] Tavi Costa: And then, you know, I would say the other five, you know, it’s a little less than 5% or so is is in uranium and the rest of it is all in Brazil. And so I have a lot of Brazilian equities that we hold and that’s really, and then on the short side, we have a lot of things that we’re looking for hedges on our long side, so we have shorts on most of.

[00:14:39] Tavi Costa: Mega cap names right now. Some consumer discretionary names and some other ideas that we have, like corporate bonds are things that were short and as well. That’s really the composition of this portfolio. And then there’s other things too that we have, which are hedges in the currency place, which is in short the Chinese yuan and the Hong Kong [00:15:00] dollar.

[00:15:00] Tavi Costa: It’s a different topic, but the idea really is to be long commodes and short equities over time, and I’m really, really focused on replicating that ratio or that metric as much as I can and looking for the most asymmetric ideas in. Sides both lags of that trade over time. I think that’s ultimately what we are trying to accomplish as a money manager and I think that’s what’s going to be the best opportunities for the next five to 10 years.

[00:15:25] Tavi Costa: because those trends usually tend to take a, a long time, especially when you have this CapEx cycle being a a such a historical depress level like we have current. You mentioned so 

[00:15:36] Rebecca Hotsko: many things there one on I was really interested to hear. So you hired geologists to kind of help you with your picks and it got me thinking that this is why I think commodity investing is so hard for retail investors because it takes so much expertise and knowledge to pick the right companies.

[00:15:55] Rebecca Hotsko: I guess I’m just wondering for our listeners who are doing it [00:16:00] themselves, what are the most important steps or processes that you take that they should be looking for in these companies? We could talk about mining companies, for example. If they’re looking for, they want to invest in a good miner, what should they be looking for?

[00:16:15] Tavi Costa: I think there’s some obvious kind of sort of checklists that you should do, and then some more unique ones that I think we. The usual trend of this is to really think about your risk profile and if you’re willing to take a little more risk, I think you want to be in an exploration and development phase of the mining cycle.

[00:16:36] Tavi Costa: So there’s exploration, development, and production, and there’s, the royalties are, businesses are the least risky ones. I mean, they pay very high in some cases. And also have a very consistent kind of cash flow business. The same way is with the production companies. Depending on where you catch those in a cycle, if you catch an early producing business, obviously it’s going to be less predictable of, of [00:17:00] what’s going to happen with the cash flow over time.

[00:17:02] Tavi Costa: Now you get a, a mind that is already in production for five years and has another 10 years of my life. Now you have a much better predictability and way of calculating what’s likely to be your return over time. That’s interesting as well. A lot of financially savvy people will probably go towards that because it doesn’t require a lot of geological knowledge.

[00:17:21] Tavi Costa: The risk, here you go, the more geology you need in terms of understanding of the industry. And so the development phase is kind of a mix between geology and financial understanding because. You will need to know basically the cost of building a mine and understanding what’s going to be your cash flows in the following years, and the likely issues that you may read and some margin questions that you want to ask, and you want to understand the technicality of putting that into production in terms of the geology side of what are the potential concerns that you could.

[00:17:52] Tavi Costa: And then on the other side, which is the exploration, which is where I’m mostly invested, is where I think [00:18:00] most of the inefficiencies are presented today in the markets. And that’s really because it requires a very, very good knowledge of the geology side of, of the industry. And so, This business is difficult because a lot of those businesses are actually owned by what we call lifestyle CEOs or older people usually that are just holding those businesses as a way of, of living their life.

[00:18:23] Tavi Costa: So they, they get a, you know, a nice salary. They just raise capital. Those are money losing businesses usually. They’re always looking for, to raise capital, and you have to understand that that’s part of the business. You’re not there to make money. They are there to raise capital, dilute themselves, and then use that capital to un try to unlock value through exploration to finding more either reserves or a new discovery or so forth.

[00:18:48] Tavi Costa: To me that’s is an exciting part of the industry, but it requires an understanding of the geology. There are ways if people can really follow that. I mean, the checklist that we like to [00:19:00] look for is always looking for businesses that are scalable. Projects that we think are, could be big enough that can be shot by the majors.

[00:19:06] Tavi Costa: That can be big enough, that can be also economically viable with good grades. Projects that can also work in bear markets, and those are not very easy. There are very few of those projects out there, and the majority of them sometimes actually could be in the hands of the wrong management. So yes, management matters.

[00:19:24] Tavi Costa: Yes, technical teams matter, but for our case, We’re looking for really is a very good asset that we can bring value through our own expertise. So we have Quentin as a geologist that can come in, and we have an activist approach where we help those companies to hopefully deliver better success in their exploration endeavors.

[00:19:43] Tavi Costa: And so that’s really the way we do it. Now there are, I guess there are so many ways to skin the cat here in terms of how to invest. I mean, when I came into this industry, I think majority of folks like to look at the most of the fundamental metrics. So you can look at, most of the companies [00:20:00] today are extremely cheap, fundamentally.

[00:20:02] Tavi Costa: So you can find insane free cash flow yields. Companies paying high dividends and very healthy balance sheets and so forth, because there are just companies that folks are not looking to invest. And so there’s a lot of opportunities in kind of the production side as well. If you don’t understand the geology, I don’t suggest anyone to invest in on the exploration side if you are not really knowledgeable about the geology, because I think you’re going to be blind in that space.

[00:20:29] Tavi Costa: I mean, it’s going to be very difficult. Every company will tell you they have an anomaly. Every company will tell you they’re onto a major discovery and so forth, and it will be very difficult for you to discern a good and a bad investment in in that camp. Now, on the development side, I think a person could certainly deploy some capital.

[00:20:48] Tavi Costa: It’s just the basic knowledge of understanding the cost of, of going to production and if it’s actually a very good analysis to to understand the industry itself over time. And there will be a lot of challenges. You know, you can [00:21:00] have local issues depending on the community. You can have issues where the production can be blocked by whatever reason.

[00:21:06] Tavi Costa: It can be, you know, you can lose a permit or something along those lines. I mean, there’s so many other kind of external factors that can play into the valuation of the. That can become very challenging. Taking a diversified approach is probably the best one. So the way we do it, we, just to close up the loop here is we run basically a hybrid VC approach.

[00:21:28] Tavi Costa: We’re looking for big winners, companies that we put in small capital that turn into major discoveries and so couple million dollars or even less than that, that can then turn into a hundred million or so. That’s really the goal. If we can get that and we can get 20% of those companies and then turn them into a couple hundred million dollars of market.

[00:21:48] Tavi Costa: Now that’s the initial goal, but ultimately we think they can reach even billions of dollars in terms of if they really have incredible discoveries. So we’ve have invested in over 90 companies in the [00:22:00] exploration side of the industry. And then one third of that is what we think are onto major discoveries.

[00:22:05] Tavi Costa: The other one third are still looking for something. They have an incredible ground but haven’t found anything. And the other one third are things that have just not worked. And if you think about the traditional VC approach, usually you get one winner out of 100 los. I think given the fact there’s so many inefficiencies in, in this space and a lack of investors really paying attention to this, I think it will allow us to have a much better betting odds and success rate of investing in, in with this model, because I think we’re going to find a lot of discoveries that will be priced accordingly at some point once we have the liquidity backdrop driven by the macro environment over.

[00:22:43] Tavi Costa: So I’m really excited about this. I think it’s one of the best investment opportunities that I’ve found in my career and I think would be one of the best ways to really drive value. In my last point, every majority of the billionaires in this industry of mining made their capital into the discovery, the exploration side of [00:23:00] the industry.

[00:23:00] Tavi Costa: One major discovery. They made them very rich and then they were able to follow through with other investments over time. And to me, that’s really where the strategy, the most successful strategy, really lies. So if 

[00:23:13] Rebecca Hotsko: our listeners are listening to this and thinking that sounds complicated for them to pick a winner, find a needle in the haystack, would you suggest an ETF approach is, would be beneficial to diversify or a more active approach is kind of better in this case where you have a manager such as yourself, boots in the ground doing the work versus just that diversified market cap approach.

[00:23:40] Tavi Costa: I think activist approach will be much better than an etf, a passive vehicle. My opinion. And that is again, because if you find a person who has the knowledge in the industry, and I think there’s going to be a few skills that you want to look for over time, that will be very, very successful. I mean, value investors, [00:24:00] macro investors, I think people that understand mining, understand geology, natural resources, those are, have a more likelihood of been successful as well.

[00:24:09] Tavi Costa: People that know how to do fundamental analysis, you know, valuing investing a 1 0 1, those are going to do very well. I think the age of passive vine like we saw in the last decade or so, I think that’s over. I don’t think we’re going to see the same success that we saw in the last 10 years in the following 10 years.

[00:24:28] Tavi Costa: I know it sounded a little difficult the way I said, and I myself. I’m the way we do it, I mean, we build models, we build qu models to try to understand it. We want to understand what’s the potential appreciation for each of the companies we invest in. That helps us to size them better. I really suggest that that would be one way to approach this, this whole challenge, which really is trying to find a way to unbiasedly tell you what should be the weight of your investment.

[00:24:54] Tavi Costa: By knowing, pretty much having metrics to help you to at least guide you where it should be, the [00:25:00] potential appreciation of that particular investment and where you would be selling at. Now, always understanding where, where would I sell this investment? If I come in at this price, what’s the price? I would sell it.

[00:25:10] Tavi Costa: That’s basically the exercise that you are doing, and by doing that, you can then really have a better view of how should you size that position over time as well, which now to us, it’s been very helpful. It kept us grounded and always looking for the best appreciation ideas that we can find and hold those in a portfolio.

[00:25:30] Tavi Costa: It’s been a learning curve for us. I mean, we started in the industry by investing in the producers and the developers because that’s what most people do. And then we figured out that most of the major companies are facing a supply cliff issue, and they’re probably going to be looking for high quality assets of exploration to the replenish their reserves.

[00:25:50] Tavi Costa: And that’s going to create a lot of opportunities in the exploration side of this, because if we look at our portfolio, how many companies in our portfolio are actually drilling today? And we [00:26:00] looked at the amount of drilling of active drills that we have. We have more active drills than Newmont and Barack combined.

[00:26:06] Tavi Costa: Newmont and Barrack are both of the largest. Gold miners in the world today. And so it is very interesting how there is a lack of exploration happening across the globe. And I think we’re going to get into a, an exploration age. And that’s why I wanted to, you know, really try to emphasize that part of the industry.

[00:26:24] Tavi Costa: The 

[00:26:24] Rebecca Hotsko: royalty companies are interesting. I remember doing some research on that a while ago actually. And you mentioned they’re lower risk, right? 

[00:26:33] Tavi Costa: They are lower risk, and it doesn’t mean that they’re not risky, they’re lower risk because obviously they’re not a hundred percent at risk of the project compared to other businesses.

[00:26:43] Tavi Costa: And so it’s a different business in general, but it, most of them pay, you know, dividends. Some of them pay high dividends, especially in actually the energy space. It is attractive. I mean, if you think, I think this whole industry looks attractive, really. The entire part of the industry looks attractive, but, and it’s [00:27:00] really a question of what you are trying to accomplish.

[00:27:03] Tavi Costa: I think the best ways to really make a lot of money in your career, and who am I to say it, is to identify a big, long-term macro trend and try to be in front. And that’s really what I’m trying to do. I’m trying to build a business of investing in early stage natural resource companies at what I believe to be the, the beginning of a commodity supercycle.

[00:27:26] Tavi Costa: And if that’s the case, if I’m correct, you can be investing in multi beggar potential types of investments. And that’s really what I’m going after. That is my approach to this. And there’s people that are just trying to protect against inflation. I don’t suggest my strategy for that because I’m looking for real growth of in high growth type of strategy in this environ.

[00:27:48] Tavi Costa: That’s a good 

[00:27:49] Rebecca Hotsko: distinction to make because I think often we think of the commodity sector as a hedge against inflation, but if it is the case that we’re in this new commodity bull [00:28:00] cycle, then perhaps it’s not an inflation hedge anymore. It would be that growth aspect of your portfolio. And I guess for listeners, maybe curious to add a portion of commodities as their growth aspect.

[00:28:14] Rebecca Hotsko: I guess, is that based on the premise of this structural changes, then the de-globalization, all of that. Because if inflation goes back to one to 2% in the next couple years, which could be, I guess partly driven by a softening of commodity price. Then some people might think, oh, I don’t need commodities in my portfolio anymore.

[00:28:34] Rebecca Hotsko: And so what would be kind of the driving force of the growth behind commodities then for the long term? 

[00:28:41] Tavi Costa: That’s a big question. There’s a lot of things that I think are related to that. Number one, we study inflationary decades, and there’s really three. The 1970s, the 1940s, the 1910. You look at the average inflation for the decade was about 6% for the 1970s and [00:29:00] 1910s.

[00:29:01] Tavi Costa: The 1940s was a lot lower because it was kind of a sporadic type of inflation. And in those three you can see that return for equity markets was actually not very good, especially nominal terms was pretty flat, but in real terms was negative, deeply negative. And so the question is, okay, so you have that problem.

[00:29:20] Tavi Costa: Where should I have invested if I was in those period? Well, tangible assets did very well. Tangible assets actually performed very well. There are times that energy did very well. There are times that agricultural commodities did very well. There are other times that precious metal and maize models did very well.

[00:29:36] Tavi Costa: So it all depended on the time. And then you can also look at the pillars of inflation, which is the question, why do I think we’re entering an inflationary environment? I mean, that’s a very good. I think there is four pillars of inflation that are really critical to understand as part of this thesis.

[00:29:55] Tavi Costa: Number one is the wages and salaries growth. And it’s the way [00:30:00] people think about inflation is, you know, you have a root cause of the problem. And then once you fix that, now we don’t have an inflation problem anymore. That’s not how inflation works. Inflation works is a domino effect. So you have cost of living rising.

[00:30:13] Tavi Costa: Then it causes the first pillar of inflation, which is wages and salaries growth. People don’t like the fact that they can’t live to the same standards that they were living before. They start demanding higher wages and salaries, and you start seeing the trend that usually, and I would say majority of times in history, were all secular.

[00:30:30] Tavi Costa: There’s a probability this cannot be secular. I doubt it because we’ve been through a 30 year declining rate of growth in wages and salaries. So it’s very likely that we’re at the beginning of a secular trend to the upside on this metric, and that will be one of the pillars. The second pillar of that is the fact that we put all capital onto technology and other parts of the economy, crypto, and so forth, and we forgot about basic necessities like natural resource.

[00:30:59] Tavi Costa: And so that [00:31:00] created a problem of not only the valuation of those stocks when way lower, meaning they’re a lot cheap. But also they are not having access to capital to invest in their own businesses. So you look at the CapEx trends, they’ve are at a historical low, and that is, especially if you adjust for, for gdp, because 10 million spent on the ground today, it’s not the same of spending 10 million in 2008.

[00:31:24] Tavi Costa: The economy was smaller, there was no inflation relative to today and so forth. Labor markets are cheaper, raw materials are cheaper. Everything was. You start seeing that. Adjusted for that We’re a historical loss for CapEx trends, and we’ve seen this many times in other decades. Those trends tend to take a long time to change for many reasons.

[00:31:46] Tavi Costa: Usually that has to do with pressure from shareholders. So right now we’re seeing companies paying more dividends and, and buybacks and doing buybacks relative to what they do in CapEx, meaning they’re returning more capital to shareholders [00:32:00] than what they invest in their own business. That is how extreme things are.

[00:32:04] Tavi Costa: Now you’re seeing companies like gold miners moving away from mining gold because e s G policies are telling them that they have to be mining critical metals like copper. What is that going to do? We’re not going to produce more gold. I mean, what is that going to do to the price of gold? There’s some things that are kind of a no-brainer.

[00:32:22] Tavi Costa: It’s, it’s, it’s insane what’s going. We’re having a problem with the second pillar of inflation, which is lack of natural resources. That I think is a problem that will take a long time to be adjusted. Agricultural commodities will take less time. Energy will take even less time, and then you have mining that will take a very long time to be adjusted.

[00:32:41] Tavi Costa: Okay, so we have those two, and then the third one is the fiscal. If you go back to the seventies and the 1940s and 1910, there was kind of a special, in the seventies there was a general sense from policy makers of how government spending was creating inflation. And today, I don’t think that is a notion at [00:33:00] all of understanding from those folks.

[00:33:02] Tavi Costa: I think they are absolutely clueless of how much capital they’re spending that is actually creating a feedback loop into creating inflation in the. And unfortunately, the fiscal agenda has never been so large. You’ve got the green agenda, the green revolution happening. You’ve got this manufacturing revamp happening.

[00:33:21] Tavi Costa: At the same time, you have the inequality issue, which is causing the government to give capital to the society in different ways. All those are things that are really part of the third pillar of inflation, which is government. The fourth one is probably the most important one, which is when you start having issues with inflation, it creates social unrest, first of all, and then follow by that.

[00:33:47] Tavi Costa: You start seeing political issues and political issues. Then drive nationalism and nationalism, drives populism and issues between countries, and then creates de-globalization. That’s probably the most [00:34:00] important. This is why I don’t think this is in 1940s, because the 1940s was the end of a de globalized world.

[00:34:06] Tavi Costa: Middle part of 1940s. At the end of World War ii we’re the beginning of issues between countries. The last 30 years, we didn’t see any problem at all. It was a very peaceful environment relative to what we’re seeing today. That will change everything. I mean, we’ve been taken advantage of cheap labor.

[00:34:25] Tavi Costa: Think about that and, and even cheaper exchange rates and so forth. We haven’t seen much of a huge FX volatility or anything like that. It’s been a very, very normal kind of 20, 30 years here that we’ve had in the last, you know, very, very calm relative to other times in. And I don’t think that’s going to be the case, those four pillars.

[00:34:45] Tavi Costa: So let’s go back. Wages and salaries growth. Then we have the lack of natural resources, government spending and de-globalization makes me believe that we’re entering the inflationary era, which makes me want to favor commodity exporters and also really [00:35:00] commodities in general. I think commodities will do very well, and businesses that are in that realm will do very well.

[00:35:06] Tavi Costa: That was so 

[00:35:07] Rebecca Hotsko: helpful hearing you break it down like that. And I think it speaks to, we have to think differently now as investors from what worked in the past. Some might work in the future, but a portion of our portfolio might have to look completely different. And I think for a while I’ve been focusing on commodities as just being a hedge against inflation, and I might get rid of them when inflation dies down, but it seems like it could be a way more important part of the portfolio going forward.

[00:35:35] Rebecca Hotsko: And so I guess it just goes back to the best way to get exposure because I guess your strategy’s a bit more tactical being a money manager. But for the average retail investor, what do you think is the most efficient way that we could implement and get exposure as a whole? And just in terms of it being a growth part of the portfolio, is it still just picking individual companies or do you think there’s, I guess, an [00:36:00] easier way for the majority of our listeners?

[00:36:03] Tavi Costa: I think we’ll be a learning curve for everyone and it needs to be a learning curve. You want to have a better portfolio Three years from now, how is improving what you hold? I think it’s a good approach. Look, I think I would probably break into baskets and I’ll probably hold a percentage of mining. I would probably hold a percentage of energy.

[00:36:23] Tavi Costa: I would, I would just hold a diversified book of commodities, really is what I would probably do if I was not in a position that I am, which is. Running an activist fund of looking for exploration geologists sort types of opportunities. So I, I think you can find, I think you can create a very diversified portfolio of owning most of the larger companies, because they’re a little safer and you would probably do very well.

[00:36:47] Tavi Costa: I think those are going to be the darlings of the next 10 years. You can pick and choose the top five companies in, no, you can probably pick the top three in the uranium business top five or seven in the [00:37:00] precious metals, top five in base metals. You can maybe have top five, top seven in, in energy, and then have some fertilizers, have some Brazilian stocks.

[00:37:10] Tavi Costa: I would diversify exactly that way and, and have a basket of each of those and probably, yeah. And try to stay in those for the next 10 years. Cause I think that’s going to be one of the best ways to be invested. And look, it’s, we’re going to have times. You know, you mentioned something about inflation not being a problem at some point, and there is going to be a very high probability that we’re going to go through waves of inflation.

[00:37:32] Tavi Costa: I mean, just like in the seventies, we didn’t go just straight up and inflation. Inflation really occurred through waves. We saw the first wave in the very late part of the sixties and beginning of seventies. And the mid seventies was the second wave. And the third wave happened in the late seventies, early 80.

[00:37:49] Tavi Costa: And if you looked at that, it was basically C p I was making higher lows. Over time, I think we’re probably going to see something very similar to that. We might be at the end of a [00:38:00] first wave. Who knows? It could very much be the end of a very first wave of inflation right now with the way commodities have behaved and we might see C P I numbers continue to go lower and what do I know?

[00:38:11] Tavi Costa: But that’s not where I make the money here. I’m going to probably going to make most of my returns into getting it right on this trend. The long-term trend of inflation continuing to build in the system over time. And ultimately it falls into what I call the trifecta of macro imbalances. It’s the first time in history that we have the debt problem of the 1940s.

[00:38:31] Tavi Costa: In other words, we’re very highly indebted and in terms of government debt especially, but overall debt relative to G D P. We have a valuation problem of most risky assets, which is very similar to what we saw back in late nineties and late 1920s before the Great Depression. And we also have an inflation problem, like similar to what we saw in the seven.

[00:38:52] Tavi Costa: Those three problems create real political constraints for policy makers in general. And so they’re, it’s going to be difficult for them to raise rates too [00:39:00] much and not allow inflation really grow in the system over time. And this is going to change consumer behavior. It’s going to create, it’s going to change.

[00:39:07] Tavi Costa: Portfolio construction and things are going to look very different. It’s going to change volatility the way we looked at currencies. Bond markets will be, And so, you know, this is going to be a very different era, in my opinion, than what we lived through in the last 10 to 20 years. So that by the dip mentality and technology companies will probably not be a good investment, I think, in the next 10 years.

[00:39:30] Tavi Costa: So I, I’ll be very careful with that. Just 

[00:39:33] Rebecca Hotsko: on the mining companies. I am curious, do you, since we heard your checklist of what you look for, do you have an example of a company that meets that checklist so our listeners can go and do some research on it when we close out the episode? 

[00:39:47] Tavi Costa: Okay. Yeah, let’s do one of them.

[00:39:50] Tavi Costa: Snowline Golden Yukon. It’s in a more remote access area where they acquire this land. It’s a very large package and they’ve [00:40:00] had one discovery. So basically they were drilling in one of their projects, they had one dis. Discovery, which was quite interesting. And then they had another, they were drilling in 2021.

[00:40:08] Tavi Costa: In other two places, they found two other discoveries and one of them is probably one of the largest discoveries in Canada’s history and it’s going to be very interesting. What I think it’s happening is that it’s a scalable businesses has a very good recovery in terms of the rocks, in terms of especially the likelihood of the margins that might be driven from, again, the likelihood of, of a production in that camp at some point.

[00:40:32] Tavi Costa: You can also look at the scalability of that in terms of the size of the. We think it’s going to be a very large reserves of gold especially, and we’ll be attracting, in our opinion as well, a lot of capital from, from major companies that probably won a project like that that can become a producing story very soon.

[00:40:51] Tavi Costa: I think that that’s one, just one example of them. It’s run by a very good team and young c e o with the A team in terms of a technical team [00:41:00] that is helping him. Very good ge. We are there with them as well. We’ve helped them in the past as well, even before their discoveries have been reported more recently.

[00:41:09] Tavi Costa: We’ve been very much in helping them. And another thing that I think is important to look at is the composition of in investors that are part of the story. And the investors. The largest investors are scat and most of them are all, you know, I think 60% of them are held by very strong. And it’s going to be a very good story to watch because not only is got a lot of potential going forward to continue to succeed, there’s also potential for where they are now in terms of their own stage of exploration success in terms of attracting majors to be wanting to be part of this as well.

[00:41:45] Tavi Costa: I think it’s a very interesting story and also in a safe jurisdiction like Canada as well. You know, this is just one example where we have other stories that are not in the same, I would say magnitude of, of level of discovery, but there are just as [00:42:00] exciting in terms of the potential that they could become over time as well, especially for the price that we’re paying.

[00:42:06] Tavi Costa: You know, those are companies that could be multi baggers in a, in a cycle here. So I’m, I’m really, really looking forward to. Call it three to five years. I think it can be a wealth generation kind of environment if I’m right about my view. Also, before I let you 

[00:42:20] Rebecca Hotsko: go today, I want to talk to you about the uranium sector quickly because this commodity has been getting a bit more attention lately, and I find it super interesting.

[00:42:31] Rebecca Hotsko: It’s been on a multi-year bull run now, and it’s just seems like a really promising setup with the demand, given all the nuclear ins. Installations in Asia going on, and so I’m wondering what your outlook on the sector is. You said you would allocate a bit to it, but I’m just wondering if you are quite bullish on this as some other 

[00:42:48] Tavi Costa: people are.

[00:42:50] Tavi Costa: Well, the reason I’m not as bullish as maybe other people are is because I think for every commodity story you need to understand the demand in the supply side. The demand [00:43:00] side is in the uranium. I think it’s very obvious. First of all, I mean, it, it falls into the E s G side of it. Number two, it, I think there’s a political effort changing towards becoming more favorable for the demand side.

[00:43:13] Tavi Costa: And I think that’s really going to be driving that side very well. And most likely we’ll see nuclear power becoming a much bigger, more relevant part of how we run our grids over time as well. Now, the other side of it is the supply side. And there are no shortages of uranium. Number one, whoever tells you that it’s not true and it’s different.

[00:43:35] Tavi Costa: When I look at a silver mine, I know the demand side very well too, but I know that there’s a lot of constraints on the supply side. And why is that? Because there’s a difficulty of finding silver. It’s a difficulty of finding gold and copper, high grade copper especially. And so, Now uranium is not the same.

[00:43:52] Tavi Costa: There’s an abundance of uranium out there. It requires a different sizing. Doesn’t mean it’s a bad investment, but it’s going to be a different size of an [00:44:00] investment for Kreske. But that’s just our opinion and we’re just trying to cover our buts, , and looking at the risk reward of everything we invest. And I think that that’s an interesting proposition to be investing in.

[00:44:12] Tavi Costa: Uran. I think there’s going to be a lot of institutional capital that will deploy into that space over time more. I’m a little more bullish on that than let’s say lithium. Lithium is a very popular side of the commodity market that I don’t believe is attractive at all. I think it’s frothy. I think it’s expensive.

[00:44:33] Tavi Costa: I think it’s not economically viable. I think there’s a lot of issues even from the environment side as well. I don’t think most of the environmentalists know how much it takes to get lithium out of the ground, you know? And it’s a very difficult process that is very bad for the environment in general, which is counterintuitive.

[00:44:50] Tavi Costa: That’s another topic. Uranium is not there. Uranium is different. It’s, I don’t think it’s as abundant in that. I mean, it is very abundant and it’s just one part of the [00:45:00] issue. We own the major companies. Chemical is one of the, our holdings by the way. And we like to hold that because you know, it’s a company have very good assets as well run, and it’s probably going to do well if we have a uranium cycle.

[00:45:13] Tavi Costa: I don’t think you, you need to really mess with other smaller names. That’s just my opinion. I don’t hold any uranium, physical uranium as as of today. I might at some point, just like a own agricultural commod is, which could be abundant in two to three years, right? I mean, it doesn’t take much. If you’re in shortage of wheat, you can, you, you know, you can be in a different spot in two to three years from now, depending on the case.

[00:45:35] Tavi Costa: And so it all depends on which type of agricultural commodity, but it’s the same way sort of idea with uranium. And we’re along some physical agricultural commodities, so I might change my view on that. But as of today, it’s a smaller percentage of our portfolios. It’s less than 5%. And I do see opportunities.

[00:45:52] Tavi Costa: I think there’s going to be great ways to make money in that part of the industry, but I’m not sure that it is my priority as I [00:46:00] get into the. 

[00:46:01] Rebecca Hotsko: That’s really interesting hearing your views on that, because globally there are, I think it’s 55 new nuclear power facilities currently under development. But then I guess the question is where is that supply coming from?

[00:46:15] Rebecca Hotsko: And as you mentioned, there’s abundant supply I guess, and so even we saw recently the price fall drastically from it was like over. Back down to, I don’t know, I think it’s around 50 or something now, but I’ve read that that was due because Kazakhstan, which controls a massive amount of the world output, said they would just kind of flood the Western markets.

[00:46:38] Rebecca Hotsko: And so is that kind of a major risk? Then they hold a ton of supply and it’d be like readily 

[00:46:44] Tavi Costa: available. I just want to say, I guess the supply is not readily available that I’m referring to, but it’s well known where, where it is, I guess is my. And, you know, let’s say gold and silver, we just don’t know where it is, right?

[00:46:58] Tavi Costa: I mean, we gotta find it, you [00:47:00] know, or, or a copper, high grade copper. You just need to find it. Nickel, cobalt, you know, you just gotta go and have discoveries to be able to supply the market over time. Now, uranium, we know areas that have uranium. We just gotta create projects there and, and, and. That from Earth, but it’s doable.

[00:47:18] Tavi Costa: It’s a different supply, I guess, thesis than the metals, in my opinion. Very different. Meaning the precious metals especially, and the base metals too. But you know, uranium is an interesting investment idea. I don’t want to claim that I’m an expert of it. I did enough research that didn’t make me as attractive as I am.

[00:47:38] Tavi Costa: Silver, for instance. I think silver is, if you want to claim as a, as close as, as of a no-brainer, that as it gaps in my opinion, because I know very well how difficult it is to find high grade silver, for instance, and that we haven’t found discoveries in, in many years, if not decades. And when was the last time we developed a new project for Silver?

[00:47:58] Tavi Costa: And we’re increasing our [00:48:00] demand for it with solar panels. And not only that, but the more we see gold prices rise, the more we increase the monetary aspect of it. So I don’t see the same with uranium, I guess, as what I’m trying to say, but I can make the same case for agricultural commodities. And I hold the position agricultural commodities too.

[00:48:17] Tavi Costa: It’s just I think every commodity would do well. It’s just a question of sizing. I. And you’re just really trying to manage risk and also manage your capital the best way as possible and, and try to multiply your capital over time. And I think there will be better opportunities in the mining space of precious metals than other places. But that’s just my view. 

[00:48:38] Rebecca Hotsko: So for a silver play then, would that be through a minor? You would be kinda looking to get exposure? What would you think our listeners should go out and do some research on? 

[00:48:49] Tavi Costa: I do think miners can present a lot of opportunities. Some of the bigger miners are interesting.

[00:48:55] Tavi Costa: They’re all trading at very cheap multiples as well. I think there are some [00:49:00] exploration companies that already have reserves that you can be looking for very high grade reserves. That’s what I would be really trying to focus on. One of the things that people make mistakes on getting into this industry is looking for large reserves with low rates .

[00:49:15] Tavi Costa: That’s a problem because now you’re depending on the price of the metal because if the press price of the metal rises, then you get the leverage that allows the reserve to become viable economically. And so I don’t think you want to invest in those much. I think you want to focus on high grade projects that are scalable.

[00:49:33] Tavi Costa: So they’re also high grade projects. Small you’re going to find, you want to find in between, you’re going to pay up for that, unfortunately. But all those are probably going to go higher if silver goes higher. And I think there’s a lot of multi bes in that space in the next five to 10 years. Especially if silver makes new highs.

[00:49:50] Tavi Costa: You know, I think it, it might be one of the most. One day we will become a very speculative market because of the nature of it. And so I’m just trying to be ahead of that and, but I want to hold the high quality stuff, not, not the bad quality. I’m going to avoid the bad quality, but I think you can hold most of the, the major silver miners is one way to do that.

[00:50:09] Tavi Costa: You can hold fiscal silver as well, is another way to do it. But I think if you’re looking for a bigger return with higher risk, the miners will probably be the way to go. 

[00:50:19] Rebecca Hotsko: That was so excellent. Thank you so much for taking the time to join us today and share all that knowledge with us. Before I let you go, can you let the audience know where they can learn more about you, your work, and then everything you do?

[00:50:33] Tavi Costa: All right. Thanks for having me. You can find my work on Twitter at Tavi Costa is my handle. Also, you can find more of our work in our website, crescat.net is our website. You can find our research letters and interviews and a lot of work that we do very in-depth analysis of our views. And if feel free to reach out if you have any questions.

[00:50:57] Rebecca Hotsko: Thank you so much. 

[00:50:58] Tavi Costa: Thanks for having me. 

[00:51:00] Rebecca Hotsko: All right. I hope you enjoyed today’s episode. Make sure to follow the show on your favorite podcast app so that you never miss a new episode. And if you’ve been enjoying the podcast, I would really appreciate it if you left a rating or review. This really helps support us and is the best way to help new people discover the show.

[00:51:20] Rebecca Hotsko: And if you haven’t already, make sure to sign up for our free newsletter. We Study Markets which goes out daily and will help you understand what’s going on in the markets in just a few minutes. So with that all said, I will see you again next time. 

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