Chris’ note: Stocks sold off sharply today. The S&P 500 ended down 3.5%. And the tech-heavy Nasdaq plunged 5% – its worst day in an already dismal year.
But as I’ve been showing you, that’s not a reason to panic. Stocks don’t go up in a straight line. And patient investors can still make money in the market megatrends we track for you.
That’s why I’m sharing a Q&A with the newest member of the Legacy Research team, Nomi Prins. She’s a former Wall Street banker who’s now dedicated to helping ordinary investors even the playing field with financial elites.
Nomi has identified an opportunity in what she calls the New Energy sector. It’s all about how the shift to clean energy will boost demand for certain metals. We get into that below.
But we started our conversation about the threat from inflation… and whether it means the end of central bank stimulus.
Chris: Inflation is keeping folks awake at night. Living costs in the U.S. are now going up 8.5% a year. That’s the highest jump in 40 years. Were you surprised we saw even higher inflation in the most recent report?
Nomi: I wasn’t. As I’ve been showing my readers, we’re in an uptrend in inflation. The only person who didn’t see this coming was America’s top central banker, Jay Powell. Last year, he kept claiming inflation was “transitory.” I never believed that.
Two main factors are driving inflation higher. Neither is going away…
First, we have supply chain disruption coming out of the COVID-19-induced shutdowns and from the war in Ukraine. If you can’t get raw materials and goods from one point to another, supply shrinks. And if you spend more on fuel to transport materials, you pass on those costs to your customers.
Then you have all the stimulus governments and their central banks are pumping into the global economy.
Yesterday, the Fed raised interest rates by half a point [0.5%]. That’s the steepest rate hike in 22 years.
That may seem like a big deal. But it isn’t. As I told paid-up subscribers of my Distortion Report advisory earlier today [Nomi readers can catch her update in full here], credit is still historically cheap.
Meanwhile, courtesy of quantitative easing (QE), the Fed’s balance sheet is at nearly $9 trillion. And at the current rate it’s unwinding that stimulus, it will take four years to get back to pre-pandemic levels.
That means even with all the market volatility we’ve seen, markets still have access to cheap money. Anyway, there’s little the Fed can do to impact inflation. It can’t create food. It can’t create oil.
So I’m focused on helping my subscribers make money as inflation soars.
Chris: How can our readers grow their nest eggs in this inflationary cycle?
Nomi: First, you have to admit inflation is a problem. Right now, you have to earn more than 8.5% on your investments every year to stay ahead of rising living costs.
Then you have to get out of a negative mindset and know you can still profit. Inflation means a lot of money is sloshing around. So you have to look where it’s flowing.
That’s what I do for my readers. I home in on sectors that will surge as cheap money floods in.
Chris: So what’s the biggest thing on your radar right now?
Nomi: What I call New Energy. Whether we like it or not, the energy landscape is changing forever. We’re transitioning from fossil fuels such as oil, coal, and natural gas to cleaner and more economic energy sources.
Today, renewable sources account for just 30% of the electricity we generate globally. Figures from the International Renewable Energy Agency show that by 2050, renewable sources – mostly solar and wind – will account for 85%.
This will require overhauling our current energy production systems. And it will benefit lithium and copper prices. These metals are vital to build out these new energy sources.
Lithium is essential for the batteries that power electric vehicles (EVs). It’s something our colleague Dave Forest writes about a lot. We’ll also use these batteries to store wind and solar energy.
The world will also need a lot of copper for the transition. Renewable energy systems such as solar, hydro, thermal, and air-source heat pumps use up to 12 times more copper than traditional fossil-fuel-powered systems.
Right now, the world uses about 25 million metric tons of copper a year. Management consulting firm McKinsey estimates demand could jump as much as 50% over the next 20 years due to the energy transition.
Chris: You mentioned EVs. It’s a theme we cover a lot in these pages. How do you see it playing out?
Nomi: I was at dinner with some friends recently. We were talking about one friend’s EV. It’s not a newfangled one. It’s from 2015. But still, his commute costs a quarter of what it did when he drove a gas-fueled car.
Lower fuel costs are a compelling incentive to switch to EVs. Higher oil prices because of the war in Ukraine will make this contrast even starker and accelerate the transition.
Chris: What’s the best way to play the EV revolution?
Nomi: My top recommendation right now is copper. It’s the world’s most conductive metal, after silver. That makes it a key ingredient not only in EVs, but also in the more efficient power grids we’ll need to charge them.
You can’t talk about EVs without recognizing that we also need to make our power grids more efficient. And that puts copper in the middle of this megatrend.
Chris: What about copper supply? How does that factor into your thinking?
Nomi: Just as demand is set to soar, supply is under threat.
Total global copper production is about 21 million metric tons a year. And there are about 870 million metric tons in global reserves.
Russia produces roughly 1 million metric tons of refined copper a year. That’s about 4% of global supply.
It also has 62 million metric tons of copper in its reserves. That’s more than 7% of total global copper reserves. And it’s about 30% more than the U.S. holds.
The problem is Russia’s copper could become unavailable even without a full-on ban.
Logistics companies’ self-sanctioning has already thrown a wrench in Russia’s seaborne trade. The bulk of its copper exports to China flow via the Black Sea or European ports such as Rotterdam in the Netherlands. And these shipping routes are increasingly closing to Russian trade.
According to Goldman Sachs, this could remove 50,000 to 60,000 metric tons of copper from the market every month. That alone could push the copper market into a deficit.
Chris: Why don’t mining companies just develop new mines to meet growing demand?
Nomi: It takes decades to build a world-class copper mine. Major ones need railways, roads, workers, sanitation, and water treatment. They’re basically cities devoted to mining.
The long lead time means companies need steady government policy as they build. And many copper mines are in countries plagued by political unrest. So there’s the risk a government will change its mind after a coup or an election and kick miners out.
That makes it hard for miners to raise the billions of dollars they need to build these mines. And since no one is building new mines, there’s only so much of the metal to go around.
Even if prices go high enough to encourage the necessary mine development, it’ll take years for those mines to come online.
It’s the perfect setup for higher copper prices. Global supplies are under threat… just as all signs point towards higher demand.
Chris: How should our readers play this setup?
Nomi: I’ve recommended a copper mining stock to my readers. I can’t name it here. But the United States Copper Index Fund ETF (CPER) is another good option. It won’t give you the kind of upside that the right copper mining stock can. But it closely tracks the price of copper. So it’s an easy way to profit as copper prices soar.
Chris’ note: Potentially losing Russian supply isn’t the only thing that could majorly boost copper…
Politicians currently have their eyes on a $150 trillion transfer of wealth. It involves overhauling the energy system we need for the New Energy transition.
This wealth transfer will transform America. It could transform your wealth, too.
That’s why Nomi released an urgent briefing about where this money is flowing… and how you can profit from it. To watch it, go right here.