• Likely that in the next five years we are going to experience a recession like 2008: Rick Rule 
  • “I think a lot of money is going to be made. But it is going to be made by thoughtful, intelligent, aggressive but considered, people”
  • How? Short answer: have a good chunk of cash on hand to go shopping for cheap, high quality stocks

 

Global markets are throwing out mixed signals in 2023.

They have generally started the year on a high note, with the benchmark ASX 200 index up 7% year-to-date. And yet the era of cheap money is over, inflation remains stubbornly high, and corporate earnings are expected to decline in all but a handful of sectors (we’re looking at you, lithium producers).

Meanwhile, the threat of recession remains. As an investor that can be good news – if you are prepared.

Well-known mining investor and president & CEO of Sprott US Holdings, Rick Rule, says there are a lot of reasons why resources stocks, especially, will do well over the next five years.

“There are wonderful reasons why these stocks should go up,” he tells On the Bid host Oriel Morrison in a December interview.

“The supply cliff. The re-emergence of Chinese economic activity. The electrification of the world. The under-pricing of many industrial commodities.”

There are also obvious reasons to be concerned in 2023, Rule says.

“We are in an interesting place right now. People are concerned about the possibility of recession – what it might do to equity prices, what it might do to commodity prices, and what it might do to the economy in general,” he says.

“If nothing else, I think investors need to fasten their seatbelts, financially and psychologically for a volatile market – a market that goes up and down.

“I think a lot of money is going to be made. But it is going to be made by thoughtful, intelligent, aggressive but considered, people.”

Rick Rule.

 

Here’s how Rick makes a lot of money in a recession

Short answer: have a good chunk of cash on hand to go shopping for cheap, high quality stocks when markets go pear-shaped.

It is more likely than not in the next five years we are going to experience a recession of the order of magnitude of 2008, Rule says.

“And those people that are prepared for it, like I was prepared for 2008, will prosper from it,” he says.

“I went into 2008 having experienced the Y2K crisis, the 1987 crisis, the 1981 crisis, and the 1975 crisis. The 2008 crisis was something like my 6th rodeo.”

Rule says he went into it with a good cash hoard and, more importantly, he went in psychologically prepared.

“I knew that a business I thought was worth $1 billion was cheap at $0.5 billion, so when certain securities fell by half, I didn’t get scared — I got greedy,” he says.

“I had the right emotion, and I had some cash, so I was able to take advantage of it.

“The consequence of that is for me personally, 2008 and 2009 were extremely pleasant. I made a lot of money.”

Rule says he is once again running high cash balances to take advantage of any liquidity crisis that may occur.

“It’s discussion investors need to have with themselves,” he says.

“Do they have adequate cash reserves that in the event of a market dislocation, a market decline, would allow that situation to be a benefit to them?

“Or are they in a situation where they are so overextended that a market decline, should it occur, would only be a disaster for them?”

 

Rick is looking at ‘beaten up and forgotten’ small cap resources stocks

In 2023, many small cap resources stocks – the explorers and project developers – will need to raise cash in a ‘risk-off’ market.

“Many have postponed capital raises, thinking that share prices would increase, and the cost of capital would go down,” Ruel says.

“They played chicken with the market, and many of them lost.

“They are going to have to raise capital in 2023. If we have a risk-off environment where most of the traditional capital sources aren’t available, [there is an opportunity] for me to provide that capital on terms that are advantageous to me.

“This is a once in a decade opportunity.”

Ruel says the period 1998-2001 feels eerily like the present.

“[In 1998 to 2001] it was obvious to me that we were going to have supply shortages across the resources space, but resources were sort of out of favour.

“I remember buying some absolutely extraordinary bargains in that 1988-2001 timeframe.

“I bought into stocks that had no momentum, or negative momentum.

“I bought them knowing that having written the first cheque I may have to write the second, because no one else would be willing to do it.

“But I also bought them knowing that I was buying exploration assets literally for dimes on the dollar.

“I hope for my sake that situation repeats itself in 2023, and I think it may.”

Rule is now getting ready to go ‘risk on’ with high quality small caps resources stocks — particularly ones that have been beaten up, lost, and forgotten in the market.

“I have a shopping list,” he says.

 

WATCH THE FULL INTERVIEW HERE:

Entering 2023- Preparing your portfolio for a possible crisis from Stockhead on Vimeo.