The stocks of junior gold producers are FINALLY waking up–and having a BIG run.

Two of the biggest are juniors who bought their mines when gold was higher–but interest in gold stocks was definitely not. So these two management teams bought their mines for SUPER CHEAP.

The lack of interest in gold until now—Has has some un-appreciated consequences.

The lack of capital has had a direct impact on reserves. Proven and probable reserves at major gold miners have been in decline for years.

Source: BMO Capital Markets

As you’d expect, that puts prospective gold mines at a premium. Gold mine developer stocks are not particularly cheap.

The BMO coverage universe average valuation of developers, based on their measured and indicated resource, is $190 per ounce. That increases to $400+ per ounce for tier-1 deposits like Artemis Gold (ARTG – TSXv).

As for producing miners, juniors are coming in at a premium.

Source: BMO Capital Markets

The price of mid-tier producer is roughly the same as a couple years ago. But small producers, which are usually single mine names, are up substantially – 38% higher than two years ago.

Investors are betting companies need reserves and will pay up to bolt a mine on.

But not always! This post is about two examples of companies that have bought producing gold mines on the cheap.

And I do mean on the cheap. In the first case, Heliostar Mining (HSTR – TSXv) purchased two mines for under $300 per producing ounce.

In the second case, Mako Mining (MKO – TSXv) bought a producing mine for under $100 per producing ounce.

Of course, these mines come with a lot of hair. But $3,000 gold buys a lot of lipstick.

Which makes these companies, which are very different in almost every other way, worth a closer look.

HELIOSTAR

BUYING WHAT OTHERS

ARE THROWING AWAY

12 months ago, Heliostar Mining was years away from production.

Today they have two producing mines and a growth profile.

Talk about transformation!

Heliostar did it the old-fashioned way. They waited for a fire sale–which they found with the demise of Argonaut Gold.

Argonaut Gold was a Mexican gold producer with a few small mines that wanted to become a mid-tier producer.

To get there, Argonaut planned to develop their large Canadian gold project called Magino, which they hoped would rocket them to mid-tier status.

But Argonaut’s timing couldn’t have been worse. They raised money for construction in the summer of 2020 and announced shovels in the ground in fall of 2020.

That was right about the time that inflation began to roar. As construction commenced, typical cost overruns escalated into massive increases.

Magino’s original cost of construction was estimated at C$510 million. That became C$800 million by December 2021, C$920M in June 2022, and C$980M by early 2023.

The upfront capex per ounce rose from $231/oz to $445/oz!

Argonaut was in over their head. The needed a buyer to bail them out, which they found in Alamos Gold (AGI – TSX) in March 2024.

Alamos was motivated by the strategic fit of Magino and their Island Gold mine. These mines are virtually side by side.

A Magino-Island Gold complex meant that capex could be spread over far more ounces–which is what Alamos has done, with a lot of success.

Source: Alamos Investor Presentation

But Alamos had no interest in the other Argonaut assets – their Mexico mines. Those assets were spun-off into a place-holder company to get them sold.

To make a long-story short, that gave Heliostar the opportunity to pick up those assets for almost nothing.

For just US$8M Heliostar bought two producing mines – La Colorada and San Augustin.

Now these aren’t top-tier assets. Both mines are old. Both are high-cost. They are effectively not profitable at $2,000 gold. And they are in Mexico, which has not ALWAYS been mine friendly.

But these mines can produce gold. And at $3,000 gold, that can be a profitable venture. This year Heliostar is expecting the mines to together produce 30-40Koz of gold.

Source: Heliostar Investor Presentation

The costs of production remain high. The midpoint of guidance is that all-in sustaining costs (ASIC) will be $2,025/oz.

At $3,000 gold, it is mine level FCF of close to $1,000 per ounce.

With that base Heliostar is hoping to grow. Before buying La Colorada and San Agustin they made another attractive acquisition (again from Argonaut Gold) when they bought the Ana Paula project.

Ana Paula is halfway between Mexico City and Acapulco in the highly prolific Guerrero Gold Belt. With permits in place, CEO Charles Funk wants Ana Paula in production in three years—Way faster than the industry could build & permit a mine in Canada or the USA.

Ana Paula has 710Koz of measured and indicated resource and another 447Koz of inferred.

Source: Heliostar Investor Presentation

Heliostar bought Ana Paula paid $10M upfront with another $20M due based on milestones associated with getting the deposit into production. Then in a later deal, Funk got the $20 million CANCELLED. Cha cha cha!

That works out to about $14.09 per M&I ounce, which is not at all expensive based on the going rate of developers.

While we’re still a few years away from production, Ana Paula will be a high-grade underground mine capable of producing 100Koz per year – presumably at much lower costs.

If all goes according to plan, you are looking at a 300,000 ounce producer by 2030.

Source: Heliostar Investor Presentation

Put it together and Heliostar is building itself into a junior miner with mid-tier potential in just a few years – oddly enough what Argonaut was trying to be.

MAKO MINING – STARTING TO GET RESPECT

While Heliostar is making its mark by buying a mine no one wanted, Mako Mining (MKO – TSX) took it a step further and bought a mine straight out of bankruptcy.

Mako makes for a great story because this company is just so different. Until a few months ago Mako was a poster child for a junior miner that can’t get no respect.

This isn’t because Mako doesn’t deserve it. They have been a consistent producer since starting up their San Albino mine in 2021.

Source: Mako Mining Annual Reports

Nevertheless, the Street views Mako with a skeptical eye because San Albino is anything but a typical operation.

San Albino is an open pit mine in Nicaragua. Mako uses big trucks and earthmovers to plow away waste rock and scoop up ore.

Open-pit mines are almost always low-grade deposits with large swaths of disseminated gold. The economics comes from the gold being everywhere.

With every scoop of rock, you get at least some gold.

The most important ratio for an open pit mine is the strip ratio. This is the ratio of waste rock to ore. A typical open pit mine has a strip ratio of 1:1 (for every scoop of ore, you get a scoop of waste).

The punchline? At San Albino the strip ratio is 22:1!

Why? San Albino is a vein system. The gold isn’t everywhere. It is only in narrow veins (in red below) that traverse across the deposit.

Source: Mako Mining Press Release

Yet San Albino is economic because those veins are such high grade. Think of it like this: if you have 2 meters of 30 g/t gold or 30 meters of 2 g/t it is the same amount of gold.

But trying to mine this type of deposit as an open pit is unusual. The Street is reluctant (not without reason) to assume something unusual is going to work (especially in mining!).

As a result, San Albino has been producing gold for 4 years with little fan fare and only a slow change in perception from the Street.

But like Heliostar, Mako may start to get more respect in the coming months, not only because of mounting proof they can mine San Albino, but because they are no longer just a one-mine show.

In December, Mako announced that it had, through the Chapter 15 Bankruptcy process, acquired the Moss Mine in Arizona.

Elevation Gold Mining Corp was the previous owner of Moss. They entered bankruptcy in July.

The final acquisition price for Moss is $6.49 million. From that you can subtract $4.5 million in cash and bullion that Mako gets to keep.

That makes the effective price just $2 million.

Since being reopened 5 years ago, the Moss mine has produced between 28Koz and 42Koz per year.

Source: Mako Mining Press Release

Which gives you that price tag of well under $100 per ounce!

Moss is is a low-grade (0.4-0.5 g/t) open pit heap leach mine. You dig up rock, crush it into pebbles, put it on the leach pad and wait for the gold to leach out.

Moss is not a low-cost mine. There is a reason that Elevation Gold went bankrupt.

Cash costs in the last year of production were $1,500/oz. AISC was over $2,000/oz.

Source: Elevation Gold Investor Presentation

But again, just like Heliostar, there’s a lot more margin there at $3,000 gold. If Mako can even just keep costs at $2,150, that is $850 per ounce of margin.

Mako’s added advantage is that Moss is tacked on to an already stable San Albino operation. If San Albino keeps trucking along, adding a successful operation at Moss will be put Mako another step toward mid-tier status. And maybe getting some respect.

POTENTIALLY A BIG REWARD

BUT NOT WITHOUT RISKS

Both these companies make for great stories. If the cards fall right, they could be very profitable companies, and the stocks could be great Investments—If the gold price holds up.

But they are not without risk. I can think of a few issues that could put the brakes on these stocks.

Issue #1 is ore. All mines need to find more economic ore. That applies double here.

For Heliostar, La Colorada and San Augustin both have limited reserves. San Augustin only has 165koz of oxide indicated resource, of which only 67koz is considered probable reserve.

La Colorada has more (368koz of probable reserves), but any expansion will require more discoveries.

The reserve issue is compounded by permitting requirements to get those reserves into production. San Augustin is waiting on permits to begin mining portions of the deposit. Mexico hasn’t been an easy place to get permits the last few years.

Heliostar has regional exploration programs underway at San Augustin and La Colorada, with targets defined at the latter. They announced drill results at La Colorada just last week that looked promising. There is another drill program underway at Ana Paula.

Funk took a gamble that Heliostar could find more gold. Last summer he told me that he saw big exploration upside and believes they can increase the mine-life at both assets by 5-10 years.

If that happens, these mines will go down as one of the great gold heists of all-time.

At Moss, the last technical report was in 2021. It put reserves at 184,000 ounces and a M&I resource of 490,000 ounces at that time.  Mako needs to find more ore.

The expansion potential may come from satellite puts. The Reynolds pit, which is only 1 km from the crusher, has had drilling and positive results.

Source: Elevation Gold Investor Presentation

In the months before bankruptcy, Elevation completed 33 drill holes into Reynolds. These returned long, low-grade intercepts. Encouragingly, the grade exceeded the current reserve grade by some margin.

Issue #2 is age and cost structure.

A generalization based on my 20+ years of watching mining stocks: things just go wrong at mines that are old and have high costs.

I don’t know why. Maybe they are pushed too hard. Maybe the flaws show themselves with age. All I know is that its true and you’d be surprised how fast $2,000 AISC can become $2,500 or $3,000.

Issue #3: let’s not kid ourselves, this is mainly about the gold price. These are mines that work at this point in the cycle.

If the price of gold corrects significantly, these mines are going to become much less profitable. Maybe even unprofitable.

But if gold prices stay high, it can cover up a lot of issues and these companies can generate a lot of cash.

Heliostar has a market cap of $320M. If they can hit their midpoint of guidance this year – 35Koz at an AISC of $2,025/oz, and gold stays $3,000+, they should generate free cash flow of over $30M. Not bad.

Mako has a market cap of $330M. San Albino generated $24M of free cash flow last year on lower gold prices. If Moss can get back to 30,000 ounces at its past cost structure, it could contribute another $25M at$3,000 gold.

Heliostar has the better positioned balance sheet with no debt and a cushion of C$38M of cash. Mako has a $6.4M loan with their biggest shareholder Wexford and has $12.1M of cash. Mako also has the profitable San Albino to help fund its start-up costs at Moss.

The upside is there. IT is risk and reward. Just like always. It is up to each of us to weigh it.

But for these businesses, they have helped themselves greatly from their starting point – by buying something really cheap on the cusp of a big price move in their commodity.

Disclaimer: I am long Heliostar, and 2 years ago I was paid to write a story on them.

There are not a lot of winners in this market. In fact, it is close to zero.

Seeing such wide-spread carnage makes me want to look for bargains AND for charts that have held up. I spent Friday morning stepping through the chart of every company in the S&P 500, the S&P 400 and the NASDAQ 100.

It was an ugly scene.

Only a few pockets are outperforming right now.

The first is utilities. But a bull market in utilities is anything but bullish overall. Utilities aren’t outperforming because of datacenter demand growth. Utilities are outperforming as a flight to safety.

The second major sector that is doing surprisingly well is another “boring” sector – insurance companies!

Source: Stockcharts.com

At first glance, I wasn’t sure why the insurance business was doing so well.

As it turns out, this is partly a flight to safety – after all everyone needs insurance even when things go bad.

But is there more to it than just that?

One BIG contributor, and one that surprised me, is the impact of artificial intelligence and LLMs—Large Language Models.

AI is transforming the way that the insurance business is done.

This is interesting because it is a secular move and because the gains from AI are all about efficiency, which means they translate directly to the bottom line.

AI is making it easier to acquire customers, price coverage accurately and assess loss more quickly.

The biggest benefit will confer to the companies with first-mover advantage, as they get improved margins and take share.

There is a WHOLE LOT of share to take – because the insurance business is so BIG.

According to Lemonade (LMND – NASDAQ) CEO Daniel Schreiber, the world spends more money on insurance than just about any other sector – automotive, cloud computing, even entire defense budgets don’t amount to what we spend on insurance.

If a company can get a leg up, the sky is the limit.

I’m going to take a look at what two VERY DIFFERENT insurance companies are doing with AI. And the difference it’s making to their top and bottom lines.

AIG – BACK FROM THE DEAD

Over the past decade American International Group (AIG – NYSE) has undergone a remarkable transformation.

This was a company that was a corpse at the end of the Great Financial Crisis. For years after it was a walking dead.

When CEO Peter Zaffino took over in 2017, AIG faced significant challenges. They had “a lack of underwriting discipline, high expense ratios, and inconsistent data management”.

Zaffino described the situation as “sink or swim”.

Swim they did. AIG has since re-positioned itself as a leader in the global insurance industry.

Maybe because they were in such dire straits, AIG took the chance on modernizing their business.

The company streamlined operations, eliminated 1,200 legacy applications, modernized data infrastructure, and moved 80% of its systems to the cloud.

Integrating AI was a big contributor and it has driven impressive results.

REAL USE-CASES FOR AI

When it comes right down to it, insurance is paperwork. If you can get that paperwork done faster, you are already a step ahead.
Enter Palantir (PLTR – NASDAQ) and Anthropic’s Claude AI.

I’ve always wondered what Palantir does. I’ve now figured out at least one thing they do – develop and power AIG’s AI underwriting models.

Along with Claude, Palantir makes that paperwork go much, MUCH faster.

AIG uses AI to find the data and fill out the forms. And it does it fast.

This has always been possible to some extent, but with LLMs it is far less limited. AI does not care the format of that data. A Word document, a PDF, a picture, or even social media, LLMs can grab and evaluate the data in seconds.

This all brings the underwriter to the point of decision much faster. During the AIG Investor Day Zaffino said that tasks that previously took weeks can now be completed in hours.

A second way AI helps is with prioritizing the time of the underwriter.

AIG uses the reasoning power of AI to help determine which policies will be the biggest bang for the buck.

That ensures that underwriters are focusing their time effectively. And that the policies written are driving the highest returns.

Source: AIG Investor Day Presentation

Finally, AI helps drive better pricing.

AI’s ability to consider massive amounts of data, connect the dots to historical comparisons, and “reason” likely outcomes means that AIG can price their insurance more accurately.

Again at their Investor Day, Zaffino stepped through the case study of one of their businesses, their Lexington Insurance line.

Lexington is a surplus insurer, which means it insures the “extra” risk that another insurer might want to offload.

To get to the punchline, Zaffino said that AI has helped double the CAGR compared to what it would be without tech adoption. Which amounts to a massive inflection in the business.

Source: AIG Investor Day Presentation

Multiply that across all of AIG’s insurance lines, AI is helping produce some impressive numbers:

• 20% compound annual earnings growth
• Return on equity (ROE) of 10%+ in 2025, and 10%-13% by 2027.
• Expense reduction dropping 10-15% and their expense ratio dropping to 30% – a REALLY efficient number

So that’s AIG, using AI to drive profits. My second example is using AI to a different end – to drive market share and growth.

LEMONADE – BUILT ON AI

While AIG has reshaped a centuries old business on AI, Lemonade has done the opposite, building their AI-based insurance business from the ground up.

Lemonade’s proposition is simple: a built-from-scratch AI will “quantify risk and collapse costs in a way that no other structure” will.

Lemonade LOVES to compare themselves to legacy insurers. They point out that GEICO, one of the largest insurers and one that has been around for 90+ years, operates over 600 legacy systems and most of them don’t talk to one another.

Lemonade is the opposite. Everything is connected, everything is talking and wherever it can everything is automated by AI.

In their last Investor Day Lemonade took investors through the case-study of their most recent insurance line – auto insurance.

Lemonade got into auto insurance when they bought the pay-per-mile insurer Metromile in 2022. Today auto insurance makes up 13% of their in-force premium.

Source: Lemonade Investor Day

They’ve grown their auto business, and all their lines, by using AI to drive more precision and more efficiency. That translates into market share gains and lower prices for drivers.

It all comes down to pricing risk more accurately. Which can be done through what is called “disaggregation”.

What is disaggregation? Insurance companies generalize a lot. Age, gender, income strata – they are always trying to put you in a bucket. That’s aggregation.

Lemonade is trying to take you out of the bucket – disaggregate you. With their car insurance product, they use telematics and AI to evaluate you as a driver. Which allows them to better pinpoint your specific risk.

At their Investor Day Lemonade used the example of “Jack”.

Jack is a young driver that comes to Lemonade looking for auto insurance. Lemonade needs to decide what price Jack should get.
How do they do that?

What Lemonade doesn’t do is generalize based on Jack’s age or other demographic.

Instead, Lemonade monitors just how good of a driver Jack is – through his smartphone.

They use the phone GPS, gyroscope, motion data and acceleration detection to evaluate Jack. Their AI model digests the data and comes up with an assessment.

As a result, if Jack is a good driver, he gets a better rate.

Source: Lemonade Investor Day

No surprise that Lemonade is targeting a younger demographic. It’s a strategy that makes sense because in the traditional insurance model of aggregation, younger drivers pay more.

Source: Lemonade Investor Day Presentation

But by looking at Jack individually, Jack benefits with lower priced insurance. Lemonade benefits by adding a customer. A win-win.

But that’s just one piece of the AI journey. As with AIG, using AI to do the legwork brings Lemonade’s data acquisition costs down a lot.

More importantly, because Lemonade isn’t hiring underwriters to do the work, those costs don’t need to scale as the top line grows. Which is why Lemonade has been able to grow their business for 5 years without a corresponding increase in operating expense.

Source: Lemonade Investor Day

Also like AIG, AI is helping Lemonade decide if Jack is worth their time.

At their Investor Day Schreiber talked about their LTV model. Now in its 11th generation, this customer screening platform is comprised out of 50 different learning models and uses more than 3.6 billion data points.

Source: Lemonade Investor Day

Before Lemonade ever reached out to Jack, their AI tools made sure that the returns on Jack were worth pursuing.
The success of that model is in their results, as Lemonade has grown its customer base efficiently for the last 5 years.

Source: Lemonade Investor Day

Finally, Lemonade doesn’t stop evaluating Jack after the policy is signed.

Lemonade continues to monitor Jack. That helps evaluate Jack for the next period and helps tune the model to be even more accurate in the future.

Source: Lemonade Investor Day

The entire process is fused by AI and is also self-reinforcing. Which is what lets Lemonade confidently say they expect their growth rate to increase in coming years (more on that shortly).

SOW THE SEEDS OF AI,
REAP THE REWARDS

I’ve looked at two insurers from COMPLETELY different ends of the spectrum. Both using AI to upend the industry. Both are using it to different ends.

AIG is using their gains to become more profitable. In turn, AIG is using those earnings to deliver shareholder returns.

AIG has aggressively returned capital to shareholders. Since 2019, the company has bought back nearly 300 million shares (33% of outstanding shares) and steadily increased their dividend.

Source: AIG Investor Day

In 2025, AIG plans to repurchase $5-$6 billion more. (!!!)

Lemonade’s focus is growth.

Accelerating growth is no small feat for a company as large as Lemonade. Yet at their Investor Day, Schreiber said that “25 will grow faster than ’24, ’26 will grow faster than ’25… we [expect to] grow into that 30% CAGR”

It comes at the expense of profitability. Lemonade bluntly admits they are pricing their insurance cheaply to gain market share.

But that doesn’t mean they are burning cash. EBITDA margins have improved for 5 years straight. They expect to be EBITDA profitable in 2026.

Their adjusted free-cash flow, which includes a very unique model for marketing spend, is already positive.

Source: Lemonade Investor Day

KEEP IT IN YOUR BACK POCKET

Look, there is A LOT to consider when buying an insurance business. A lot of puts and takes.

A big risk today is what an insurer can invest their cash in. With Treasury yields coming down, lower investment income could become a headwind for earnings.

A second risk is inflation. If tariffs drive prices higher, insurance company profits suffer until their policy premiums catch up.

Lots to consider! My focus is purposely narrow: the impact of AI. What I hope to get across are two important points.

First, there are REAL-WORLD use cases for AI that are being rolled out today. These use-cases are driving better results.

Second, companies that adopt these tools first get a leg up on the competition. Which translates into better margins and more growth.
Finally, let me end with one last take-away.

As investors, we are being re-acquainted with risk this last week.

The insurance business, on the other hand, is always pricing risk. It is what the business does!

Taken together, maybe it is not so surprising that the sector is outperformin

Stock ideas can come from just about anywhere. Your barber. Your father-in-law. Some random guy on the street.

You can’t be too picky about the source. But do the work yourself.

I say this because some of you may pause at where I got the idea for Rezolute Bio (RZLT – NASDAQ).

Martin Shkreli.

While Martin Shkreli has had his share of bad press and issues, you can’t deny that the guy knows his Biotech companies.

Shkreli does a livestream pretty much every day on YouTube. It is an odd format where he basically sits at his computer and does research on biotech stocks in real-time.

This may sound incredibly boring to some of you. And you wouldn’t be wrong. But taking the time to scan his stream can turn up some nuggets.

In December Shkreli dug into Rezolute. I’m not going to say he recommended it; all he said is that he liked it. I don’t know if he owns it today or not. But he made me want to keep an eye on the stock. I added it to my list, waiting for a pullback.

Today, we are having that pullback. The stock has broken down from a range of $4-$5 to a current level of just above $3.

Now I don’t want to catch a falling knife. In fact, I am NOT going to buy this stock yet.

There is a good reason for that, and I will get to the why shortly.

Once we get past that reason the combination of solid looking trial results and a stock that is falling for non-fundamental reasons (which may reverse in a few weeks) will make it worth a longer look.

Rezolute is a late-stage rare disease company targeting hypoglycemia caused by hyperinsulinism.

This is a two-drug company but only one of those drugs matters.

Their lead candidate is ersodetug (formerly known as RZ358). The story here is about what ersodetug can do.

Ersodetug is a monoclonal antibody. Monoclonal antibodies attach themselves to specific receptors on a cell (VERY specific receptors, ie. why the are called monoclonal antibodies).

Monoclonal antibodies can be very useful if you find one that attaches to a receptor that changes what that cell does in a positive way.

Ersodetug attaches itself to insulin receptors. By doing so it slows down the secretion of insulin. With that comes an increase in glucose (sugar) in the body.

Source: Rezolute Investor Presentation

If all this sounds familiar, it is because I’ve written about another drug that does this too.

Last summer I wrote about a stock called Amylyx (AMLX – NASDAQ). They have a drug called Avexitide, which also regulates insulin. In fact, part of the reason I made note of Rezolute is because I knew the space from Amylyx.

However, Rezolute is a different story than Amylyx.

Amylyx was about a stock that was too cheap. At the time the stock had a market cap of $140M and cash at $370M!

That meant you could have locked the doors and given every shareholder twice what the shares were worth (its not quite that easy, but you get the idea).

Anyway, it turned out well. Amylyx peaked at $7 per share a few months later.

As for Rezolute, this is not a net cash story. Yet Rezolute is cheap (IMO), just in a different way.

While Amylyx has a ton of cash and a drug (Avexitide) with a chance, Rezolute has enough cash to see the story through and a drug that has a really good chance of success.

THE TARGET: CONGENITAL HYPERINSULINISM

Rezolute has another overlap with Amylyx. The disease they are targeting.

While the primary target for Amylyx was Post-bariatric Hypoglycemia, they also had plans to go after at congenital hyperinsulinism (cHI).

Source: Amylyx Investor Presentation

In fact, their drug Avexitide had already seen results in cHI that looked pretty good.

At the time I wondered why Amylyx was targeting PBH first, instead of cHI, which seemed like the better market.

I think I know why. Avexitide’s results in cHI aren’t as good as what Rezolute has been able to achieve with ersodetug.

More on that later. First, a brief primer on cHI.

cHI is a rare disease that impacts children. Rezolute estimates the unmet need at 1,500 individuals. About 130 patients are diagnosed in the US each year.

These kids have a problem with their insulin secretion pathway. They produce too much insulin and don’t have enough glucose.

As a result, they have chronically and dangerously low blood-sugar.

Over time this causes all sorts of issues. The brain depends on a steady flow of glucose. Not getting it causes seizures, developmental delays, learning disabilities, and even permanent brain damage.

As awful as this sounds, there are no approved therapies for cHI.

Without a true targeted therapy, physicians fall back on a less-than-ideal standard of care, called Diazoxide, which has problems.

First, Diazoxide doesn’t work for all patients. Less than half the patients with cHI respond to Diazoxide.

Second, one in ten of those that do respond have side effects that are so severe they are still forced to discontinue treatment.

Finally, if Diazoxide doesn’t work, the alternative is surgery.

There is clearly an opportunity here for a drug that works well. Which ersodetug seems to do.

A PROMISING PHASE II TRIAL

Rezolute completed their Phase 2b study, called RIZE, in August 2022.

This was a trial of 23 patients, 6.5 yrs old. Thes kids spent close to 20% of the time in hypoglycemia with 13 events per week.

Evaluating the efficacy of a drug in cHI is straightforward. You look at how glucose levels are trending and, most importantly, how many times and how long glucose levels drop dangerously low.

With ersodetug, the impact was significant.

Source: Rezolute Investor Presentation

The number of hypoglycemic events declined by 74% versus baseline. The number of severe hypoglycemic events (blood sugar dropping really, REALLY, low) dropped by 89%.

Below is the abstract from the study. I highlighted relevant passages.

Source: European Society for Pediatric Endocrinology

To cherry-pick a few patients, Rezolute points to a 2-year-old and 6-year-old who both had debilitating hypoglycemia before ersodetug and were incident free in the two weeks after.

Source: Rezolute Investor Presentation

The takeaway: the drug seems to work.

NOT A LOT OF OPTIONS

Okay, we have a drug that seems to work. But what’s the competition?

Unfortunately for the kids, cHI doesn’t have a lot of options right now.

Below is a table from a competitor that describes the options. They either don’t work, are off-label, have bad side-effects, or a combination:

Source: Zealand Pharma Investor Presentation

As for what’s in development, Zealand Pharma is developing a drug called Dasiglucagon. This is what Dasiglucagon did in their Ph3 trial:

Source: Zealand Pharmaceuticals

The drug also works. Events per week went from ~40 to maybe 20-25. They say it was a 37-40% decline in events and a littler less than 50% decline by time in a hypoglycemic state.

These results are good, but they are not as good as ersodetug.

Dasiglucagon is also only targeting Diffuse CHI, a sub-type of the disease. Diffuse cHI is 700-800 patients, with the rest of the patients being Focal cHI, which is 400-500 patients.

Next let’s compare ersodetug to the Amylyx drug, Avexitide.

This was the study summary of the small Avexitide Ph2. First, a summary of those results.

Source: Diabetes Care

At first glance, it looks like Avexitide also reduces hypoglycemic events significantly. But not so fast.

First, this trial used a protein tolerance test, whereas Rezolute was looking a real-world induced symptoms. Second, the improvement didn’t occur in severe events, which makes you wonder why?

Source: Diabetes Care

When you look at the underlying Avexitide glucose data, it doesn’t look amazing. The drug does something, but its not making a huge difference.

Source: Diabetes Care

Finally, when you look at (A) the baseline is barely getting below 4 mmol/L which is 70 mg/dL. These kids aren’t hypoglycemic in the first place whereas the patients in the RZ358 study definitely were.

Avexitide is also an infusion which isn’t ideal for kids.

Taking all this in, it just seems to me that ersodetug is the better drug compared to both Avexitide and to Dasiglucagon and better than the standard-of-care. I don’t see any other drugs in development that are passed pre-clinical.

Which makes me feel pretty good about the prospects IF ersodetug can repeat these results in a Phase 3 trial.

NEXT STEPS

Ersodetug is now fully enrolled for its Phase 3 study, called sunRIZE.

The study is evaluating the safety and efficacy of ersodetug in participants who are unable to achieve control of low blood sugars (“hypoglycemia” [<70 mg/dL])

This is a 24-week study. Will look at two things:

1. Hypoglycemia events using self-monitored blood glucose (“SMBG”)
2. Time in hypoglycemia using continuous glucose monitoring (“CGM”)

Source: Rezolute Investor Presentation

There will be 56 participants. Rezolute is breaking the patients out into a 5mg dose and a 10mg dose (the Ph2 was 6mg and 9mg).

This study reads out in the second half. But IMPORTANTLY: there is an interim analysis that is happening in days. More on that shortly.

A SECOND TARGET: TUMOR HI

There is a second target for ersodetug, but because its readout is after cHI, and the stock is going to be a whole different thing depending on how cHI goes. I will just touch on it only briefly.

Rezolute is targeting Tumor HI. Some tumor types can lead to excessive insulin production, which in turn brings on hypoglycemia.

The current treatment for Tumor HI are:

A. tumor-directed de-bulking (chemo, surgery)
B. Diazoxide and glucocorticoids to treat the hypoglycemia.
C. Both

The problem is that Diazoxide (this is the same drug that is standard of care for cHI) doesn’t always work. There are cases where the tumor is causing HI by creating a non-insulin substance (Diazoxide works by stopping insulin production so if that’s not the problem, the drug doesn’t do much).

Rezolute estimates that there are 6,000 patients that are suffering from Tumor HI. At least 1,500 of these are immediately addressable because they aren’t responding to the existing treatment.

Source: Rezolute Investor Presentation

Source: Rezolute Investor Presentation

One interesting point about Tumor HI, and the reason I’m spending time on it at all, is that ersodetug is already used in the clinic by doctors that are out of options (called compassionate care).

It is anecdotal, but what they found was:

• Substantial hypoglycemia improvement
• No significant side effects
• They could discharge patients from in-patient to out-patient care

What this is suggesting is straightforward: the drug works.

Rezolute announced an IND for a Ph3 trial in Tumor HI in August. They plan to enroll in H125 and complete the trial in H126.

As for competition, just like cHI, there isn’t a lot. The existing option is Diazoxide or surgery and I don’t see any evidence that another company has a drug in development that is targeting Tumor HI.

FINANCING AND VALUATION

Rezolute has 60M shares outstanding. There are also 15M pre-funded warrants. These were issued from 2021 to 2024. By the end of Q4 ~5M of these warrants were exercised.

That means all-in we are talking ~70M shares. At $3.50 the market cap is $245M.

Cash at the end of Q4 was ~$105M. Their cash burn was $30M in 2024 and $24M in 2023.

They do have a licensing agreement with XOMA, which gives them the rights to develop ersodetug. They entered into the agreement in December 2017.

Under this agreement they made a milestone payment of $2M Jan 2022. They also made a $5M milestone payment when those dosed their first Phase 3 patient in Apr 2024.

Total additional milestone payments would amount to $30M for development. Once ersodetug is commercialized, they will pay royalties to XOMA and there are $185M of sales related milestone payments.

BUT WAIT – NO, REALLY, I MEAN WAIT

HC Wainwright estimates ersodetug could generate about $1.4B of revenue by 2031. They are by far the most bullish analyst.

Cantor is a bit less optimistic. They use probability adjusted revenue and estimate $390M in 2031.

Wedbush only takes their forecast out to 2030. They see $215M of revenue from cHI and another $42M from tHI.

Finally, Canaccord estimates $215M of revenue from CHI in 2032 and $130M from tHI.

You get the picture. While not a blockbuster, this could be a profitable drug.

Because cHI is a rare disease Rezolute received rare pediatric disease designation for the drug. They will receive a Rare Pediatric Disease Priority Review Voucher if the drug is approved for cHI, which can be used to fasttrack another drug.

These vouchers are often sold upfront for cash. Past sales have been worth $100M-$125M.

Sounds great, right? So, what am I waiting for?

Up until February, the catalysts were straightforward.

Source: Wedbush

But on February 4th Rezolute announced that a Data Monitoring Committee had reviewed the Ph3 data and evaluated the safety of ersodetug.

The good news was that there were no adverse safety concerns.

But at the same time, Rezolute also announced that there would be an interim analysis at the end of Q1.

An interim analysis is not uncommon. It is intended to optimize the study. There are 3 outcomes: you leave the study the same, you increase the number of participants, or you determine the study is not worth completing and end it (called futility).

I REALLY doubt that futility is going to be the result. Most likely the study continues as is.

But as an investor, there is no upside to being long into this event. When the options are status quo or something worse, you are best to sit it out.

Which is what I think is weighing on the stock.

Source: Stockcharts.com

If you go on the message boards, there are conspiracies that the data is leaked and that is why Rezolute is down.

I don’t buy that. What I do believe is that investors don’t see any upside to buying the stock right now. Thus, they wait.

A lack of buying is all you need to push down a micro-cap.

What am I going to do? Nothing. For now.

I plan to wait until the interim analysis comes out. If its not futility, and especially if its status quo (not needing to add patients), then I’m going to give a real long look to adding Rezolute to my portfolio.

Rezolute will get topline data in the second half of 2025. If the data is good, approval is next, the ~$100M voucher is in the bag.

All that that should drive the stock higher.

But that will be then. This is now. And now is the time to be patient.

AND I DECIDED….TO DO NOTHING WESTSHORE TERMINALS (WTE – TSX)

What do you invest in when your largest trading partner is slapping 25% tariffs on everything crossing the border?

How about a company that is tied 100% to Canadian exports that go to everywhere BUT the United States.

That is what we’ve got with Westshore Terminals (WTE – TSX), which operates THE LARGEST coal loading terminal on the West Coast.

So I did a deep dive on it. I initially thought this could be a big dividend growth story because of upcoming BHP (BHP-NYSE) contract to handle potash from their new Jansen mine in Saskatchewan. Meaningful revenue is not until 2027 for WTE. But after some digging–and last Friday’s news confirming quite large cost overruns–$45 M to $225 M–I think the dividend stays put for a few years.

Today Westshore pays out CAD$1.50/sh with the odd special divvy (which I now think are on hold for a few years). That’s just over 6%, and there is no debt. In fact they have $147 M net cash! Which they are now going to need.

Westshore just updated investors on late Friday, confirming some cost inflation here and re-affirming they have $225 million into the project.

Allow me to back up and segue into the rest of the business–what’s the risk? I like that it’s part of an oligopoly and basically unique. And Jimmy Pattison, an investing and business legend, controls it.

Westshore is tied to thermal coal, so all the usual climate caveats apply.

A year ago, climate would be a big deal for any coal investment. Today, I’m not too concerned. While I wouldn’t go so far as to say that coal is making a comeback, I do think that the pressure from the environmental lobby is going to be far less for the next few years – so long as Trump is in office.

The second risk is the loss of a big customer. Their relationship with Teck Resources, now Glencore (GLEN – LSE) has been in the crosshairs in the past.

This is largely done and done. Their business with Glencore is already greatly reduced. They do have a contract with Glencore that comes up in 2027, but it seems less likely given that I can’t see anywhere else for the coal to go and I doubt Glencore wants to be completely reliant on a single terminal anyway (they partly own the Neptune Terminal outside of Vancouver).

I’m comfortable with the risk. I’m convinced the 6% dividend is rock solid. Add that to the upcoming potash growth and this looks like a pretty clean-coal story (pun intended). And again, this is a Jimmy Pattison company (BC’s richest person and an investing legend).

Westshore should be a steady-eddy dividend play with upside as the potash volumes ramp up in 2026, with newly guided meaningful revenue in 2027. But as you’ll read, I’m just not sure shareholders get rewarded that fast.

 

QUICK FACTS

Trading Symbols: WTE
Share Price Today: $23
Shares Outstanding: 61.8 million
Market Capitalization: $1,355 million
Net CASH: $147 million
Enterprise Value: $1,219 million
Dividend: $1.50/sh per year or 6.5% at $23

 

BRINGING COAL TO THE WORLD!

Westshore operates the largest coal loading terminal ANYWHERE in the Americas.

Source: Transportation Safety Board of Canada

The terminal can handle up to 33 million tonnes of coal per year. The last few years it has been operating well under that capacity – in a range of 23-27 million tonnes.

Source: Westshore Terminals Annual Reports

This business is as simple as it gets. Coal is delivered to the terminal in unit trains operated by Canadian Pacific Kansas City (CP – NYSE), Canadian National Railway (CNI – NYSE) and BNSF Railway.

Coal is loaded onto vessels that are destined for approximately 14 countries Worldwide.

Westshore is paid on tonnage. This makes for an extremely transparent revenue model with long-term set contracts.

In 2024, Westshore received $13.76 per tonne loaded. Already Westshore knows that in 2025 they will get $13.55 per tonne for 26 million tonnes of coal. This is ideal for dividend visibility.

Most costs are fixed so margins on the business are largely determined by volume.

Source: Westshore Terminal Annual Reports

When Westshore loaded 28,000-29,000 tonnes in 2020 and 2021, gross margins were 50%+. When volumes dipped in 2022, margins dipped along with them, to 38%. In 2024 margins have been 47% and the last two quarters have exceeded 50%.

With very little G&A (only $15M a year or less than 5% of revenue), Westshore can run a very profitable operation.

This allows Westshore to pay a 6% dividend and still fund some of the growth like the potash project. BHP is paying for part of the expansion at the terminal, but WTE is on the hook for $225 M of cost overruns. But between cash on hand and cash flow, they have that.

 

THE BIG RISK HAS BEEN THE CUSTOMER

Westshore’s big risk the last few years has come from their suppliers. Will they have the coal to ship or will some of their customers go elsewhere?

To understand that risk today, first consider the shipping landscape. There are really 3 options if you are a large coal miner in the northwest.

There is Westshore. There is Neptune Terminals, which is also near Vancouver, specializes in exporting metallurgical coal, but importantly: is exclusively Teck shipments. And there is Ridley Terminals, which is much further north in Prince Rupert.

The customer concerns a few years back revolved around Teck. Teck was Westshore’s largest customer. 10 years ago, Teck accounted for 20 million tonnes of coal, which is about 2/3 of total volume.

But 5 years ago that changed. The competing Neptune terminal completed an expansion and Teck began to move volumes to Neptune, not surprisingly since they owned the terminal (along with Canpotex).

For a while in early 2020 contract negotiations between Teck and Westshore got heated and it looked like Westshore might lose all their Teck coal volume. But an agreement was reached. Today Glencore is shipping 5-7 Mt of coal via Westshore (though Neptune remains Glencore’s primary export terminal).

Source: Teck Resources May 2024 Presentation

Could these volumes go away? I doubt it. The current agreement that Westshore has with Glencore ends in 2027. It is 5-7 million tonnes is a lot of coal, about 20-25% of Westshore’s total volume.

But Glencore has limited options to move more volume away from Westshore.

I’ve read that Neptune is near capacity. I don’t see any mention of an expansion at Neptune in the works. To be honest, expanding a coal loading terminal, which is going to be expensive upfront and will have volume headwinds at some point, does not seem like a great idea. That should work in favor of Westshore.

The other option is shifting met coal exports to the Ridley terminal. But Ridley is way, way north in Prince Rupert, which gives Westshore an advantage.

There’s also the consideration of optionality. If something happens to Neptune or Ridley, Glencore does not want to be stuck. They describe their Westshore contract as providing “flexibility” and that has value.

With less Teck volumes, Westshore has become more reliant on exports of US thermal coal from two privately-owned mines in Montana: Spring Creek and Bull Mountain. These mines have even less options than teck, as Prince Rupert is just too far away and requires switching rail lines, and Neptune is a Glencore-only option.

You add this all up and I’m just not that worried about that 2027 expiry or the other volumes. This is an oligopoly of three terminals, and I think any shift in volumes will be akin to shuffling deck chairs.

The second customer risk is the reliance on thermal coal. As much as 30% of the coal loadings at the terminals can come from the Powder River Basin in the United States.

In 2023 64% was thermal coal and 36% was metallurgical coal. Over time, more thermal coal and less steel making coal has been loaded.

Source: Westshore AIF

Being more reliant on thermal coal is going to be challenged by climate policy in the long run. For now, I’m not as worried about it as I might have been a year ago.

The reality is, with Trump in office the climate agenda is going to be taking a back seat. I don’t expect a big push against thermal coal – at least for the next few years.

 

EXPANDING INTO POTASH

Coal is a cash cow, but it is not the future. Which is why the infrastructure additions to the terminal to handle potash from BHP are an important diversification.

Westshore is modifying existing un-used coal loading infrastructure to handle potash. These additions include a new potash dumper, storage building, associated conveying systems, dust collectors and enclosures for the potash (it can’t get wet).

Westshore’s agreement with BHP calls for production starting in late-2026. The first phase is to handle up to 4.5Mt of potash, all of which will be coming from Jansen (Jansen is expected to produce 4.35 Mt of potash per year).

A future expansion will increase capacity to 9.2Mt per year but this is contingent on either BHP’s mine expansion of Jansen or deals with other customers.

To make it sound even better, BHP is paying for most of the expansion.

Sort of. BHP is fronting the costs of the expansion by reimbursing Westshore for the construction costs.

It sounds like a deal. However, before we get ahead of ourselves, the way its worded in the MD&A makes it sound like these costs will be counted as revenue at some future date.

Source: Westshore 2023 Annual Report

In 2023 Westshore received another $53M. In the first 9 months of 2024 they invoiced $174M.

I’m NOT 100% sure how this invoicing works. The agreement isn’t documented anywhere I have found. But because the invoices are being recorded as deferred revenue, I have to assume there will be a reduced cash revenue in return for the reimbursed construction costs.

A very brief chat with management shed no light on this. If they know, they weren’t sayin’. And Friday’s release didn’t really enlighten us either.

Clarity on this would help me decide to own the stock or not right now. That and the cost overrun itself is what made me decide to pass on the stock for now.

Just to give you an idea of the potential numbers, Phase 1 is 4.35 M t x $13.76 = $62.33 million revenue and 50% EBITDA = $31.16 million–on 62 M shares that’s 50 cents per share increase in EBITDA. At 10x EBITDA that’s an extra $5 per share.

WTE payout ratio is 100%. The question is, how much of this extra cash can flow through to shareholders, and how much do they have to pay back to BHP each year? Investors don’t know.

Once the expansion is complete, the overall throughput of the terminal will remain at 36 Mt. The potash capacity will replace what has been unused coal capacity.

Nevertheless that should still translate into growth as that coal capacity was idle.

 

IF IT’S COAL, IT MUST BE VALUE

Westshore paid a regular dividend of $1.40 last year and will pay $1.50 this year.

Their dividend history is up and to the right. They are also not averse to paying special dividends. They paid a big $1.50 special dividend in 2022 and are paying a $0.35 special dividend this year.

Source: Westshore Annual Reports

The dividend coverage isn’t great, but you have to look at the big picture. Westshore is completing a MAJOR potash expansion. They are spending FAR MORE capex than they have in the past.

The payout ratio was above 100% in 202, close to 100% in 2023 and right about 100% in 2024. If you only looked at that, you’d think a dividend cut was on the way.

Source: Westshore Annual Reports

The above chart includes the impact from BHP paying the cost of CAPEX. So while CAPEX is unusually high because of the construction costs of the potash conversion, cash flow is also unusually high because of the cash coming in from BHP and being added to deferred revenue.

What does it all mean? Honestly, its tricky — for me anyway–to understand. So I am going to fall back on the past: if you look at Westshore’s history, maintenance capex when they aren’t completing a big new upgrade is actually pretty modest. Which means cash flow once the potash expansion is complete should more than cover the current dividend.

That makes me fairly confident that Westshore will keep paying the current dividend even as they build the potash capacity. The caveat being that we don’t have any details on the BHP contract so we don’t know how much cash that contract will generate once the deferred revenue begins to amortize.

Once it is complete, the potash terminal will only increase cash flow and vastly improve the long-run viability of the terminal.

 

AN EASY SINGLE

The Jim Pattison Group owns approximately 46.9% of Westshore’s shares. Additionally, Jim Pattison personally owns about 30.54% of shares.

Pattison has had a lot of success over the years. I like being on the same side as him.

With the stock trading at ~$23, the yield on the $1.50 dividend is 6.5%.

That alone is pretty good, but it COULD get especially good with the growth that is coming from potash.

How about the valuation? Westshore did $1.86 of earnings per share in 2023. They are on track to likely do something similar this year. That puts the stock at 13.5x P/E. It is not expensive.

Westshore doesn’t have any traditional debt. Instead, they pay annually to the Vancouver Fraser Port Authority to lease the land and port access to their terminal.

This is an extremely long-term lease – it comes due in 2051 and even then, there is an option to extend to 2070. They pay fixed lease payments that get revised every 3-years, with the next revision happening in 2027.

Chart-wise, the stock is moving toward the middle of the channel it has been in since 2022.

Source: Stockcharts.com

That can be good and bad. Good if it breaks out. Bad if it slumps again to the low $20s. It was looking good until Monday this week, the first trading day after the ops update aftermarket Friday (rarely a good sign).

The potash volumes from Jansen are expected to begin in late 2026. As we get closer to that ramp I think we’ll see investors anticipate the increased cash flow and dividend.

In the past, what drove Westshore down were worries about Teck/Glencore and worries about coal and the environment.

I just don’t see those as big headwinds in the near term. With Trump in office there are simply too many other concerns for the environmental lobby to squeeze coal. The Glencore renegotiation is way off and even then, their options are limited.

Looking past that, we have to remember that 64% of volume today is thermal coal. And in 5 years those volumes are likely going to be lower. In 10-years they will almost certainly be lower.

That’s why I’m not going to give you any wild growth projections once the potash volumes ramp. It is safe to assume that potash replaces thermal coal over the long run. If the lifespan of thermal coal is longer than I imagine, all the better.

With the market reaction to the cost overruns, I expect any extra dividend is now off the table until 2028, and likely any yield compression (higher stock price) is a couple years away.

I am not long. Yet. More clarity here on this $225 million in deferred revenue would be good for investors. This should be an easy story. It almost is.

Donald Trump wants to right-size trade with other countries. He is hell bent on removing the trade deficit.

To Trump, a trade deficit is a sign of economic weakness. Americans are “losing” to other countries.

The losses are two-fold. American workers are losing good-paying manufacturing jobs. And money outflows are draining the national wealth.

So far, his ire has focused on manufacturing jobs and the trade deficit. Yet, he could have another card up his sleeve that no one is talking about – yet.

I worry that Trump may shift his focus to the other side of the US balance sheet: what is called the Capital and Financial Account Balance (Capital Account for short).

Every country has a balance of payments. This is basically a fancy way of saying that money and goods into a country have to equal money and goods out.

On the one side of the balance of payments are trade flows. On the other side are investing flows.

Source: Reserve Bank of Australia

The nature of a nations balance of payments is that the two sides of the ledger must balance to zero. Money and goods going coming in has to equal money and goods going out.

The trade deficit is large – a little under $1 trillion last year. The biggest deficit country is China, which is about $300B, and Mexico at $175B.

To counter those deficits, capital needs to be coming in from other countries. Japan, China and Canada are the biggest sources of foreign portfolio investment, which is investments in US Treasuries, corporate bonds and stocks.

With Trump, you gotta think outside-the-box because his policy ideas are often way, WAY outside the mainstream.

One VERY big outside the mainstream idea, would be for Trump to go after the Capital Account.

What would that mean? It would mean taxes on foreign investors where you’ve never had them before.

WILL YOU HAVE TO PAY TO BUY STOCKS?

The capital account of a nation describes the inflows and outflows of investment.

Money can flow in and out of a country in two ways

1. In return for buying or selling goods produced by the country
2. Investing in an asset that resides in the country

How can Trump target #2? Tax the investing inflows.

What we are talking about here is a transaction tax, one that applies to each purchase of a USD asset. It could be applied to Treasuries, to bonds, or even to stocks.

That would mean every time you bought shares of a US company, you’d have to pay to do so.

This isn’t a new idea. Michael Pettis wrote about it in a 2019 article titled, “Washington Should Tax Capital Inflows“.

Pettis is a China-expert, and his reference point is the Chinese trade surplus with the US. But there is no reason that such a tax couldn’t be applied to other countries, or across the board.

Taxing dollars coming into the United States makes sense for a couple of reasons.

First, taxing it anywhere else is really hard.

Most countries tax capital gains, applying the tax to whatever profit you make on the investment.

But these taxes are on residents, where the government has all the data they need to calculate the tax. It is much trickier (maybe impossible) when the holders don’t reside in the United States. The IRS doesn’t have access to the information required to apply the tax at the time of sale.

Second, it would be counter-productive to apply a tax at sale because it is an outflow of capital, because more outflows encourage a weaker dollar, which is another thing that will help trade (more on this shortly).

Third, the tax would encourage long-term investments and discourage short term ones. Buying 3-month T-Bills would be especially painful (you’d be taxed 4 times each year). Buying the 10-year Treasury would be a minor annoyance.

Finally, taxing capital is flexible. If the US needs foreign capital, just eliminate the tax to encourage it.

What would it cost us investors?

In his article, Pettis suggests that 50 basis points (0.5%) would be sufficient.

That isn’t a huge amount. Think $500 on $100K of Meta stock.

Yet, it’s enough to discourage excessive trading in US stocks though. Trading in and out of Meta once a month would cost you $6K over a year!

Which I guess is the point. The tax targets day traders and speculators, the type of capital the US would like less of.

HERE’S HOPING SANITY PREVAILS

Look, I can handle 50 basis points if it comes to it. I just don’t want it to get too crazy.

Crazy is if the US went down the road of a broad withholding tax.

Already the US has a 30% withholding tax on interest and dividends received from US sources. While tax treaties reduce this amount (in Canada to as much as 15%), it would be easy for Trump to opt out.

That would hurt, but worse would be a withholding tax on capital gains.

Fortunately, as I’ve already pointed out, this seems unlikely because the information just isn’t there for the IRS.

And to be clear, I haven’t seen this suggested anywhere (and believe me, I looked!).

Nevertheless, it is worth pointing out that under the Foreign Investment in Real Property Tax Act (FIRPTA), capital gains from selling U.S. real estate are already subject to a 15% withholding tax on the gross sales price, even if the foreign seller is otherwise exempt from U.S. Tax.

Fortunately, it’s a lot easier to tax real estate than stocks. Which means the easiest thing for the US to tax is simply the dollars coming in.

Unfortunately for those of us residing outside the US, that doesn’t seem that hard to do and does kind of make sense.

STRONGER DOLLAR? WEAKER DOLLAR?

There is another way for the US to target their capital account surplus – the US Dollar.

That could hurt some of us A LOT.

Currency is maybe the #1 underrated consideration for non-US investors in US stocks. Just think about it for a minute.

How many of us have 50%+ US stock allocation? Sure, it seems diversified with Apple (AAPL – NASDAQ), META, some Clorox (CLX – NYSE), McDonalds (MCD – NYSE) and Honeywell (HON – NYSE). But is it really diversified?

It’s not in terms of currency. 50% of your portfolio in US dollars could get ugly if Trump can successfully devalue the dollar.

But will that (and can that?) happen?

The US Dollar is maybe the most confusing of the Trump administration’s objectives.

Trump wants a weak dollar. But policies like tariffs lead to market adjustments that will strengthen the dollar.

Treasury Secretary Scott Bessent did not help matters last week when he said, “we want the dollar to be strong” but also that this “does not mean other countries can have a weak currency policy”.

So stronger dollar? But not against other currencies? Wait, what?

How would Trump get a weaker dollar anyway.

Probably the strangest idea being floated around was brought up by Jim Bianco last weekend.

Bianco is not inclined to make wild claims. Yet he hinted at a unique and probably disruptive way of bringing the dollar down and getting some of the other things that Trump wants done (i.e. lower government debt).

Bianco said that the Trump Administration is toying with the idea of zero-coupon treasury bonds. These are bonds that pay no interest. They would (presumably) be forced on allies in return for “services” – specifically protection from the US military and the role of the US as reserve currency.

What’s more, these bonds may be perpetual, meaning that they have no exchange date!

To be clear – a bond that pays no interest and has no maturity isn’t really a bond – it is more of a claim on USD. Sort of.

The idea seems crazy (but don’t they all?) but being Canadian, and being the butt of Trump taunts for months, it doesn’t strike me as impossible. Strongarming trade partners seems on-point.

After all, Trump clearly has beef with countries not paying their fair share in military spend. Canada, Mexico, NATO countries, maybe even Central and South America, could qualify under his definition of “getting a free ride” on US protection.

This would likely be negative for the USD.

It would weaken its case as a reserve currency (who wants to hold bonds in a country that may effectively default on them, in return for some other no-interest paying bond).

It would also bring to question all those Treasuries not held by friendly Central Banks and whether they may be next.

SO HOW CAN WE MAKE MONEY?

Did you know that before World War I the United States didn’t have any income tax at all?

It’s true. In fact, in you’ve followed Trump’s comments (Trump LOVES to harken back to these old, “glory” days) you already know where most of the tax revenue came from – tariffs.

Apart from tariffs (also called Customs), revenue came from taxes on vices – especially alcohol (the introduction of prohibition was what made taxing income a necessity).

Source: The Annals of American Academy of Political Science and Economics – May 1921

Yoau see where I’m going here. Tariffs. Capital inflow taxes. Zero-coupon Treasuries. It’s all adding up to the need for less internal tax revenue.

Trump LOVES to talk about abolishing income taxes.

While that seems a bit bold (today’s Federal Government is covers Social Security, Medicare, much more defense and these aren’t getting repealed), what I can imagine is a much simpler tax system.

There is already chatter about a flat tax. A simple, single tax rate that everyone pays.

Whatever you might think about the merits of such a proposal, one thing is clear – it will make doing your taxes much easier.

The need for Intuit (INTU – NASDAQ) tax software or H & R Block (HRB – NYSE) tax professionals might be cut off at the knees.

And while I am mostly just spit balling here (after all shaking up the tax system this significantly is something that would take years) you have to wonder if some concerns around the edges have taken the wind out of these stocks.

Source: Stockcharts.com

A short on these names may be a hedge against a capital account attack.

More broadly, I just wonder if the market can withstand all these trade winds.

You add these names to the list of government contractor firms that are being hurt by Elon Musk’s DOGE effort – just take a look at the charts of Booz Allen Hamilton (BAH – NYSE) and DLH Holdings (DLHC – NASDAQ), and it is a lot easier to find losers from the Trump Administration policy then winners.

Which makes me wonder if the easiest (and safest) action is to not play at all.

Which I might do. Just take my money and go BACK home TO INVESTING IN CANADA.

Elon Musk is all over the news these days for reasons that have nothing to do with investing.

But before Musk decided to go all in on DOGE (the Department of Governmental Efficiency), he made a few comments on the last Tesla (TSLA – NASDAQ) call about self-driving cars that made me take notice.

Musk said that Tesla’s future, and in his opinion everyone’s future, lies in two innovations: autonomous vehicles and autonomous humanoid robots.

The robot angle, I’m not going to touch that one here. It could be HUGE (imagine robots that do your dishes, clean your house, even help prep dinner), but it is years away.

What I’m interested in are autonomous vehicles – in other words self-driving cars.

If we believe Musk, Tesla’s full full self driving (FSD) robo-taxi is coming to Austin, Texas in the summer of this year.

Of course, Musk promises don’t always pan out. On the call he even called himself “the boy who cried wolf several times”.

But he followed that up with a caveat: saying this time, “there is a damn wolf and… It can drive you. It’s a self-driving wolf.”

MAKING CENTS OF SELF-DRIVING

Taking a step back, FSD cars just makes sense.

A commute where I can read a book, the family napping on vacation to arrive rested at the destination, even just getting out at the front door while the car finds its own parking spot.

Now I know, I know, it also sounds scary. It is, because it’s a brand-new thing. But with AI improving at such a rapid (alarming?) rate, I think it won’t be long before cars are more safely driving themselves than we ever are.

That makes it a big opportunity for someone – and maybe not just Tesla.

Tesla is no doubt the leader here. Yet given how Tesla has morphed into a political proxy on the Donald Trump administration, I’m just not sure I want to go there.

Fortunately, there are other beneficiaries.

SELF-EDUCATING ON SELF-DRIVING

My introduction to self-driving cars came from a deep-dive into what became a portfolio holding, Arteris (AIP – NASDAQ).

Arteris develops semiconductor IP.

What they do is akin to an auto-OEM that only designs transmissions. The OEM doesn’t design the whole car, and Arteris doesn’t design the whole chip, but they are a key piece of the final product (in this case the semiconductor).

Arteris specializes in the interconnection interface between chips. One big end-market for this is to power advanced driver assist systems (ADAS) that we have today.

ADAS is the stepping stone to fully autonomous driving and you probably use it every day if you have a car that beeps when another car passes behind you in a parking lot, or if a car is close by on the freeway when you begin to change lanes.

Arteris’s biggest customer is Mobileye (MBLY – NASDAQ). Mobileye uses Arteris IP in their ADAS EyeQ6 and EyeQ7 chips.They will (soon!) use the IP to power their next-gen autonomous driving semiconductors.

Lately I started looking at Mobileye, and what I was surprised by was just how dominant they are. Mobileye has somewhere around 70% of the ADAS market, including 60% in China.

You might think that Mobileye would carry with it an eye-popping capitalization. After all, Tesla is a trillion-dollar company.

Yet Mobileye has a modest market cap of about $14B. It is roughly the same price Intel paid to take Mobileye over in 2017.

That market cap took a hit in 2024. Based on the chart, you’d never guess this company could be on the verge of something big.

What happened? The short story: Mobileye had some revenue declines. In 2024, full year revenue was $1.65B, which was down from $2.1B in 2023. Ouch.

The longer story is why. I see a couple reasons. Neither is about the long game.

SUPPLY CHAINS ARE NOT YOUR FRIEND

Mobileye identified they had an inventory problem in late-2023. They warned that their 2024 numbers were going to be impacted in early January. That coincided with the first big drop in the stock price.

The inventory issue was partly COVID, partly EV’s.

After COVID wreaked havoc on supply, auto-makers decided this wasn’t going to happen again. They began to over-order on key components.

One key component that REALLY held up car production was chip availability. As a result, many, many chips were ordered. Too many.

When auto demand slowed in 2024, the OEM’s had a problem and cut back on orders.

Exacerbating this was Mobileye’s dependence on EV’s and China.

Mobileye’s advanced hands-off solution is called SuperVision. After going into last year SuperVision was only on EV’s and largely in China.

It may surprise you to know that China has kept up with North America on developing assisted driving technology.

Remove Tesla from the picture and China is actually leading in next-gen “hands-off” ADAS.

Mobileye’s early wins were with Chinese OEMs like SAIC Motor Corporation, FAW Group, Geely Auto Group, and NIO.

Those wins meant early revenue. But being reliant on China is a blessing and a curse.

Mobileye was vulnerable to replacement as China learned the technology and followed the playbook of taking development in-house.

Which is what began to play out in 2023 and accelerated in 2024.

In fact, Mobileye’s recent 2025 guidance took a very conservative view of China, including some more moves to in-house production.

DON’T LOOK BACK, IT’S ALL RIGHT

That was 2024. It explains the stock price going from the $40’s to the teens.

What it misses is two-fold:

A. Mobileye has a 70% share in ADAS with their EyeQ technology stack

B. Mobileye is beginning to win next-gen deals for SuperVision, for Chauffeur (eyes-off) and for Drive (no driver)

Why is Mobileye winning? There isn’t a lot of competition.

Mobileye provides an end-to-end solution. They give you the software, the cameras, radar, and LiDAR and the hardware to run it.

Both Qualcomm (QCOM – NASDAQ) and Nvidia (NVDA – NASDAQ) have chip solutions for ADAS and higher-level autonomous driving.

These are “open” systems. You buy the chips from Qualcomm or Nvidia but it is up to you to program them, tie them into cameras, radar and/or LiDAR.There has been a debate going on about whether automakers would go “open” or “closed”, which is what Mobileye’s full stack is. Would the big Western automakers follow China and take their designs in-house?

Mobileye allayed those fears on their Q4 call. When asked directly about it, CEO Amnon Shashua said, “the third bucket in terms of in-house development, we don’t see a trend there. We don’t see anything that is serious about in-house such advanced product”.

This isn’t surprising. Some automakers have tried and failed. One well-known example is Nissan, which tried to solve the L4, L5 (the highest levels of autonomous driving) problem and realized that they could not make the software work.

Mobileye’s competition for a closed system solution are only doing it for their own fleets: Tesla and Google (GOOG -NASDAQ) owned Waymo.

KEEPING UP WITH TESLA

And here is the second big complaint about Mobileye. The Tesla solution is better.

Each of Tesla, Waymo and Mobileye use very different approaches to accomplish FSD with varying reliance on cameras and radar and LiDAR.

Tesla is camera only. Musk believes that cameras alone can solve autonomy. In his usual, first principle, kind of statement, Elon said thathumans have eyes and a brain, why should cars need LiDAR?

Waymo, on the other hand, is LiDAR based. While Waymo has cameras and radar, their primary sensor for perception is LiDAR. LiDAR stands for light detection and ranging – it is a sensing technology that uses lasers to detect distances. It is excellent at depth perception but comes with a cost.

Mobileye is camera centric. The primary detection is via camera, but their approach includes two layers of redundancy – they layer imaging radar, which can create high-resolution, detailed 3D images of the surroundings and use LiDAR as a 3rd tier fail safe.

There are plenty of arguments to be made in favor of each. Tesla’s solution is the most elegant. It does it all with only 8 cameras, less than Mobileye’s camera/radar/LiDAR design.

To make it work Tesla relies heavily on AI learning which they call their neural network.

That would be hard for an automaker to replicate in-house. And it’s unlikely that Tesla is going to be selling this to Volkswagen or Ford, their competition.

Does Tesla matter? If Mobileye has a solution that works and is expandable to multiple OEM vendors, I suspect they’ll win their share of business.

CRUNCH TIME

Mobileye’s reliance on EV’s may be true for cars in production, but it isn’t true for cars in development. Nearly half of their advanced system deals are for internal combustion engines.

What Tesla’s shot across the bow has done is strike a fire under some of the larger OEMs.

The broader issue with Mobileye is that the traditional OEM’s – Ford, Volkswagon, Toyota and so on – have been slow to adopt the next generation of autonomous driving.

If Elon Musk is good at one thing it is charging ahead. The rest of the auto industry, not so much.

While Mobileye has had the product ready to go, the automakers simply haven’t been there.

That is changing.

On their Q4 call Shashua said, “the work of Tesla is really creating a sense of urgency with our OEMs. We still believe that 2027 is really the right timing for introduction of these systems”.

At their Investor Day in December Mobileye compared their OEM engagements at YE2023 to YE2024 and showed substantial progress.

Bank of America, which is anything but a Mobileye bull (they believe Tesla will be the big FSD winner over the next 15-20 years), admitted in a recent note that Mobileye

“appears close to securing a SuperVision/Chauffeur contract with a Japanese OEM and a Surround ADAS contract with a European OEM. It also appears close to a Surround ADAS contract with a US-based OEM.”

Mobileye has already announced deals with Volkswagen (which will start production in 2026) and say others will start producing self-driving capabilities until 2027-28.

STOP LOOKING OUT THE REAR-VIEW MIRROR

Let’s get back to what we own. Arteris has always been a waiting game with the payoff a few years out.

We acknowledged this when we bought the stock. But we also knew that the market looks ahead.

Sure enough, Arteris moved on more design wins and greater certainly about future revenue. The stock has appreciated by some 50%+ since our initial buy.

I’m thinking that same dynamic could play out with Mobileye.

The 2025 numbers are not going to be great. Though they low-balled guidance so blatantly that they could do a nice beat. Yet, new deals could set the stage for 2027-28 growth and that might be enough for the market.

On the Q4 call Mobileye guided weaker than the Street would have hoped. Yet, the stock went up 10%+ on the day.

That had nothing to do with 2025. It was because they said they are getting close on deals and are not worried about western automakers going in-house.

Their new products like Supervision carry price tags 10x higher than legacy ADAS stacks that they have been selling in the past.

If they start winning deals for these stacks, revenue projections for 2027+ will quickly rise.

Back in March of last year, CCO Dan Galves said that their bookings were translating into future annual revenue of $7B, versus the run rate of a little under $2B right now.

Bank of America, who again I want to stress is anything but a bull, is projecting even larger numbers if you look 5+ years out.

I’m not going to tell you Mobileye is “cheap”. The midpoint of their 2025 operating income guidance is $217M, while the market cap is about $13B. That’s a hefty P/E.

Still, when I look around at what the market is pricing “growth” stocks, especially those with unique semiconductor tech powering next-gen solutions, I can’t help but think that the long-term potential is not in the price.

Everyone is focused on Mobileye’s recent failures and short-term headwinds. Yet we are in a market that has been extremely forgiving to growth stocks as long as “the story” is intact (see: Tesla).

Well, times change. If Mobileye keeps its lead and wins the next-gen autonomous business, I think the stock has higher to go. And you don’t have to bring any politics into it.

YOU JUST HAVE TO DIG FOR THE REAL NUMBERS

Ahh, the good ole’ days when stocks traded on simpler ideas like cash flow, not on options, or which gamma quadrant we’re in.

When the monthly Consumer Price Inflation (CPI) would come out 10 or 20 years ago, I would get at least 5 different analyses in my inbox telling me what to think of it.

One thing that certainly isn’t as good as the old days is our reporting on economics.  We’ve lost a lot with the digital age.

These weren’t just cursory views – these were detailed, in-depth dives.

Today, I’m lucky to get two.  And while yes, you can still find a good analysis on X if you look hard enough, and if you pay up there are some very good analysts out there, it isn’t like it was 20 years ago.

Today the standard analysis could be written by AI (in fact, it probably is!).  

Instead of detailed, nuanced dives, we get a cursory review of the two topline number (headline CPI and Core CPI – which excludes food and energy), and a half-baked opinion about what they mean.

Well, we all know what you can say about opinions, and how much help they are to making money.

What is helpful for making money is looking at something closer than most other people are.  Which is where we can turn this sad state of affairs to our advantage.

While everyone focuses on just two numbers from the Bureau of Labour Statistics monthly update, there is much to be learned by digging deeper, which is what I want to do here.

This month the headline inflation number was a 2.9% year-over-year change in core consumer prices.  Month-over-month inflation (the chart below) was 0.4%, up from 0.3% the month before.

Source: BLS.com

If the only thing you saw was this chart you wouldn’t feel very good about inflation.  Especially when you consider that it does not look like economic growth is slowing down.

The Atlanta Fed model for GDP growth, which has been bang-on of late, is estimating 2.7% growth in Q4.  More growth!  Which means the inflation we see today will be difficult to squash.

The bond market has been pricing in this scenario since September. Remember, when bond prices go south, it’s because rates have gone north.

The iShares 20+ Year Treasury Bond ETF (TLT – NYSE) has been dropping like a rock since mid-September (which means no, this isn’t just a Trump thing).

Source: Stockcharts.com

Now I know someone is going to say wait a minute, isn’t this all about the deficit?  Aren’t rates going up because we just have too much debt?

My answer to that is yeees, too much debt does play a role.  But its not as big as some observers make it out to be.

Japan has had huge deficits for years and virtually no one cared.  The United States has a lot of things going for it – its military, its status as reserve currency – which makes claims that investors are going to stay away from US Treasury bonds because of debt a little hard to swallow.

Besides, its debt and deficit expectations that matter.  If anything, the belief is that Trump will be tougher on spending.

Tariffs, for all they are (rightly) maligned, will bring in Government revenue.

And DOGE (that’s shorthand for Elon Musk’s Department of Government Efficiency) may not meet its lofty goals, but it will reign in spending at the margins.

So no, I don’t think this is about deficits.  It’s about inflation.

Which, if you ask me, is a whole bunch of shoddy analysis.

THE PROBLEM WITH STATISTICS – LIES, DAMN LIES

There are some big problems with the CPI numbers.  I’m going to focus on two of them.  Together they are doing a bang-up job of hiding what is really happening with inflation.

The first problem has to do with what the Fed calls the “shelter” component of inflation.  The shelter component is exactly what you would think it is.  It accounts for the cost of either owning or renting a home.

This cost is obviously the big one, and that is reflected in the weight of shelter in the overall index, which is a little over 36% of the total.

To put it another way, if shelter costs are rising materially, it is VERY difficult for inflation to not go up.

Such was the case in December.  Shelter costs were up 4.6% year-over-year in December.  The cost of keeping a roof over our head is still (apparently) going higher.

Whether this is actually the case is EXTREMELY important to overall inflation.  If we exclude shelter, we get a much different picture of what inflation is:

Source: FRED Data

Without shelter, inflation is not even 2%.

Is the cost of shelter actually rising at a rapid rate?

In a word? No. Shelter costs were rising at a rapid pace.  Today, they are not.  But that isn’t yet reflected in the inflation number.

Why?  There is a simple explanation.

The way that the BLS comes up with shelter inflation is, in a word, bananas.

There are two components that the BLS uses to estimate shelter costs.  The first component is called “Rent of Primary Residence”.  This component is completely reasonable.

The BLS surveys renters and asks them what they are paying in rent, including discounts, subsidies and such.  Simple, straightforward, makes sense.

The other component is called “Owner Equivalent Rents”.  It is not-so-reasonable.

Owner equivalent rents are also collected from a survey.  This time the BLS calls homeowners.  They ask the homeowner what amounts to this question – what do you think you could rent your home out for?

The question is, of course, absurd.  Homeowners don’t know how much they can rent their house out for.  They are homeowners, not renters.  Sure, they can ballpark it, but its not going to be accurate. Yet the BLS puts a heavy weighting on owner equivalent rents.  It makes up a full 27% of the CPI calculation!

It isn’t just me that thinks this is bananas.  Even the Federal Reserve questions it.  On January 8th, Fed Governor Chris Waller gave a speech titled “Challenges Facing Central Bankers“.  He basically admitted that the numbers aren’t accurate:

“Inflation in 2024 has largely been driven by increases in imputed prices, such as housing services and nonmarket services, which are estimated rather than directly observed and I consider a less reliable guide to the balance of supply and demand across all goods and services in the economy. These two categories represent about one-third of the core PCE basket.”

Waller also points out what really is the whole crux of this blog – that if you weren’t dealing with made up numbers, the real numbers would be much lower:

“If you look at the prices associated with the other two-thirds of core PCE, they on average increased less than 2 percent over the past 12 months through November”

So yes, the shelter piece is flawed and yes, without it, inflation would be much lower.

But wait, there’s more.  Even with the flawed methodology, we are starting to see the shelter component of inflation come down.

Source: BLS.com

Even owner equivalent rents can’t go up forever.  That’s because the flaw in the metric has to do with perception.  It’s not that homeowner are blatant liars.  It is that they are influenced too much by the past.

The reality is that most of us didn’t notice inflation until the run up had already happened.  It’s the same thing with owner equivalent rents.  We didn’t notice that rents were going up until they already had.

What we’ve seen is an artificial lag in homeowners realizing inflation happened, and now even that lag is ending.  Which means that even artificially high inflation numbers are now on borrowed time.

That’s all I have to say about the first issue.  The second issue has to do with the seasonal adjustments that are made every month.

HOW THE PANDEMIC MADE THE NUMBER WORSE

When the BLS reports CPI they adjust to correct for seasonal factors.  This is straightforward and necessary.  We need to smooth out the impact of Christmas, summer holidays, harvests, the real estate cycle, school ending and all the other annual things.

But this can also go off-the-rails if the seasonal adjustments are not accounting for seasonal things.  Which is what is happening now.

Again, it comes down to methodology – in this case that the adjustment is estimated off what has happened in prior years.

In the last 5 years the impact of seasonality has gone on tilt because of COVID.  As new COVID variants came out, as vaccines came out, as people were told to stay home or told to go back to work, economic activity ebbed and flowed in unusual ways.  This overwhelmed typical seasonality.

The methodology the BLS used has struggled to deal with this.  As a result, the seasonal adjustments they make are not really doing their job.  Which is just adding to the muddy picture from the data.

If we look at the raw data from this week’s CPI release, we can see that unadjusted (so no seasonal adjustment) CPI is up a TOTAL of 0.4% since June (that would be an annualized rate of less than 1%!).  Adjusted CPI (see that first chart I showed) is up 1.4% since June.

Source: BLS Data

That difference of 1% is all seasonal adjustments.  Which may be real but probably isn’t.

In February the BLS will be updating these factors, like they do every year.

Source: BLS Data

It will be interesting to see if this year’s adjustment makes some wholesale changes.  We have now had 2 full years without COVID, which should be enough data for the BLS to discern what was wonky during the prior 3 years.

We can only hope that it makes the seasonal adjustment more seasonal and less random.  In the meantime, we must take these seasonally adjusted numbers with a grain of salt.

WHAT DOES THIS ALL MEAN?

What it all means is this: inflation is not sticky – in fact, it’s dropping.

Even the official statistics say this.  As the below chart of the month-over-month change of Core CPI (which includes the shelter data and the seasonal adjustment) shows, while the path is in fits and starts, the trend down is very clear. 

Source: BLS Data

What I am saying is that this trend is potentially MUCH FASTER than the official numbers indicate.

If this is right, then it begs the question: how long can long bond prices stay so low?

As market participants reconcile themselves with the fact that the path of inflation is down, down, down, the price of longer maturity bonds must go up, up, up.

Which makes me want to buy the TLT-NYSE, and the covered call ETFs around TLT (in Canada that would be BOND, HBND and LPAY), and the utility ETFs (ZWU and UTES for some leverage). I look for a positive sector trend–anywhere–and buy the covered call ETFs as monthly income is important for me than lumpier capital gains. So far, all those trades are holding.

What could go wrong?

There are Two Big Risks I can see.  The first is the one that is always lurking in the shadows – energy cost.  A spike in energy prices will always reverberate through consumer good prices.  It will hit input prices and shipping and of course gasoline and jet fuel as well.  That will send inflation higher and if it is perceived as more than just a spike, it will make investors question where bond prices should be.

I’m not even going to guess at what could cause that shock.  The last shock (Russia and Ukraine) came virtually out of the blue.  No expert I followed predicted it beforehand.

The second big risk is if the trade war goes tilt.

This would have to be something more than just a one-time tariff hike like what the Trump administration is mulling.  That’s just a singular shock, not something to cause prolonged inflation, and there are plenty of countervailing factors that mitigate it – currencies will fall, profit margins will shrink, and substitution will occur.

What I’m talking about is a continued intensification; to the point where there was a significant and prolonged supply shock, well that would be a whole different ballgame.

It’s not out of the question.  For example, while Alberta is quite rightly resisting the idea of turning off the energy taps to the United States, the rest of Canada does not seem to realize what this may trigger.

If Canada retaliated by stopping energy exports to the United States, that would be bad.  It would also likely trigger an even more extreme response from the Trump administration.

It’s easy to see how this sort of brinkmanship could quickly get out of control and stop the flow of goods entirely.

While these scenarios are both rather extreme, their probability is low.

The more likely scenario is that things just keep on keeping-on.  Which means that inflation continues its march down.

Which would make rates inevitably fall too.  That makes me think that buying the TLT here, along with the covered call ETFs built around TLT, is not a bad idea.