Rick Rule: 'Get Ready - It's Going to be a Good Few Years'

Rick Rule, CEO of Sprott US Holdings, is often the cornerstone of mining industry conferences, and that couldn’t be more true than at this week’s Sprott-Stansberry Vancouver Natural Resource Symposium. 
Held in Vancouver from July 28 to 31, the conference is currently on its second day. Already, Rule has spoken multiple times, expounding on the companies at the conference, how to talk to those companies and why — despite the current price environment — it’s still a good time to get into the resource space.
It’s that third topic that many investors are likely most interested in, and Rule spoke to it Wednesday morning in a talk titled Pay Me Now, or Pay Me Later; an Inevitable Bull Market in Resources. Here’s a brief overview of what he said.

Tempering terror and hubris

Rule began by stating that investing during a bear market requires a “special kind of courage.” Essentially, he said, while it’s easy for investors to realize intellectually that the market is down and stocks are cheap, it’s hard to follow through on that knowledge.
He believes the reason following through is so tough is that people tend to base their expectations for the future on their most recent past experiences. In a tough market, that means investors’ actions are colored by any recent knocks that they’ve taken, meaning they’re less likely to be willing to jump in and start buying again — even in the face of cheap stocks. Conversely, in a bull market investors are bold and more likely to buy.
The trick, he said, is finding a balance between the terror incited by bear markets and the hubris that comes about from bull markets. After all, while bear markets may be the authors of bull markets, investors can nevertheless miss on profits if they can’t find a way to get around the psychological barriers that those different markets create.

Bullish narrative for resources still exists

Though there are clearly differences between operating in bull and bear markets, Rule was quick to point out that what’s remained constant even as the resource space has entered a bear market is the “bullish narrative for resources.”
For example, he said, when resources were doing well, market watchers pointed to the world’s growing population and to emerging markets as major upcoming sources of demand for metals. Now, even though a bear market is in full swing, that demand is still there. Similarly, US on-balance liabilities were considered a plus for the resource space when they sat at US$15 trillion — they now sit at US$18 trillion.
Rule believes that while these factors may not currently be positively influencing the resource space, it’s only a matter of time before they once again do so. And when that happens, their positive reach may be even more prevalent than it was during the last bull market.

Pay me now, or pay me later

Getting to the crux of his talk, Rule said that today’s low prices in the resource sector will ultimately lead to one of two scenarios:

1. Rise in demand: Demand for resources will rise as low prices lead to increased usability amongst end users. Prices will ultimately increase in a controlled manner.
2. Supply destruction: Low prices will lead to widespread destruction of production capacity. Prices will see big increases quickly.

Rule used the example of oil to illustrate the differences between the two scenarios. For instance, if demand for oil increases (as in the first scenario), its price will eventually rise, likely hitting the $80-per-barrel range; however, if the current low oil price knocks enough production out of the market (as in the second scenario), large amounts of supply will be eliminated and the oil price may rise up to $130.
For resource investors, both scenarios are positive as they will ultimately lead to higher prices — hence Rule’s “pay me now, or pay me later” mantra. And though Rule wasn’t keen to predict when exactly prices will rise, he did remind the audience that “night follows day.” He concluded, “get ready — it’s going to be a good few years.”
 
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 
Related reading: 
Rick Rule: TSXV Not All Carnage and Wreckage
Rick Rule: ‘Gold Doesn’t Need to Win the War Against the US Dollar’