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Exclusive Interview

Exclusive Interview with Brent Cook & Mickey Fulp

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Orenthink

Interview Series: Exclusive Interview with Mickey Fulp

We are kicking off our new interview series with the Mercenary Geologist, Mickey Fulp.

On a bi-weekly basis, we will be speaking to Mickey and discuss with him developments in the markets. Our focus will obviously be on financings and trends in the junior resource space.

We recorded the interview on January 26th, 2017 in Vancouver, BC.

Participants:
- Mickey Fulp, Mercenary Geologist
- Kai Hoffmann, CEO Oreninc
- Paul Harris, Staff Writer Oreninc

 

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Growing Up in a Recession

This recession is painful, but grow up -- it is not nearly as bad as I remember the 1980s being. I went over old term sheets from that period and a deal with someone for $500k was a big deal; $2.5 million was a massive amount of money.

I grew up as a recession baby. I grew up in the mining business with a big crash for my father’s company when I was about 10. The crash was impactful, and I ended up very different because of it. Some of the things I do are classic recession baby stuff, others are irrational, but all of them are impacted by that period of my life. 

I would not trade that time for anything. Growing up with these issues taught me how to deal with the world -- six weeks’ delay on something is no problem, market hiccup not a problem. Need to sell stuff...then remember it’s just stuff, not people. 

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Why Teams Are Key

 

I gave a shout out about copper to an old team at a conference. Back when I worked at D.E. Shaw, I learned the value of a good team. I learned that five people working together could get a multiple of the work of one done. Back then, I had my team in India and I worked from the U.S., but even then it really helped me accomplish stuff. The most important thing I learned was the value of great people around you.

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Technology Has Changed Everything

This is off-topic from metals/mining, but the more I look at the issues facing the Western world, the more I see a complete destruction of demand for labor....

Everything we do every day just compounds the problem of technology killing jobs, jobs that are never coming back. The world is changing, and for some things it is great; I would put a plug for copper in here, but let’s focus on what has changed. 

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Real Estate Bubbles

We had a real estate bubble, driven by cheap money and easy lending, and we all know how it ended in the US. The solution to get us out of the mess caused by cheap money and easy lending is harder underwriting, but still cheap money. 

Another real estate bubble is forming; however, this time I do not think the government has the tools to fix it and it is going to get a lot uglier than the last one. 

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The government has guaranteed mortgage debt, so that buying 30-year bonds backed by mortgages is roughly the economic equivalent of buying a 30-year treasury bond. My issue is the government is also selling bonds (US debt) and they have a limited amount of money to make the payments on their debt. 

To stop the next housing bubble, the government has to raise rates. Easy, right? However, for every 1% the government raises rates of mortgages they also raise their own borrowing costs by 1%, or roughly $160 billion per year. That’s on the debt alone and does not include the added costs of the unfunded liabilities linked to borrowing costs. 

If you think 7% or 5% vs. 3.5% is a better interest rate for home loans, you had better get ready for the government cost of borrowing to jump where it cannot make those payments. Structurally, at 7% I think the SS trust fund is going to be bankrupt a lot quicker than anyone can imagine and the government cannot afford it. I do not see the issues getting fixed.

I think the government will keep a cheap money policy for the next 2 - 20 years and it looks like we are going to get an inflationary recovery.... Home values are going to go crazy, inflation will be here to stay and mortgage rates will stay low.

At some point, the US government will be forced to raise rates or the market will do it for them. I fail to see the US government being able to keep interest rates below the rate of inflation for any extended period of time.

Good times.   

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