Risk On or Risk Off? Sandhill Strategy Discusses U.S.-China Trade, Political Momentum in Markets, Cannabis Capital, and Section 232

Trevor Hall And a Good Friday to you, everybody, this is Trevor Hall of Mining Stock Daily. Thank you for tuning in once again today. On this Friday, we do have another great in-depth interview. We actually are joined by Katie Bays and Stefanie Miller, who are the co-founders of Sandhill Strategy, a consulting firm based out of Washington, D.C.. Great organization, actually. There's some local ties with Nebraska there between all three of us, which is kind of fun. But anyways, we're going to get to that interview in just a moment or we talk all things kind of trade talks as political spectrum, what it means for the markets and the economy. We talk a little Section 232. So there's a number of different things we hit upon that should be of interest to you in the energy, commodities and mining space. But before we get to that, I would like to thank our sponsors for mining stock daily. That includes the Association for Mineral Exploration, Western Copper and Gold, Pacific Empire Minerals and and Integra Resources. Thank you so much for your support of Mining Stock Daily. Each and every business day. Just a reminder, if you are listening to this interview on Amazon, Alexa, you are listening to an abbreviated version, the full in-depth interview which lasts a little about twenty five minutes long can be found anywhere else. You get your podcast, which as I tunes into Spotify, Google podcasts, that type of thing. If you have any questions, please feel free to shoot me an email trevor@clearcreekdigital.com. Until those questions arrive. Thank you so much again. Here's my conversation with Katie and Stephanie. Hope you enjoy it. Have a great weekend.

Trevor Hall Everybody welcome the Mining Stock Daily, this is your host. Once again, I have a very special interview today. I have the co-founders of Central Strategy Central Strategies, an industry leading woman owned woman operated, researching in corporate consulting firm based out of Washington, D.C. And the two women joining me today is Katie Bays and Stefanie Miller, the co-founders of the firm. They're also fellow fellow Huskers, which I'm very proud of. So, Katie and Stefanie, thank you so much for joining us on mining stock daily. How is everything in the political worlds in Washington, D.C. as of late?

Stefanie Miller Oh, so sleepy. I don't know what we're going to talk about today. Trevor, now, thank you for having us.

Katie Bays Yeah. Thank you so much for having us, Trevor. We're excited to talk about  politics and what it means for your. For all of you. Have your heavy mining. Yeah, go ahead.

Trevor Hall It's going to be an interesting spin on what we usually cover these in-depth interviews every week here on the show. It's going to be a little bit less precious metals and mining and analysis from the miners and more on the more or less on politics in the U.S. and the economy and the stock market. This it's an interesting time right now and I'm glad we're speaking today. We are recording this interview Thursday morning. The markets are again this week hitting all time highs, just clearly waiving the previous all time highs just few days ago out of the water. Based on some well, we were talking off mic, some rumors on the on trade, on trade, tariffs being kind of mitigated a little bit by the steps. Walk us through what that news was this morning and what it's meant for investors.

Stefanie Miller Sure. Yeah. So this is Stef Miller. Katie and I've been told many times we found the same. So we will continue to try to identify herself. And I follow trade for institutional investors and politics for institutional investors. And so, you know, woke up to news this morning that overnight China indicated the part of a deal with the Trump administration there would be a rollback to tariffs. And so the base case, it seemed like, for the investment community was a pause, an additional tariff increases. So the idea that tariffs could actually go down or potentially start to go away is not didn't seem like that was baked in to the base case. And I think we're seeing that reflected in what the market has been doing over the early minutes of the open so far. Again, at Thursday morning as we're speaking.

Trevor Hall Well, it's interesting to point out that it seems like these rumors were coming from China and neither confirmed or denied by the Trump administration, is that correct?

Stefanie Miller That's correct. And even when the Trump administration says something that can change to there, there is one person we talk to, an investor. There's really only one person who makes decisions. And that person as President Trump and he makes decisions based off of a lot of feedback from a lot of different interests, especially in trade, as we can talk about, you know, some of the folks advising him and what they think about trade, but it's not what he thinks. One day may change because there's a lot of variables that are absolutely changing whether impacts on the market, impacts on the economy or impact on who some of the more recent people he's spoken to, what they say they need. And so this president cares very deeply about the market the stock market, which is obviously different from the economy. He also is incentivized to care deeply about the economy because he needs to run for reelection, which is really just kicking off big time. The next election is now less than a year at the November 3rd of 2020. And so presidents do not win reelection typically on a bad economy. So there's going to be as we talk about things that Katie and I are looking at, I think a lot of the politics are kind of driving two things. One is to try to do things politically that can do that can be a positive have positive impact on the market writ large and then to things that could have positive impacts on the underlying U.S. economy.

Trevor Hall And you've kind of pointed it out within that statements, Stef that there's a difference between the equity markets and the economy. And can either one of you two kind of finally clear the table what exactly that means? I mean, I know a lot of people who've been investing for a long time understand the difference. But for some maybe some new people who are watching both the equities markets and the economy data, what is the difference?

Stefanie Miller So there's not like a hard and fast rule of thumb, but I tend to think about the equity market potentially as a leading indicator of how the economy can act. So it is not completely baseless to look at the equity market doing well and think that there could be some underlying fundamentals of the U.S. economy that are what could also be behaving positively. But there's a lot of other indicators to look out beyond just the equity market, like unemployment and underemployment and jobless rate around manufacturing, around GDP. These are all other indicators that would also tell us what could be happening with the economy. And so far, the numbers over the last few weeks have been decent, actually. So I think there is combined with what the equity markets could do in reaction to positive China trading is in reaction to the Fed cutting interest rates again. I think that was just only last week. It feels like a month ago. But, you know, there are other things that are gonna make folks feel like the economic fundamentals are OK. I mean, the other thing that both the equity markets and the U.S. economy are really beholden to are behavioral psychology of everyone involved. And so for the U.S. economy, that's all of us who live in the US for that equity market. That's all the investors who participate in them. And so there's there's an expectation element. It seems like right now expectations on the equity markets are super positive around the U.S. economy. There's hopeful optimism, I would say, but a little bit of skepticism that what is happening right now can can carry on for the next few quarters leading up to the election without more continued good news from a policy and a macro economic perspective. So I I I'm I don't know if I said that in a straightforward way. You can push back.

Trevor Hall It's it's a good answer. And, you know, you can't let into my next question and I know both of you do some contribution commentary on some of the big financial networks like CNBC and Bloomberg. But I just want to ask, like from what I've seen from actually from some of the mainstream media in the last few days is the word skepticism keeps on popping up. Despite the overall U.S. markets continuing to reach these all time highs. It seems like there is a lot more skepticism as to how sustainable these moves really are. Do you care to comment on some of that sentiment?

Stefanie Miller Yeah, I might pass it over to Katie because she looks at though, she's an energy analyst. Well, I type in the oil and geopolitical things that are happening beyond the U.S. and I think that's a big part of that. So let me pass over to Katie.

Katie Bays Thank you, Stef. Well, I think energy is a really good example of what you're describing. It's kind of an maybe an extreme example. But one of the things that I feel like we have seen over the last couple of earnings cycles is that even though I think there's a broader market shift away from growth towards value, I think this is something that people have talked about for a long time and is frequently, you know, a subject of conversation as investors are looking for more durable and stable sources of return in the market. You know, energy is maybe superficially. Supposed to be a place where you can find that, but what we've seen, I think in the last couple of earnings cycles, especially for the upstream oil and gas producers, is that when they miss an earnings estimate or, you know, maybe have a decent quarter, but change their outlook for 2020, that the market reacts really, really negatively to that. And I think that's an interesting signal showing me and I think others in some way how brittle the market sentiment really is. And to me, I think the global sort of economic outlook, especially as it pertains to oil demand growth and just the outlook for for this sort of core industry that so closely tied to global growth has felt really flimsy and really brittle for a number of years. And that, I think, is being multiplied or enhanced by the volatility and the uncertainty around the outcome of the 2020 presidential election. That's certainly something we hear a lot of investors, a lot of companies worrying about right now as well.

Stefanie Miller Sorry. Let me just add one thing. However, citizens are being impacted from a policy perspective right now. Companies are hesitant to make really big decisions because many of them are uncertain about how the terrorists situation a trade war with China is going to play on. So they don't want to lock themselves into some behavioral or business systems without knowing what the landscape is going to be. And so even if China is resolved, let's say today, let's say overnight, not just rumor, but we have like actual trade war done, we are now heading into an election cycle where the business tax rate is up for debate. So we're almost at a point now, even if China were totally resolved where businesses do not know how to make long term investment decisions. And so that is going to impact the U.S. economy. And so that's like another reason, I think, why there's skepticism that we can have really good news now, maybe from a headline perspective that would actually lead to the behavioral changes that would put the country on more solid economic footing.

Trevor Hall So we are definitely it seems like we're in an economy filled with limbo. And one of the questions I wanted to ask you is, is this an economy where investors are no risk on or risk off? And I know that answer seems to change every single day. Like every day something changes a little bit more. But when it comes to kind of risk off assets such as gold, obviously this is mining stock daily. And we talk a lot about gold and precious metals, but there's other types of investments such as bonds and that we can talk you as well. Do you see more of the people you work with, the institutional investors that you consult and work with, leaning towards more risk off type ideas? Or is there still a mixed bag of risk on risk off more people thinking like. I can get I can continue to participate in this melt up in the overall markets.

Katie Bays Yeah, I think said the way I would answer that question is that the consensus direction is towards risk off assets, but individuals see opportunities that they are enthusiastic about in the risk on asset classes and what is not yet working. I think. Is that the asset like on the equity side risk on assets that look cheap haven't appreciated? In the way that you would want them to to kind of, you know, validate your thesis so that there is a consensus view, I think, towards bonds and their capital inflows into bonds broadly. But the opportunity seems to be on the equity side. It's just that that opportunity isn't, you're not consistently being rewarded for taking those opportunities. So we've got a number of clients who are, I think, enthusiastic about seeing the market sell off when it happens because it creates an opportunity for you to go after something. So it's interesting. But then within certain sectors, the market has been, I think, very weak as it pertains to kind of recognizing, you know, or agree, maybe creating a environment where you validate a thesis around again, pursuing cash flowing opportunities and like the the natural resource space like that's not a consistently rewarded possession. So the only the only thing you really get is when you get to market sell off, that, you know, you kind of try to seize that opportunity. But broadly, I think that the bit of the like outside of the center, it feels like the center of the market is really gravitating toward you towards debt.

Mm hmm. Well, it's interesting because in the mining space, I mean, obviously, we've been seeing quarterly earnings come out the same time everybody else has the last two weeks. And Q3 was actually the first full quarter where we saw $1450-1500 gold ounces. You know, the spot price of gold. And so we're very anxious to see you. OK? What are these big gold producers like? What are their numbers going to be, their earning numbers going to be like? And it seems like a number of companies came back and just really hit it out of the park. Right, because they're able to manage their debt, manage their sustaining costs of what it cost to produce those ounces of gold. And companies that didn't, you know, maybe had some sort of capital expenses that continue to cause problems with their operations or how. You know, obviously is costing them too much to produce gold. I mean, it's really coming out now that which gold producers are still sustainably and financially stable and which ones are still struggling to make ends meet even at $1500 gold. And so, yeah, when you see that, it's like, you know, how does a how does an industry as such as gold mining and precious metals kind of position itself in the market to say, hey, here we are, we've been completely undervalued for the last six years or longer. But look at our quarterly earnings and look when the value when the when the value of the overall market seemed exceptionally overvalued, here's an industry that literally has the writing on the wall of where a value really is and undervalued and the undervalued proposition it offers to overall investors. How do we do that? How do we transition into that position?

Katie Bays And it's like that's the question. And I know, you know, energy is not the same as gold. And it has different headlines and political challenges, of course. But that sort of how does the extractive industry get its do? Question I think is one that we've been asking ourselves for a number of years. Like you said, it's really been, you know, half a decade long cycle of sort of market and market disinterest and extractive industries and broad market disinterest. I think in capital intensive businesses and, you know, companies that used favorable kind of pricing environments and and cash to deliver their balance sheets are hugely more attractive. I think at this point. And are giving. Giving there appear to have not been able to do that or chose not to do that kind of run for the money, because at this point I think investors are being very. Maybe the word is short sighted, but I don't really mean it in a negative way, I think they're being very utilitarian about their interaction with these investment theses. We're looking for ways. I'm investing in this entity because I'm trying to get cash out so I could invest in somebody who can return more cash versus somebody has to use some of that cash to pay interest. I'm not believing I'm not buying a long term thesis. I'm buying a short term cash flow. And so if you can demonstrate the ability to return cash, great. And if you can't? Doesn't matter what the prices. I don't believe that this environment lasts forever. We've been burned by commodity cycles in the past, have been burned by these kinds of ups and downs in global commodity prices. So we're not buying a long term strategy or buying a short term cash flow. And so that, you know, that environment to me has defined the way that investors interact with extractive industries or companies, extractive industries.

Trevor Hall Can we talk a little bit more about the cannabis industry? One of the conversations that's been going on for a number of years is, well, there's more investment capital moving into cannabis, which means it's keeping it away from the mining for mining and junior mining, mineral exploration. It almost seems that the cannabis equities, the bubble has popped a little bit in the lot of a lot of the industries back down in a down trend. As far as the share prices of many of these companies go. Can you confirm or deny that? What's going to happen? Is there less capital money for marijuana and cannabis? And do you see this as a potential buying opportunity or is there more downward trend lines to to happen here?

Stefanie Miller Yeah. So the market that by now we're talking to you based in Colorado that actually have a robust and real cannabis market, but I would view the market, particularly in the US, but even in Canada, which are a lot of the companies that money has bought into because it is a legitimate market there. I think it's still extraordinarily nascent because of the regulatory overhang of that mean federally illegal and with legality at a federal level. So if if and when, because we think it's going to be scheduled, if and when cannabis is becomes, you know, a usable, doable substance for the financial markets to legitimately get involved in and businesses to get involved, then it's going to come very likely, in our view, with a bunch of regulation. But at a federal level that I none of I don't think a lot of people are thinking about. So not only will there. Will there be big tailwinds from legalization, but there will also be new and not foreseen headwinds that I think will be pretty significant. And so I think that what's happening to some of these publicly traded names right now. I think it's hard to to want for me to get excited about any of them, because, one, they're not on they're on their own exchange in Toronto. That's not even the Toronto Stock Exchange. And it's on the exchange to they're not you know, there's some U.S. companies, but they're not it's not the market either or the capital markets or the actual physical markets that are gonna be moving the product. And I think there's going to be a lot more dislocation. So in terms as opportunities for interesting investment, I think those will continue and change. And so I don't think we're at the bottom yet. I think we have a whole new upside and then a whole new downside probably to go through for this industry over the next few years as that becomes more legitimate industry in the U.S..

Trevor Hall I have one more question for you. Before we kind of wrap this up, but I wanted to ask you about Section 232. Yeah, you reminded me actually that that there's more to section 232 than just uranium. And so there's a number of different commodities that are involved in Section 232. Can you kind of briefly summarize what section 232 is, how it's been punted by President Trump and we expect a delivery or an answer here shortly. But, you know, who knows who? Yeah, give an answer here.

Stefanie Miller So 232, section 232 just refers to the provision of the underlying law that gives the president authority to impose tariffs on a good and and Section 301 is a different one. So actually all the tariffs on China are Section 3 0 1 tariff Section 232 tariffs that he's using against uranium. And as we heard email about that, all steel and aluminum and also autos from the European Union. So a lot of his. The White House made a bunch of political promises on the campaign that this president was going to protect U.S. industry, U.S. workers. And so this is how these are materializing. So as you mentioned on uranium, there is an outstanding set of decisions that need to happen before a Trump administration is says it's willing to make a decision here. So that nuclear fuel working group needs to recommend something to the White House around whether or not 232, you know, basically boiling it down are gonna be good or bad for the U.S. And it sounds like a lot of folks who are watching these are betting that the uranium 232 do not happen, that it was a threat. But in terms of our actual eyes in that threat, it unlikely, which is also kind of consistent with what folks expect around the auto  232 deal on aluminum tariffs went in place. But there was there were a bunch of exclusions granted. And actually that exclusion process is kind of under fire right now internally at the Department of Commerce. So it's just a sticky and complicated set of actualizing politics, which tends to be a check on how policymakers, you know, translating rhetoric to action. There's a lot of things that prevent that from happening. And I think a lot of folks didn't really want to bet against President Trump because he, as has done many times, what he says he will do. And so the idea just right. And dismissing everything that he does, because it seems hard or it seems like it could have a negative impact here, but that doesn't seem to necessarily stop him. So it's hard it's hard to feel confident that totally that the uranium 232 won't happen. But it seems like that's where it's trending.

Trevor Hall Well, I think we should leave it there, because it's it's definitely an interesting time here in the U.S. well, in the overall global economy as well, to see just how much the politics plays a plays a part in the north or south movement of the markets and the economy. And so, you know, again, like we said, we're recording this Thursday morning, tomorrow's Friday when this interview airs. And who knows, girls? Things could be totally different, what we discussed.

Stefanie Miller So 100 percent right now. Yeah.

Trevor Hall Thank you so much. Why don't you give us a quick rundown of where listeners can reach out to you and ask you any questions or follow ups, it's awesome.

Stefanie Miller So again, this is Stef. Thank you, Trevor, for having us. So our company is called Sandhill Strategy, as Trevor mentioned. Katie and I are both from Nebraska. There's a region in Nebraska called the Sandhill. Nebraska Sandhills. So we paid amage to that when we founded our company.  You can go to sandhillstrategy.com and find our email addresses, phone numbers, contact information and more about us there. So that sandhill strategy dot com. Yes. Thank you so much, Trevor, for having us. Really fun to meet you and to chat with you today.

Trevor Hall Yeah. Thank you, Katie. Thank you, Stefanie. Be sure to show with you again and welcome you back to the show next year, maybe closer to election and see how this symbol plays out. But until then, have yourself a great holiday. Over the next couple of weeks, it's crazy to say because it's mid-November already. Take Care. Take care of yourself and best of luck. We'll chat again soon.

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