There’s a lot you can say about the financial sharks on Wall Street; much of the language might be unprintable (and some of the more satisfying solutions to their mayhem might involve medieval torture devices). But one thing you can say in their favor – they know a good deal when they see it. They also play the long game when it comes to investing; for them today’s market chaos is tomorrow’s investment opportunity.
Given the bloodbath in commodities that’s been going on for the last three years, it was inevitable the top-tier players on Wall Street would start moving in. Big investors understand the world is still going to need oil for decades, even with the growing popularity of electric cars and the drive toward renewable energy. The same holds true for natural gas, steel and other physical resources that come out of the ground. Anyone who’s been in the investment game that long understands the commodity super cycle.
Still it makes the news when a legendary corporate raider like Carl Icahn start moving in on the mining, oil and gas industries. Icahn already has an interest in CVR Energy and Cheniere Energy and recently Freeport-McMoRan, a mining company that specializes in oil, gas, copper—and gold.
Icahn’s interest in Freeport-McMoRan is interesting because it marks a change from the old-school wildcatters like James R. Moffett, who is the “Mo” in McMoRan, to more button-down corporate types like Icahn.
What it Means
The transition will not be all bad for mining and energy companies that, for decades, operated with a Wild West mentality. When profit margins were insanely high there was little incentive to operate efficiently. Some of the criticisms Icahn leveled at Freeport-McMoRan were inflated executive compensation, too much overhead and excessive debt. Getting control over two seats on the Board of Directors, Icahn was able to push through 1,500 layoffs and a request for Moffett to step down.
Crisis as Opportunity
No one argues that after a series of tough years since 2013, the mining, oil and gas industries are ripe for takeover by Wall Street crisis managers like Icahn. For a long time those industries have been papering their mistakes with money. Going forward mining operations will be leaner and greener. Moffett’s actually the second executive Icahn’s forced out, previously deposing Charif Souki at Cheniere Energy.
Oh Look, Gold!
Icahn’s move on Freeport-McMoRan also gets him into the gold mining business at a particularly fortuitous time; just as Wall Street is rediscovering the value of this most tangible of assets.
It’s always interesting and instructive to watch the ebb and flow of markets and the people who drive them. Gold and commodities have been getting beaten up for two and half years and still the talking heads on financial television insist small investors (that is, you and me) should avoid gold—even as sales of gold coins reach new records and the wizards on Wall Street start putting their own money into physical gold and gold mining. They all but cry out, “Pay no attention to that man behind the curtain (stuffing his pockets with gold…). You wouldn’t like it…” Right.
One thing is certain: if Carl Icahn is taking an interest in gold mining, then he thinks the future for gold is bright indeed.
Will Granderson is a regular columnist for Goldco Precious Metals writing on finance, precious metals, and gold as an investment and in popular culture.