From Streetwise Reports: Doug Casey, chairman of Casey Research, speaks with Maurice Jackson of Proven and Probable about his investment philosophy, the state of the markets and where he is investing today.
Maurice Jackson: Today, we have a very special guest joining us to discuss the natural resource space and your portfolio, the legendary investor, philosopher, bestselling author and serially successful Doug Casey.
A number of speculators are confused and frustrated with the current state of the natural resource space. I hear comments that it just seems to be dragging along. In my experience, strong hands love the current value propositions and the weak hands fold.
Our listeners are seeking your wisdom on how to cultivate the mental fortitude that you’ve had to make you so successful over the years. Take us through for a moment your thought process when sentiment is low. What does Doug Casey, one of the most serially successful speculators, do?
Doug Casey: The first thing I try to do is watch my own psychology. None of us are immune from emotion. When I find that I’m getting enthusiastic and bullish about anything, I try to stop myself, and look at the other side of the coin.
We were speaking momentarily before we started this interview. You mentioned that at the upcoming Sprott Conference, there were 700 or 750 people registered last year. This year, it sounded like there’s only about two-thirds of that number. I find this very indicative.
Prices of these resource stocks are currently quite low. People are not talking about the commodities in general, or metals in particular. The way I see it is that the world situation is more explosive than ever. I’ve got to say that I’m a bull.
Maurice Jackson: Please provide us with a macro view of the current state of the natural resource space.
Doug Casey: The last time commodities peaked was way back in 2011. That’s seven years. It’s been, in effect, a seven-year bear market. There’ve been some bounces and some false starts along the way, but all this while, the general price level has been getting higher. Inflation is there, but the prices of all commodities have been going down in dollar terms, and the dollars themselves are worth less.
The longer this goes, the more bullish I have to become. I don’t know if the markets are going to turn around next week, next month, but I can’t believe that it’s going to go on yet another year. This is a time to prudently, and of course using the word “prudent” in the same sentence as speculation on natural resources is almost contradictory, but still I’ll say it, this is a time to try to accumulate really sound companies with good management, good properties, good financing, and so forth.
I expect, whether it’s next year, or two years, or three years from now, we’ll be in the middle of a raging bull market for these things, at which point I hope I can overcome my personal emotions and instead of buying more, sell what I have. But in order to do that, you need to buy at low points, and that was a low point.
Maurice Jackson: Is there a catalyst that you have your eye on that will spark the natural resource space?
Doug Casey: This is a dangerous time in the markets, as far as I’m concerned. You’ve got to remember the analogy that I like to use for the current economic climate. We entered a gigantic financial hurricane in 2007 and we went through the leading edge of that hurricane in 2008, and 2009, and part of 2010. Now, since then, it’s a very big hurricane, it’s got a very big eye in the storm, but I expect we’re approaching the trailing edge of the hurricane now, and it’s going to be much worse, and much different, and much longer lasting than what happened in 2008 and 2009.
Why do I say that? Because the governments of the world, not just the U.S. government, but all of the world’s governments working in concert, in fact, papered over the problems that came to the fore in 2008. They poured oil on the water, in effect, by creating trillions and trillions of currency units. That has put the general stock market in a bubble. It’s put the bond markets in a hyper-bubble with zero or even negative interest rates some places in the world. It’s bulled up the real estate market, especially in major cities.
Now, when we go back into the trailing edge of the storm, what’s it going to be like? They’ve already reduced interest rates as far as they can go, so they’ve shot that arrow from their quiver. They’ve created trillions and trillions of currency units all over the world. Are they going to do more of that? I guess so. All of these governments are looking for inflation, as if inflation was a good thing.
I think we’re headed for something of catastrophic proportions. The longer that we go on here in the eye of the storm, the more I liked it, because I like good times more than bad times, but I’m convinced bad times are coming.
Maurice Jackson: I’d like to hear what you’re doing to prepare for the bad times, but I have a two-fold question here first. How much of an effect is the trade war having on the space and how is the natural resource space impacted in the long term when First World nations participate in a trade war?
Doug Casey: First of all, the trade war, of course, is something that has been set off by Mr. Trump. I think I ought to make a brief comment on Trump. In general, I support him. Why? Because he’s not a card-carrying member of the Deep State, number one. Number two, he’s never been in politics before. That’s good. He’s been in business his whole life. He tends to think like a business guy, not like a political guy.
I support Trump for those reasons. I support him for the fact that he’s not Hillary and he’s not a Democrat, because the Democratic Party at this point has just jumped the shark. It’s turned into a cesspool of every bad economic and political idea that you can imagine. In fact, Trump is rolling back a lot of regulations. It’s quite amazing. These are all good things.
But, and here’s the big but, he doesn’t have a philosophical core. In other words, he’s somebody that has never, I don’t think, has ever studied economics or history, so he basically does what seems like a good idea at the time instead of acting according to any principles. I hope his playing chicken with the Chinese and the Europeans doesn’t turn into a trade war because the way the human race increases its standard of living and its net wealth is by trading with people that do one thing better, trade with people that do other things better. It’s a question of marginal utility. He’s really playing with fire.
The answer to the question is if it turns into a trade war, and the Chinese are very proud, and Trump doesn’t want to feel like he’s ever going to lose anything, this could be a genuine catastrophe because of the very fragile state of the world economy. That’s my answer.
I’m on tenterhooks because it’s completely unpredictable what these political types are going to do. The people who are in governments in China, the U.S., and Europe, all over the world, they’re not the best and brightest. It’s the opposite. They’re power-seekers. They’re busybodies. They’re people who actually think they have a right to control other people. I find it very scary. They’re capable of anything.
Maurice Jackson: It seems to me that Mr. Trump could benefit from one of the presentations that you conducted at Jayant Bhandari’s Capitalism and Morality conference and/or he should read a book called “Economics in One Lesson,” by Henry Hazlitt. You had referenced us going through the storm, the eye at the moment. What are you doing to prepare yourself should the events come to fruition?
Doug Casey: I got involved in the cryptocurrencies about a year ago, actually, which was late in the game. It took me a while to understand the value proposition of bitcoin and many clones, but they were very, very good to me in the last half of last year until I sold almost all my position in December. I didn’t buy at the bottom, but I got lucky in top of the market.
I’m still involved in them for a number of reasons. I’m optimistic about the future of them. There are 2,000 of them right now. They’re like junior mining stocks. Most of them are either frauds or losers.
But I think the area is going to do well, especially as these cryptocurrencies spread to the Third World, countries in Africa, South America and Asia, where the currencies are only good within that country. I think that increasingly, and we’re talking about two-thirds of humanity here, can only save in their worthless local currencies, kwachas, or pulas, things of that nature. More of these people are going to get involved in bitcoin and its clones in the future because they’re transferrable internationally. You don’t have to use one of these bankrupt banks in any of these countries.
I actually like the cryptocurrencies. I’m doing that, to answer your question. I continue to buy gold coins. Not so much silver. I own a lot of silver, but it’s very bulky, believe it or not, so I continue to buy gold coins.
Incidentally, I buy the small gold coins, things like British sovereigns, or Swiss and German 10 and 20 mark pieces from the 19th century. The reason I do that is all of these governments’ customs services are on the lookout for things that look like one-ounce gold coins, personal experience traveling in Africa and South America. But the small coins look like small change: nickels and dimes. Who cares? I’m just buying the small coins.
Those things, I’m buying, speculating in junior mining companies, which are very cheap right now. It’s number three. Number four, as big as your economic risks are today, I think your political risks are even bigger; I continue to diversify my assets internationally. Those are the four things that I’m doing.
But I might say a fifth thing, which is continuing to look for entrepreneurial activities, goods and services that I can supply to the market that people will be willing to pay for because those things are of more benefit to them than their currency. I think that probably sums it up.
Maurice Jackson: Well, it’s a very interesting perspective there. I personally like divisibility myself, so I was surprised to hear you reference that. I think a lot of people get amazed at these 100-ounce bars. I always say to them, “Your best bet is divisibility.” My personal preference as well is 1/10 of an ounce versus an ounce. I’ll do that all day long.
But let me ask you this in reference to precious metals before we leave that. We all have our favorites. Can you tell us what your thoughts are on gold, silver, platinum and palladium, respectively?
Doug Casey: Four different elements and four different investment propositions. I continue to favor gold because it’s a very high unit value. It’s widely recognized. You know, out of all the metals, there’s 92 elements on the periodic table, most of them are metals. In their pure form, refined, they are only two metals that don’t look silverish. In other words, all the metals, iridium, rhodium, platinum, palladium, silver, iron, all of them, when they’re refined and are pure, they all look kind of silvery. They’re hard to tell apart. There are only two that standout. One is copper, which has a copper color, and gold, which is gold in color.
I’m a big fan of gold. I continue to buy it. Silver, I think, however, is the cheapest of the metals that you can speculate in, and the most volatile because it’s a small market. It’s worth maybe 10% of what gold is. As a speculation, I really like silver.
Platinum and palladium, this is a bet on technology, number one, and a bet on where they’re mined, number two. Because unlike gold, most of the gold that’s ever been mined is still in existence. It’s historic. It’s money. It’s an asset. But like silver, platinum and palladium are mined and they’re used, so there’s not a huge inventory overhang.
The question is the supply of those metals comes mostly from Russia and South Africa, but South Africa is a time bomb waiting to go off. That can present a lot of problems on the supply side. On the demand size, yes, they’re high-tech metals, and new uses will continue to be found for them on the one hand. But on the other hand, they’re mainly used as catalysts in the automotive industry today. The world is definitely going to go to electric cars where they’re not going to be needed.
Back in the 1960s, platinum traded for $30 an ounce or less. It wasn’t price-controlled the way gold was for the government. I don’t want to stick my nose in that game with platinum and palladium. There are bull arguments. There are bear arguments. But as a speculator, I don’t like to do things unless I can see that the odds are tilted heavily in my favor. It’s a 50/50 bet with those two metals from my point of view, so I’ll pass.
Maurice Jackson: If I were your son, which would you encourage me to do first: buy some precious metals or buy some mining companies?
Doug Casey: The first thing you’ve got to do is build capital. You’ve got to have an asset base. The first thing is to have the metals themselves. After you get a foundation of capital, at that point, you can start speculating in the mining companies because it’s the most volatile market in the world. Most of these companies dry up and blow away. That’s why people like Warren Buffett never touched them because they’re just way too risky and way too volatile to use as an asset.
Now is an excellent time because the markets are quiet. The metals are low. Now is a good time to build a position in them, physical cash position. It’s an excellent time to start building positions in well-managed, well-capitalized junior mining stocks. This market will turn. They’re going to run. When they do, it could be absolutely explosive.
Maurice Jackson: You know, I asked that question because I hear this frequently, and I’m pretty sure you’ve heard this throughout the years, someone gets excited about the space and they want to get into the mining companies. Then when they get this multi-bagger, that’s when they’ll decide to go ahead and get the metals. I always share with them, from my perspective, I’ve studied your work, I’ve studied others who are serially successful, they do the opposite and you just conveyed that. They get the metals first and then they go into the mining companies. Thank you for conveying that.
You’re still an active buyer in precious metals after all these years and you have a big position. Why?
Doug Casey: Because gold, and to a lesser extent silver because it’s an industrial metal as well as a monetary metal, gold is the only financial asset that’s not simultaneously someone else’s liability. Very important. Most people, their wealth is based on paper and that’s very risky in today’s world.
But there’s another reason I’ve got to draw to your attention. It’s that China is on its way up. The Chinese economy is already the size of the U.S. economy and it’s growing much faster. Not that there aren’t lots of problems in China. There really are, but still, looking at it over the long run, if we look a generation ahead, China is going to be triple the size of the U.S. economy. That’s going to change a lot of things.
What they are going to try to do, what they’re trying to do, is to have the Chinese yuan replace the U.S. dollar as the world’s currency. It’s going to take a while for that to happen, but in order to speed it up, I believe what they’re going to do is they’re going to back the yuan with gold. In other words, the yuan is going to become like the U.S. dollar was before 1933, or at least before 1971. When that happens, they’re going to find a lot of people buying gold.
Maurice Jackson: Conversely, when that does occur, would it not also then send a lot of those Federal Reserve notes back to the U.S.?
Doug Casey: Over the last generation, the major export of the U.S. has been dollars. We ship out dollars. The nice foreigners ship us in return Mercedes, and Sonys, and cocaine, and everything else. At this point, there are tens of trillions of U.S. dollars floating around outside the U.S. In fact, the U.S. dollar is the defacto currency of dozens of countries around the world.
The problem is this. When confidence in the U.S. dollar is lost, those dollars are going to start heading back to the U.S. In other words, other foreigners won’t want to take them, but Americans have to take them. They’ll come back to the U.S. in exchange for titles to American companies, titles to American land, and everything else. It’s quite possible for that reason.
We’ve had an artificially high standard of living in the U.S. because of the export of dollars for the last generation or more, but that could go in reverse. We could have a vastly lower standard of living for the next generation.
Maurice Jackson: If a lot of our listeners aren’t aware, the effects could be duplicitous because you could really just see the prices, not the value, but the prices of things exponentially just grow because all these new currency units are here and competing for your purchasing power. Now, as a reminder, we are licensed to buy and sell precious metals through Miles Franklin Precious Metals Investments, so if you have any inquiries, please feel free to contact us.
Of the four metals, which do you see ready for a breakout? It doesn’t have to be immediately, but of the four, which one do you see?
Doug Casey: Silver is the cheapest and the most volatile of these four metals. For capital gains, I’d go for silver, but silver is only worth, what, $16 an ounce, in that area. It has pretty low unit value. It’s rather inconvenient because it takes many, many, many pounds to be worth much money. Now still, as a speculation, I think it’s the place to be.
Maurice Jackson: Doug, I’m not alone in conveying this, but I believe you have a crystal ball in which you can see into the future. If anyone doubts me, I would encourage you to read Mr. Casey’s book entitled “Crisis Investing,” written in 1979. Now, can you share with us, using this crystal ball, what has your interest at the moment in the natural resource space that speculators are not paying enough attention to that may become the next big thing?
Doug Casey: What is the next big thing? I’ve got to draw your attention, Maurice, one of my other books, “Crisis Investing for the Rest of the 90’s,” is actually a much better book, and more recent, and more sophisticated. Don’t be afraid to look that one up, too.
What’s out there that people aren’t looking at today? I think the next 20 years could be breathtaking. I’m a fan of Ray Kurzweil’s thoughts on this. He wrote a book, which I recommend everybody read, called “The Singularity is Near.” Essentially, what he’s saying is that Moore’s Law, which basically posits the computer power doubles and costs halve every year to 18 months, it’s actually underway, not just with computers and artificial intelligence, but in robotics, in virtual reality, in genetic engineering, in space exploration. In other words, this is going to be the big thing over the next generation, over the next 20 years. It’s the advance of technology.
Now, I make the case that ever since biologically modern humans appeared on this planet roughly 200,000 years ago, technology has actually been advancing at the rate of Moore’s Law, but not at the current acceleration of Moore’s Law. In other words, when people first learned how to make fire, or use fire, say 200,000 years ago, maybe there were no further advances for another 50,000 years. Then they learned to make fire by rubbing sticks together. Then maybe it was another 50,000 years before they learned how to effectively knock flint, and then the bow and arrow, and then the this and that.
Technology has been accelerating from a very low pace, very slowly, for lots and lots of time. But since the end of the last ice age, 10,000 years ago, when agriculture developed, and cities started to develop, things moved faster and faster.
In other words, look at it this way. Suppose we’re standing in a huge sports stadium. At the bottom of the sports stadium, there’s a drop of water. At first, the drop of water doubles in size. There’s two drops and it takes an hour. Then to double again, it only takes a half an hour the next time. To double again, to get eight drops of water, it takes 15 minutes.
Still, as observers, we wouldn’t notice it was happening. It would have to double and double and double again. But at this point, the bottom of the stadium is covered with a sheen of water. If it doubles and doubles and doubles only three or four more times, we’re going to be washed away. That’s the way exponential growth works.
I think that we’re right at that stage right now. As serious as the problems of the world are, technology is going to overwhelm everything over the next 20 years. It’s the biggest black swan. Well, not really a black swan because a black swan is one that you don’t even know exists. But it’s the biggest thing that’s happening and it’s growing at an exponential rate right now. It’s going to change the whole character of the world.
Interestingly, this is happening at the same time as the world’s economic and financial foundations are withering away. Technology is expanding. I’m not exactly sure how it’s going to work out. Maybe science fiction is the best predictor. I’m not sure that’s a good answer to the question, but I’m just expecting gigantic change.
Maurice Jackson: Let’s switch gears here. In our last interview, we discussed the first book of the High Ground series entitled “Speculator,” and since, you’ve released this second book in the High Ground series entitled “Drug Lord.” It appears that the main character, Mr. Charles Knight, he’s back at it again. But before we discuss Drug Lord, for someone not familiar with “Speculator,” tell us about it.
Doug Casey: What my co-author, John Hunt, and I have tried to do is write a series of novels that reforms the unjustly besmirched reputations of highly politically incorrect occupations. It starts out with Charles, our hero, at age 23. He gets lucky with a mining stock, doesn’t have any money, has very little money, but he hits a long-ball home run, and decides to go off to Africa to investigate this company that’s made him all this money. He finds out it’s a fraud. He gets involved in a bush war in Africa and so forth.
It’s a hell of a good yarn about adventures in Africa. It’s quite an education in economics and in the mining business and politics and everything. That’s “Speculator,” the first in the series.
Last year, we released the second in the series, “Drug Lord,” where Charles, after running around the world with the money that he’s made from the first book, he becomes a drug lord, both legal and illegal drugs, FDA-regulated and DEA-regulated drugs. We explain the drug business, how you do it, how money is made, how money is moved, and so forth.
Now, of course, just like in the first book, the government steals most of the money he makes. Now he’s a little bit unhappy. The third book is called “Assassin.” It’s a study of the occupation of politician assassin. This is a hot potato, obviously, when you talk about a political assassination, but what we’re looking at is the morality of that, the techniques of it, and a revisionist history of famous political assassinations throughout history, and what Charles does with this information.
I’m just telling you what it’s about, but I’m not going to tell you what Charles does, but I think it’s going to be a blockbuster on its way to the fourth book in the series, which is more radical yet. I don’t even want to mention that. It’s going to scare too many people.
Maurice Jackson: What I want to share with you is please don’t share it with us because I’m looking forward to reading it because I’m just in Chapter Four of “Drug Lord.” For anyone that is involved in the natural resource space, “Speculator” is a must-read. We have it listed under our education tab on our website. When you just learn the nine P’s, you’ll discover how “Speculator” will assist you in your natural resource endeavors.
What I enjoy about reading your books is that you make a very clear distinction between the virtues of liberty and the vices of government. Again, it’s always fun to read your books, specifically in this High Ground series that you’re conducting here.
For our audience, if you’re seeking to purchase the High Ground series books, please visit highgroundseries.com.
Before we close, you are one of the featured speakers at the Sprott Natural Resource Symposium, which is being conducted the 17th through the 20th of July in Vancouver, British Columbia. What will you be discussing?
Doug Casey: Well, everything under the sun, quite frankly, because I’m giving a keynote speech, but in addition, I’m on a couple of panels. I want to be very wide ranging. At the same time, I want to be practical and give people some specific ideas about what they ought to do with their money.
These conferences, like this one we’re going to, Maurice, are very important. They give you an opportunity to hear lots of ideas in a short space of time, and talk to the managements of lots of companies, which is very important if you’re going to speculate in this area. I urge your listeners to show up and I look forward to greeting them personally; anybody that would like to meet me. I’ll certainly be there.
Maurice Jackson: I look forward to seeing you again. It’s always an honor, but one of the things, also, when you attend a conference such as the Sprott Natural Resource Symposium, is the intellectual capital that you also have from fellow investors and the networking you can do.
If I may just slightly digress here, two years ago, I met a gentleman at the Sprott Natural Resource Symposium in Vancouver. I read your book last year, “Speculator.” Lo and behold, I think in the interview, you gave a charge that stated basically, “If you want to become rich, you need to go to Africa.”
Well, lo and behold, I went to Africa twice last year, and the second trip I went there, there’s this gentleman who was with me in Vancouver that I met at the Sprott Natural Resource Symposium. Lo and behold, guess what. He also read “Speculator.” Here we were at a site visit. We were just discussing your book and we’re living, we’re actually being Mr. Charles Knight in some regards. It’s just an amazing experience, the networking that you can do, and the lifelong friends that you also have an opportunity to meet here at the Sprott Natural Resource Symposium.
Now, a day after the symposium, on the 21st of July, you’ll be speaking at Jayant Bhandari’s “Capitalism and Morality.” Can you share what the topic will be?
Doug Casey: It’s a fantastic, one-day conference that Jayant puts on. It’s about capitalism and morality, exactly what it says it’s about. The people who attend it are fantastic. They are motivated. The speakers are all great. If you’re going to Sprott, which you should do, you should definitely stick around one more day and go to Jayant’s “Capitalism and Morality” seminar. I’m glad you mentioned that, Maurice.
Maurice Jackson: Your presentations are phenomenal. The difference there is, just for clarification for our audience, the Sprott Natural Resource Symposium is investor-based, and Jayant Bhandari’s “Capitalism and Morality” is philosophy-based. I find it intriguing that the serially successful members in the natural resource space tend to have the same philosophical and political views. I don’t know if that’s just coincidence, but is there something you can share regarding that by chance? Do you notice the correlation there usually?
Doug Casey: Not necessary as a correlation, but very helpful, because you’ve got a lot of successful speculators like George Soros, who are moral cripples, in my opinion. But look, it’s very helpful to have a philosophical basis for what you do.
It is very hard to become wealthy if you believe that money is evil, or the love of money is the root of all evil, which is actually what the Bible says. You’re fighting against yourself if you believe that. This seminar is to overturn a lot of the false psychological, philosophical and moral beliefs that people have that actually limit them from becoming wealthy. It clears your mind, in addition, so very important.
Maurice Jackson: Last question. What did I forget to ask?
Doug Casey: One more thing, glad you asked, is that my first book was called “The International Man,” subtitled, “The Guidebook to Making the Most of Your Personal Freedom and Financial Opportunity Around the World.” I’ve recently acquired that website from my publisher, Legacy. We’re totally expanding and improving it. I hope everybody who’s listening goes on their computer to internationalman.com and signs up.
Every day, I think we’re going to send something that’s really going to be interesting and potentially very profitable. We want to make it into one of the most noteworthy websites on the web, so go to internationalman.com and sign up.
If anybody wants to get in touch with me, they can do so via that internationalman.com.
Maurice Jackson: Last, but not lease, please visit our website, www.provenandprobable.com, where we interview the most respected names in the natural resource space. You may reach us at firstname.lastname@example.org.
Legendary investor and author, Doug Casey, thank you for joining us today on Proven and Probable.
Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.
The SPDR Gold Trust ETF (GLD) rose $0.27 (+0.23%) in premarket trading Thursday. Year-to-date, GLD has declined -4.86%, versus a 4.16% rise in the benchmark S&P 500 index during the same period.
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