Doug Casey: “Everything In The World Seems Overpriced Except For Mining Stocks”



Following a year of global social crises, and persistent operational crisis in the mining sector, the world’s foremost speculator on such events, Doug Casey, Chairman of Casey Research, was kind enough to share comment.

Doug’s 1979 publishing of Crisis Investing, became the world’s best-selling financial book in history, ranking #1 on the New York Times Bestseller List for a number of weeks. He has since built a career on hitting huge, major speculations out of the park.

Here are his interview comments with Bull Market Thinking’s Tekoa Da Silva:

TD: Doug, this year we’ve seen one crisis after another break out in the Mediterranean, Egypt, and Brazil. You produced the bestselling Crisis Investing in 1979. As a crisis investor, how has the last year affected your opinion and perspective as you travel around the world today?

DC: Well, the best thing to do with a crisis – the Chinese symbol for crisis incidentally is a combination of two ideograms, the ideogram for danger and the one for opportunity. So I like to see the opportunity part of it. For example, I was in Cyprus a couple of weeks ago to look at the Cypriot stock market and also real estate markets because what few people are aware of, is that the index for Cyprus from its peak in 2007 is down 98%. That’s an incredible drop.

It’s almost unique in modern history for a market to be down 98% and of course in only six years. So we went there for a thorough analysis of the economy and I think there are some stocks worth buying that we’re going to recommend in this report we’re coming out with. After the gunfire dies down, we might do the same thing in Cairo too, because I’ve been to Egypt a number of times over the years and the place is a basket case. It’s hard for me to see how (unless there’s a radical change in many ways) it’s hard for me to see how that place is going to get better but the stock market could be a bargain there too. It seems like the cheap stock markets, but I’m not going to say they’re bargains yet, are really in the Muslim world today. That’s where most of the crisis is at the moment.

TD: Doug, does the gigantic amount of accessible information to anybody in the world today--whether somebody in Uganda or somebody in the Philippines--does that change the game from a speculation standpoint?

DC: It does actually because in the days before the internet, it’s questionable that I would have even known that the market in Cyprus was down 98% because information simply didn’t travel that fast. It wasn’t available. You would have had to get on an airplane and go to the site based on a rumor that something was down that much in the old days.

So the internet has actually changed things radically. It’s easy to find out the places that you should be looking at now. In earlier years if you were interested in alternatives or libertarian or unconventional analyses of situations, it was hard to find. There were a few publications, hard to find, and some books, not many in print. But the internet has allowed these concepts to spread like wildfire and it’s a cause for tremendous optimism because just as in the past, technology has always been a friend of the average guy. Just like the printing press, the Gutenberg Revolution was a liberator for the average guy, just as gun powder is a liberator for the average guy.

With the printing press, knowledge became available to everybody as opposed to just the elite who kept it for themselves and gunpowder made self-defense easy for everybody. I mean you couldn’t take on an armored knight before gunpowder. After gunpowder, he was a sitting duck and the internet is in the same mold as those few technological revolutions. Now there are some short term downsides, dangerous ones like what the NSA is doing, trying to capture all the information but they’re on the wrong side of history. So I’m quite optimistic for the long run, from a technological point of view.

TD: Doug, does open access to information create more competition for you as a speculator? Are there essentially more bidders out there keeping prices higher?

DC: That’s an excellent observation and from a strictly speculative point of view, yes, you’re right looking at it that way. But on the other hand, I might not even find out about some opportunities if it wasn’t for the spread of information. So it perhaps balances things and frankly from a philosophical point of view, I’m very happy for more people--as many people as possible--to be exposed to opportunities. So yeah, you’re right, but you’ve got to look at the bright side too.

TD: Doug, what are one or two of the greatest speculations you’ve encountered in your life that you were able to take part in?

DC: Well, some of the best ones are the ones that got away from me quite frankly, like back during the war in Rhodesia, before it became Zimbabwe. I came really close to buying a fantastic castle, if you can believe that, on the Mozambique border. It had a nine-hole golf course and fifty acres of coffee and it was a hotel, really beautiful and large. I could have bought the whole thing for $85,000 and that was about 1978. By 1985, it sold for $13 million. I didn’t do it because if I had bought it, I would have had to live there to defend it or else it would have disassembled. But if I had changed my life and done that, it would have been a great gift.

So there are lots of things in life that come and go. I mean one of the best hits that I ever made in the market was actually a mining stock and it was a fraud. Nobody knew it was a fraud. It was the biggest fraud in mining history called Bre-X, because initially when they were announcing the results in Indonesia, I thought “Wow, these are fantastic-sounding results.” So you had to jump on.

The stock went from $1.00, to close to $200. So I was buying it simply because it had great results and I bought a lot of it at a $1.00, and I sold it once again, not because I knew it was a fraud but because its market cap was greater than that of Freeport-McMoRan which had invested many billions in developing its deposits.

So those were a couple that stand out in my mind as being big deals.

But I’m always looking for new opportunities. I’ve invested a lot in private companies over the years. They call it private capital today and some of them go to zero. But when you get lucky, you get really lucky. So it’s impossible predicting things in advance. Sometimes it’s the real oddballs that never seem like they’re going to work out, that work out the best.

For instance, another mining example would be diamond fields and that was a fluke quite frankly. I bought into it based upon its diamond deposits in offshore Namibia. It turned out by a total accident it was a fluke. They found one of the biggest nickel deposits in the world in Labrador. It took the stock from $.25 cents to a couple hundred dollars.

So there are many paths up the mountain and there’s no certainty in anything. If you want certainty, you’ve got to take the long term view that Warren Buffett does but he’s not a speculator. He doesn’t capitalize on politically-caused distortions in the market, what he does quite intelligently (you can’t argue with his immense success), is buying growth companies with good management and holding them for the long term. But that’s a different method of investing. It’s not what I do, although I approve of it totally. But you’ve got to play to your own personal strong suits.

TD: Doug you’ve mentioned in the past that you need to have a ready reserve of capital with which to do things. In getting started, was it a kicking, scratching, clawing your way up in terms of your beginnings of building your first reserves of capital and applying that to the speculations you found?

DC: Well, I’ve got to say that I’ve been very lucky throughout my life and I don’t think you can underplay the importance of being in the right place at the right time. For instance, I’m in lots of areas because I read broadly. I look at everything but I also got into the mining business because I wanted to be a geologist when I was a little kid. After that I wanted to be a paleontologist and an archaeologist. So I was always interested in minerals and that type of thing.

Then as I got more interested in money, I stared reading books and fortunately, I came across Henry Hazlitt’s small work of genius which I want to recommend now to everybody listening. It’s called Economics in One Lesson by Henry Hazlitt. It’s a minor work of genius, important to read. And I read Harry Brown’s, You Can Profit From The Coming Devaluation, which correctly predicted and for the right reasons, the 1971 devaluation. So I put two and two together and bought mining stocks, and it was a huge bull market for mining stocks in the 70s and I made a lot of money on those things.

So that’s how I got my original capital put together and then of course I wrote a couple of books and they were huge best sellers and the publishers gave me a lot of money for those and that helped to supercharge my career. I bought bonds in the early 80s and they were yielding 12%, 13%. That helped.

So these things compound on one another. If you’re lucky and you have good judgment, you will get more lucky, and you will have better judgment if you read a lot and you keep your eyes open and ask questions. I’ve always done all of those things.

TD: Doug, what does your gut say about the fabric of the world when you look at bonds and interest rates?

DC: I think that right now, as we speak, we’re still in the midst of the biggest bubble in world history. It’s bigger than the tech stock market bubble around the turn of the century. It’s bigger than the real estate bubble. The bond bubble--with interest rates ranging from zero to a few percent, this is the biggest bubble in history and when it collapses, it’s going to be catastrophic because the bond market is so huge. It’s much bigger than the stock market.

So interest rates when they head back up and they will, if only as a result of inflation, and as a result of fear, of companies not being able to pay back debt--this is going to be huge. It’s going to result in lots of financial companies collapsing. I pity the poor person that is saving in a currency because the governments are going to continue printing up money.

This is very complex, very big, very serious. So I guess my bottom line would be hold on to your hats because the next ten years from every point of view I can imagine, economic, financial, social, military, are going to be extraordinarily tumultuous. I hope I’m wrong.

TD: Doug what about the decline of political and economic influence in the American empire--has the progression of that taken longer than what you’ve expected in earlier years?

DC: Well, I think it was Milton Friedman who was repeating what Adam Smith said, which is “there’s a lot of ruin in a country”, and it takes a long time for systems to wind down. It takes a long time for the capital accumulated over generations to be dissipated in stupidity. But it always happens just because of the second law of thermodynamics which basically says that all systems degrade and the more complex the system, the more certain it is to degrade.

It has taken longer than you might think, but just because something is inevitable doesn’t necessarily mean it’s imminent, but it’s accelerating. The trend is accelerating at this point. So I think we’re pretty close to the edge of the precipice, but anything could have happened.

Anything could have happened to the world economy since the 1970s. But they’ve managed to build a house of cards higher yet, and it’s fascinating to watch, but I can’t be optimistic about the next few years. They’re going to be I think quite chaotic but that doesn’t mean the world is going to come to an end. It just means it’s going to be reorganized.

TD: Doug to ask about precious metals and mining stocks, being that it’s an area in which you’ve built a vast majority of your wealth---have you seen the sector this cheap before?

DC: Yes. There have been a number of times when they’ve been this cheap. They were this cheap in about 2001. They were this cheap back in 1982. They were this cheap back in 1971 but mining is a tough business and it’s really not a very good business. I always describe it as a 19th century “choo-choo train” type of business. It’s about the polar opposite of the semiconductor and high tech and biotech businesses and it’s very politically unpopular and incorrect as well.

But all that being said, these mining stocks, the good ones, the well-managed ones are really about as cheap as they’ve been in history. So unless you think people are going to stop wanting or needing copper, nickel, uranium, gold, silver, and moly, you’ve got to buy these things now.

They’re really about as cheap as they’ve ever been. Everything [in the world] oddly to me seems rather overpriced except for these stocks which have really been beaten down.

TD: So Doug, what would you say is the best strategy for people who want to begin preparing financially and intellectually for these changes that you’re talking about? What would you recommend?

DC: Look, savings is just capital you’re putting aside to look for future opportunities. That should be in the form of precious metals, the physicals, and everybody should buy some of those every month. I still do. You [also] want to speculate. These mining stocks as we speak are good. They’re burning matches, they’re not long term holdings but now they’re good.

If you really want to speculate, you can go into the futures markets. I would say short Japanese bonds. That would probably be the best thing that I could think of but more importantly than these particular recommendations at the moment is arming yourself with knowledge.

I recommend a couple of books, but in particular Economics in One Lesson. I also recommend my books including the most recent one which is called Totally Incorrect, that I think is actually quite good. If you want the best book on the stock market out there, it’s a classic. It’s the one that Warren Buffett has planned his whole investment career around. It’s called The Intelligent Investor by Benjamin Graham, very important to read.

Another book I would recommend highly is The Market for Liberty by Tannehill. So that’s a good list to start with. That should keep people busy for a few months.

TD: Doug Casey, Chairman of Casey Research, thanks for sharing your comments.

DC: Anytime Tekoa.

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