Korelin Economics - Rick Rule, Frank Holmes & Brent Cook Panel

00:00:09 My name is Al Korelin. I have been doing a radio show since 1995, I have aired on a number of stations but apart from that, I am also one of the biggest fans that the Cambridge House Crew has. Joe gave me my start basically 30 years ago. I am totally grateful to Joe, to Jay and to everybody else. I'm also very grateful to my friends up here on the stage. Rick Rule, Brent Cook and Frank Holmes. I've known these guys for an awful lot of years. I have to tell you one thing about them. I trust them implicitly.

Transcript

00:00:46 Now having said that, we're going to convert this particular panel into a radio show. It will be a one or two hour shows that airs one Saturday's and Sunday's in the U.S. From a formal standpoint, for those of you folks who don’t know me and I know everybody knows these guys. I want to give a little bit of an introduction to this.

00:01:07 I titled these particular panel insights from proven experts. What I would like to do is I would like begin by – everybody hear me okay by the way? It's pretty noisy in here. Can you guys back there hear me? You can in the back? Okay.

00:01:23 What is a proven expert? A proven expert is somebody who I found after years in this crazy business who discusses only facts. Not what I call snake oil. Okay, what do I mean by snake oil?

00:01:36 Purely and simple I mean a espousing a philosophy which he or she truly believes in and doesn’t pander to folks who want to believe something that is currently either not true, may never be true, but is vindicated by the experts who are saying what that person wants to hear. As an adviser, a proven expert is also somebody who always has skin in the game basically as opposed to receiving a fee for their recommendations. That’s not to the best of my knowledge. I would bet my life on the fact that none of these guys receive a fee for recommending companies. We're going to talk about that later.

00:02:17 Last but not the least, a proven expert has both the educational credentials and the significant hands on experience to be able to be called a true expert. Now you've heard my opinion about that. My panel as I said is Brent Cook, Frank Holmes and Rick Rule. I can tell you all you like to know about them but you know what, I'd rather, you hear it from themselves. Rick let's start with you.

00:02:44 Rick Rule: What would you like me to talk about just out of curiosity?

00:02:51 Al Korelin: Is this mic on? Can you hear Rick?

00:02:58 Rick Rule: Test, test, test, test. What would you like me to talk about?

00:03:00 Al Korelin: How about a little bit about your background. Let's forget the restaurant business.

00:03:00 Rick Rule: That’s a pity. I started my career here in British Columbia. I attended the University of British Columbia because it had the only degree program in Natural Resource Finance in the Western Hemisphere and also because in 1970, a young American was going to travel. Vancouver seemed more benign the Saigon. I went from there to the perfect staging area to learn about the natural business which was owning a bar on Hornsby Street where all of the House street people told their greatest secrets under the guise of whisky.

00:03:38 I stumbled from one mistake to another, surrounding myself with very good people and making a lot of money. If an expert is having lost good money in bad markets and then making good money in good markets, I guess I'm your guy.

00:03:56 Al Korelin: Definitely your guy. Brett, how do you separate the weed from the chaff? What do you do?

00:03:57 Brent Cook: Right, I'm geologist, economic geologist. I've been that my whole life. I've traveled over 60 countries and I was looking at projects everything from grass roots to feasibility, bank audits and that sort of thing. I think what I deal with is Geology, right? That’s what I know. The more someone sees in this business, the better they are at interpreting what's going on. Since we're dealing a lot of times with very limited data, getting – going on you’re theme there.

00:04:35 Alternative facts versus facts are a really important thing to distinguish early on in order not to loose money in this sector. I actually worked for Rick from '97 to 2002. A little more history on Rick –

00:04:55 Rick Rule: That's the best time of your life.

00:04:57 Brent Cook: Best time of my life in some way fixed it was. Anyway, I came in as a geologist. I knew nothing about Vancouver, nothing about think mining game, the business side of it and the money side of it. He gave me a line of credit, $200,000 line of credit to invest whatever I want. Whatever I made off of that, less someone interest I could keep. This is 1997.

00:05:22 By the end of a year and half, I was 90,000 in the hole and really learning a lot. That was probably the best education I had. Since then I've gone on and I've got newsletter Joe Mazamdeni, that’s basically about what we buying and selling with our own money and avoiding.

00:05:43 Al Korelin: Mr. Holmes. Top Gun I guess I should say. Frank by the way has received a lot of accolades. If I'm not mistaken, was named Top Gun in terms of investors in the mining industries. Is that correct?

00:05:57 Frank Holmes: Correct, in this past year.

00:05:58 Al Korelin: I don’t make mistakes.

00:06:02 Frank Holmes:I'm an inner city kid from Toronto. My mother was a social worker. My father was an Anglican Priest. I'm the oldest of seven kids. I can relate to having a big family.

00:06:16 They said they needed capitalist, someone whose going to make them money and that’s what I've gone and done. I learned in life that is what is you know and who you know. If you know everything about like what, then you’re a geek. If you know every one but you don’t know anything that’s important for the nouns, then you are a social butterfly.

00:06:36 The magic is to have critical knowledge but also to meet critical people. That helps you have that first move advantage when you come up the middle. What you learn from one person, you can apply over here. What you learn from a book, you can meet and share that with someone else that would respect that and admire that. Knowledge is very important and who you know is very important. I think that events like this allow this energy of facts and people and mingling and putting things together that helps you in this chemistry.

00:07:06 You create this new intellectual aloe from these conferences. I think it's just great you've all turned out.

00:07:16 Al Korelin: I got to tell you Frank, chemistry is one thing that I found over the years, it's probably the most important facet of this business. I'm not talking physical chemistry. I'm talking about mental chemistry. Having said that Frank, I'm going to call on you first. I'd like you to make a comment on an article that you wrote.

00:07:31 Frank is a prolific writer. We have all of his material in our website. Frank you recently wrote an article entitled, 'An Unexpected Change in Gold's Seasonal Pattern'.

00:07:43 You said, "Here at the outside, I want to share with you an interesting observation. We made this week of gold seasonal trading pattern. As you can see in the chart below, based on data provided by more research center, the five year pattern represented by such and such in line in a graph," which you can't see anyways, so we'll skip over that, "is diverging from the longer term trends. The data shows that today, long term lows are reached late in the year not necessarily in January." Give us a summary of the gist of that article if you would Frank.

00:08:15 Frank Holmes: I think the big things is that there is a very strong pattern for gold to meander and fall and right down to May, June a troughs. Then you get this rally. Then sometimes this happened in May and up to July and factors such as interest rates, political factors can distort that and Ramadan. Ramadan is the first Holiday. It's the 20 days of fasting for Muslims. Usually, the price of gold troughs at that point and Ramadan changes each year.

00:08:52 We're approaching coming in. We're in Ramadan I believe now, correct? This is part of that troughing period if you look at there's about 80 percent probability of a trough taking place. Then we're going to get the Indian holidays. There's going to be a wedding season. Actually, there're two wedding seasons. There's going to be the season of lights, the Diwali Season. Then we're going to have Christmas then we're going to have Chinese New Year.

00:09:17 In my new book I'm coming out with, I call this the great love trade. In its understanding that 50 percent of all the gold consumed is coming from Asia and India and the Middle East. A lot of it has to do with giving of love and around religious holidays.

00:09:36 Al Korelin: All righty Rick, I want to put you on the spot. We have a number of comments from the listeners every week. We get about 200 comments after every one of our radio shows. Rick, here're what somebody said about you. He said, the fellows name B. No, I'm sorry. In my age I have a tendency to even I can't look at notes and have them make any sense.

00:09:59 Rick made a comment. He said, "The truth is, we're having great wars between the bulls and the bears. Very, very loose interest rates have driven people to rather than save, trying to-speculate and invest. At the same time that a very weak economy has driven some out of the equity markets. I suspect that this volatility, this turbulence that the market has experienced is going to continue. I suspect it's going to continue for a long time. I think that you have a choice between working hard and being a beneficiary of this or being governed by your emotions and being a victim of this."

00:10:36 Everybody in this room needs to put that under his or her pillow every night because that is so true. Do you want to elaborate?

00:10:40 Rick Rule: Yeah. I think that too often, what we do with regards to our investments is we pay attention to the narrative rather than to the arithmetic. All of us believe ourselves to be dispassionate observers of facts. We believe what we is we take information from all sources and we analyze that information. We make a rational decision which is great except for that’s not what we do. We look through all of the facts out there. We absorb the ones that support our existing paradigms and prejudices.

00:11:18 Beyond that, our expectation of the future generally is governed by our experience in the immediate past. That’s why bull markets go higher than they otherwise would because we respond to rewards. That’s why bare markets last longer than they would too. We ignore evaluations. We pay attention in the bear market of the fact that the last smart move we made we got spanked for anyway.

00:11:37 Given that we're reward seekers and risk averse rather than observing facts from around the world and viewing them dispassionately trying to buy stuff that’s cheap and sell stuff that’s dear, we do exactly the opposite. We do it much, much, much. It's very unfortunate that we do this. Let's just say that.

00:12:02 Al Korelin: You know it really well to say the least. Having said that, I want to call on Brent Cook just for a second here but I want to say one thing. One of the most humbling experiences that Big Al ever has is getting into any kind of technical discussion or mental discussion with these guys. Three of the most brilliant people who you have the fortune of listening to not only on our show but certainly at the Cambridge House Show. Having said that, Brent you and Joe never write a check. You invest in all the companies that you have in your newsletter.

00:12:31 You never write a check unless either you or Joe do actual due diligence on the site of the company, the asset. Tell us about a typical visit if you would.

00:12:40 Rick Rule: Sure. That’s true. There are things we buy where we don’t go look at first. We just do the technical on website. In general, especially in the earlier stage explorations of the projects, we go look at the project on the ground. Last year we visited 33 projects. Joe's in Mongolia right now then he's off to Ghana. I'm off to Japan and Nevada. We go and we look at these projects. The reason being is it – you don’t really know all the issues until you walk the ground.

00:13:12 I like to sneak up them. Normally, they drive you right to the best drill hole, best core, the best outcome. I prefer to sneak up on to it and get a feel for what regional geology is and then go to the focus of what's going on. That gives you a context. You have to have context.

00:13:30 Then you pick up the rock and all right where am I? What's the infrastructure? What's the CapEx going to be to get the gold or whatever out of this rock? What's the metallurgy going to look like? What's the social issues look like? All of these things go into the first rock sample that you pick up and look at.

00:13:48 That’s what really critical because ultimately you're looking for a deposit that is economic enough that it the major is going to come and buy it from you. That’s always our goal. That’s what we start with right at the beginning and that’s how it works. We write this. We come back. We write this up in the newsletter. If we're buying something, we'll tell you were buying it. This is our expectation and then we follow it.

00:14:11 Al Korelin: As opposed to a lot of people who invest don’t tell you they're investing. Sell and don’t tell they're selling and then they make all the money. Having said that, Rick I want to give you a comment that I was going to actually give early. One of the more prolific guys on our website is a fellow by the name of Matthew. Matthew says this about Rick Rule. He says, "The willful blissful ignorance of the majority is why the herd is always wrong."

00:14:36 As Rick Rule would say, "You're either contrarian or you're a victim. That applies to just about everything not just investing." Elaborate would you?

00:14:47 Rick Rule: Contrarian or victim, by the way I've been both simultaneously on occasion which is really unfortunate. Early and wrong is ugly. Anyway contrarian or victim stems from the fact that natural resource businesses are capital intensive and deeply cyclical. At the point and time when the sector looks its worst, ironically, it's at its cheapest. When the industry is in liquidation meaning that were selling materials for than the cost of producing them, loosing money on every unit of production of course trying to make it up in volume.

00:15:27 That’s precisely the time when you have to sort of gorge yourself to go invest. On the other hand, after the industry has been on a bull market for or five years and you're feeling like real genius because you're mistakes have gone up in price. When there's 50 percent operating margins and perversely when the price earnings ratios of mining stocks are at their cheapest, the industry itself is at it's most expensive. The truth is that you have to buy this crap when nobody likes it. You have to have the good sense to sell it when everybody likes it.

00:15:51 I'm not very good at quantifying it. I just know psychologically when I'm terrified, I make myself buy. Psychologically when I occasionally have succumbed to confusing a bull market with brains and I'm elated I try and sell.

00:16:08 Al Korelin: Many thanks. Gentlemen, I think you've got a checkered shirt there. You're in the last row. Could you do me a favor and nudge the guy next to you. Nudge – just shake him a little bit would you. Michael Maybach is an old friend. Every time I pick up my mic, Mike it pisses off that you just kind of close your eyes. You know what I mean? I got something to say too man. Another one of the giants of our industry, Michael Maybach.

00:16:32 Having said that, I'd like all of you guys to comment on this. We have another fellow on our blog, an avid listener, an avid blogger. His name is B and B says "Yup. That’s one thing about fizz. I think it's under mentioned. There is no need for this to the moon blabber. No counterparty risk is huge. That’s what people should really understand." Frank is that true?

00:17:00 Frank Holmes: I don’t know. I don’t really follow that type of thought process. I have a different though process. I think that you mentioned Rick was speaking about concentrated bets. All the research shows that if you want to get rich you have to make very concentrated bets. I put all money into grow and I made a lot of money. It's gone up and it's gone down. It's that concentrated bet. Then you go to diversify out. You guy the things. To make a concentrated bet, you have to bet on an jockey.

00:17:34 That’s so important to think of where are the jockey's? Within that, you then have to understand are you in a secular bull market or are you in a bare market. Then what's this annual which I talked earlier about, the seasonal patterns. Gold will go up and go down, the DNA of gold's volatility, the rolling DNA. 70 percent of the time it is a non-event for gold to go up 20 percent or down 20 percent. Up or down 20 percent is its DNA of volatility. For the SMP500 it's exactly the same.

00:18:07 The narrative by the media is always negative towards gold even though it has the same volatility as the SMP500. Now gold stocks are two times that. They're going to be plus or minus 40 percent. Since recognizing that when you get these big sell ups, they're your opportunity. I think that’s more important in the analysis of stock markets. Where are you in the secular bull market? Where are you in the seasonal pattern that takes place? How well do you believe in your jockey? How many jockey's do you have?

00:18:41 You have Lucas Landin. You have Lucas Landin. Who else you talked about?

00:18:49 Rick Rule: We're talking about the seven footers.

00:18:50 Frank Holmes: Yeah, certainly Robert Friedland, certain Bob Quartermain, certainly Ross Beaty, Mark Cressy, Clay Riddle. Those are the seven footers. There's a handful of them.

00:19:08 Al Korelin: Brent how about you? What do you think?

00:19:10 Brent Cook: What was the question? I didn't quite understand it.

00:19:12 Frank Holmes: Neither did I.

00:19:14 Al Korelin: Michael would you wake him up please. The question was simply why pay a lot of attention to the folks who were saying $10,000 gold this year or $20,000 gold this year. Is there really any sense in describing that philosophy at this point and time as opposed to buying physical and just keeping with the idea you're going to keep it in the long hole?

00:19:39 Brent Cook: I don't really see what's going to take gold to 10,000. If I see gold at 10,000, it's probably a really bad thing. Something's really gone wrong in the world. I think just sticking with what you know. I own some gold. Sticking with what you know makes more sense to me. You always see people making predictions, right?

00:20:04 They get upon stages and they do predictions. You never see the track record. You never see the previous two years. It's always forward never backwards. I don’t trust that sort of thing I guess.

00:20:12 Frank Holmes: You know what he's saying is that a lot of these guys I found the $10,000 Elms Gold. They never buy any. It's like Mr. Smith that keeps complaining and complaining. God how come I can't win the lottery? Texas Lottery is now $45 million. How come I go to church every week? I'm a good person. I'm a good person. Why can't I win? The clouds open and God says buy a ticket.

00:20:35 That’s the big issue. A lot of these gold bugs and they write me these letters at John Burke Society. They don’t buy. It's a political outpour that’s irrational.

00:20:47 Brent Cook: I think most of them are probably broke.

00:20:50 Frank Holmes: That too.

00:20:50 Al Korelin: I cannot tell you how many friends I had when I started this business. In '82,pretty hot year for the Penny Stock Gold Market then. I cannot tell you how many big names I got to know very well. Some of them ended up working for because they were just on the verge of bankruptcy. It's amazing. Rick, you wanted to say something?

00:21:08 Rick Rule: No.

00:21:09 Al Korelin: Come on Rick. Save me. I don’t know what to say man.

00:21:10 Rick Rule: I will say one thing. I'm a gold bug. I'm not always a gold bug. The idea personally of having immediate in exchange and simultaneously a store of value is something that I subscribe to and probably rationally, I shouldn’t own gold because if the price of gold does well as prices prate will likely do extraordinarily well. The truth is, I do own physical gold because it helps me sleep nights. I honest to God hope it doesn’t go up in price.

00:21:41 If you buy anything for insurance think about an insurance policy that you get paid off on. Life insurance means you died. Auto insurance means you had a wreck. House insurance means your house burned down.

00:21:53 When guys tell me they can't wait for a $5,000 gold I sort of look and say Jesus. Be careful what you ask for pal. That’s how I am. I own a lot of it and I hope however old I am when I become reflective, I can look back and say well that was a mistake.

00:22:10 Al Korelin: I got tell you. By the way, I going to come on the audience right now. Any questions? We've got 15 or 20 minutes left. Any questions that you might have and even you sir.

00:22:21 Rick Rule: All right, normally we have a pretty girl do this. This is really a step down.

00:22:25 Al Korelin: I'm sorry. I'm sorry. Anyway having said that, as Frank said they go to church every Sunday. They read the bible everyday. They've never seen $5,000 gold. I do a bible study every week with a group of very interesting guys, a couple of them are Navy Seals I might add. I read the bible. I find it to be fascinating for a lack of better terms. I've never seen $5,000 gold. Any questions? Yes sir, Tom Huskin.

00:23:53 Tom Huskin: This is for Rick. Can you please illustrate to me a little bit on the SIIS Broad Ink and how that –

00:23:02 Rick Rule: I'll pay you later.

00:23:08 Tom Huskin: If I'm looking for an optionality place it's a good place to look or where else would I look and are there performance be either paid by or to.

00:23:15 Rick Rule: SII is the management company of all these sprout products. While of course we would urge you to buy Sprout Investment Products which we believe are absolutely world class. It is true that if you buy a Sprout Product you will pay us a management fee. Whereas if you buy Sprout Inc, we will pay you a dividend. You need to think through that arithmetic and decide where you want to be I guess on that continuum. We are leveraged to the price of gold. We're leveraged to the performance of gold equities.

00:23:49 Our brand like Frank's brand is worth a lot of money because were associated with micro cap natural resource markets. Ironically, gold companies be there miners or service companies that are highly profitable and well capitalized are less leveraged. The pursuit for leverage rewards marginality. We've asked the gold mining industry to exhibit leverage to the gold price. In other words, be marginal for 40 years and boy have they complied.

00:24:20 They'd become extremely marginal. I hope that our margin is performance driven in no other fashion. I hope that helped.

00:24:30 Al Korelin: Any other questions out there? No questions. Come on. Somebody has something they have to say. Save my ass for lack of a better term. I don’t know what else to talk about. No questions. Okay.

00:24:42 I have a question. I think this is an interesting discussion. First of all, how many people in the room are from the U.S.? Not preponderance. Okay. How many people in the room who are from another country i.e. our neighbor Canada? How many of you any interest whatsoever in U.S. Politics as it relates to the markets?

00:25:06 Boy I got to tell you, that’s the most important thing in my opinion to even think about right now. We have a new President in the United States. The reason I'm going to direct this question at Frank is Frank on our show about two or three ago. You know why I finally had to run him down? I finally had to run him down on Washington D.C. You know why? Because he was in meetings with top level politicians. That’s how much Frank Holmes realizes the incredible importance of the input of geopolitics in investing. Am I right? Talk about it if you would.

00:25:40 Frank Holmes: Yes. After that I was at the Salt Conference. It was interesting because the top hedge fund managers, they have spectacular track records for long periods of time. All believe you have to have a political overlay on your investment decisions that are going to – how do we stop this? This is ridiculous.

00:26:07 Al Korelin: Joe – yeah, it's pretty noisy. Joe it's either you or Jay could go and see what's going on over there. Somebody is yelling and it's pretty tough. We got to give guys like this some courtesy.

00:26:18 Frank Holmes: Coming back on the thought process is that you have to have it because you can understand themes, investment themes. If President Trump is going to put money into infrastructure, then how fast do you go to cement companies and rebar companies and steel companies, the same thing any where in the world. You must be sensitive to fiscal policies in particular what they mean and then monetary policies.

00:26:43 Low and behold, I went to Washington and you find out at the Senate meeting that in the American structure – okay, I'll back up. Ben Bernanke spoke and he said that Trump is like Jimmy Carter. Now I thought of this as completely opposite spectrums of Democrats and Republicans. He said he's like because he's an outsider and he wants to change the beltway. What people don’t realize are three political parties in America. There are the Democrats, there're the Republicans and there's think beltway party.

00:27:16 The Beltway Party are regulators and they are lobbyists. They are intertwined and they will stifle. There're been more leaks out President Trump. They're trying to dismiss anything he's trying to do. That was validated by a person who is part of the beltway party.

00:27:36 You're allowed in America only three strikes at the ball each year to change policies, major policies. When you go to change a policy it has to be tax neutral.

00:27:45 If I'm going to touch Obamacare, it's going to impact healthcare and Medicare and it's going to impact taxation. Two strikes and left one left. How can that President ever fulfill all those promises he made because the structure doesn’t allow it. What he should be doing is looking low hanging fruit. Don’t talk about personal income taxes and four years out. Talk about corporate taxes. Don’t talk about Obamacare. Get some wins out of the belt.

00:28:18 He's going to have with this broad brush and he said, "Now that I'm here I didn't realize how complex it was." That’s the danger of this. He's just not cognizant that you cannot fulfill in all these promises. Now we have bloated cars inventory, rising interest rates, odds favor, negative fuel interest rates, gold rallies and the economy just chugs along.

00:28:46 Al Korelin: One comment I want to make before I give the mic to this gentleman right here with a question is, the only kind of people you want to invest in, the only kind of folks you want to listen are folks who get in and get their hand dirty. Go to Washington D.C. Visit the properties et cetera. Those are the only kind of people or they're representatives you want to because they know what they're talking about. Sir?

00:29:06 Male: My question is simple. I just want to know what each one of you have your largest share holding in a company and how long you've owned it. If you want to talk, you can tell us why?

00:29:22 Rick Rule: If I understood the question large holdings, yes. In fairness I have two, one Sprout Inc. who I sold my business too and who I've been a consistent buyer of since and who worked for. My lawyer just speculative position at cost easily as I have in whole mines and that’s probably more towards what you're looking for. It's defining my speculative – not my investment but my speculative style.

00:29:48 Male: I was just wondering how long?

00:29:51 Rick Rule: God, I started buying Ivanhoe early predictably probably four years ago. I've bought it to the extent that I have it basically coming out of every poor. I have asked my clients now that’s its done well in price to sell enough that they have the rest for free because of the political risk. I, however, have only bought not sold. I'm not following my own advice with regards to that. In that particular case my greed has substantially overwhelmed my fear.

00:30:25 Al Korelin: Mr. Cook.

00:30:26 Brent Cook: That’s a tough question. I think I'll have to think about it. Right now, I own a fair bit of sand storm which I got by way of when they took over Marianna. I'm hanging on to it. I think it's undervalued right now that I've got hit. I'm not going to hang on to it that long. In terms of something I've had a long time it's probably Mirasol Resources which is junior exploration company. A fellow I worked with in Argentina, Chili and Australia, excellent group.

00:31:00 One day they're going to find something and they've got the money to get there. That’s probably my biggest long term holding. I've had that for years.

00:31:20 Frank Holmes: Myself it would be like Rick. We invest in our own companies and it'll be growl. I continue to buy in down base. In investments, I would say that it would be Ivanhoe is that speculative play. There's no doubt. Betting on a jockey like Robert Friedland. He works 24/7. He's just a very unique individual that has a brilliant mind. Difficult to be with for a lot of people but I admire his brilliance. He's a savant in his own way. Then I would say would be Clondex, the CEO's behind you.

00:31:45 We own I think over 40 million shares and then it be the Grand Columbia Gold Notes because they pay every month. In the past five years, there's not many investments so I've got all money back plus and the gold notes have been able to do that. That would probably the three big bets.

00:32:09 Al Korelin: We are out of time. Unfortunately, we do have some constraints because I am going to between Corey and I will turn this into this coming week's radio show. I want to thank you all for coming. If you have an interest in listening to our show and you don’t happen to live New Orleans, Chicago, Texas, Florida, what have you. You can get it on the internet because we do podcast.

00:32:31 Just go to kereport.com. It's been a pleasure talking with all of you folks. Enjoy the show.