Greg McCoach, publisher of Mining Speculator newsletter, is not ashamed to admit he has taken a big hit in juniors in the last couple of years. What he has done in response is what he advises all investors to do in this interview with The Gold Report: Get rid of the also-rans and keep and build positions in those companies that have what it takes to gain in multiples when the market recovers.
The Gold Report: You wrote recently, "The 2008 crisis will pale in comparison to what is now on the horizon." Given that the 2008 crisis nearly destroyed the world economy, how bad will the next crisis be?
Greg McCoach: The derivative issues were never fixed after the last crisis. In essence, the laws were changed so that the banks didn't have to keep derivative liabilities on their books. That way, bank stocks could soar again. But the banks have acted even more recklessly since 2008 and are now in bigger trouble. The recent White House meeting with all the big financial players should be a warning to investors that something big is about to hit. The media touted this as a meeting to discuss the debt ceiling, but I would say it was about the crisis that is about to envelope the big banks again. Barack Obama didn't run that meeting, JPMorgan Chase ran the meeting and told everyone what was coming. The banks don't have the capital to cover their interest rate derivative problems that are as big as the Pacific Ocean. I would tell investors to expect ten times worse conditions from what we saw in 2008.
TGR: I've read that even if only 4% of the derivatives held by the banks are at risk, and only 10% of that goes south, it would completely wipe out the net worth of the top five banks.
GM: At this point, the acceleration of what I consider tyrannical measures on the part of the U.S. government has reached such a degree it's obvious that something is coming. Why would it buy billions of rounds of hollow-point ammunition? Why is it buying millions of ready-to-eat meals? Why would it take all these extra security measures? Obviously, the U.S. government knows more than the general public does and it reveals something is wrong and the government is worried about it.
TGR: We had this situation after the scandal with HSBC Holdings Plc where the U.S. Department of Justice admitted that criminal acts were probably committed, but prosecution would be unthinkable because the big banks cannot be allowed to fail.
GM: Well, that pretty much tells the story right there. The bureaucrats, Rebooblicans and Dumocrats, as Jim Willie says, don't represent the people of America anymore. They represent themselves and their elitist banker puppeteers. They're trying to control the message and all the outcomes. It's a train wreck in process, but you have to tip your hat to them-they have been able to keep it together for so long. We could have experienced the end game at multiple occasions in the past 12 years, but it now seems to me that the limits of their good fortune are quickly coming to a close.
If you're just watching CNN and FOX News, you're oblivious to what's really going on. But if you're a thinking person, you should start getting together food storage and get your investments in line for the major problems ahead. I can't tell you when it's going to happen because I don't have a crystal ball, but it's not a matter of if this is going to happen; it's just a matter of when.
TGR: What will be the warning signs of the next crisis?
GM: The warning signs are all around us right now and have been for the last six months. The big meeting at the White House with all the financial people I already mentioned was a huge sign. The erratic behavior lately of the U.S. government with the Middle East, particularly Syria, is also a sign. In recent weeks we have heard about a worldwide currency reset that is to take place in the very near future. This is telling those who have ears to listen that the Keynesian fraud of creating monies out of this air has reached a limit so they need to reset.
All of this means that we'll wake up one morning and life will be very different. You'll see markets performing erratically. You'll see civil unrest. Most people think it will have something to do with another banking crisis, a derivatives situation. It could be a new war. I think things could happen quickly and take us down a very dark path. All we can do is prepare for ourselves and our families. You have got to own physical gold and silver that is in your possession.
TGR: The macroeconomic indicators suggest that the prices of gold and silver should be much higher than at present. Why do you think that 2013 looks to be the year that the bull markets in these metals ended?
GM: I don't think the secular precious metals bull market has ended. I think we're just taking a pause. I liken this to the move that happened in the 1970s when we made the U.S. dollar the official reserve currency of the world, and people could again own physical gold and silver. Gold went from $35/ounce [$35/oz] all the way up to $195/oz. Then it collapsed to $105/oz. A lot of people thought that was it for gold. But then it ran to $855/oz.
Since then, we've hit $1,950/oz, which was then corrected back to the $1,200-1,300/oz level. We've been bouncing around $1,200-1,400/oz, and I believe this is just setting us up for the foundation of the next big move in gold, which will take us to much, much higher levels. I'm thinking $3,500-5,000/oz. It will be associated with collapsing currencies, the devaluing dollar, problems in the banking sector, etc.
TGR: What will be China's role in this?
GM: China is the world's biggest producer of gold, and now it is becoming the biggest holder of gold. It is dumping U.S. Treasury bills and buying anything it can get its hands on.
TGR: Is there no question in your mind that gold and silver are bargains now?
GM: Absolutely. People should be lining up to buy on this dip. This is a great opportunity. Nothing has fundamentally changed. Has the government started to become fiscally responsible? I laughed out loud when I heard about this "taper" of quantitative easing. What a complete joke. This should show thinking people the gig is up for the financial fraud being perpetrated at the Federal Reserve.
TGR: Many people argue that interest rates can't go up because then the U.S. won't be able to pay its debt, and the whole derivatives market will be threatened.
GM: If interest rates go up they are damned. If interest rates go down they are damned. Either way the Fed is screwed because of the derivative situation with their largest banks. I would expect interest rates to move in the direction that allows their banks and the U.S. government to survive the longest, but there is no way out of this that I can see.
TGR: What do you think of the argument made by the Gold Anti-Trust Action Committee that the big banks and the central bankers are suppressing the prices of gold and silver?
GM: The government doesn't like rising gold and silver prices because it tells the public that something is wrong. Now, does the government come into our market and play games? Absolutely, but I don't really pay too much attention because, ultimately, I believe free markets will dictate the course of the metals prices. It's yet another sign on just how out of control the powers that be are when they seek to control the outcome of everything. They think they are God, but they're about to find out otherwise.
TGR: You wrote on Sept. 20, 2013 that you've lost confidence in "a recovery this fall in our overall junior mining stock market." If you are right, doesn't this mean that many juniors won't survive? And if this occurs, will it make the survivors stronger?
GM: Absolutely. This is an unfortunate chain of events, but in many regards it needed to happen. There were just too many junior mining companies. There are only so many talented teams of professionals in the industry that know how to make the discoveries that can be developed into producing mines. When you look at the monies that have been raised in this sector in the last 5-10 years, we have very little to show for it. All the low hanging fruit has already been discovered.
So this "wipeout," as I'm referring to it, has been very difficult on investors, people employed by mining companies and newsletter writers like myself. I was hoping we would have a recovery this fall. The early signs in July and August seemed to indicate one because the strongest companies started to move and in many cases doubled from their lows in late June, early July. That is usually a sign that things are going to float again, but it all fell apart in September.
TGR: You have recommended that investors reduce their portfolios "to just a few of the highest quality stocks as we await the recovery." What are the criteria that determine the highest quality stocks?
GM: Companies with plenty of cash on hand that don't need to raise money right now. It is almost impossible to raise money in this sector at this juncture. Look for companies that are producing from high-grade projects with low costs, companies that will make money even if gold and silver go down further from current levels.
Even with companies like these, there is always something making things more difficult. There are a lot of great companies I like in Mexico, where the politicians are trying to change the laws to charge more taxes. Politicians have an insatiable appetite for other people's money. It will affect companies in Mexico with low-grade projects to the point it may force them out of business.
TGR: When do you think the market will turn around?
GM: Things are not going to get better at least until 2014, and in the meantime a lot of juniors hanging by their fingernails are going to go out of business. That will solidify the market for the survivors. Maybe that is as it should be. I do believe that monies we've lost in this sector in the last two years can quickly be made up if investors maintain a position, or build positions, during these low times in the highest quality companies. Because when the market does recover, it is going to be a screamer.
TGR: Many long-time investors in the junior space have been so battered over the last couple of years that they've given up. What is the best reason for people to stay invested in juniors?
GM: I can't blame people for getting so frustrated. They've taken horrendous losses; we all have. Some of the sharpest people I know in this business have been hammered. And when you suffer a lot, you tend to say, "Hey, I don't want to do this anymore." Those who can gut it out, however, those who have the fortitude and the understanding have to dump the garbage. Just take the pain, and get it over with. Realign portfolios to the highest quality and build positions in companies that can make up for a lot of lost ground when the market recovers.
TGR: Greg, thank you for your time and your insights.
This interview was conducted by Kevin Michael Grace of The Gold Report and can be read in its entirety here.
Greg McCoach is an entrepreneur who has successfully started and run several businesses in the past 30 years. For the last 14 years, he has been involved with the precious metals industry as a bullion dealer, investor and newsletter writer [Mining Speculator and The Insider Alert]. McCoach is also the president of AmeriGold, a gold bullion dealer. He writes a weekly column for Gold World.
1) Kevin Michael Grace conducted this interview for The Gold Report and provides services to The Gold Report as an employee. He or his family own shares of the following companies mentioned in this interview: None.
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