Source: JT Long of The Gold Report (4/5/13)
Natural resource investors have experienced a tough year. The price of gold bullion has fallen from its 2011 highs and the prices of even good junior companies have been slashed to as little as half of their former valuations. All the more reason to start returning broker phone calls according to David Galland, Casey Research managing director, speaking on the Friday eve of the airing of a webinar he is moderating, featuring some of the biggest names in the industry.
The webinar, "Downturn Millionaire: How to Make a Fortune in Beaten-Down Markets," features Casey Research Founder Doug Casey, Sprott Global Resource Investments Founder Rick Rule, International Speculator Editor Louis James, "Endgame" Author John Mauldin and Diary of a Rogue Economist Editor Bill Bonner. In this interview with The Gold Report, Galland shares the motivation behind assembling this all-star cast for a golden wake-up call.
The Gold Report: You are moderating a webinar for Casey Research titled "Downturn Millionaire: How to Make a Fortune in Beaten-Down Markets." This is going to air on Monday, April 8. It's an interesting title considering the current state of the precious metals market. Gold hasn't even flirted with $1,900/ounce ($1,900/oz) since 2011 and dropped below $1,600/oz. Silver fell from $43/oz that same year to below $30/oz. Will this conference deliver the painful message that the bull market is over or do you have some good news for listeners?
David Galland: We have some good news. The genesis of the webinar is somewhat interesting. Long-term friend Rick Rule, founder and chairman of Sprott Global Resource Investments Ltd., sent an e-mail saying, "Guys, this is a real market capitulation and one of those rare opportunities to make serious money on the rebound."
"The global demand for minerals is only going to continue to grow, and the role of precious metals is especially important given the complete lack of monetary and fiscal restraint on the part of the U.S. and other large governments."
The proverbial light went off in our collective heads because we, too, have seen this sort of extreme opportunity several times during our careers. And so we scrambled to pull this webinar together in about a week to help make our subscribers and friends aware of the importance of the market capitulation and how to take full advantage. Simply, this is one of those rare moments when absolutely no one wants anything to do with gold stocks, even though gold bullion itself really hasn't sold off all that much compared to the gold stocks, which are off by as much as 50%.
The overarching purpose of the webinar, therefore, is to serve as a gut check and to help people focus on the opportunity. After all, the global demand for minerals is only going to continue to grow, and the role of precious metals is especially important given the complete lack of monetary and fiscal restraint on the part of the U.S. and other large governments. The role of gold and silver is certainly not over, which points to a huge opportunity because the tremendous apathy and capitulation in the gold share market has knocked even the best companies flat on their backs.
TGR: The demand argument makes sense, but were the smart people in this group able to come up with the reason why the stocks are doing so poorly compared to the bullion?
DG: We discussed the stocks in depth, starting with the macro-picture for precious metals, and then, by extension, why people want to own the stocks. The speakers had some great insights about why we've gotten to this point. Then they focused on what they see ahead for the sector and specific ways to profit as the market bounces back.
TGR: One of the featured speakers is Doug Casey, chairman of Casey Research. When we interviewed him in January for "The World According to Doug Casey," he said "speculation is capitalizing on politically caused distortions in the marketplace." We've had years of quantitative easing, but none of the inflation he predicted. Is the government winning? Is that answered in the webinar?
DG: I wouldn't say we've had none of the inflation. The government does its very best to cover it up but we all know that prices have gone up considerably on a lot of things. Look at the basics-foodstuffs, energy and so forth. Are governments winning? No, they are just digging themselves and their respective economies a deeper and deeper hole. That said, you could certainly say that at this stage of the battle, people seem to have forgotten that there's a connection between money printing and inflation. It is baffling because deconstructing the Great German Inflation and other inflations around the world, it was clear to everyone that money printing was the primary culprit. Yet people seem to have once again forgotten that connection. The faculty in this webinar address the questions of where the inflation is heading, why hasn't it shown up and what can we expect when we see it. The consensus view among the faculty was that we're looking at inflation rates in the high double digits and maybe worse within the foreseeable future, maybe not tomorrow, but it will come.
"The role of gold and silver is certainly not over, which points to a huge opportunity."
Governments around the world seem to think that their economies are like washing machines that can be fixed with a bit of tinkering, but they'll have serious trouble turning off the money printing machines. Social promises have been made, hundreds of millions of people now rely on governments for the bulk of their sustenance.
Yet it's important to remember that governments don't actually make anything, except maybe wars. Where is the money going to come from for all these social programs? It's going to be magically whipped up out of thin air essentially. That will have an effect on the purchasing power of the currency units already in circulation, and it will have a positive effect on the prices of tangibles, most importantly gold and silver.
TGR: Participant Bill Bonner, who is the editor of The Diary of a Rogue Economist, also watches macrotrends. Does he see any end to the emergency-of-the-week theme playing out on the global stage? And does he have any suggestions for how investors can protect themselves from the fallout?
DG: Bill completely understands the role that gold plays in preserving personal net worth, but doesn't usually discuss gold shares per se. Even so, in our webinar he said something that really got my attention, "The time to buy these shares is when nobody wants to own them, when even you don't want to own them." That struck home with me because I've been investing in this market since the 1970s, and long ago I learned that the time you really want to back up the truck is when you have exactly the kind of bombed out markets that we have today.
As Bill spoke, it really resonated because I, too, have been ducking calls from my broker, and I have a lot of respect for my broker. Worst of all, my broker is calling me offering me financings on great companies that come with five-year warrants, which is a very rare thing and only seen in periods of complete capitulation. But I didn't want to take the guy's calls because of the same mistake a lot of people are making at this point, which is just to assume that the market is dead forever when, in fact, that's very much not the case.
TGR: So when David's scared, that's the time to buy. Is that what you're saying?
DG: Well, not so much scared. I just didn't want to hear about the sector anymore. Listening to this webinar inspired me to spend time looking at stocks of companies that I know have great projects, and great management and cash in the bank. Universally, these great companies have sold off by 50-60% or more. Yet, there is nothing wrong with these companies other than this panic out of the risk-on trades in the junior resource sector. That was a real wake up call.
TGR: Webinar speaker John Mauldin, author of Thoughts from the Frontline, predicted, in a November interview with us, "John Mauldin's Roadmap to Surviving the Fiscal Cliff," that politicians would find a way around the fiscal cliff that was looming at that time, but he warned that the economy would be in for a bumpy ride. In this webinar, did he have any predictions for when or how things would get better?
DG: John jokes that even as a relative pessimist, he looks like an optimist when in the company of the Casey Research team. John still thinks there is the possibility of a political solution to the economic crisis. If there is, I haven't seen it, and nothing on the horizon looks like it's going to happen as far as I can see.
Despite his cautious optimism, John was absolutely in sync with the rest of the speakers' opinions about the great contrarian opportunity in gold and the gold share market, an opportunity that most people will miss, but shouldn't.
TGR: Another speaker, International Speculator Editor Louis James, stressed the importance of thinking long term when we interviewed him last September for the article "How Investors Can Protect Themselves in a Politicized Economy." He said the junior market was looking "bottomish" and it looked like a good time to buy. Will he be mentioning what companies he likes in the webinar?
DG: He talks about a couple of companies he likes as examples. He's also quite adamant about the criteria that people should use in deciding what precious metals shares belong in their portfolio and what shares people should be selling now. The reality is that a good number of these companies will not survive this downturn. If you're sitting on a company with no cash in the bank, an only so-so project and average management, there's a reasonable chance it's going to go to $0 even though it may have already gone down by 50%.
"We have a classic contrarian opportunity where pretty much everybody who is going to sell has sold, leaving only one way to move-up-for the companies with the right combination of attributes to survive."
In the webinar, Louis covers the specific aspects of companies you want to own in your portfolio and the ones you should lose. It's an important message because these things are, as Doug Casey likes to say, not family heirlooms but burning matches. And the ones that aren't going to make it just aren't going to make it. You have to come to that reality. But the good news is that by rotating into the certain winners you can claw back pretty quickly when the market sentiment shifts, as it most certainly will.
TGR: Another one of the webinar speakers, Rick Rule, is a very popular expert with The Gold Reportreaders. When he spoke to our president, Karen Roche, last November for an article titled "Be a Risk Manager, Not a Reward Chaser," he called gold "catastrophe insurance." Does he have any specific advice for how investors should adjust their portfolios in a downturn?
DG: I would say similar to Louis, his message is very clear. There are definitely companies that aren't going to make it, and then there are companies that are going to make it and make it in a very big way. It was interesting because I've known Rick for a couple of decades now and I have seen him give a lot of presentations, but he was very vocal in pointing to an urgency in this market that most people are missing.
Rick, Louis, Doug and all of the people on this webinar are really on the same page about this. Investors need a wakeup call. They need to really be paying attention at this moment because it's one of those rare, once-in-a-generation opportunities to, as John Mauldin says, get in front of a bubble.
We've seen this before. We saw this in July 1982, another classic capitulation with gold falling from over $800/oz in 1980 to below $350/oz. As you might imagine, the gold shares were completely sold off with the volume on the Canadian stock exchanges falling to next to nothing.
But then there were a couple of discoveries in the Hemlo district of Canada, coinciding with a rally in gold, and the market skyrocketed. One of the companies involved in a Hemlo discovery, Golden Sceptre, went from a low of $0.41/share up to $31/share in about a year. Another, Goliath Gold, went from $0.45/share in March 1982 to $32/share in March 1983, an increase of over 7,000%.
That sort of opportunity is pretty much only available following periods of market capitulation such as we are experiencing today. People have forsaken reason, and they don't want to know about gold stocks. That alone should point the way to a classic contrarian opportunity where pretty much everybody who is going to sell has sold, leaving only one way to move-up-for the companies with the right combination of attributes to survive.
TGR: So as painful as this has been for all of us over the last couple of years, after listening to these speakers, are you ready to say you welcome a down market for the opportunity it affords?
DG: Absolutely. And as I said, it was a complete wakeup call for me. Until participating in the webinar, I had completely stopped paying attention to the sector. Now I am completely re-engaged and talking to my broker again.
TGR: Thank you for taking the time to talk to us.
DG: It was nice to be with you.
The free "Downturn Millionaires: How to Make a Fortune in Beaten-Down Markets" webinar will go live April 8 at 2 pm ET. Sign up in advance to register.
David Galland is the managing director of Casey Research, LLC, a private investment research company serving a subscriber base of over 180,000 independent mining investors in over 180 countries. Prior to joining Doug Casey as a partner in Casey Research, Galland was a founding partner of EverBank, one of the world's most successful online banks. Galland cut his teeth in the natural resource sector by working at the Climax molybdenum mine while in his teens, and has previously served as managing editor of the Gold Newsletter, the Aden Analysis, the International Speculator andThe Casey Report, among others. He is also a contributor to Casey's Daily Digest, which each business day features rotating articles on precious metals, energy, technology, politics and more.
International investor Doug Casey, chairman of Casey Research, LLC, has written several books on crisis investing, including the groundbreaking "Crisis Investing: Opportunities and Profits in the Coming Great Depression" (1979). He has appeared on NBC News, CNN and National Public Radio, and he's been featured in periodicals such as Time, Forbes, People, Barron's and The Washington Post. He has also written countless articles for his own publications.
Bill Bonner is co-founder and president of Brickburn Asset Management, a Calgary-based investment counseling firm largely focused on the Canadian energy sector. Prior to founding Brickburn Asset Management, Bonner was a founding director of Network Capital, the predecessor to Brickburn. His career also included 14 years with Peters & Co. Ltd., where he was a significant shareholder, member of the Executive Committee, and managing director of institutional sales and trading.
Louis James is the master of metals at Casey Research, where he's the widely read and well-respected senior editor of the International Speculator, Casey Investment Alert and Conversations with Casey.Fluent in English, Spanish and French, James regularly takes his skills on the road, evaluating highly prospective geological targets and visiting explorers and producers at the far corners of the globe and getting to know their management teams.
John Mauldin is the author of four New York Times bestsellers. They include Bull's Eye Investing: Targeting Real Returns in a Smoke and Mirrors Market, Just One Thing: Twelve of the World's Best Investors Reveal the One Strategy You Can't Overlook, and Endgame: The End of the Debt Supercycle and How it Changes Everything. He also edits the free weekly e-letter Outside the Box. Mauldin also offers The Mauldin Circle, a free service that connects accredited investors to an exclusive network of money managers and alternative investment opportunities. He is a frequent contributor to publications including The Financial Times and The Daily Reckoning, as well as a regular guest on CNBC, Yahoo Tech Ticker, and Bloomberg TV. Mauldin is the president of Millennium Wave Advisors, an investment advisory firm registered with multiple states. He is also a registered representative of Millennium Wave Securities, a FINRA-registered broker-dealer.
Rick Rule, founder and chairman of Sprott Global Resource Investments Ltd., began his career in the securities business in 1974. He is a leading American retail broker specializing in mining, energy, water utilities, forest products and agriculture. His company has built a national reputation on taking advantage of global opportunities in the oil and gas, mining, alternative energy, agriculture, forestry and water industries.
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