(Interviewed by Louis James, Editor, International Speculator)
This interview was first published on August 12, 2009
Editor’s Note: In yesterday’s Weekend Edition, Casey Research founder Doug Casey told us about his all-time favorite cars.
In today’s edition, Doug explains why he expects the market for exotic cars to crash…and why he wouldn’t invest a penny in any of today’s bloated car companies.
L: With GM having gone bankrupt, what do you think will happen to the Corvette?
Doug: With GM having become a state-owned enterprise, I wonder if - just on general principles - I wonder if they won’t finally kill the Corvette. The administration might like to see it replaced with some dim-bulb Birkenstock car. So, not only should anyone looking for a performance vehicle put the Corvette first on their list, they should think about moving quickly if they want a new one.
Actually, when it comes to exotic cars, I think the market in them is going to collapse in the near future. That’s especially so for Lamborghinis, Ferraris, Aston Martins, things of that nature.
That’s for several reasons. First, there’s every reason to believe that the price of oil is going to go way up, so people are going to be driving a lot less. Second, the social environment is going to be one in which you don’t want to look like some rich guy who’s still living in the ‘80s or ‘90s, driving an exotic car. Third, people are just not going to be able to afford these kinds of cars in the same numbers - and a lot of the people who have them are going to be selling them.
There was a huge boom in exotic cars from the late ‘80s to the early ‘00s, so I think the prices on them are going to collapse. Plus, the world really is going to switch over to hybrids and electric cars. So, if you want a Lamborghini and are willing to wait a few years, I think you’re going to be able to pick up a real bargain.
In the mid-‘80s, in the newsletter, I recommended buying ‘60s muscle cars as a speculation. I personally bought a 1970 Herb Adams modified Trans Am, but sold it way too soon because I didn’t have a practical place to store it…really dumb of me. The peak came about four years ago when I saw a couple of Baby Boomers, guys my age, who bid a 1970 426 Hemi Dodge Charger up to $2 million. I couldn’t believe it. Obviously they really wanted that car back in the day, but couldn’t afford it then.
But those days are over for a good many years to come. Probably a couple generations. Lots of cars like that will wind up in barns, and what was once $4,000, then $2 million, will again go for whatever the equivalent of $4,000 is then…
L: So, how about those hybrids and all-electric vehicles - have you test-driven a Tesla Roadster?
Doug: No, but I’d like to try one. I have driven a Prius, which is not an unpleasant little car to drive, but it’s just simple transportation. Hardly what I’d call a fun ride.
L: If I recall the numbers correctly, the Tesla Roadster accelerates at about the same rate as my Corvette - but it does it constantly from zero to 125 mph. And it does it without changing gears. So, in any situation in which you’re not worried about your top speed, I could imagine that being a lot of fun.
Doug: Yes, I’m all for the new generation of electric cars that are going to be coming out. Some of them are going to have excellent technology and be great fun to drive.
I think it’s criminal, the way the government is trying to keep dinosaurs like General Motors and Chrysler alive. These things have been brain-dead - run by accountants - for decades. Whereas there are new companies, like Tesla and others, being put together by a new generation of car guys, that look to be able to build fantastic cars that are fun to drive. Unfortunately, the governments of the world make it so hard to start a new venture, with all the regulations and so forth. So, instead of having hundreds of new electric car companies, which we would - and should - have, just as we had hundreds of gasoline-powered car companies a hundred years ago, we’re going to have just a few. The state is the enemy of everything good and enjoyable in the world.
When I think of things as simple as cars, it really brings me back to a basic question I often ask people. It draws the line. And the question is: Do you hate the state or not?
You know my answer. The state is really the great predator. It’s stalking you, and your standard of living, and your life. The state is not only keeping automotive technology 20 or 30 years behind the times, but it’s keeping all technology from reaching levels most people think of as being only science fiction, like Star Trek.
L: I hope you’re right, because forms of government change over time, and I believe the state as we know it was an industrial-era form that will not last long in the information age. Once it’s out of the way, we may get to see some of your Star Trek technology.
Meanwhile, what about investment implications today? Obviously, you’re not a GM fan, but they are coming out with an all-electric vehicle, and so is Ford and the Japanese too. Would you buy any of them or just the new innovators like Tesla?
Doug: I wouldn’t touch the big companies, but getting into a start-up company in a heavily regulated environment is really tough. With the government trying to keep the old dinosaurs alive and to keep their bloated, overpaid labor forces in their uneconomic jobs, they are not going to make it easy for the real green shoots - which would be the new entrepreneurs. Fact is, as I said before, that there should be hundreds of new auto companies, but there are only a half dozen or so serious ones around the world at this point.
Would I invest in them, if possible? That’s very iffy. They are now going to be competing against what is becoming, effectively, a government monopoly.
L: Okay, well, how about farther up the food chain? What about suppliers, especially the battery manufacturers, and the energy metals miners?
Doug: Sure. I’d be much more prone to invest in a company that produces lithium, for example, because everyone’s going to need it for car batteries. And that’s true whether it’s a government-run car company or an entrepreneurial company. That’s because lithium batteries deliver the most power per weight of any battery technology on the market. So I’d be much more inclined to bet on something like a lithium explorer or producer than on a new car company.
Remember, Warren Buffett didn’t become as successful as he is by buying every new start-up idea that comes along (in which everything that can go wrong usually does). He can’t look at small companies because of the size of the assets he manages, but if he could, he wouldn’t even think of them unless they fit Graham-Dodd parameters. That means they’ve got to have a solid balance sheet, five years of growing earnings, etc., etc. Buying into a new car company is pure pie-in-the-sky speculation, not investing.
L: So, in your view, the best way to bet on the current automotive trend is to buy stocks related to the metals that will go into new generations of car batteries, and the energy commodities that will generate the electricity needed to charge those batteries. These are the kinds of speculations we follow in the International Speculator.
Doug: Right. And if it’s driving fun you’re interested in, check out the new Corvettes. The Z06 packages give the new Vettes an agility more like that of a fast motorcycle than a car.
L: I sure love mine! Thanks for your time.
Doug Casey is a multi-millionaire speculator and the founder of Casey Research. He literally wrote the book on profiting during economic turmoil. Doug’s book, Crisis Investing, spent multiple weeks as number one on the New York Times bestseller list and was the best-selling financial book of 1980. Doug has been a regular guest on national television, including spots on CNN, Merv Griffin, Charlie Rose, Regis Philbin, Phil Donahue, and NBC News.
Doug and his team of analysts write The Casey Report, one of the world’s most respected investment research services. Each month, The Casey Report provides specific, actionable ideas to help subscribers make money in stocks, bonds, currencies, real estate, and commodities. You can try out The Casey Report risk-free by clicking here.