Casey Research 2014 Summit

EXECUTIVE BRIEFING

September 19, 2014 | San Antonio, Texas

THRIVING IN
A CRISIS ECONOMY

Dear Attendee,

Day one of our Thriving in a Crisis Economy Summit was jam-packed with information and investment ideas. I'm sending along the following executive briefings to highlight the essence of each presentation.

We want you to walk away each day with a clear understanding of the investment strategies recommended. The goal of these briefings is to help you organize the large volume of information, so you can easily identify and act upon the ideas that appeal to you most.

The most prominent and repeated ideas of day 1 included:

  • A cautious excitement about the very best junior resource companies.
  • That we're likely nearing an economic storm where standard investment strategies will fail to protect your portfolio.
  • Disagreement on whether we're headed for inflation or deflation. However, most speakers agreed that every portfolio should hold some gold, at the very least as a crisis hedge.
  • The need to think globally, and look outside the US and Canada for investments.
  • Two speakers are extremely bullish on Japanese equities, provided you hedge exposure to the yen.

I hope you find the below summary helpful. We'd appreciate receiving any feedback you have regarding these new briefings in the attendee survey.

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Dan Steinhart
Managing Editor,
The Casey Report


 

Today's Agenda

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James Rickards

Senior Managing Director, Tangent Capital Partners

Capital, Complexity, and Collapse

  • The Middle East, Russia, and China are all working against the dollar and for gold.
    • The US's warmer relationship with Iran is actually bad for the petrodollar, because Saudi Arabia is bitter enemies with Iran.
    • Russia can credibly threaten the US in retaliation to US sanctions. Putin can freeze US assets in Russia, and Russian hackers likely have the ability to shut down the NYSE.
    • China wants a strong dollar because it holds trillions in dollar assets. But it knows that the US will eventually find a way to depreciate the dollar, so the Chinese government is buying gold to hedge against a decline in the value of the dollar.
    • China has already accumulated 3-4,000 tons of gold reserves, maybe more. Jim thinks its target is 8,000 tons.
  • The inflation vs. deflation debate is not an either/or question. Rather, both are happening simultaneously.
    • Government policy (money printing and low interest rates) is causing inflation. But debt deleveraging is causing deflation.
    • We haven't gotten price inflation because money printing has merely offset, not overcome, deleveraging.
    • The Fed will likely implement QE4 by next year.
  • We're approaching a period of extreme volatility.
  • Jim recommends allocating 10% of your portfolio to gold.

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Rick Rule

Chairman, Sprott US Holdings

You Have Suffered Through the Pain, Now Prepare for the Gain

  • When the next crisis hits, ask yourself: a crisis for whom?
  • What matters is your response to the bear market. If you have the wits, courage, knowledge, and cash to take advantage of them, bear markets are great.
  • Our market has fallen by 75% in three years. That means it's 75% more attractive than in 2010, when we were all in love with it. Within a few years, we'll look back on today's low prices as the good old days.
  • Sprott is increasing its exposure to the junior sector right now.
  • Rick is buying gold, silver, platinum, and palladium.

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Charles Biderman

Founder, TrimTabs Investment Research

Ontology: Real Time Insights Beat Historical Analysis

  • In real time, historical statistics like P/E ratios don't matter. Only supply and demand matter. Demand is the number of shares of stock available in the stock market, and supply is the number of dollars available to buy those stocks.
  • The number of shares in the market (supply) has been shrinking constantly since 2010, at a rate of about 70-80 billion shares per month.
  • Public companies are the "house" in the stock market. They have an edge because they know more about their company than you or I do. So a company buying back its own shares usually portends good things for its stock price.
  • Charles manages TrimTabs Float Shrink ETF (TTFS). TTFS invests in companies that are growing free cash flow and using it to buy back their own shares.
  • Charles is launching a second ETF soon that will invest in companies with strong free cash flow yield in 10 international markets. The ticker will be FCFL.

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Grant Williams

Managing Editor, Bull's Eye Investor & Things That Make You Go

The Consequences of the Economic Peace

  • War and financial turmoil have always been inextricably linked. Both occur in natural cycles, and one often causes the other.
  • We're in an extended period of economic peace because the Fed has used monetary policy to abolish the bottom half of the business cycle.
  • The business cycle is inevitable and natural. We need it to cleanse the economy. And because the Fed has leveraged up to unsustainable levels to "keep the peace," the eventual fallout will be that much worse. Essentially, because we've had an unprecedented credit inflation, an unprecedented credit deflation is inevitable.
  • Serious wars will likely accompany the coming financial turmoil. Today's geopolitical setup is similar to 1914.
    • In 1914, France was a fading former giant. Today, that describes Japan.
    • In 1914, Britain was a superpower on the wane, no longer able to guarantee global security. Today, that describes the US.
    • In 1914, Germany was an emerging industrial power puffing its chest and making territorial claims. Today, that describes China.

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Mish Shedlock

Investment Advisor, SitkaPacific Capital Management

The World According to Mish

  • The median PE of the S&P 500 is at its most overvalued in history. Investors buying stocks today are betting on another equity bubble. And if they don't get one, their returns over the next 10 years will likely be negative.
  • Near to mid term, we'll get asset, debt, and possibly price deflation.
  • Long term, monetary inflation is a given. Inflating the money supply is the only thing central bankers know how to do.
  • There's zero chance of hyperinflation in the US. However, a currency crisis is coming.
  • What to do:
    • Invest in things that are cheap and out of favor:
      • Gold miners
      • Japanese equities, but be sure to hedge exposure to the yen
      • US Treasuries are still relatively cheap for now
    • Avoid expensive assets
    • Don't use leverage
    • Think outside the US, and think outside of equities and bonds
    • Though Mish is a deflationist, he believes you should own gold for one simple reason: gold does well during economic storms, and he sees a storm coming.

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Louis James, Marin Katusa

Meet the Map Room | Part I

All of these companies are here by invitation only. No company can buy its way into the map room. Here's a quick rundown of the companies discussed, including what Marin or Louis likes best about each one:

Roughrider Exploration:

  • Very early-stage uranium explorer with high potential.

Integra Gold

  • High grade and still fairly modest size, and pulled off a coup by buying the mine next door for pennies on the dollar.

Uranium Energy Corporation

  • Is permitted, built, and most important, is unhedged.

Columbus Gold

  • Big and potentially world-class deposit. And other people's money is paying for the work.

Pretium Resources Inc.

  • Very few projects are as big and high grade as Pretium.

Dynacor Gold Mines

  • Makes money at almost any gold price. This is the top pick if you're nervous about the price of gold.

Banks Island Gold

  • Extremely high grade and having exploration success.

Balmoral Resources

  • Zone is high grade and thick, and is adding tons very quickly.

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Marin Katusa

Chief Energy Investment Strategist

Welcome to the Colder War

The Colder War is here

  • Europe uses less oil than it did over a decade ago, but is depending more on Russia for energy.
  • Dirty secret of Europe: North Sea oil and gas production is in decline, and Norway oil and gas production has plateaued and is declining. New European production cannot compete with Russian oil and gas economics.
  • Russia has 40% of conventional global oil and gas reserves.

The solution is the European Energy Renaissance.

The best ways to play it:

Germany: PRD (under C0$.75)

Albania: PMI (under C$0.25)

Spain: Renaissance Oil Corp.

Russia: ExxonMobil and Gazprom

Uranium holds great potential

  • Cameco (CCO.TO) and Uranium Energy Corp (UEC) are both good long-term investments.

  • Liquefied Natural Gas: be very careful. It could become the biggest energy bubble of all time.
  • Commodities will go lower, and the juniors will endure more pain over the next 18 months. Gold, oil, and copper will all go lower before they go higher.

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Stephen Moore

Chief Economist, The Heritage Foundation

The U.S. Economy: Better than You Think?

  • It's crystal clear that liberal economic policy doesn't work. Free-market policy does:
    • Red states in the US have blown away blue states in job creation since 1990.
    • Texas alone accounts for all of the net growth of the US economy over the last five years.
    • Both Obama and Reagan took office during terrible economies. They pursued opposite policies: Obama raised taxes and instituted Obamacare, while Reagan cut taxes and regulation. The Reagan economic recovery was almost twice as robust as the Obama "recovery."
  • One of the US's biggest problems is that companies aren't reinvesting profits. The reason: dividend, capital gains, and income taxes have all increased under Obama.
  • Corporate tax rates in the rest of the world have dramatically declined in the last 25 years, but they haven't budged in the US. The average corporate rate around the world is 24%; the US's is 38%.
  • Overall, Stephen is extremely bullish on the US economy. He believes American companies are the best-run companies in the world. We just need the government to adopt less economically destructive policies.

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Mark Yusko

Founder, CEO, Morgan Creek Capital Management, LLC

Surviving Financial Repression

  • Emerging-market companies will continue to outperform US companies because US companies have too much debt.
  • We're in a deflationary deleveraging, and it will last for several more years.
  • Indexing is "the dumbest strategy in the history of mankind" because it increases exposure to assets that become more expensive.
  • Tips for finding alpha in the current environment:
    • US stocks are the 2nd most overvalued they've ever been
    • You have to invest where other people aren't. The way to make big returns is to have a different view from the consensus and be right. You need intellectual independence and variant perception. Consensus is the enemy of wealth creation.
    • Japanese equities are a good bet. Japan will beat the US over next 10 years by huge margin.
    • China is on the verge of a massive bull market. It will have the greatest consumptive boom in history.

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