Editor’s note: Yesterday, we learned why legendary contrarian and Casey Research founder Doug Casey isn’t worried at all about coronavirus panic.
And in today’s Conversations With Casey, he goes further… telling us the best way to make money in a “10,000-year bear market…”
Daily Dispatch: Doug, you’re a commodities guy. The Thompson Reuters CRB index is down 24% over the past five years, although it’s up from February 2016. The S&P Metals & Mining ETF is down 10% over the past five years. Meanwhile, the S&P Semi-conductors ETF is up 136% over the past five years.
Just a few weeks ago, Microsoft reported better earnings than analysts forecasted. Apple had its biggest sales quarter ever, and Tesla shot higher after posting better results and increasing its forecast for the next year. Of course, these companies have pulled back with the market on coronavirus fears… but we know you think this is just temporary hysteria.
In short, with all the money flowing into tech, and not much money flowing into resources stocks, is that enough proof for you that resources stocks are good value right now?
Doug Casey: The only companies in the resource sector that are making good money are the gold mining companies. Gold is now over $1,600 per ounce; we’re definitely in a major new bull market. The all-in sustaining costs to mine it are generally under $1,000 per ounce. Gold miners are making money.
By the way, “all-in sustaining cost” is the best way to measure the real cost of mining an ounce of gold. It amortizes all the costs of a mine over its lifecycle: exploration, building the mine, administration, cash operating costs, closing the mine, and sowing grass over the site years in the future.
None of the other metals are really economic at this point. Uranium sells for about half what it costs to mine; and copper, nickel, iron and most of the others are marginal at best. This is also true of agricultural products – wheat, corn, coffee, cocoa, cotton, cattle, hogs, milk – the producers are all losing money or breaking even at best.
Daily Dispatch: Sounds like the perfect time for a contrarian investor or speculator to buy, right?
Doug Casey: It’s the time to buy commodities. One of the first things that a commodity speculator learns is that the cure for high prices is high prices. And the cure for low prices is low prices. We covered that in our recent conversation on oil.
It’s the same with all commodities. We experience temporary shortages as many producers go out of business because prices are too low, and survivors don’t have the capital to invest in developing for the future. That’s when the cycle turns. Prices will increase due to the shortages, and the survivors coin money for a while. Until we again get a glut, and the cycle starts all over again.
Now’s the time to buy most commodities. I say that, even though farming and mining are two of the worst businesses in the world for all kinds of reasons. It’s completely understandable that young people don’t want to go into them. Who wants to go out and work in the dirt with big green tractors or big yellow earth movers when you can sit in an air conditioned office and play with a computer?
That means the average farmer today is in his 50s or 60s, and his kids are all going to the cities to get jobs that pay better, are safer and cleaner, don’t involve manual labor, and are more reliable sources of income. There are very few young farmers. And for that matter, many young miners or young geologists either.
Schools of geology and mining engineering are de-populated, most have actually closed down. Everybody’s taking gender studies and political science. So yeah, I’m a bull on commodities in general. Remember, smart phones are made 100% of stuff that’s mined. So if you expect civilization to survive, you have to be a bull on commodities.
Daily Dispatch: Even so, you’re not saying the commodities market is necessarily going to turn around tomorrow. This is something that could take months or years to play out, even though they’re good value now. A friend of yours, Rick Rule, tells the story of uranium – that he thought the price of uranium company, Paladin, was cheap many years ago. He thought it was great value at 10 cents, greater value at nine cents, then at eight cents, then at seven cents, and so on, before it eventually turned around and soared in value.
Doug Casey: That’s right, it went down as low as about one cent, actually. I remember that stock well; it was very good to me and Rick, both. And frankly, since commodities in general last peaked around 2011, this has been one of the longest commodity bear markets on record.
I say that in the context of the fact that commodities themselves are in the longest bear market in history. They’ve been in a bear market since Day One. It used to be, in prehistoric times, if you found a piece of elemental copper in a stream, you were the equivalent of a caveman billionaire. That was true of all commodities; they were extremely rare, and extraordinarily valuable. However, their real prices, relative to labor and other forms of wealth, have been dropping for at least 10,000 years – since the start of the Agricultural Revolution.
As people moved into cities, they figured out ways to recover metals more and more cheaply, and in greater quantity. And use them ever more efficiently. The prices of all commodities have been dropping – more or less on a hyperbolic curve, for 10,000 years. When the Industrial Revolution arrived, about 200 years ago, the curve went past its “knee” and the process accelerated.
I’ll give you an example. The top of the Washington Monument is a little pyramid made of aluminum. In the 1860s it was almost as expensive as gold. Now aluminum is disposable – it’s so cheap we throw it away after one use. The same thing has happened across the board. And as things like nanotechnology come to the fore, commodities prices are going to approach zero. We’re moving into an age of super abundance and ultra-low costs.
To put it very simply, at some point in the not-too-distant future, the cost of producing commodities will just be the cost of the software required to have nanomachines manipulate atoms and molecules.
That’s the problem with commodities over the very long term. But within that long-term downtrend, there are explosive uptrends. Right now, I’m waiting for one of these contra-cyclical uptrends. It’s long overdue at this point. It should be explosive for a number of reasons.
Daily Dispatch: Thanks for talking to us today, Doug.
Doug Casey: Any time.
Editor’s note: At Casey Research, we believe gold is always a good investment. It’s real money, and the best insurance against market volatility like we’re seeing today.
And recently, Doug gave an interview about one of the most important changes to rules governing gold in 45 years…
This rule change presents a once-in-a-generation money-making opportunity for investors who are proactive now. But the greatest potential profits will be reaped by those who don’t wait around. Check out how this rule affects you right here.