(To listen to the entire interview, please click here.)

One of Porter Stansberry's mentors and author of Totally Incorrect, Doug Casey, joins Stansberry Radio.

Aaron Brabham: Porter, our guest today is one of your mentors: Doug Casey. Doug has a newly released book called Right on the Money. Doug, welcome to Stansberry Radio.

Doug Casey: Thanks, Aaron. It's a pleasure to be here, Porter—and even though I haven't met you personally, one of my favorite people in all the world.

Porter Stansberry: Well, Doug, I've met you personally. [Laughter] What are you talking about? I've known you personally since 1996.

Doug: I was speaking to Aaron, though.

Porter: Oh, I'm sorry. I'm sorry for the confusion. Well, Doug, you've got to tell us where you are in the world because you are more peripatetic than anyone I know. Where are you now?

Doug: At the moment, I'm in Punta del Este, Uruguay, on the beach. It's a backward little socialist country, but because the climate in the summer is very good, everybody from Argentina, including myself, comes here to the beach. But I'm most anxious to get back to Cafayate in the mountains of Argentina.

Porter: It sounds very lovely. I understand that Uruguay just legalized marijuana.

Doug: Yeah, it's amazing. They're very socially forward-looking. Homosexuality is completely legal here as well. So there are good things about Uruguay, but it's a welfare state. The Uruguayans are notoriously lazy.

Porter: It's strange, isn't it, the way that countries seem to either have their [beep] together in terms of social liberty, or they have their stuff together in terms of economic liberty, but no one in the world that I can think of, do they have both?

Doug: You're absolutely correct. I was in Salto a couple of nights ago with some German and Austrian friends. Punta is extremely international. People from all over the world come here. That's one of the good things about it. We were all commiserating with each other about how there's really no place on this damned planet that you can go where the busybodies will leave you alone. It's very disturbing and shameful.

Porter: Well, I'm just wondering: I haven't been to a country yet where marijuana was legal. Have you seen any people smoking the ganja just walking down the beach?

Doug: No. There's absolutely zero change in anything that I can detect: the way people drive, the way they act, the number of people here to take advantage of it. In other words, yes, it's completely legal, but it's a total non-event, just as it would be in the US, and just as it would be if they legalized heroin, cocaine, and methamphetamine. I mean this whole war on drugs was not only a gigantic fiasco, but totally unnecessary.

Porter: I agree. And if you learned anything from Prohibition, then you would expect that declaring war on marijuana is going to be a total failure.

Doug: You're absolutely right, Porter. But people learn absolutely nothing from history. Who was it that said, “The only thing that we learn from history is that we don't learn anything from history”? I think it's due to a psychological flaw in the human chimpanzee.

Porter: You know, I think the flaw is actually the nature of crowds. I think the real flaw is democracy itself. Because Doug, you and I know from being speculators that the sure way to make a fortune is to fade the crowd. I mean, the more passionately everyone believes something, the more likely it is to be completely wrong. And you'll make your fortune by doing the opposite of what the crowd believes in the markets.

In your experience, hasn't that been true politically as well? So when everyone “knows” that Saddam Hussein has weapons of mass destruction, you can only be sure that he doesn't. And when “everyone knows” that you need tougher laws against drinking and driving or you need to restrict people's right to marry whomever they choose, you know, you can only know for sure that policy is going to handicap your society and is going to produce far more costs than it does benefits.

Doug: Yeah, it's quite amazing. It must be the “lowest common denominator” principle that every person, as an individual, has a certain amount of physiological aberrations. I'd like to think that my friends and I have much fewer of them than the public at large.

Porter: [Laughter] Well, just imagine what the average person on the street thinks of your psychology, Doug.

Doug: Well…

Porter: I get more hate mail about you than any other of my assorted friends in this industry or in life. I mean, you tend to hit people right at the hot-poker emotion button. I think it's because you just…

Doug: I think it's a lot like mule skinners believe when they are dealing with a recalcitrant donkey, the first thing that they do is they hit it between the eyes with a two-by-four. And why? To get its attention. Anyway, it amuses me. We now live in an entertainment society, and I'm in a position where I mainly like to do things that amuse me. So getting the reactions of people that haven't even thought about these things, I find quite entertaining.

Porter: [Laughter] So you weren't surprised when you told the crowd at Blanchard over many years—and you are famous for doing this—that they were a bunch of whipped dogs and they should roll on their backs and pee themselves. And you literally said that to a crowd of, oh, 1,000 people, and you weren't surprised when everyone booed. [Laughter]

Doug: It was amazing.

Porter: Aaron, that's literally what happened.

Doug: I tell them that their religions are superstition, and that they're idiots for supporting the military, as if they had just come out of a theater playing a John Wayne movie or something like that. And people hate this stuff. They love to be part of a mob, a crowd. And the reason I think that is…

Porter: So they don't have to think.

Doug: Well, yes; and the average person has so little self-confidence and actual self-respect—as opposed to hubris—that they need the reinforcement that they get from hanging around with other people that believe the same things, or they think believe the same things that they do. They are non-individuals.

Porter: You know what, it's fun—for example, one of America's favorite hobby horses, one of their deeply held beliefs for most Americans, is that WWII was different because it was this noble war, right?

Doug: Yes.

Porter: It was a war that we were supposed to be in, and we had fought and we had won. [Laughter] And when you try to explain to them that the war—that there was no point to the war in Europe whatsoever, because the moment that Hitler evaded Russia, the war in Europe was over and it was only a matter of time.

And if you understand anything about the casualty rate or why Hitler lost the war, you know that the evasion in North Africa and the D Day evasion of Normandy had nothing to do with it. It was completely a sideshow, a minor sideshow at that. Further, once you realize that in Europe, we became partners with Stalin… [Laughter] How is that noble again? [Laughter]

Doug: Well, you know, I think it was Randolph Bourne who said, “War is the health of the state.” And actually, the wars that America has gotten itself into—or once again, I'll make a distinction here: not America, that the United States has gotten itself into because the United States is a very different thing from the idea of America, so people shouldn't conflate them. But every war that this country has had has radically decreased the freedom of the individual and increased the size of the state.

Porter: And the war on terrorism is the most dangerous of all of these, because there is no country called terrorism, there is no person called terrorism. This is a war on a tactic. So it can never been won, which is perfect for the state because there will never be an end to terrorism, so there's always a reason for more government, for more spying, for more power, for more authority, for more coercion, and we're in the middle of that now. They will never give it up.

Doug: No, they won't. And as a result of that, the US is turning into a police state. It really is. As I look back over my life and what it was possible to do when I was a kid and what was accepted, and what is possible to do and what is accepted now, it's a different country. And the trend is accelerating rapidly, and I would urge all of your listeners to think seriously about getting out of the US, because as long as they're in the US, they're going to be treated as a milk cow of the US government, which incidentally is a different thing from American society. But at least if you're outside of the US, you're not in a place where the government considers you a possession.

Here in Argentina and Uruguay, I'm treated as an honored guest, a valuable tourist, to be cultivated and treated well, unlike the US, where I'm treated like a milk cow.

Porter: Very well. Doug, I'd like to claim a little bit of credit for some of the material in the book you wrote a few years back, the one that was generated from the Conversations with Casey, which I urged you to start doing.

Doug: Well, Porter, I wouldn't have done it unless you came up with that idea. It was brilliant, and it is one of the many things that I owe you, and I appreciate that. I consider you extremely underrated, both as a thinker and as a securities analyst. So, no, I absolutely—I'm totally on your side here.

Porter: No, I just wonder—I can't remember the name of the book. I remember the name of the weekly e-letter was Conversations with Casey, but what was the name of the book?

Doug: It was called Totally Incorrect.

Porter: Totally Incorrect. So yes, I just want to tell everyone that that book, Totally Incorrect, is one of the most entertaining reads that you will ever pick up. It is great. It was generated from about four years' worth of interviews with Doug Casey, and they spun the interviews into a book. It's a delightful read.

I urge everyone if they haven't yet, to go to Amazon or wherever you buy books and get a copy. You'll die laughing, and then you'll just die, because you're going to get unvarnished truth about the threats to free society and the decline of America. Nobody else can give it to you like Doug. Now, I haven't read the new book. I haven't seen a copy yet, but it's called Right on the Money, and I'm expecting that it's similar in style to the previous book.

Doug: It is, except it zeros in more on financial and economic and investment topics, whereas the other one covered the world at large. So I think the timing of this book is pretty good, because from one point of view, I can be called a permabear. That's because I prefer to look at things from a long-term perspective.

But now's a very good time to start thinking financially because I’m afraid that this year—2014—we're going to go back in to the financial hurricane. We've been in the eye of the storm since 2009, but now we're going to go back in the trailing edge of the storm, and it's going to be much longer lasting and much worse and much different than what we had in 2008 and 2009.

Porter: Yeah, it's going to be a lot different, because our main weapon of survival back then was to print a bunch of money. But I think this crisis is going to be caused by people starting to flee money.

Doug: Yes. And I always try to look at the bright side of everything, the good news that is in the cloud. And that is that the Federal Reserve—this is not good news for the average person, to the contrary. But it's good news for speculators because as people start fleeing the dollar and fleeing all these other currency units being printed up by the trillions by these idiotic governments around the world, they're going to create more bubbles.

So the question is to position yourself early on in the bubble, and you could make a lot of money at the very same time as society, as a whole, is getting poorer. That sounds awful to say; I'm sorry. I didn't make the rules; I'm just playing the game.

Porter: And I think for the most part, that's what I've been doing, and I know you've been doing, since, I would say, oh, much of the last 15 years, because this bubble era really began, as you know, with Greenspan and with the first big bubble he printed up in anticipation of Y2K. And every successive bubble has gotten bigger, so you had the tech bubble, and then you had the real estate bubble, and now you have the sovereign bond bubble.

Believe me, the real estate bubble was far more dangerous than the tech bubble, and the sovereign bond bubble is way more dangerous than the real estate bubble. Because we're not talking about some poor house-flippers in Peoria or Las Vegas or Atlanta going bust: we're talking about every single one of the top 20 OECD nations going bankrupt at the same time.

Doug: You are absolutely right, Porter. And what it is, it's a generalized financial bubble. As I look at the composition of the S&P 500, over 20% of all the stocks in it—I think I'm about right, a little bit under actually—are financial-related companies: banks, brokers, and things of this nature. In a properly organized society, and historically, decades ago, it was a much smaller number.

In other words, finance is just something that facilitates real production. But, today, people are just trading, and this quadrillion dollars' worth of derivatives out there really is a daisy chain, with gigantic counterparty risk. This is a historic catastrophe that we're looking in the eye right now.

Porter: And when it blows up, it will become incredibly violent. Unlike the real estate bubble, which didn’t involve nation states, this will. Believe me, the Germans are going to get pretty pissed off when they realize that they're not getting any of their gold back.

Have you seen the latest on that? There was a German magazine that was out today. The Germans wanted all their gold bullion back from the Federal Reserve, and it's been a year since they've asked for it back, and they've gotten none of it back. And all the gold that was sent to them didn’t come from New York; it came from Paris.

Doug: Yeah, it's quite interesting.

Porter: Yes. This is the very beginning of it. The other thing that's going on that is also in the same line of thinking is that the Chinese are out today, and they reportedly have doubled, in one year, the entire size of their bullion reserve.

Doug: Yes. This is why—as we speak right now, I don't know what gold is, $1,250 an ounce, but I think it's once again an excellent speculation. Not just an extremely important asset to own, to keep most of your savings in, but it's again a very good speculation, because a lot of people don't realize that the dollar is just a floating abstraction.

And back in 2001 when the dollar was $400, gold was actually cheaper in real terms than it was back in 1971 before Nixon devalued the dollar, and gold exploded from $35 an ounce all the way up to $850. So it was that cheap again in real terms in 2001, and again as we speak now, it's about that cheap again, so I'm a huge gold bull.

Porter: Yeah, very good. I have one other financial idea to run by you. And, by the way, in my newsletter I recently recommended—I don't know, three or four months ago—I recommended the shares of NovaGold, which has some very high-quality mines that are not yet in production. You can buy for less than $2.50. So I told people it's basically a call option that's not going to expire on the price of gold.

That's really my favorite way to buy gold. Look, please understand, I recognize there's a huge difference between a junior mining company with no production and bullion. I got it completely, okay? I buy bullion as a form of savings. But when gold gets this cheap, my preferred way to buy it as a speculation is to buy these high-quality junior miners that are not yet in production. I feel like that's the biggest bang for my buck. It's not companies that don't yet have any proven reserves. It's not yet companies that don't have feasibility studies. They've got all of that, and they're just waiting for a higher gold price to turn the key on the mine, and that optionality is what's going to create all the value here.

I'll tell you, I think that NovaGold will be over $20 by the end of this year. And Doug, you have seen these cycles so many times in your career. You know what I'm talking about. You know it's just a matter of time until this happens again.

Doug: Well, Porter, I totally agree with you on that. And I've personally been in stocks that have gone 100-to-1. I was in one stock that went 1,000-to-1, which is almost beyond the ken of understanding of most people. But these are the most volatile securities in the world, and you are quite correct because I think that one bubble that is going to be created—there will be a bubble in gold, as people panic into it out of fear and greed and prudence, and there's likely to be a super bubble in correctly selected mining stocks, or even incorrectly selected ones because—

Porter: That's right. When it goes, they all go.

Doug: That's right. When the wind blows, even the turkeys fly.

Porter: Now listen: I have one other financial idea to run by you. I'd love your thoughts on this. Because in addition to hedging yourself by buying gold, so if we're right in this massive global financial bubble, and I mean that in terms of the size of the banks and the brokers and the sovereign bond markets, if all that were to, as we believe it inevitably will, to collapse this year, then you'd want to own gold.

But I have another idea. Doug, you and I have both talked about why you needed to be short sovereign bonds, and that's been actually a very good trade over the last year or so.

Doug: I think, in short, Japanese bonds are even better.

Porter: Yeah, whichever flavor suits you, because they're all in trouble. But that's going to be a very difficult trade to make a lot of money in because, when you are shorting, you know how it works: it can only go up 100% because it can only go to zero. And a sovereign bond isn't going to go all the way to zero; the yield is going to go higher—blah, blah, blah.

Anyway, the other idea I've got is, have you taken a look at the mall REITs in the United States, or anywhere else in the world? Malls, I think, represent this incredible age that we've just been through, because malls serve no purpose for doing anything productive. They are literally a place where people could go and spend borrowed money. That's all that they were, right? And so the peak of mall traffic coincided exactly with the peak of mortgage equity withdrawal.

So if you go back to '05, '06, '07, when people were taking billions of dollars out of their mortgages every year by refinancing, that's when mall parking lots were full and booming and rents were high. Today, malls are having to fill up stores with fake storefronts because no one's able to make money retailing in malls. I don't know if you saw the data in the Wall Street Journal that came out this week, Doug, but mall traffic is down 50% since 2010.

Doug: I wouldn't doubt that at all. The retail business in general—I mean, the bankruptcy of Sears is looming, JC Penny is looming—it's reflecting the bankruptcy of the average American consumer.

Porter: Exactly. So Americans are dropping out of the labor force, real household incomes are falling, right? They can't use their mortgages as ATMs anymore because interest rates are going up. They can't increase their credit lines anymore because interest rates are going up, and Amazon is killing the margin in all of retail, and so traffic to the malls is way down. So do you know, Doug, what Amazon's operating margin is? How much money they make on each sale?

Doug: It's very small, isn't it?

Porter: It's less than one percent.

Doug: Yes.

Porter: So how can anybody hope to compete in retail when Amazon is just gobbling it all up at almost zero operating margin? And here's another thing, Doug, speaking of bubbles: Amazon is now trading at 150 times earnings. That's not a misprint. That is not a typo. That is exactly what the ratio is today on Amazon. And do you know what their return on equity is on that business?

Doug: I've never analyzed the stock, but it seems to me it's probably very overpriced.

Porter: Their return on equity is 1.9%.

Doug: Wow.

Porter: [Laughter] They're trading at 20 times book with an ROE of less than two percent, and 150 times earnings. How's that going to work out?

Doug: Well, I think there are better places for your money than Amazon.

Porter: I think so too.

Doug: There are better places for your money than anything that's selling things to the public at this point.

Porter: But just one last thing about all this, okay? You know that Amazon is destroying the other retail companies. You know that people aren't going to the mall anymore. Literally, they are not going to the mall. Traffic is down 50%. Malls are putting up fake storefronts. But ask yourself this: What is the average yield right now on a mall REIT?

Doug: Tell me.

Porter: It's under five percent.

Doug: That's what we call—instead of risk-free return, that's return-free risk.

Porter: That's return-free risk. So one of my surprises for you that is not directly related to the financial bubble that we perceive, is there's going to be an enormous hemorrhage of value in these mall REITs. And that's going to have huge repercussions throughout the entire commercial real estate space because these guys have enormous amounts of debt out there.

So one of them, Simon Property Group, has over $30 billion outstanding in debt, and when these debts go, there is no collateral because there is no other high-value use for a mall. What are you going to—how are you going to generate those kind of rents with a structure that size?

Doug: I don't know; use it to film a post- apocalyptic movie, perhaps. [Laughter] I don't know. But you're absolutely right.

Porter: So that's something to watch for in America.

Doug: But there's going to be a lot of fallout from this besides, because who owns all that debt? I mean, it's pension funds and insurance companies, and it's banks.

Porter: Yeah, absolutely.

Doug: I mean, there's a lot of people who are expecting their pension to be there that might be very disappointed in the years to come.

Porter: These are the second- and third-level effects of this. You're exactly right. This is a very important thing. When the leading retailer in the United States is operating at less than one percent operating margin, how does anything in the country work? [Laughter] I mean, you can't tax that, right?

Doug: One of the other pieces of fallout—and there are a lot of other things other than this one that you're bringing up now, which is a very good thing to bring up, incidentally—is that the political consequences of this are going to be huge, and that underlines something that I like to emphasize, which is that as bad as these market risks are, your biggest risks today is a political risk and what the government is going to do to you as a result of this.

Porter: When these things all blow up, the government's ability to keep 50 million people on food stamps, the government's ability to support 92 million Americans who are not working—these are real numbers—their ability to supply lifestyle to these people evaporates. And what do those people do? Well, of course, they're going to demand the government take bigger steps to do so, so they're going to have to find a way to raise taxes or confiscate goods.

But the bottom line is whether it's the people, whether it's the hoodlums who are depending upon the government, or where it's their agents in the government, somebody with a gun is coming soon to a neighborhood near you.

Doug: That's right. Not near me…

Porter: Not near Doug. [Laughter]

Doug: No. Because, like I said, I'm an honored and valued tourist down here, an asset that they want to defend. Although the fact of the matter is the whole damned world is going in the wrong direction. So it's almost like you can run, but you can't hide. But I prefer not being in the US, Porter, to be honest with you.

Porter: You are very wise. I really truly—I think everyone out there today, they might like my financial stuff, they might like the work I do on stocks and bonds, right, but they all probably think, almost to a man, that my warnings about the apocalyptic future that I see for our country is just out of hand. They turn it off. They don't even listen to it.

But what they don't realize—and I know you understand this—is what I'm talking about is only the merest shadow of what's actually going to happen. People cannot imagine what will happen to our society when the dollar collapses, when the banks close, and when the government goes bankrupt. And all of those things will happen in the short term because of everything else that's been done over the last 30 years.

There is no way out. We are in a blind alley. Doug, tell me exactly again how the Federal Reserve's going to unwind $3.5 trillion worth of Treasury bonds without any bad things happening?

Doug: I'm sure that by the time it finishes, it's going to have many more trillions to unwind than 3.5. There is no way out. You are quite correct.

Porter: How crazy is it is the world's most sophisticated and wealthy society, which is ours—we're still the largest most powerful people in the world. When you talk about money and economy size and military, America is still the dominant power in the world and yet, our own central bank is the largest holder of our government's debt. We're literally being run like Zimbabwe.

And we think because we believe in this nonsense of American exceptionalism, that we're going to get away with it. That we will be the only people in history that is able to finance all of own future on our own consumption. It doesn't work that way, does it, Doug?

Doug: No, it doesn't. This is going to be most interesting to watch. But as I've often said in the past, I plan on watching it from my widescreen in the lap of luxury, not out my front window in the US.

Porter: Well, Doug, as I know you do, I'm hoping you'll keep a bedroom for me somewhere down in the Cafayate in Doug's Gulch. I want to encourage all of our listeners to pick up both of Doug's books: the first one is called Totally Incorrect, and the second one is called Right on the Money.

Doug: That's it, Porter.

Porter: So pick up Doug's books, and Doug, keep a light on for me in Cafayate. And for those of you who are interested in Doug's private universe, you've got to go to La Estancia de Cafayate. You can also just type into Google “Doug's place in Argentina,” and I bet it will pop up.

Doug: I'll have to try that and see what it does actually.

Porter: I bet it will.

Doug: I love to have visitors down here, so…

Porter: Doug, I just want to thank you so much for your friendship over the years. It's meant the world to me. I sure do hope I get to see you soon. I don't know when exactly that is going to be, but we don't spend enough time together.

Doug: No. We're going to change that. I'll be back up in North America come June, and we're going to hang out.

Porter: Very good. I wish you all the best, and thanks so much for being on the show.

Doug: Thanks, Porter.