Rachel’s note: We’re in a major gold bull market. And with the metal’s recent moves higher, you may feel you’ve missed out on this run.
But according to Casey Research founder Doug Casey, it’s not too late.
In today’s Conversations With Casey, Doug explains why you shouldn’t be “thrown off the bull’s back.” And reveals two other sectors he sees doing well over the next decade…
Rachel Bodden, managing editor, Casey Research: Doug, you’ve made a career out of investing in crisis, and have seen several empires collapse. You even wrote a book, Crisis Investing, that spent weeks at the top of the New York Times Bestseller List, so you’re an expert on the subject.
As we get closer to the collapse of the American Empire, can you tell us what industries and areas tend to recover well or thrive post-collapse?
Doug Casey, founder, Casey Research: I’m expecting grim and very tumultuous times throughout this decade. So it’s critical to make the right decision about where to put your capital. I’d like to direct readers’ attention to several areas.
One is the so-called “defense” stocks. They’ve done extremely well for years, and they’ll likely continue to do well. They’re not cheap, but, because war is the health of the State, money will continue flowing in their direction. Things like Lockheed and General Dynamics. There will be no serious changes, as far as they’re concerned, under the Biden administration; the warfare State will continue growing like topsy. Defense stocks will keep pace with it.
One reason in particular that’s true is that the situation with China is getting much more serious. As divided as the U.S. is, with the blue counties and the red counties actually hating each other, a foreign war is about the only thing that can reunite the country, at least in a way.
A serious foreign war – not just some optional sport war with a backward nothing/nowhere country – will induce Americans to hate some foreigners more than they hate each other. George Orwell called it perfectly.
That’ll be great for defense companies, at least if the war doesn’t get totally out of control. If it does, we’ll have much bigger worries than stock selection. It’ll be great for the cronies that live within the Washington Beltway, because there’s going to be a lot more government spending. They know they’ll get their part of it, and will try to make it happen.
A second category is oil stocks. In the past, oil stocks were as much as 20% of the S&P 500. Now, they’re only about 2%. They’ve just been hammered with low oil prices, and all the talk about exiting the fossil fuel economy and going to a green economy. In fact, some majors, like BP, look like they’re getting out of the oil business.
Yes, so-called “renewable” and “sustainable” sources of energy will grow in importance as the technology to use them improves. But right now, they’re still completely uneconomic for large baseload applications. They’re economic only for small, isolated, or unusual situations. Like so many other industries, the economics are totally distorted by politics – special taxes, subsidies, and regulations.
If you want to bet on reality winning out, now is the time to look at companies in the oil and gas space.
Rachel: They’re one of the few industries that hasn’t come back yet, post-COVID crash. That’s pretty crazy.
Doug: Well, now is a good time to use that craziness to our advantage. Oil stocks are really cheap. They were up about 5% or something like that just the other day. They’re now such a small part of the market that, when investment fashions change, the upward move should be explosive. And there’s little downside.
Rachel: Yes, I was looking at them. But relative to almost everything else, which has done this sort of V-shaped recovery, they’re still one of the industries that is just so far down.
Doug: Exactly. The oil stocks are a great place to be for the long term. As are a related group, uranium issues.
A third category of stocks that are going to do well over the next decade, no matter how bad things get, is gold stocks. Actually, the worse the economy gets, the better they’re likely to do. Why? Because gold, as unbelievable as it may sound right now, is going to be used as money again. The dollar is on its way out, certainly in its role as an international currency. Governments don’t trust each other’s paper, for good reason. Governments regularly destroy their currencies. Gold is the only alternative.
In the meantime, gold stocks are the place to be. With the average all-in sustaining cost for gold production at about $1,000 per ounce, and gold trading at over $1,800, producers are literally coining money. But neither the institutions nor the average investor owns them. That’s because they don’t understand either gold or the gold mining industry. This is one of those rare times when you can buy them really cheap and look forward to a huge run of three or four times in the next few years in producers, and much more than that in the developers and explorers.
Right now – for many reasons that I’ve barely even touched on here – mining stocks have been, and still are, my largest position.
Rachel: Talking about gold and currencies, if the U.S. breaks up into five or six countries like we discussed previously, do you think they’ll issue their own currencies, and will the U.S. dollar finally become worthless confetti?
Doug: It’s an unfortunate leap of logic to assume that just because a new country is created that a new currency would be created. To start with, a small country generally finds that its government’s currency is worthless outside of its borders.
The best action for any new country, including sections of the U.S., is to simply use gold as a medium of exchange and a store of value. You don’t need a national fiat currency if you can use real money, not a money substitute.
Here’s a thought that will shock most people: the government shouldn’t be involved in currency any more than it should be involved in the school system, making automobiles, or growing food. That was attempted in the USSR, Mao’s China, and many other places. They’ve given up on trying to own and run most things because it’s so much easier to just tax actual producers. They’ll always try to control money, however, because it’s a huge source of revenue with zero direct cost to them.
The government should only protect people from violence and force within its borders, which implies a police force. Predation from outside its borders, which implies a defense force. And a court system, so people can adjudicate disputes without resorting to force. Unfortunately, they do those things very poorly – while they try to micromanage every other aspect of society.
I certainly wouldn’t say that a national currency is something that a government should do. The market can do a vastly better job. Forgetting precious metals for a moment, just look at the immense success of Bitcoin, which is a 100% free market money.
I understand that all this runs counter to what most people have been taught. But people have forgotten that before 1933, a dollar, a franc, a mark, and a pound, for instance, were just names for a specific amount of gold, that were minted by their respective governments.
Rachel: Definitely. But a lot of people feel like they have missed out on this gold run… you’re saying it’s actually fundamentally cheap right now, and now is the time to start loading up if you haven’t yet?
Doug: Yes. Gold isn’t at the giveaway level it was at $35 in 1971. Nor at $250 in 2001, when it was just as cheap in real terms. But now, at $1,800, it’s still excellent value in view of the immense and accelerating amount of fiat currency printing going on. And the fact the entire monetary system and the economy in general are again on the edge of a precipice.
In any event, I don’t treat gold as a speculative vehicle. I have bought it and I continue buying it, simply because it’s the only financial asset that’s not simultaneously somebody else’s liability. And that’s really important in a world that’s so head-over-heels in debt as we are today.
Gold stocks are a totally different animal. And right now, they’re a great speculative opportunity. Relative to almost everything else – especially other stocks – they’re at bargain levels.
Gold has been an excellent place to be in 2020, notwithstanding the fact that it sold off a bit, a few percent, in the last month. I wouldn’t worry about that. Markets fluctuate.
The key to preserving wealth is to be right and sit tight, as Jesse Livermore said. Trading is strictly for full time pros who have superb information and a very special psychological makeup.
Here’s the bottom line: We’re in a major gold and commodity bull market. Don’t get thrown off the bull’s back in these minor selloffs, which are normal and to be expected in a bull market.
Rachel: It’s good to hear it’s not too late for gold and gold stocks. Thanks for your time today, Doug.
Doug: Thank you.