Justin’s note: Volatility has come storming back.
Just look at the CBOE Volatility Index (VIX), which measures how volatile investors expect the market to be over the next 30 days.
It’s up 89% since the start of the year. Last week, it hit the highest level since 2016.
Investors aren’t used to this. After all, last year was the least volatile year ever for U.S. stocks. That lulled many investors to sleep. It led them to take risks they would normally never take.
Now, those same people are wondering what to do. They aren’t sure if this is just a run-of-the-mill pullback…or the start of something much worse.
To help answer this question, I called up Doug Casey. I knew he would have an interesting take on this matter…
Justin: Doug, U.S. stocks took a beating recently. Where do you see things going from here?
Doug: Well, I hate to make a firm prediction of timing. The fact that things have held together, against all odds, since 2009, has underlined the old saying about just because something is inevitable doesn’t mean it’s imminent. Predictions of disaster, and all these things unwinding, have been wrong over the last half a decade. And the smart bet is always for muddling through, in the direction of progress. But it seems that we’ve finally reached a peak, a major turning point.
Justin: So, what have you done to protect your wealth?
Doug: At the beginning of the year, I took all my original capital out of cryptos, plus 150% profits. I also took profits on crypto stocks. I got in late, and out a bit late. But it was a happy experience.
They were bubbly. Every company that could possibly do so has gotten into this game. Now XYZ ice cream company is XYZ blockchain company. That was one tipoff.
Another was that everybody and their dog was talking about them. Because it had gone up 1,000% in the last year, they expected a repeat performance. It’s always that way in financial markets.
Look, the last time I saw anything quite this goofy was during the internet bubble. Dozens of failed mining companies in Vancouver were turning themselves into internet companies. It was happening weekly, almost daily.
That was the bell ringing at the top of the market for the internet companies. It was also the bottom of the market for the mining companies.
So, I'm frankly trying to liquidate at this point. I really only want to own gold, silver, and other commodities to preserve capital. And mining stocks, as speculations. And more cash than I’m accustomed to. But that only leads us to another problem. The dollar itself is a hot potato.
Justin: What do you mean?
Doug: Keeping dollars in banks is very dangerous. The whole world is like Cyprus a few years ago. You don’t actually own anything in a bank or broker anymore—your assets are the unsecured liability of an institution that’s likely bankrupt. This is especially true if you have more than $250,000 in any given account, which the FDIC insures. But it’s bankrupt too, with assets that cover like a half percent of their liabilities.
The problem is systemic risk, and it’s worldwide. It’s like Joe Louis said: you can run but you can’t hide. The only place you can hide today is gold and silver. That, and cheap real estate, if you can find it.
Justin: Yeah, gold is doing quite well. Its price is up 12% since July.
What do you attribute this to? Is it because investors are taking shelter? Is it due to the weak dollar? Or is it simply because we’re in the early innings of a new commodity bull market?
Doug: Well, I think all the indications are aligning at this point. It’s been a rough bear market. As a group, commodities are 50% below their 2011 highs. It’s been a deep bear market as well as a long bear market.
As a result, commodities have never been cheaper relative to financial assets like stocks and bonds.
It’s a great time to be in commodities. And gold is the foremost commodity. It’s historically been used as money. And it will continue to be used as money because none of these governments should, or do, trust each other. Or each other’s phony paper fiat currencies.
There could be a buying panic in gold and it could go much higher. We’re in a new bull market for gold at this point, but nobody cares. Or even knows that’s true. The same is true for silver. Although, silver is primarily an industrial commodity. It’s the poor man’s gold for many reasons.
Justin: How much higher could gold head?
Doug: Well, these things usually move in a hyperbolic curve. They start out slowly. Then, they accelerate. Same type of thing we saw with cryptocurrencies.
I think gold will do the same, although not to the same extent. My prediction by the end of this year is that gold will hit $2,000. In 2019, $3,000. In 2020, $4,000. By the time this bull market peaks, gold could reach $10,000. But I hate to say things like that…because it sounds so outrageous.
But look at the number of dollars in existence ($3.635 trillion in the M-1 money). Divide that by the 260 million ounces of gold the U.S. Government is supposed to own, and you get a gold price of $13,982/ounce.
Look at the number of dollars that are outside the U.S.—$10 trillion, $20 trillion, who knows?—and that liability is growing by $50 billion annually with the balance of trade deficit.
At $1,300 per ounce, the U.S. gold holdings can’t even cover a year’s deficit. And consider the fact that at some point those dollars will need to be redeemed by something if they’re going to retain any value.
The price of gold—if gold is going to be fixed to the dollar again, at least for the purpose of trading with foreigners, with foreign governments—is going to have to be much higher than it is today. Of course, I don’t think the dollar should exist, nor should the U.S. government even be in the money business; it just confuses the issue.
Money is a medium of exchange and a store of value—it shouldn’t also be a political football, and a means for the State to finance itself. Gold itself should be used as money. Remember that the dollar—like the franc, the pound, the mark, and what-have-you—were just names for a specific quantity of gold.
So a six-to-one shot from here is not at all unreasonable over the next several years. And that would mean very good things for gold stocks.
Justin: So, it’s safe to assume you’re buying gold stocks?
Doug: Resource companies are essentially the only stocks that I’m buying right now. And that’s because nobody’s interested in them. They’re very cheap. Of course mining itself is a crappy business. You can’t invest in it, only speculate. But it’s a great speculation now.
I probably do, on average, a private placement a week in mining stocks, which is quite a lot.
The only thing I’m afraid of is having too many stocks. You can’t effectively monitor more than 15 or 20 stocks. And then you lose track of them. You can’t keep up. You forgot why you bought them.
Unless I really like the stock and I’m planning on following it in particular, I sell the basic stock after the four-month hold period and keep the warrants in case I get lucky.
Justin: What else are you buying right now?
Doug: Well, I buy gold coins whenever the opportunity presents itself. I try to be disciplined about that. I just put them away and forget they exist. Unlike gold stocks, you can do that with gold coins.
I think it’s wiser to buy small gold coins, of a quarter-ounce or less, as opposed to the one-ounce-size coins that are so popular today.
Paying the premium is worth it. Incidentally, I also prefer to buy semi-numismatic coins, like British sovereigns, French Louis d’or, Danish crowns, and the like, as opposed to the currently minted ones.
I treat gold, physical gold, as a savings medium, an insurance medium. To speculate, I buy small mining exploration issues. Because they’re so cheap. But if we have a 1929-style credit collapse, however, I’m sure most of them are going to get washed away.
But the odds are much better that the dollar’s going to lose value at an increasing rate over the next few years. Because we have Keynesian academics at the helm of the financial world. People with no experience in the real world. They shouldn’t even be allowed to teach a freshman class in economics. Some of them should be, and quite possibly will be, hung by their heels from a lamppost when things come unglued.
The world economy is going to wind up crashed on the rocks. It’s going to be very ugly. And soon.
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