the conclusion of the Casey Research/Sprott, Inc. Navigating
the Politicized Economy investor summit, Louis James sat down
with Doug Casey to assess the conference and provide insights on
how investors can win in today's distorted marketplace.
Even if you
didn't attend the Navigating the Politicized Economy Summit,
you can still profit from the plethora of actionable investment
advice given there with the Summit
by Louis James, Chief Metal & Mining Investment Strategist,
James: Ladies and gentlemen, thanks for tuning in. We're
in Carlsbad, California, with Doug Casey at our recently concluded
Summit on Navigating the Politicized Economy.
So Doug, did
you come out with any new ideas, or did your guru sense tune in
on any new trends as a result of the input you had?
Casey: It was one of our more interesting conferences,
actually, though there was nothing that I didn't know and haven't
thought about, to tell the truth. But putting these big arrows on
a map with the people flowing and so forth, it kind of reminded
me of the maps that they had in classrooms when I was in high school,
showing the waves of Goths invading this way and Huns invading that
way into Europe. These movements have been going on for thousands
of years, and they will continue to go on, and the colors of the
map on the wall are going to continue flowing.
That was Thomas Barnett's presentation, which I also found very
interesting. But I wonder about it. On the one hand, his argument
seemed to rely heavily on demographics, which I know you look at.
So I thought of similarities between your thoughts and his in that
way. On the other hand, he was making all these rather specific
projections decades out and I wonder how much credence one can
put on such projections.
Well, yes, and there were two things that were quite interesting
but wrong in his presentation. He didn't take any consideration
of economics. It was like when he talked about US military power
of which he's a great fan that would continue. I wonder if,
25 years ago, he was thinking that Soviet military power would continue.
But the US is heading for a brick wall economically, just as the
Soviet Union did. All of these F-22s and B-2s and aircraft carrier
groups and so forth, they are really just unaffordable. He never
mentioned the fact that the US is running even if you use cash
accounting; forget about accrual accounting, which is much worse
a $1.5-trillion deficit per year. And it's going up, not down.
And there's no way it can go down at this point, because Americans
are not going to cut their military. In fact, Romney wants to spend
more on military.
their military. It seems to be the only part of the government that
at least has the faηade of being competent and honest. Of course,
it's actually not that competent it's about as competent as a
heavily armed version of the post office. And is it honest? Well,
maybe the average soldier is, but once you get up to the supply-sergeant
level, not very much; and once you get up to the Pentagon level,
not at all.
So he missed
that part entirely, and the other part that he missed was he assumed
that the nation-state would continue to exist. He did point out
which is a point I always like to make that all of these countries
in Africa and in Asia, certainly in the Middle East, are just arbitrary
lines drawn on maps in boardrooms in Europe. They're going to come
I did notice that. I remembered our conversation
on Africa, when he was pointing out how the lines on the map
don't match the ethnic lines and so on.
Well, did he steal if from me, or is he going to accuse me of stealing
it from him? [Chuckles] I don't know, but it's just a fact. But
I think that what he missed there is that the nation-state as an
entity is actually on its way out. It doesn't serve a useful purpose.
Okay, that stimulates lots of thoughts. Any other key highlights
that you want to zoom in on? Who really wowed you at the podium?
Well, there was nobody that I disagreed with at the podium that
I can think of. Can you think of anybody that was really unsound
I wouldn't say unsound.
who has obviously spent just a wee bit too much time circulating
around the Washington beltway talking to those types.
Karl Denninger has a different way of looking at things. I thought
his take was very interesting. He focused on problems that we would
agree with are problems, but his way of looking at them was quite
different much more mainstream than ours.
What are you thinking?
His focus on medical expenses and how that's bankrupting the country,
and on the housing situation not having been really cleared out
yet. I would probably agree with both of those, but I would look
more fundamentally, at things like the government running the printing
press why did the Fed cause the housing bubble? and such, rather
than the more mainstream view that these things happen.
That's right. I hate to make such a sweeping, seemingly overreaching
statement, but almost all of the problems that we have in society
are caused by the government. In the case of medical expenses, which
he brought up, it seems pretty clear to me that absent government
intervention, medical technology would be like computer technology
or for that matter almost any kind of technology and costs would
be going down.
And he would agree with that. He says it's government law that is
preventing that from happening.
He pointed out that there was something called EMTALA
passed in 1986, that made it a law that anybody anywhere that's
put in an ambulance has to be taken to the closest place and has
to be treated, regardless of cost or consequences. That's a kind
of free medical care that's reflected in costs. I remember there
were times when I had to visit the emergency room during the '70s.
I had a skydiving accident once It wasn't the kind of skydiving
accident where, well, it's usually more serious than an accident,
but I hurt myself.
You're right here, so it can't have been the usual skydiving accident.
No. [Chuckles] But I went to the emergency room just outside of
D.C. I was the only person there. You do that today, you've got
an eight-hour wait, and you've got to cut your way through people
that are using it. That's because of that law. Most people are unaware
of it. They think it's just the way things are.
So Doug Casey's telling us the government is the problem. Big surprise.
But it's good to hear that other people are seeing these things
too. Now, how do we navigate through this, though? The theme of
the conference was "navigating the politicized economy." How do
we survive? How do we invest?
Well, at the next conference we have, I'm going to put together
a new speech. Since I'm an amateur student of classical antiquity
in general and the Roman Empire in particular, my speech will ask
how much like Rome is the US? Which is to say, does what we are
going through now resemble what Rome went through when it declined
How close to Nero are we?
[Laughs] Oh, I think we're past Nero at this point. And it does
amuse me that Americans are well, I don't think any Americans
are really enthusiastic about this election. How can you enthusiastically
support Obama or Romney? They're both empty suits. It's embarrassing,
but it's pretty much like I always say about the Romans. They were
so happy when Tiberius died; they figured things couldn't get worse,
but then they got Caligula. And it kept going downhill more or less
from there on. Well, there were a few upticks along the way, but
that's where we're at today. It's a question of "choose your poison"
as far as I'm concerned, from this point forward.
Okay, so again, having realized that we live in a politicized economy,
it's not a free market, how does one navigate, how does one stay
Well, the way I see it, you've got to take advantage of the fact
that it's a politicized economy. It's a very bad thing to have a
politicized economy, because it's destructive of capital. It generally
reduces the standard of living. It's a horrible thing. But you always
have to look at the bright side; the government is going to create
tremendous distortions and misallocations of capital by the very
fact that it's involved, and that does present opportunities. It's
not a time to be an investor, because an investor is somebody who
allocates capital to create more capital, to grow wealth. That's
what investing is all about. Speculation doesn't imply that at all.
It's very different; speculation implies capitalizing on politically
caused distortions in the marketplace.
And one giant
one that we have right now though a bit tricky to capitalize on
is the current bond bubble. First the Fed created a stock-market
bubble in the late '90s, which collapsed in 2000. Then they blew
up a real-estate bubble, which is still collapsing. I think both
the stock market and the real-estate market are still overpriced,
even though they've come down a lot. But the biggest bubble of all,
and the most dangerous one, is the current bond bubble.
interest rates to basically zero levels actually negative levels
in some European countries, which is pretty unbelievable. I learn
something new every day; I thought that negative interest rates
were almost cosmically impossible, but I've learned different in
recent months. This is creating huge distortions in the way people
react and so forth. And of course, the biggest one of all is the
bond market, which is going to collapse at some point. The time
to have bought bonds was in the early '80s, when they were yielding
12, even 15%. Now they are yielding 0%, and everybody's buying them.
But that's really a sign of fear, which leads to the next bubble,
the probable gold bubble. Or certain gold bubble?
I'd say it's a certain gold bubble. Looking at the bright side of
the government doing all these stupid things, they will
create other bubbles. It seems inevitable to me that gold and silver
are going to be among them, because they are the only financial
assets and that's what they are, financial assets that are not
simultaneously somebody else's liability.
This is totally
untrue of bonds. Bonds are a triple threat to your welfare. You've
got the interest-rate threat. Interest rates could only go up at
this point since they're at zero. You've got the credit-risk threat.
Will they be able to pay back the dollars, or euros, or yen, or
whatever that they are in? And you've got the currency threat. Will
the yen or dollars or euros or whatever be worth anything, even
if they pay them back to you? I don't see why, but everybody's buying
bonds. Institutions are buying them, the average guy is buying them
trying to reach for 2% in yield when real inflation is probably
running 5-6% per year. Who knows what it really is the US is becoming
like Argentina, where they disguise these numbers and don't admit
These are examples of the speculator's principle we've described
to people. Speculators think about Ben Bernanke and his helicopters
government distortions. The idea is to figure out where the helicopter
is going to go, where the wind is going to blow. The speculator
asks: "Where is the money going to go as a result of government
stupidity?", and stands there with a big net.
That's right, and I've got to put my finger on the precious metals.
I've got to also put my finger on gold and silver stocks. I'm not
very interested in base metals at this point, because I don't see
the economies doing very well, and that's not going to help base
metals. I wouldn't touch an iron-ore stock, for instance, at this
point. But the gold and silver stocks are another thing, and they
are actually quite cheap as we speak. It's very hard to find bargains
in the investment world today. Everything's been inflated, but the
gold and silver mining stocks are, I think, bouncing along the bottom.
Okay, well, words to the wise. Thank you very much, Doug.