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A conversation with Doug Casey and Rick Rule, Part I
April 23, 2004

About two weeks ago I managed to corral both Doug Casey and Rick Rule into the same room. I had a tape recorder with me, and for the next few weeks I’ll be transcribing that conversation.

By way of introduction, Doug is a self-made, independently wealthy investor. He is also well known as an author: when his second book, Crisis Investing, was published it became the best selling financial book in history, maintaining its position at the top of the New York Times bestseller list for twenty nine weeks. Doug’s newsletter, International Speculator, is currently in its twenty-fifth year of publication (www.internationalspeculator.com). Doug Casey has an uncanny ability to look at the big picture and draw actionable, profitable conclusions.

Rick Rule is the force behind Global Resource Investments, a brokerage firm in California that specializes in natural resource stocks, and where I cut my own teeth in this industry. Global Resource Investments is, in my opinion, the best brokerage firm in the United States for investors who want to trade mining and exploration stocks. It is the only firm I personally use. If you’re interested in what they have to offer call broker Steve Todoruk (who also happens to be a professional geologist) at 800-477-7853 or 760-943-3939.

Both Doug Casey and Rick Rule have played a significant role in my own understanding of markets and investing. I have known Doug for more than twenty years and worked for Rick for more than six. Over and above their reputations, I can personally attest to their phenomenal abilities.

Paul: “Doug, what do you think, where are we in the market? We both own a boatload of junior exploration stocks. What does this market hold in store for us, and what should we be doing now?”

Doug: “When we were at the bottom, many of these companies were selling for less than the cash they had in the bank and there was no interest in them at all. Now, after the deepest and longest bear market in these stocks ever, from 1996 to 2001, is over, many of them, maybe the market as a whole, certainly in the lower end, from ultimate bottom to recent tops, have gone up ten to one. That’s kind of scary. If you want to buy more at this point, that’s the bad news. The good news is that we’re coming out of a twenty-year bear market, which has had some fantastic bull run-ups during that time. I think there’s a sea of change going on. The rest of this decade is going to resemble the Seventies. As much as anything, that’s the best analogy.

“As far as the mining stocks are concerned, we’re only in the fourth inning of a nine-inning game. The first part of the market is over. The easy money, the quick and unexpected money that some people made, happened before anybody was really aware of it. You had to already have been in the market to profit from it. This stage of the market is what I’d call the wall of worry stage, where everyone says: ‘Oh god they ran up so much, they’re so overpriced…’ and, of course, they are by many parameters. But I’m waiting for the third stage of the market, which is going to be manic, which is going to be like the Internet stocks. So I don’t think it’s really a question of value. They are overpriced, but the Internet stocks were overpriced in 1996. So it’s not a question of fundamentals, or value, although that’s the most prudent way to play the market.”

Paul: “You drew a parallel to the Seventies and if we ignore the initial pop in the gold price up to, say 1973, which was really just an adjustment reflecting the fact that the price was fixed for almost forty years, then gold doubled from 1973 to 1978, from one hundred to two hundred dollars an ounce. Do you expect the same thing to happen in this decade: an initial pop, which is, for most part behind us, then a gradual increase for several years followed by a blow-off that could potentially add yet another multiple on the gold price when the market tops?”

Doug: “Yes, I think you have accurately pointed out that the gold bull market thus far, and to a large degree part of the bull market in all commodities, has really only been the collapse of the dollar, more than anything else. But there is plenty of reason to believe that entirely apart from the collapse in the dollar the bull market in gold, and in many other metals, has only just begun… because the mining industry has been in liquidation for twenty years. At this point almost everybody in the geology business has a gray head because nobody has gone into the business in twenty years. The industry has been living off of capital, intellectual and otherwise. So there is going to be a real commodity supply and demand squeeze, and believe it or not, that’s true for gold too because my end phenomenon for gold is that it’s once again going to be used as money, and nobody perceives it as that today. But even looked at as an industrial metal it’s in a deficit of supply and demand -- as is silver. So I’m a super-bull. That’s my story and I’m sticking to it.”

Paul: “So being a super-bull you’re a net buyer of stocks, even though they’ve increased dramatically in price.”

Doug: “Yes, yes I am. Absolutely I am. And I am just going to keep buying more. I don’t think this bull market is going to be over until Slime or Newspeak magazine has a picture of a golden bear tearing apart the New York Stock Exchange on the front cover. When that happens, I’ll know its over. But I don’t think the average person in the public even knows that gold or commodities exist. They’re still focused on the regular stock market. So I think this is still a market for the cognoscenti and insiders, and people who have been around a while. The average person doesn’t even know any of this stuff exists.”

Next week we’ll hear what Rick Rule thinks about the market, and what he is doing about it.

In the meantime I’m off to Calgary to speak at the Cambridge House Investment Conference this weekend and next month I will be in London at the Global Mining Forum (see sidebar for details). You should come and introduce yourself if you’re there.

Paul van Eeden

Paul van Eeden works primarily to find investments for his own portfolio and shares his investment ideas with subscribers to his weekly investment publication. For more information please visit his website (www.paulvaneeden.com) or contact his publisher at (800) 528-0559 or (602) 252-4477.

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