Doug Casey To Avoid Bonds, Eyeing Junior Resource Stocks

By Daniela Cambone and Sarah Benali of Kitco News
Friday December 13, 2013 11:30 AM

Editor's Note: Introducing Kitco News' Invest Like The Experts Series, a weekly feature that will showcase investment gurus' top investment picks for the coming year. Each expert was asked how they would invest $10,000 in 2014 and what they would absolutely avoid. Click here for more experts!

Expert: Doug Casey

Claim to Fame: Bestselling author & founder of Casey Research

What type of investor do you consider yourself?           
There are a lot of approaches to investments. There are a lot of philosophies as you know. You can be a value investor like Warren Buffet, you can [also] be a chart following technician.

But in today’s environment, I think what might make the most sense is to try to be a speculator. I define a speculator as somebody who attempts to capitalize on politically caused distortions in the marketplace. So you have to watch what the government is doing. Unfortunately, governments all over the world are doing more and more and more. They’re creating more distortions and misallocations of capital in the market, which arguably will be giving us much more speculative opportunities.

But frankly, I’m very eclectic and I try to look at all the markets. I’m very eclectic about these things.”

Risk Averse or Risk Taking?
Once again, we have a problem that relates to today’s political environment. I’ve always been a risk taker from a personal point of view but in today’s world where interest rates are being artificially low levels – negative levels actually – is causing people to reach for all kinds of crazy things, trying to get a return on their money, which is quite hard in a zero percent – let’s even say a minus 2% or minus 3% interest rate environment.
But out of the opinion that return of your capital is going to be much more important than return on your capital in a very short period of time. So, right now, from an investor point of view, despite what I said about the necessity of being a speculator, I’m quite risk-averse because most markets now are very overpriced. The art market is in a state of bubble, where they’re paying $50m or $75m for the work of a living artist, is not a very good one in my opinion. The stock market, the Dow Jones, [they’re] floating on these artificially low interest rates […] So, you have to be risk-averse.”           

How would you invest $10,000 in 2014?                                                   
“It used to be that $10,000 was a lot of money. Today, it won’t even get you a decent used card. So it’s tough to do anything with that.

With 10,000, first thing you should do is buy some gold coins – or one gold coin I should say –  and buy an equal amount of silver coins and that should constitute your financial foundation. From that point, it’s not much money, but I think you should look to speculate in an area where it is possible to get 10 or even 50 to one on the rest of your capital. And as we speak, right now, that means these junior resource stocks. They’ve been cheap for some time. But, right now, they’re as close to the bottom – and they’ve been here for the last year – as they’re likely to get. And from levels like this, it’s not realistic to see the market as a whole of these junior gold, silver, oil, uranium and other stocks to go up 1000%.  So, I think with $10,000 you’ve got to speculate part of that money.

12-13% in gold coins

12-13% in silver coins

74-76% in junior resource stocks


Would you allocate your money in equities?
“Well, I certainly wouldn’t put it in most equities because almost all of the world stock markets right now are rather at ridiculous levels because of all the trillion of currency units that these central banks are creating.

I would grow your attention to one stock market, and that’s the stock market of Cyprus, where I was 6 weeks ago. It’s down 98% from its peak of 2007 and when any market is down by 98% you just have to reflectively look at it. As we speak, in Cyprus, many stocks are selling at 10% of book value and 8-10% dividend yield and 2, 3 or 4 times earnings. So I think that’s another speculative place for your money along with North American and Australian resource stocks.

Would you allocate your money in the real estate market?
When it comes to real estate, I don’t see any cheap real estate markets anywhere in the world. And absolutely not in Canada. Canada is in a bubble, Vancouver in particular.”

Where would you avoid putting your money in 2014?
“Bonds. Bonds remain a triple threat to your capital. With interest rates at all time lows,  that means bonds are at all time highs. Interest rates from this level can only go up. That’s number one.

Second thing is that bonds are denominated in paper currencies and those currencies are going to lose value much faster over the next couple of years due to the trillion of units being created by governments.

Third thing is default risk. When you’re lending somebody money, there’s no guarantee you’ll get it back. So bonds are a horrible place for your money, I wouldn’t trust them with a 10-foot pole!”

What is the best investment advice you ever received?
This is nothing new, this isn’t a cosmic breakthrough, but it is to investigate before you invest.

Too often, people throw money at some market or some individual security based on a hunch and here I have to tip my hat to Warren Buffet, who really is a genius, because he investigates everything as thoroughly as possible before he invests in it and that certainly is something you should do with these junior resource stocks.”

Who do you follow for investment advice?
“As you know, I am a follower of the Austrian School of Economics, which is a really helpful lens to which to interpret the world in general and the investment market in particular.

But, that said, the most important thing you can do, is to have as much knowledge in as broad a spectrum as you can because it will help you find situations that you might overlook if you lack broad knowledge. So, you got to really make the world your oyster.

Over specialization is not a good thing, specialization is for insects as Robert Heinlein said. So, you really got to be your own investment advisor but the only way you can do that effectively is by being very well-read in every possible area you can think of. So that’s a full time job.”

By Daniela Cambone dcambone@kitco.com and Sarah Benali sbenali@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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