The Gold Report: Bob, in the last few weeks, Argentina and Venezuela have devalued their currencies and the central banks in Turkey and South Africa hiked interest rates. The U.S. Federal Reserve cut its monthly bond buying by another $10 billion ($10B). What do you make of all this happening in such a short timeframe?
Bob Moriarty: In a way, I will take credit for having predicted it. The world is bankrupt, and not one government is talking about reducing expenses. They talk about austerity, but austerity means living within one's means. Governments refuse to do that.
The Fed has three options: It can continue to taper, maintain the status quo or increase its bond buying. I think there's a good chance it will take that third option. We need a big crash first.
TGR: What message does that send to the general market?
BM: It says we've run out of bullets, head for your bunker.
TGR: That can't be the message the Fed wants to send.
BM: The message it intends to send is one thing; the message it actually sends is something else.
Events in 2008 were only the opening act. The financial instability and the pressures in the markets are far worse today than they were in 2008. We had the chance to fix things back then, but Ben Bernanke, Alan Greenspan and Tim Geithner panicked and made the situation far worse.
TGR: You sent me an article by James Gruber titled, "Welcome to Phase Three of the Global Financial Crisis." In it, he writes, "The system broke down in 2008 and again in Europe in 2011 and now in the emerging markets in 2013 and 2014. The market reaction to the latest events has been abrupt and violent, particularly in the currency world. In my experience, markets generally cope well when there is one crisis but when there are multiple spot fires like last week, most markets don't cope well." Is there more to come?
BM: Of course things will keep getting worse until somebody understands that the real issue is debt. There are $694 trillion in derivatives. That is financial debt that can never be paid off. The world has been a giant casino for the last 20 years, and it's all coming to a head.
TGR: How does devaluing their currencies help Argentina and Venezuela?
BM: It doesn't. Every government in the world is spending money it doesn't have. The only solution is to stop spending money. Everyone refuses to do that because governments gain power by spending money. They will spend money until they've bankrupted all of their citizens.
TGR: In Greece and in Spain, the European Union (EU) has implemented mandatory austerity programs to pay off their bonds. Shouldn't Greece and Spain be seeing economic improvement now that they've implemented those severe austerity programs?
BM: There is no economic improvement. It's all smoke and mirrors. It's similar to climbing to the top of a 50-story building and jumping off. Once you've jumped, it doesn't matter what you do on the drop down. You're going to hit the ground. They need to crash so they can rebuild on a solid foundation.
Calling it austerity is using semantics to play with the citizenry. If one honest politician stood up and said, "We're spending more money than we have. We need to stop," that would put us on the way to curing the problem. But the politicians keep pretending there are other solutions.
President Obama's charade in the State of the Union message was interesting. He was a Constitutional law professor before going into politics, yet in his speech he said the president of the U.S. can unilaterally change the minimum wage. Did he ever read the Constitution?
TGR: Apparently, he does have the ability to change it, but only in upcoming, new federal contracts.
BM: There are three separate branches in the American political system: the executive, the legislative and the judicial. The president of the U.S. does not make laws; he enforces them. His ability to do something is not the same thing as it being legal. All federal financial bills have to start in Congress. The president of the U.S. simply cannot change the minimum wage. It's not part of his job.
TGR: Wages earned by low-wage workers aren't increasing at the same rate as inflation. As a result, the minimum wage today doesn't give the same amount of purchasing power as it did when it was first implemented. Should the minimum wage be hitched to inflation or should it just be abolished?
BM: If you make the minimum wage $10.10/hour, people who are gainfully employed at $8.50 have lost their jobs. All minimum wage laws do is eliminate jobs.
If minimum wage laws worked and helped people, we should pay everybody $100/hour. But as soon as you say $100/hour, everybody says, nobody can afford that, which is true. There are people who cannot afford $10.10/hour. There are workers not worth $10/hour.
In the EU, seven countries do not have minimum wage laws, 20 do. In the seven countries without minimum wage laws, the unemployment rate is just over 8%. In the 20 countries with minimum wage laws, the rate is over 11%. Minimum wage laws, no matter how well intentioned, cost an economy jobs.
The economic stability of any country is based on the number of people in its middle class. There are rich and poor people in every society. That is as true as it is meaningless. The key to economic and political stability is the size of the middle class.
The policies of George Bush, which have been compounded by Barack Obama, have destroyed the middle class.
TGR: How have they done that?
BM: First, people can't save money. If you save money at 0.25%, you're insane; inflation robs you of your real wealth. Second, taxes have increased. There are something like 48 separate taxes in Obamacare that have nothing to do with healthcare.
The Affordable Care Act, Obamacare, is the nail in the coffin of the middle class. It is a giant payoff to the insurance companies. The insurance companies are protected under law. They are allowed to collude and do things no other industry can. As a result, the U.S. has one of the least effective healthcare systems in the world and the most expensive. We need to burn the healthcare system down and start all over again. The insurance companies have the American public's throats in a death grip and they're killing us.
TGR: Following on the general topic of insurance, you've talked about using precious metals as an insurance policy in a crisis. Do you mean the metal, the equities or a combination of both?
BM: I see the physical metal as an insurance policy. Once investors have that policy in place, the equities are what they do with their investments. There are some wonderful companies selling for peanuts now that will do well no matter what happens—inflation or deflation.
TGR: How much of a portfolio needs to be in precious metals to have a good underlying insurance policy?
BM: That depends on the person and the amount of money available. Everybody has a different level.
If my total worldly assets were $1,000, I would put all of it into silver or gold coins. If I had $100,000, I'd probably put half of it into silver and gold. If I had $1 million ($1M), the percentage would be 5–10%.
I was recommending metals even when gold was $268/ounce ($268/oz) and silver was $4/oz. All investments go up and down, and investors have to be prepared for that, but that doesn't change the fact that metals are the best insurance policy.
TGR: I have my insurance policy; I have my gold and silver coins. Where should I look for precious metals stocks?
BM: You need two things: a blindfold and a dart.
TGR: But you just said there were some really special companies selling for peanuts.
BM: Yes, but the way to pick them is with a blindfold and a dart. Let me give you a really good example. I visited and know the management of True Gold Mining Inc. (TGM:TSX.V), which is going into production in Burkina Faso. Mark O'Dea is the brains behind True Gold. He shares management with Pilot Gold Inc. (PLG:TSX). He is a master at monetizing assets and raising money. He announced a $36M bought deal and the stock dropped 14% in a day. That's how stupid people are. True Gold is going to go into production. It has a return on investment of 57%. It is in a safe environment. The president of the company is absolutely fabulous. The chairman of the board is the smartest guy I know in mining. I don't think that you can lose your money in True Gold.
I don't think you can lose your money in Pilot Gold or Gold Canyon Resources Inc. (GCU:TSX.V) or in 50 or 100 other companies. There are some really wonderful opportunities. The fact that everybody hated gold in December is a good reason for rational people to love gold now.
TGR: Are some opportunities better than others, or do you believe the entire sector will improve? After all, some analysts say that part of the sector needs to go bankrupt.
BM: I can name five or six people who said, in the last three weeks, that we're at a bottom and it's safe to buy.
My questions to them are: 1) What were they saying in April 2011 when silver was at a very clear top? 2) What were they saying in June 2013 when it was clear to some of us that the metals were at a bottom?
"The financial instability and the pressures in the markets are far worse today than they were in 2008."
Bottoming processes last a long time. Silver and gold were at a bottom from the middle of 2000 until the end of 2001. Any one date in that 18-month period was a bottom.
I have a bunch of stocks that are up 50% since Dec. 1, 2013. I think it's clear that we've had a major bottom. This is an incredible opportunity, and the longer people whine about how gold could go lower, the better it is. It's called climbing the wall of worry.
TGR: You have stocks that have gone up 50%, yet True Gold is down 14%. Doesn't that make this market a bit frothy still?
BM: No, because trading volume has gone from, say, 200,000–300,000 shares per day to 4M shares per day. People are using it as a liquidity event. They are taking profits. I don't think that that's a bad thing.
TGR: You also are excited about copper. Why is that?
BM: A lot of people think the copper price will go down with the rest of the base metals. I disagree. I've seen some incredible copper projects in the last six months—very high-grade projects that are reasonably priced to go into production. There are 10 or 20 companies that had projects of low-grade that were going to cost a lot of money. At least 6 to 10 are in the Middle Cauca belt in Colombia, which has enormous resources that, unfortunately, will always be uneconomic.
I visited Hot Chili Ltd. (HCH:ASX) This company has the best plan for production that I know of. Under the radar, it has been getting permits and increasing the resource. I think it needs about $600M to put the thing into production, but it has really good management and a really good story.
I went to Papua New Guinea in December and saw what appears to be a very large, high-grade porphyry system owned by WCB Resources Ltd. (WCB:TSX.V) in an area that had been in production until 10 years ago. Papua New Guinea and Indonesia are home to 6 out of the 10 biggest copper-gold projects in the world, right there on the Ring of Fire. And all of them are high grade.
"Metals are the best insurance policy."
I was in Albania last week, where I visited Arian Resources Corp. (ARC:TSX.V; 0GT1:FSE). Arian has a joint venture with a Chinese company looking for gold where the Chinese finance the whole thing. Arian just announced purchase of a prior producing volcanogenic massive sulfide mine with incredible grades. The company could be shipping 2–4% or higher ore for under $10M. I went over to a likely looking rock, busted it in half and opened it up. It was 6% copper. That stock has doubled in the last few weeks.
TGR: Copper is the canary in the coal mine. If we're going to have a deflationary environment and economies are contracting, it would seem more logical for the price of copper to go down. What makes these particular copper projects good investments?
BM: If copper goes down, they'll be more valuable. Because these are all high-grade projects, a lower copper price is good for them, because a lower price will drive the marginal producers out of business. The ideal situation is a company that will make money no matter what the cost of copper is.
TGR: What about some other names?
BM: Revolver Resources Inc. (RZ:TSX.V) is a copper/gold play. The company is coming out with its drill results shortly, so we will have to see what the drilling shows. A drill is called a truth detector. Revolver has an exciting prospect in northern British Columbia near where Colorado Resources Ltd. (CXO:TSX.V) drilled a great hole last year. Revolver could do the same thing with its stock that Colorado did, going from $0.16 to $1.60/share.
TGR: Bob, thanks for your time and your insights.
Bob and Barb Moriarty brought 321gold.com to the Internet more than 10 years ago. They later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Bob was a Marine F-4B and O-1 pilot with more than 820 missions in Vietnam. He holds 14 international aviation records.
Read what other experts are saying about:
Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.
1) Karen Roche conducted this interview for The Gold Report and provides services to The Gold Report as an employee. She or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: True Gold Mining Inc., Pilot Gold Inc., Hot Chili Ltd. and Revolver Resources Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Bob Moriarty: I or my family own shares of the following companies mentioned in this interview: Revolver Resources Inc. and Arian Resources Corp. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: True Gold Mining Inc., Pilot Gold Inc., Arian Resources Corp. and Hot Chili Ltd. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.