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Shortly after 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 Audio Collection.
TRANSCRIPT
Interviewed by Louis James, Chief Metal & Mining
Investment Strategist, Casey Research
Louis 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?
Doug 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.
L: 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.
Doug: 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.
Americans love their military. It seems to be the only
part of the government that at least has the façade 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 apart.
L: 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.
Doug: 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.
L: Okay, that
stimulates lots of thoughts. Any other key highlights that you want to zoom
in on? Who really wowed you at the podium?
Doug: 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 other than –
L: I wouldn't
say unsound.
Doug: – who
has obviously spent just a wee bit too much time circulating around the
Washington beltway talking to those types.
L: 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.
Doug: What are you
thinking?
L: 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.
Doug: 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.
L: Moore's Law.
Doug: Yes, Moore's
Law would apply.
L: And he would
agree with that. He says it's government law that is preventing that from
happening.
Doug: 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.
L: You're right
here, so it can't have been the usual skydiving accident.
Doug: 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.
L: 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?
Doug: 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 and fell?
L: How close to
Nero are we?
Doug: [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.
L: 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 afloat?
Doug: 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.
They've driven 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. It's unbelievable.
L: But that's
really a sign of fear, which leads to the next bubble, the probable gold
bubble. Or certain gold bubble?
Doug: 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 the reality.
L: 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.
Doug: 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.
L: Okay, well,
words to the wise. Thank you very much, Doug.
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