Small Cap Power: In a recent interview, you mentioned that the U.S. is facing some type of financial catastrophe. How do you see things playing out?
Doug Casey: Essentially, in the real world, cause has effect and actions have consequences. All of the problems behind the near catastrophe of 2008 and 2009 are not only still in play, they've compounded hugely. They have just been papered over with the creation of trillions of more currency units. And at the moment, those currency units are mostly sitting in big banks, insurance companies, brokers, and aren't really moving out into society, but all these new dollars exist. When they do start moving into the economy, they're going to cause a gigantic wave of inflation.
And it's not only in the U.S. The same thing has happened in Japan, in China and in Europe. The whole world has the same problem, and the results will be similar everywhere, with local variations. But what happens in the U.S. is far more important than any place simply because the dollar is the world's currency. It's used as a de facto currency by 50 other countries around the world. Most of the assets of the world's 200 central banks are dollars. If something happens to cause the market to lose confidence in these eight trillion, or however many, dollars outside the U.S., it's a very big deal. And I think confidence—which is now the only backing for the dollar—will blow away like a pile of feathers in a hurricane in the next few years. It's not just another cyclical recession we're looking at in the U.S. It's something of global proportions. I don't call it The Greater Depression as a joke.
Small Cap Power: If your prediction is correct, then what can an individual do to protect their savings and can perhaps prosper from this event?
Doug Casey: Well, it seems that most Americans don't have any savings to start with; they have no flexibility, no cushion at all. Half of Americans at this point are net recipients of money from the government and, in effect, living off the other half. Recent statistics show that about half of Americans are one paycheck away from insolvency; that's a problem. People have to get their houses in order as individuals. And the first thing they have to do is pay off debt, stop borrowing, and actually start saving.
The problem then is: What to use as a savings vehicle? The dollar isn't the best choice. The dollar is on the way to reaching its intrinsic value thanks to the actions of the U.S government and its central bank, the Fed.
At this point, you're forced to find other places to conserve capital. For most people that amounts to the real estate market and the stock market, both of which are quite overpriced at the moment. We're in kind of a financial twilight zone; there are very few bargains in the world today. There's almost no place that you could really hide with certainty.
When we go out the trailing edge of the financial hurricane that we entered in 2007-- and we've been in the eye of the hurricane for the last five years. We entered the eye of the storm in 2010. But we're now going into the trailing edge of the hurricane; it's going to be much more serious, much longer lasting and much different than what happened in 2008. Hold on to your hat.
Small Cap Power: Are you in the camp that believes the Gold price is being suppressed? If so, what's to stop those involved from continuing this indefinitely?
Doug Casey: No. I think the meme of the gold price being suppressed is actually quite ridiculous. Any commodity that's gone from $35 an ounce in 1971 to $1900 an ounce in 2011 is hardly suppressed. That's a fantastic bull market. It had its ups and downs, but everything should be suppressed that way. So, no. There's nothing to the idea of suppression. And no proof for it apart from miscellaneous comments of government officials, which are usually taken out of context to start with. Not that bureaucrats are ever a reliable source of information to start with.
Are there short-term manipulations in the price of gold by who knows who? Undoubtedly. Just as there are in the price of everything from soybeans or jute or copra... I'm trying to pick some crazy commodity. Everybody always tries to manipulate the price of everything. Would governments prefer to have the price of gold lower? Of course, just like they'd prefer to have the price of lumber and Cattle and Oil and Copper lower as well. And at the same time, they want the prices of some things higher like stocks, bonds and house prices. But they really don't care about gold; they believe their own propaganda about it being worthless for anything but filling teeth and making baubles.
So, yes, governments are always trying to move things one way or another. This is how they create distortions in the economy, but as far as gold is concerned, there's no evidence of suppression since the dollar was delinked from gold in 1971. That said, as we talk with gold at... What is it now, $1275? I think that it's a reasonable value. Not a giveaway as it was in 2001 at $260, but a very reasonable value. I think that it's going considerably higher from here.
Small Cap Power: Speaking of which, last year, you mentioned you believe there's a bubble and a super bubble coming for gold and gold stocks. Gold's run up from $250 to $1900 an ounce in the past decade. Why do you think it's taking so long for this bubble to form?
Doug Casey: That's a good question. I can't be certain of what the motives are of the other seven billion participants in the world's economy, but I can tell you this: The foundation of everybody's financial portfolio should be actual physical gold because it's the only financial asset that's not simultaneously somebody else's liability. It can't be destroyed in a bank or brokerage collapse. It can't be created with the flick of a pen. It's money in its most basic form. You want to have a significant position of physical gold, both in your possession and outside of your country of residence because you don't want all of your assets under the control of any one government.
As to where gold is going and when, you've got to remember that, in the past, a dollar was just a name for a specific amount of gold. It was a name for the twentieth of an ounce of gold.
If every dollar were to be redeemed with a specific amount of gold, what would the gold price have to be? Well, assuming all the dollars currently in existence became redeemable, it would be an extremely high number. On the order of fifty thousand dollars an ounce. Who knows? It's a contest between hyperinflation and a deflation where most of the debt in the world falls like dominos. We'd have to do the math of the number of dollars in existence versus the number of ounces of gold that the U.S. government supposedly holds. This is said to be 265 million ounces. We can do the long division, but I don't know if there's going to be a catastrophic deflation where billions or trillions of these dollars are wiped out and cease to exist before or after trillions more dollars are created. Forced to guess, I believe we'll have much higher levels of inflation.
It's very hard to pick a number, but what I do is I buy gold constantly all the time with any excess capital that I have. I suggest your readers do the same.
Small Cap Power: Which precious metal, at this particular time, do you think is a better investment -- Gold or Silver? Why?
Doug Casey: Well, they are very different. Silver is primarily an industrial metal and gold is primarily a monetary metal. Because silver is a much smaller market, and there are no large above ground stocks, and it's mined mostly as a by-product, it tends to be much more volatile. Although both metals can be described as superlatives, gold is the most non-reactive, the most ductile, and the most malleable of all metals, whereas silver is the most conductive and the most reflective. In today's high tech world, there are scores of new uses for both of them discovered every year. I guess, from a speculator's point of view, I like silver better.
Small Cap Power: Great. Finally can you tell our viewers about any stocks that you like at this time?
Doug Casey: I'm not crazy about the stock market as a whole; it's become overpriced because of the trillions of new currency units being created in the U.S., but all over the world. A lot of these dollars have flowed into the stock market looking for a real asset in which to hide. There are a very few world stock markets with real value. There's very little a Graham and Dodd style analyst-- and I'm very sympathetic to that approach—can buy. You can't find very much value anywhere, in any market. That's another reason most people are going to be hurt badly.
That said, there are going to be other bubbles created in the years to come. I think there will be a bubble created in the precious metals again, and there's likely going to be a bubble created in precious metals stocks. I've long been involved in junior mining companies and mining exploration companies. There are several thousands of them in the world, or at least several thousand companies that claim to be.
Most of them are completely worthless. That said and you should look at them from the buy side now. There are some that are genuine bargains as we speak today... selling for less than cash. In fact, the only part of the market that's cheap, in my opinion, is the mining exploration stocks. Highly risky, highly speculative, but capable of moving 10 or 50 or 100 times as a group. I'm not even talking about individual stocks. That sector itself can go into a super bubble because it's so tiny and held in such low regard at the moment.
If we see gold trading at $5000, which is entirely possible, I'd say likely, over the next five years, people are going to go crazy over these stocks again, which they cyclically do. I hate to mention any individual companies because their fortunes can change so quickly, but it's a sector that people should really pay close attention to today.
Small Cap Power: That's great, Doug. Thank you very much for taking the time for the interview.
Doug Casey: Okay. My pleasure.