How to Profit From These Massive, Brexit Induced Trends

By Justin Spittler

This has the makings of a classic speculative opportunity—one where politically caused distortions are liquidated and prices readjust. But a word of caution. It’s going to take place within the context of the Greater Depression. And, as Richard Russell, who lived through the last depression, observed: In a depression, nobody wins. The winner is just the person who loses the least.

The EU will disintegrate. It never made sense from the beginning to try to get Swedes to live by the same rules as Sicilians or Germans by the same rules as Portuguese. Not to mention that the rules are entirely arbitrary. Worse, almost all the rules are economic in nature, with legislated winners and losers. Deals like that always lead to resentment, among both the winners and the losers.

In addition to this, the EU is very problematical when it comes to immigrants. There will be more migrants trying to settle in Europe. Why? Because the Muslim world, the swath of countries extending all across northern Africa, through the Middle East, Central Asia, and the Far East, is likely to become increasingly unstable. The EU, as a very politically correct organization is loathe to turn them away. However, once they’re within Schengen, the migrants can travel anywhere. Perhaps where welfare benefits are best and where other migrants are gathering. Remember, when times get tough, both politicians and the capite censi look for someone to blame.

How to profit from this? Most people don’t think the EU will collapse just because Britain (which has always been closer to the U.S. than the Continent anyway) has left. They’re wrong. For one thing, although Brussels won’t become a ghost town, it’s going to lose scores of thousands of highly paid Eurocrats and their minions. I recall that property there was some of the cheapest in Europe in the early ’80s, it’s going to return to that status. We’ll look for a REIT to sell short, specializing in the Brussels market.

It will accelerate the disintegration of nation-states everywhere. 

There are about 200 nation-states in the world. The international “elite,” the “intelligentsia,” the members of the Deep State everywhere, and organizations like the EU in Brussels, would like to see a much smaller number of more powerful states. Orwell anticipated just three mega-states in his dystopia. But the actual trend is in the opposite direction.

It’s not just the UK seceding from the EU, but Scotland from the UK. The Basques and Catalans may eventually secede from Spain. Belgium, a totally artificial country, may eventually break up into Flemish-speaking Flanders and French speaking Wallonia. France has half a dozen secession movements. Italy was only unified into its present form from scores of principalities, duchies, and baronies in 1871 by Garibaldi. It was the same with Germany until Bismarck in 1871. 

The break-up of the USSR in 1990 into 13 smaller states was a good start, but Russia itself is a small empire with dozens of distinct ethnic and linguistic groups. You will rarely hear about this in the mass media, but there are dozens of secession movements throughout Europe. That’s one more reason why (in addition to the interest rate risk and the inflation risk, which are both substantial) you should stay away from long-term government bonds.

The euro will cease to exist.....
The Esperanto currency was doomed from the beginning. It was not just an “IOU nothing,” like the U.S. dollar, but a “Who owes you nothing” since it’s not even backed by a specific government’s taxing power. How to profit? I’ve put on long-term futures contracts, long the British pound vs. short the euro. My rationale is simple. Britain will benefit from exiting the EU, attracting capital and strengthening the pound—which is down 11% against the euro since Brexit. The euro, meanwhile, will approach its intrinsic value at an accelerating rate.

A truly major banking crisis.....
Much worse than that of 2007–2009. Governments, who are all bankrupt, borrow money from commercial banks. Commercial banks have lent it to them because they believe it’s a risk free loan. Governments encourage them to lend recklessly, hoping that will jump-start sluggish economies. Central banks, which are the arms of their governments, have taken interest rates to zero and below for that reason and to make it easier for governments to service their debt. This policy has encouraged businesses to take on debt.

It’s an idiotic and reckless experiment that will end—likely in this cycle—with bankrupt central banks and governments bailing out bankrupt commercial banks and businesses. Just the way they did in 2007–2009. Except this time, the situation is much more serious. How to profit? Don’t own European companies, stocks or bonds, and banks in particular. In fact, even though they’re already down considerably, they’re going lower and are excellent candidates for short sales, or the sale of naked calls.

A panic into gold..... 
You’ve heard this story many times before here. But it’s truer than ever as we approach a genuine crisis. There are no stable paper currencies anywhere in the world. The dollar has been strong only because it’s liquid. Liquidity is good, but here, we’re talking about liquid like nitroglycerin. Hedge funds will start buying gold in size. As will central banks, who don’t want to hold each other’s paper. As will individual investors. Right now, few people even think about gold, much less understand it. How to profit? Buy gold. I expect we’ll see it well over $5,000 this cycle. Silver should do even better in relative terms. And gold stocks have explosive upside.

An exodus of capital and people from Europe.....
to parts of Latin America, plus to the U.S., Canada, Australia, and New Zealand. This is, obviously, bad for Europe and good for the recipient countries. In recent years, I might not have included Latin America, but things have changed. Argentina and Colombia are liberalizing economically. The continent isn’t involved in any entangling alliances, isn’t on the migration highway, and has low costs. Why a wealthy European would stay in that stagnant and unstable continent when he could live better, and mostly tax free, at a fraction of the cost in Argentina is a mystery to me.

Chaos in Africa..... 
Almost every country in Africa is an ex-European colony. Over the last 50 years, Europe, with the U.S. and now China, have shipped over a trillion dollars to the continent. Most of it has been recycled back to Europe by the African elites that stole it, and the rest has mostly been wasted. 

That flow is going to stop for a number of reasons, but among them is that it makes no sense in an “every-man for himself” world. At the same time, essentially all of the world’s population growth over the next couple of decades is going to come from sub Saharan Africa. It’s a nasty economic environment that’s a formula for conflict. 

Millions of Africans will want to emigrate, especially to the homelands of their ex-colonial masters in Europe. They won’t, however, be welcome. How might one take advantage of this? The higher population is going to put upward pressure on commodities, and the chaos is going to make their production much riskier in Africa.

In conclusion..... 
Brexit itself is likely to be good for Britain. And it augurs some big changes in the world at large. Don’t forget that it will all be in the context of both the Greater Depression and the accelerating and world-changing technological revolution I described last month. Our objective here remains to not only keep you advised of what’s happening, but help you profit from opportunities while avoiding major dangers.

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It explains how violent currency moves—like we’re seeing today—have preceded some of the worst financial disasters in history. By the end of the video, you’ll know why you can’t afford to ignore the warnings we’re seeing right now. You’ll learn how to protect yourself and profit from the coming crisis. Click here to watch this free video.

The article Weekend Edition: How to Profit From These Massive, Brexit-Induced Trends was originally published at caseyresearch.com.

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Why You Should Go to Africa Instead of College

By Doug Casey

Recently Doug Casey was a guest on the always excellent podcast, The Tom Woods Show. Tom and Doug talked about the enormous economic potential in Africa, Doug’s efforts to build a truly free market country, and better uses of your time and money than going to college.

It’s an exciting and informative conversation.

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Tom Woods: What a pleasure and a delight it is to welcome back to the show Doug Casey. Doug is a libertarian economist, best selling financial author, international investor, entrepreneur, and the founder and chairman of Casey Research. Doug, welcome back to the show.

Doug Casey: Thanks, Tom. It is my pleasure.

Tom: You’ve been up to some interesting activity in Africa that I’d like to ask you about. Let’s start off by telling us what you’ve been busy doing there.

Doug: Well, the last two weeks, I’ve been visiting the Islamic Republic of Mauritania with a short side trip to Senegal. I’ve been pursuing my hobby, which is to propose to a backward country a plan for complete and total free marketization… including taking the country itself public on a major stock exchange and distributing most of the shares directly to the people who theoretically own the government assets. I felt like I had Maria Muldaur’s “Midnight at the Oasis” playing in the back of my mind the whole time I was there.

Tom: Suppose you got everything you wanted, what would the outcome look like?

Doug: Well, 100% of all government assets, land, state owned companies - everything - initially go into a corporation and we distribute the shares.

Let’s say, 70% pro-rata to every man, woman, and child in the country, so they don’t just theoretically own the government, now they actually do. 15% would be put it in trust for the next unborn generation to defuse that time bomb. 10% would be distributed to people who, let’s say, are of significant help to making this happen, and people who are important, whose rice bowls would be broken, and 5% to take public in major stock markets to raise some capital. Then we get rid of all duties, taxes, and regulations.

Dubai was absolutely nothing in 1980. You know what Dubai is now. If we go back further, in 1960, Hong Kong and Singapore both were very poor and look what has happened to them. So I think in today’s world if somebody is daring enough to want to do this, I think it could be of world historic importance. So I’m looking for the right guy.

Tom: I’d like to get a glimpse inside of a meeting like this. If you’re sitting down with the president, you’re sitting down with top officials, how do you make that case, especially when the response is going to be, “What’s in it for me”?

Doug: Well, that’s always the first question, of course. I start my presentation with three things I can do for you, Mr. President. It’s always a question of the benefit to the buyer. Number one, this plan will make you legitimately a multibillionaire. That always goes down very smoothly, because they know that doing what Mobutu and Mugabe did doesn’t work quite as well now as it did in the past. So it gets their attention.

Number two, the people will love you and treat you as the new George Washington. That sounds pretty good too. Half the time in these places most of the population wants to kill them. And number three, we will put you on the front cover of all the world’s magazines in a favorable light for the next decade. Now that sounds good, because these people, if they are even known to exist, are considered pariahs.

So they always listen to the rest of presentation. Of course then things start to go wrong… usually from people under the president. It’s the people under the president who are usually making the big money, not so much the president himself. So they are often the problem.

It always makes for a fun adventure and interesting cocktail party stories that I can tell and retell to people for hours. But it’s my hobby. It’s not an occupation. I haven’t made any money on it yet, although I always have a plan B when I go to these countries: look for mining concessions and so forth.

Tom: Suppose you had to do it all over again. Let’s say you turned 18 in 2015. Have conditions changed to the point where you would take a different path, and incidentally would you go to college?

Doug: I would definitely not go to college. Even then, I only did it because everybody from my socioeconomic class was going to college, so there was no thought involved on my part. It was just like going from eighth grade into high school. I counsel students against it today. College serves no useful purpose unless you want to learn a trade like doctoring or lawyering or you need a piece of paper to practice a particular occupation, or there is a formal discipline, like a hard science or engineering.

You will pick up lots of bad ideas. You will spend a huge amount of money, get yourself under a huge financial rock that will take you years to dig yourself out from under. What I suggest people do instead is lay out what the most intelligent thing to do with that four years of time and probably $200,000 of capital. I like the idea of traveling. The place that I would put first and foremost on my travel list today for economic reasons is Africa. Go someplace where you can be a big fish in a small pond quickly.

Tom: Back in the ’50s and ’60s in the wake of decolonization in Africa, you had a bunch of Western educated semi-Marxist political leaders who were nationalizing property and confiscating assets from rich people and so on, you wouldn’t touch Africa with a ten foot pole. What has changed since then?

Doug: Well, politics always draws the worst kinds of people of course. Most of the presidents of Africa even today are ex-generals or ex-colonels or something like that. It has economically improved a lot. The population has exploded and it’s going to explode more in the years to come. It’s chaotic. But if you can bring order to chaos, that’s opportunity.

If you go to the Orient, there are a lot of rich, smart people there. You are not going to have much of a competitive advantage. That’s true to a lesser extent in South America too. Africa is actually the place, I think, you want to go.

Tom: Do you have any particular parts of Africa? I’ve heard good things about Botswana. Do you have any place in particular that attracts you?

Doug: Other than South Africa, I’d say Botswana is the most developed country in Southern Africa for sure. But where would I go now? Well, of course, the nice thing about Africa is that it’s divided basically into three parts, Anglophone Africa, Francophone Africa, and Lusophone Africa, and my French is still adequately conversational. I lived in France and Switzerland for a year during college. My Spanish is functional. The language thing is a consideration of course. But on the other hand, most of the educated people in most countries of the world speak English, which is the world’s lingua franca today.

Where would I go? There are around 50 countries in Africa. I like small, obscure ones. Maybe Ghana is too developed. Look at Benin or Togo or maybe the Ivory Coast. Mauritania, where I just was, is actually quite interesting. Guinea-Bissau, Guinea-Conakry, you’ve got lots of choices. Somebody should get on a plane and just take a look. Then when they get into a country, a capital city, which is always where the action happens, get on the telephone to local lawyers and real estate agents and businessmen to set up appointments and see who you can get along with. One thing will lead to another.

I wouldn’t go to Africa as a lifestyle choice. I would go there for economic reasons and for the adventure that it would yield. I’d say as a lifestyle choice, it comes down to South America or the Orient. I lived in the Orient for years and I loved it.

Tom: What about the language barrier?

Doug: Well, I lived in Hong Kong and when I was there it was much more English. Of course everybody in China is learning English today, everybody, everywhere that you basically would want to talk to. I’m not trying to be elitist but the educated people - put it that way - all speak English today as a second language. This is one of the things that will slow down your progress on learning the local language, is that they all want to speak English to you. So that’s a double edged sword… but it’s really an advantage. No, don’t worry about the language problem.

Tom: Well, I sure appreciate your time, Doug Casey. You are the International Man himself, and we are always grateful for your time.

Doug: Well, thank you Tom. It is a pleasure to talk to you under any circumstances.

Editor’s Note: International Man is all about helping you make the most of your personal freedom and financial opportunities around the world. A great way to get started is to check out Going Global 2015. Normally, this book retails for $99. But we believe this book is so important, especially right now, that we’ve arranged a way for US residents to get a free copy. Click here to secure your copy.

The article was originally published at internationalman.com.

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2015 Outlook: What You Really Need to Know

By Jeff Clark, Senior Precious Metals Analyst

In the January issue of BIG GOLD, I interviewed 17 analysts, economists, and authors on what they expect for gold in 2015. Some of those included what we affectionately call our Casey Brain Trust—Doug Casey, Olivier Garret, Bud Conrad, David Galland, Marin Katusa, Louis James, and Terry Coxon. The issue was so popular that we decided to reprint this portion.

I think you’ll find some very insightful and useful reading here (click on a link to read his bio)…..

Doug Casey, Chairman

Jeff: The Fed and other central banks have kept the economy and markets propped up longer than you thought they could. Has the Fed succeeded in staving off crisis?

Doug: I’m genuinely surprised things have held together over the last year. The trillions of currency units created since 2007 have mostly inflated financial assets, creating bubbles everywhere. There’s an excellent chance that the bubble will burst this year. I don’t know whether it will result in a catastrophic deflation, extreme inflation, or both in sequence. I’m only sure it will result in chaos and extreme unpleasantness.

Jeff: Are we still going to get rich from gold stocks? Or should we face reality and start exiting?

Doug: The fact so many people are discouraged with gold and mining stocks is just another indicator that we’re at the bottom. Gold and silver are now, once more, superb speculations. And I think we’ll see some 10-to-1 shots in gold stocks—if not this year, then 2016. I can afford to wait with those kinds of returns in prospect.

Olivier Garret, CEO

Jeff: The crash in the general markets we warned about didn’t materialize. Have those risks dissipated, or should we still expect to see a major correction?

Olivier: Last October the risk of a very severe market correction was indeed very serious; hence our call to subscribers to batten down the hatches, tighten their portfolios, and have cash and gold on hand. We warned of further downturn across all commodities, including oil. We also highlighted the dollar would be strong and that an excellent short term speculation was to be long 10 to 30 year Treasuries, as they would be considered a safe haven.

Let’s look at where we are today. Clearly, the S&P did not extend its correction after its initial dip in mid-October. In light of the possibility of a perfect storm coming, the Fed announced that it may not end QE in early 2015 as anticipated if the economy failed to continue to pick up. Then the Bank of Japan announced its version of QE infinity, followed by the largest Japanese pension fund’s decision to invest in equities worldwide.

The bulls were reassured and came back with a vengeance; the crash was averted. That said, fundamentals are still very weak, and market growth is concentrated within the largest-cap stocks. Mid- and small-caps are hurting, and many economic indicators are still concerning.

Jeff: What about lower energy prices—aren’t these good for the economy?

Olivier: In theory, yes. In practice, there is another crisis brewing. Most of the development of new shale resources in the US has been financed by debt based on oil prices of $80 and above. This easy debt was immediately securitized, just like home mortgages were in 2003-2006, and we have a monstrous bubble about to pop with oil around $55. The potential risk of another derivative crisis is as high or higher than in 2007.

Jeff: Does that mean the inevitable is imminent?

Maybe, maybe not. We know central bankers will do whatever it takes to provide liquidity to the markets. That said, I do not believe central bankers are wizards endowed with supernatural powers that enable them to stem all crises. Bernanke told us in 2007 and 2008 that there was no real estate crisis and that he had everything under control—will Janet Yellen be better?

My view is that our subscribers should be prepared for the worst and hope for the best. Sacrifice a bit of performance for safety, and use money you can afford to lose to speculate on opportunities that could bring outsized upside. I believe subscribers should continue to hold cash (in dollars), gold (the ultimate hedge against crisis), and stocks in best-of-breed companies that are unlikely to collapse during a financial meltdown.

For speculations, I still believe that we should be invested in the best gold producers, in well-managed explorers with good management and first-class resources, in long-term Treasuries, and top-quality tech companies.

Jeff: As a former turnaround professional, what would signal to you that the gold market is about to turn around?

Olivier: Two things: market capitulation, and valuations for the best companies not seen in decades. The cure for low prices is low prices.

Cyclical markets do turn around, and I would rather buy low and hold on until the market turns around than buy in the later stage of a bull market. At this point, the gold market presents amazing value for the patient investor. In my opinion, that is all that matters. The gold market may take longer than I want to turn around, but I know I am near an all time low.

Bud Conrad, Chief Economist

Jeff: What role do big banks and government currently play in gold’s behavior? Is this role here to stay?

Bud: I’ve looked at the huge demand for gold from China, Russia, India, and private investors and been surprised the price has eroded over the last three years. My explanation is that the “paper gold futures market” sets the price of gold, with very little physical gold being traded. There are two parts of futures market trading: one is the minute by minute trading of only paper contracts that dominate 99% of the trading, in which every long position is matched by a short position. That is why the futures market is called “paper gold.”

Almost all trades are unwound and rolled over to another contract. Only a few thousand contracts are held into the second process, called the “delivery process.” Just a handful of big banks dominate that delivery process, so they are in a position to affect the market. There is surprisingly little physical gold used in the delivery process compared to the 200,000 ongoing paper trading of the contracts not yet in delivery every day, where no physical gold is used.

Big players can place huge orders to move the “paper price” for a short term, but eventually 99% of these paper positions are unwound before delivery, so their effect in the longer term is canceled. The delivery process is the only time where physical gold is actually sold (delivered) or purchased (stopped). The gold price can be influenced in one direction in this process by bringing gold to the market from their own account (or the reverse).

Big banks gain a big benefit from the Fed driving their borrowing rate to zero with the QE policy. Banks lend that money at higher rates and have become very profitable. If gold were soaring, then the Fed would be less inclined to keep rates low, as it would be concerned that the dollar is purchasing less and inflation is returning. So banks are happy to have the gold price contained so the Fed is more likely to keep rates low.

The above chart shows that in the delivery process for the December 2014 contract, only three banks—JP Morgan, Bank of Nova Scotia, and HSBC—handled most of the transactions. Big banks can act as either traders for other customers or as trading for the banks themselves in their in-house account. In the December contract, 90% of the gold was purchased by HSBC and JP Morgan for themselves, and Bank of Nova Scotia provided over half of the gold from its in house account. With so few players, the delivery market is prone to being dominated and price being set.

Jeff: So if the big players influence the market, why should we own gold?

Bud: I see the regulators issuing big fines to banks who have been caught manipulating foreign exchange, LIBOR, and even the London Gold Fix (which is being changed) as evidence that the methods used to influence the futures market will be curtailed by the regulators. So gold will become the recognized alternative to paper money issued in excessive amounts to fix whatever problems the governments want.

I also see the collapse of the petrodollar as leaving all currencies in limbo, which will lead to big swings in the currency wars, where ultimately gold will be the winner. Governments themselves are recognizing the value of gold, as I’m sure Russia does after the ruble collapsed in half since last summer.

David Galland, Partner

Jeff: What personal benefits have you achieved from living in Argentina?

David: Most important, my stress levels have fallen significantly. Even though I wouldn’t consider myself a high stress type, I used to be on meds for moderately high blood pressure and for acid reflux… both of which I take as signs of stress. After a few months back in Cafayate, I am med-free.

Second, living in the Argentine outback provides perspective on what actually matters in life. Life in Cafayate is very laid back, with time for siestas, leisurely meals, and any number of enjoyable activities with agreeable company. There is none of the ceaseless dosing of bad news that permeates Western cultures. After a week of unplugging, you realize that most of what passes as important or urgent back in the US is really just a charade.

Finally, my personal sense of freedom soars, as life in rural Argentina is very much live and let live.
In sharp contrast, returning to the USA for even a short visit reveals the national moniker “land of the free” as blatant hypocrisy. There are laws against pretty much everything, and worse, a no-strikes willingness to enforce them. That a person can get mugged by a group of police over selling loose cigarettes tells you pretty much everything you need to know.

Jeff: Gold and gold stocks have been hammered. What would you say to those precious metals investors sitting on losses?

David: I doubt anything anyone can say will prove a panacea for the pain some have suffered, but I do have some thoughts. Like many of our readers, I have taken big losses as well, but because I have long believed in moderation in most things, especially the juniors, I have taken those losses only on smallish positions.

Specifically, about 20% of our family portfolio is in resource investments, with about half in the stocks and the rest held as an insurance position in the physical metals, diversified internationally. So a 70% loss on 10% of our portfolio, while painful, is not the end of the world.

I guess my primary message would be to continue to view the sector for what it is: physical metals for insurance, and moderate positions in the stocks—big and small—as speculative investments.

I remain convinced the massive government manipulations that extend into all the major markets must eventually begin to fail, at which time investors will come back into the resource sector in droves. When the worm begins to turn, I anticipate the physical metals will recover first—and $1,200 gold is starting to look like a fairly solid foundation. The BIG GOLD companies, which I’m starting to personally get interested in, will rally soon thereafter.

When the producers decisively break through resistance levels on the upside, it will be time to refocus on the best juniors.

But regardless, per my first comment, while these stocks can offer life-changing returns, being highly selective and moderate in the size of your positions is the right approach. Then you can sit tight and wait for the market to prove you right.

Marin Katusa, Chief Energy Investment Strategist

Jeff: I loved your book The Colder War. And I liked your concluding recommendation to buy gold. Are events playing out as you expected? And does the fall in the oil price change the game at all?

Marin: First off, thank you. A lot of personal time was spent completing the book. And yes, most of the events are playing out as expected in the book. I expect this trend to continue over the next decade, as the Colder War will take many years to play out.

As I stated to all our energy subscribers and to attendees at the last Casey Conference in San Antonio, we expected a significant drop in oil prices, but it has happened a lot faster than I expected. I think we will continue to see volatility in oil; we’ll probably get a rally to the mid-$60s for WTI, but I think it will hit $45 before January 1, 2016.

This definitely makes Putin’s strategy harder to implement—but we are in the Colder War, not the Colder Battle, and wars are made of many battles. Putin’s strategy is still being implemented, and it will play out over many years.

Jeff: You’re calling for the end of the petrodollar system. This is very bullish for gold, but won’t that process take many years? Or should investors buy gold now?

Marin: The process is well underway, and yes, as I point out in the book, the demise of the petrodollar will take many years—but it will happen.

Each investor must evaluate his position and situation, but I don’t believe anyone knows when the bottom in gold will happen, and I see gold as insurance. You never know exactly when you need health insurance, but speaking from personal experience, it’s good to have, and good to have as much as you can afford, because when you need it, trust me, you won’t regret it.

Resources are in the “valley of darkness” right now—but this is part of the cycle. The key is portfolio survival. If you can get to the other side, the riches will be much greater than you can fathom. I’m speaking from personal experience. I’ve been through this before, and while it was stressful, what happened on the other side blew away my own expectations. We are in a cyclical business, and this bottom trend has been nasty—longer and lower than most have expected—but I am excited, because this is what I have been waiting for and what will take my net worth to a new level.

I see no difference in the outcome for yourself, Louis James, and all of those who follow you and survive to the other side. I believe there will be significant upside in gold stocks, especially certain junior gold explorers and developers. Subscribers are in good hands with you and Louis in that regard, and I always read my BIG GOLD and International Speculator when I get the email, regardless of where I am—the most recent being in an airport in Mexico. Keep up the great work, Jeff; even though it’s a difficult market, you’re doing the right things. It will pay off—maybe not on our desired schedules, but it will pay off.

Louis James, Chief Metals & Mining Investment Strategist

Jeff: The junior resource sector tends to progress in cycles. Is the current down cycle about over, or should investors expect the recovery to drag out for several more years?

L: That’s essentially a market timing question—literally the million-dollar question we all wish we could answer definitively. That’s not an option, and I’m sure your readers know better than to listen to anyone who claims to be able to time the market with any precision or reliability.

That said, I don’t want to dodge the question; for what it’s worth, Doug Casey and I both feel that gold has likely bottomed. Yes, it’s true that I felt that December 2013 was the bottom—but it’s also true that most of our stocks are up since then. So, gold may have put in a double bottom, but our stocks outperformed the metal and the market.

Either way, if we’re right, the next big move should be upward, and that’s as good for BIG GOLD readers as it is for International Speculator readers.

I should also add that precious metals are not just “resources”—gold is money, not a regular commodity like pork bellies or corn. It’s the world’s most tested and trusted means of preserving wealth. So even though resource commodities tend to move as a group in cycles, gold and silver can be expected to act differently during times of crisis.

And 2015 looks fraught with crises to me… I am cautiously quite bullish for this year.

Jeff: Where will gold speculators get the biggest bang for their buck in 2015?

L: If you mean when, statistically the first and fourth quarters of the year tend to be the strongest for gold, making now a good time to buy.

As to what to buy, it depends on whether you want to maximize potential gains or minimize risk. The most conservative move is to stick with bullion, which is not a speculation at all, but a sort of forex deal in search of safety. For more leverage with the least amount of added risk, there’s the best of the larger, more stable producers that you recommend in BIG GOLD. For greater wealth-creation potential, as opposed to wealth preservation, there are the junior stocks I follow in the International Speculator.

As to where in the world to invest, I’d say it’s easier to get in on the ground floor investing in an exploration or development company working in less well-known countries—you always pay more of a premium for North American projects where the rule of law is well established. That’s obviously riskier too, but that doesn’t mean you have to go to a kleptocratic regime with a history of nationalization. There are stable places off most investors’ radars, like Ireland and Scandinavia. Africa plays may be oversold in the wake of the Ebola outbreak, but that story isn’t done yet, so even I am waiting before going long there again.

Terry Coxon, Senior Economist

Jeff: In spite of profligate money printing over the past six years, there’s been minimal inflation. Should we give up on this notion that money printing causes inflation?

Terry: No, you shouldn’t. As Milton Friedman put it, the lags between changes in the money supply and changes in prices are “long and variable.” I’m surprised we haven’t yet seen the inflationary effects of a better than 60% increase in the M1 money supply. But the Federal Reserve has essentially guaranteed that those effects are coming, since they are committed to keep printing until price inflation shows up. And when it does appear, the delayed effects of all the money creation that has occurred to date will start to take hold. There won’t be “just a little” inflation.

Jeff: What do you watch to tell you the next gold bull market is about to get underway?

Terry: Beats me. I won’t know it is happening until it’s already started. But because high inflation rates are already baked in the cake, so is another strong period for gold. That’s a reason to own gold now, and the reason is compelling if you believe, as I do, that there’s little downside. At this point, given the metal’s weak performance since 2011, virtually everyone who lacks a clear understanding of the reason for owning it has already sold. So it’s safe to buy.

 10 other analysts were also interviewed, plus Jeff recommended a new stock pick. Tomorrow’s BIG GOLD issue has another new stock recommendation—an exciting company that has the biggest high-grade deposit in the world. Now is the time to buy, before gold enters the next bull market!

Check it Out Here

The article 2015 Outlook: What You Really Need to Know was originally published at caseyresearch.com.

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The Only PGM Stock You Should Buy

By Jeff Clark, Senior Precious Metals Analyst

It’s quite the dilemma.

One of the major reasons my colleagues and I are so bullish on platinum group metals (PGM)—palladium, in particular—is because of the intractable problems with supply. But most of the producers are backed into corners, with few options for improving their outlook. There’s simply no way for these metals to avoid a long-term production deficit due to the deep seated problems with the companies that produce them.

So, how to invest?

Since we’re talking about profiting from a metals bull market, we could just buy bullion—and we have indeed recommended doing so to our readers. But to really maximize your leverage to the upside (and avoid more risky futures and options), a stock in a company that produces the metal is normally the way to go. Unfortunately, as above, the pickings are slim.

For us to invest in a PGM producer, the company would have to be:

• Outside of South Africa and Russia. The problems with miners in both countries are numerous and difficult.

• Making money. Many producers are not profitable at current prices because production costs are so high. And they won’t come down just because the strikes ended—they’ll go up, due to higher wages.

• Have a strong growth profile. We want a company that can capitalize on burgeoning demand, which would add further leverage to our investment.

• Have strong management (of course!). The last thing we want is a team with no experience navigating a volatile market such as this.

Does such a stock exist?

It’s a tall order, but the answer is yes. The company we recommend in this area meets all the criteria above—and is the safest speculation in this space. We consider it so safe, in fact, that we just “graduated” it from the International Speculator to BIG GOLD.

How’s This for Leverage?

 

This profitable mid-tier producer is perfectly positioned: it’s not so small that we’re purely speculating on some uncertain game changing event, and yet it’s small enough to generate much larger share price gains than would be possible for one of the major mining companies. On the other hand, it’s big enough to catch the attention of mainstream investors.

Here are seven reasons why we’re excited about this company and the leverage we think we’ll get by owning shares…...

#1: Large, High-Grade Assets

The company has two distinct but closely related mine sites. These alone will support the company’s growth for many years. However, only nine miles of an estimated 28 miles of known mineralization has been developed between them—essentially one third of one giant mineralized structure. Management thinks it has an additional 102 million tonnes of undeveloped resources waiting to be dug up.

And get this: the average grade of their proven and probable reserves is 0.45 ounces per tonne, the world’s highest grade PGM deposit. Of these, 78% is palladium, a very attractive figure since we’re even more bullish on it than platinum. At the right metals prices, this company could double or triple production and still maintain a very long mine life.

#2: Growing Production and Low Costs

The company grew 2013 production by 10,000 ounces, but has yet to use all its milling capacity. It currently uses about 3,600 tonnes per day (tpd) of its 6,000 tpd total capacity. The company is working to increase ore production this year, which is good timing for us.

With a much cleaner balance sheet and a forecast of $800-$850 per ounce for all-in sustaining costs (AISC) in 2014, the company looks poised to make money in the current price environment—and a lot of money in the supply squeeze we anticipate.

#3: Recycling Business

In addition to mining, this company recycles depleted catalyst materials to recover palladium, platinum, and rhodium at its smelter and base metal refinery. It’s been doing this since 1997, and business is booming. Pre-tax earnings last year rose a whopping 233% over 2012. And management says it will expand this end of their business over the next few years.

#4: Strong Financial Performance

This company reported over a billion dollars of revenue last year, up nearly 30% from 2012. It finished the year with a very strong working capital position of almost a half billion dollars.

#5: Unique North American Operations

The company is one of only a few PGM producers in North America. Nearly all other PGM mines operate in South Africa (Impala, Amplats, Lonmin, etc.) or Russia (Norilsk). Therefore, this company is more stable than most that mine in other jurisdictions.

#6: Upgraded Management

A prior management team made a poor investment in Argentina a few years back, which led to major changes in the board of directors and top management last year. The new president and CEO is a 21-year industry veteran and has experience in both M&A and mine optimization. He’s already corrected past mistakes, and we’re happy with the direction he’s taken the company. The technical people on the ground seem competent and are getting admirable results.

And finally…...

#7: We’ve Been There!

Our Chief Metals Investment Strategist Louis James, who conducted a due diligence trip to the company’s operations last year, says:

I liked the story when I visited and considered it to be the company to buy in a safe mining jurisdiction. But I didn’t want to bet on the team in place at the time. Flash forward and now it’s under new management, which is very focused on cutting costs and expanding the core business. The company’s results for 2013 were quite impressive, and I expect them to get better going forward. I’m convinced this company is uniquely positioned to benefit from potential supply shortages. Coupled with a likely rise in demand from the global auto industry in the years ahead, this stock is a very attractive play.

Here’s a picture from his visit.

Pay dirt: this is what the company’s palladium-platinum mineralization looks like before blasting. You can see the closely spaced holes that will be blasted a fraction of a second before the surrounding ones—in successive waves—so the ore is blasted inward. This high-grade resource in a safe and stable jurisdiction is the heart of our speculation.

 

The Only Stock to Buy, in a Market Backed into a Corner

 

Johnson Matthey, the world’s leading authority on PGMs, estimates the platinum market will register a deficit of at least 1.2 million ounces this year. This would be the largest shortfall since it first compiled data in 1975.

While it will take an enormous amount of time and expense to recover from the strikes in South Africa, that’s only the first layer of problems for the industry:

• According to consultancy GFMS, 300,000 ounces of platinum and 165,000 ounces of palladium could be lost after the strikes end, as it will take time and money to ramp up to full capacity—if that’s even possible since some mines have been damaged. The Implats CEO said it will take his company at least three months to return to full production, and they’ve already put the development of three new replacement shafts in the Rustenburg area on hold. Anglo American announced just last week that it plans to sell its platinum operations.

• Holdings of physically backed palladium ETFs continue to hit record highs. In less than two months, a half million ounces were added to ETFs. Fund holdings will likely continue to climb and push the palladium market further into deficit.

• The Russian government has been reportedly buying palladium from local producers, since it appears its stockpiles are near exhaustion. Exports ticked higher last month, but that was likely in anticipation of potential sanctions.

• Some recyclers announced they are holding back on sales, as they believe prices will move higher.

• Platinum demand in India is expected to grow 35% this year.

• Reports have surfaced that tout replacements to platinum and/or palladium. However, these are mostly research projects and are at least two to three years away from commercial viability (some will never make it).

• Auto sales in the US, China, and Europe, the three biggest regions by consumption, were up 12% through May over 2013.

• Existing stockpiles of these metals have dwindled. Based on prior estimates from Citigroup, only nine weeks of palladium and 22 weeks of platinum supplies remain—and half of those are in Russia. Standard Bank projects that stockpiled material from South African producers will run out in a month or less.

The key point is that platinum and palladium supply is in a structural deficit. Prices will pull back now that the strikes have ended—and that is your opportunity. The bull market in these metals is really just getting underway.

And we have the primo pick in the space. The shares of this stock would have to climb 50% just to match its 2011 highs—and that’s without the platinum/palladium supply crunch we’re speculating on. As you’ve surmised by now, I can’t give away the name of this stock in fairness to paid subscribers. But you can get it by giving BIG GOLD a risk free try. You’ll receive our full analysis and specific buy guidance, along with an exclusive discount on a popular gold coin in the June issue. And, if you want the absolute safest way to invest in PGMs, check out the options recommended in the May issue.

If you’re not 100% satisfied with the newsletter, simply cancel during the 3-month trial period for a full refund—no questions asked. Whatever you do, though, don’t miss out on the best stock pick in the PGM bull market. Click Here to learn more about BIG GOLD or Click Here to go straight to the order form.

The article The Only PGM Stock You Should Buy was originally published at Casey Research

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The Most Anticipated Oil Well of 2014

By Marin Katusa, Chief Energy Investment Strategist

Large international oil companies (IOCs) and the largest national oil companies (NOCs) are all anxiously watching an oil well that’s being drilled by a North American company in a little, out of the way country in Europe. In fact, this country—Albania—has recently garnered so much attention from Big Oil due to the results of the elephant potential of this oil deposit that the Albanian Energy Ministry just decided to establish an open tender system for the next round of sales of blocks with major oil and gas potential. If you’re not familiar with it, “open tender” is an auction process where the highest bidder gets the land blocks.

The Energy Ministry wouldn’t do this unless the demand were significant, and when Doug Casey and I visited the region recently, we were very impressed with its world-class potential. We’re both excited to see the oil well results that are slated to come out within the next few months—so are the IOCs and NOCs, and so should you. To share our excitement, Doug and I thought it would be a great idea to literally bring you into the room to see and hear what we see and hear—and thanks to modern technology, I present to you today the Casey Energy Report (CER) Crossfire.

One of the few times I filmed a CER Crossfire was with Keith Hill from Africa Oil. It’s not something I do regularly—only when I’m really excited about a company. The company we have on CER Crossfire today, Petromanas Energy (PMI.V), is chasing world class, elephant oil deposits, but rather than deepwater Africa (like Keith did with Africa Oil), it’s drilling deep onshore in Europe.

As you will hear me discuss in the video, the last time I’ve seen a company chasing deep world class oil deposits with this kind of massive upside was Africa Oil. Shell, one of the largest IOCs, is paying almost all of the US$70 million this oil well costs to drill to earn its 75% share of the project, and it will do the same with the next well. We haven’t seen such a high reward-to-risk ratio in a long time. So, rather than reading a long missive, I invite you to watch this edition of the Casey Energy Report Crossfire with Glenn McNamara, the CEO of Petromanas. I think it will definitely be worth your time.

Now You Can Take the Lead… We Make It Simple

We expect great things from this company. You can read our ongoing guidance on Petromanas and our other top energy stocks every month in the Casey Energy Report. In the current issue, for example, you’ll find an in depth field report on the Europe trip Doug and I took, what we learned at our site visits, and which companies are poised to benefit most from the budding European Energy Renaissance. There’s no risk in trying it: If you don’t like the Casey Energy Report or don’t make any money within your first three months, just cancel within that time for a full, prompt refund.

Even if you miss the cutoff, you can cancel anytime for a prorated refund on the unused part of your subscription. You don’t have to travel 300+ days a year to discover the best energy investments in the world—we do it for you. Click here to get started.

The article The Most Anticipated Oil Well of 2014 was originally published at Casey Research.com.

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The Lions in the Grass, Revisited

By John Mauldin

“In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

“Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.”

– From an 1850 essay by Frédéric Bastiat, “That Which Is Seen and That Which Is Unseen”

I’ve come to South Africa a little bit ahead of my speaking tour next week to spend a few days “on safari.” Which is another way to say that I am comfortably ensconced in a game lodge next to Kruger Park, relaxing and trying to get some time to think. We’ve been reasonably lucky on the game runs: besides the usual lions, rhinoceri, water buffalo, etc., we’ve seen both cheetah and leopard, two animals that avoided my vicinity on every other trip to Africa. I’m here at the end of the rainy season, so everything is lush and green, and you have to get a little lucky to find the animals in the dense bush.

In several moments here, I was reminded of an essay I wrote two years ago called “The Lion in the Grass.” So I went back and read it and decided to update it fairly extensively in order to talk about the hidden lions we don’t see today that could catch us unawares tomorrow. Just like the African bush I am surveying at this moment, the economic landscape out there could harbor some serious but still unseen problems.

I have been captivated by the concept of the seen and the unseen in economics since I was first introduced to the idea. It is a seminal part of my understanding of economics, at least the small part I do grasp. It was introduced by Frédéric Bastiat, a French classical liberal theorist, political economist, and member of the French assembly. He was notable for developing the important economic concept of opportunity cost. He was a strong influence on von Mises, Murray Rothbard, Henry Hazlitt, and even my friend Ron Paul. (I will have to ask Rand about his familiarity with the Frenchman the next time I see him.) Bastiat was a strong proponent of limited government and free trade, but he also advocated that subsidies (read stimulus?) should be available for those in need. “[F]or urgent cases, the State should set aside some resources to assist certain unfortunate people, to help them adjust to changing conditions.”

Today we explore a few things we can see and then try to foresee a few things that are not quite so obvious. The simple premise is that it is not the lions we can see lounging in plain view that are the most insidious threat, but rather that in trying to avoid those we may stumble upon lions hidden in the grass.

But first, I really want to urge you to consider joining me in San Diego May 13-16 for my Strategic Investment Conference. We are continuing to fill out the strongest list of speakers we’ve ever had in our 11 years at this. My good friends George Gilder, Stephen Moore of the Wall Street Journal, and Neil Howe (who wrote The Fourth Turning) have all agreed to come and join Niall Ferguson, Newt Gingrich, Kyle Bass, David Rosenberg, and a dozen other A-list speakers from around the world. You can see who else will be there by clicking on the link above or here.

And I’m especially honored and pleased to announce that Vice Admiral Robert S. Harward, Jr., has agreed to join us on Wednesday night as a special keynote speaker. The three-star admiral (just recently retired) is a Navy SEAL and former Deputy Commander of the United States Central Command. In addition to his numerous other positions and awards, he also held the title of “Bull Frog” from 2011 until 2013 (longest-serving SEAL on active duty).

This is simply the finest economic and investment conference anywhere in the country. Don’t procrastinate; make your plans to come and register now.

The Lion in the Grass

When I was discussing this concept with Rob Arnott (of Research Affiliates and the creator of Fundamental Indexes) in Tuscany a few years ago, he mentioned the following photo, which he took on the savannah in Tanzania. I think it’s a perfect way to start out our discussion of the lions in the grass.



Going back to Bastiat, let’s look at that first sentence:

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

It is natural to focus on the apparent dangers in front of us. That is part of our evolutionary heritage from the time when humans were first dodging lions and chasing antelopes on the very African savannah in Rob’s picture. But we soon learned that, if we were to survive, it wasn’t enough to dodge the lions we could see. It is the hidden lions that may spring upon us suddenly and take an arm or a leg.

Below I have once again reproduced Rob’s picture. Even when I knew there was a hidden lion, I couldn’t find it. But after it was pointed out to me, it is now the first thing I see. And there is a direct analogy there, to both economics and investing.

So, before you go to the next page, I suggest you go back and look one more time to see if you can spot the hidden lion. Just for fun, you know.

I showed this to a friend of mine who is a hunter, and he found it almost immediately. But then he has taught himself over the years to look for hidden game. And as Bastiat noted, it is the skilled economist who looks for the effects that are hidden, the surprises that are unseen. It should be a habit to look at the potential second- and third-order consequences of what we can see happening before our eyes. That way, we not only avoid the hidden lions, we also turn what would hunt us and do us harm into the hunted. Sometimes, the dangers themselves can be turned into a very nice trophy indeed – if you can act in time.

As I noted, that previously invisible lion is now the first thing I see. And that is the way with economic lions in the grass. Once someone points one out, it’s obvious, so obvious that we soon convince ourselves that we would have seen the lion without help. How many people told you they “knew” all along that subprime debt was going to end in tears? Or that the housing market was a bubble? Or that we would be plunged into the Great Recession?

I remember that in the fall of 2006 I was beginning to talk about the probability of a recession, in this letter, in speeches, and in numerous media interviews. (There is one such episode still up on YouTube.)  I was told I was ignoring what the market was telling us, and indeed the market proceeded to go up for another six months or so. Being early is lonely. Me and Nouriel. J

Today there are a lot of people who tell us they knew there was a recession coming all along. In fact, the farther we get from 2006, the greater the number of people who remember making that call. It now seems I had no reason to feel so lonely out there on that limb, scanning the tall grass of the savannah. In retrospect, it seems that limb was rather crowded.

So, with that in mind, let me show you where the other lion is. Then go back and look at the first picture. After a few times you will see the hidden lion almost before you see the obvious ones.



Black Swan or Hidden Lion?

I should note that a lion in the grass is different from a black swan. A black swan is a random event, something which takes us all by surprise. Economic black swans are actually quite rare – 9/11 was a true black swan. Other than Nostradamus some 500 years ago, who saw it coming?

The last recession and the credit crisis were not true black swans. There were those who saw it all coming, but few paid attention. They were dancing right along with Chuck Prince to the rousing music of a bull market and swelling profits.

As we know now, a few people saw the subprime crisis coming and made huge fortunes. Sadly, pulling that off generally required one to risk a small fortune to play in that game. So while I talk about the lions hidden in the grass, remember that if you can figure out how to play it, there can be large profits betting on that which is unseen by the markets.

Now, let’s look at a few obvious lions and then see if we can spot a few hidden lions lurking nearby.

The Lions in Europe

By some miracle, Mario Draghi and his team at the European Central Bank (ECB) continue to get from their communication tools what most central banks have to take by force. Widespread complacency has washed over the region in the months and quarters since July 2012, when Mr. Draghi introduced the Outright Monetary Transactions (OMT) facility and adamantly promised to do “whatever it takes” to preserve the euro system.

As a result, government borrowing costs are converging back to pre-crisis levels even as falling inflation brings the next debt crisis forward … and markets are clearly still responding to the ECB’s increasingly hollow commitments.

Without changing the ECB’s main policy rate at this week’s monetary policy meeting, Mr. Draghi once again attempted to talk his way to a policy outcome by suggesting that he has the broad based support to authorize quantitative easing, if and when it is needed. It will be needed – and maybe soon.

As I wrote late last year, European banks are in terrible shape compared to U.S. banks. We think of German banks as the epitome of sobriety, but they have been on a lending binge to creditors who now appear to be in financial trouble; and with 30- or 40-1 leverage, they could easily see their capital fall below zero. Despite modest bank deleveraging across the Eurozone since early 2012…



… public and non-bank private debt burdens have not improved:



Low inflation is also seriously disrupting government debt trajectories. The analysis below from Bank of America Merrill Lynch shows how low inflation, near 0.5%, raises debt trajectories in France and Italy that would be a lot lower under a normal, 2%, inflation scenario. As the charts show, persistent “lowflation” for several years could add another 10% to 15% to the public debt to GDP ratio in each country … even if rates stay where they are today.

To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best-selling author, and Chairman of Mauldin Economics – please click here.

 

The article Thoughts from the Frontline: The Lions in the Grass, Revisited was originally published at Mauldin Economics

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China Steps up Buying Spree in Africa

China's oil companies, buoyed by the country's foreign exchange reserves that now top $2 trillion for the first time, are on another buying spree in Africa, further challenging the century long domination of the continent's mineral wealth by Europe's great powers. So intense is Beijing's drive for wider access to energy resources to fuel China's economic growth that its main state run oil companies are now competing among themselves. The Big Three China National Petroleum Corp., Sinopec and the China National Offshore Oil Corp. are all likely to be among the top bidders when one of West Africa's newest oil producers.....Complete Story

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