Article: Doug Casey on 2013 Interviewed by Louis
James, Editor, International Speculator | January 4, 2013
L: So Doug, the world didn't end in 2012, so
it's onward into another new year. It's time to tune in
to your guru-vision and tell us what trends you see shaping
up and what actions they imply taking.
Doug: Yes, it looks like the Mayans missed
this one; perhaps they'll get another kick at the cat a
few millennia from now when it's once more time to turn
the page on their calendar. Better luck next time, Mayan
astrologers! But although nothing seems to be happening
on that front, it's appropriate that I'm speaking to you
from Punta del Este in Uruguay, which is one of the most
happening places in the world at this time of year –
North American and European winter, South American summer.
I went to a New Year's Eve party last night with some rather
interesting temporary denizens of the place, and of course
this was the subject of much conversation. None of them
happened to be American, incidentally, and all but one –
who is very involved in local politics – is extremely
bearish on 2013.
L: Do you mean bearish on the global economy?
Bearish on geopolitics? Or bearish on civilization itself?
Doug: All of the above. A "Mad Max"
type outcome is definitely a possibility, as much as I hate
to anticipate something really serious – as opposed
to just a financial/economic meltdown. But the West has
a huge amount of accumulated capital that it can still dissipate
– a task the politicians are working on diligently.
I expect the US will get a VAT, and/or an asset tax. Perhaps
they'll take a page from Cristina Kirchner's book and nationalize
everyone's pension – for the good of the government,
as well as the safety of the pensioners, of course. In the
near term, we're looking at increased tensions of every
kind around the globe, and greater market volatility.
By the way, we enjoyed a professional-grade fireworks display
put on by our host in his back yard. It struck me that I
was witnessing exactly the kind of freedom that makes me
like living down here so much, and makes me dislike returning
to the US. In the US, you'd have to be a city to put on
that kind of fireworks show, or go through God-know-what
sort of licensing to get the explosives involved. The smell
of gunpowder at midnight is most invigorating, especially
mixed with the smoke of Cuban cigars.
I'm not saying Uruguay is totally free, especially not
economically – the president is actually a communist.
But he's a surprisingly mellow communist, and not at all
corrupt. Most unusual, actually. He lives on a small farm
and drives an old car. Of course the things he's doing –
raising welfare benefits, eliminating financial privacy,
initiating an income tax, and letting petty thieves run
wild, among many other things – are making the place
much less desirable to hang out.
L: So, aside from economically stupid laws,
they let people do pretty much as they will with their personal
Doug: That's the good news. It's a quiet,
unambitious, backward, bureaucratic little country. But
they still pretty much leave you alone. And strange things
can happen. At the party I mentioned, a friend who mostly
lives in Argentina told me about what was in Sunday's El
Pais, the national paper. It turns out that a top local
politician – most of whom are socialists or ex-communists
– just discovered Frederic Bastiat's book, The Law.
He was so taken with the free-market ideas in it, he had
the entirety of the book published as an insert in the paper,
at his own expense. I don't know how many people will actually
read it, and I doubt it will have much effect, but as a
possible straw in the wind, it's pretty interesting. Shocking,
L: A hundred years ago you might have seen
a copy of The Communist Manifesto, so perhaps the pendulum
will swing back in our direction in the next hundred years.
A good reminder that it's important to internationalize
both one's assets and one's lifestyle. It's hard to predict
what will happen in any given country, although the trend
is going from bad to worse just about everywhere.
Doug: Yes; as the Greater Depression deepens,
governments all around the world are going to get increasingly
desperate, take increasingly stupid measures, and the people
on the bottom rungs of the ladder – the very ones
the governments will claim to be helping – are going
to get pushed off in greater and greater numbers. That's
going to make for more social unrest, vandalism, and violence
all around the world. It's wise to find a crib away from
likely epicenters of turmoil. You still have to look at
the world objectively, and prepare to be, or move to wherever
there's the least trouble on the ground, among the places
you actually enjoy being in. This is especially so for Europeans
and their cousins in the US, where things are deteriorating
L: So, what are your own reasons for bearishness?
Doug: I'm exceptionally bearish because
we've been in the eye of this hurricane for going on three
years. It seems to me that the bigger the eye of the storm,
the bigger the storm must be. We are definitely heading
for the trailing side of the hurricane soon. And it will
be vastly bigger, and last much longer, and be much different
than the leading edge.
I can't emphasize enough that all these trillions of currency
units that governments all around the world are printing
up by the truckload…
L: Or helicopter load.
Doug: [Chuckles] Yes, well, bank-wire
load, as it were, these days. They no longer need to bother
with the printing press; they can just create more out of
nothing with the stroke of a key. All that cash in the US,
the EU, Japan, and elsewhere is going to come out of the
banks where it's sitting at some point, and the inflation
that's been masked so far will kick into a much higher gear.
Take Uruguay, for instance, which is actually a very expensive
country – to go out to dinner here in Punta del Este
costs considerably more than in the US. When I first came
here, things were very cheap. I've seen the same thing in
New Zealand, Hong Kong, Spain, and other markets in which
I've made a lot of money in real estate, based on the same
trend. This is happening all over the world. The US has
been so successful at exporting its inflation – abusing
the reserve currency status of the US dollar – that
it's become a relatively cheap place to live, at least among
the more developed nations.
The local symptom of this global sickness is that here
in Punta, very expensive condominium buildings are popping
up all along the coast, spreading faster than dandelions
in springtime. Nobody lives in most of them, though some
are occupied for a month or two in the summer, and yet,
year-round you have to pay maintenance and security costs
of at least $2,000, and sometimes $3,000 or $4,000 per month.
The only reason people would pay that kind of money to maintain
empty condos, as far as I can see, is to hide money.
L: Why do they need to hide
Doug: Each will have his own reasons.
Sadly, Uruguay is no longer the Switzerland of South America
it once was. There was once no income tax here and financial
privacy – which no longer exists anywhere. A government
run by ex-communists destroyed all that. That was shooting
themselves in the foot, of course. But real property rights
are still pretty strong here, so people are building all
these condos as a place to stash money in the form of bricks
and mortar. Unfortunately, I don't think it will work out
for them, because as the global Greater Depression deepens,
people are going to have to start liquidating them, and
the local market is going to crash. The monthly maintenance
costs plus a need to retrieve the invested capital is going
to result in a wave of selling. A lot of people are going
to get burned. Not just here – almost everywhere.
As my friend Richard Russell has said, in a depression everybody
loses. The winner is the one who loses the least.
L: Maybe you can let us know when that happens
– sounds like it will be a great contrarian buying
opportunity at that time.
Doug: Sure. Most people will be too nervous
to act, but I keep an eye on several real-estate markets
for just that sort of contrarian opportunity. Meanwhile,
I may just head for the exits now myself, not wanting to
be unable to liquidate the real estate I've got in Uruguay
At any rate, I view this developing situation as an example
of what's brewing in many markets all around the world.
L: Can you give us more specifics?
Doug: I think the most important thing
to bear in mind is that we are approaching the absolute
peak of the bond bubble, which has gotten vastly bigger
than I ever imagined it could. Interest rates in the developed
economies around the world are two percent, one percent,
or even negative. This is fueling a bond bubble of truly
catastrophic proportions. When it bursts, it will be an
order of magnitude worse than the tech stock-market crash
of 2001 or the real-estate bubble that burst in 2008.
When this one goes, it won't just wipe out the people who
thought they were being prudent savers. Because it's a financial
market, it will also hit stocks and real estate again, at
least in Europe and the US. Here in Uruguay and places like
Argentina, real estate is largely a pure cash market. But
in the so-called more developed economies, real estate still
floats on a sea of debt.
It amazes me that people in the US are elated because the
real-estate market is supposed to be up 4.3%, as of the
latest figures. Well, of course it is; you can borrow money
for effectively zero, given where interest rates and inflation
L: Is that a sign of the bulging piles of money
banks have been sitting starting to leak out into the economy?
Doug: Looks that way. And when interest
rates start rising steeply, as they'll have to do once inflation
sets in, rising to double digits as they were in the 1980s,
it will crush real estate further and deeper than we've
seen so far. It will do so all around the world, but the
US will be hardest hit, I think.
There's no question in my mind: the bond bubble is by far
the largest distortion we're facing in the economy today.
Bonds are incredibly dangerous, insanely risky speculations
today. They're reward-free risk. Bond owners are facing
huge default risk, huge interest rate risk, and huge inflation
risk. But nobody seems to see it or talk about it.
L: I understand. But honestly, Doug, you've
been saying that for a while. What makes you think this
will be the year the bond balloon finds the pin it's been
Doug: You're right – that particular
bubble should have found its pin two or three years ago.
I admit I thought it'd pop last year. It's like watching
a clown over-inflate a balloon; the longer he inflates it,
the more you wince, because you know it's going to blow
up in his face. And the longer it takes, the closer the
inevitable comes to being imminent – and the bigger
the explosion becomes.
It would have been so much better if the idiots who run
the US government had allowed the market to fully liquidate
past mistakes and distortions back in 2008. If they'd let
all the big banks, brokers, hedge funds, and corporate welfare
junkies fail, it would have been very unpleasant, but the
country could have survived it, and come out stronger and
with a healthier balance sheet as a result. The real wealth
– buildings, farms, technologies, the skills of workers
– would still be there. And the financial elite would
have been wiped out – which would have been a good
thing. But instead, they've ensured that the rich have gotten
even richer, guaranteed by the government. They tried to
drown a fire with a flood of gasoline, and it's going to
burn the country down.
You know the old saw about not predicting both an event
and its timing, but I don't see how this thing can go beyond
L: Well, you were right about the politicians
in Washington preferring to compromise than to allow the
fiscal cliff to hit the fan, so maybe you're right about
this one too.
So, we should beware of the bond bubble bursting. Beware
of real estate getting crushed when interest rates go up.
What about stocks? Wouldn't a lot of money fleeing falling
bonds go into the stock market?
Doug: Yes, a lot would, but a lot of companies
would be failing as well, so I'm ambivalent about equities
in general. Earnings could collapse. Companies with many
millions – or even billions – in cash on their
balance sheets could still get hit fast and furious by high
inflation. P/E ratios are not low these days; Wall Street
is not a bargain. So I'm generally neutral to bearish and
therefore out of the stock market. That's the best policy
when you can make an equally compelling case for something
going up or down.
L: That's exactly how I see copper and the
other base metals these days. But gold is another matter.
Doug: Of course. And even though gold
has hit new highs in nominal dollar prices, gold has still
not matched its previous peak in inflation-adjusted dollars.
Really, in practical terms, nobody knows or cares about
gold yet. The average guy doesn't even know it exists –
and the average guy on Wall Street thinks it's only good
for paperweights, of which the world already has a surplus.
L: Gold is cheap at $1,670?
Doug: No. But it's got to go higher. The
fact is that precious metals are the only financial assets
that are not simultaneously somebody else's liability. The
huge counterparty liability in today's markets has yet to
make itself evident, but it will – it's in the hundreds
of trillions. That's what the derivatives that Buffett has
been talking about for a decade are all about.
That makes the best single speculation I can think of today
gold and silver mining stocks. For the last two years, gold
stocks have been getting cheaper, even though gold has continued
rising, year-on-year. That makes these stocks a better deal
than they've been for many years.
And it's such a tiny little market, the upside when the
larger world catches on will be breathtaking. My sense,
based on watching these markets for 40 years, is that we're
coming up on an explosion of resource stock prices of historic
proportions. The kind of stocks you and Jeff cover are absolutely
the place to be.
L: The data support you on that. If you adjust
for inflation by looking at the price of gold stocks in
terms of gold, they are selling for less than they have
for years – almost as low as during the crash of 2008,
or even back in 2001, before this bull cycle for metals
Doug: They are now extremely high-potential
and relatively low-risk speculations – despite mining
being a crappy, 19th-century choo-choo-train industry.
L: [Laughs] I used that phrase of yours in
the International Speculator coming out Thursday and make
the same point.
Doug: You provide a shopping list?
L: Of course. Jeff's got one in BG too.
Doug: Good. This may be the last chance
for people late to this bull market to get in at prices
similar to what they could have paid before it got going.
And as a matter of fact, gold was cheaper in real terms
back in 2001 than it was at $35 per ounce back in 1971.
People seem to have forgotten that these are the most volatile
stocks on the planet. There have been a half-dozen markets
I've personally seen over the years where junior miners
and explorers went up 1,000% as a group.
Perversely, people are afraid to buy these stocks now –
L: The very reason they should; you have to
be a contrarian to buy low and sell high.
Doug: – at precisely the time when
they should. I promise you, when the Mania Phase of this
gold market kicks in, everyone will be piling in, and it
will drive share prices not just through the roof, but to
the moon. Then they'll collapse 95% later, of course, the
way they always do. But now is the time to buy them. However,
since there are several thousand of them, it's critical
to be highly selective.
L: Well, if speculating when others dare not
were easy, everyone would do it, and there would be no speculative
opportunity, so of course I agree.
But back to 2013 – if you don't think the global
economy will collapse this year, can you say when?
Doug: As I said last time, 2013 is going
to be ugly, but it will just be a warmup for 2014. Back
at the New Year's party I went to here in Punta del Este,
I asked my best friend down here the same question. He's
very rich and very shrewd. He's of the opinion that the
world will see catastrophic events of historic proportions
– not just one, but several – over the next
I think he's right, and that brings us back to another
point we started with: I cannot stress strongly enough that
anyone who hopes to survive financially, and perhaps even
physically, needs to internationalize.
L: There's the Mr. Cheerful we all know and
Doug: Hey, I'm looking at the bright side...
L: Okay then. Thanks, and we'll talk again
next week – and soon in person, in Vancouver.