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Transcript:
Future Money Trends: Greetings and thank you for joining us at FutureMoneyTrends.com. I’m here with a legendary stock picker who’s only in his mid-30s. Probably more ten-baggers than anyone out there in the last ten years. Marin Katusa, the chief strategist for Casey Research. Thank you for joining us today.
Marin Katusa: Always a pleasure Dan.
Future Money Trends: Marin, I want to start us off with a question that’s right up your alley with the crisis investing you, Rick, and Doug Casey do. What are some of the best investment ideas that you have right now? That you’ve heard recently or that you’re thinking of? And I’m talking about the crazy stuff like what Doug Casey would do, like buying a cave in Afghanistan in 2001. Not that he did that, but you know what I’m talking about. Something that’s really, really, contrarian?
Marin Katusa: Well you see Doug and I are firm believers that you’re either a contrarian or you’re a victim. So it’s important to understand your own risks and your own time frame of investment. So that’s the first thing. Now Doug’s had an incredible call with short Starbucks go long coffee beans. He did that about six to eight months ago. I thought that was an interesting one that I didn’t hear from anyone else besides Doug. There are some interesting ways to play the massive energy run that a lot of these stocks have had, where the payout ratio are plus 100%, by playing the options on it to short but that’s not for everyone. That’s an interesting thing we’ve been looking at recently. So there’s always wild ideas, where looking at off-shore deep wells. But I think that gas prom is a wild fundamentally cheap play, but you truly have to have a stomach for that one. Because for a major gas producer, it’s one of the largest gas producers in the world, it is the cheapest by far on a fundamental basis. But I personally have not recommended it, and I have not bought it. But when you’re talking about wild ideas, I do know a lot of fund managers who are picking up distressed Russian assets, because of the whole fear of what the Americans will do with the sanctions on Russia. But a lot of the smart money I’ve been talking to don’t think that Americans have much pull there whatsoever. So that’s an interesting one there, to answer your question.
Future Money Trends: With Russia facing international sanctions, do you see any major potential effects on the resource market? I know Russia’s a big producer of platinum and palladium. They’re involved heavily in the uranium market, and of course they’re buying a lot of physical gold. Any implications in this that you see, that you’re keeping your eye on?
Marin Katusa: Well they’re a major producer of gold also. And people forget that China is the number one producer of gold in the world. So definitely energy will get more expensive, oil, gas, and uranium. Definitely gold is a place to be exposed to. So those are the four commodities that will definitely benefit, and also palladium and platinum as you mentioned earlier.
Future Money Trends: Marin, ultimately when people subscribe to your newsletters, like Casey Research, initially they’re probably subscribing to make money. But then they find out there’s a lot of educational material, things to improve your life. One of the stocks that we have talked about was one that Doug Casey, and Rick Rule, and you yourself, were taking a major stake in. And you had done some financing with them as well as bought shares on the open market. You actually said it was a screening by, you said, “even if gold was to stay around where it was, we were looking at something $0.50 to $5.” Well it did go from $0.50 to $1.40, we’re back now in the $0.80 range. It’s Brazil Resources that we’re talking about. I want to get your thoughts on it, and if you guys still have plans to accumulate more shares? And are you, Rick Rule, and Doug Casey still bullish on it?
Marin Katusa: Well yes, actually, we have been buying more of the stocks, so that answers that question. We will be buying more. We like these market pullbacks because it’s a good opportunity to add to our positions. In the resource sector it’s always important to remember that the number one rule is people, and everything starts at people. And like you said, we have a lot of info on our website. I created a list back in 2010 called the Casey Next Ten. It basically started from Doug Casey, myself, and Rick Rule, we’re very close. We’re partners on that stand point, we’re friends on a personal standpoint, and Rick’s my neighbor, literally we live right beside each. And we were talking one night and the big elephant in the room in the resource sector is, “who’s going to take over for all these old guys we were touching in the 70s?” Because of a huge generational gap – there was no money in mining in the 90s, in the 80s, there was no one in the 50s, and 60s, or even late 40s. So there was this whole gap, everyone went to the technology sector. So it’s very difficult to find exceptional people, never mind guys with experience who have built operating mines. Through my research, and being in the industry for over a decade, I came across Amir Adnani. And he’s on our Casey Next Ten list, and this is a guy that I have no hesitation saying will be the next Robert Friedland of our business. And I know Robert Friedland very well, he’s Doug Casey’s best friend. Robert talks about Doug all the time. And I actually think that Amir Adnani has more potential than Robert Friedland because when Robert Friedland was Amir’s age, he did not have the success that Amir has had. Now what has Amir done? He’s built one of the lowest cost uranium producers in the U.S, in probably the most difficult uranium market of the last 60 years. Not only did he deal with the global economic crisis, he dealt with Fukushima. That no other commodity has had to deal with that, and he still built… he’s growing assets. His Opsin plant has the ability to go up to 2,000,000 lbs a year, and it’s what I call a wisr – warm ISR. It’s a very low-cost producer when you compare it to global production costs. Then Amir, because of all of his work and his network, he partnered up with a guy named Mario Denaro, who is Mr. Brazil. This guy is connected, he specifically advises the biggest companies of brazil. There’s the President of Brazil, the Vice President of Brazil, and together they went and tried to build this company called Brazil Resources. Now, to build a company like that you need some money, and when I heard Amir was doing this, we approached him, and we’d become major shareholders and continued to support. His business plan is to go after developed assets, and buy them undervalued in this market, and that’s exactly what’s he doing. So today BRI has 4,000,000 ounces, a 43-101, which is in the Canadian markets, if an investor looks at investing in a company you want to make sure that those ounces aren’t just pie in the sky. They have a regulated, approved, independent report, and that’s called the 43-101, and that’s how the have 4,000,000 ounces. And I suspect that within the next 18 months, Amir will increase that by 50% and get to 6,000,000 ounces, which will make him one of the largest gold companies on the exchange. That is a massive feat. Plus a guy like Amir has a big following, and with his track record of building these mines, Amir will build this company to become a serious gold producer. But it takes time, people need to remember that you can’t just find gold and build the mine. You’ve got to permit it, you’ve got to do the engineering studies, you’ve got to get the money to do so, it takes time. But you make your money investing with the right people, and that’s what Doug Casey, Rick Rule, and I are doing with Amir and Brazil Resources.
Future Money Trends: Marin, let me ask you something, because of something interesting you just touched on. As far as Amir Adnani, knowing the right people and accomplishing things to get things done. Where he has a following now of legitimate institutional investors. I’ve heard you say that 5% of the geologists make all the discoveries. From your observation, is that success breeding more success? Because people are willing to give Amir, and these other geologist’s money, and is that what also adds to the success after the initial accomplishment was achieved in their careers?
Marin Katusa: Well exactly. Like if you go back before I got in to these markets, I used to teach calculus at a university. And I used to always talk about Pareto’s Law, or the standard normal distribution curve, or what they call the Bell Curve. And the reality is it’s just in every sector, whether you talk about professional athletes, or coaches, or business men, or directors. If you look at the directors that win the Oscar’s, it also follows a Pareto’s Law. Which is basically, 20% of the population has 80% of the success. Or let’s say if you want to talk about wealth, 20% of the population has 80% of the net worth or the area. Or 20% of the directors win 80% of the Oscars. Well, that’s the first curve. Now if you take it to the second deviation of that, you take the 20 of that 20, it basically ends up being that 20% of the 20% is 4%, and 80 of 80 is 64, so you end up having 4% of a specific population, whether it’s professional athletes, or business men, or directors, or actors, or whatever you want to choose your population to be. 4% have about 64%, or you can average it out to about 2/3 as a rule of thumb. So 4% of the people have about 2/3s of the success. And that’s where the comment that you’re saying, about 5% of the geologists have 2/3s of discoveries under their belt, and that’s exactly true. For example, I’m a director and founder of a company called Copper Mountain. It’s the third largest producing copper company in Canada. Well, the President and Chairman of the company is a guy named Jim O’Rourke. He’s in the Canadian Hall of Fame in mining, he’s got the Order of Canada, this guy’s a legend. But it’s ironic that he grew up in B.C, five of the last five copper mines built in the province, his fingerprints are all over it. Is that just a coincidence? No, it’s Pareto’s Law. And that’s exactly what we’re talking about with the Casey Next Ten, or even the Explorer’s League, which are the hall of fame guys, in their 60s and over, who’ve had three major discoveries. But that’s exactly what I’m saying with Amir. By 33, he built a producing uranium company. By 40, he’s going to build a major producing gold company. And if you look at all these legends, like Robert Friedland or all that, they did not achieve what Amir did at that time. And if you ask anyone, they said, “aw jeez, I wish I could invest in the next Robert Friedland.” Well that’s how Doug’s made hundreds of millions of dollars. You find the superstars in the business. But it takes a lot of guts to bet on that today. But if you understand, and do your homework, that’s how you make your big score in the business. Investing in the right people who, on top of that, are the largest investors in their own deal. And Amir’s put up big money because he believes in what he’s doing.
Future Money Trends: A lot of people will go in to something like this, and they’ll say they’re in for the long term. Then it goes down to 5%, 10%, and they panic. Let me ask you, I know you probably own a lot of different companies. Do you check the prices every day, or is this irrelevant when you’re buying a business?
Marin Katusa: Actually Dan I don’t own that many companies, that’s the irony. you don’t need to own that many companies. And no, I don’t check the prices every day. For example, when we talked earlier this year, I think it was in the first week of January we did a call. And you said, “Marin, the stocks $0.50, what do you think?” and I go, “look, this has the potential to easily double in a heartbeat.” And it did more than that, it went to $1.50 or something. And that’s irrelevant to me because I’m playing the long-term play here. When you finally find a Michael Jordan, are you just going to play him for one short road trip and three or four games, or are you going to build a franchise around that? That is the way investors have to think. I’m building a franchise around investing in BRI because of Amir. And you don’t find that every day, you can’t find a superstar like that easily. And when you do, you invest in it and you go long. And there’s nothing wrong with if your subscribers bought at $0.50 when we first talked about it, and they sold at $1.50, well that’s great. They made some money, but then are they going to buy back here now? Whatever their investment perspectives, that’s fine if they trade some of their position. But you have to have a core position that you just run with guys like that because you don’t find them very often. And when you do? Go long.
Future Money Trends: Marin, I want to touch on the resource sector in general. When you’re talking to a lot of these CEO’s in the resource sector, is there blood in the street now? Is that type of opportunity there, or have things stabilized from a year ago?
Marin Katusa: Well here’s the interesting, I call it the catch 22, Dan. I’m in the concrete jungle of Vancouver, where 90% of all the junior resource financings happen. There’s not a deal that doesn’t happen, that doesn’t come through our office. Because we have a strong track record, we have a lot of money right now, we’re cashed up. So guys need money, but the problem is those are the exact guys that need money because they screwed up, right? Now do you want to invest in those types of people? Or do you want to invest a company that could take advantage of the best assets, that are completely under-valued with the wrong management teams, and have that share appreciation through them? That is an interesting way of playing it. Because the problem is that yes, there is blood on the streets, but the management teams are still there that caused the blood on the streets. That over spent, that didn’t execute the right drill programs, that had cost overrun, that their rent is a bit too expensive, and they had IR, and they travelled first class, and they had all these types of extra costs. That’s why an investor has to be very careful going through the financials and seeing, “OK where is this money going?” You know how many finances are going on, what I call keep the lights on financing, of a half a million dollars, or a million dollars? What can you do with that? Nothing but keep the management’s mortgage payments going. I have no interest in paying lifestyle financings, I’m looking for franchise investments. When I try to compare to Michael Jordan’s, you can have a fantastic franchise and many, many, amazing victories when you find a champion that you can invest in. And that’s what we try to do, and that’s what the basis of the Next Ten List is, who’s going to be the next round of superstars? So I advise your viewers to be very careful. Just because things look cheap, they might be cheap for a reason. Whether the management’s not there, or there’s too much political risk, or the financing risk is too high. But everything starts with excellent people, I can’t emphasize that enough.
Future Money Trends: It was recently reported this week that 20% of U.S households have no one working in them at all. There are more people sucking from the big tit of government than that are actually employed in the private sector here. I’ve seen data, and you’ve probably seen it as well, of these ghost cities in China. My question is, with all the manipulation going on with U.S numbers, and with all the money printing and fake demand coming from China, is it a potential concern, or an elephant in the room in the resource sector, that these commodities could still be over-valued because of the artificial demand coming from China, and the fake numbers coming out of the U.S.?
Marin Katusa: Look this is something we’ve been writing about for over a year in the Casey Energy Report. I just got back from China, and I went and visited these areas, and it’s a real risk. Before it hit the mainstream media, we talked about how there is almost $175 billion of domestic corporate bonds that are coming due at the end of 2014 just in mainland China. There’s a trillion dollars of exposure of domestic bonds that have to be renewed in China by 2018. That’s a trillion dollars. So the default risk is definitely overhanging China. Now because the world is slow and intrinsically interconnected, the risk that it could hit the derivative market is very high. So for example, what is a derivatives market? Well most of the derivative market is just based, just like I was talking earlier about Pareto’s Law, what happened to Bear Stearns caused a huge ripple effect because when they went down so many leveraged positions, which is based on something elses value, that’s what a derivative is. It’s where is this value derived from, is from something else, and it’s basically leveraged plays. And if a major bond default happens in China, or it’s a major corporation or a major bank, if the Chinese government isn’t able to step in and save it the way the Fed saved Bear Stearns and mitigated the risk that could have happened, that risk is catastrophic to the global economy. Now do I think it will happen? I think that the global governments will get together, make sure that they try to step in and cover any major defaults, but the risks for smaller companies are there. So it’s almost as if the old saying, “too big to fail,” well that’s the reason that saying is there. Because the governments can’t have the major corporations, the major banks, default, because it will be catastrophic for everyone. But that’s why investors have to be careful what they’re exposed to, because the big governments won’t care about the smaller companies because that ripple effect won’t be as big. And it’s there to teach a lesson to everyone of what could happen. But then the derivative markets aren’t as regulated as the primary markets. So there is a lot of risk out there, and because we are in such a low interest rate market people are chasing yield. Look at the evaluations, utilities for example. We just published a report in our Energy Report saying what stocks to stay away from. Where a railway is getting 100 times earnings, a railway. That makes absolutely no sense, but it pays a 4% yield, it’s pretty safe. So people are over-paying by five times, I would argue even six times, for a 4% yield. That’s how desperate investors are for yield. But eventually someone’s going to get stuck holding this massive bomb on their hands. So I have to urge all viewers, as I’ve been doing to my subscribers, to be very careful, have trailing stops, and we’ve had an unbelievable market here. We’ve made a lot of money in our newsletter. And the key is to take profits, reduce your risks, mitigate your risks. And when you find your winners, go long because those guys are going to be the true champions in the long run.
Future Money Trends: Marin, a quick question as we close out. You’ve been to over 100 countries, I wanted to find out what your top picks are for countries for safe havens. Either to relocate your family, or just to relocate some of your assets. Outside of the U.S and Canada, there’s a big concern among many people including myself. So obviously we’ve seen what happened to this Nevada rancher. We know that the government can come down on you, and come down on you hard, with sniper rifles. So what are some safe haven areas we can run to?
Marin Katusa: This is something that Doug takes to heart and he spends a lot of time talking about. Doug has made a big bet on Argentina, Uruguay. He loves those places, he loves living there, and he’s got a lot of land and a lot of money invested in there. I think the way to answer that question is to find a place that you and your family enjoy going to. Don’t jump in anywhere head first, because most likely you’ll end up landing in a concrete pool with no water. Be very careful because it may sound great bor it might be great for your friends or whatever, But go on a vacation. Spend some real time there, but not in the hotel resorts. Go spend time with the locals, because eventually wherever you invest in you want to like the lifestyle of the locals. So the number one rule I have with that is, go and spend the time. Find out where you specifically, and your family, enjoy going. Enjoy the environment, enjoy the culture, enjoy the language. And there’s a lot of interesting places. I just got back from a major European trip, I visited six countries and I’ve been to all of them before, but things do change. For example, I was in Albania. The last time I was in Albania was about three years ago, and before that I was, I had been to Albania 17, 18 times. But it’s changed so much since 2005, and the growth is incredible. The city’s expanded, they’ve redone the roads. So you’ve got to find the place that you really enjoy, and also be careful about the tax situations, so do your homework. I was in Amsterdam and the Netherlands, I thought that was beautiful. I’m more of a coastal guy, I live in Vancouver. I have a lot of land in Croatia on the coast, on the water. So I’m a water buff, that’s what I enjoy, so that’s what I look for. My place that my wife and I have in the U.S is also on the water, I just enjoy being around water. So find out what you like, what your family likes, and go travel and have fun. Life’s too short, you never know when you’re going to have a heart attack, and things can change. So enjoy life, don’t worry about the little things.
Future Money Trends: Have you ever felt threatened in any of these countries, or uncomfortable that you don’t speak the language?
Marin Katusa: When I was wearing body armor in Iraq, looking at an oil well, I will admit that I was a little uncomfortable. When we were driving with our ex-French Foreign Legion security guys who have Uzi’s in their hands, were wearing body armor, driving around, not knowing where we might run over a landmine in a fully armored vehicle, I was a little bitt uncomfortable. And I don’t think I’ll be buying any land in Iraq. But I’ve been to areas in Kuwait and they’re beautiful, you just have to find where you are. And no, I’ve never really found the language to be a barrier. We’re very lucky that English is globally the primary language. And look, you could go to downtown Vancouver, or downtown LA, and be in the same bad neighborhood as Beunos Aires, Argentina. So you’ve got to have a little bit of street sense, don’t wear your Rolex’s or big diamond rings, don’t be flashy. Try to blend in and don’t look like a tourist, because you’re obviously going to be a target. So have some common sense, and also respect the locals and the culture locally, and you’ll be fine.
Future Money Trends: You’re right about LA. I’ve done a lot of thought about doing some funny reality TV show videos, where I get dropped off in one of these ghettos in Los Angeles counties. And then me, and maybe another person, have to make it out. To make it fun you have hundred dollar bills taped or glued to your clothes. That or being dropped off in a forest. Anyway, Marin Katusa, thank you so much for joining us.
Marin Katusa: Always a pleasure Dan, take care.
Future Money Trends: He’s from Casey Research, that’s caseyresearch.com you can subscribe to their free portion or paid members’ newsletter, which they have several different levels. You can get some of Marin’s picks and regular updates at that site.
