I had the chance to sit down recently with Rick Rule, Chairman of Sprott US Holdings, and Doug Casey, Chairman of Casey Research. It was a fascinating interview.
Speaking to their long-time business friendship, Rick explained that, “[Doug and I] have spoken at conferences together all over the world…We’ve seen lots of preposterous companies. We’ve lost some money together and we’ve made a lot of money together. It has been a great ride for three decades.”
When asked about the habits that create wealth, Rick added that, “[To generate wealth], as Doug says—you [first] have to save. You have to create more wealth for other people than you consume.”
Conversely, the opposite is true when a person or a society consumes more than they create. Wealth and savings are destroyed.
In the case of the United States, currently the largest debtor nation in the world[i], Doug noted that, “I don’t know exactly when the ultimate crisis is going to occur but I think it’s on the way…It’s going to be interesting to watch.”
That crisis may carry, “The punching power of George Foreman,” Rick added.
Here are Rick and Doug’s full interview comments:
Tekoa Da Silva: Rick, Doug—we got together over the summer at the Sprott-Stansberry Natural Resource Conference in Vancouver. What were your thoughts coming out of that conference, in terms of what you were seeing and hearing from investors and companies alike?
Doug Casey: Well, I thought it was excellent to have a resource conference close to the bottom of the market. Usually conference organizers just have them close to the top of the market when everybody is interested in resources.
But nobody is interested in natural resources today. They’ve been going down for over three years. So this is the ideal time to have a resource conference, when nobody wants to hear about it.
I gave a speech at that conference entitled, “Why Mining is a Stupid 19th Century Choo-Choo Train Business” (click here for MP3 access). In that speech I gave six reasons why that’s the case.
Afterwards everybody was very depressed, and so I gave them four more reasons why no companies currently in the mining business will be able to mine the same way in the future. The mining industry is going to be overturned the way Tesla is overturning General Motors and Chrysler. But much more seriously. Everything is going to be changed. That’s my belief.
Rick Rule: Doug has the advantage of being a ‘seer’ and I’m a ‘risk-adjusted net present value’ guy. The fact is the resource market is down by 90% in real terms. That means it’s 90% more attractive than when the narrative was popular.
I like to believe that we are at or near the bottom. But “at or near” could be 18 months from now.
The truth is that when a market can go up by 1000% in real terms—if you’re 18 months early, that’s enough rent. I’m okay with that.
I’m proud that we managed to attract 520 intelligent contrarian investors in Vancouver, at the bottom of a market. That attendance astonished the speakers and exhibitors, and frankly it astonished some of the other attendees. It’s probably credited to the strength of the speaker roster and I hope the strength of the Sprott brand in the context of contrarian investing and global natural resource investing.
It’s interesting that Doug noted the transformation of mining and Tesla. I have been informed that Tesla as a consequence of their use of specialty metals and rare metals, has formed a subsidiary not operating yet called Tesla Exploration. So it will be interesting to see what fresh minds bring to the industry.
Tekoa: You two have been friends for decades and have been investing together for decades. What have you learned from each other and what have you observed along the way?
Rick: We have three decades of being friends and business colleagues and I remember very well meeting Doug on New Year’s Eve, I suspect it was 1985. We cynically discussed the Vancouver Stock Exchange and became fast friends. We probably co-invested three months later.
Back in those days we spent a lot of time interviewing companies together, it was sort of a ‘Mutt and Jeff’ act. We spoke at conferences together all over the world and that was fun. We met a lot of interesting people.
We saw lots of preposterous companies. We lost some money together and we made a lot of money together. It has been a great ride for three decades.
Doug: Yes. Rick has come up with some wonderful deals over the years. And he’s much tougher dealing with these company people than I am—I guess I would be the good cop and he would be the bad cop.
Rick: First time in my life. I remember interviewing a company together and I was asking my normal pedantic questions about the income statement, operating cash flows, and geology…and Doug says, “Let’s get out of here,” right in the middle of the interview.
I said, “What?”
He said, “Look right here,” pointing at a brochure. “These guys don’t own any stock. If they’re not going to make themselves rich, why would they work hard enough to make us rich?”
All the questions I asked were superfluous. Doug got to the heart of the matter right away.
Tekoa: Any hard lessons learnt come to mind?
Doug: Well, don’t get too “long.” There was the crash in 1987 (which is ancient history at this point) and I was long probably an illegal amount of commodity contracts.
It was the summer of 1987. Gold went up and gold stocks held steady during the crash at that time. I thought, “Oh, a financial calamity. Gold and gold stocks are going to explode upwards.”
Well, they all collapsed the very next day. So my losses were redoubled and I spent the next day in bed, shocked at what happened to all my money. That was a learning experience. But that stuff happens.
Tekoa: What do you two see as the sources of wealth creation and destruction?
Doug: For wealth creation the most important thing is this—and the average human understands, the way a squirrel understands, that you have to save nuts for the winter. It’s genetic.
So the average Joe tries to produce more than he consumes and save the difference. That builds capital. That’s how the world at large becomes wealthier.
There are also more scientists and engineers alive today than have lived in all earth’s history combined. So when they deploy that capital they can do magic things.
So that’s cause for optimism. That’s wealth creation.
On the other hand, you’ve got the ‘state.’ It’s the most stupid idea humanity has ever come up with. Formalized bureaucratic governments are very active in destroying wealth. Who’s going to win? I don’t know.
Rick: In terms of originating wealth, I think there are a few things. You have to show up. You have to get up, go to work, and take chances.
You can’t sit back and let it come to you. At some point in time in your life, somebody is going to open the door for you and you got to storm through it and take the opportunity.
Then as Doug says—you have to save. You have to create more wealth for other people than you consume.
What has worked well in my life is making rich people richer. Rich people have a sense of money. They don’t care how much you get—as long as they get enough. So that has worked really well for me.
The final thing is—don’t set out to become rich. Set out to create utility. If you create value and focus on product—not the price or the margin—everything else is going to take care of itself.
It becomes really easy when you develop specific knowledge and utilize it doing something you enjoy, to create utility. If you enjoy doing something, you’re going to do it well.
When I get up in the morning I can’t wait to get to work. I don’t have a job. I have a calling.
I would advise young people to try and figure out what their calling is. Don’t worry too much about getting rich. Find something that creates lots of utility for other people. Find something in which you don’t just beat the competition—you annihilate the competition. The money will take care of itself.
Tekoa: I’ve heard some great stories of wealth creation; The entrepreneur starting out buying flowers wholesale and selling them individually, or the person selling single cigarettes, only to build a large enterprise.
What are some of the more inspiring stories you’ve seen?
Rick: Well, a keynote speaker at Sprott-Stansberry Conference was Robert Friedland. He is an extremely intelligent gentle hippie who became a billionaire.
In fact, he became the most successful mining entrepreneur of his generation through extraordinary hard work and thinking differently than other people. And being very smart.
That’s pretty inspiring. He didn’t have any technical background in mining. He didn’t have a commercial background. He just set his mind on something that fascinated him.
But he became extraordinarily good technically. Anybody who suggests by now that Robert Friedland doesn’t know much about geology doesn’t know much about Robert Friedland.
But that would certainly be an example.
We live in California now Tekoa. There are assemblages of young people (sometimes so young), they aren’t even pimple-faced yet. Geeks that get together in a garage and create something like Google.
Astonishing fortunes are being created because young people are very smart and they don’t put up barriers to their own success. They succeed spectacularly and make the world a better place in the process.
Doug: I completely agree with that. I’m very optimistic about the current generation of young people.
Tekoa: Doug, what are you most excited about from a speculator’s standpoint?
Doug: Well, I’m excited that this might be the bottom like Rick was saying. So I hope to make a lot of money in the next few years by owning good assets. I’m excited about that.
But what I’m really excited about is a series of politically-incorrect novels I’m writing.
The first one is called “Speculator”. It is a fictional debrief of the mining industry, gold and money, within the context of a giant mining fraud in West Africa. A political revolution follows—which is actually one of my hobbies.
I enjoy running around 3rd-world countries (preferably run by military dictators) and counseling them on how to turn their nothing-nowhere country into Singapore on steroids. So that’s one of my hobbies. I’ve been doing it for 30 years now with zero success but next time will do the trick.
Tekoa: An ongoing conversation we’ve had is the global debt and financial imbalance. How do you two see this playing out?
Doug: Well, one of my other hobbies is reading ancient history, the Romans, Greeks, etc. What I find is that everything has a life cycle—human beings, countries, empires, whatever.
The 2nd second law of thermodynamics is all about entropy and decay. That affects human creations as well as the natural world.
It is apparent to me that the U.S. is past its peak and the decline is accelerating. So I don’t know exactly when the ultimate crisis is going to occur but I think it’s on the way.
I like to describe it as a gigantic financial hurricane. We entered the leading edge in 2008-2009.
We’ve been in the eye of the storm for the last few years but we’re going to go through the other side. It’s going to be bigger, different and much worse than what we saw going in.
So I anticipate that in the near future.
But what happens afterward—I don’t know. Everything these idiotic governments have done has caused the problems to start with. Everything they’ve done in recent years has not just been wrong—but the opposite of the right thing.
So this is going to be interesting to watch. I hope from my point of view it will be free entertainment, because I will be watching from my wide screen in the countryside of Argentina.
Rick: Doug left me a lot of room to be less pessimistic. While I am less pessimistic than he is, I do think we have a reckoning coming. I think the reckoning will be unpleasant.
They used to describe the punching power of George Foreman as, “severe but survivable”.
That’s the situation I see in front of us—as no fun for most people.
Ironically I see it as a lot of fun for me. Not because I enjoy the misfortune of others, but because I’ve been more prudent. There’s also a part of me that feels a reckoning is deserved.
But longer term, I’m much more optimistic.
While I share Doug’s distaste for government, I would call attention to the fact that these people have lost the War on Drugs. They lost the War on Poverty. They lost the war in Vietnam. They lost the war in Afghanistan and if they declare war on freedom which they’re doing now—I suspect they will lose as well.
The idea that ultimately the government is going to be able to defeat Doug Casey and Rick Rule, never mind your generation which started off as much more cynical—I don’t buy it.
If I had to bet on one side or the other; Obama versus Tekoa Da Silva, my money is on Tekoa.
Doug: I totally agree with Rick. The future will be better after we go through this crisis. Not only better than we think but hopefully better than we can even imagine.
The next step is mining asteroids and going to other planets.
Maybe Ray Kurzweil was right. In 20 years we will experience singularity and all of these trivial problems will disappear. We will have other problems at that point. So I feel pretty good about the future.
Tekoa: Doug Casey, Chairman of Casey Research, and Rick Rule Chairman of Sprott US Holdings, thanks for sharing your comments with us.
Rick: Thank you. A pleasure.
Doug: Thanks Tekoa.
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