This is going to work out very badly and I’m afraid we’re going to see World War III…
From Sprott’s Thoughts:
I had the opportunity to catch up with the legendary investor and world traveler, Doug Casey, at his winter home in Punta del Este, Uruguay.
As a speculator, Doug is always seeking opportunities to capitalize on government-created market distortions. So, I took full advantage of the opportunity to ask him about the new president and the impact his policies will have on the economy.
In particular, I focused my questions on two controversial areas: immigration and tariffs.
It was a fascinating conversation. I know you will enjoy.
Also, I’d like to remind you that Rick Rule will be a featured speaker next month at the annual Investment U Conference hosted by our friends at The Oxford Club.
Please register before February 20th to receive the best rates. Click here for more information.
Interview Highlights (edited for readability)
Albert: My guest now is Doug Casey, founder of Casey Research and the author of several bestselling books including Crisis Investing and the International Man. Most recently, he’s known as the author of Speculator, a fictional adventure and moral defense of the art of speculation and those who engage in it. He joins us today from Punta del Este. Doug, thanks for coming back on the show. How are you?
Doug: I’m good, Albert. And I suspect better than most people that are suffering snow and cold in northern climes. Right now, I’m on the beach in Uruguay. I think you can see it out there.
Albert: You treated me to that view just earlier, magnificent. And, you know, I have to hand it to you, Doug. Most people when they say they’re going south for the winter, they’re talking about Yuma, Arizona or something, not the southern hemisphere, certainly not where you are. Looks just magnificent. And the other thing is you’re the only one I know who, just to have a cup of coffee or beer with, I have to engage in a geography lesson.
Doug: Well, I think it’s incumbent upon all of us to make the world our oyster. It’s a tiny little planet unfortunately, so that people who act like potted plants and just stay in the area where they were born… I think they’re making a tragic error.
Albert: So, today is January 30th and we have Donald Trump and he’s starting his second week as president, and just unleashing a wave of executive actions from immigration to rollbacks of certain legislation. The types of things that you talked about, although you call them market distortions and I certainly think that’s what we’re seeing here. And the thing about this president is the market distortions go down to individual companies as he decides to “tweet” them out. I’m guessing that you see a ton of speculative opportunities based on just the hands-on approach the President is taking.
Doug: It’s not easy at the moment because—let’s look at what he’s doing. First of all, I think tactically, he’s very, very smart in doing lots of stuff and doing it quickly. So he’s actually outrunning these talking heads on the news networks where he does things so fast that they can’t get any mileage out of it. I mean it’s one thing after another after another. So this is very smart. It doesn’t give them time to harp on these things.
Secondly, most of the things he’s doing economically are good. He’s getting rid of regulations. He’s setting the right tone for the country. This last Christmas was the first Christmas I can remember since I was a kid when it was actually okay to say “Merry Christmas” to somebody. So, he’s changed the social tenor of the country to some degree and I think that’s a good thing. On the other hand, you know, he wants to—he wants to—
Albert: Well, the immigration as an example.
Doug: Well, that’s an example and that was done very inappropriately, very poorly inconveniencing a lot of people that shouldn’t have been inconvenienced. So, it’s a mixed bag and, of course, he wants to put a tariff on everything that comes into the country too—he thinks that’s going to make America great again, which it’s not. It’s more likely to act as something that’s like the Smoot-Hawley tariff in the ‘20s bringing on the “Greater Depression.”
So, I think Donald is going to be a one-term president for a lot of reasons and I think he could go down on the books as another Herbert Hoover who, incidentally, is promoted as being a free market laissez-faire president, which is the opposite of the truth. He was a disastrous president. But it was to Roosevelt’s advantage when he took all of Hoover’s ridiculous programs and put them on steroids to paint Hoover as being free market. This is going to work out very badly and I’m afraid we’re going to see World War III. I hope Trump isn’t the direct cause of it, but very scary.
Albert: And you know interestingly, or paradoxically, the solution to all of this is supposed to be more spending and this is going to happen through infrastructure projects. But none of this can happen without the Central Bank’s involvement I think because borrowing will be difficult. They certainly don’t have it. Taxing it is not going to be an option either. What is your near-term outlook for the U.S. dollar?
Doug: Well, all these currencies are going to reach their intrinsic value and the question is what’s their intrinsic value? I would say basically zero. It’s your unsecured liability of a bankrupt government. So it’s a question of which one reaches its intrinsic value sooner. The inflation figures, cost of living figures that come out of Washington, are only marginally more accurate than the ones that used to come out of Argentina. It seems to me, just my anecdotal observations, that prices are going up much faster than is indicated by these figures.
So, I don’t know. I speculate in these currencies from time to time. When one looks really cheap or really dear, but—you know, Albert, I just like to buy gold and buy silver every month and put it away in cash form. I mean that’s my answer I guess to the currency situation.
Albert: And that plays into your long-term view, and it’s the same as mine, that the dollar has nowhere to go but down. In the meantime, though, who knows?
Doug: Well, we could have a deflationary collapse. That’s entirely possible. And at that point, what would happen? Stock market crashes (trillions of dollars of value are wiped out), the bond market collapses with higher interest rates (erasing trillions of dollars of funny money value), banks collapse. Maybe the U.S. government can’t bail them out fast enough. So, if that happened, we could have a deflationary collapse and the dollars in your possession would be worth more because there are fewer of them out there. I think that’s the last thing they want to see happen, a redux of what happened in the early ‘30s.
Albert: Absolutely. They also don’t want to see hyperinflation either. What are your thoughts on that scenario? Certainly, it would be an accident like a nuclear war if that happened.
Doug: Well, it’s unbelievable the amount of currency units that they’ve printed up over—since the prices started in 2007 and they are still printing them up, and the U.S. government is going to have bigger budget deficits. On the one hand, one of the good things about Trump is as he cuts these regulations—I believe he’s succeeding in getting rid of them—the economy could do much better. But when you cut these regulations, you’re breaking somebody’s rice bowl that is relying on those regulations. So he could cause, by doing smart and good economic things, some serious bankruptcies among the people that are relying on these regulations.
So, I don’t see any way out at this point. I really don’t. But the good news, and I think we probably talked about this last time, is that the average person even if he’s economically ignorant still tries to produce more than he consumes and save the difference, looking out for his own welfare like a reflexive genetically programmed manner, number one. And number two, advances in science and technology which are continuing.
So, regardless of all this incredible and dangerous government stupidity, things are continuing to get better. You know, I think that the assumptive manner is going to continue regardless of the greater depression or, God forbid, World War III. I mean what’s the most likely place where World War III could start at this point? My guess is the U.S. government provoking the Chinese government by sending aircraft carriers right off its coast. It’s about as provocative as if the Chinese government sent its navy off the California coast. I mean who knows what could happen.
Albert: Doug, if you want to say one thing good about Trump, I would say that he has the instincts of a capitalist even though he’s a politician now. He does still have instincts of a capitalist and you sort of see that in his language and some of the things he’s trying to do, the regulations he’s trying to remove in favor of business. But what are your thoughts in general of running the government like a business? Every so often, someone comes up and says they’re going to run the government like a business and that’s exactly the way Trump appears to be behaving with all of these press conferences and whatnot. He looks like the chairman of a holding company—federal government holding company with the 50 states as subsidiaries. What are your thoughts in general of that arrangement or that attitude?
Doug: Now, as far as Trump trying to run the country like a business, first of all, the government shouldn’t be running the country and it’s not—I mean I understand he’s trying to act efficiently as an executive and so forth, but it shouldn’t be doing any of these things. It should just do the 3 things that I mentioned earlier. But, within the context of the current corrupt system, which I totally disapprove of, yeah, I suppose he’s doing the right thing. If you look at it within the current parameter of what people idiotically think is correct, yeah. There’s no fun being clear or not.
Albert: All right, thank you very much, Doug. And before we go, I just want to let the viewers know, you’ve been very vocal about wanting to see Doug more on this show. Seriously, Doug, they can’t get enough of you, even the people that don’t like you are always on commenting. So you’re definitely a big draw. And I’m really happy to announce that Doug and I have been talking about starting a podcast together and I want to gauge your interest. So, Doug’s time is very valuable. He’s interested in doing it, but please let me know if that’s something you’d like. We shoot for once a week and we’d—this would not be a market podcast, though. We’d be talking about all kinds of things—philosophy, speculating, topics that he’ll be covering in his books, in his fiction books. Doug, anything you want to say about this collaboration that we’ve discussed?
Doug: I think it’s got a lot of potential, Albert, because I think we will use it as a jumping off-point for it something that’s been done recently that I think is some of the best writing and most interesting thoughts since Shakespeare, which is quite a mouthful. Incidentally, the other thing I’ve been reading is some Sherlock Holmes stories which are not part of the Sherlock Holmes canon. They were written by Sir Arthur Conan Doyle but are not generally included, so I’ve been reading those too and I’m a big fan of Sherlock Holmes in his now many, many reincarnations on television and movies. But at least initially, we’ll be talking about something other than Sherlock Holmes too.
Albert: Right. So, please let us know if you’re interested in that. The best way to keep informed would be to contact me at [email protected] or follow me on Twitter @AlbertKLu. Have news on that shortly. Doug, before you go, where are you going to be traveling to in the next few months?
Doug: Well, regrettably, I’ve got to leave the beach here in Punta and leave Estancia de Cafayate in Argentina, which is where I am when I’m not here. I’ve got to go to Miami for a business meeting for 4 days next week. But other than that, I’m just going to stay here in South America because it’s peaceful and mellow and inexpensive and the weather is good this time of year. Everybody should be down here. But if everybody came down here, it would be like Calcutta or something. So maybe that’s not such a great idea.
Albert: [laughs] OK. So I guess we’ll have to wait for “Casey’s Comet” to circle back to the Northern Hemisphere sometimes in the spring or summer.
Doug: That’ll be great, Albert.