From UK to China direct freight trains to massive hydro-dam construction in Laos, things are moving along quickly on the Silk Road…
by Justin Spittler via Casey Research
Justin’s note: Yesterday, Doug Casey explained why he thinks commodities as a group are about to take off—and why it’s presenting the best buying opportunity since 1971. If you missed our interview, catch up right here.
As I told you, Doug’s so bullish that he’s launching a brand-new product around this idea. Today, I sit down with the editor: David Forest, a true commodities expert who reveals even more proof that the sector is setting up for a monster rally…
Justin: David, tell me a little bit about yourself. What’s your background?
David: I began my career as a geologist almost 20 years ago. So, my background’s technical.
And I worked in the industry in all different aspects (oil, gas, mining, environmental, etc.)
I got involved in the investment side when I started working with Casey Research.
I started the energy newsletter in 2004. So, I learned the investment side and traveled around the world.
For example, in 2005 I went to Russia to look at a little-known oil company called Valkyries Petroleum—which shot up 186% over the next year, after I advised buying the stock.
After Casey Research, I went out and did a number of my own projects.
Justin: What kind of projects?
David: We developed a 10-million-ounce gold deposit in Colombia. And we raised about $80 million on the equity market score.
I then continued to travel and look at projects.
Justin: Where has your work taken you?
David: I’ve been to pretty much every continent.
Just in the last few months alone, I’ve been to Myanmar, Brazil, Mongolia, and Colombia.
Justin: David, how does your traveling help you identify investment opportunities?
David: It exposes me to things I’d never know about if I just sat at my desk.
For example, I’ve been traveling to Asia a lot recently.
And China is all over this massive infrastructure project called the New Silk Road. You don’t hear much about this in the United States. But it’s a huge deal.
They’re committing trillions of dollars to building railways, ports, and roads spanning all the way from Shanghai to London. They recently just sent the first locomotive to ever travel from Shanghai all the way to London via the routes that have been hooked up by this Silk Road funding project.
When you look at the amounts they’re spending, it’s astronomical. You ask yourself, “Why are they doing this?”
And when you dig into it, you realize that they’re doing this to secure supply.
They’re looking at these things and going, “If we build this, we can bring phosphate back. We can bring copper back.” All these things are designed to bring resources back to the homeland.
If they’re spending that kind of money to secure resources, what do they know that we don’t? Why are they so desperate when the rest of the world is pretty ho-hum?
So, I’ve been thinking a lot about these things lately. So, when Doug said, “I think something’s happening in commodities,” I said, “I think you’re right.”
Justin: So, traveling helps you see the big picture?
David: Yes. The New Silk Road isn’t something you learn about by just reading the news on your computer or watching it on television.
But you see it firsthand if you visit Asia.
I was recently driving down a highway in Laos and I saw a thousand-megawatt massive hydro dam being built by a Chinese company. You drive another 10 kilometers and go, “Oh, here’s another one.”
So, there’s just all this stuff going on that most people don’t know about. But you can’t help but notice it when you’re there. So, travel is important for that.
Justin: Do you also visit individual companies?
David: Yes. I also travel to look at the specific projects and companies that we recommend.
It’s critical to go out and look at what these companies are doing and meet the people behind these projects.
People are a big part of the success. Often, they’re the principal assets of exploration companies particularly. So, you need to know that you’re investing in good people. You need to have confidence that these people know what they’re doing.
Spending time with them in person is the best way to figure that out.
Justin: How does your technical background serve you?
David: As a geologist, I spend a lot of time looking at rocks.
I spend a lot of my personal time evaluating resource projects around the world for myself.
So, looking at them for other people is instructive. Looking at the ones that other companies have that we might want to invest in is also instructive.
You can tell a lot by getting out to a site.
Are the local people in favor of it or are they throwing rocks at you? Is there a road nearby or is it eight hours by helicopter away? What does everything look like? You really get a lot of scope by going and looking at these.
Justin: So, you worked for Casey Research for a few years. Then you did your own thing. And now you’re working with Doug again.
How’d that come about?
David: So, I was talking to Doug a while back. And he was telling me how enthusiastic he was about another big commodity cycle that’s just getting underway.
Commodity prices throughout history have been reliably cyclical – they rise and fall significantly over timeframes of a few to several years. That’s because when prices go down, producers go out of business. Eventually supply contracts to the point where there’s a shortage, and then prices rise. New producers eventually start up, and finally there’s an oversupply. Then prices fall, and the cycle starts over.
The last commodity cycle started in the early 2000s.
Back then, gold rose from below $300/oz. to over $1000 by 2008. Crude oil soared from $20 per barrel to over $140. Copper went from below $1 per pound to as high as $4.
Justin: And Doug thinks the next commodity cycle is underway?
David: Yes. And Doug has sense for these types of moves. He’s been very accurate in the past, and made a lot of money for himself.
And something is tweaking his radar right now. He was telling me “I really think all these things are really cheap.”
Justin: Just how cheap are commodities right now?
David: When you look at spot prices of commodities, they’re not just cheap. They’re historically cheap.
The real breakthrough came when we plotted commodities prices against stocks.
In other words, we looked at how expensive commodities are relative to stocks.
There, the message is screaming. Just look at this chart.
This shows that commodities are the cheapest they’ve ever been relative to stocks.
Justin: Interesting. It doesn’t sound like you expect them to stay cheap for much longer.
So, has the next commodity cycle already begun? Or is it about to get underway?
David: I think we’re in the very early innings.
It’s now starting to happen in India. There’s incredible demand for raw materials.
And yet, commodities are still some of the cheapest assets on the planet.
This is just not a tenable situation.
For the Chinese and Indian people to have the supplies they need, commodities prices have to rise. You need higher prices to support development.
But capital isn’t being allocated to the resource sector. It’s going into all these places that are generally not productive.
So, Doug and I see a real supply crunch coming for many commodities.
And if we’re right, the next several years should be very exciting.
Justin: Great stuff. Thank you, David.
David: My pleasure.