Doug Casey: "We’re Really Close To The Edge of The Precipice”
By January 3, 2014– Published in on
During a time in which global equities markets are at dizzying heights and global wealth disparities at historical extremes, Doug Casey, Chairman of Casey Research, was kind enough to share a few comments on wealth and markets.
Beginning on the subject of wealth creation, Doug noted that, “[Starting from scratch], anybody can become wealthy [today]…it’s [just] a question of developing good habits and doing those things.”
“Most of your spare time [however]…should be devoted to educating yourself,” he further explained.
Here are his full interview comments with Bull Market Thinking’s Tekoa Da Silva:
Tekoa Da Silva: Doug, I’d like to ask you about a few concepts related to money. The first one is—how do you view wealth? What is it and what leads to it in your opinion?
Doug Casey: Well, that’s a broad and interesting question. First thing I’d say is that there’s not a fixed amount of wealth in the world. It grows constantly and it’s a product of human actions. So it’s not a question of there being a fixed amount of whatever is there. It’s a question of creating goods and services for other human beings. I mean that’s the essence of it.
So barring state action, barring the intervention of the government that says you must do this or you can’t do that, anybody can become wealthy and in fact, everybody can become wealthy simply by providing goods and services that other people in the marketplace want.
TD: To ask the opposite of that question—what is poverty? What is that and what leads to it in your opinion?
DC: Well, in my view, there are two elements to it. Outside forces and internal forces, when we’re dealing with a person. Internally speaking, a lot of people have bad habits. They would rather watch TV or they would rather drink or they would rather sit around and BS with their friends, and that’s easier than going out and producing something and doing things that other people want you to do, which they would voluntarily give you money in exchange for.
So the fact is that most poverty (or a lot of poverty) is internally driven, and it’s driven by bad habits. I mean that’s just a fact. But there are external reasons for poverty too. That’s mainly the intervention of the state. Let’s take Haiti, the poorest country in the Western hemisphere.
Sure, plenty of Haitians have developed bad habits because they’ve been corrupted over the years. But in Haiti, it’s extraordinarily hard to start a business. You need licenses if you’re going to do it legally, lots and lots of licenses with lots of bribes and fees. If you don’t go out and get those licenses and pay those fees, the police will try to shake you down and steal from you or maybe beat you up and put you in jail.
So that goes a long way towards squashing entrepreneurial activity in Haiti. That’s one of the reasons why Haiti is as poor as it is. Well, there are lots of other reasons too. The government makes it impossible to import anything, impossible to export anything and whatever wealth is there in the country, they always skim a lot of it off the top to pay the people that are in the state.
So those are the two reasons for it. But you don’t have to be wealthy. [For] a lot of people, there are things that are more important to them than money and I don’t hold that against them as long as they don’t cost other people something because they think other things are more important than money.
But there’s no mystery to it and you certainly don’t need complex mathematical formulas and so forth that econometricians come up with which is basically a delusion and a waste of time. That’s my short answer anyway.
TD: If poverty Doug is led to by the loss of certain habits, to go back to being wealthy—on a micro level, what might those habits look like if you were to maybe break them down into little movements and thoughts each day?
DC: Well, it seems to me that the most important thing is to always keep in mind, if you want to become wealthy, what good or service can I provide to other people that they’re going to pay me for?
That’s the number one thing to keep in the back of your mind. But in order to be able to do that effectively, you have to have skills and you have to have knowledge. So most of your spare time if you want to be wealthy should be devoted to educating yourself, how to make something, becoming an expert in some area, cultivating some ability that’s of value and you have to be diligent and you have to work hard in order to do that. So it’s really not rocket science. It’s a question of developing good habits and doing those things.
TD: At what point Doug, did you begin to recognize these things you’re talking about right now, in terms of choices that people make with basically their free time which really impact what they become as a productive person? Was that during your time at Georgetown University?
DC: Well, it was earlier than that because when I was a kid, I mean I would do things like shovel snow in my neighborhood in Chicago during the winter and try to do odd jobs and things like that.
But I don’t attribute my time at Georgetown to – look, in fact, I try to counsel young people not to go out and misallocate four years of their time and a whole bunch of money to be inculcated in incorrect and useless ideas by professors who have very little knowledge of the real world and most people that go to college today don’t even take something like a hard science or engineering or mathematics, something like that. They take ridiculous things like English Literature, which is something you should learn on your own or History that you should learn on your own or Gender Studies which is not worth learning.
They wind up with a huge amount of debt going to college and everybody has a college degree today and something that everybody has generally isn’t very worthwhile having. So I suggest to anybody that asks me, is to sit down for a minute. Think of what you could do with those four years and let’s say $100,000, to pick a number, which could be an underestimate today.
What would you do with that time and money to improve your station in life? It’s not go off to a university like all these automatons do. You get a degree that has very little value in most cases. So I really put that on the top of the list for anybody that’s thinking about it.
It used to be that going to college set you apart from everybody else. Very few people had college degrees and actually in the past, college degrees were more rigorous than they are today. But things have changed.
TD: Doug, you’ve used the analogy in the past that there are a number of ways “up the mountain” so to speak, again on this subject of becoming wealthy. When you think back on the people you’ve met in business, what are some of the most efficient pathways you’ve seen some people take to get up the mountain throughout your career?
DC: Well, in my case, I started out as a salesman. At that time, I was brokering medical insurance and my clients became law firms and I specialized in talking to lawyers because most people are afraid to talk to lawyers and most insurance salesmen quite frankly aren’t very technically competent and can’t read the contracts that are put together.
So I would speak to lawyers and get court cases on the different contracts to which in those days there were scores and scores of them. It was like shooting fish in a barrel for me. Then I became a stock broker and I approached that with the same methodology.
But the insurance game is a dead duck at least in the United States today and stock brokers are on their way out for lots of reasons as well. So I don’t know. If you want to make some money, what do you do? You follow your nose.
Look, when I was a kid, the first thing I wanted to be was a paleontologist, [studying] dinosaurs and ancient animals. Then I wanted to be an archaeologist and I wanted to be a geologist. I used to read a lot in those areas.
So the way I got into the business, is when I got interested in money later on. I learned about the nature of money, gold, silver, things of this nature.
I put that together with my propensity for geology and one thing led to another. I got into the mining finance business. So it can be a variation of that theme for anybody. Who knows? It could be computers for somebody. It could be architecture or mechanics for somebody else. I don’t know. But the key is knowledge and skills. You’ve got to develop knowledge and skills to make yourself unique.
TD: Doug, of all the people you’ve met in your life, including those that are incredibly wealthy or in positions of power, what are some of the most disastrous pathways up the mountain that you’ve seen some of these people take? Whether they compromise themselves or other people along the way…
DC: Well, I lived in Washington, D.C. for quite a while after I got out of college and of course that’s the epicenter of the beast, of the government in the U.S., and almost everybody in and around Washington D.C., if they’re not employed directly by the government, they’re employed indirectly by it, by some NGO or some consulting firm or law firm that only has an existence because of the government. So I would urge people to stay away from the government. Why? Sure, that’s where all the money is, like Willie Sutton the famous bank robber said. They asked him, “Well, why do you rob banks?” He said, “Because that’s where the money is.”
Of course people go into government very much for that reason today but you’re going to have to live with yourself in the long run. I think everybody is happier if they do something that they really want to do. Does anybody really want to work as a cog in a bureaucracy, working for a government or some entity that’s working around the government? I think not.
You want to be productive to produce something that is real. So a lot of people are drawn to the government because they’re always hiring, it’s the one area of the American economy that’s [always] expanding. But I say stay away from it. It’s poisonous.
So a lot of this stuff is process of elimination and don’t allow yourself to be corrupted by working for the state. I mean that’s number one I think.
TD: Doug, what groups of people do you come across that carry and demonstrate values and philosophies that you think a lot of us reading can learn from?
DC: Well, I prefer the company, everything else being equal, of other libertarians. I like people that have done enough thinking about the world at large that they don’t believe in initiating force or violence against other people and that’s a good place to start.
So I tend to seek out libertarians. That’s kind of number one and they’re everywhere. It’s a psychological mindset. I’ve come to the conclusion that libertarianism might actually be a genetic modification of some type, which actually is a pity because although most people are peaceful and perhaps libertarian-oriented, I’m not sure that many people actually understand it from an ideological point of view and think that way. But wherever I go, I like to hang out with people like that, other libertarians.
TD: To ask about the investment marketplace—gold, natural resources, do they look interesting to you here in terms of drawing you in for participation? Are you looking at them actively?
DC: Well, I’ve got to tell you Tekoa that gold as we speak now, let’s say at $1250….It impresses me as very reasonable value – I mean it’s not the giveaway that it was 10 or 12 years ago because back in 2001, at $250 an ounce, gold was cheaper in real terms than it was in 1970, at $35 an ounce if you deflate the dollar realistically.
So it was extraordinarily cheap, but now it’s very reasonable. And with the economy on the edge of a precipice—it could have gone off the precipice in 2011 quite frankly, or 2012—or it could have gone off the precipice in just this year, 2013. But I think we’re really close to the edge again. I like to use the analogy of what started in 2007 as being a gigantic economic hurricane, and we went through that in 2008 and part of 2009 and since then, we’ve been in the eye of the storm. The eye of the storm has been quite wide because it’s a gigantic hurricane but I think we’re coming out the other side.
It’s going to be much more serious than it was back in 2008 and 2009 and it’s going to last much longer and it’s going to be much different. So I like gold for the reason because it’s the only financial asset that’s not simultaneously somebody else’s liability. But as far as the rest of the market is concerned, no. I’m not interested in stocks because many world markets are approaching their previous highs and in my view, that’s mainly because of the trillions of currency units that have been created. So they have to go somewhere.
All these governments, they’re creating currency units in the idiotic hope that that’s going to – kiss anything and make it better. Well, it does for a short period of time.
But over a somewhat longer time, it makes things much, much worse. So whether that money has gone into the stock market, stock markets are overpriced. We’re in the middle of an interest rate bubble—a bond market bubble which is much more serious than a stock market bubble. It has created a mini bubble in real estate and real estate floats on a sea of debt. I’m not interested in real estate.
We’re going into a gigantic depression. I call it the Greater Depression and the thing to remember about a depression is it’s a period of time during which most people’s standard of living drops significantly and as my friend Richard Russell says, in a depression, everybody loses. The winner is the person that loses the least. So the key is to try to keep what you have today and that’s the investment advice I will give you. It’s not to try to second guess things or whatever. Sure, it’s a good time to speculate. I would speculate on these junior mining stocks. They’re really, really cheap now.
I think there’s going to be a bubble created in gold and a super bubble created in these little mining stocks. Mining is a crappy business, yes. But business is one thing and the stocks are another thing. I think you ought to buy them as a high potential speculation. So I don’t know. I guess that’s it.
TD: What are your thoughts Doug on what you’ve seen related to bitcoin? It seems over the last 12 months to have gone up by a 70 to 100 fold move.
DC: Well, I got to say I missed that one. I didn’t see that one coming. In retrospect (and things are always clear in retrospect), I remember there was a Belgian guy who visited me at my home in Cafayate, Argentina.
Bitcoin was at the time $16 and he said, “Look, this is going a lot higher,” and he gave me some reasons [why] and he actually gave me a physical bitcoin. They exist you know. I should have jumped on it because there were interesting reasons from a speculative point of view. I mean—[a] great, private way to transfer money, great for people like in China and so forth, and that happened. It worked out. I should have listened to him. But you can’t kiss all the girls. You can’t jump on every train leaving the station.
So, sorry I missed that. But there are 43 digital internet currencies the last time I looked, and I don’t know. It seems to me that bitcoin serves a useful purpose and I can see how it can go higher. But for all I know, one of these other 43 currencies might replace it. So I guess I will have to look for the next opportunity and pass on bitcoin.
TD: Doug, as a final question—is there anything that you’re closely reading now or carefully writing?
DC: Well actually, I’m much more interested in writing my novels now than I am in looking at the economy. You don’t want to do anything for too long.
[But] I have a new book out called Right on the Money, that I think people might enjoy reading and my [newly published] book the last time we talked was called Totally Incorrect. If people would like to hear a lot more about lots of different subjects, both of those books are good. After that, I would say in six months I will have the first of my series of novels out. Other than that, just trying to do things that I enjoy; go to the gym, pump iron, [and] ride my horses.
TD: Doug Casey, Chairman of Casey Research, thanks for sharing your comments.
DC: My pleasure Tekoa.
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Tekoa Da Silva
Bull Market Thinking