Prepare for a Vicious Correction in Gold & the Dollar

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Daniel: Alright, greetings, and thank you for joining us at I have a special guest today: Marin Katusa. He’s a Chief Strategist for Casey Research. He’s without a doubt the guy who, at these conferences over the past few years – past several years – he’s been dead on. And though you hear that he’s the Chief Energy Strategist, he obviously works for Casey Research, so they talk about the dollar crisis, they talk about the bond bubble, they talk about a lot of things that people are interested in and people have their own intuition about. But Marin goes to these conferences and has been telling people gold’s going to go down, resource stocks are going to go down, and oil’s going down. So though he hasn’t been the most popular guy in the room, he’s been the most right. And that’s why I wanted to have him down on our show today. Marin, thank you so much for joining us.

Marin: Oh, it’s a pleasure, Dan.

Daniel: Well, hey, Marin, there’s a lot going on in the world right now. Seems like there’s a bunch of black swans floating around in the new cycle, and I want to cover those, and I also want to cover… if you can give us some specific stuff on how our subscribers can make a boatload of money right now with crisis investing, because I know that’s where you guys excel – that’s your expertise. Let’s kick it off with oil, because it really is the biggest story, and that happens to be your exact, specific expertise – in energy. So what is going on with oil, and is this going to be the new price for years, or is this just a temporary situation?

Marin: Well, that is a great question. A few things are going on right now. You look at: the global economy is cooling, number one. Number two, the success of the production. Not just in the U.S. or Canada, but look at Russia. People always forget about the Russians, and they’re such a key player in this. It’s essentially what my book really is about. They’re now the world’s number one crude oil producer, and they are producing more oil than they ever did in the past, including the Soviet days. So they’re increasing production. Even with the decline in the Ruble, people have to understand that that means their production costs have gone down. Saudi Arabia has increased production. Everyone expected them to pull back production on Thanksgiving. I said “no, there’s not a chance OPEC will cut back.” In retrospect, I was right. A lot of people bet against me on that one. I bet that they wouldn’t cut production and I was correct. So now you see a situation where everyone expected the U.S. shale producers couldn’t make money at $70 oil. I said “no, they can. They’re going to start doing tighter drilling spacing and less exploration, and focus on innovation via necessity.” And you see production in the U.S. shale and Canada shale increasing, and storage is at all-time highs. So all of these kind of factors are coming in together and more importantly, the emerging markets are under significant pressure because of the strength of the U.S. dollar and there’s a lot of risks. You mentioned there’s a lot of black swans. Dan, you nailed it on the head. If you’re invested in a lot of these emerging market funds, you’ve gotta be very careful. There’s a deep devaluation of these currencies. Look what Russia just did today to the Ruble. And that means the bonds, or the yield of all this money – the easy money, the quantitative easy money – went to chase into the emerging markets. It propped up the massive commodities. Now that’s shrinking, the dollars are coming back home, U.S. dollar is staying strong. Oil will stay low for the foreseeable future – I’m gonna call that the next 6 months. Now look, anything can change that, such as the black swan in Saudi Arabia, ISIS attacks, the monarchy, the Strait of Hormuz shuts down, or the Malacca Strait. There’s a lot of risks in the world right now, but the facts are that there’s no shortage of oil today, and that could change if there’s a revolution in Saudi Arabia. But for now, the time being, oil will stay low.

Daniel: You think in this environment, we could see lower prices? I mean, of course, there’s always somebody out there that’s gonna call for DOW 1,500 or something, but what about oil? I mean, is oil probably looking at maybe a final crater bottom in the 30s or could it go down to the 20s even?

Marin: Down to the 20s would be difficult for myself to see. I’ve always told people I could see it going down to 45 – that’s where we’re at right now – and at a certain point, even at $20. When I went to Kuwait, $20 doesn’t make any new production work in the Middle East. Whether it’s Saudi Arabia or Kuwait, there’s serious cash costs. So at $20, maybe if there’s some sort of huge financial crisis for a short term, but at that point there will be a definite supply shock. So could it go down below 40? Sure, it can. It’s only $5 away from that right now. But long-term, no. I’ve seen a lot of people saying oil’s going to $15. It’s just fundamental. If you understand the cycle costs and the distribution costs, it’s just… I don’t see it.

Daniel: So if an investor, let’s say, was looking to speculate, obviously they could subscribe to your newsletter. Let’s say they’re looking for a safety play at this point. Do you think it’s safe now to get into the Chevrons of the world, the Shells, the BPs?

Marin: Well, you see… look, yesterday, Shell announced significant cap ex., capital expenditures for 2015 reduction. Yesterday, three companies announced $200 billion in reductions, so you’re gonna see a lot of these companies start announcing that there’s been a trillion dollars in cutbacks. Look what’s happened to PetroBoss. They’ve imploded. Look at Venezuela. So would I jump in right now? No. Look what I’ve done in my newsletter. I said be patient, be calm, the prices are gonna go lower. But you see, Dan, there’s other ways to play this. You look at… you wanna invest in an unloved sector, yet people think oil has reached its bottom. Let it go sideways for a while before before you jump in. I’m very bullish on uranium right now, very bullish on gold. Uranium’s been unloved for four years now. It’s where oil will be in three to four years.

Daniel: Yeah, well let’s move on to those hated sectors, because gold… there’s a big interest in gold. Uranium is very much unloved, without a doubt. Obvious the world needs uranium, and if you could expand on that a little bit as well… but, just move into the gold and the junior area and junior sector in general. Is it now time to get in? Because I have seen you at the Casey Summit saying the exact same thing you were saying about oil: for people to be patient. Is now time to start getting into these gold stocks?

Marin: Well, look, Dan, I’m a very different style of investor. I think to be a successful speculator, you have to understand what type of investor are you. For myself, because we invest quite large, one of the largest funds in this whole sector, I need to invest in a solid management team that I can back for many years. I need a management team that can bring liquidity so in case something happens to my fund, I can bail – to liquidate position. But more importantly, it’s about tangible assets in jurisdictions that you can actually profit from. So, last week… in one week, Dan, once gold popped to $1,300, a billion dollars came to these juniors and bought deals by the financiers. These vampires – these bankers – hit the market so hard. And this is what I’m trying to explain to investors, is that you really need to understand the structure and the financings of these companies. And that took a lot of momentum out of the sales of those stocks. A billion dollars within one week for these non-producing assets… that’s pretty significant. So I think you gotta be very selective. I think 99% of these companies are junk, and I wouldn’t touch them. But you can make 10, 20, 30 times your money, and we have, in our funds, by picking right and sitting tight. So what you want is management teams that are invested. You want underlying, tangible assets. Not just that moves pasture with promotion. You want actual, tangible resources that you can pick up and drop on your toe, and there’s value there. More importantly, you want to be able to benefit from the current market and have a management team that can do something in the current market. You know that over 300 companies right now have less than $500 grand in the bank? Well, what the hell are they going to do, other than keep their lights on and drink their coffee in their office? That’s what you have to stay away from in this market. You want to back management teams that not only invested millions of dollars of their own money, they’re winners. But they’re going to move the value of your shares because they work for you. The management teams… 99% of these management teams think that you’re an inconvenience if you’re a shareholder asking questions. Well, you want a management team that understands that their interests are aligned with yours and they work for you and they’re going to be moving the shareholder value forward. And you need money to do that.

Daniel: Yeah, well, hey, I wanna make my subscribers some money here and we’ve got a lot to talk about, but you’re definitely talking about investments right now so let me just get to that right now and just straight up ask you a question I’m dying to ask you: where are people like you, Rick Rule and Doug Casey putting your money right now, in this market?

Marin: Well, the last financing we just did was in a company called Brazil Resources. We’ve invested in it now four times, financing. We’ve also bought on the open market. We bought the financing at 55 cents, financing at the end of December, the end of 2014. And here’s an example of… the President of the company, Amir Adnani, wrote a check for… I believe it was just over $300 thousand. His board and we wrote big checks. I also decided to, because I thought it was so cheap… not only did my fund write a check, Doug and I personally, on top of that, wrote checks. Pretty big checks. And not only that, other big players in the business, when they saw that press release come along… originally they were only gonna raise about $2.5 million, but there was so much demand that they raised over $4 million. And that was all done quickly because people recognized that look, this is a depressed market; take advantage of these low prices. If you look at a year ago, when we did that financing at 55 also, the stock went to a buck and if anyone bought on the open market, it could easily peeled up. We haven’t sold any of our shares in our fund; we’ve actually increased our position because I’m looking at a 5-10 year cycle. I have found a management team that I believe in. They’ve done it before. Amir’s a winner. He’s written over a million dollar’s worth of checks into the company. That’s a very rare breed. More importantly, the asset base here… let’s just talk first about the gold Dan. There’s companies out there that have $100 million market cap or more, and their projects are equivalent to, say, Sao Jorge, on the PEAs, on the economics. Well, BRI, Brazil Resources, has not just one of those types of projects. They have Sao Jorge and Cachoeira, and a whole portfolio of other exploration projects that have upside. And once Amir kind of brings out… what I believe he’ll do is run the numbers. You know, in this market, things are cheaper to explore and build. He’ll have a new PA on those, I believe, and it’ll be comparable to companies 2 and 3x the market cap, and he’s got two of those projects. So that alone is big. But what I see, and that’s 4 million ounces, 43-101, tangible, real, that he’s picked up on a nickel to the dollar. Let’s put that aside – that’s the base value. Now what’s the upside? You know, I’m very bullish on uranium. Now, the guys in the industry, in the uranium sector… these are guys that, for example, one of the companies that got bought out by Rio Tinto. He was very early to the uranium game and he’s publicly stated that he believes that the Rea project that BRI has is one of the best exploration projects in the Athabasca Basin, which is where all the highest-grade uranium in the world is. I know for a fact that there’s about $100 million looking to get into the western Athabasca because of the success of Fission, okay? There’s going to be a lot of money coming into the western basin. Now, what’s interesting about all this is people have forgotten the success of the Maybelle deposit, which is one of the highest-grade deposits in the basin. It’s essentially a classic underperforming-style mineralization, but there is significant structure and potential for basin-style hosted mineralization. And what is that Maybelle? Well, that’s owned by Areva. And ironically, because of the success of Amir’s business structure and a little bit of luck – let’s be frank, you need luck to be good in this business – he has the Rea project, which is also a joint venture with Areva, around all that project. And these types of deposits extend forward. And when you have one of the world’s largest uranium companies as your partner on this project, and other companies in that region have a market cap of, let’s say $70 million, you look at NextGen. And I would argue that if you look at NextGen’s project, I would argue that Rea is, if not as good, better. And they have a $70 million market cap.

Daniel: Yeah, that’s amazing. So… Brazil Resources, on just looking at it, looks like it’s just a gold stock, but because of this acquisition they made, essentially you’re getting this free… let’s call it uranium warrant, or uranium option on this property. And it happens to be ran… for people who aren’t familiar with Amir Adnani, Amir Adnani is one of only what, about a dozen CEOs that actually run a producing uranium company with his other businesses.

Marin: Exactly. So it’s kind of like serendipity but if you understand like, value investing… the resource sector is very high-risk, and people have to understand that. Most of these companies never actually build anything. And Amir’s one of the few guys who have actually build something that creates cash flow for their shareholders. And I just sit back and go geez, if you’re Warren Buffet, you want to invest in a value investor approach, because the market hasn’t recognized the value within BRI because there’s so many parts in it. You know, if you were to chop up this company and sell it, it’d be worth more than all of the assets in the company today. That’s a good thing if you’re an investor.

Daniel: Yeah, that’s great. Okay, so you guys have been buying that, you said, on the open market, as well as through private financing. And if I can ask you, are you guys a large shareholder, small shareholder, or how much exposure do you guys have to that company?

Marin: The last time that I checked, which was at the end of December, 2014, just before the new year, we are the largest investor in the company, outside of the insiders. That means management. And we’re in at the same price as what it’s trading at on the market. Our average price somewhere probably around 55 cents. I’m looking right now at my screen and it’s trading at 55 cents. And we’ve invested, oh geez, $4-5 million into it, so we’re very bullish on the long term on this.

Daniel: Alright, so that’s Brazil Resources, trading under BRI. Marin, I do want to talk about physical gold as well, because physical gold and silver, they did have those lows. It seems like they’ve really come off those lows, and maybe now this year we are getting that saucer-shaped recovery that Rick Rule had talked about last year, in 2014. Obviously, Rich has since come out and said that it obviously didn’t happen, but I’m wondering if now we are seeing the higher highs and higher lows for gold.

Marin: You know, that’s an interesting question. I take a bit longer-term perspective on this, and to understand gold, you have to understand currencies, because gold is a currency. So people have to recognize what’s going on in the global markets right now, and gold is attractive as an insurance hedge on a currency. But right now, the U.S. dollar is the king of currencies. Eventually, that will change; I really get into that in the last chapter of my book… but I also believe that we are in a deflationary period here for resources. And gold will attract in the near-term here, some interest. But until the U.S. dollar really falls apart, that’s when you’ll really see the big run in gold. I don’t see the big run coming in the next 12 months, but you have to be a contrarian to be successful in the resources, and starting to pick your positions right now is the way to play it. Dan, I’m not smart enough to figure out what gold’s gonna be in 6 months or 12 months. All I know is eventually, at $1,100, half of the global production just doesn’t work. So at what price does the supply start decreasing? And I think the market’s kind of figured out that with $1,000 gold, you back up the truck.

Daniel: Yeah, now, so we had a huge leap when the surprise announcement from the Swiss central bank came out, and I wanted to get your thoughts on, basically, the currency wars. I mean, you just noted that the dollar’s the king right now and that surprised a lot of us because fundamentally, with the U.S. having $20 trillion in debt, structurally, the U.S. has a lot of long-term problems with its entitlement programs… it’s very… it’s overly expanded itself overseas with its military obligations. How in the hell did the dollar end up being the top dog, or I guess, the tallest midget in the room?

Marin: Well, Dan, I’d go into great details – and it’s a complicated thing – but I recommend everyone go and read the last two chapters of my book, because I go into great detail about how the petrol dollar was created, and the reality here is eventually it will end. There is a war going on in the currencies right now, and people have to remember that who’s next? Well, you look at China and Russia. They’re working very closely together and people forget that the Chinese own a boatload of U.S. dollars. So they need to take time to work out of that, but they will. But gold’s been an incredible uptrend in other currencies. If you chart gold in terms of the Ruble, it’s a great store of value. That’s a perfect case study of why you need to own gold. Right now, people think that, well, gold in U.S. dollars hasn’t performed that well, but people forget that the U.S. dollar has performed incredibly well versus the other currencies. Therefore, also gold has performed incredible versus the other currencies. So gold in terms of the Canadian dollar has performed incredibly well. So, you know, we’re in a currency war. Gold’s holding up well. It’s sure proving it’s a true currency. But, you know, people want $2k, $3k, $4k gold. And it will come. And when gold gets back to $1,500-1,600, you’ll see doubles and triples on these junior gold exploration companies that actually have real projects.

Daniel: With Putin buying up a lot of commodities, and I know this is a huge thing in your book, the Putinization of resources, a lot of people thought that this price in oil was going to basically crush Putin. And I’ve seen all kinds of mixed stories, so maybe you could clarify it for us. I’ve seen stories that Putin is dumping treasuries. I’ve also seen stories that he’s dumping gold. I’ve seen other stories where he’s buying gold. What is Putin up to and how is his reaction so far to this price drop in oil.

Marin: So it’s been the number one question I get in all media: is Putin gonna lose his grip on power over Russia? Nothing could be further from the truth. And I’ve been saying this for 5 months now… Goldman Sachs came out yesterday with a report saying the situation right now with Russia… they’re gonna do just fine. Their production is going to increase. Their refining issues are fine because they’re more economic than anyone else in Western Europe. The way their tax system is set up, it works with the oil dropping. Their Ruble’s dropped, so Putin… it’s never good to see half of your foreign reserves decrease in revenue because of the price of oil. But this is a great opportunity for China, now, to work closer. And it’s interesting, Dan, that our media doesn’t talk about… did you know that the Chinese imports of Russian oil have doubled from just two years ago? China’s importing more Russian oil now than ever before. They’re doing currency swaps. They’re starting to invest in Russia. So all these sanctions against Russia and the drop in oil… China’s looking back and going “geez, do we want to get our oil from the Middle East, which is a real basket case, or do we want to start working with the Russians more?” And they have huge potential. That’s exactly what’s going on here right now. So all of this has really fast-forwarded the relations between China and Russia, and the Russians are producing more oil today than ever before in the past.

Daniel: And overall, your assessment for the shale people. I mean, Texas is a really big deal in the U.S., as you know. It’s accounted for almost all wage increases in the past 15 years and it’s accounted for about 95% of the jobs created in the next 6 years, in its net job creation. The shale you’re saying… because we’re hearing that they can’t survive, but just to clarify, you are saying that the shale people can survive here in the U.S. at $45 a barrel oil?

Marin: So, Dan, for years, if you go on to my website, I write a brief, basically a blog, and I say guys, not all shales are the same. It’s like saying every gold deposit’s the same; that’s ridiculous. It’s not the situation. And even within one shale formation, different areas and depths within that formation are different. What I am saying is look, it’s just like in the gold or uranium business… you’ve gotta do your research to know what your decline rates are, who your management team is, what your debt and cash flows are. But the reality is why we’ve seen oil production in the U.S. increase in the last 4 months. Well, Rick and I have debated this. Everyone thought I was crazy saying that shale will survive at $75 oil. Again, at $60 oil, I said don’t worry, U.S. shale will survive because innovation becomes a necessity. They know that they’re gonna start improving things. And, you know, Harrold Hamm cut his hedges and yet is surviving. Well, how? You start drilling up your sweet spots, and remember the key here, that I tried to explain to everyone, is a lot of these producing companies have hedged themselves for 2015. So even though spot right now is $45 and you’re probably getting $38 at the well head, the reality is that the companies have half of their production hedged and it’s gonna take time for those hedges to unwind. Where the trouble will really come in is towards the end of 2015, when the declines come in and debt is due and the new hedges are nowhere near last year’s hedges. So for now, I’ve been saying the shale will survive, and I think it’s gonna survive for another 4 to 6 months, and then let’s re-analyze the situation. But I’ve been right thus far and I think my numbers are proving them to be right for the next 4 to 6 months.

Daniel: Do you foresee any kind of pivot shift with the Saudis with the new king?

Marin: No. Look, there’s a reason why the American President is there right now, Obama and his wife, the First Lady are there. There’s some press releases we’ve seen. We haven’t verified them yet, but a thousand paratroopers are now being shipped over. The Americans still recognize the importance of Saudi Arabia as their ally. What will be interesting, though, is this current king, Dan, has been reported to have dementia. And in the 7th chapter of my book, I wrote something called “A Shaky House of Saud,” and I talked about the aging monarchy. It’s played out as I stated in the book, but after this king, the current crowned prince is the first grandson… is the first transition. So at that point, it will be interesting to see. But at the current case, it will be status quo.

Daniel: Yeah, your book is great. I actually got an advanced copy of it; I read it a few months ago. But it’s now a bestseller, correct?

Marin: Yeah, and we cracked the New York Times’ Bestsellers for both the physical print and e-books, so we made both categories.

Daniel: Well, congratulations on that. You had mentioned earlier in the interview about Russia and gold being a case study for people in the currency crises. I want to know if you had gotten the chance to look into how did Russia’s population… how have they reacted to this currency crisis? Because I know the U.S. is ultimately going to have a currency crisis; I don’t know if we’re going to respond the same, but what are some takeaways that we might be able to take as investors and people living in a very… in a currency that has a high risk of future volatility? What are some lessons Americans might be able to take away from the Russians, who just went through a very volatile time?

Marin: Fantastic question, and, you know, my network in Russia… just to give you a heads-up, one of the guys, a very, very close friend of mine, ran the largest service company in Russia. So I’m pretty connected in the energy sector in Russia. I was speaking to him, asking him this exact question three or four months ago and I said “Look, Pierce, what’s gonna happen here?” And he goes “Marin, you’re gonna see a lot of western media talk about how Russians are gonna turn on Putin, this and that…” And as I state in my book, the Russian people are used to difficult, difficult times. Look what they’ve gone through in just the last 25 years. They’ve seen the collapse of the Soviet Union. In 1998 they’ve seen an absolute default. They’ve seen horrible conditions. And today, as bad as that is, it’s nowhere as bad as it was during the collapse of the Soviet Union. It’s nowhere near as bad… when there was thousands of people in lineups, millions of people on food stamps. You know, it was just this horrible situation. You look where Russia is today, its birth rate, for the first time in 30 years, is greater than their death rate. Their unemployment rates are at the lowest point than ever in the past. Their literacy rate is higher than it’s ever been in the past. So Russia, net-net, is better off today than it’s ever been. The average Russian is pro-Putin. Now, our western media talks about… you know, they’ll take a media clip from a Russian who doesn’t like Putin, but it fits their agenda. The average Russian in Russia truly is behind Putin and believes they are at a war: a different type of war, both a physical war, a traditional war, and a currency war, an economic war. With not just NATO and the EU, but also catalysts, driven, pushed, motivated by the U.S. So has the average Russian bought gold? No, but I will say this: has the average American bought gold? No. But the Russian people are much more resilient in times of crisis than I would say the average American would be. If the tables were turned, I ask you, Dan, what would the average American be doing, if their standard of living just… the cost of their standard of living just tripled? There’d be riot.

Daniel: It’d be Ferguson all over the country.

Marin: It’d be all over the country. Obama would be impeached. The average American wouldn’t handle that because the average American has not been conditioned to such horrific events. The Russians will survive. They’ll do just fine. And if anything, they’re now looking at China as their future ally. And that is the worst-case scenario for Europe and America. The last thing you want is the dragon and the bear to unite.

Daniel: Well, it seems, like you said, it’s already happening, with China and Russia doing business in their own currencies outside of the dollar. There’s another story that relates to Russia, where Putin turned off the gas. It seems like that would have been a really big story. Did it happen or did it not happen?

Marin: Well, what he’s done is now he’s basically said “Okay, fine. You wanna put sanctions on me? I’m canceling the South Stream.” That was a huge no-no for Merkel. Now, with the Greeks now coming in, Greeks are saying “Wait a second, you guys never consulted us in the EU to put more sanctions on Russia.” And, according to the rules, the Greeks have a veto right. Now, if you know anything about the Slavic and Orthodox history together, the Greeks and Russians have been long-term allies. Hundreds and hundreds of years. They have a close… they have the same religion, they’re very close allies. And now the Greeks are standing up and saying “No. We’re vetoing the new sanctions.” So now EU has had to backpedal. Now more importantly, Putin said “Oh, by the way, remember half the gas that goes through that one pipeline through Ukraine? Guess what. We’re gonna reroute that gas, and now you gotta deal with not just Turkey, but Greece.” That’s the worst thing that could happen to Germany. Now, if you understand the history, Germany and Turkey, and Greece and Turkey… that’s like a 3-way – the good, the bad and the ugly tee-off. And the last thing that Europe wants to do is deal with Greece for their flow of gas. So Putin’s now twisting the tables on them, and Germany now is going “Well, maybe we need to re-think and find the South Stream gas pipeline, because a) we recognize we can’t depend on Ukraine, but we can’t depend on Greece and Turkey, either. So, you know, Putin’s got a lot of cards to play here still.

Daniel: It blows me away that we keep messing with him. I mean, he keeps proving that he’s not going to take it. He’s not Saddam Hussein. Or he’s not on a rant. He’s not just the guy who takes it. He strikes back every single time, and it blows me away that the west just keeps messing with him.

Marin: Look, the second chapter of my book I get into the Slavic warrior. You have to understand the mindset that… Putin’s not there like Obama, just looking for his eight years in office and he’s gonna go do his speeches and book deals and live his lifestyle. Putin truly believes he’s meant… his mission in life is to reestablish Russia as a global superpower. In his mind, he truly believes what he’s doing. Does Obama truly believe in what he’s doing? Obama flip-flops like the wind. Look at his most recent Atlantic offshore oil… has anyone told Obama or does Obama recognize that none of that offshore is at all economic? And yet he’s put restrictions on areas that are economic at current prices. Obama lives in la-la land. Putin lives in reality. And, again, the pattern here is the west is poking the bear and the bear’s not turning around and walking away. It’s gonna stand up and fight.

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