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321gold
founder Bob Moriarty returns to The Gold Report for a lively exclusive interview
about what he sees as the best investments for 2010. "Last year it was
gold," says Bob, "and this year I believe it will be gold
shares." Noting that Bernanke 'destroyed the financial system of the
world,' Bob sees two possible outcomes—a deflationary collapse wherein
the U.S. refuses to pay back its $10 trillion debt, or hyperinflation.
"Those are the only two alternatives," he says, "and either is
pretty bad."
The Gold Report: Bob, when they announced Ben Bernanke as the Time
magazine's Person of the Year, I was thrilled, because I knew I was going to
be speaking with you. I just have to ask, how do you see Ben's place in the
2009 economy?
Bob Moriarty: Actually, it really scared the hell out of me.
What it means is that I can no longer go to college football games.
TGR: Why is that?
BM: You know the president was awarded the Nobel Peace Prize.
TGR: Yes.
BM: We have three-and-a-half wars going and he was awarded the Nobel
Peace Prize and then Time magazine came out and made Ben Bernanke the
Man of the Year. Now that's the equivalent of being awarded the Nobel Prize
for Economics. Stalin was Man of the Year.
It means that Bernanke had the most influence on the world last year, which
is quite interesting because it means I cannot go to a college football game
anymore.
TGR: Okay. I'm still missing the link.
BM: If I go to a college football game, at half time they give out
awards and they do special things. If I go to a college football game, I'm
bound to be awarded the Heisman Trophy.
TGR: I hate when they give those out.
BM: Ben Bernanke has done more to destroy the economy of the world. If
there was one organization that is responsible for the financial chaos that
exists today, it would have to be the Federal Reserve. Ben Bernanke has
destroyed the financial system of the world and they're thinking he saved it
by creating all this money. Well, wait a minute. That money has to go
somewhere.
If you actually look at the numbers, the most accurate number that I've been
given is a $23.7 trillion increase in U.S. liabilities. It's not necessarily
the government that spent that. We're just on the hook for that kind of money
in one year and that has to have an effect. Dubai has defaulted; Greece is
not very far away from defaulting; Ireland is very close to defaulting; the
U.K. is very close to defaulting; Japan is very close to defaulting; the
United States is very close to defaulting; Spain is very close to defaulting.
And the one thing that we know is they're going to. So we can either have a
deflationary collapse where everybody says, okay, well, remember those $10
trillion that we owed the rest of the world? We're just not going to pay
them. Or we can go into hyperinflation. Those are the only two alternatives
and either is pretty bad.
Bernanke has guaranteed a collapse of the financial system. We're in the
center of the storm, the eye of the storm right now. The hundred or so people
in the world who actually understand what's going on are all going, "oh,
shit." And Ben Bernanke's sitting there with a grin on the cover of Time
magazine. Well, I can guarantee next year he isn't going to be sitting on the
cover of Time magazine with a grin. He'll be sitting on the cover of Time
magazine with a noose around his neck.
TGR: Do you think these relatively smart people—granted, you
stick them in Washington and weird things happen—realize they're in the
eye of the storm, and they're just trying to keep the panic down now and try
to maneuver things behind the scenes or do you think they're totally
oblivious to what they've created?
BM: There's a lot of total oblivion. These guys have all studied
Keynesian economics. Keynesian economics simply doesn't work. Anybody who
actually understands economics knows that, but that's what they were taught
and because everybody around them was talking Keynesian economics, they think
you can somehow buy your way out of failure.
Obama came up with this really wonderful quote early in December saying we're
going to spend our way out of the recession. My question is—if we spent
our way into this recession, how the hell are you going to spend your
way out of this recession? Spending is what got us into trouble in the
first place. There was another article released last week saying that the
number of Federal employees with salaries in the six figures is higher than
it's ever been. This is insane. We have 22% unemployment and we have hundreds
of thousands of Federal employees earning over $100,000 a year. The 22%
unemployment, those people who have no jobs are starting to get really,
really pissed. And when they do, we got problems.
The gap between government employees and employees in general is higher than
it's ever been. The unemployment in the United States is higher than it's
ever been. So not only is the government employment increasing,
unemployment's increasing for everyone else. Who do they expect to pay the
taxes? And the answer to that is the 47% of people who pay no taxes at all
are listening to Pelosi say, "Hey, I've got a great idea. We'll make the
rich people pay for the health care." And then a week later she had
another really great idea. "Hey, we'll make the rich people pay for
Afghanistan." Unfortunately, nobody listened to her definition of rich
people. Did you catch that? Did you hear what she said? "Rich people are
those who still have a job."
It's the end of the empire. Democracy works until the voters learn to give
themselves benefits. We have gone into never-never land. For Barack Obama to
be awarded the Nobel Peace Prize after being in office for two weeks goes
beyond absurd. The fascination with the sex life of Tiger Woods is all over
the news and my question is who cares? Are they kidding? We've gone crazy.
TGR: So how are we going to be protecting ourselves investment wise?
I'm going to ask a little bit about gold because you're a big gold bug. Gold
ran up to above $1,200 and now had quite a decent pullback. You point out
correctly that who wouldn't have expected a pullback when it's up for 13 days
straight.
BM: We have not seen the top in gold, but corrections are perfectly
normal and they're a good thing. Now why should you own gold? You should own
gold for two reasons. One is it's an insurance policy. The things that
Bernanke and the Federal Reserve and Tim Geithner have done are going to
destroy the world's financial system in the end. I know that sounds really
catastrophic, but it's going to be catastrophic. The United States is $100
trillion in debt. No sane person can come to me and say, "Bob, there's a
way out of that." They can't, there is no way out of that. We're going
to default. I don't care if we default next week or next month or next year
or 10 years from now. We're going to default and it's going to be
catastrophic.
Gold is an insurance policy. It's like an insurance policy on your car or
your home or yourself. It's not something that you want to collect on, but
for 5,000 years it has worked to protect people's assets. Second, as an
investment, the general stock market would absolutely terrify me right now.
It's so overbought and the P/E ratio has hit historic highs. It's just
screaming to take everybody's money away when people wake up to what's really
going on. So gold shares, silver shares, energy shares, food shares are a
good, safe place to be. It used to be widows and orphans would buy GM and
they would buy General Electric (GE) and
they would buy Ford (F) and Chrysler.
Widows and orphans should actually be buying Canadian juniors right now
because they might preserve their wealth. They own FAO and Ford and GM and
General Electric; they own companies that are walking zombies just waiting to
die and be buried.
TGR: If the stock market does take another correction and even a
massive one, could it take down even the Canadian juniors, too?
BM: I don't believe that's true. The Canadian juniors have already
crashed. It happened last year and everybody had it absolutely wrong except
Bob Hoye. Including me. I believed the Canadian juniors were going to be a
safe place. But if you look at the ratio of the XAU over gold, the ratio is
lower than it's ever been in history and it's been lower for a year. So
Canadian juniors are not going to crash; Canadian juniors already have
crashed.
The market is going to do whatever it has to do to surprise the biggest
number of people and people are expecting a crash in the juniors if the
market crashes. I don't think so. You have to have some place of safety. Last
year it was gold and this year I believe it will be gold shares. I think that
this year—this is a good time to bring it—I think that 2010 will
be an extraordinary year for gold shares.
TGR: Does that mean it would be an extraordinary year for all gold
shares and once the mania starts happening, will all gold companies rise in
value?
BM: Well, that's what's really funny. The biggest piece-of-crap
companies out there are going to go up fifty fold. I would be very hesitant
to recommend that people buy into piece-of-crap gold companies. But when the
wind is high enough, even the turkeys fly.
TGR: Do you think in a market place where most people don't understand
mining to begin with, they're going to be able to differentiate the crap gold
companies, as you call them, from the valuable ones? Why not just buy a
market basket of gold companies?
BM: That's a really good move. There are some great funds out
there—USAA Gold is a good fund. Frank Holmes does a good job with the U.S. Global Investors Funds; Eric
Sprott does a good job with the Sprott Funds. There are some great gold funds
out there and that removes the risk of having to make decisions. The reason I
spend eight months a year traveling all over the world is I'm trying to give
my readers the house advantage and we think we do. I've been doing this for
eight years and we pick some pretty good stocks. That doesn't mean they don't
go down. Some go up and some go down, but that just proves I'm honest.
TGR: If we look at 2010 and it's going to be this extraordinary year
as you're predicting, will the markets be smart enough to recognize and
reward better run companies?
BM: Strangely enough, the ones that'll go up the most are the crap
companies run by absolute crooks that are selling for a penny and a half
right now. You've got to remember going from a penny and a half to three
cents is a 100% climb. Let me give you an example. I wrote about the International Tower Hill Mines Ltd. (THM) a
year ago and International Tower Hill, I think, was US$1.04 and it's like
$7.32 now. There are hundreds of companies that have gone up more than that,
and Tower Hill has one of the best deposits in the United States and is run
by one of the best guys in the industry. A stock going from $1.04 to $7.32 is
no different than a stock going from two cents to 12 cents.
TGR: You're traveling around finding the good deals for eight years,
which bodes well in that market place where better projects will reward. But
in the market place, everyone's going to get rewarded because you happen to
be in the right sector. What's your strategy?
BM: I invest in the best people that I can find. I try to find the
best companies and the best people because, while you're waiting for the piece
of crap companyto go from a penny and a half to 15 cents, it may go to a
quarter of a cent. You don't know. I buy companies where I like their story,
I like their management, I like their location, etc.
TGR: What do you see for silver?
BM: Silver is a commodity right now. When the financial system
collapses—and it's going to collapse—and we go back to the gold
standard, the metal that you need the most of is silver because of its value
as money. In a gold system the money you need most will be silver. At that
point it would go back to a historic ratio, somewhere between 15:1 and 25:1.
Silver is an investment. It's very dangerous because there are always
cheerleaders. The cheerleaders are the guys waving the flags and the pom-poms
and showing their butt to everybody saying silver is going to go to $100 an
ounce if we get into a war because this is the most critical war metal. Well,
we're in three wars and silver has not gone to $100. The cheerleaders say
we're going to run out of silver. We're not going to run out of silver. It's
a commodity. At some price, it extracts itself from the ground. At $16 to $18
an ounce, there's plenty of silver and silver's supply and demand is in
equilibrium. But to move it up relative to everything else, you have to have increased
demand and the increased demand is only going to come from using it for
coins.
TGR: So the increases we're seeing in gold now through 2010 probably
will not reflect on silver?
BM: Actually, the ratio of silver to gold will go up as the economic situation
gets worse because people recognize gold as being a safe haven and they don't
recognize silver being a safe haven to the same degree. We could go back to a
ratio of 90:1 or 100:1, but as for the idea that silver is somehow a better
investment than gold, these guys have been wrong for 10 years. I can't
understand why they keep arguing the same thing when all the facts show
they're wrong.
TGR: So someone who's looking to the insurance policy or hedging or
putting money on the sure bet that the economy and the financials are going
to falter should really focus on gold, not silver.
BM: Focus on gold, but you want to hedge your bets, too. One of the
possibilities that always exists is that maybe I'm wrong.
TGR: How would you hedge your bets?
BM: I own physical gold and physical silver and I own silver mining
companies and I own gold mining companies.
TGR: You mentioned that you like to invest in the best people and so
I'll assume you have certain companies that you feel have management that
represents the best of the best. Can you share those with us?
BM: Sure. If you look at the website, we write about them all the
time. Animas Resources came out with
drill results as we're speaking and the drill results didn't appear to be
good. The stock got hammered. Somebody sent me the drill results and I looked
at it and said, hey, somebody's making a mistake because those are pretty
good drill results. They're in the district and they've got really
substantial management. In general, I tend to like Mexico. I like Timmins Gold (TMGOF.PK), I like Animas, I like Pediment Gold (PEZGF.PK). There are so many great stories there.
Endeavour Silver (EXK) has
got some good deposits down there. Great Panther Resources has got some
good deposits. Candente Resource and Canaco Resources are putting a company
together. With Mexico you could pretty much throw a dart; I don't think you
could lose there. There are some great companies and there's some great
management down there.
TGR: Outside of Mexico are there any plays that you're looking at that
are interesting?
BM: I wrote about one called EurOmax Resources in Eastern
Europe, Serbia and Bulgaria and Macedonia. They've got a surplus of good
projects and the stock's real cheap now. There are hundreds of companies. I'm
not an expert. I go to a gold show and I see half the companies there are
companies I've never even heard of before, but there are some real good guys
in the industry who cover these and some good subscription services. Greg McCoach
has got a good service and Brent Cook has a good service. Lawrence Roulston
has a good service. There are some guys who can give good tips.
TGR: Are there any small caps outside of Mexico that you have a few
thoughts on?
BM: Oh, dozens and dozens and dozens of them. For example, I happened
to be on a trip with some of the people who were investors in Richfield Ventures (RCVTF.PK) before they announced their recent
results. Richfield is up in B.C. and there's another company right next to
them called Silver Quest Resources that had
absolutely extraordinary results. You've got to give them credit for that.
I'm always hesitant to list companies that I like because there are hundreds
of companies out there who have done extraordinarily well. We got cheaper in
relative terms last September, October and November of 2008 than gold stocks
had ever been in history. You could have thrown money at companies and made
money.
My very favorite company right now is an energy stock. It's not one that
anyone can buy. It's still private but it's going to be a very big deal. It
will be the Google (GOOG) of
investing. It's a company called Titan Oil Recovery Inc. It's run by one of
the smartest and best managers I know, Ken Gerbino. Basically the company
treats their prime oil fields with a patented bacterial process that
essentially lowers the surface tension of the oil, making it easier for it to
flow. Their tests on dozens of oil fields show increased oil production by
over 100%. That's giant. In the oil business, most oil gets left in the
ground. You can never recover all of the oil in a field. This process is
going to be worth many billions of dollars. It's not a total solution to peak
oil but it's sure better than anything else I've ever seen or heard of.
TGR: Well, you could have picked almost any of the resource stocks
back then.
BM: Yeah, yeah—exactly. You could have picked the worst company
in the business a year ago and made money. There were companies that were two
cents then that are 60 cents now. But in relative terms, here's one thing I
would like to point out. We started our website in the summer of 2001 and,
like Frank Giustra of Endeavour Financial, we chose to get
back into the industry right at the bottom and we said it was the bottom. We
were very supportive of companies and we said this is a tremendous opportunity
to invest. Of course, nobody believed us because gold was $252 an ounce.
Well, people, we're not in Kansas anymore and gold is not $252 an ounce. It's
$1,120 and change right now. It was $1,200 and change a month ago. The risk
is out of it. Okay. There are some extraordinary stories out there and
they're extraordinarily cheap. You should invest, one, because it's a safe
place to invest—it's the only safe place to invest that I know
of—and, two, because it's so cheap that you should have extraordinary
returns.
TGR: Thank you very much for your time, Bob.
Wanting to give others a foundation for investing in resource stocks, Bob
and Barb Moriarty brought 321gold.com to
the Internet almost nine years ago, and later added a second resource site, 321energy.com,
which covers oil, natural gas, gasoline, coal, solar, wind and nuclear
energy. Both sites feature articles, editorial opinions, pricing figures and
updates on the current events affecting both sectors. Before his Internet
career, Bob was a Marine F-4B pilot with more than 820 missions in Vietnam. A
Captain at age 22, he was one of the most highly decorated pilots in the war.
DISCLOSURE:
1) Karen Roche, of
The Gold Report, conducted this interview. She personally and/or her family
own none of the companies mentioned in this interview.
2) The following
companies mentioned in the interview are sponsors of The Gold Report: Animas
Resources, Timmins Gold Corp., Pediment Gold, Great Panther Resources,
EurOmax Resources and Richfield Ventures Corp.
3) Bob Moriarty: I
personally and/or my family own the following companies mentioned in this
interview: Canaco, Titan Oil Recovery and EurOmax. At 321gold.com, we receive
money for advertising from the following companies: Animas, Pediment,
Timmins, Endeavour Silver, Great Panther, Richfield Ventures and EurOmax.
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