Stig Brodersen  01:16

So, Marin, I think it’s safe to say that a lot has happened since we talked last time in December. Just to summarize a few points that we talked about back then. You talked about rates going lower, the US Dollar strengthens, and gold stocks performing. Now going into the interview, we can definitely say that we could put checkmarks in all the boxes. But let’s set the scene for our conversation and zoom out from a helicopter perspective. How and why is the crash different than previous crashes?

Marin Katusa  01:51

In 2008 and 2009, it was a financial crash. It was bank, leverage, debt; the financial industry with all their derivatives. So this one is very different. I call it the trifecta, Stig. What we’re having here is we’re having a health crisis, at the same time as we’re having a financial crisis with all the debt in the world, and then also monetary, like the financial. You got the economic issues going on, that we see the layoffs, the unemployment, and then you have a monetary issue. This was the fundamental thesis of what I’ve been talking about to your audience for well over a year, and that’s the new realm of where we are.

You look at the Bank of Canada, where you are, the Bank of Switzerland, the ECB, the Bank of Japan, the Bank of England– All of them are lining up for the swap lines. Now you don’t line up for a swap line if you’re trying to get rid of US dollars. They are lining up for these swap lines because they need US dollars. A part of the ironic result of the global financial crisis of 2008 was all that stimuli that came in. It was like a debt binge, globally. There’s over 20 trillion in US debt, globally, and infrastructure that is denominated in US dollars.

Now combine that with an oil crisis where the Saudis and the Russians. It’s almost an inversion of the 80s oil war where the Saudis and Americans worked together to dethrone the Soviet Union. Now you’re having this similar effect, but different. Where now, think about the ripple effect on all of the commodities and emerging market nations that need those US dollars to service that debt, but their commodity prices are down by over 50-70%.

So that kind of sets the macro 10,000-foot view of where we are today. The world is actually in a shortage of US dollars. That’s one of the biggest push backs I’ve had from people in my industry in the resource sector, specifically in the gold sector. And eventually, all fiats will crash and go to its eccentric value of nothing, but right now, the US dollar is continuing to stay strong. Now with the swap lines and all these lifelines, the currencies are going to stay volatile, but the dollar today is stronger than it was 60 days ago.

Stig Brodersen  04:13

Now, before we started recording, you were so kind as to give us a little sneak peek into some of the things that you’ve been doing with your portfolio. We will talk a lot more about your portfolio in this interview, and sort of sum up what you’ve done since the last interview that came out December 21, but could you talk to us about perhaps just one of the moves that you made here, or the past month or two? Just to kind of preface some of the conversation that we’re going into.

Marin Katusa  04:40

For sure. I guess I’m fortunate enough to have such a large diverse subscriber base from all around the world. We have subscribers in over 100 countries, and one of my subscribers is Canada’s leading scientist for infectious diseases. In January, at my conference, we got together and I just kind of asked him, “Hey, how serious is this virus?” That was January 20th, and he and I continued this dialogue for about a week. He said, “Marin, the data is changing rapidly every day. This is serious.” So, we were one of the first to say that, and luckily, because of that, we also took all our principal investment of five out of six precious metal stocks off the table on that February 3rd issue of the KRO, that’s our newsletter. So we took our money off the table. We kept my largest position, my favorite, and we’re actually still up over 40% on that one. But I like that company so much that I was comfortable with it.

And then on March 15, I sent out an alert saying, “Hey, this is what I think’s going to happen. This is what the Fed just did. This is what Trump just did. Let’s do some strategy here,” and I put an alert on five stocks. It took a couple of days for the price on March 18th. Three days later, two of our stock prices got hit. And just ironically, two days later, we sent out another alert because we’re up well over 50% on the north of $10 billion market cap company.

06:02

So, try to put this into perspective: These moves have been so volatile on the biggest stocks. This one company had a $20 billion market cap just four weeks ago. We got in and it pays over a 10% yield. We’ve taken all our money off the table. Granted, I was a little bit too early. 50% gain because within a week, it went up another 50%, but that’s fine. We still own a free ride, which means we sold two-thirds of our position to keep one-third for free, and we collect the dividend forever at no risk, cost-based. That’s what I’m playing with right now in our strategy, buying the highest quality lowest quartile cost producers. And what we did on that one stock when another fund blew up, it’s a liquidation crisis. It’s a rush for cash to cover their debt, their leverage, and all these aspects. And on that one stock, it’s a $15 billion company that’s paying us over 6% yield bulletproof balance sheet. It truly is the top tier in its industry in the world, actually.

The strategy is to do your homework, figure out where you want, what price, and you just wait. We are not out of the clear here. And I just don’t believe the economy is going to come back as fast as everyone is saying, so prepare yourself. We’ve had an incredible run here, but I think the market’s going to pull back and provide incredible opportunities for what I call a true value investor. In the last 10 years, it’s been about growth. The value investor guys didn’t have an edge on the market. I think everything’s going to change in this decade where the guys who do the homework, the guys who know how to read balance sheets and truly understand what I call Warren Buffett value investing, this is our decade to truly shine.

Preston Pysh  07:45

So Marin, Stig and I recently had a conversation about monetary inflation and its impact on price deflation. I know you have some opinions on all this. So let’s talk about the international markets. Recently, you said that the rest of the world is about to experience price deflation, and then stagflation. Explain this to the audience.

Marin Katusa  08:05

Let’s take a step back here, and go, “Why in this world is the guy in Vancouver talking about deflation?” Well, let’s look across the board, at the share price volatility, the commodity price volatility –all the debt. Think of debt as this massive black hole, unless they do this incredible historical debt Jubilee, which I don’t see happening yet. By definition, deflation is when there are fewer dollars chasing the same number of goods. Even though there’s been an incredible stimulus, it’s still not enough. You go to any of the commodity producers; the big copper guys, like Peru and Chile. Those two countries right there is half of the world’s coppers. Copper has gone from $3.5 to $2. So, look at where they are. There’s less money in the system chasing the same number of goods, and that’s deflationary. Then what happens is governments fear deflation much more than they fear inflation. Now, why is that the case? If you have debt, which all the nations have, you can inflate that debt away. But when it’s deflation, there are fewer dollars to refinance that. It’s actually more expensive to pay for that, so that’s why the governments came up with the swap lines.

Let’s do a real-life example of what’s going on right now behind the scenes at the Fed. So, whether it’s the Bank of Canada that’s lined up or Bank of Australia or the ECB… Let’s use the European banks. I think the Euro truly is going to be severely impacted here because look what’s going on with Germany, and it’s hasn’t yet rippled through from the market standpoint. So the ECB got a massive swap line from the US Fed. The details of this, they’re not making public, which is interesting, but you can put it together from historical swap lines. So, let’s say the ECB says to the Fed, “We need a trillion or whatever the number you want to make.” That’s in US dollars. There’s going to be two aspects of that. They’re going to fix the amount and the timeframe and the interest rate. So that’s in a US dollar loan, then the ECB converts that to subsidize, float or QE, whichever way you want to look at that, the industries that they need help.

Let’s use France as an example because they’re in big trouble in their economy. Let’s use one of the major industries, Airbus. So now if Airbus gets a lifeline from the ECB, they have to do that in Euros, so they have to fix the term and the rate that they’re going to pay. Now, let’s talk about the ripple effects here. Do you think Airbus is going to sell more planes in the next year or two? Or are there going to be deflationary pressures? People traveling less? Less money in the system? It’s going to be a competition with Boeing, and it’s like a race to the bottom in a depressed market. So Airbus is going to have to go back to the ECB and say, “Hey, we need more time,” to what I call amend to extend and pretend the debt is okay. And so, then the ECB needs more swap lines from the US Fed. So the American government is subsidizing Airbus, which is in direct competition with the American government that’s subsidizing Boeing, right? They’re a big American airline, which Trump openly stated that it’s a national security item.

There are so many geopolitical angles here that, okay, well, if you want to swap line, you have to accept certain terms. That’s why I talk about this. It’s one of the biggest push backs I’ve ever had in my career. This is going to be the rise of America.

World War II. All of the cost of the war of all of The Allies and Axis powers, all the nations combined, was about $6 trillion. 75 million people died in World War II. We’re just under 50,000 deaths, globally, with the COVID, and we’ve already QE’d, or if you want to think simply, printed $6 trillion, globally, to cover this war of the virus. When you look at what’s going on here, globally, the non-US nations are going to be in a deflation right now. They are in a deflation. The governments panic that they’re going to do stimulus, but the unemployment is going to continue to increase. That’s why we’ll go shift into stagflation. Then as that continues, America is going to benefit from this. It’s going to have inflationary pressures in the American market once Trump brings all these massive trillion-dollar infrastructure projects. The American economy is going to benefit, and you’re going to see the big stocks when this is all said and done within the next five or six years. It’s actually going to exceed the highs we’ve recently seen. I know it’s hard for people to grasp that, but that’s where we’re going.

Stig Brodersen  13:00

Very, very interesting. Let’s look at the US because, in the US, we hear a lot about potential hyperinflation. And this is something we have discussed multiple times here on The Investor’s Podcast. Let’s hear your take. Why or why not? Will we see hyperinflation in the US?

Marin Katusa  13:21

Initially, we won’t. I know a lot of the big-name market pundits are calling for hyperinflation. I think it’s going to take a gradual shift. As I said, the rest of the world’s in deflation to stagflation, then the Americans are going to get inflationary pressures that transition to hyperinflationary. What do we have? Well, you got to look at the demographics. There’s a *inaudible* on pension funds. You look at all of the debt within the system. It’s almost as if it’s a tale of two markets. The big caps are almost too big to fail and are going to attract so much money and they’re going to be overvalued. And then you’re going to have this binary market where you have the smaller caps struggling and won’t necessarily get big government support. That’s going to be the true indicator of the economy in the near term. So if you take away the big hundred, they’ll still be severely impacted, whereas the big caps will actually be rebounding quite nicely. That’s kind of where I see us in the near term.

Look, I don’t have a crystal ball. I’m not trying to pretend I know what happens in five years. All I can focus on is where we are here, in the near term, and how to best position and profit from this. The one thing everyone has to remember is that the governments, the Fed, and the central bankers are going to do whatever it takes to push this along. So if it means raising the debt ceiling, it’s going to happen. If it means more swap lines, and bigger swap lines and debt is going to be amended to extend and pretend, that’s going to happen too.

If you look at the oil patch, that’s been an incredible reverse. Do not expect the price of oil to get back to $60 quickly. The Russians and the Saudis are committing to this. The Saudis are bringing on over 3 million barrels here, and they’re committing to that. When those swing wells start producing that they can’t just shift back right away. There are technical reasons for that. So they’re building up and ramping up. This is going to be a true gutting. If you look at places in Alberta, Canada, which is like the center of our oil patch, oil has gone down to $3.80 a barrel. That’s cheaper than a cup of coffee and a doughnut. In Midland, Texas, it’s gone as low as $6 a barrel recently.

The advantage there, if you’re a strategic and patient investor, is if you look at some of the refiners. If you’re buying a barrel of oil for $5-6 bucks, and you want to store it and produce some gasoline in 6-8 months, there’s an advantage there. Now, if you’re going to bet on some of these E&Ps, the exploration and producers that are heavily in debt, you might want to rethink that. So really understand the balance sheet and the debt profiles because now the junk market is a huge market. The bond market is multiple times bigger than the stock market, but with so much B-rated corporate debt that we know in this economy is going to be classified as B-plus or even junk status, essentially, the cost of capital is going to be higher. I know people think that negative interest rates would take it right away to hyperinflation, but it’s the opposite. That’s deflationary because there’s less money flowing around. It’s about the velocity and the speed of capital. So who’s going to finance all this stuff? So there’s so many time bombs and things that people haven’t seen yet, and the politicians and the media are really avoiding the reality of the market. But the truth is in the balance sheets. Focus on the balance sheets.

Preston Pysh  16:46

So Marin, last time we had you on the podcast, you talked about gold, and you had suggested that if we had another sizable correction, you suspected that gold would sell-off with the market during that initial period. Well, that’s been exactly right, and exactly what we saw in February 2020. And now we’ve seen somewhat of a bounce back. What are your thoughts moving forward from here as we’re having this conversation at the beginning of April?

Marin Katusa  17:14

I guess I’m the guy at a cocktail party that people don’t like talking to because I always focus on the facts and the truth. People love that angle of gold’s an absolute safe haven. Well, all I did was I went through the last hundred years. And whenever you see a crash, when people need to sell anything and everything to gain USD, that includes gold and silver, and we saw that. So moving forward, we’re sitting at about $1,600. That is a fantastic price for any producing gold company because it’s $1,600 gold. It’s a great price, but it’s an even better price because the US dollar is going to continue to stay strong as these other nations are devaluing their currency.

So if you look at the Russian ruble (RUB), it’s down over 25% year-to-date. If you look at different countries’ currencies, the Canadian currency’s (CAD) down over 10% year-to-date. The Australian currency (AUD), over 20% down. In the local currencies, they’re hitting all-time-high prices in the price of their gold, people laugh, but like the Australian Dollar (AUD) is going to be its highest price, it’s going to hit $2,750-3,000 AUD per ounce because of the devaluing of their currency. Then, what’s going to happen next in what I call the AK-47 nations? I call them that just because I’ve been to over 100 countries and you go to all the mines’ security are holding AK-47s.

So in the near term, we’re going to see downward pressure on the gold price because of where the gold is being produced globally at such a high price. You even saw Russia recently came out and said, “We’re going to hold off from buying any more gold.” Now, there are many reasons for that, but I think you’re going to see more as more pressure comes into the market. I don’t think we’re out of the woods yet.

Gold and stocks will continue [to sell off] as other funds blow up and nations need to gain cash or whatever happens. We’re going to see more episodes of sell-offs now. That’s okay because gold has its intrinsic value of what is the actual cost base so you always focus on the lowest cost producers, like my friends like Ross Beaty with Equinox gold, or any of these companies. What is their true cost? And they can make money at $1,250 gold. So do I see gold going down to $1,250? I don’t, but I wouldn’t be shocked to see it hit $1,350 or $1,400. At that point, you want to reset your portfolio with some physical gold because no new mind production is going to come on at $1,300 dollar gold. Where do I see it two to three years out? Much, much higher. Okay. But in the near term, I still see the price of gold is very volatile.

Stig Brodersen  20:20

I just want to say to the audience that just before the interview, I had a talk with someone from Marin’s team and he actually sent a really cool graph of Gold versus S&P Returns since the elections. I just want to make sure to link to that in the show notes, and people can perhaps get a better view and see illustrated some of the things that we’re talking about here on the show.

But you’re talking about Equinox Gold already before, and this is something we talked about on the previous show. Equinox Gold and Liberty Gold. They are two companies that you are heavily invested in, and they have been volatile but profitable investments since December, which is not something you can say about most stocks. Have your theses for these two company’s changed at all since December 21?

Marin Katusa  21:04

Not at all. In fact, I’m actually more bullish now. Why? Let’s take someone like Equinox. When the market is so shaken, and across the board. We’re in the fortunate position that we’re doing better during this crash than a year ago. We’ve had a very, very strong March and a very strong 12 months, but the general market is rattled. And when the market’s rattled, fund managers are rattled, and they’re looking at this going, “Okay, their mandates are they’re going to have to invest in gold.” Well, who are they going to invest in? Guys who’ve done it before, like a Ross Beatty, who’s invested over $200 million of his own money into the stock as high as $8 a change recently, and he’s taken this company from essentially an idea that started in the Katusa Research office to now over 700,000 ounces of production in three years, which by the way, has never been done before in the market, and that fast. And [the company’s] organically funded to get to a million ounces by the end of next year. They’re obviously going to go because people are going to flock to that.

For example, I put out a chart to everyone that if you take all of the companies producing anywhere between 500,000 ounces to 2 million ounces. Equinox is [leading] by far. We’re talking about an order of magnitude difference of ownership by insiders. About north of 10% of the company is owned by insiders, where the next highest company was 1.8%. That’s a big, big, big difference, then it goes all the way down to 0.2%. So people are going to follow leaders who’ve done it before.

22:39

The other aspect is, there are not many Tier 1 world-class deposits that aren’t owned by a major. And now the majors are going to look around and say, “Hey, we want something in a non-AK-47 nation that has an infrastructure that is Tier 1. That’s going to actually get a higher bid because, in this market, people will be willing to pay for quality. So when you mention Liberty Gold, that BlackPine asset… I’m one of the largest shareholders in the company, and our newsletter average cost basis is $0.42. I’m not telling anyone to rush out and buy it. I’m being very transparent with what my cost basis is. I haven’t sold a single share in the company, and I’m the top-five shareholder in the company. That deposit which we wrote about in 2017, I said would have 2-3 million ounces was my calculation. Well, I know I’m wrong now. This thing’s going to have north of 5 million ounces. It’s a past producer. It has infrastructure. It’s in the US. It’s in the Great Basin where you want to be.

The big companies are going to look at that, and say, “Okay, well do I want to go in the middle of Africa for a deposit like that? I know with the depreciating currency… and I’m going to have to have diesel support. Or do I go down to the Great Basin where I have the infrastructure, and I can drive right up to the mine and have low-cost power and the rule of law? That’s where we’re going back to.

Over the last 25-30 years in the resource sector, Stig, people went away from Canada and America, and they went to the emerging markets. And I just find it absolutely insane, actually, that companies in an AK-47 nation have the same discount rate as a past producer in the Great Basin. It just, mathematically doesn’t make any sense. And eventually, we’re going to see the market come back to that because the risks are going to be too high, and the government take is going to increase. So the game is going to be reverted back to that. So that’s why I’m very bullish on those two positions. Let’s see what they do. If I’m right, this thing’s going to be sold for a lot higher.

Preston Pysh  24:42

So Marin, if we’re characterizing the gold market as being a little bit crazy, let’s talk about the market that’s been really crazy; and that’s oil. And right now, you can’t talk about oil without discussing the three P’s and that would be Putin, the Prince, and the pandemic. So talk to us about the three P’s and the oil market right now.

Marin Katusa  25:02

Let’s start with the pandemic. Let’s look at the actual TomTom data. The GPS data is showing us that even though the Chinese market is coming back, people are going back home right away. They’re not going out. They’re not going to the restaurants. They aren’t driving around. Even within China right now, looking at the satellite data shows that the oil demands are lower. Now, our team went over this morning, the TomTom data that’s available and the satellite data this morning. It is showing 80% less infrastructure driving; like the roads, trucks, everything in North America today.

So, let’s just say half the driving will come back. Well, right now the US is refining about 16 million barrels a day, and 8 to 9 barrels of that goes into gasoline. Both halves are down. Right now, I think about 230 million barrels of gasoline is in storage. The capacity’s 360. If I’m super conservative and say only half the driving over the next 30 days comes, in 30 days, all of the US capacity for gasoline storage is filled to the rim. Nobody’s talked about that yet. So that’s the angle there.

26:20

Number two, let’s look at what Putin’s doing. I’m not Russian, I don’t get paid by the Russians. I have nothing to do with this. What he’s done has been a true grandmaster at this. They are not dependent on US swap lines. The sanctions like them. “Putin, do you think he just did this as a price war with Saudi?” No. He’s playing multi-dimensional. He is specifically attacking the US shale market share. If he can rattle the US economy at the same time, and maybe shake off some of those sanctions. Anyone of those three or a combination is a win for Putin.

26:58

Number three, let’s talk about the prince. Well, there’s a multi-angle here for him. Number one: Market share’s obviously important. Number two: Bring back discipline within OPEC and the cheating members. But the elephant in the room that nobody is talking about is: What better way to take on the Iranian regime than slaughtering the Iranian market share? While they are suffering a massive pandemic, [make] all the economic sanctions on Iran, and then slaughter their income from sales of oil from-to China because the Saudis are taking that market share. That is something that is really interesting. We’re not seeing much data coming out of Iran, but they are in a massive crisis right now.

Both Iran and Russia at $20, with, remember the ruble is down over 25% year-to-date to the US dollar, they can survive these oil prices. Ignore the media stuff that the Russians can’t afford it, or the Saudis can’t afford it because they need $80 to buy their economy. They can make changes. And as for the production costs, the Russians and the Saudis are the lowest quartile cost producers. So is Kuwait. So the production is not going to decrease. So this is going to be a serious gutting in the oil market. And the two places to really focus on is Iran, and the impact on the North American, the Canadian and the American, shale patch.

Stig Brodersen  28:26

So, Morin, I think we’ve all seen energy companies just being hammered, and they are trading at prices not seen in decades. Are you looking to get exposure to oil in public markets? Do you see anything interesting in the private markets? Perhaps, nothing interesting at all?

Marin Katusa  28:46

When you see companies trading at $50 two months ago, and trading now at $14-15, and they’re the largest in their sector, you have to pay attention. But fundamentally, the industry hasn’t fixed itself. They haven’t been paying out cash flow. In 2015, we talked about the massive debt wall coming in 2020 in the oil patch. So unfortunately for many of these E&Ps, oil companies both in Canada and the US, both private and public, the equity people are going to get slaughtered because of the debt guys who come in. He who holds cash right now is king. They’re going to dictate terms, and it’s going to be serious flooding. I don’t think we’re through it yet.

Am I buying any oil companies right now? No, I think there’s still more pain to be seen, but you want to focus on their balance sheet. There’s just an incredible amount of debt that’s got to be restructured, and we’re not there yet. So this next six months, there’s going to be more pain in the oil patch.

Preston Pysh  29:49

So here on the show, we’ve talked about buying long-term out-of-the-money call options on the underlying oil commodity. I’m just very curious to hear your thoughts on that trade idea.

Marin Katusa  30:04

One thing people have to be aware of and be understanding of is the price of oil that they see isn’t necessarily the price of oil that the companies are getting. If you look at the Western Canadian Sedimentary Basin price, it’s under $4. This morning, if you look at Midland, Texas, it’s under $6. So you have to be very careful about playing these call options.

A lot of people are playing the contango aspect, and saying, “Well, we get a freighter and you load it,” but the curve is steepening. I think there’s easier money to be made, and I think that most retail people shouldn’t play the options market because it’s so fast-moving, and most people are busy taking care of their kids and homeschooling now that they don’t have the time to deal with how volatile and fast-moving it is.

The big difference between this current crisis and the 2008-2009 global financial crisis is how fast the information is moving, and how fast information is impacting the markets. So I would be wary of playing any call options right now for the retail audience.

Stig Brodersen  31:19

Last time you were here on the show, what I really found fascinating was the conventional wisdom about when the US dollar appreciates, gold would weaken and the opposite; so, whenever the US dollar depreciates, gold would strengthen. Now, you argued there that the relationship has changed. And now, we both see the US dollar and gold strengthen at the same time. It’s very interesting to follow. Now, let me complicate things a little, so please stay with me here. So how has the low oil price historically-correlated with gold and US dollar? And what is the causality, if any, between a low oil price gold and US dollar?

Marin Katusa  32:05

From a production standpoint, the price of oil being where it is now is going to actually improve the cost structure. For most gold producers, it’s actually going to decrease the cost anywhere between 5-10% across the board. Now, each mine is different, whether it’s an underground or open pit. But that’s a good rule of thumb to use.

Oil is a serious big cost, not just on the energy aspect. But if you look at tires as a huge cost, it’s about 3-5% of the cost of every pound of copper produced or every ounce of gold produced. That across the board is decreasing also, so low oil prices are a good thing for the cost.

Now, when we talk about a low oil price, that also means that the emerging market and the oil producers, their currencies, are going to be devaluing further, and the US dollar will be strengthening.

So for the US people about eight months ago, I wrote a tongue-in-cheek article of Why Americans Should NOT Buy Physical Gold Right Now. The title was just to shock people, so they would read the article, essentially saying, “If you’re a non-US person, you want gold because it’s a store of value. And for the Americans, it will still be a store of value, but you’re not going to see the incredible appreciation that you would if you’re Canadian, Australian, European, Russian, South American, or so on.

I think the big shocker to all of this will be when the Chinese yuan de-pegs or un-pegs from the US dollar. That will be a major change to the price of gold. But we’re still not there yet. We are going to be in the market where the US dollar is in demand, so there’s a strong bid for it. So it’s going to be volatile. It’s going to move up or down. For example, this year alone in the last 90 days, we’ve seen it from a Canadian perspective, of as low as 129 and as high as 147. That’s a massive range for currency in 90 days. Historically, that’s what you would see in 10 years. Not 90 days. So that’s the first aspect.

And gold is getting a serious bid, globally. To put things into perspective, you have your physical gold market where you can actually hold the gold bars in your hand, then you have the paper, like the ETFs. I just think that I’ve never been one of these paper gold guys, because if you’re going to buy gold, why not just buy physical gold and put it in your safety deposit box or wherever you want to put it safely? Don’t show it off to friends at a dinner party. But right now, the largest Canadian bullion dealer shared with me yesterday that, first of all, the Royal Canadian Mint is shut down because of COVID-19, and the premiums for gold and silver, he hasn’t seen in 30 years. And the physical demand is 10 times what the paper demand is now. Yes, the mint will come back online, but it’s going to be coming back online in a different way. The mint has obligations that it has to fill for the banks. It’s going to start with gold, and then it’ll go into the smaller denominator, Maple Leaf. But the 100 oz gold bars are going to be delayed, so you’re going to have more premiums for those. So moving forward, I think this is just a short-term blip. The beauty of our market is there’s always a solution, and demand will be met. But in this near-term, the two safe havens are the US dollar and physical gold.

Stig Brodersen  35:36

We are very fortunate, Marin, that this is the fourth time that we have you on our show. We analyzed your approach from multiple angles. We talked about buying in tranches, how you conduct your analysis, and everything in between. We even talked about private placements. Now, most of our listeners invest in the public markets, and the next question is about a more practical approach to investing. In the last episode, you talked about being bullish on gold, and that you didn’t need to own say 40 stocks to make that play. Specifically, you talked about gold stocks and finding, say, the best five stocks. So let’s say that you have five gold stocks on your radar; say that they’re just about to trade at attractive levels, and you have $100,000 to invest for in your entire portfolio. Could you talk to us about how long does it take for you to build a portfolio? How many tranches do you buy? And how exposed you want to be to gold in the first place?

Marin Katusa  36:39

Let’s first start by defining if it’s $100,000 that you want to put towards the gold sector. I would break it up like this: Put two-thirds into investments in the gold sector, and one-third into speculations. Even that it’s pretty aggressive. I’m 41 years old, so I’m an aggressive guy. We’ve done well in our fund and in our newsletter. I solely focus on this sector, so I have a bit of an advantage. I’m okay taking a little bit more risk by putting about one-third of my portfolio into non-investments, meaning they don’t generate any cash flow for me. They’re more speculations waiting to be bought out like a Liberty gold. So then I would break down and say, “okay, an investment will never be more than 10% of my portfolio. And the speculation will never be more than 5% invested in the total portfolio.” That’s a good place to start as a rule of thumb for new investors in the gold sector. So I say a rule of thumb if you’re going to buy for tranches of 25% of your desired allocation in each tranche. And I wait, and it’s very frustrating for me, and it’s difficult to be patient.

I’ve gone to the super bowl with the president of a million oz gold producer that we’ve bought, we sold over 70% gain, took a free ride on it, and now I want to buy more of it. And we missed my target price by I think it was $0.80. But you have to stay disciplined. That tells me, “Don’t worry. The market’s volatile. It might be for 30 days. It might be for three days. It might be for 90 days. I don’t know when, but history has shown me that it will come to my bid price.” The algos will sniff out some limit prices, and you’ll be hit. Now, that’s the target. So you have to do your homework. You do the research, and then you just set your bids. Don’t chase stocks. A big mistake a lot of people make in the sector is they over-allocate into one company because they like the pitch, or they like the management team, or they like the newsletter writer that said it. Stay disciplined. Basically, have a rule of thumb. If a stock is keeping you up in the middle of the night, you’ve learned something about yourself. Sell it and move on. Life is too short, and your instinct is telling you that this isn’t the right thing for you. So, perhaps if you’re an older individual that doesn’t want to take the risk, don’t do speculations. If you’re a younger person that has a little bit more risk appetite, maybe you do the one-third or maybe half speculations somewhere.

Preston Pysh  39:04

I think it’s safe to say that the key takeaway from what you just said is to stay disciplined. Here on the show in the past, we’ve heard you refer to your investing strategy as if you were an alligator that’s just waiting for that perfect opportunity to take a high-probability bite out of your prey. So, using that as a metaphor, and knowing that we had you on the show last December, I’m curious what you’ve done during that period of time from a trading standpoint.

Marin Katusa  39:34

We publish every first Wednesday of every month, and if I can get it out a couple of days early I do. On February 3rd, we took free rides on all but one position on our gold portfolio, so we had an incredible run. A lot of the feedback was, “But you believe in Liberty. Why are you taking money off the table or even B2Gold, which is a fantastic company that has a world-class asset with *inaudible?” Clive Johnson’s a good friend and just a total winner, but I said, “Look, we’re up over 80% sent on a 1 million oz gold producer. Why not take a free ride?” That was surprising to a lot of people.

On March 15th, a Sunday, and once that Fed briefing happened, I called up my team, went into the office, pulled 11-12-hour day, and we sent out a very detailed hit list or alligator list of “These are the five stocks I want everybody to load up on.” And I did it myself, personally, at these prices that we disclosed. And these are big companies that have north of $10 billion market cap. So, I’m focusing on top-tier world-class assets lowest-quartile producers that pay me to hold. I haven’t seen yields like this. There are better yields today than at the lows of 2008 and 2009 because the good companies have restructured themselves. They’ve reduced their debts. They’ve lowered the cost of their debt. They’ve built the projects they said they were going to build over the last decade, and some of these are true cash generators. And we’re going to sit back and wait. I put out an AdCam report.

This is something that a lot of people don’t focus on, but people are going to have to eat regardless, everywhere in the world, and farmers are going to have to increase their yield per acre. Well, how do you do that? Fertilizers. Okay, so let’s break it all down from the potash and the phosphate, the urea and nitrogen aspects of the market. I took a very different view because you have to focus on the whole market while the Russians were devaluing their rubles so their cost of potash is going to be a lot cheaper. Belarus; their rouble is down to something like 40% year-to-date, and they are a major producer of fertilizers. Morocco is a major producer. So, you’re going to see deflationary forces in the cost of fertilizer, and the irony of all this is there’s actually excess capacity in the global markets very similar to steel. So that’s going to be a cut-to-kill strategy for a lot of these emerging markets, which then will be competitors to the US markets, some of the biggest companies in the world.

I put out a very detailed report of every company in the world, their cost base and what I see happening over the 12 months. Fertilizers are not going to go away, but they’re going to have deflationary pressures. Then I’ve detailed one stock I really want to own for my own portfolio, but I’m going to be patient and I’m going to wait till the market comes to me and I truly believe that “Well, I don’t know when,” like you said. I don’t need to buy the stock every day, and I don’t need to run out today. The key point of being an alligator is waiting. And usually, it’s when funds have to sell, like when Citadel blew up and had to sell on this one position, I gobbled up almost all of their stock. That’s what I’m going to do in the fertilizer company. It takes patience and discipline. It’s exactly what Warren Buffett does. He’s the ultimate alligator in the market. He comes across as a nice guy. I guess I don’t have that bedside manner of him. He’s a likable person, but he’s the ultimate alligator, and he only comes up when the market needs him.

43:10

One of the key pivotal points of my career as a mentor of mine, who said, “Marin, you want to finance these when they need you, not when you need them.” And what resonated with that was, “when you’re a fund manager, all this money comes to you in a bull market, and your shareholders want you to buy stuff because they’re excited about the market. The irony of it is the redemptions happen when you should be buying, but you can’t.

From a fund manager’s perspective, their hands are locked. And, I actually don’t do much in a good market. I’m a guy that excels in a bad market, and that’s when Warren Buffett truly excels. It was when the market needs him because then he dictates the terms. The ultimate example of that was Goldman Sachs. A guy from Omaha got warrants through financing on Goldman Sachs. It’s usually Goldman Sachs that gets the warrants. That’s a perfect example of him doing that financing when Goldman Sachs needed him. And that’s a strategy that everyone should pay attention to regardless, that gold is still $1,600 dollars. We’ve gone through a market where many leading companies have blown up. They’ve been taken over. Management has been fired. They screwed up, and when gold was $1,400-1,500, they spent it like it was $2,500. And today, gold is $1,600, but the management teams are still shell-shocked. They’re spending and acting like it’s $1,200, and so are the investors. So that’s a great time where you can structure and get investments at a discount to NAV.

44:40

A great point you mentioned was how is this different than 2008? Well, the producers are trading at a discount to NAV. Like if you take Equinox, for example, and again, I’m not trying to tell people to buy the stock. I’m using it as a real-life example. And you can come back in a year, and you can say, “Hey, man, you said this.” It is trading right now. If you use $1,450 gold, it’s trading at like .75 NAV. Well, if you use $1,600 gold, it’s probably less than .65 NAV. The company, Equilibrium, in 2008, was still trading at a more expensive valuation. Development companies that were producing nothing, trade at a .6 NAV in the last crisis.

Now, you can buy producers. We’re talking about 700,000 oz of gold, a big producer. And it’s going to get to 1 million oz within, let’s call it, the end of next year. And it’s organically funded. It’s trading at a discount-to-NAV at $1,400 dollar gold and we’re at $1,600 dollar gold. That’s a good time to start looking and doing research in the sector. Avoid paying. Where the sector got to was three times NAV, at the peak. That’s when you want to sell. You buy when it’s at a massive discount-to-NAV, and you sell when it’s at a premium-to-NAV. It’s not rocket science, but it’s incredibly hard to manage your email, emotion, and your expectations because people feel confident, and they feel good when everyone else is excited. But you want to be an alligator. You want to buy when no one else is buying.

Stig Brodersen  46:11

Well, Marin, thank you for sharing these amazing insights on your own portfolio. Your portfolio is available for subscribers of Katusa’s Resource Opportunities. What’s really cool about that, and I think you even mentioned here on the episode, is that you tell everyone what you do two days before you make the trade just to be completely fair for everyone. I hope you don’t mind talking a bit more about the Katusa’s Resource Opportunities, and where the audience can learn more about you.

Marin Katusa  46:40

I just published a 65-page report on Sunday. It was supposed to be published today, but we worked day and night. March has been an incredibly successful month for my subscribers and myself on a portfolio stance *inaudible*. But it was really important to break down the different sectors that I’m looking at and put out my alligator prices on the companies I want to buy. It’s a journey. I try to make it interesting with historical facts and lots of charts. I show my math skills, and I explain it all. And then we have all the summaries and updates.

I think the coolest part of the newsletter is actually the video aspect. I have a studio here in Vancouver, and I know all the guys. So they came down to my office and the idea hit me about five years ago, I went, “It’d be probably really cool for subscribers to be a fly on the wall in my office because essentially, every deal comes through our office.” And next, we set up the office, and I brought in everyone and we did interviews and Q&A. When I go to mind sites, I also bring the film crew, and people can see what I see on their iPhone anywhere in the world. It’s not a Hollywood production style, but it’s pretty good stuff, and you get to see everything that I see. And I think we’re the only people that do that.

So, it’s my portfolio, my money. I disclose my cost base, and I love what we do, and we’ve done incredibly well. So we’re going to keep doing what we’re doing.

Stig Brodersen  47:59

That definitely sounds like the right thing to do. We’ll make sure to link to katusaresearch.com/tip, which is a designated address where our audience can learn more about Katusa’s Resource Opportunities, some of the investments that you made, and then a few calls of what you made in the market that we’re seeing playing out right now.

Marin, thank you so much for taking the time to speak with Preston and me here on The Investor’s Podcast.

Marin Katusa  48:23

It was my pleasure. Thank you.

Outro  48:25

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