Louis: Very good. Okay, so resources are broad; are there any focuses within that? Are you more interested in metals, precious metals, oil and gas – what's your favorite flavor right now?
Rick: A lot of it is personal; and with me it's precious metals. The reason for that is that I'm a reasonably well-known gold broker, and in 2010, as a consequence of the pricing, I was way underweight gold stocks. I was afraid because if gold had broken out, my clients would, for some reason, probably have strung me up. I would like to address those imbalances. It's very seldom that you see an opportunity to buy the junior gold sector – or the senior gold sector – at reasonable prices. This is the first time that I have seen the sector at reasonable prices relative to the price of gold since 2004.
These are rare events, and in my experience in my career, when you have the opportunity to build positions in high-quality precious metals companies at reasonable prices – not cheap prices, but at reasonable prices – you're well advised to take that opportunity. So my principal focus is in the gold, silver, and platinum sector, in the precious metal sectors as we speak. That isn't to say that I don't like some other sectors, including broadly the energy sector, but I have more opportunities spread over a decade to be in the energy business. It's a much bigger business – it's the business I'm from – and in my experience opportunities to participate efficiently in the precious metals sectors are rare and this is one.
Louis: Okay, that's a great point for everybody to remember. Is there a timeframe? I know Doug hates crystal-ball questions and you probably do just as much – but you did say from the podium that you expect we're probably going to see more bearish emotion over the months ahead as the summer is probably going to be a "sell in May and go away" type summer. I have to say my gut feeling, for whatever it's worth is in harmony with that, but it could go any number of other ways. There could be black-swan events that send gold screeching up. Bets are off at that point.
But even if that doesn't happen, I've also encountered more mainstream people now talking about gold in an informed way that's really surprised me. I had dinner with a friend a couple of nights ago, a more mainstream investor who bought Newmont because of the dividend and because he was aware that commodity prices have held on, but the gold stocks – or gold in particular has held on, but the gold stocks are all selling off, and to him that was an opportunity. "Wow, the commodity is still there, but the stocks are cheaper, that looks good." So maybe that's just one data point, but it is a contrary data point. If there is an awareness percolating out there in broader markets that this is an opportunity as you've just said, could that contravene the "sell in May and go away" wisdom; and could we actually see greed take over from fear in the marketplace?
Rick: Yes and yes. I mean, the most important thing about the phenomenon that you describe this person observing is that it's true. Many people observe phenomena that aren't true, in which case their reaction to it is usually fairly short-lived, but the phenomenon that you described is accurate. And the phenomenon that you yourself observed, which is a greater understanding of the gold story among the broader investing public, is also true. Both of those are very bullish.
Another thing that’s bullish is that within the community the sentiment is so negative that it may be that everybody is talking their books and all the selling that they see coming has already occurred. I don't believe that to be the truth because I see fund flows out of small funds and fund flows out of mutual funds, so I see logical selling pressure, not buying pressure, but everybody sees the same thing and we may all be wrong.
In terms of what could turn it around, I see three things. You named one of them: an anomalous black-swan economic event that causes the "catastrophe insurance" trade in gold to come back to the fore. There's no more powerful economic motivation in the world than fear; the other one of course being greed. The useful thing about gold in terms of a bull market is that gold plays to both of the primary investment motivations, so the fear buyer stimulates the greed buyer and the greed buyer reinforces the precept of the fear buyer. And when you get a real gold bull market, it ratchets back and forth between those buyers on the way higher. So that's one thing, an anomalous black-swan event.
The second thing is that the very low prices relative to historic norms that we are seeing in the precious metals business and the incredible investment in precious metals productive capacity we've seen in the last 10 years mean that we are in the early stages now of a merger-and-acquisition cycle. Markets work, and these low prices will beget takeovers, and the takeovers will add both liquidity and hope to the sector.
And the third is – and we're ignoring this completely in this market – is that we're very early on in a discovery cycle. And as much liquidity and hope as takeovers add, a big discovery is like a takeover on steroids.
MrBigBet Time will come to people that wait