Jay Taylor, who shares the results of his investment research with subscribers to his widely read Gold, Energy & Technology Stocks weekly e-newsletter, has just added a weekly radio program to his array of tools investors can use to survive in these dark days on Wall Street and Main Street—maybe even thrive. It’s called “Turning Hard Times into Good Times,” and aired for the first time on March 24. In this interview, he talks about the program’s focus, and reiterates what he told The GOLD Report readers in December—that gold stocks represent the best investment these days. Buying gold stocks may be riskier than holding bars or coins, but the upside potential of owning mining shares is commensurately that much greater as well. Jay also argues against the folly of thinking we can cure what ails us by running the printing presses faster and faster to pump more and more paper currency into the economy.
[Editor’s Note: For Part 1 of this interview please click here]
TGR: Could you share with us the names of some of the smaller companies in your “Progress A” category?
JT: Sure. One I like is a new gold producer, Alexis Minerals (TSX: T.AMC), which trades on the Toronto Exchange. It’s a new producer in Quebec. I love Quebec, by the way. It is one of the greatest mining jurisdictions in the world. They have the best balance. They understand that mining is a very basic, wealth-creating industry that also creates jobs. A company that builds a mine pays wages to the 50 or 100 people who work in the mine. Beyond that, something like six or seven times more jobs are created as wealth comes into that area. Smart governments such as the Quebec government understand that this is very. At the same time, they work hard to avoid environmental disasters.
Another new producer I really like and I think is really undervalued is Allied Nevada Gold Corp. (TSX: T.ANV). It’s not a high-grade deposit, but it’s huge, with four million ounces of oxides right now that can be produced with open-pit heap leaching. It has another four million ounces of sulphides and enormous exploration potential. I think Allied Nevada could very well be a takeover target in the not-too-distant future as well.
Great Basin Gold Ltd. (TSX: T.GBG), which produced some 60,000 or 80,000 ounces last year from Nevada, is another one I like a lot, and it’s not even officially in production yet. Great Basin also has a South African gold mine. They’ll be producing a very considerable amount of gold in the not-too-distant future. The stock has gone nowhere for some time, but I think it’s going to be a huge winner.
TGR: Any others?
JT:Starcore International Mines Ltd. (TSX: T.SAM) is another little one—Mexican gold production and a silver producer as well. It’s another Toronto Exchange company that’s based in Vancouver. San Gold Corporation (TSX: V.SGR) is another one I really, really love. Most of these stocks trade primarily on the Toronto Exchange and secondarily on the PinkSheets so Americans can buy them that way. I don’t mind buying stocks on the PinkSheets if their primary markets are in Canada. By default, they start trading on the PinkSheets because Americans who want to buy them call their brokers, who then buy those shares in Canada and then trade them in the U.S.
TGR: These are all currently producing miners?
JT: Yes, those are some of the ideas among the producers. One that has not yet gone into production but which I think is going to be a huge winner is Romarco Minerals (TSX: V.R). This is a remarkable story, from South Carolina of all places. Yes, there’s lots of gold in South Carolina. It’s the first place gold was mined in the United States, not California, by the way. Romarco will be a huge project with very, very strong financial backing from a private company. Frank Holmes (U.S. Global Investors) and his mutual funds own over half the stock. Eric Sprott (Sprott Asset Management) is a big investor and also a bunch of funds out of Europe. Romarco is trading at something like 25 cents or 30 cents, and has a fair number of shares outstanding, but that’s one I think is going to do extremely well in the not-too-distant future. Lots and lots of exploration potential. I was down on the property at the end January.
TGR: Do you have any juniors that will be producing within the next year or two that you’re watching closely?
JT: Yes, there are several junior gold mining firms that are nearing the production state that I am following closely and believe are good speculative buys at the present time. One in particular that I have my eyes on is Hawthorne Gold Corp. (TSX: V.HGC). Over the past year or so, the company acquired Cusac Gold Mines Inc., which has a fully permitted mill and high-grade gold deposit in the Cassiar Mountains in northern B.C. known as Table Mountain. Table Mountain is a high-grade gold deposit, which should be able to produce meaningful cash flows for the company to fund the exploration and development of two very large, potentially world-class gold deposits, one of which is located nearby and the other in south central B.C.
My confidence in the ability of this company to succeed is its management, which was the operating brains that built not one but two very successful gold mining firms, namely El Dorado Gold Corporation (TSX: T.ELD) (AMEX: EGO) and Bema Gold Corporation. The company's shares, which are traded on the Toronto Stock Exchange (HGC) and on the Pink Sheets in the U.S. (HWTHF), are currently selling at around US 22 cents. With just 74 million shares outstanding, the company's market cap is only around US$16 million, which is nothing. With any kind of success in executing its business plan, this management team could have its third success. There are never any guarantees in this business, but given my bullish views on gold combined with the significant upside potential and a resource of well over one million ounces already, I think Hawthorne could easily become a "10-bagger" for investors who buy at these levels and have the patience to wait for the fundamentals to drive the price of the stock.
There are a lot of companies like this. It would take me all day to go over all of them. I think it’s the most exciting time right now for the junior mining sector and for the new companies that are producing gold, especially. Readers who want to know more and understand why I like the companies I do can subscribe to our newsletter. Anybody can drop names, but I don’t say, "Buy this because the great Jay Taylor says you should.” No, I want people to understand the reason, the logic behind buying these stocks, so the newsletter tries to give people a sense of the fundamental reasons for owning them.
TGR: You’ve been a proponent of silver in the past, but you’ve indicated that silver isn’t so intriguing to you right now because it’s an industrial metal. Have the fundamentals changed?
JT: Silver can do well. In fact, it has done better than most things. It’s gone up versus oil, copper, a lot of things. It hasn’t gone up as much as gold because gold is purely a monetary metal and I said, we have something like a 55-year supply of gold above ground. Industrial uses consume silver and the base metals; people just simply hoard gold. Jewelry demand is not what drives up the price of gold. As a matter of fact, there’s an inverse relationship between the price of gold and jewelry off-take. Jewelry sells more when the price of gold goes down. What really makes gold increase in value is when people hoard it, when they have fear of the paper money or the institutions.
There is an element of that in silver, too, which makes it much better than most metals. It’s just that in a deflationary environment, when the global economy is contracting, the industrial demand for silver contracts, too. Unless we see enough investor demand to overcome or offset that contraction, silver loses its value compared to gold. That’s what’s been happening in my view, especially since Lehman Brothers failed, the credit system imploded and the whole global economy dived off a cliff into this recessionary—some people say depressionary—abyss.
So, I do like silver and I probably need to take a look at silver mining projects specifically because if you have enough silver and it’s rich enough, you can make money. That’s even true of the base metals now. But, until we see a turnaround in industrial demand, for the most part I’m very much partial to gold.
TGR: So you’re still okay with silver to some extent.
JT: I like silver. I even keep some junk silver, the old quarters and dimes, at home, just in case we have to go to a barter system at some point. What if I want somebody to come in and fix my toilet? The plumber may not want my newsletter or whatever else I may have to offer. What do I have to give him? I’ll need something of value that he understands is valuable to him so I can exchange that to get my plumbing fixed. Silver may serve that purpose very well. So I do like silver a lot, but the system is still deflating, and as long as we continue to deflate and until I’m convinced otherwise, I’ll probably continue to favor gold. And I do believe we’re still deflating despite the fact we’ve had some stock market rallies lately.
TGR: Can you give us some perspective on how long you think this deflationary environment will last? Earlier you said we have to work their way through all of the debt, put some savings in the bank. Are we looking at one year before we can manage that? Five years? 10 years?
JT: It’s really hard to say. There’s an awful lot of excessive debt needing to be unwound. If you look at the ’30s, it took 15 years or so. It never ended until World War II. So I think this major secular downturn can last a long time. The question in my mind is whether the government can create enough demand with helicopter money soon enough to avert a continued deflation. Through the third quarter of last year, we saw $8 trillion worth of wealth destruction in the United States just from stocks and real estate and stuff like that. And they had created a $700 billion TARP, which was very difficult. Americans objected. They said, “$700 billion to bail out the banks? What are you doing that for?” It was not popular. The first bill went down and they had to come up with propaganda that scared the daylights out of Americans and provide enough pork to others to get the bill passed.
For the moment, we are seeing a bit of a rally in the equity markets and in fact I think that could run for several more weeks and perhaps several months. That’s positive in terms of overcoming this deflationary thing, but I’m not convinced it’s anything but a bear market rally. We had a bull market of 25 years or so—a long, long bull market. After long bull markets, bear markets that follow usually aren’t over in a year or two. So I would think this bear market has a long way to run, and to the extent that the bear market and the deflationary environment coincide, we could have at least another three to five years.
On the other hand, if they’re able to somehow stimulate the economy, we may see some nominal inflation-induced growth (although not necessarily real economic growth). If you back out the cost-of-living increases, we could see rising incomes in nominal terms but declining incomes in real terms. If we get a “successful” helicopter drop I’m fear of high levels of inflation—even possibly hyperinflation.
I think we’re in for a tough time no matter what happens—whether we have an inflationary depression or a deflationary depression. Honestly, if we have to have a depression I’d rather see a deflationary depression. People who behaved themselves, don’t live beyond their means, save their money and act in a responsible way would be rewarded in a deflationary depression. But in an inflationary depression, people who don’t behave themselves, live beyond their means, blow all their money, max out their credit cards and then get bailed out. Everybody loses then, including the good people who saved their money because their money becomes worthless.
So as painful as it might be, from a moral perspective a deflationary environment is probably better in my way of thinking. The politicians don’t see it that way and people forget that initially we had a government that was to be very limited in its objectives of what it was supposed to do. The people were meant to take responsibility for their own lives. Now we’re at the point where, like most other countries, we to look to government to bail us out and take care of us. The sad part is we lose our individual freedoms when we do that. That matters to me more than anything else, certainly more than making money.
As Congressman Paul says, if we remain free, we can always rebound. But if we have our freedoms taken away or we give them away, we won’t be allowed to own anything or do anything anymore. That’s what happens in totalitarian governments. The more government gives, the more it takes away. There are no free rides here.
Some of the banks aren’t so sure they want to take TARP money. They don’t want the government telling them they can’t do anything and regulating everything they can do. But that’s the way it’s going to be if government bails everybody out. That’s the way it’s going to be unless we wake up and realize that we need to take responsibility for our own lives. We need to tell our politicians we need to go back to a sound monetary system, a monetary system that is honest instead of this fiat currency system that doesn’t have any gold or silver attached to it that allows the bankers to create money—not wealth. Printing press money doesn’t create wealth. It only re-distributes wealth from those who create it—hard working miners, manufacturers, inventors, doctors etc. People who do something for us create wealth. The politicians, through the debt mechanism—because there’s no limit to debt money without a gold standard—are really reallocating the wealth to the bankers and to themselves. They are the ones coming out ahead on this. Everybody else is getting hosed big time.
This is bigger than just how we can make money and how we can benefit. My radio show, Turning Hard Times into Good Times, is about two things: recognizing the problem and then finding a way to solve it both for ourselves personally and for our society. We want to do it so we don’t get hurt personally and we may be fortunate enough to perhaps gain some wealth. But more importantly, through education, we want people to know how we as citizens can do our small part to help get our country back on course and return to the very basic wealth-creating activities of working hard and saving our money? Until we do that as a nation, we’re in big trouble.
TGR: Where can listeners find your radio show?
JT: It’s at www.voiceamerica.com on the business channel. It will be archived so people can listen to it later as well. Our first week we featured G. Edward Griffin, author of The Creature from Jekyll Island. Second week, Mark Faber will be our guest. The third week we’ll bring in Ron Paul. We have a bunch of other really, really interesting people lined up for interviews in the middle section of the program each week. We’ll start each show recapping the market for the past week and then before we close every week, we’ll provide some investment ideas that can help folks know what to do in this turbulent environment.
We’re very excited about it, and think it has the potential to really be very helpful to people.
Jay Taylor was drawn to the world’s financial capital in 1973, when he went to New York to work for Barclay’s Bank International after earning his MBA in finance and investments. As he followed the demolition of the U.S. gold standard and the rapid rise in the national debt, Jay became more interested in monetary and fiscal policy, particularly as it related to gold. This led to his first investments in junior gold shares toward the end of the 1970s. He added a BA in geology to his CV in 1988. Pursuing his interest in researching and writing about mining companies as a sideline, Jay maintained his full-time banking career for nearly 10 more years. In August 1997, he left the ING Barings’ mining and metals group to pursue his avocation as a new full-time career—including publication of his weekly Gold, Energy & Technology Stocks newsletter.
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