Gold Bottom in, New Bull Market Will Make 2008-2011 Look Tame: Moriarty
Scott Armstrong (Co-founder of Energy and Gold.com) and I had the opportunity to sit down with legendary precious metals blogger and founder of 321gold, Bob Moriarty. The interview was wide ranging and Bob was his usual self, cutting right to the point and not pulling any punches when it came to telling it the way he sees it. Without further ado here is Energy and Gold.com’s first interview with legendary precious metals blogger and investor Bob Moriarty:
CEO Technician: Has there ever been a worse bear market in the junior mining sector than the recent 2011-2014 cyclical bear?
Bob Moriarty: I don’t think so. You’ve got to understand how the markets have changed. There was a junior market 15 years ago but there were only 30 or 40 companies. Then because we had a bottom in gold and we had people pouring money into hedge funds and we had the internet all of a sudden we had 2,000 juniors. Well there’s not 2,000 mines out there that are worthy of putting into production and there’s certainly not 2,000 management teams. The industry got incredibly bloated and a lot of these guys who used to be running drills or driving taxis said “we don’t know what we’re doing but we can collect big money in paychecks.” So it was a combination of a whole bunch of things.
I don’t think i’ve ever heard of any market that has had a collapse as severe as this market with a lot of the stocks down 95, 96, 98, 99%. And certainly the baby got thrown out with the bathwater because there are a lot of great companies and good management teams and they got slaughtered too.
CEO Technician: How many more companies do you think we need to see go by the wayside before the bull market will relaunch itself?
Bob Moriarty: I’m not sure that’s significant. There are a lot of people who have managed to keep the doors open but they’re still incompetent, they’re still poorly managed, and they still have projects that are not worth owning. Rather than focus on the trash I think that investors should be focused on the really good companies and the really good management teams out there, and there’s a lot of those.
CEO Technician: The gold miners as a sector are up about ~40% since the November low. Is this it? Do you think that the November low will turn out to be a major long-term market low for the gold sector?
Bob Moriarty: Yes, if you’ve been following my website you will know that i’m a contrarian and I called the bottom in November very accurately. And yes, I think it was the absolute bottom. From a contrarian point of view there were literally 100% bears and no bulls, that’s what you want to see.
You’ve got to put the gold market in context with what’s going on overall. If you look at a chart of silver, gold, or oil priced in British pounds or euros from July of last year to today you will see that precious metals have done quite well. However, in US dollar terms precious metals have done much worse due to the strength of the dollar. So it is the dollar which has made a big difference across markets recently. We have seen incredible moves in currencies and commodities where perhaps billions and even trillions of dollars are being wiped out overnight.
Oil went from $45/barrel to $52 or $53 in a period of two days and then dropped 10% in one day. So it doesn’t make any difference if you’re a bear or a bull, if you’re not hedged you’re going to get wiped out and if you’re leveraged you’re going to get wiped out quickly.
CEO Technician: We know you’re bullish on junior resource stocks, can you share a few of your favorite individual names with us?
Bob Moriarty: I will say that basically anything with gold & silver resources will go up a lot including the very worst companies. When the wind is high even the turkeys fly. I’ll give you an example, Tembo. Tembo was a $2 stock a couple years ago:
They’re in Tanzania and they have a good management team. They have a management team that is very technically oriented and they didn’t realize they needed to keep putting out data and the stock went from $2.25 to a penny and a half a share. I owned shares in the $1.50 range and sold most of my shares on the way down. I knew they had a good project that somebody could do something with so I actually waited until the shares hit .015/share which was down 99% from their peak. I was buying the crap out of these shares at .015 and the stock is .045 now and I actually have an overall profit on the shares because I was able to lower my basis to .03. Now I can give you all the reasons why management screwed up and wasted a lot of money but the fact of the matter is that the stock is up 50% from my average cost.
What I would like to say is that people need to have a plan when they buy a stock and most people don’t have a plan. They buy a stock and no matter what happens they get married to it. If you buy a stock and it goes up 300 or 400% you should sell some of it. Likewise you should also have some kind of a stop loss in place so you’re not riding stocks down 90%.
My favorite stock and favorite guy in the industry is Novo Resources in Australia run by Quinton Hennigh:
Every indication, I’ve been there 3 times and followed the story for 6 years, is that this project has incredible potential. Quinton Hennigh happens to be one of the most competent managers in the industry.
Another guy that I like a lot is Mark O’Dea of True Gold and Pilot Gold, he’s an incredibly bright guy and his companies are incredibly well run. Now True Gold has been hurt by some local issues in Burkina Faso but I think they are local issues and they’re temporary. I think it’s going to be a good buy when the people realize that True Gold is going to be a good neighbor and I think they’ll do fine.
Scott Armstrong: What if your grandmother suddenly found an extra $1 million to invest, how would you allocate between junior miners, physical precious metals, or other types of investments?
Bob Moriarty: I would put at least 50% into physical precious metals. I see things on a daily basis that absolutely shock me; the change in the US dollar today for example, the change in the Swiss franc a few weeks ago, the instability of the Middle East and the banking system. I think it was Richard Russell who came out and said there is $199 trillion in debt worldwide. Much of that is not going to be paid back. We have $700 trillion of derivatives which is all leveraged bets, there are a lot of terrible things happening that are invisible to most people.
Having physical gold & silver is probably the safest thing that you can do. With that said, once you’ve invested in physical metals the rest of your money you can afford to take some risk on. So I would have 50% of the $1 million in physical gold & silver and I would have at least 20% in solid mid-tier companies such as Goldcorp, Barrick, and Newmont. And i’m not saying those are especially well run companies but they are going to double and triple while the juniors go up ten-fold. And finally I would put the remaining 30% into well run juniors.
CEO Technician: The senior gold producers have lost a great deal of credibility during the last ten years. Through mismanagement and poorly timed acquisitions they squandered a great opportunity when gold prices were over $1500/oz. Do you think they can regain some credibility back during the next bull cycle? Have they right sized their cost structure?
Bob Moriarty: No, I think they’re a bunch of dinosaurs run by idiots and they’ve lost all credibility. However, the guys who are actually producing gold are going to get the most benefit from a big rise in gold. Now the one thing I refrain from doing is making a price forecast for gold. The only thing you need to do to become popular among readers is to say something like “gold is going to $10,000 or silver is going to $200 and it’s going to happen overnight”. I don’t know anyone who can predict prices accurately and i’m not sure it makes any difference.
I can tell you this though, when the entire financial system craters, physical gold and shares of companies producing gold will be literally as good as gold.
Scott Armstrong: Being a well known market commentator and blogger yourself, who are some of the other bloggers or commentators that you do follow and respect?
Bob Moriarty: I like CEO.CA a lot, I mean you guys are doing one thing that’s absolutely mandatory that i’m not sure you understand. Do you know what’s your biggest competitive advantage?
CEO Technician: Unique insights across markets and an unbiased view?
Bob Moriarty: Nope, it’s your birthday. If you look around there are a lot of guys who are north of 60 years old and they’ll be kicking the bucket soon. There’s been a dramatic shift in the past few years. I’m grateful for guys like Tommy Humphreys who have come into the industry in the past few years.
CEO Technician: So who are your favorite people to read? If you woke up and you could only read 5 people who would they be?
Bob Moriarty: The #1 in the world would absolutely be Grant Williams. He takes a global view and has decided that writing for free was stupid so he started a website and he’s going to lauch a subscription service. From a technical point of view the very best guy in the industry is Brent Cook who does a wonderful job of explaining projects and companies from a technical point of view. I really like Steve Saville, I like him a lot and we’ve been posting his stuff for years and years. I’ll be honest we have 10-15 of the best writers in the business writing for 321gold.com. 321gold is not about Bob Moriarty and his view of the world, it’s an amalgamation of the best writers and the best thinkers.
CEO Technician: What do you see over the coming years in the junior resource space?
Bob Moriarty: I think it will look like the early 2009 to 2011 period on crack, take that 2 year period and amplify it 2 or 3 fold. With the number of black swans floating around I believe that 2015 will be the year that people realize the system is utterly broken.
CEO Technician: It’s interesting you say that because it brings me to the next question. If you had told me a couple years ago that Russia would be invading Ukraine and flying bombers throughout Western Europe, and there would be coup d’etats throughout the Middle East and about ½ of Iraq and Syria would be controlled by an extremist Islamic terror group I would have told you that the S&P 500 would be about ½ of what it was today and gold would be about $2,000/oz. So what are your thoughts on Ukraine and Russia and what are your thoughts on how the US equity market has managed to maintain this levitation in the face of so many potential powder kegs?
Bob Moriarty: We’ve been conditioned to believe that the market responds to news. And there are certainly days like today where we can point to the jobs report and say “this happened and this was the market reaction to it.” But by and large the market does not reflect news on a daily basis. If you go back to the low on November 6th, why did it turn around? Everybody was so negative on it that it had to go up.
CEO Technician: There was no one left to sell!
Bob Moriarty: That’s correct. There were only buyers left. And today (gold was down $31 on Friday) is part of a perfectly normal correction.
CEO Technician: Can you share with our readers some nuggets of wisdom when it comes to investing and any lessons that you’ve learned over the years that you would like to share?
Bob Moriarty: Well the first thing they need to do is read “Extraordinary Popular Delusions and the Madness of Crowds”. Everybody that I know who has made money in the market is familiar with the book. Those who are not familiar with the book will not make money. It was written about 1860 and what it talks about is the insanity of people. I’m very good at calling tops and bottoms because I observe the behavior of people and I ignore what i’m being told. If people will read that book they will learn everything they need to know about human behavior and how to profit in any investment.
We would like to thank Bob for his time and for sharing some gems of wisdom and his market insights with our readers. We look forward to doing it again soon!