Bill and Grant are joined by their mutual friend, Fred Hickey, author of The High Tech Strategist for over 30 years.
Despite a couple of technical glitches, what follows is an extraordinary deep dive into Fred’s process for producing his incredible monthly letter, an examination of gold’s role in a portfolio and some detailed explanations as to why gold and, in particular, some of the companies that pull it from the ground have an important role to play in The End Game.
Yes, Bitcoin is discussed. No, Bitcoin fans won’t like what’s said, but their time will come so don’t let that distract you from what is an absolutely phenomenal contribution to our search for The End Game…
Grant Williams:
Before we get going, here’s the bit where I remind you that nothing we discuss during The End Game should be considered as investment advice. This conversation is for informational and hopefully entertainment purposes only. So, while we hope you find it both informative and entertaining, please do your own research or speak to a financial adviser before putting a dime of your money into these crazy markets. And now, on with the show.
Grant Williams:
Well, welcome everybody to another edition of The End Game. We have another very special guest joining us shortly, but before that, it falls on me to introduce my partner in crime here, the great Bill Fleckenstein, hi mate.
Bill Fleckenstein:
Mate, how are you, this wonderful day after Thanksgiving?
Grant Williams:
Day after Thanksgiving, yes. Coma Day as I believe.
Bill Fleckenstein:
Food coma.
Grant Williams:
Yeah, exactly. So Bill, we have a mutual friend, Fred, he’ll be joining us in a moment. I think no matter which way we go with this End Game discussion it feels to me that some how, someway gold has a role in The End Game. Whatever it may be, whether it’s temporary stabilizing measure, whether it’s as a a currency, whatever it may be, it’s going to play a role in the transition from the now to the then I think.
Bill Fleckenstein:
Because one of the unwritten premises that created the discussion of what would the End Game be is, because it is the consequence of the abject lunacy or recklessness that has gone on for at least 20 years by these active central banks. And if the thing, the medium that they’ve debased by all their money printing, it will almost seem like something that the monetary asset that cannot be treated that way, ought to have some role or ought to be some beneficiary in the transition process. So I don’t see how gold won’t be part of it somehow.
Grant Williams:
Yeah, Bill, I’ve been subscribing to The High-Tech Strategist, for a long time, Fred’s newsletter, it is by far and away the single greatest value for money anywhere on the planet earth, I reckon.
Bill Fleckenstein:
I couldn’t agree more. I’m always fond to telling the story, that when I first bumped into Fred in 1995-ish, The High-Tech Strategist was a whopping $90. And in after reading it maybe once or twice and talking to him, I said, “Fred, you got to increase the price of this thing. It’s ridiculous.” I mean, how anyone can be involved in finance and not spend $100 and change this stuff to mew is mind boggling to me. And so one of the things that always drives me crazy on Twitter is, there’s a lot of jerks on Twitter, but there’s also a lot of people who are trying to pass along thoughtful information, which Fred does from time to time. And I see complete knuckleheads attacking him. They don’t have any idea of the amount of work behind the thought. He’s not shooting from the hip as most of them are. And so maybe we’ll be able to get into a little of that as we go through this.
Grant Williams:
Yeah. Well, if we are going to talk about gold and get into the gold stocks, for my mind, there is nobody better to do that with than our guest today. So why don’t we welcome the great Fred Hickey to the show. In a normally functioning world at this point in the show, you’d be hearing a conversation between Bill, Fred and I, however, as you will hear, as we get into this show proper, we had some technical audio issues this week. And part of that is we lost, unfortunately the first, I don’t know, 10 minutes of this conversation with Fred. But what we spoke about is something very dear to Bill and I’s hearts. It’s something we really wanted to make sure people understood. And that is the process that Fred goes to in putting The High-Tech Strategist together, and also his history really of how he got to where he is.
Grant Williams:
And Bill, I know this is something that you’ve spoken to at length about it. Something you wanted to make sure we touched on. Touched on it we did, but we lost the audio. So I’m hoping that you and I can really be proxies for Fred and fill people in on what we talked about, because I think it is important.
Bill Fleckenstein:
Well, I do too. And as you noted, it’s one of the things that I felt was important that I did not think very many people appreciated. Having talked to him basically every day for 25 years, I’m intimately aware of the amount of effort that goes into the newsletter. And I thought that people really needed to understand that to appreciate what a sort of resource he is and his letter is. And so I’m going to try to paraphrase what he said, I’m not going to do as good of a job, but I started off by asking him how The High-Tech Strategist wound up so heavily invested in gold mining stocks. It doesn’t seem obvious at first and his answer, as detailed answer was, “It came about because of what happened as the stock bubble ended and money printing began,” although it was kids’ stuff relative to now, and his thinking-
Grant Williams:
And this was back in 2000, right?
Bill Fleckenstein:
Yes. The first one of his letters he really discussed gold in some detail, was in the summer of 2001, I believe. And it was pretty near the low. He’s basically caught the entire move, but that was not the point of it. It was his detailed bottom up analysis that he gets from doing so much research each month, combined with the overview that that research yields. And he noted, for instance, the day after Thanksgiving when we did this, and on Thanksgiving Day, he listed the six conference calls and he shared with us the nugget he picked up from the Hewlett Packard call about printing supplies being in surplus, a tiny indicator that maybe the economy is not as good as some people think. And I remember over the years, he would always pull a nugget out of some odd place.
Bill Fleckenstein:
He listened to a Steelcase call because it had to something to do with furniture, which impacted something else. And he was always coming up with these sorts of things. And he said to us, and I think there’s a snippet of it we still have left, where he noted that it oftentimes he’ll end up with 600 to 900 pages of notes that he accumulates daily in the lead up to writing the letter. And then he said the letter writes itself, which is maybe partially true, nothing ever writes itself. But in any case, I remember there would be times that we’d be talking back in the mania either one of the two manias, and he would say, “Listen to this.” And he dropped what sounded like a big phone book on the desk and you hear this thud, and he says, “That’s my stack of notes from getting ready for this call.” And then he has to file them all away.
Bill Fleckenstein:
The point being that he’s incredibly methodical and doesn’t miss much of anything. So it’s not like he just scratched around and likes these mining stocks. He’s done deep dives in them as he does in tech stocks and listens to countless numbers of conference calls, as well as reading other things to accumulate the body of knowledge that he has to come up with the ideas that he comes up with. So I did a poor job of describing as accurately as he did, but at least that’ll give a flavor of what he goes through, so people can really appreciate. Because today, people see all kinds of folks on Twitter popping off about this, that and the other thing it’s not easy to tell, well, who really did some in-depth research and who’s shooting from the hip? And one thing’s for sure, Fred doesn’t shoot from the hip.
Grant Williams:
No. Yeah, I think you did a great job actually putting it together, because I was blown away that six to nine… And you’ll hear me reference this in the podcast proper, when I’m just agog at how he distills his work down the way he does. But the other thing that he spoke about, which really hit home to me, when we talked about what took him from technology stocks to gold stocks. And Fred elaborated very clearly as he always does, that at the end of that main year in 2000, 2001, through beginning 2002, he saw that the only solution to this was going to be money printing. And so what he wanted to do was protect his wealth. He’d spent a lot of time working hard through that tech bubble to make that money. He caught the top, he captured it, he monetized it and he wanted to protect it from what he saw as malfeasance. And what he saw was constantly skyrocketing deficits. The debt can expand.
Grant Williams:
And that was really what led him to gold stocks. It was a very long-term view that he took back then. It was a 20, 30, who knew, 40 year view he took that this is going to be my problem. And he identified that the gold stocks, not only would they protect him from that, but they were beaten down as hell because nobody had felt they needed protection for the last 25 years almost versus… Well, I guess there’s the late 70s and early 80s. So that long-term framework within which trades backwards and forwards and looks to time the market, put all around a core position, I think was a very important thing for people to understand, that at its core the gold miner part of Fred’s portfolio is a very long-term secular position that he has that serves a purpose. It’s not necessarily a trading vehicle.
Grant Williams:
This is to protect the money he’s made against all the things that we’ve identified in previous podcasts. So that was the other thing that really struck home with me, because when you think of it that way, I find it makes it much easier to deal with the peaks and troughs that you get along the way emotionally.
Bill Fleckenstein:
Yeah. I completely agree with you about that. Okay. Well, there we’ve tried to fill in for Fred.
Grant Williams:
The best way. And Fred, when you listen to this, we’re so sorry we took the words out of your mouth rather than make you do it all again. We figured we try and have half-arse it ourselves. So with all that being said, let’s return to our regularly scheduled programming.
Grant Williams:
Fred, there’s so much that I want to talk to you about, because The High-Tech Strategist is a remarkable letter, and it’s even more remarkable when you understand the level of work you go to. I’ve mentioned this quote before, but there’s someone, I think it was Blaise Pascal, I’m not sure, but someone once said, “I would’ve written you a shorter letter, but I didn’t have time.” And there’s a real art to taking 900 pages that you do, six to 900 pages, and distilling it into something so dense, but yet so readable. That is an incredible skill because every word in The High-Tech Strategist is important. And I sit and read it as soon as I get it every month, and it’s so dense. I mean, it really is. How do you go about reducing all that information to such an impressively rich kernel of information. I can’t do it.
Fred Hickey:
It would be easy. I mean, actually the newsletter sometimes ends up being 13 pages and not eight. And then I have to cut it back, cut it back, cut it back, to the most important information. But I also have an idea of what people really need to hear. Well, I have an idea of who my subscribers are. They generally don’t leave. They’ve been with me for a long, long time. My followers aren’t momentum trend followers, that kind of thing. They’re value investors and they’ve probably invested in gold. Some of them may be short in the market because they don’t trust the value, with the insane valuations that we have today. Another thing is, I’m in there with them too.
Grant Williams:
Yeah.
Fred Hickey:
What would I want to? What would I need to know to get me through this difficult month? Say for example, or what should I be doing? So here we are with the market, maybe things are undervalued. Well, I need to explain why things… And so how do I go about doing that? Well, when I’m going through that two day process of going through those notes, I’m thinking about that. And I’m thinking, “Well, this is an important point, this is an important point, this is an important point.” And when the time I finally get down to writing it, I know really what I want to say. And then it gets edited and condensed and that’s the final product. And it works, I think. Certainly the subscribers keep coming back each year. And that’s about all that counts, I guess.
Bill Fleckenstein:
Given the fact that we’re having this conversation the day after Thanksgiving, as you noted yesterday was Thanksgiving. There’s been obviously a big correction in the price of gold and the mining stocks to things that you and I and Grant all care about. And I think a lot of people would too. So where do you think we are in the… Obviously the gold market is a difficult market to develop a real edge in. I remember back of the day, when I was short and you were buying puts and we were battling things, it was often possible to triangulate on who might be next blowing up by putting the pieces together as you did. And you could feel like you could get an edge.
Bill Fleckenstein:
One of the problems with the gold market is being in it’s… I mean, there was supply and demand fundamentals, of course price and cost of goods and cost of production, but it’s a macro market. It’s hard to develop an edge, but you still have to have some idea of where we are and why we’re there. So maybe you could explain… We’ve had this big correction and who knows why and where do we go from here in the gold market? Might you please share your opinion about that.
Fred Hickey:
Well, so we had a huge run this year. We started at $1,500, I guess, in gold. And we went up to almost $2,100. And there’s a number of things I watch. And I watch sentiment indicators and I noted that by July, August sentiment had gotten a bit extreme. The articles in the newspapers were bullish on gold. You had Bank of America Merrill Lynch putting out $3,000 target prices for gold. The BPGDM, which is The Gold Miners Bullish Percent Index, not so much a sentiment index, but it’s a measure of how overbought and how oversold gold stocks are that hit 100%. I sensed that we were likely due for a correction at that time. And I actually tweeted that out in July 23rd, that I was expecting a correction and that I was trimming back positions in my minor positions.
Fred Hickey:
And hopefully I hadn’t trimmed thme back too far. And then I said the same thing in the August letter. So I was trimming back at that point, and that’s what I try to do when things seem to be overvalued and overloved, then I’ll trim back these positions. And then when they’re hated, which is not where we are right now, then I then I add back to positions. I dribble in, as I say. And I’ve been doing that for some time. And in 2011, I had pulled back. I had trimmed positions in 2011. I did so again in 2012. And because same thing, we had a excess of sentiment, the market was overextended in gold. And and then I dribbled back in. Now, that went on longer than I thought it would and went deeper than I thought it would.
Fred Hickey:
It’s hard to predict what a gold price will do. It’s hard to measure. There are ways I try to measure it, as to whether it’s undervalued or overvalued, but but it goes in swings, these great swings. So I pulled back. I started buying back in, dribbling in, and I’ve been doing so little by little. And I also know that I never go on margin debt, because I’ve seen prices go anywhere in these tech stocks in 2000. They can go to crazy levels and they’ve done the same again. So anything can happen in the short run in the gold market, but I understand that I know that I need to be there to protect my wealth. One thing gold does is it’s a storage of wealth.
Fred Hickey:
And so on the edges, my biggest core position remains intact all along. And I know that’s the case with you too. We want this for the same reasons. It’s because these central bankers are out of control and the governments they are out of control too, there’s fiscal spending. So I need to protect myself against the debasement that’s going on. So I keep the core position, but then I have this, what I call a trading position that I’ll go back and forth with. So currently I’m in buying. I’ve been buying again. Now, I thought that the market had been washed out after three months of a correction, and we’re now in four months, but after three months. So a month ago, I thought that we had washed out all the weak hands.
Fred Hickey:
The DSI went to 16, it’s daily sentiment of extra gold. It’s very low. Historically when you get down to around 20, I mean, throughout the 2000’s global market if you look, every time we got to around 20, you would have rallies. And so it went down to 16, sentiment was much more negative. And I thought that we were there, we broke through some technical levels to the upside. We had gone through 1900, then 1930 was important, we went to 1950. I thought that that was it. That was the end of it. What’s happened since is, that we had the vaccine news. And that came in three consecutive weeks. First, it was Pfizer, then it was Moderna than it was AstraZeneca. And each time, there’s been a group of traders, future traders, who’ve been hammering gold on that news.
Fred Hickey:
And so it’s been pretty tough the last couple of weeks. So today, this is the day after Thanksgiving, which is a short day in the markets. These traders, these speculators, and we’re talking… I know who’s doing this. And these people manage hundreds of billions of dollars in money. And what they try to do is to say they’re trend followers and the momentum followers, but they also like to try to break chart points. So today we were sitting just above the 200 day moving average on gold, which is around $1,800 an ounce. And it was a nice short day, low volatility, perfect for them to try to break that 200 day. And they did this morning, and it went down $30 here to 1770, 1780, something like that.And look, what’s interesting about today is, is that the miners aren’t going along with this game.
Bill Fleckenstein:
You have Agnico up 32 cents and you have-
Fred Hickey:
You have Newmont up and Kirkland is up. These are some of the majors and they’re all up today, yet gold is down $20 right now. And that might be telling us once again, that we’re hitting a bottom. I know the DSI last I look was 20. I imagine today will be lower, 19 or somewhere. That tells you we’re close to being out of autumn. That BPGDM, The Gold Miners Bullish Percent Index is at 30s. The RSIs are low. It looks like it’s washed out. And I also know that even though we don’t have any stimulus going right now, we will. And it’s only a matter of time. When Biden gets in and maybe before, there will be an agreement between Congress and the new president that we’re going to have a huge stimulus, and that should be bullish for gold.
Fred Hickey:
One of the tough things about this correction is, and especially today for an example, is that it looks like gold. It’s a perfect environment for gold. We have 17 and a half trillion dollars of sovereign bonds that are negative right now. Real rates in US and rest of the world are negative. And that means that inflation is higher than the yields you’re going to get. Now fed’s suppressing rates to 0%. So you have zeros all the way up to… You’ll get one and a half percent and 1.6% in the 30-year, but under one in the 10 year, and you got inflation that’s a lot higher than that. So you have negative real rates. That’s a perfect environment for gold. Gold usually does well at that time.
Fred Hickey:
You also have this appointment of Janet Yellen, who’s an uber-dove and an activist. And she’s going to be head of the treasury, working with Powell who is also a dove. These are the most bullish conditions you possibly could have for gold, yet it’s going down. Well, it’s going down because fundamentals don’t matter in the short term. What matters is that there are these huge funds that are pushing gold around and trying to break chart points. So when they do that, they try to scare people. And they stampede them out of their positions. So what I try to do is, I buy when there’s… Well, I mean look, what does Warren Buffett say? People are fearful. Well, I try to be greedy when people are fearful. They’re fearful now. They weren’t in August. So I dribble in. I know that it could go lower. Since we broke the 200 day moving average today, it’s possible it goes lower. I don’t know how low it can go.
Fred Hickey:
There are various ways to look at value in the gold price. There’s a pretty good correlation between the budget deficits and the price of gold. If you look at that, they were holding together pretty nicely until recently when the budget deficits went wild. If gold continued at that rate, at the pace it was, deficits, you’d have $3,300 gold, for example. There’s a dollar to gold ratio. Well, that’s been as low as one in the 1980s at the top, early in 1980, while we’re 15 to 16 now. It indicates that gold is likely undervalued relative to the stock market. The value of US gold reserves as a percentage the monetary base. So that’s almost at a record low. 10% in 1980 was 112%.
Fred Hickey:
So gold looks to be undervalued, but it doesn’t matter in the short run when the manipulators are playing the games. Now what happens is, is that you could see this and may have, what they call, to go manage money. And I watched that very closely in the COT report. And right now they’re at low positions. They have a net long position that’s 60 plus percent below where it was earlier this year. Which indicates that they built up their shorts and they’ve reduced their longs as they have been knocking the price down. And I would love to be able to see what it is today. We usually have COT reports on Friday, but because it’s a holiday here, we’re not going to get it until Monday. And I suspect we’ll be down into just maybe 30 or 40,000 contracts at this point, based upon all the pushing that’s been going on in the last several days, which is a very low level.
Fred Hickey:
And when that happens, they are always, always wrong at turning points. So the bottom in 2015, they had a negative, a short position. At the top in 2016 and 2011, they were heavily, heavily long. Right now they’re underweighted. So I think that we’re getting close here. I never know for sure. It’s a good sign that these miners are digging in as well as they are today, and hopefully we’ll see some… And gold has come back quite a bit and hopefully we’ll see a turning back point, one of those intraday reversals that brings you back above the 200 day moving average, then I’ll know a little bit better.
Bill Fleckenstein:
This is a really good point you make, Fred. After I just alluded or discussed the fact that being a macro object like gold there’s not very many times you can get an edge, but one of the things that has worked quite well is when there have been days like this, assuming the day finishes like this, and it may not, when gold’s getting hammered and it’s been in a long decline, pretty violent decline, hasn’t been that long, and then the miners dig in, oftentimes that is a pretty good signal. And when you marry that up with the DSIs are, and we’ll find out about from the Commitment of Traders report, this is one of the things you can put together to try to get your arms around what might be a good time in such… It cracks me up that we’ve been discussing an actively find in the gold market for a long time. And one thing we know is, we can’t out-trade it very well.
Bill Fleckenstein:
And always other people I see that they think they can get every squiggle on something where you don’t have an edge. But anyway, my point in bringing that up is this might be one of the few times when you can put a package together of data and say, “Yeah, this might be a really good opportunity.”
Fred Hickey:
Well, I think you can. At those points you just never know if it’s going to continue further. I mean, in 2015, I put everything in at the end of that. And I put everything I had into the gold. I was so certain that it was there. I didn’t know if it would go lower. It could have, it didn’t, and that was… Of, course I put it in over time too, but by the end I had pretty much everything. And so there are times here… And it’s sentiment, sentiment’s so important. I know you have your Hate-Mail Indicator. Well, today for example, I talked to some very veteran multi-decade hedge fund managers, and I’m getting calls this morning. I’m trying to prepare a little bit for this, and I’m getting calls this morning. They need their hand held.
Fred Hickey:
And when it gets to this point, usually it’s telling me that we’re near a bottom. These guys are hard as rocks. I know they won’t break, but they just need a little bit of support. And they know if they come to me, I’ll give them my non-emotional position about it, and it helps them in these difficult times. But when I’m hearing from them, it tells me that’s another sign, sentiment. I mean, you could say the DSI’s are turning, it’s another thing to, “Here, see all the emails and get the phone calls and everything else.” And that tells me too. So like I said, I have this core position, but it’s trading position you can at least get a good sense that you’re going to be close. You never know for sure. And that’s why I never put all my money in.
Fred Hickey:
I always make sure I have plenty of cash. I don’t go on margin. I always have plenty of cash. I have plenty of cash right now if this market goes further. I put quite a bit in from what I had sold, but I look back in 2011 and when gold was 1900. Then I saw when we were back at 1900 10 years later almost, and I looked at my portfolio and I said, “Gee, I’ve made a lot of money over that time.” And I was up quite a bit. And the reason is, is that I’ve taken advantage of the times when people were at maximum pessimism, which is what John Templeton talks about. And then I’ve sold some trimmed back at maximum greed. And so it works over time. This such long for me. It’s a 20 year trade.
Bill Fleckenstein:
Yeah.
Fred Hickey:
And I think it’s a 20 year secular bull market. And we have had cyclical corrections in the midst of it. And unfortunately I have to still be in this market this way, in the gold market. I’d rather be doing 100% tech, but I have to protect myself against undisciplined fiscal spending and budget deficits. The same things I talked about in 2002, I have to protect myself against the federal reserve flooding the system with money. And it’s not just the federal reserve. It’s every major central bank in the world. They’re all doing it same time, they’re colluding. And it’s one of the reasons why it’s gone on so long is that usually if you go back in the past, one currency would break, the one was that was being undisciplined. But because they’re all colluding, they don’t fall against each other. They only fall against gold and silver and that’s why I have to remain in this trade.
Fred Hickey:
So I trade around the positions when I see… I don’t try to get the tops, I don’t try to get the bottoms because it’s impossible. All I want to do is to be able to buy more when they’re lower and sell more when they’re higher. And in the end, and I looked at it after the 10 years, “Gee, I’m doing pretty well doing that.” Even so trading it within this long-term bull market that I have to keep to protect my wealth.
Bill Fleckenstein:
People forget you partially, because most people look at the stock market as a marketing, and we all know the reasons why it’s the story, but in some ways the gold market is still a real market. It’s not being administered to by the fed. And doesn’t have all the crazy things that are going on in the stock market. And I’m reminded that oftentimes when you have a setup that looks as good as the one that you just described for the backdrop that would be good for metals, sometimes right before you’re going to get a great run, you have some perverse market reaction in the other direction. So if it were to turn out that this was the low and given the likelihood of the friendliness in the Biden administration and the fed, it wouldn’t be unprecedented if we had the smack down right here right now, right in front of that.
Fred Hickey:
Every time you always have to wash out any of the weak hands. And that’s what this kind of trading activity does. I mean, I don’t like the fact that these big funds are pushing the price around in the short term, they can do that in the short term, but in a way it benefits me. And it does wash out people. And I think that’s where we are. I mean, it’s been day, after day, after day, grinding, grinding, grinding, it wears on them, I hear that. And then you get a day like this, when the dollar is down, the dollar is… They can’t figure it out, but dollar is down, Yellen’s here. Everything they’re going to be printing… I can’t figure it out.
Bill Fleckenstein:
It’s so perverse.
Fred Hickey:
And after 10 days of getting pounded, they give up.
Bill Fleckenstein:
Yeah.
Fred Hickey:
And so at that point, there’s no one else left to sell. And that’s maybe why the miners are up today. There’s no one left to sell and you’ve hit bottom, maybe. But I know not to put everything all in because it may not be either. And I mentioned that the other thing too is that, this is a true store of value. I don’t like to talk about Bitcoin very much, but because one of the arguments here is that Bitcoin is a new gold. I just can’t buy that. I know these same money managers have been pushing up Bitcoin as well. Because they’re momentum traders, but I look at it and I said… There’s two arguments. I think that for Bitcoin, one is portability. And the other one is it’s supposed to have limited amount of Bitcoin available.
Fred Hickey:
But I look at the 7800 different cryptocurrencies there. And almost every one of them looks exactly like Bitcoin. They’re all up a lot. They’ve all crashed. I mean, Bitcoin crashed about $2,000 over the last couple of days. They all crashed at the same time. They’re all up at the same time that fuel cells are being… Companies are being bought and electric vehicles being bought crazily and marijuana stocks, their speculative objects. They go with speculation. The more speculative it is, it seems like that’s the time for Bitcoin. Gold on the other hand, it doesn’t do well in speculative moments. You don’t need gold at that point when there’s euphoria. It is a store of value.
Fred Hickey:
And as far as affordability, while it does have an advantage over gold, but I could always transfer my assets into Bitcoin if I had to leave the country, heaven forbid, I mean, I don’t see that happening, but if I had to, I could that. Or better yet, I could put it into digital gold. And then get it transported to wherever my destination country. And I’m not thinking that’s going to happen at any time, but that’s the only time I would need portability. So this whole argument that the gold is dead. We’re hearing that all the time. I’m being told this on Twitter and everywhere else, “The world has passed you by, you don’t understand, blah, blah, blah, blah, blah. This is the new thing. And it’s a new technology.” And I just look at it and I say,” No. I mean, I don’t buy into nothingness. I don’t even know who the founder of this thing was.”
Fred Hickey:
I know who some of the charlatans that are behind it you’d have a Winklevii and you’ll have a McAfee and these guys, and it’s a very tiny market. I mean, you’re talking $350 billion for Bitcoin, and that’s the size of Nvidia just Nvidia, 350 billion. But there’s always all over these other ones as well. I mean, Ethereum 67 billion and XRP is 31 billion. They’re putting in any of this stuff that they can, it’s not just Bitcoin it’s unlimited. And then they can do forks. The number five large, is what is Bitcoin cash? The number 12 biggest is Bitcoin SV. There is no limit to these things and if Bitcoin got too expensive, they would just go to another one. And so this argument that there’s a limit to Bitcoin, no. These are speculators. They’re piloting into anything that’s cryptocurrencies and all of them.
Fred Hickey:
10 year history versus 5,000 year history for gold. Gold being used in all cultures as a store of value and as jewelry for thousands of years. And independently, they came upon gold because of its various perfect almost criteria that it has that it’s durable, it can’t be destroyed all of gold’s… Gold has another thing that Bitcoin doesn’t have. And that’s the allure. Put a Bitcoin in your hand and what do you have? Put a shiny gold coin in your hand. Now there’s a reason why people have been chasing gold for all these years, and that’s the reason why… I mean, you’re not going to adorn around the world. Women are not going to adorn themselves with Bitcoins. They will adorn themselves with gold because of its beauty.
Fred Hickey:
There’s real intrinsic value there. And with a Bitcoin, it’s just a digital number that can easily be hacked. If you’re in a digital exchange, they’ve lost billions of dollars in these various coin exchangers, they’ve been lost. If you lose your digital key, which many people have done and they’ve lost billions there, it’s gone forever. You’ll never get it back. And then ultimately you have the risk of governments either undermining it or banning it, or in rogue states, Russian hackers using quantum computers stealing the digital keys at some point. So for all these reasons, I don’t get it. I’m going to stick with my 5,000 year gold, but it’s one of the arguments that comes up at every major gold bottom. So when gold is down, the Bitcoin trolls come out and I hear this over and over again. And then it reverses. So it’s all a sentiment that you look for. And part of it is this Bitcoin.
Grant Williams:
Fred. Now, that we’ve we’ve lost all the Bitcoin crowd from this podcast, we can talk about [crosstalk 00:37:04]
Fred Hickey:
We re going to lost them, they’ll be all over me and you.
Grant Williams:
They will be all over again, I know.[crosstalk 00:37:08]
Bill Fleckenstein:
Well Fred, that’s because they have 9,000 pages of research each month. See, they’re doing more work than you.
Grant Williams:
But Fred, let me ask you because gold miners, the metals, whichever way you look at that, the whole complex of precious metals, it’s something which a lot of people have a great deal of difficulty trading. You see it all the time, and you’ve just outlined a lot of that sentiment and the problems. But when we go back to that first letter that you wrote back in August of ’02, I think you said it was. And you listened to what you said there, which as you said was all absolutely correct. And here we are, 18 years later. That’s a long time horizon for any trade. But to have that ability to think these are the problems that I see, deficit that’s not a short-term problem. That’s not a price change in a day or a week or a month. That’s a long-term structural problem. As is the recklessness of the governments, all these problems are long-term problems.
Grant Williams:
And if you have that approach to it and you can understand the psychological swings in between, sticking to that long-term framework is quite simply the only real way to be able to trade the precious metals complex. You have to have that long-term view exactly right. So how do you go about explaining to people how from mental standpoint to try and put those two things together, long-term view with the short-term understanding of market fluctuations, because from what I read and what I see, and the questions I get at the bottom is the same as you do. It seems such a difficult thing for most people to understand, to reconcile having a core long-term view and understanding like you do, “Hey, this is a washout, these happen. They could go lower, but I still…” How can you help people stay on that road?
Fred Hickey:
Because we have 0% interest rates, because we have such money printing, it rewards speculators, and it creates speculators. And everyone is a trend follower now, because that’s what works. It doesn’t matter if you buy Zoom at 567 PE or Snowflake at 150 times sales, which those are their numbers right now. Or Tesla, 1,100 PE. It doesn’t matter, they’re going up. And so I get all kinds of comments. Well, I’m making money. I know that’s what counts and the only thing that matters. But I remind people that I’ve been through these wars, Bill and I have been through these wars. I started writing the newsletter before 1987. So I told you, I went through that. And then in 1990 decline, and when they were giving tech stocks away. In 2000 where they crash, or they exploded higher to manic levels and then collapsed. They’re losing 80, 90% of their value. And then again, real estate and credit bubble. And then another tech bubble. And here we are again.
Fred Hickey:
So we’ve been through all these wars. A lot of people who’ve been with me a long time. I said, “Let’s remember this.” Now, what are we doing? We’re trying to protect ourselves. Gold doesn’t increase its value at all. It just holds its value relative to a debasement pair. So I try to remind people, I try to remind why are we here and why are we here. Now, I’ll tell them, I said, “Well, I think that these miners are up today and that might be an indication that we’re getting into a bottom. So this might be a good time to be buying it.” I told Bill that in the midst of all of the panic and the phone calls and emails and everything else this week, I got an email from Felix Zulauf.
Fred Hickey:
One of the great things about being on the barron’s round table for a decade, was I got to meet some really great investors. I mean, really great long-term investors. John Neff, for example. Felix Zulauf, one of the most brilliant guys I’ve ever met on Wall Street. Bill Gross, really thoughtful guy. Mark Faber historical genius, I think. He has such great knowledge of financial history. But anyways, Felix is one of my favorites of all of them. I’d say he is my favorite. I got an email out of the blue from him, and he said that… Now, I read his stuff intently. I already knew that his cycles are telling them we were likely to be at a near a bottom, at least an intermediate bottom in early December. And that also fits a seasonality.
Fred Hickey:
The best seasonality for gold, the best six weeks of the whole year starts in mid-December and goes to January. Where in the last seven years, it’s up every year. Double it usually in the gold stocks. So I know that that’s behind us as well, and he sent this email, and in the midst of all this panic, and he was the one guy that said, “You know what?” He asked me, “Well, what gold stocks should I be buying?” Now, that’s what you should be doing. Right?
Grant Williams:
Exactly right.
Fred Hickey:
That’s what you should be doing there, but when he said that, it gave me confidence that I was on the right path. Another thing too is, it was interesting, Grant, I’ve loved so many of interviews, but one of the most favorite one was with Felix when he went down to Naples with them. So he used to go, and one of the things that stood out, it was all a bunch of things, I was taking notes and everything. One of them was, he said that he has a core group of people, maybe three to four that he’s been with for decades that are sounding boards for him. They think like he does, and they help each other. It was funny, because I have had the same group of people, same number, three or four core people. Bill was one of those, we’ve been dealing with gold for 25 years now.
Fred Hickey:
You’re one of the core three or four that I talk to all the time. We think alike, we know we’re not going to get really emotional that if he sees something or I see something, usually we both see at the same time, a lot of times we do the same trades without even talking about it. An incredible, in a very nichey trades and we’ve just done the same ones at the same time. We hadn’t even mentioned it together. We’re on the same level, but we can also help each other. I consider myself pretty tough investor, a long-term value investor. And that doesn’t get shaken very much, but even I need the help, that kind of help, to know that there are other people that think like I do. So, “Felix thinking, that should be buying right now. Well, yeah. That’s a great sign, that we’re near a real bottom. Well, my group of people that I speak to all the time, we are all on the same wavelength here.”
Fred Hickey:
Now, the other people, I have to say, I try to give them the history. I said, “What are we trying to do here? Let me go back to it. We’re trying to protect ourselves against this debasement. That’s not changing. That’s only getting worse. It’s worse and worse and worse. The deficits are just getting bigger and bigger and bigger.” If you look forward to next year, they don’t look like they’re good. We’ll be at 30 trillion within a year or two, for sure. So, we have to continue to do this.
Fred Hickey:
So, what I try to do is bring that historical perspective to people and say, “What are we trying to do here?” They may be all excited about what’s happening, and they are, oftentimes, what’s happening in the last day, hours, minutes, weeks, but I try to bring them back to what you’re trying to do. The people I deal with, I tried to deal with, are value investors like me, who are in this thing for the longterm. Now, at first, I was in it to grow my assets. Now I’m older, now I’m in it to protect my assets. Even in 2002, I was protecting assets, I had made a whole bunch of in tech. I was trying to protect that from the debasement that I saw would occur.
Fred Hickey:
Fortunately, everything’s grown since then, because the gold market has been a good place to be. Gold stocks can do really well, or they also get hammered. We had a 1600% run in that, 2000 period, that was quite good. Then, of course, there was a collapse in the bear market, but I try to bring people down, back away from the screens, from all the emotion and say, “This is what we’re trying to do.” And that usually works for people who aren’t off the wall.
Bill Fleckenstein:
Well, speaking of gold stocks, how about if we walk through two or three that you like, and give people… Maybe you can describe why you like them and the value that you see, because I think a lot of people don’t really understand or haven’t quite come to grips with how strong the underlying financial statements are, both in income cash flow dividends and so, they’re in such a good position, as businesses right now, that if you marry that with a higher gold price, they could see a lot of appreciation, but I’ve not seen anywhere where anyone’s actually talking about, “Well, here’s an example of how cheap they are and why I like them.” So, maybe you can pick two or three, and just give us a-
Fred Hickey:
Well, first of all, just to start off, we had that great run, 1600% run and then we had a great crash in the juniors. It was 90%, that kind of decline. Some of it was deserved, I mean, of course the price of gold determines the valuations of a lot of these gold miners. In addition to that, there were some circumstances that weren’t their fault, but we had also Chinese, were coming on to that great recession and they were spending $40 trillion in building infrastructure and they drove up the price of commodities. So, the price of oil went crazy and the price of steel went up, and all of that. So the costs, their input costs went up.
Fred Hickey:
In addition to that, as happens in with every group, certainly in tech, they go crazy in 2000, they’re going crazy now and they’re spending and some of the stuff there, some of the antics they’re doing, but at that time, gold market had gone up a lot and had gone up to 1900, they were filling their routes and they made a lot of the managements. A lot of them, made a lot of bad decisions. They acquire companies at high valuations and they tried to expand assuming the price of gold would be very high, and as a result of that, the stocks collapsed and investors just… The other thing to remember, is that most investors got into that market, the gold market, at the end, they always do. So, they get absolutely killed.
Fred Hickey:
So we’re talking now, people in my [inaudible 00:48:17] we don’t do that, but most people come in then. So when the press is talking about the next level of gold, how high it’s going to go, that’s when they’re piling in. So they really got burned, it was terrible. There’s a distaste in there, still for gold stocks. Now, the price of gold has gone up a lot here. We bought them in 2015 at 1050, we bought them again at 1180, in 2018, we had a big run.
Fred Hickey:
This year alone, we went from 1500 up to 2000, currently, 1800 or so. But as a result of the difficult times these managements went through, and many of all the ones that made the bad decisions are all gone. All of those managements were turned out. It’s only the guys that didn’t make the wrong decisions are still CEOS and CFOs. So, they’ve all been turned out and they are all very disciplined now. And you hear that word over and over again, I talk about listening to conference calls and tech, while I do the same thing for the gold miners, I listened to all those gold mining conference calls. Also, when they go to Denver Gold Forum and those kinds of things there, they’re various utterances and they’re all saying the same thing.
Fred Hickey:
We know that the industry made a big mistake, we’re not going to repeat it, we’re a disciplined now, we’re not gonna use high level gold prices to base our decisions on expansion, we’re going to grow. If money aren’t even going production, and they don’t have any intention to, like Newmont and Barrick, they’re not growing production, but they’re going to grow cashflow, they’re going to grow earnings and they’ve been doing that, particularly, this year. The problem is that it takes a long time to get that bitter taste out of investors’ mouths, and they haven’t seen the big numbers. They didn’t see it in the first half of this year because of COVID. So, a lot of the industry temporarily got shut down and production levels fell.
Fred Hickey:
I know in Pan-American, almost all their mines were shut and, in Agnico’s case for a time, eight of nine were shut. Now, that didn’t last very long because governments realized how important these companies were for the individual countries, they provide lots of revenues and tax revenues, particularly. So, it didn’t last long, but really the first quarter that we would see, the benefits of all of this fiscal discipline, the benefits of the higher prices that we’re seeing right now, the last quarter, the average realized gold price was $1,900, a little over $1,900. The cost, the all in, sustaining costs, AISC they call it was a little, or just around a thousand dollars. That was over $900 of margin for these miners. That was cash flow and earnings and everything else. Nowm that’s the highest that the industry has ever seen by a lot. We’re talking 40 to 45% higher than what the highest margins were.
Fred Hickey:
The highest margins were at $640 in 2011, and now we’re over $900. Even at 1800 gold here, we’re still $800. So there’s still [inaudible 00:51:54]. So you might say, “Oh, that gold market has crashed and all of this,” well, it’s not going to affect the numbers that much. So, the third quarter numbers, which were just reported, and the gold peaked right then to it, they didn’t even have any time to enjoy it, because we-
Bill Fleckenstein:
No kidding.
Fred Hickey:
Just came out at the end of July, early August, and that’s when gold started going down, August 3rd or whatever it was. So there’s no time. They all reported these enormous numbers, just enormous. They were all raising their dividends, massively. For example, Goldcorp, I mean, Barrick, gold has increased their dividend now three times. Newmont increased their dividend by 79% in the earliest part of the year and 60% last quarter, so now they have almost a 3% yield. They were all reporting record numbers, Pierre Lassonde who was an industry legend of gold, said that these are the best industry conditions that have ever been on gold miners, and he’s right. Sean Boyd, well thought of, one of the top CEOs in mining of, CEO of Agnico, said that the only time he seen the kind of money that’s being generated by these miners was in 1970s.
Fred Hickey:
He didn’t mean that he wasn’t in it, he was an auditor before he was auditing Agnico. He saw these kinds of numbers and that’s when the miners went crazy. They went crazy because they were putting up these massive numbers. Now just to take Agnico, for example, they aren’t… Agnico, by the way, is considered to be a premier gold miner that deserves a high multiple because of the location of its mines. Its mines are only in the best parts of the world, North America and they have one in Finland, which is a great place to be in Europe. So, they deserve a premium. Also, in Agnico’s case, they made very good decisions to that downturn, they didn’t overexpand, and they were able to buy small fill-in properties at very low prices at the bottom.
Fred Hickey:
He did it perfectly. So, it usually gets a premium, a big premium. If we look at that right now, they are close to 80 cents in that quarter. And that was 122% year over year. They hiked their dividend, 75%. They had near-record production, and that with some things were kind of depressed in the quarter, they’re new minds. They have some new minds that are in none of it, that are coming out, that they’re ramping up. One of them was Meliadine with very high grade low cost mine, had grades of nearly eight brands per ton, which is very high for the industry. It was closer to one on average.
Fred Hickey:
This one was only running a 4,100 tons in the quarter because of some planned shutdowns, and in Q4 though, coming up, it’s going to be up to 4,600 tons per day a mine. So it’s going to get better as to go forward. Well, if you look at the analyst estimates, they aren’t pretty conservative, they’re looking at $4.07 for 2021. Well, the stock is 60 something, it’s a 15 PE. A 15 PE for what is the premier gold stock, with the best locations, the best management and everything else. This is not Shopify, at 500 PE or any of these crazy things, or Atlassian, one of the tech companies, one I’m short I know, with 30 times sales falling earnings, 200 times PE, this is 15. That’s the highest one. I have a list of six, seven names right here.
Bill Fleckenstein:
While you’re waiting, they’re at least going to pay a 2%.
Fred Hickey:
And you’re paying 2%, and Newmont’s case, it’s 3% and those dividends are all rising because of the massive amount of cashflow they have at these levels. So, that’s the highest one I have, but I look at some of these other ones, Alamos, for example, that one is selling below net asset value. It’s earnings were only up 150% last quarter. Next year, they’re expected to be up 80% and these should be 100 PEs if you’re in the tech world. What’s the PE on that? 11, this is earning 72 cents and it’s an $8 stock. 11.
Fred Hickey:
Now, back a few years ago, that was a 40 PE on Alamos. It was a $20 stock and it earned a lot less. A new online, that’s a 12 PE. They are supposed to earn $4.51 cents, they just had their best quarter in history. I told you about the dividends, the cash flow is enormous, their dividend is based upon a dividend policy, depends on cash flow. That $1.60 per share they’re getting, is based upon a $1,500 price, at 1800, it could be anywhere from 220 to 240. So another 50% increase. There’s cash coming out of these companies ears. Most of them are paid down their debts. Barrick has gone from 14… In 2012, Barrick, they had made a lot of mistakes, they’re an example of a company that had overexpanded, made some bad acquisitions.
Fred Hickey:
They had $14 billion debt, it’s now down to 400, and they’re increasing the dividends. Everyone in these companies, Almos, they’re doing it by 33% and then said there’s room for further increase. They’re all going to go higher, even at $1,800. And I think this is probably close to low, will going back up again. There’s one that Bill and I like, Pretium, that’s selling below net asset value. It blew away its earnings numbers, it’s supposed to earn $1.23, and I think that’s low based upon the estimates. That’s a nine PE and they’re supposed to grow 40%, next year. Kirkland Lake, nine PE, supposed to grow at 25% next year. All of these companies are putting up. Now, in Kirkland’s case, it was record cash flow. In Pretium’s case, they’ve been paying down their debt as well. They are only been in business operating in terms of selling gold for a little over two years, they’ve already generated $500 million in cash.
Fred Hickey:
They’ve taken that construction debt from $550 million down to $350 million, and they have $175 million in cash on the balance sheet, more than they think they need. Within two years, that whole construction, that’s going to be paid off if gold prices hold at this level, and then they’re going to probably start paying dividends. Yet that thing sells with high growth, this thing sells at a nine PE. Honestly, if I hadn’t seen this before, I’ve seen it in tech, where they threw everything out in 1990, in 2002 things were cheap, and I bought in 2002 in October, I bought in 2008 in October, I haven’t seen this kind of craziness before and say, “Oh, that’s not possible,” but it is. That’s where we are here.
Fred Hickey:
So, even though the price of gold is up a lot, these miners are not. If you look at, what they call The HUI-gold ratio, it’s the gold stocks to gold ratio. Currently, it’s about 0.16. Well, during the two thousands timeframe, that would always be above, during most of that bull market, always above 0.5 or three times higher. So we have the highest margins, the highest cash flows, we’ve got the huge dividend increases, huge earnings growth and these things are selling-
Bill Fleckenstein:
At the lowest valuations they’ve ever sold.
Fred Hickey:
Yes, and so as a value buyer, this is for me. I could buy energy stocks, which I won’t get into them because those were the cheapest they’ve been at in ever, in some cases, I mean, the whole industry ever. Some of the best companies like Chevron were paying 7% dividends, in a 0% world. Actually, Exxon, 11% dividend there. Now, this is what you do as a value investor, you buy fear, you buy maximum pessimism, you buy low valuations. You don’t buy Apple at $2 billion, after it’s run up, after it’s tripled on no growth.
Bill Fleckenstein:
That’s a T not a B, Fred.
Fred Hickey:
So T, that’s right, I know the numbers. Pretty soon only G.
Bill Fleckenstein:
Gazilian
Fred Hickey:
The Gazilian. So, here we are here. Here we are with all these companies, and they’re disciplined. Some point down the road, some of these managements might get out of control and overexpand again, but there’s no sense that it’s going to happen here at all. They are all marching to the same drummer at this point.
Bill Fleckenstein:
One thing that in that compendium of facts, you shared, you left out something that I know is important to you, and that is, what you didn’t say was that the companies that you’re talking about, for the most part, have properties in what would be considered to be safe jurisdictions. So, it’s one thing of a company is cheap because all their minds are, say, in Zimbabwe, but if it’s cheap and there in Canada or America or another-
Fred Hickey:
\Well, the first litmus test for me is location information, for these. I’ve seen too many problems. They might have the greatest, highest grade mine or whatever, but if it’s in Venezuela, it doesn’t do you much good or Zimbabwe. So, there’s a whole list of company, countries, that I just will not buy into if that’s where their mind locations are. It really comes down to just not too many. If they’re in Australia, if they’re in the US, Mexico may be okay. Certainly Europe, there aren’t many mines in Northern Europe, I should say, not so good in Greece or Turkey or that kind of thing. But much of the world, I will not participate in. These companies should have, not only these are good managements, all of these, with the exception of Barrick, which has some African, but Mark Bristow has been very able to do business there.
Fred Hickey:
He also has a lot of other assets outside of Africa, but all of the companies I own are in the best-located places. Where rule of law is respected, they will not be expropriated, they will not be taxed to death, and so, these companies should be selling at the highest multiples and in most cases, with the best management, these are the best management teams. These should be our apples, Amazon, these should be the FAANG stocks for the gold world, yet they’re selling it single digits and some of them below net asset value.
Bill Fleckenstein:
In addition, another point that I know is important too, is that the names you mentioned, they all have, because of what they’ve done in the last two years, have growth ahead of them. It’s locked in place. They don’t have to acquire or do anything different, then so it’s not just a static snapshot of these being cheap, they have growth away from the price of gold itself.
Fred Hickey:
Absolutely. With the exception of Newmont and Barrick. I think there is some growth there too, because they give a very conservative forecast that don’t include some of their projects that they have. I think there’s some growth there too, particularly, in Newmont, but Agnico, for example, they’re in a growth phase. They’ve spent all the capital that they needed to bring up these new minds, and so, they’re going to be growing production by 20% in the next couple of years here. So, even if the price of gold doesn’t go anywhere, you’re still going to get the benefit of that. What that does too is, it brings their costs down, the higher your production. They’re all they all expect to have, I mean, Agnico particularly, expects their costs to come down as the production and sales go up. That’s one.
Fred Hickey:
Alamos, every one of their mines, they have three mines, all in good locations. The two that are there, what they call flagship mines, are both in Canada, best location possible. One of which just finished a major multi-year expansion, where they went underground and they tied the mines in, and they didn’t get the benefit of that in the third quarter, because they were shut down for the month of July, but they will in Q4. In fact, that Young-Davidson Mine is going to increase their production by 42% from Q3 to Q4, and again, lower cost higher grades there. Then they have this Island property that is just enormous and just keeps growing. They only bought that a couple of years ago, and it is already, the net asset value is already double the price of what they pay. Talk about buying low, double the price.
Fred Hickey:
That is huge grade, 15, 20 grams, it’s just these crazy numbers for low cost. Not a thousand, we’re talking $500 or something like that, in costs at Island and they have an expansion program going on that will increase their production by 72% in Island. So, even their Mexican operation, which is much smaller, also has a growth profile. All of that, they’re going to be grown here. Another one is a Pretium, which has a lot of upside-
Bill Fleckenstein:
Through the drill bit, because they have so much ground that they-
Fred Hickey:
Correct. Huge, massive land package, but in addition to that, they’re not mining as much as they could, because they’re developing the mine. One of the problems with the prior management of Pretium, was that their forecast were not good, and they kept missing numbers. These guys don’t look like they’re going to miss numbers, but as a result of them being conservative, they’re also opening up the mine, the developing the mine and they’re running less tonnage per day, than they will be, they’re permitted and that they can. So, they’re trying to get a good hand on the grade there, and but that’s going to increase. So they’re going to grow too, just because their production is going to grow and say, “Next year, this whole building out and they’re also building an inventory.” So they will have some flexibility. That’s going to be completed by Q3 of 2021, and so you’re going to see production growth and shift from that mine.
Fred Hickey:
In addition to that, they have all of these huge land package. They have a location that’s [inaudible 01:06:32] which was a very good mining area. Hanging Glacier Zone, Cooper Zone, all these various zones where they think that there is a lot of gold and none of that’s reflected in the price of the stock. So yeah, most of these are growth companies too. Like I said, with the exception of the two biggest miners.
Grant Williams:
Fred, am I to assume that you’re not worried about mining gold on asteroids depressing the price of gold?
Fred Hickey:
No, because these are the kinds of stories you’ll hear, right now. The biggest story is, and a lot of these managements talk about, and Bristow does, is the lack of supply, not too much supply. All these years that we went through this downturn, exploration was cut dramatically. You just saw, it’s very difficult. It takes a decade to bring up a mine. You can see how difficult it is. Past this week, Pebble, which is the largest mine of America, got shut by the Corps of engineers. That’s in the US, nevermind what’s going on elsewhere. It’s difficult. Environmentally, there’s a lot of environmentalists that don’t like this stuff, all of these companies run the best. They’re really good to reforestation and cleanliness and for-
Bill Fleckenstein:
Yeah, from a ESG standpoint, they all do well.
Fred Hickey:
Newmont mining got the number one rating for ESG, all mining companies, here, just a week or so ago. So these are the best of them, but it’s so difficult. Many of these mining, all of these research houses, as well as some of these mining thing that we’ve reached peak gold, because there’s been such a lack of exploration and development, and aren’t have any. The other thing is, grades have come down. From what was 10 grams per ton, all the way down to more than one. It’s harder to find good grades, and if they are, if you can find them, they’re in bad locations, usually. Then it takes a decade to bring up. So, one thing I didn’t talk about was the various phases of a gold bull market or any bull market.
Fred Hickey:
Usually, it goes in a series of waves, in four waves. The first wave is when, Bill, me and Grant are in it, they call it a stealth phase. Then we get some of this, they call it, smart money, comes in. Well, we’ve seen the smart money come in. We’ve seen Cooperman, he’s never wrong, he doesn’t have a lot of gold. We saw Sam Zell, the leading real estate guy, going to go for the first time ever. They’re reminding the Tudor Jones, the Druckenmillers, all of those guys have poured into gold, big positions in gold, Dalio. You have to have gold, you have to have a gold. Now, Dalio says you can’t own cash here, well, yes, you can’t own cash.
Grant Williams:
And even Buffett, the biggest gold hater of them all.
Bill Fleckenstein:
Nope, he puked already.
Fred Hickey:
That’s partial, but that was offset by Druckenmiller who bought just as much as he sold.
Bill Fleckenstein:
Sorry, Fred. That was, sorry for those, who?
Fred Hickey:
Druckenmiller bought as much as Buffet When he sold, supposedly, dabbled in it a little bit, at least. So all these billionaires and they call that the smart money comes in. The next phase is is when institutional money comes in. Sean Boyd of Agnico talks about the, just beginning to see them come in, they started with European investors, now we starting to see US Western investors. Western investors used to be in the 70s, they had five to 7% of their assets of gold. Now, it’s under one and most of them have none. We heard that Wilshire, one of the largest pension consultants that advises these institutions. They’re now advising their… They’re now advising the funds to have a 5% position, but this is just beginning. The institutional, and that’s what Sean Boyd is starting to see. All of a sudden, they had nothing on that calendar.
Fred Hickey:
They would go to these conferences and there would be nobody there. They have empty spaces, slots in their calendar. Now, they’re getting all kinds of calls, finally. Then the last drill, all they’re two phases, but then the public comes in and right now, the public is enamoured with FAANG. They’re enamoured of Zoom and Tesla and Shopify, and all of that stuff, and marijuana stocks and things I don’t cover. Right now, that’s where they’re at. As these gold stocks start to do well, and they are doing well, and with the numbers I’m talking about, they should do well. Especially, if the gold price holds up here.
Fred Hickey:
As they increase dividends and the cash flows go up, and their earnings are come out and momentum funds start to get invested in them a little bit, it’ll start to attract the public and that’s when you get your blow off phase and we aren’t anywhere near to that. Then at the end, and then the last day is when I call it collapses at some point, and I don’t know when that’ll happen, but we’re at the very early stages of this. We only have the us, weirdos, that are in it and the billionaires are in it, and a small number of institutions. And that’s where we are in the various phases of this bull market.
Bill Fleckenstein:
That is a pretty compelling exploration of the landscape that you’ve given us, both from a macro and a gold standpoint and the micro, and the whole thing. I kind of get ramped up just hearing you talk about it.
Bill Fleckenstein:
I already know the story.
Fred Hickey:
That’s why we hold each other’s hands, in case we forget, we going to remind each other.
Bill Fleckenstein:
Well, Fred, it’s been great of you to share all of your time with us. I know it’s pretty valuable. You’ve answered all the important points that I had Grant us or anything that-
Grant Williams:
You making the gold mining shares look like the biggest black Friday bargain at the mall, people should be.
Fred Hickey:
Because they are.
Grant Williams:
I’ve got one more question for that. I’d love to just get your take on that. That is, I know you’ve laid out that roadmap and the ways, but what do you think it takes to change that institutional mentality around gold? Because I know at the fringe it’s starting, and I’ve heard that as well, but does it need to be the collapse of something else? Can they come to gold at the same time while this madness is going on, or will they only really do it once this whole thing implodes?
Fred Hickey:
Well, I think part of it is, just putting up numbers more than just before one quarter. That’s the problem is, this is the very earliest that we’ve had one quarter of tremendous numbers and you need to see a history. I think, some outperformance would help. Right now, we had started to get, build some institutional, but I’m sure right now, they have no interest at the moment in this down moment, but when it returns again and maybe it is now, then they’ll start to come in. Just popularity builds with success, and that’s when the pension consultants start to tell you, “You need to be involved in this.” I think, also, you’re seeing a shift here, there’s been a long period of time where growth has outperformed value, these are value stocks, energy, banks. They’re hated too, and they’re down as well.
Fred Hickey:
I don’t follow banks, but I know that Nelson people they think that they’re very attractive at these levels. And I know the energy stocks are up, and some other areas. All these favorites that have been favorites for, now, a very long time, many years, since you can make the case for 20 years, really, since the beginning. One, from the beginning or even longer, but certainly, the FAANG stocks they go through periods where they get hammered a lot, but they’ve been in favor for a long time. Particularly, here, in the last 10 years, they’ve had tremendous performance and they’re all over-valued and over-loved. But if you look at them, you say, “Well, how far are they going to push Apple, when it’s 2 trillion?”
Fred Hickey:
It doesn’t grow very much, and now government regulators are looking hard at them. You saw where that… One of the places where they do get any growth from is from their service business and their Apple store where they charge all the developers 30%. Well, just last week, I think it was last week, they had to cut back to 15% and that’s because of pressure. They’re almost a monopoly there, in the US certainly, they only fourth largest cell phone maker in the world, but in the US they are pretty dominant. They are dominant. So, they’ve been using that position to extract a lot of money from people. Throughout the world now, there’s a sentiment turning against the bank stocks, Facebook for its privacy, Google whether it’s political issues, but there’s a lot of people who think that they’re too big and too powerful.
Fred Hickey:
So, the European governments are leading the charge against them. They’re threatening higher taxes, they’re threatening to break them up. Certainly in the US, the Justice Department is looking hard at Google right now. They’re trying to accelerate the case, Facebook as well. So it might be that the growth possibilities for these FAANG stocks are over, for the stocks, they’re too high. The regulators have them in their sites. They make a broken app, and Google’s growth, dcome from search, it comes from YouTube. Facebook’s growth, doesn’t come from Facebook, it comes from WhatsApp and those kind of thing. If they can’t acquire and use that platform that they have to acquire to grow, then the growth rate goes away and people become, over time, less enamored with them.
Fred Hickey:
Maybe they fall hard, maybe they don’t. In a money printing world, that’s one thing that’s different here, is they’re all stocks, that’s why I’m not shorting in any way here, like I was in 2000, or even in 2008. In money printing world, everything continued to go up nominally, but they might start to underperform. As they are, recently, in the last few weeks months, these stocks are underperforming and the value stocks are starting to perform. If that is a trend that is happening here, where you go back to value again, and it goes and swings back and forth. If we’re going back to value, then these tech stocks are not going to be in favor anymore, but the value stocks are, and these gold stocks are as valuable as anything. Then the institutions shift into there as well. Right now, everybody piles into these stocks. If the momentum ends, then some of the money will come up.
Bill Fleckenstein:
Well, that was the brilliant summation of the unbelievably, attractive case for metals and mining that we have prospectively. So Fred, if people have been listening and would like to be able to find out what the other 12 or 13 mining names you like are, and want to stay abreast of technology as well, how would they go about learning more or finding your service? For anyone foolish enough to not already subscribe.
Fred Hickey:
Well, I’m on Twitter, for one. I tweet fairly regularly, but not that often. Not all the time. So, during the period of time when I’m not writing a letter, whether there isn’t a letter every month, I’m on Twitter, and that is at H-T-S-F Hickey, H-I-C-K-E-Y. If you’re interested in this newsletter, you can get the details by sending an email to thehightechstrategist@yahoo.com.
Bill Fleckenstein:
It’s The High-Tech Strategist, just like it sounds. Tell them, just because I think this is like the greatest deal on the planet, would you tell them the princely sum that this commands?
Fred Hickey:
Well, it depends if it’s email, I think, it’s $150.
Bill Fleckenstein:
Dirt cheap, when we first met back in 1995, I think the newsletter was like 90 bucks. The first thing I told you is you should raised your prices.
Fred Hickey:
Well, it started 34 years ago at $5. So, that was a better [inaudible 01:18:45]
Bill Fleckenstein:
Okay. Anyway, thanks a lot for your time, Fred. That was absolutely spectacular.
Grant Williams:
Great. Thank you.
Bill Fleckenstein:
I don’t think we could have picked a better day to do it. So, I’m really grateful that you’ve freed up some time to do this. So, thanks for that.
Grant Williams:
Really appreciate it, Fred. Thanks a lot. I hope to see you soon. Take care. Thank you.
Fred Hickey:
Bye.
Bill Fleckenstein:
The beauty of our game plan with these sort of semi-random nature of this is, it allows us to kind of wait and do things when we want to., and I don’t know if we’re lucky enough to pick the day in the metals complex that is the best day to buy, but we’re fortunate to be able to try to time things to some degree, and hopefully this will turn out to be close to a good opportunity.
Grant Williams:
Yeah, absolutely. The setup is great, which is why I was so excited to get Fred on right now. We’ve been wanting to have Fred on for some time now, we’ve had a couple of close misses when we could have had him on before and things just didn’t line up when we’re trying to get three of us all in on the same page, but this could be very serendipitous. It’s so fascinating to me, but when you listen to Fred talk about this stuff the way he does, that long-term mindset… Investing in precious metals is such a simple thing that people make so difficult, and Fred has this way of simplifying it. I think, for me, explaining really how you ought to think about this thing and the people that come in, because they think they’re going to get rich quick, tend to be the ones who get carried out in body bags.
Grant Williams:
And it’s unfortunate, because that’s just the nature of the beast. If you come at this thing with the mindset like Fred’s, and understand the long-term reasons why you want to be in this space, as he said, “I just want to protect my wealth.” It just makes everything that follows that much easier to get your head around the swings, the crazy stuff that goes on, the wash outs, all that stuff just becomes so much easier to handle, if you’re not just fixated on the price and look every day and, ‘Why aren’t they going up today? Why are they going down today?”
Bill Fleckenstein:
Well, I think the other part of it is that, as I mentioned briefly, I’ve been thinking more about this, but gold is still a real market. Yes, there’s guys play games with P&L, there’s a lot of spoofing and jamming the market both directions, but it is still a free market, which obviously no bond market is. The equity market really isn’t either because it’s pinned by the bond market and the QE that’s done there, and the passive stuff and the options and all that. So, I think people look in the stock market and say, “Well, Jeez, it’s bulletproof, nothing takes it down. It’s stupidly priced.” We all know that, and then there’s this thing over here called gold, which ought to be doing better and it doesn’t and it just freaks people out. Sometimes because you can’t really it’s so hard to gain an edge in gold itself, sometimes the noise level swamps, the fundamentals, which was why I was anxious to cover them and quite frankly, Fred made an excellent point that I hadn’t even thought of until I heard him say it.
Bill Fleckenstein:
That was, I think a lot of us thought this year, when gold did what it did, we were going to start to see real numbers out of these companies and regretfully, the COVID came along and they had to shut mines. We did really see that in Q1 at two, and make only got them out, the week of the election, when the gold market reversed, for whatever reason it did. So I don’t think people have really gotten their heads around how well these companies are set up. So, I’m really glad that we got to dive into that a little bit, because that was a really good point.
Grant Williams:
It’s so true, his points about the management and how… They do finally seem to understand what not to do, because we know the complexities around running building and finding first and building a mine or running it. Over the years they’ve had this extraordinary habit of taking that complexity and adding more onto it and screwing things up in every way possible, but they do seem to, as certainly, for the time being to have found some religion, which can only be another positive, I think.
Bill Fleckenstein:
Well, I was the director of Pan-American Silver for, I don’t know, maybe 15 years. I left the board in 12, and I had another friend of mine who’s pretty famous and people don’t know who he is, but he’s pretty famous anyway. He was on the board with me for a while and he said, “Gosh, this company has never really made any money.” back then, they didn’t, and of course, we had the big cost squeeze in the last up cycle and bad decisions. But this is really the perfect storm, both from a micro bottoms-up standpoint and a macro overview. I think that’s perhaps also what frustrates some of us, it’s like, “My God, this is such a spectacular opportunity and the party just won’t really get started.” And every time it starts to get easy, you get the shovel in the face. You know what I mean?
Grant Williams:
Yeah. It’s like a Tom & Jerry cartoon.
Bill Fleckenstein:
Yeah, exactly.
Grant Williams:
I think that timing it’s going to prove to be very good, but it’d be fascinating to watch what happens next. All that remains, is for us to apologize to the Bitcoin lovers out there, who are now drowning their sorrows off to here.
Bill Fleckenstein:
They’re certainly mad at us. That’s for sure.
Grant Williams:
Yeah. I know. Well, that’s the cost of doing business, unfortunately. So thank you guys out there for listening to The End Game, we really appreciate everyone here. Thank you for all the reviews and the comments you’ve left. Don’t stop doing that, it really does continue to help us find more people to stumble across the podcast to listen to it. We will be back in, who knows how long, but we’ll be back with someone else to talk to in the near future. I’m pretty sure. In the meantime, you can follow me on Twitter. Should you wish to do so? You will find me at T-T-M-Y-G-H.
Bill Fleckenstein:
And I’m at Fleckcap.
Grant Williams:
He’s still Fleckcap, the one and only. Bill, thank you, mate. That was a lot of fun.
Bill Fleckenstein:
So much. All right, great.
Grant Williams:
Thank you. Nothing we discussed during The End Game should be considered as investment advice. This conversation is for informational and, hopefully, entertainment purposes only. So, while we hope you find it both informative and entertaining, please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets.
