We Study Billionaires - The Investor’s Podcast Network - TIP291: Commodity Investments During & After COVID-19 w/ Marin Katusa (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. By popular demand, we bring back our most popular commodities guest, Mr. Marne Katusa from Katusa Research. Marne has financed over a billion dollars worth of deals in the commodity sector, and on today's show, we talk about the very hot topic of gold and oil. Additionally, Marne talks about all the crazy supply demand impacts that are currently occurring due to the virus, among much more. This is not an episode that you'll want to miss if you have any kinds of investments in the commodity space. And so without further delay, we bring you the thoughtful Marn Katusa.

Starting point is 00:00:36 You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Welcome to The Investors Podcast. I'm your host, Dick Brutterson, as always, I'm accompanied by my co-host, Preston Pesh. We are so, Super excited to be here with fan, favorite, Marien Katusa for the fourth time. Maureen, thank you so much for taking the time to speak with us here at the Amherstas podcast. It's my pleasure. So, Marian, I think it's safe to say that a lot has happened since we talked last time in December.

Starting point is 00:01:23 And just to summarize a few points that we talked about back then, you talked about rates going lower, the U.S. dollar strengthened in gold stocks are performing. Now, going into the interview, we can definitely say that we've got to be. could put checkmarks in all the boxes. But let's set the scene for our conversation and zoom out. From a helicopter perspective, how and why is the crash different than previous crashes? In 2008 and 9, it was a financial crash. It was bank, leverage, debt, the financial industry with all their derivatives. So this one is very different. I call it the trifecta stigs. what we're having here is we're having the health crisis at the same time as we're having a

Starting point is 00:02:11 financial crisis with all the debt in the world. And then also a monetary, like, you know, the financial, you got the economic issues going on that we see the layoffs, the unemployment, and then you have a monetary issue. And this was the fundamental thesis of what I've been talking about to your audience for well over a year. And that's the new realm of where we are. You look at the Bank of Canada, where you are, the Bank of Switzerland, the ECB, the Bank of Japan, the Bank of England, all of them are lining up for these swap lines. Now, you don't line up for a swap line if you're trying to get rid of US dollars. They are lining up for these swap lines because they need US dollars. And part of the ironic result of the global financial crisis

Starting point is 00:02:55 of 2008 was all that stimulus that came in. It was like a binge, a debt binge globally. And there's over 20 trillion in U.S. debt globally in infrastructure that is denominated in U.S. dollars. Now, combine that with a oil crisis where the Saudis and the Russians are kind of, it's almost an inversion of the 80s oil war where the Saudis and Americans work together to dethrone the Soviet Union. Now you're having this similar effect, but different where now think about the ripple effect on all of the commodities and the economy. the emerging market nations that need those US dollars to service the debt, but their commodity prices are down by over 50, 60, 70%. So that kind of sets the macro 10,000 foot view of where we are today. The world is actually in a shortage of U.S. dollars. And that's one of the biggest pushbacks I've had from people in my industry in the resource sector, specifically in the gold sector.

Starting point is 00:03:54 and eventually all Fiats will crash and go to its eccentric value of nothing. But right now, the U.S. dollar is continuing to stay strong. Now, the swap lines and all these lifelines, the currencies are going to stay volatile, but the dollar today is stronger than it was 60 days ago. Now, Martin, before we start recording, you were so kind to give us a little sneak peek into some of the things that you'll be doing with your portfolio. And we will talk a lot more about your portfolio in this interview.

Starting point is 00:04:24 And sort of like sum up what you've done since the last interview that came out December 21. But could you talk to us about perhaps just one of the moves that you made here or the past month or two, just to kind of like preface some of the conversation that we're going into? For sure. Like, I guess I'm fortunate enough to have such a large, diverse subscriber base from all around the world. We have subscribers in over 100 countries. And one of my subscribers is Canada's leading scientists for infectious diseases.

Starting point is 00:04:54 And in January at my conference, we got together and I just kind of asked them. I go, hey, like, how serious is this virus? And that was January 20th. And him and I continued this dialogue for about a week. And he said, man, the data is changing rapidly every day. And this is serious. So we were one of the first to say that. And luckily, because of that, we also, we take all our principal investment off the table

Starting point is 00:05:16 on that February 3rd issue of the KRO, and that's our newsletter, of five out of six precious metal stock. So we took our money off the table. We kept my largest position in my favorite, and we're actually still up over 40% on that one. But I like that company so much that I was comfortable with it. And then on March 15th, I sent out an alert saying, hey, this is what I think is going to happen. This is what the Fed just did. This is what Trump just did.

Starting point is 00:05:41 Let's do some strategy here. And I put an alert on five stocks. And it took a couple of days for the price on March 18th. Three days later, two of our stock prices got hit. And just ironically, two days later, we sent out another alert because we were up well over 50% on a north of $10 billion market cap company. So try to put this into perspective. These moves have been so volatile on the biggest stocks. This one company had a $20 billion market cap just four weeks ago.

Starting point is 00:06:12 And we got in and it pays over a 10% yield. We've taken all our money off the table. Granted, I was a little bit too early, 50% gain because. Within a week, I went up another 50%. But that's fine. We still own a free ride, which means we sold two thirds of our position to keep one third for free, and we collect the dividend forever at no risk cost base. That's what I'm playing with right now in our strategy is buying the highest quality,

Starting point is 00:06:40 the lowest quartile cost producers. And what we did on that one stock, when another fund blew up, it's a liquidation crisis. It's a rush for cash to cover their debt, their leverage, and all these aspects. And on that one stock, it's a $15 billion company that is paying us over 6% yield, bulletproof balance sheet. It truly is top tier in its industry, in the world, actually. The strategy is do your homework, figure out where you want, what price, and you just wait. We are not out of the clear here. And I just don't believe the economy is going to come back as fast as everyone is saying. So prepare yourself. We've had an incredible run here. But I think

Starting point is 00:07:21 I think the market's going to pull back and provide incredible opportunities for what I call a true value investor. You know, the last 10 years has been about growth. The value investor guys didn't have an edge on the market. I think everything's going to change in this decade where the guys who do the homework, the guys who know how to read balance sheets and truly understand what I call Warren Buffett value investing, this is our decade to truly shine. So, Maureen, Stig and I recently had a conversation about monetary inflation and its impact

Starting point is 00:07:50 on price deflation, and I know you got some opinions on all this. So let's talk about the international markets. Recently, you have said that the rest of the world is about to experience price deflation and then stagflation. Explain this to the audience. So let's take a step back here and go, why in this world is the guy in Vancouver talking about deflation? Well, let's look at across the board the share price volatility, the commodity price, volatility, all the debt, think of debt as this massive black hole, unless they do this incredible once in a historical debt jubilee, which I don't see happening yet. By definition, deflation is when there's fewer dollars chasing the same number of goods.

Starting point is 00:08:35 And even though there's been in this incredible stimulus, it's still not enough. You go to any of the commodity producers, the big copper guys, like you go to Peru and Chile. And that's that right there is half of the world's coppers, two countries. And, you know, copper's gone from three and a half to two dollars. So you look at where they are, there's less money in the system chasing the same number of goods, and that's deflationary. Then what happens is governments fear deflation, much more than they fear inflation. Now, why is that the case?

Starting point is 00:09:10 If you have debt, which all the nations have, you can inflate that debt away. But when it's deflation, there's less dollars to refinance that. So it's actually more expensive to pay for that. So that's why the governments came up with the swap lines. So let's do an example of a real life example of what's going on right now behind the scenes at the Fed. So whether it's the Bank of Canada that's lined up or Bank of Australia or the ECB. Let's use the European banks.

Starting point is 00:09:40 I think the euro truly is going to be severely impacted here because look what's going on with Germany. And it hasn't yet rippled through from the market standpoint. So the ECB got a massive swap line from the U.S. Fed. So the details of this, they're not making public, which is interesting, but you can kind of put it together from historical swap lines. So let's say the ECB says to the Fed, we need a trillion or whatever the number you want to make. That's in U.S. dollars. There's going to be two aspects of that. They're going to fix the amount and the time frame and the interest rate. So that's a US dollar loan. Then the ECB converts that to subsidize or you know, you want to call float or QE, whichever way you want to look at that. The industries that they need help. So let's use

Starting point is 00:10:26 France as an example because they're in big trouble in their economy. Let's use one of the major industries, Airbus. So now if Airbus gets a lifeline from the ECB, they have to do that in euros. So they have to fix the term and the rate that they're going to pay. Now, let's talk about the ripple effects here. Do you think the Airbus is going to sell more planes in the next year or two? Or is there going to be deflationary pressures, people traveling less, less money in the system. So it's going to be competition with Boeing. And it's kind of like a race to the bottom in a depressed market. So Airbus is going to have to go back to the ECB and say, hey, we need more time, we to, you know, what I call amend to extend and pretend that debt is okay. And so then the ECB

Starting point is 00:11:14 needs more swap lines from the U.S. Fed. So the American government is subsidizing Airbus, which is in direct competition with now the American government that's subsidizing Boeing, right? Their big American airline, which Trump's openly stated that he's going, it's a security, it's a national security item. So there's so many geopolitical angles here that, okay, well, if you want a swap line, you've got to accept certain terms. And that's why I talk about this.

Starting point is 00:11:40 And it's one of the biggest pushbacks I've ever had in my career. that this is going to be the rise of America. World War II, all of the cost of the war, all of the allies and axes, all the nations combined was about $6 trillion. Now, 75 million people died in World War II. We're just under 50,000 deaths globally with the COVID. And we've already queued, or if you want to think simply, printed $6 trillion globally to cover this war of the virus. When you look at what's going on here globally, the non-U.S. nations are going to be in a deflation right now. They are in a deflation. The governments panic that. They're going to do stimulus, but the unemployment is going to continue to increase. That's why we go shift into a

Starting point is 00:12:31 stagflation. Then as that continues, then America's going to benefit from this. And it's going to have inflationary pressures in the American market once Trump brings all these massive trillion dollars, infrastructure projects, and the American economy is going to benefit and you're going to see the big stocks, when this is all set and down within the next five, six years, it's actually going to exceed the highs we've recently seen. And I know it's hard for people to grasp that, but that's where we're going. Very, very interesting. So let's look at the US, because in the US, we hear a lot about potential hyperinflation.

Starting point is 00:13:09 And this is something we have discussed multiple times here on the MSA's podcast. So, let's hear your take. Why or why not will we see hyperinflation in the US? Initially, we won't. I know a lot of guys, a lot of the big name market pundits are calling for hyperinflation. I think it's going to take a gradual shift from, like I said, the rest of the world's into deflation to stagflation, then the Americans are going to get inflationary pressures that transition to hyperinflationary.

Starting point is 00:13:39 What do we have? Well, you've got to look at the demographics as a huge. pension funds, you look at all of the debt within the system, it's almost as if it's a tail of two markets. The big caps, almost that they're too big to fail, are going to attract so much money and they're going to be overvalued. And then you're going to have this binary market where you have the smaller caps that are struggling that won't necessarily get the big government support. That's going to be the true indicator of the economy in the near term. So if you look at take away the big hundred, they're still severely impacted, whereas the big caps are actually

Starting point is 00:14:18 rebounding quite nicely here. So that's kind of where I see us in the near term. Look, I don't have a crystal ball. I'm not trying to pretend. I know what happens in five years. All I can focus on is where we are here in the near term and how to best position and profit from this. The one thing everyone has to remember is the governments, the Fed, the central bankers are going

Starting point is 00:14:38 to do whatever it takes to push this along. So if it means raising the debt ceiling, it's going to happen. If it means more swap lines and bigger swap lines and debt is going to be amended to extend and pretend, that's going to happen too. And if you look at the oil patch, that's been an incredible reverse. And do not expect the price of oil to get back to 60 bucks quickly. The Russians and the Saudis are committing to this. And the Saudis are bringing on over 3 million barrels here.

Starting point is 00:15:07 And they're committing to that. And when those wells, remember these swing wells, When they start producing that, they can't just shift it back right away. There's technical reasons for that. So they're building up and ramping up. This is going to be a true gutting. And if you look at places in Alberta and Canada, which is like the center of our oil patch, oil's gone down to $3.80 a barrel.

Starting point is 00:15:28 That's cheaper than a cup of coffee and a donut. In Midland, Texas, it's gone as low as $6 a barrel recently. The advantage there, if you're a strategic and patient investor, If you look at some of the refiners, if you're buying a barrel of oil for five, six bucks, and you want to store it and produce some gasoline in seven, eight months, there's an advantage there. Now, if you're going to bet on some of these EMPs, the exploration and producers that are heavily in debt, you might not want to rethink that. So really understand the balance sheet and the debt profiles, because now the junk market

Starting point is 00:16:03 is a huge market. The bond market is multiple times bigger than the stock market. But with so much B rated corporate debt that we know in this economy is going to be classified to B plus or even junk status essentially, the cost of capital is going to be higher. I know people think that negative interest rates would take it right away to hyperinflation. It's the opposite. That's deflationary because there's less money flowing around. It's about the velocity and the speed of capital.

Starting point is 00:16:32 So who's going to finance all this stuff? So there's so many time bombs and things that people haven't seen yet in the policy. Politicians and the media are really avoiding the reality in the market, but the truth is in the balance sheets. Focus on the balance sheets. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future.

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Starting point is 00:20:37 sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. So, Maure, and last time we had you on the podcast, you talked about gold. And you had suggested that if we had... had another sizable correction, you suspected that gold would sell off with the market during

Starting point is 00:21:08 that initial period. And, well, that's been exactly right and exactly what we saw in February 2020. And now we've seen somewhat of a bounce back. What are your thoughts moving forward from here as we're having this conversation at the beginning of April? I guess I'm the guy at a cocktail party that people don't like talking to because I always focus on the facts and the truth. People love that angle of that gold's an absolute safe haven. Well, all I did was I went through the last hundred years and whenever you see a crash,

Starting point is 00:21:41 when people need to sell anything and everything to gain US dollar, that includes gold and silver. And we saw that. So moving forward, we're sitting at about $1,600 US dollars. That is a fantastic price for any producing gold company, because at $1,600 gold, It's a great price, but it's an even better price because the US dollar is going to continue to stay strong as these other nations are devaluing their currency. So if you look at the Russian ruble, it's down over 25% year to date. You look at different countries of their currencies, the Canadian currencies down over 10% year to date, the Australian currency over 20% down.

Starting point is 00:22:21 So in the local currencies, they're hitting all time high prices in the price of their gold. Australian, people laugh, but the Australian price of dollars is going to be its highest price. It's going to hit $2750, $2,800, probably even $3,000 per ounce in Aussie dollars because of the devaluing of their currency. So then what's going to happen next? And I call it the AK-47 nations just because I've been to over 100 countries and you go to all these places at the mines where the security are holding AK-47s.

Starting point is 00:22:51 What do you think the governments are going to do to foreign producers? Well, they're going to be the first ones that get the impact from the government. governments who are going to increase taxes, increase the government take of the ownership of the mine. And they're going to say it's in the best interest of the locals. And what are the foreigners going to do? The foreign mining companies, they're going to have no choice. What are they going to go the global courts now? Right. So be very careful where you're owning these gold mines. So in the near term, we're going to see downward pressure in the gold price because where the gold is being produced globally, it's such a high price. And you even seen Russia recently came out and said,

Starting point is 00:23:27 we're going to kind of hold off from buying any more gold. Now, there's many reasons for that, but I think you're going to see as more pressure comes into the market. I don't think we're out of the woods yet. Gold and stocks will continue as other funds blow up and nations need to gain cash or whatever happens. We're going to see more episodes of sell-offs. Now, that's okay because gold has its intrinsic value

Starting point is 00:23:50 of what is the actual cost base. So you always focus on the lowest cost producers like my friends like Ross Beattie with Ecoenox Gold or any of these companies, what is their true cost? And they can make money at 1250 gold. So do I see gold going down to 1250? I don't, but I wouldn't be shocked to see it hit 1350 or 1,400. At that point, you want to reset your portfolio with some physical gold because no new mine production is going to come on at $1,300 gold. Where do I see it two to three years out, much, much higher. But in the near term, I still see the price of gold being very volatile. I just want to say to the audience that just before the interview, I had

Starting point is 00:24:35 a talk with someone from Martin's team. And he actually said it'd be a really cool graph with goal versus S&P return since the election. I just want to make sure to link to that in the show notes. And people can perhaps get a better view and see illustrated some of the things that we're talking about here on the show. But you talked about economic. Gold there before. And this is something we talked about on the previous show, Econox Gold, Liberty Gold. There are two companies that you were heavily invested in. And they've been volatile but profitable investment since December, which is not something you can say about most stocks. Have your thesis for these two companies changed at all since December 21st?

Starting point is 00:25:14 Not at all. In fact, I'm actually more bullish now. So why? Let's take someone like Equinox. when the market is so shaken and across the board, we're in the fortunate position that we're doing better during this crash than a year ago. We've had a very, very strong March, a very strong 12 months. But the general market is rattled. And when a market's rattled, fund managers are rattled. And they're looking at this going, okay, their mandates are they going to have to invest in gold? Well, who are they going to invest in? Guys who've done it before, like a Ross Beattie, who's invested over $200 million of his own money into the stock as high as $8 in change recently.

Starting point is 00:25:57 And he's taken this company from essentially an idea that started in the Katusa Research Office to now over 700,000 ounces of production in three years, which, by the way, has never been done before in the market in that fast. And organically funded to get to a million ounces by the end of next year, they're obviously going to go because people are going to flock to that. For example, I put out a chart to everyone that if you take all of the companies producing anywhere between 500,000 ounces to 2 million ounces, Equinox is by far, we're talking about order of magnitude difference of ownership by insiders, about north of 10% of the company is owned by insiders, where the next highest company was 1.8%.

Starting point is 00:26:41 That's a big, big, big difference. Then it goes all the way down to 0.2%. So people are are going to follow leaders who've done it before. And then the other aspect is there's not many tier one world class deposits that aren't owned by a major. And now the majors are going to look around and say, hey, we want something in a non-AK-47 nation that has infrastructure, that is tier one. And that's going to actually get a higher bid because in this market, people will be willing to pay for quality. So when you mentioned Liberty Gold, that Black Pine asset, and I'm one of the largest shareholders in the company, and our newsletter average cost base is 42 cents, and I'm not telling anyone to rush out and buy it. I'm being very transparent with what my cost base is. I haven't

Starting point is 00:27:29 sold a single share in the company, and I'm top five shareholder in the company. That deposit, which we wrote about in 2017, I said would have two to three million ounces was my calculation. Well, I know I'm wrong now. This thing's going to have north of five million ounces. The main It's a past producer. It has infrastructure. It's in the U.S. It's in the Great Basin where you want to be. The big companies are going to look at that and say, okay, well, do I want to go in the

Starting point is 00:27:53 middle of Africa for a deposit like that? I know with the depreciating currency and I'm going to have to have diesel support or do I need going to go down to the Great Basin where I have infrastructure and I can drive right up to the mine and have low cost power and the rule of law. That's where we're going back. So over the last 25, 30 years in the resource sector stay, people when I'm away from Canada and America and they went to the emerging markets. And I just find it absolutely insane, actually, that companies are having, let's say, in an AK-47 nation, has the same discount

Starting point is 00:28:29 rate as something that is a past producer in the Great Basin. It just mathematically doesn't make any sense. And eventually, we're going to see the market come back to that because the risks are going to be too high, and the government take is going to increase. So the game is going to be reverted back to that. So that's why I'm very bullish on those two positions. And let's see what they do. And if I'm right, this thing's going to be sold for a lot higher. So, Marron, if we're characterizing the gold market as being a little bit crazy,

Starting point is 00:28:56 let's talk about the market that's been really crazy, and that's oil. And right now, you can't talk about oil without discussing the three peas, and that would be Putin, the prince, and the pandemic. So talk to us about the three P's in the oil market right now. Let's start with the pandemic. Let's look at the actual TomTom data, the GPS data. It's showing us that even though the Chinese market is coming back, people are going back home right away.

Starting point is 00:29:25 They're not going out. They're not going to the restaurants. They're not driving around. And even within China right now, looking at the satellite data, it's showing that the oil demands lower. Now, looking currently, our team went over this this morning, looking at the, TomTom data that's available and satellite data this morning, it is showing 80% less infrastructure driving, like the roads, trucks, everything in North America today. So let's just say

Starting point is 00:29:50 half the driving will come back. Well, right now the U.S. are refining about 16 million barrels a day, and eight to nine of that goes into gasoline in barrels. Well, if half's down, right now I think it's about 230 million barrels of gasoline is in storage. All right. The capacity is 360. You're talking about if I'm super conservative, say, only half the driving over the next 30 days comes. In 30 days, all of the U.S. capacity for gasoline storage is filled to the rim. Nobody's talked about that yet.

Starting point is 00:30:28 So that's the angle there. Number two, let's look at what Putin's doing. And I'm not Russian. I don't get paid by the Russians. I have nothing to do with this. What he's done has been a true grandmaster at this. They are not dependent on U.S. swap lines. The sanctions like them, Putin, do you think he just did this as a price war with Saudi? No. He's playing multidimensional. He is specifically attacking the U.S. shale market share. and if he can rattle the U.S. economy at the same time and maybe shake off some of those sanctions, any one of those three are a combination is a win for Putin.

Starting point is 00:31:08 Number two, let's talk about the prince. Well, there's multi-angle here for him. Number one, market share is obviously important. Bring back discipline within OPEC and the cheating members, number two. But the elephant in the room that nobody is talking about is what better way to take on the Iranian regime then slaughter the Iranian market share while they are suffering a massive pandemic, all the economic sanctions on Iran, and then slaughter their income from sales of oil from to China because the Saudis are taking that market share.

Starting point is 00:31:44 That is something that is really interesting. We're not seeing much data come out of Iran, but they are in a massive crisis right now. And both Iran and Russia at $20, remember the rubles down over 25% year to date to the U.S. dollar, they can survive these oil prices. Ignore the media stuff that the Russians can't afford it or the Saudis can't afford it because they need $80 to budget their economy. They can make changes. Okay.

Starting point is 00:32:14 And the production costs, the Russians and the Saudis are the lowest quartile cost producers. So is Kuwait. So the production is not going to decrease. So this is going to be a serious gutting in the oil market. And the two places to really focus on is Iran and the impact in the North American, the Canadian and the American shale patch. So, Maureen, I think we all seen energy companies just being hammered. And they are trading at prices not seen in decades.

Starting point is 00:32:47 Are you looking to get exposure to oil in public markets? Do you see anything interesting in the private markets and perhaps nothing interesting at all? You know, when you see companies trading at $50 two months ago and trading now at, you know, 14, 15, and they're the largest in their sector, you have to pay attention. But fundamentally, the industry hasn't fixed itself. They haven't been paying out cash flow. In 2015, we talked about the massive debt while coming in 2020 in the oil patch. So unfortunately for many of these EMP oil companies, both in Canada and the U.S., both private and public,

Starting point is 00:33:27 the equity people are going to get slaughtered because the debt guys who come in, he who holds cash right now is king, they're going to dictate terms and it's going to be a serious glutting. I don't think we're through it yet. Am I buying any oil companies right now? No. I think there's still more pain to be seen. but you want to focus on their balance sheet, and there's just an incredible amount of debt that's got to be restructured, and we're not there yet. So this next six months is going to be

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Starting point is 00:37:09 risks, charges, and expenses. This and other information can be found in the income funds prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. So here on the show, we've talked about buying out of the money call options on the underlying oil commodity, long term out of the money call options.

Starting point is 00:37:32 And I'm just very curious to hear your thoughts on that trade idea. One thing people have to be aware of and be understanding is the price of oil that they see isn't necessarily the price of oil that the companies are getting. If you look at the Western Canadian sedimentary price, it's under $4 this morning. If you look at Midland, Texas, it's under $6. So you've got to be very careful on playing these call options. A lot of people are playing the contango aspect and saying, well, you know, if we get a freighter and you, you, you're, you load it, but that's the curve is steepening. I think there's easier money to be made.

Starting point is 00:38:12 And I think that most retail people shouldn't play the options market because it's so fast moving. And most people, you know, are busy taking care of their kids and homeschooling now that they don't have the time to deal with how volatile and fast moving. You know, the one, the big difference of this current crisis in 2008, 2009 global financial crisis is how fast the information is moving and how fast information is impacting the markets. So I would be weary of playing any call options right now for the retail audience. Last time you were here on the show, what I really found fascinating was how you talked about that the conventional wisdom about when the US dollar appreciates, gold would weaken

Starting point is 00:39:04 and the opposite. So whenever the US dollar depreciates, gold would strengthen. Now, you argued there that the relationship has changed, and now we would both see the US dollar and gold strengthened at the same time. And we've seen that. It's very interesting to follow. Now, let me complicate things a little. So please stay with me here.

Starting point is 00:39:25 So how has a low oil price historically correlated with gold and US dollar? And what is the causality, if any, between a low oil price, gold, and US dollar? From a production standpoint, the price of oil being where it is now is going to actually improve the cost structure for the most gold producers. It's actually going to decrease the cost anywhere between 5 to 10% across the board. Now, each mine is different, whether it's underground or open pit, but that's a good rule of thumb to use.

Starting point is 00:39:58 Oil is a serious big cost, not just on the energy aspect, but if you look at tires is a huge cost. It's about 3 to 5% of the cost of every pound of copper produced or every ounce of gold produced. Well, that across the board is decreasing also. So, that's a low oil prices is a good thing for the cost. Now, when we talk about a low oil price, that also means that the emerging market and the oil producers, their currencies, are going to be devaluing further and the US dollar will be strengthening. So for the U.S. people, about eight months ago, I wrote a tongue and cheek article of why Americans should not buy gold. And the title was just to shock people. So they would read the article essentially saying, if you're a non-U.S. person, you want gold because it's a

Starting point is 00:40:46 store of value. And for the Americans, it'll still be a store of value. You're not going to see the incredible appreciation that you would if you're a Canadian or an Australian or a European, a Russian, South American and so on. And I think the big shocker to all of this will be when the Chinese won de-pegs or unpegs from the U.S. dollar, that will be a major change to the price of gold. And we're still not there yet. We are going to be in the market where the U.S. dollars is in demand. So there's a strong bid for it. So it's going to be volatile, it's going to move up or down. Like, for example, this year alone, in the last 90 days, we've seen it from a Canadian perspective of as low as 129, as high as 147. That's a massive range for a currency in 90 days.

Starting point is 00:41:38 Historically, that's what you would see in 10 years, not 90 days. So that's the first aspect. And gold is getting a serious bid globally. And to put things into perspective, you have your physical gold market where you can actually hold the gold bars in your hand. Then you have the paper, like the ETS. I just think that I've never been one of these paper gold guys. Because if you're going to buy gold, why not just buy physical gold and put it in your safety deposit box

Starting point is 00:42:08 or wherever you want to put it safely? Don't show it off to friends on a dinner party. But right now, the largest Canadian bullion dealer shared with me yesterday that the physical demand right now, first of all, the Royal Canadian Mint is shut down because of COVID.

Starting point is 00:42:24 and the premiums for gold and silver, he hasn't seen in 30 years. And the physical demand is 10 times of what the paper demand is. Now, yes, the mint will come back online, but it's going to be coming back online in a different way. The mint has obligations that it has to fill for the banks. It's going to start with gold. And then it'll go into the smaller denominy Maple Leafs, but the 100-ounce bars are going to be delayed.

Starting point is 00:42:52 So you're going to have more premiums for those. So moving forward, I think this is just a short-term blip. The beauty of our market is there's always a solution and demand will be met. But in this near term, you're going to do the two safe havens are the US dollar and physical gold. We are very fortunate, Martin, that this is the fourth time that we have you on our show. And we analyzed your approach from multiple angles. We talked about buying intrances, how you conduct your analysis, and everything in between. And we even talked about private placements.

Starting point is 00:43:27 Now, most of our listeners invest in the public markets. And the next question is about a more practical approach to investing. In the last episode, you talked about being bullish on gold and that you didn't need to own, say, 40 stocks to make that play. Specifically, you talked about gold stocks and finding, say, the best five stocks. So let's say that you have five gold stocks on your radar, say that they're just about to trade at attractive levels and you have $100,000 to invest for in your entire portfolio. Could you talk to us about how long does it take for you to build the portfolio?

Starting point is 00:44:05 How many transits do you buy and how exposed to you want to be to gold in the first place? Let's first start by defining if it's $100,000 that you want to put towards the gold sector. I would break it up like this. I would say, okay, put two-thirds into investments in the gold sector and one-third into speculations. Even that, it's pretty aggressive. I'm 41, so I'm an aggressive guy. We've done well in our fund and in our newsletter. And I'm solely focused on this sector.

Starting point is 00:44:35 So I have a bit of an advantage. So I'm okay taking a little bit more risk by putting about one-third of my portfolio into non-investments, meaning they don't generate any cash flow for me. They're more speculations waiting to be bought out like a Liberty Gold. So then I would break down and say, okay, an investment will never be more than 10% of my portfolio and a speculation will never be more than 5% invested into the total portfolio. That's a good place to start as a rule of thumb for new investors in the gold sector. So I say a rule of thumb of you're going to buy four tranches of 25% of your desired allocation

Starting point is 00:45:15 in each tranche. and I wait. And it's very frustrating for me, and it's difficult to be patient. I've gone to the Super Bowl with the president of a million ounce gold producer that we've bought. We sold over 70% gain, took a free ride on it, and now I want to buy more of it. And we missed my target price by, I think it was eight cents, but you have to stay disciplined. That tells me, don't worry, the market's volatile. It might be 30 days. It might be three days. It might be 90 days. I don't know when, but history has shown me that it will come to my bid price. The algos will sniff out some limit prices and it'll be hit. Now, that's the target. So you have to do your homework, you do the

Starting point is 00:45:57 research, and then you just set your bids and don't chase stocks. A big mistake a lot of people make in the sector is they over-allocate into one company because they like the pitch or they like the management team or they like the newsletter writer that said it. Stay disciplined. Basically, I have a rule of thumb. If a stock is keeping you up in the middle of the night, You've learned something about yourself, sell it and move on. Life is too short and your instinct is telling you that this isn't the right thing for you. So perhaps if you're an older individual that doesn't want to take the risk, don't do speculations. If you're a younger person that has a little bit more risk appetite, maybe you do the one-third

Starting point is 00:46:34 or maybe you go to half speculations. Samar, I think it's safe to say that the key takeaway from what you just said was to stay disciplined. And here on the show, in the past, we've heard you refer to your investing, strategy as if you were an alligator that's just waiting for that perfect opportunity to take a high probability bite out of your prey. So using that as a metaphor and knowing that we had you on the show last December, I'm curious what you've done during that period of time from a trading standpoint. On February 3rd, we publish the first Wednesday of every month. And if I can get it out a couple of days early, I do. We took free rise on all but one position in our gold portfolio.

Starting point is 00:47:16 So we had an incredible run. A lot of the feedback was, but you believe in Liberty, why are you taking money off the table or even B2 gold, which is a fantastic company as a world-class asset with Focola. Clyde Johnson's a good friend and just a total, total winner. But I said, look, we're up over 80% on a million ounce gold producer. Why not take a free ride? And that kind of was surprising to a lot of people. And then on March 15th, I sent out, it was a Sunday.

Starting point is 00:47:44 And once that Fed briefing happened, I called up my team, went into the office, pulled an 11, 12 hour day, and we sent out a very detailed hit list or an alligator list of these are the five stocks I want everybody to load up on. And I did it myself personally at the prices that we disclosed. And these are big companies that north of $10 billion market cap. So I'm focusing on top tier, world class assets, lowest quartile producers that pay me to hold Like, I haven't seen yields like this. They're better yields today than at the lows of 2008 and 9 because the good companies

Starting point is 00:48:22 have restructured themselves. They've reduced their debts. They've lowered the cost of their debt. They've built the projects. They said they were going to build over the last decade. And some of these are true cash generators. And we're going to sit back and wait. I put out an ag chem report.

Starting point is 00:48:37 This is something a lot of people don't focus on, but people are going to have to eat regardless everywhere in the world and farmers are going to have to increase their yield per acre. Well, how do you do that? Fertilizers. Okay, so let's break it all down from the potash and the phosphate, the urea, nitrogen aspects of the market. I took a very, very different view because you have to focus on the whole market. Well, the Russians with their rubble are devaluing their rubles, so their cost of potash

Starting point is 00:49:07 is going to be a lot cheaper. Belarus, their ruble, R-O-U-B-L-E, different than the Russian RU-B-L-E, is down something like 40% year-to-date. And they are a major producer of fertilizers. Morocco is a major producer. So you're going to see deflationary forces in the cost of fertilizer. And the irony of all this, there's actually excess capacity in the global markets, very similar to steel.

Starting point is 00:49:35 So that's going to be a cut to kill strategy for a lot of these emerging markets, which then will be competitors to the U.S. markets, some of the biggest companies in the world. So I put out a very detailed report of every company in the world, their cost base and where I see happening over the 12 months, fertilizers are not going to go away, but they're going to have deflationary pressures. And then I've detailed one stock. I really want to own for my own portfolio. But I'm going to be patient and I'm going to wait until the market comes to me and I truly believe it will. I don't know when. Like you said, I don't need to buy the stock every day and I don't need to run out today. The key point of being an alligator is waiting and when usually it's when funds have to sell, like when Citadel blew up and had to sell on this one position, I gobbled up almost all of their stock. That's what I'm going to do in the fertilizer company. It takes patience and discipline. It's exactly what Warren Buffett does.

Starting point is 00:50:28 He's the ultimate alligator in the market. He comes across as a nice guy. I guess I don't have that bedside manner of him and he's a likable person, but he's the ultimate alligator and he only comes up when the market needs him. One of the key pivotal points of my career was a mentor of mine, I said, you know, Marin, you want to finance these when they need you, not when you need them. And what resonated with that was when you're a fund manager, All this money comes to you in a bull market and your shareholders want you to buy stuff because they're excited about the market.

Starting point is 00:51:06 The irony of it is the redemptions happen when you should be buying and you can't, from a fund manager's perspective, their hands are locked. And I actually don't do much in a good market. I'm a guy that excels in a bad market. And that's when Warren Buffett truly excels is when the market needs him because then he dictates the terms. The ultimate example, that was Goldman Sachs. A guy from Omaha got warrants through financing on Goldman Sachs. It's usually Goldman Sachs that gets the warrants. And that's a perfect example of him doing that financing when Goldman Sachs needed him. And that's a strategy that

Starting point is 00:51:44 everyone should pay attention to regardless that gold is still $1,600. We've gone through a market where many leading companies have blown up. They've been taken over. Management have been fired. they screwed up. And when gold was 14,500, they spent like it was 2,500. And today, gold's 1,600, but the management teams are still shell shock. They're spending and acting like it's 1,200. And so are the investors. So that's a great time where you can structure and get investments at a discount to NAV. So a great point you mentioned was, you know, how's this different than 2008? Well, the producers are trading at a discount to NAV. Like if you take Equinox, for example. And again, I'm not trying to tell people to buy the stock. I'm using it as a real

Starting point is 00:52:26 life example. And you can come back in a year and you can say, hey, Marin, you said this. It is trading right now. If you use 1450 gold, it's trading at like 0.75 nav. Well, if you use $1,600 gold, it's probably less than 0.6 nav. In the company equivalent in 2008 was still trading at a more expensive valuation. Development companies that were producing nothing trade at a 0.6 nav in the last crisis. Now you can buy producers. We're talking about 700,000 ounces of gold. It's a big producer, and it's going to get to a million within, let's call it, within the end of next year, and it's organically funded. It's trading at a discount to NAV at $1,400 gold, and we're at $1,600 gold. Well, that's a good time to start looking and doing research in the sector. Avoid paying,

Starting point is 00:53:16 where the sector got to is three times NAV at the peak. Well, that's when you want to sell. You buy when it's at a massive discount to NAV and you sell when it's at a premium to NAV. It's not rocket science, but it's incredibly hard to manage your emotion and your expectations because people feel confident and they feel good when everyone else is excited, but you want to be an alligator. You want to buy when no one else is buying. Well, Maureen, thank you for sharing these amazing insights on your own portfolio and Our portfolio is available for subscribers of Katuz's resource opportunities. And what's really cool about that, and I think you even mentioned here in the episode,

Starting point is 00:53:59 is that you tell everyone what you do two days before you make the trade just to make completely fair for everyone. I hope you don't mind talking a bit more about Katuzas research opportunities and where the audience can learn more about you. I just published a 65-page report on Sunday. It was supposed to be published today, but we were day and night. March has been an incredibly successful month for my subscribers and myself on a portfolio stamp base. But it was really important to break down the different sectors that I'm looking at

Starting point is 00:54:30 and put out my alligator prices on the companies I want to buy. It's a journey. I try to make it interesting with historical facts, lots of charts, I show my math skills and I explain it all. And then we have all the summaries and updates. And I think the coolest part of the newsletter is actually the video aspects. I have a studio here in Vancouver and I know all the guys. So they come down to my office and the idea hit me about five years ago.

Starting point is 00:54:54 I'm like, you know, it'd be probably really cool for subscribers to be a fly on the wall in my office because essentially every deal comes through our office. And that's we set up the office and I bring in everyone and we do an interview, a Q&A or when I go to the mind sites, I bring the film crew and people can see what I see on their iPhone anywhere in the world. And look, it's not a Hollywood production style, but it's pretty. good stuff and you get to see everything that I see. And I think we're the only people that do that. So it's my portfolio. It's my money. I disclose my cost base. And I love what we do.

Starting point is 00:55:29 And we've done incredibly well. So we're going to keep doing what we're doing. That definitely sounds like the right thing to do. And we'll make sure to link to katusoryser research.com slash TIP, which is a designated address where our audience can learn more about Katuz's resource opportunities, some of the investment that you made, and a few calls of what you made in the market that we're seeing playing out right now. Martin, thank you so much for taking the time to speak with Presta and me here in the Amherstas podcast. It was my pleasure.

Starting point is 00:55:57 Thank you. Thank you for listening to TIP. To access our show notes, courses or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permissions must be granted before syndication or rebroadcasting.

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