Doug and Porter on Today’s Once-in-a-Generation Speculation
Editor’s note: Today, we have a special Dispatch for you featuring master speculator Doug Casey and our longtime friend and founder of Stansberry Research, Porter Stansberry.
Right now, we’re seeing unprecedented warning signs in credit markets all around the world… The global scale of these problems means the coming crisis—what Porter has called “the greatest legal transfer of wealth in history”—will be truly historic. And folks who don’t see what’s coming could be wiped out.
Fortunately, Porter has figured out a way to both prepare for and profit from this historic time. He recently sat down with Doug to discuss the details behind it. Here’s a transcript of their conversation…
Porter Stansberry: Today, I’m talking with my friend of 20 years, Doug Casey. Many of you probably know Doug from his newsletter, but Doug has spent 40 years of his life as a speculator active in the markets, buying and selling. Speculation is a lot different than investing… and it’s not something we’ve done a lot of at Stansberry Research before.
So I thought it would be best to ask someone with a lot of experience. And when it comes to speculation, nobody knows more about it than Doug Casey. Doug, thank you very much for joining us today. Can we start with just a definition? What does speculation mean and how is it different than investing?
Doug Casey: Well people often conflate and confuse the two concepts, but they’re very different. An investor will put a dollar someplace in order to make real wealth grow. Investing is like planting a seed of corn in order to grow a whole stalk of corn with hundreds of new seeds. Investing is all about financing new production. It’s generally a long-term process. Speculation is quite different.
It’s all about taking advantage of price distortions, when prices are either much too high or much too low. Very often these distortions have political causes. An ideal speculation is one where the government does something stupid, making the results predictable. You position yourself to take advantage of the unwinding of what they do. If we lived in an unregulated free market society there would be very few good speculations. But, in today’s world, governments practically guarantee speculators profits.
Porter: I think an example is always helpful. Can you talk about your career as a speculator and give me an example of the largest opportunities as a speculator that you’ve seen in your career? Give me an example of a really big government manipulation and how it was all unwound.
Doug: Well of course the biggest one in my lifetime was gold, which was controlled in price at $35.00 an ounce from 1933 to 1971. Nixon took the dollar off gold, and over the next decade it went from $35.00 an ounce to a high of $850.00 an ounce in 1980. So that’s the classic speculation. Silver was also price-controlled until 1966, and offered similar returns. Another example of course is George Soros shorting the pound, and breaking the Bank of England. The guys who shorted the mortgage market before the crisis that started in 2007 made billions.
You can make money both on either the long side or the short side. The government has recently created trillions of new currency units trying to “stimulate” the economy. This has created bubbles in the marketplace. Right now we’re in both stock market and bond market bubbles, ripe for a collapse. In fact, the bond market is in a super bubble; it’s something of historic proportions. But most people are unaware of it, perhaps because it’s hard to see a bubble if you’re inside it, especially if it’s a huge bubble.
So if you ask me what the best speculation out there was at this moment I’d tell you going short both stocks and bonds.
Porter: Yeah. Doug, I want to get to that particular strategy in a second. Two things, though. First of all, you just said that the best speculative situation in our lifetimes was in 1971 when gold was finally allowed to trade freely. Just for the record, I’d like to point out that I was born in 1972.