by Doug Casey, International Man:
J. Reeves: You’ve been all around the globe in 2016—Ukraine, Turkey, Zimbabwe, and other hot spots—chasing crises… and making crisis investments. What was your most memorable journey? What was your best-returning crisis investment?
Nick Giambruno: I’d say meeting Gideon Gono with Doug Casey was the most memorable moment of the year. Gono was the head of Zimbabwe’s central bank during the country’s 2008–2009 hyperinflation. He’s “the man who made everybody trillionaires.”
Gono told us he knew printing money would cause hyperinflation. He and everyone else knew what they were doing. But they had to do it because Zimbabwe was broke. And they needed to pay the army. There was no other option.
You’re asking for serious trouble if you don’t pay the army in any country, but especially in Africa. Gono was ordered to print money to placate the army. So he printed. That’s what it really boiled down to.
He described it as being “in a car without gas,” and the government was ordering him to drive from point A to point B. Basically, they gave him an impossible task.
The episode shows the dark force behind central banks. Even though most politicians, economists, and pundits in the mainstream media won’t admit it, central banks exist to help governments finance themselves, at the expense of the average man. It’s the hidden, but real, reason they exist.
Gono’s central bank essentially did the same thing the Federal Reserve does with quantitative easing (QE), which is just a euphemism for money printing. As you know, the Fed has printed trillions of dollars to buy US debt, which helps finance the US government.
The big difference is that, for now, anyway, the US dollar is the world’s premier reserve currency. That gives the US government much more room to print.
The Zimbabwe trip also yielded a great stock pick for Crisis Investing. I recommended a local company that’s up over 48% right now.
One of the most profitable plays of the year came from a trip Doug and I took to Ukraine. I recommended an agricultural company that operates in the eastern part of the country, which is an active warzone.
At the time, the company was trading at less than 10% of book value—literally pennies on the dollar—and less than half of the cash it was holding in the bank. The company was still producing earnings in the most volatile circumstances. Debt wasn’t a problem.
It was a genuine blood-in-the-streets opportunity. We pretty much caught the moment of maximum pessimism, where every last person who wanted to sell already had. It was around the absolute best time to buy.
After researching the situation, I realized the company could not only survive the war, but thrive. A little over four months later, I closed out the position for a double.
J. Reeves: You don’t just invest in countries in turmoil… you invest in “crisis markets,” too—sectors and industries at a point of “maximum hate” (and thereby, maximum upside). What crisis sectors/markets are you excited to invest in in 2017 and why?
Nick Giambruno: If I were putting my own money into something today, it would be uranium, hands down. It simply has the most explosive upside right now. It’s the most hated of the resource markets.
People just don’t like uranium. It’s yucky. It’s politically incorrect. And it makes some people emotional because of its association with Hiroshima, Nagasaki, Chernobyl, Three Mile Island, and, of course, Fukushima.
Besides that, investors are terrified that uranium prices have fallen over 85% from previous highs. It’s hard to think of a market with worse sentiment.
But that’s why I’m excited. Crises and extreme sentiment don’t scare me. They attract my interest.
Doug Casey says, “When the market wants into gold stocks it’s like trying to force the contents of Hoover Dam through a garden hose. In the case of uranium stocks, it’s more like a soda straw.”
Paladin Energy is a great example. Doug recommended Paladin during the last uranium bull market, and it leaped from one penny to $10 per share. That’s a 1,000-fold increase.
It means a $10,000 investment could have exploded into $10 million.
Even the worst-performing companies in the uranium sector delivered 20-to-1 returns during the last bull market. It’s almost unbelievable. But it’s possible because of uranium’s unique supply-and-demand quirks.
Now the spot price of uranium is less than the cost of production again. This is great news for us. The current uranium supply/demand imbalance has a lot in common with the last market cycle. It’s setting the stage for the next uranium boom.
Right now we’re positioning Crisis Investing subscribers for the same kind of explosive returns we’ve seen in previous uranium bull markets. I can’t think of a commodity with more upside and less downside right now.
I expect the coming uranium bull market to be at least as explosive as previous ones. The price will likely overshoot, since it will take years for production to catch up with increased demand.
In not very much time, shrinking supply and increasing demand should turn the uranium market around. Current production only satisfies about 75% of current demand. Global inventories make up the rest.
Of course, it’s difficult to get accurate figures on global uranium inventories. Governments and companies keep it confidential. But they won’t allow inventories to get too low for energy security reasons. Most experts I’ve talked to say there’s around a year left before reserves drop into the danger zone.
Demand for uranium is also increasing. New nuclear power plants in China, India, Taiwan, and South Korea guarantee it.
Right now, 8% of global uranium demand comes from China. But it’s expected to overtake the US as the world’s largest uranium consumer by 2030. The Chinese think nuclear energy is the best solution to their huge air pollution problem.
The increased demand from China alone should ensure that uranium prices rise. But there’s also the Trump factor. He’s strongly pro-energy, and pro-nuclear in particular.
Trump has said, “I’m in favor of nuclear energy, very strongly in favor of nuclear energy.”
Nuclear energy fits right in with Trump’s “America First” platform. It’s critical for securing the country’s energy independence.
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