Bob Moriarty: A Contrarian's Guide to Volatile Markets
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The Gold Report
Trotting the globe in his unrelenting quest for investing opportunities, Bob Moriarty had just completed a 21,000-mile travel-a-thon when he picked up the phone for this exclusive interview with The Gold Report.He liked a lot of what he saw, found plenty of bargains along the way and is willing to name names. Ever the contrarian, he is picking up stocks when everyone else is dumping them; he plans to cash in when the mass of sellers morphs into a mass of buyers and drives prices up.
The Gold Report: We're hearing many people these days warning that it's not a good time for investing in junior mining stocks. The TSX Venture Exchange has been experiencing some of its lowest volumes in six to nine months. What do you believe investors should do this summer?
Bob Moriarty: Anybody following my website for years will be familiar with me saying this: You can ignore technical analysis. You can ignore seasonality. You can ignore fundamentals. The only thing you can ever absolutely make money in is being a contrarian. Some very big names in the mining industry, including Rick Rule and Eric Sprott, have said, yes we're in the bottom but it'll be several months before you should invest. Where were they April 25 last year, when I said we'd reached the top in silver? For months afterward, the very best place to be was in cash. You have to look at what people say and when they say it. Very few people got it last year, but I clearly was one of them.
We are at a major bottom in gold and gold shares. The fact that some of the biggest names in the business are telling investors to bail out or keep their hands on their wallets if they're tempted to buy is a buy signal. If you have a hundred people in a room and every single one of them was a bear, the next trade would be up because you would have run out of sellers. The fact that the volume is so low speaks volumes all by itself. There are no buyers—only sellers, and we're about to run out of those. When that happens, the very next trade will be up.
It's a chicken-and-egg situation. Which came first? In this situation, was it the bottom or the news? Everybody hears, "The Dow went up 200 points today because of xyz." They try to connect news with action and it's exactly the opposite. When gold and gold shares go up, they'll say it's because of Iran, or Israel, or Osama bin Laden or Ron Paul. It's nonsense. It will go up because we're running out of sellers. When you have no sellers, you only have buyers. It's that simple. Too simple for most people to understand. But those who do will make a lot of money. Dawn follows the darkest hours.
TGR: But suppose the government announces quantitative easing (QE) 3, for instance, or some new European debt problems crop up. Wouldn't such news prompt investors to buy junior gold and silver shares?
BM: Absolutely not. What you hear on the radio, read in newspapers and most of what you see on the web is not news. It's propaganda. We have the equivalent of QE3 in Europe, something like $6.7 trillion, and gold, silver and equities have been going down. There's no connection between news and action. We have been spring-loaded to believe that the news is important and it's not. It's meaningless. Six people control 95% of the news media and you're being told what they want you to believe. That doesn't mean it's news.
TGR: So you have to divorce yourself from the news if you really want to be a contrarian in investing in mining stocks?
BM: Absolutely. Every time I call a silver or gold top and I'm perfectly correct, a hundred people immediately write to tell me how stupid I am in calling a top when in fact they're always dead wrong. They never tell me a month later; they always tell me as soon as I say it. Well, I've called tops and bottoms correctly for 10 or 11 years now. To be able to do that, either I have to know something other people don't or I have to be the guy doing the manipulation. And believe me, I'm not the guy doing the manipulation. All markets are manipulated and that makes manipulation as close to meaningless as you can get.
The mere fact that shares are hard to sell and there's very low volume is a buy signal all by itself. If you want to make a fortune in the junior mining segment, buy when nobody wants to buy and sell when everybody wants to buy. If that were all you did, you'd make 100% a year. Juniors have a 200–400% range every year. Buy when things hit a new low, sell when they hit a new high and ignore all the "gurus."
TGR: You talked about calling silver's high last April, and you've again been looking at silver and gold assets around the world. Do you consider yourself more of a silver bull or a gold bull? Or neither?
BM: I'm an agnostic. As for what I look for, I don't look for silver or gold or boron or natural gas. I look for opportunities. The Argentex Mining Corp. (ATX:TSX.V; AGXM:OTCBB) silver property we visited two weeks ago is a hell of an opportunity, and I said so.
TGR: That's in the Santa Cruz Province in Argentina, which has been a hotbed of exploration activity over the last several years.
BM: Yes, I was actually down there visiting four years ago. I liked the stock when it was $1.34/share. It's trading at about $0.38/share now, but two weeks ago it was trading at $0.25/share. If you're buying shares in silver at $0.25, you're effectively buying silver equivalent at $0.11/oz. If silver goes down to $15/oz, you're still going to make money.
Argentex will release a new NI 43-101 any day now, and they've doubled the amount of drilling, so it wouldn't surprise me to see the resource almost double. But in any case, when silver was selling for $5/oz, there were silver company shares selling for $1/oz in the ground. So, $0.08, $0.11 or $0.20—that's pretty cheap for an ounce of silver.
TGR: Do you look at certain jurisdictions or provinces that are particularly good for mining activity and then bet on some of those areas? Or is it always company specific in your view?
BM: It's actually management-specific. You need to look at a lot of factors, of course, but the most important is management. The country or province is absolutely important. I'm going to write an article shortly and will call it "The Miners' Lament." It's about having a gold or silver or boron project and the price of the commodity goes up. As soon as the price goes up, governments get greedy. That's happened in Peru, Bolivia, Ecuador and Australia. To a certain degree it's happening in Argentina, because the government has started getting greedy and claiming a bigger piece of the miners' pie.
TGR: On May 4, Argentina's Congress passed a bill to nationalize Repsol YPF SA (REP:BMAD), the biggest oil company there, expropriating 51% of Repsol's shares. Although not entirely unexpected because President Cristina Kirchner had announced her decision to nationalize YPF a couple of weeks earlier, the action—pretty much effective immediately—sent shockwaves through the resource investing community. Do you think this news makes investing in Argentinian juniors more risky?
BM: There are a couple of different issues to address here. One is the stupidity of government in Argentina. In 1914, Argentina had the third-highest GDP in the world. Based on agriculture and metal wealth and the educational level of its people, Argentina still should be one of the wealthiest countries in the world. It's not, and hasn't been for 100 years now. The reason is 100 years of incredible stupidity in government.
The resources are there. The people are there. The climate's wonderful. The wine's good. Buenos Aires is a lovely city to live in. Yet Argentineans suffer economically. For the government to seize YPF is especially stupid. The excuse was it was not making enough money out of it—in much the same way that the power company in South Africa wasn't making a profit because the government imposed limits on what the power company could charge for the power it sold.
Governments believe they're smarter than the economy and they can repeal or modify the laws of supply and demand. They can't. The last 6,293 times governments have tried to show they're smarter than the economy, they've screwed it up. Governments just get in the way of people making money. If you go to Switzerland, you don't even see government. In Sweden, government's in the background and that's a welfare state. But, government doesn't figure into every newspaper article and everything you hear on the radio. In China, I don't have a clue how the government works; I just know it's an exciting place to make money.
So let's go back to whether it's safe to invest in Argentine juniors. I think it is because the juniors are in the exploration stage and they're bringing money into the country. It would be especially stupid for the government to get involved at this point. I don't think it will fool around with the production companies yet, either, but there's no limit to the stupidity of governments.
