Brien Lundin | Why Gold Is Freedom (plus gold stock investing insights)

Brien Lundin is the editor of the Gold Newsletter and CEO of the New Orleans Investment Conference (Nov 1-4, 2019).  In this episode Brien shares regarding why gold is freedom and how gold might be re-instituted as legal currency in America.  He addresses whether he foresees the USA entering a recession.  Brien also talks about how to play the mania phase of the current gold stock bull market. And he discusses what he wants to see in a junior mining private placement and whether the accredited investor rules are fair.  Lastly, Brien provides an overview of this year’s upcoming New Orleans Investment Conference and what attendees can expect.  To learn more about the 2019 NOIC click HERE.

0:05 Introduction

1:54 Is the USA headed for a recession?

3:09 Gold is freedom

6:15 Could gold as legal US currency and the Federal Reserve coexist?

6:57 Price inflation if gold became legal US currency?

8:49 Thoughts on current gold bull market upcycle

10:22 How to play the mania phase of the gold stock bull market

14:07 Investing in private placements

18:56 Are accredited investor rules fair?

20:19 Overview of 2019 New Orleans Investment Conference


Bill: So we are seeing the inverted yield curve, which many point out is often one of the bellwether signs of an upcoming recession. I’d like to get your thoughts on, do you think we are headed into a recession, and what’s your thoughts in general regarding the U.S. China trade war?

Brien: Well, it’s hard to say on the recession. I think probably we are. I don’t think it’s necessarily imminent. I think it may be another year or 18 months or so, but at some point, I think we are. I think we’re seeing some signs of weakness right now. The consumer is the only thing really supporting the U.S. economy. And in fact, the trade war, which I thought would’ve been resolved frankly long ago because both sides really need it to be resolved, that has obviously been extended on and on to the point where I think it’s having a big effect on the U.S. economy and could actually precipitate a recession. It’s also one of the key factors that the Federal Reserve is taking into account and kind of justifying its policy of the last rate cut and perhaps the next one or two.

Bill: If we were on a gold standard, the U.S., if Nixon didn’t unhinge the U.S. dollar from gold, do you think we would even be talking about a trade war right now?

Brien: No, we wouldn’t, but I think that was inevitable. I mean, it really is human nature. We had already gotten to the point with guns and butter throughout the 1960s in the great expansion of government entitlement programs and spending, that the dollar was not worth what it was supposed to be worth in terms of gold at least and in terms of other currencies around the world. So De Gaulle and other government officials and leaders around the world realized that and started taking America’s gold in exchange for dollars. It was going to happen sooner or later. Nixon was the bad guy. I think he was forced into that.

So there is an argument as Milton Friedman made as to whether a gold standard would be effective or practical today with so many different economies interconnected of so much spending. I think the key question now is, for one, we need to recognize that nothing is going to stop governments from spending and spending beyond their means. It’s just human nature. It’s happened throughout human history. And now, it’s accelerated and seems to be the only reason for any kind of economic growth or justification or any economic growth in recent times. So it’s going to happen.

And if it is, my view is that we need to focus efforts on pushing for gold legalization as currency alongside the dollar rather than backing the dollar so that there are no taxes or other costs or frictions between the use of gold as currency. And therefore, people can protect themselves with gold, buying, selling it, trading it, using it if necessary. But in fact, they probably just use the dollar instead. And then the government officials could do whatever they want. The dollar, they could throw huge amounts of liquidity into the system when they needed to or whatever. But as long as citizens would be able to protect themselves, I think that’s the key question and the end goal.

Bill: So you’re a libertarian politically. That really decentralizes the economic system in a way, doesn’t it?

Brien: Yes. I’m a big believer. Jim Blanchard, who of course started Gold Newsletter and the New Orleans Investment Conference, kind of fostered my understanding of gold, and he had an innate understanding of gold as freedom. It really is freedom. It’s the embodiment of that, at least economic freedom. It gives you an independence from government intrusions, government mismanagement, government destruction of the underlying currencies. And that’s a trend that is inescapable. It’s inevitable. It has always happened, and it’s happening at a much quicker rate now in the United States and really, in modern economies.

Bill: Could you see what you just proposed with gold being seen as a currency and the Federal Reserve coexisting at the same time?

Brien: Could I see it? I think so. I think there are ways to accomplish it either legislatively or through the judicial system. Either way, I think it could be done. All you’re really asking is that the gold be legalized as currency as is, by some interpretations at least, it’s described and determined in the Constitution. So there is an interpretation there that at least it could be utilized in trade alongside of the dollar as legal tender.

Bill: It seems to me that we might see a hard reset with that in the sense of what Jim Rickards has predicted, the $10,000 an ounce gold, and with that, do you think we would see price inflation in our everyday items if gold was made money again?

Brien: I think the price inflation would be embodied more into the price of gold as anything. And Jim’s argument, as I understand it, is that at some point through the cycles of booms and busts that aren’t allowed to happen, in other words, when there is a slow down, when a bubble bursts, even greater amounts of liquidity are showered onto the system to mitigate the harmful effects. So we have these repeating cycles over and over again, and in each instance, there has to be greater and greater degrees of liquidity and monetary easing to accomplish the same previous result.

At some point, and I believe this is Jim’s argument, and really, it’s mine as well, that at some point, the dollar and other currencies that are undergoing this process are going to lose credibility and that as people begin to expect and look forward to greater showerings of liquidity upon the system and begin discounting the value of those currency units. So at some point through these cycles, the currency will lose credibility. And at that point, the only way to really regain that credibility is to tie the dollar to something and tying it to gold at some level. Some level of partial backing would still result in gold prices that are thousands of dollars higher than where they are today.

Bill: Would you foresee that what you’re talking about occurring in this upcycle of the gold bull market that we’re in?

Brien: I really don’t know. I think regardless, this cycle is of the longer term variety. I think there are issues with the debt that are going to be realized by the consensus over the next couple years, two, three years. Now, at some point over the next few years we’re actually going to have to start borrowing to pay the interest on the debt. And at that point, the debt creation just goes exponential, and that happens under virtually any interest rate scenario just because the vast amounts of debt that are being created now.

So I think there will be a somewhat of a financial crisis coming up over the next few years. I think that’s baked into the cake as it is right now. Whether it’s this cycle or the next one or the one after that where the dollar loses all of its credibility, I don’t think anyone can say. I’ve had some heated discussions with my friend Peter Schiff over this. He thinks the next one’s the big one, and that’s when the big reset will happen, but I really don’t think anyone can say with any certainty. It may be this cycle. They may be able to fool the public and convince people of some relevance in the currency one or two more times. I really don’t know, but the trend is very clear I think.

Bill: Not only are you a gold sound money advocate, but your newsletter, the Gold Newsletter, focuses on the gold stocks. When you are thinking about your exit strategies for this upcycle in the gold bull market, can you talk about how you plan on playing that mania phase of the gold stock bull market?

Brien: That’s a great question. I think it’s something that people really need to focus on. And it’s one of the things that Rick Rule and I are going to be doing a webinar in a couple weeks to focus on how to not only make money, well, to maximize your returns in this new bull run, but also make sure you take some money away from it. And I don’t think anyone can plan on a getting out at the top of the cycle. You really, you can’t. And I’ve been through a few cycles, and I can guarantee that anyone listening to this will not get out at the top of the cycle. If they do, it’ll be blind luck. It’s not due to any kind of foresight or planning or insights.

Bill: And stay out, right Brien?

Brien: And stay out. That’s the key. That’s a great point because what I’ve always told people is, well, first off, there’s a lot of ways to invest in gold and silver, precious metals. And the key is to have, at the beginning, to have a foundation of physical metals and have some significant portion of that readily accessible, not in a bank safe deposit box, but somewhere else safe and accessible. So you need to have that.

But if you play or invest along the spectrum, the remaining spectrum of precious metals investments, one of the ways to get a lot of leverage on this move is through mining stocks. And then again, there’s a spectrum of those from large producers down to the smallest junior explorers. And we tend to focus in Gold Newsletter on the smaller company end of the spectrum, the ones that are really higher potential, greater risk of course, and higher potential. But in a sustained gold move, gold bull market, these stocks can multiply in value 3, 4, 5, 10, even 20 times in value. And we’ve been through cycles before. I’ve been through cycles before where we have experienced these kinds of gains.

And the mistakes I made and learned from, the mistakes I made were basically trying to keep the money in the market in that brokerage account. You get a big win if there’s a liquidity event, whether you sell or whether the company is taken out. Then you end up putting the money back in in another new play or a new story, the hot stock that everyone’s talking about. And what you really have to do is take that money out of the market, just keep a ladle into those profits and keep pulling it out of the market, put it into something you’ll liquid like real estate or something else that guards those returns, that newly created wealth.

Because if you leave it in the stocks, if you leave it in even the same brokerage account, and if you leave it in cash, it will eventually find its way back into the mania somehow. The key is not making the most money during the mania. It’s keeping the most after the mania has gone. So that’s one of the key lessons that I try to tell people is, you have to take profits. You have to take them off the table, put them in your pocket, and run home with them at some point.

Bill: So if you’re suspecting that you’re closing in on the peak of a gold bull upcycle, would you perhaps participate in private placements, clip the warrants, and then sell your shares when they become free trading four months later? Would that be one of the ways you might dip your feet in the water at that point?

Brien: Well, a lot of people participate in placements now. A lot more retail investors participate in placements, and there are risk involved with that. You have that four month hold, which is I think good and fair. But if you’re a U.S. investor, then you have to realize you’re at a somewhat of a disadvantage from Canadians who can convert stock and sell upon whole period expiration a lot more quickly than U.S. investors can. So there are strategies involved in that.

Again, I don’t think you’ll be able to sense when things are really out of mania or when a blow off is imminent. But when things get really heated, then you may want to buy more in the market rather than in placements. Or one of the strategies I tell people is, if you’re get an opportunity to invest in a placement, and let’s say that you’re dedicating X amount of money toward that placement, what you may want to do is split that investment. Maybe put half or only two thirds of that X amount into that placement but buy the same stock with the remaining funds that you are going to allocate. Buy it in the market. And that way, you have liquidity, and you can get out ahead of other people as those warrants are poised to come onto the market or have become free trading. So you give up a little bit of the upside. You give up a little bit on the pricing and warrant coverage.

But typically what happens in these junior stocks is a company will plan their news flow to try and peak around the warrant expiry and have some new development that will spur new buying that will soak up that new supply of stock. They typically, to be safe, do that a few weeks before the warrant expiry or at least a couple weeks. And while everyone else is still locked in, and there’s limited liquidity, and the price is rising on this news, if you have free trading stock, you’re able to take advantage of that and recoup, hopefully, some of your risk capital if not all of it.

Bill: One of the things that was stressed at the recent Sprott Symposium in Vancouver on one of the panels was that you need to study not only the company and the investment value proposition before you participate in a private placement, but you want to be studying who’s buying the shares because so many of the investors buying the shares now are only in it for that four month hold, and they just want to sell their shares. So my question for you is, what do you look for now, not just in a company in general, Brien, but what do you specifically want to see in a private placement that would cause you to partake in it?

Brien: Well, I think the other people participating is a big deal. I mean, I have a lot of friends who are very active traders who are very prone to clipping the warrant, and that’s their right. But if they’re predominantly the ones participating in a placement, that’s a caution signal that you need to look at. If there are members of the management team participating in the placement and people of a track record of success, I think that’s the kind of investment that would be more attractive to me.

You look at Ross Beaty with Equinox, he’s put $60 to $70 million of his own money into that stock. He’s invested in the financings, bought in the market. He is not going to clip the warrants, and he wants to make this as big a success. So while I have some reservations about some of the projects in Equinox’s portfolio, and I really like some of the other projects, I think the key thing that has me recommending that stock is Ross Beaty. By hook or by crook, he’s going to make it a success in my view. So that’s why I own that stock, and that’s why I recommend it. And that’s just one of the examples. But it gets back to management team. You want to see who’s behind the stock. If they’ve had successes before, and if they don’t need that quick hit, they don’t need the money from a quick hit, those are the kind of people you want to back.

Bill: There are net worth and annual income requirements to become an accredited investor and thereby be able to take place in these private placements. I’ve heard many people say that this isn’t fair because there are people that are savvy yet are just below the accredited investor threshold. But the government’s argument is, “well, we’re doing it for your own safety.” You’re a small government person. What’s your perspective on this? Do you think it’s fair, the accredited investor rules?

Brien: No, I really don’t. But I’m pretty radical on this. I don’t believe in seatbelt rules. But I don’t believe that government should protect you from yourself basically. And again, that’s what they’re doing. They’re trying to protect people from themselves. I understand all the concerns, et cetera. I don’t think there’s evil motivations, but I think it’s somewhat of arrogance that you think these people aren’t as smart as the people who have enough funds. There at least should be some maximum investments, or people should be able to participate through some sorts of crowd funding or smaller allotments or whatever. But I think that’s the democratization of what’s has been a very exclusive investment arena, and I think it could only be for the better.

Bill: Before you leave, Brien, as we conclude, please share with us what we should expect at the upcoming New Orleans Investment Conference.

Brien: Well, I think you can expect, if the past 45 years are any indication, you can expect insights that you won’t get anywhere else, a gathering of the world’s top experts in precious metals and mining stocks, but also other areas, other significant areas that we’re also focusing on, technology, 5G, cannabis, blockchain, et cetera, et cetera. We always have some of the agenda dedicated to those areas.

But the bottom line this year is that in this kind of an environment with an established confirmed bull run in gold and silver and the mining shares, attendance at the New Orleans conference has never failed to produce stocks that have multiplied in value that you can only really discover here by looking at the buzz, walking among the exhibitors, hearing the stories, looking management teams in the eye, hearing what the top analysts are recommending. It’s a kind of thing that not only pays for itself, the kind of an event and investment of time in money that not only pays for itself, but has always yielded such gains that you’re really, really not doing yourself a favor if you’re not attending. And I think that’s what we’re facing right now. At this point in the market, with that kind of confirmed bullish trend, you really have to attend the New Orleans Investment Conference. The opportunity is just too great to ignore.

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