The Global Impact of Negative Interest Rates (w/ Marin Katusa)

The Global Impact of Negative Interest Rates (w/ Marin Katusa)


MARIN KATUSA: My name’s Marin Katusa. I’m the chief investment strategist at my
own firm, Katusa Research, and we run one of the largest funds in the resource sector. I think without a doubt, it’s a negative interest
rate policy that the bankers are using as the new stimulus. I call it an FTD, a financially transmitted
disease. I don’t think investors or the media or even
the central bankers truly understand the implications that this FTD will have for portfolios co-stemming
from pension funds to retirees to even sovereign wealth funds down to regular portfolio managers. We’re in like I call the Keynes’s quantum
economics where when they originally modeled this, there were no negative interest rates. Everything’s in this new uncharted territory
and I think it’s going to have drastic effects across the board. There’s this misconception that your mortgage
is going to be cheaper, people will be able to get access to cheaper money. That’s not how it’s going to work. The velocity of capital is going to really,
really slow down and it’s going to be a select few that get access to this cheaper negative
interest rate policy money. It’s going to have drastic negative effects
such that almost like in China where you have the government rate and then the shadow market
rate, I see that happening in the rest of the world now, and it’s going to have serious
implications. Without a doubt, my opinion is it’s deflationary. If you look at what the impacts are, and I
wrote 40 pages on this in my publication, the amount of capital chasing the fixed number
of goods is going to be less hence that’s deflationary. You look at the velocity of the capital is
also going to slow it down, so it’s going to have this double impact and again, a lot
of people think this is a short term fix like what QE was. I’m taking the other side of that bet, I think
it’s going to last a lot longer and negative interest rates are going to go a lot lower. For example, if you look at how these bonds
are trading, so you got the negative interest rates, so first thing and you ask yourself
is who the hell wants to take a negative interest rate bond? That’s not these bond managers are looking
at and going, “Holy crap, it’s trading at like a 30%, 40% 50% premium.” That’s what they’re looking at. They’re willing to cut that in so they get
their bonuses, and they get all the numbers that work for them. It’s this self-fulfilling prophecy and rather
than returning 35%, maybe they’ll return 20%. They’ll go a little bit deeper on the negative
interest rate. This is the spreads going to keep getting
bigger and bigger. That’s what I see happening here. 10 years ago, no one would have ever thought
that this would even be where we are. It could go a hell of a lot lower. Could it go negative two and a half? Sure. Why not? It all comes out. It’s all relative basis. It goes back to my days, I used to teach Calculus. Quantum mechanics essentially was you can’t
take the square root of a negative number then they said, we’ll introduce an imaginary
variable and voila, long story short, you get quantum mechanics. That’s essentially what we’re doing in this
new quantum economics with negative interest rates. If we’re at negative three quarters, why can’t
we get to negative one and a quarter, negative one and a half? That’s what happens in an FTD. This is going to spread virally. It’s going to be awful. Yet they think it’s a good thing. Really, they’re injecting themselves with
this FTD thinking that it’s going to help them. They think it’s a steroid for themselves,
when in opposite, it’s a virus for their portfolio. For example, say you’re a 55-year-old guy,
you’re going, “Wow. I got this mortgage, I can refinance it. My kid’s a useless millennial, he’s probably
going to move in in the basement with his girlfriend and they’re not really doing anything. They’re trying to find themselves in their
art career, whatever the situation may be.” They’re going, “Well, I’ll refinance my house. I’m all for negative Interest rates,” but
what they’ve realized is you’re not going to get a negative interest rate mortgage,
okay. That stops there. Secondly, their portfolio, their pension funds
are going to be significantly impacted because these pension fund managers to base when they
started this 30, 40 years ago, when they started in their careers, they expected it between
5% and 7% earnings year over year and the thing but you’re not getting that in the bond
market. It’s turning everything upside down. Their investment returns are going to shrink
significantly, but pro rata, their cost of living and access to capital for the average
working person, the average person who needs that capital to sustain their mortgage or
cart, they’re not going to get negative interest rate, they’re not going to get any of the
relief. No one truly understands what’s going on here,
and hence why the central bankers are kicking the can down the road and the politicians
are totally okay with it, because everyone lives on this four-year cycle and they’re
not understanding the long term implications. This is why I said in this case, believe it
or not, the US dollar actually wins and gold wins. Those are the two places that I think people
should have some exposure and a lot of people go, “Well what about Bitcoin?” I go, “Sure, why not?” Have a little bit in it. I’m no Bitcoin expert. What I did was I put a significant amount
of money on one of the largest shareholders and who I think is a super smart guy who’s
really focusing on Bitcoin and industries that I’m not paying attention to. Yeah, have yourself exposed to areas that
should benefit from this FTD that is happening virally. You got to look at who’s getting it, how they
qualify and you can argue that here in Vancouver, there’s so much subsidized housing that in
downtown, some poor bastard’s spending three and a half million dollars on a two bedroom
apartment and then next door to him is a subsidized housing at 80% subsidized so technically,
that person has a negative cost of living versus his peers. You first has to ask yourself, who got that,
but more importantly, what the size of that mortgage is. I just don’t see the bank getting to that
point because they we’re in a basically socialist state, then at that point, you’re going to
get taxed on your cash and your portfolio and all sorts of things. Interestingly enough, a lot of people don’t
know that in Canada, pre-World War II, you used to get dinged a tax 3% on your assets
that were deemed in your portfolio. Back then, they take your cash and your assets,
whether you own stock in a railway or whatever, in the bank, and they charge you 3%. You’d have to pay that in hard cold cash. Now, they changed things with property taxes,
and they took that tax away. Eventually, I do see that also coming back
because the pendulum sure is swinging into– I don’t see people getting negative interest
rates for houses because then, it just how do you control things. Just then we truly are in a quantum realm
of economics, which doesn’t make sense at all. In a negative interest rate policy world,
people are recognizing– they’d eventually realized that, “Oh crap, I’m going to retire
and I’m not getting the returns I expected to have. I’m somewhat fiscally normal, maybe not conservative,
but fiscally, I got to figure out how to pay ends meet.” It’s going to affect the economy because you’re
not going to do those spontaneous purchases that you regularly did, you’re not going to
do the vacations or the big dinners. Instead of buying a $200 bottle of wine on
your anniversary, you might buy a $50 bottle of wine or $40 bottle of wine. That’s just the natural evolution of these
things. As people start to retire, they start planning
and becoming more conservative, and that’s going to have its ripple effects across the
board. It’s going to force people to save, then the
irony will be then the government will probably bring in some tax on the savers. The government’s going to screw you whichever
way you think and that’s just how it is. I actually see that the trend will continue. As negative interest rates decrease and they’ll
continue, there’s going to be a new junk bond era where it’s not based off of the old valuations
we’ve seen. For example, the Austrian bond was up over
55% at a negative point six, and the bond managers were all over it. Maybe the next savvy banker will say, “Hey,
we’ll do point negative seven, and we’re happy with yielding 35% or 40% on the trading of
the bond.” That’s the realm I was talking about earlier. I see that continuing longer than people expect,
because people are going to have to put their money somewhere. They’re not actually now the bond market,
a way to think of it is it’s no longer paying the bond for the yield. It’s actually paying the bonds for the return
on the bond, if that makes sense. Let’s talk about how the US dollar plays its
role in the resource sector. Over 90% of all capital infrastructure in
debt globally is financed in the US dollar. Pick any commodity you want. Let’s take uranium for example. The world’s largest producer of uranium is
called Kazatomprom. The Soviets drilled out this time stuff back
in between World War II all the way to the fall of the Soviet Union. Kazakhstan has these incredible uranium fields
that produce– it what’s called unconventional but really the majority of the world’s uranium
is produced via IRS, used to be called ISL but now, it’s called ISR. I call it the conventional way of doing it
now because it’s the majority. How they funded this was really clever by
the Kazakhs and the Russians. If you ever go to Kazakhstan, the languages,
Russian Cyrillic, the Russians are still there. For people to think that the Russians aren’t
involved is a fool. Half of the production goes to Russia. The Russians and Kazakhs are completely aligned,
but what they did brilliantly here was they brought the foreigners so like the company
Orano, used to be called Areva, that’s a French national company. They brought their money to fund the development
of these fields. Cameco, Canada’s largest producer of uranium,
they brought their funds and I’ll use them specifically as an example. They used to be the world’s largest producer
of uranium, they’re third now. Back about 12 years ago when Cameco struck
a deal with Kazatomprom on the Inkai project, it was 60% Cameco, 40% Kazatomprom. World class deposit, nothing against it, makes
money at $12, $13 uranium. Cameco put up 100% of the money for it. Then as time happened, Cameco started getting
their returns, they get back. The Kazakhs, so let’s call them the Soviets,
the former Soviets, said, “Hey, Cameco, we’re doing all the work. This is our land, our costs are going up a
little bit. Let’s renegotiate.” Today, it’s 40% Cameco, 60% Kazatomprom. I say that this trend is emotion. That’s part one of this. Part two, the CapEx is built, you have sustaining
CapEx or OpEx we call it in mining, but generally the big costs are the frontend upfront costs. Now, yes, you got production zones and there’s
costs going on, but you’re producing in a devaluing currency, the tenge, which is the
Kazakh currency, and you’re bringing in US dollars. Today, the spot price of uranium is about
25 bucks a pound. The Kazakhs are doing better today at $25
uranium than they were at $40 because their tenge is devalued at that ratio. We’re there. That’s what’s happening across the board. The Kazakhs, the last two decades, went from
a million pounds of domestic production, when I first went there in ’03 to about 40% and
change of the global primary production without really using much of their own money. It was using foreigner’s. They’re fixed and they’re going to be horse
trading to get more of that asset. What is the foreigner going to do? You’re in the former FSU, at the Kazakhs,
you’re not going to screw around there, you’re going to pretty much, I see Cameco ending
up with maybe 25% or 30% of the asset. The Kazakhs are so smart at this. Don’t ever underestimate them. That’s just uranium. That’s my whole thesis, the cut to kill strategy. Take copper for example, if you just add Chile
and Peru, that’s about half of the world’s copper right there. Well, what’s going on with their currencies? The big mines, the CapExes are in place. Now, they’re getting in. Yes, you still have OpEx, but they’re still
making great money at $2.50 copper, because their currency is devaluing. Is there a reason why the price of copper
has to go ballistic? No. That’s a deflationary effect on these commodities
that I’ve been talking about here. Then all these guys go, “Hey, well, Marin,
come on, we’re running out of copper.” The problem with most of the people in the
resource sector, they use linear mathematics. They think, “Okay, 3% year over year.” That’s not how the world works. Fortunately, my skill set is in math. I say, “Well, here’s my model. Here’s where I think and I think this whole
shortage of copper by the end of 2021, I don’t really buy it. I’ve been involved in building and actually
I’m the director of one of Canada’s largest copper mines.” When the tough gets going, the one thing you
can say about miners, they know how to survive. They’re very resourceful and they’ll start
figuring these things out. You see so many examples that guys are reducing
costs, producing more with less. That’s a trend that we see going on. Now, if you look at, for example, gold, if
you take, we’re over $2,000 Canadian ounce of gold, and I wrote about this a year and
a half ago saying, “Hey, we’re going to have $2,000 gold in Australia and Canada,” and
your costs are in a devalued currency, like what’s happened to the Australian currency
and the Canadian currency. Yet, that’s a great place to be fundamentally
where– another thing I say, if you’re a non-US citizen who doesn’t have US dollars, gold
is a must. For the American citizen, you’re not going
to have that big bang on the gold compared to a Canadian or a Russian or a Turk or Argentinian
because of the devaluation factor. The best way to play that would be through
the equities, which will get that big– I remember when Grant videoed me a while– a
few years ago, look at what we experienced with new market that became Kirkland Lake,
these things went up 60 times and we’re not even really in a big gold market yet. We’ll be there, but for the Americans, the
best way to play it, and the gold guys who buy and sell gold– they hate when I say this,
for an American, the best way to play is through the equities. The natural gas, we don’t really need to talk
about it. There’s so much of it. You look what’s going on in Europe, it’s a
byproduct with the shale. You can’t give this stuff away. Like natural gas, be very careful where you
invest in natural gas. First of all, that would be the only reason
to invest in the equities is because you’re taking way more risks so you want much bigger
return. The easiest way to play this is just buy gold
and sit on it, take no risk. The only risk is somebody steals it from you. If you’re going to play the equity, you got
to ask yourself, what’s your timeframe and what’s your risk tolerance. I think it’s going to be very different than
what Rick’s experienced through his generation and Rick’s a really good friend of mine. We’re partners. We’ve worked together for years. In the old days, it used to be that– today,
the boomers, they would speculate and you get these newsletter writers and the market
was a lot smaller back then. These juniors would fly and everyone all–
the rising tide raised all boats. The big difference now is never compared to
today in the past, has so much money been managed passively. What I see happening here as a part of my
article that I wrote was this passive management, they don’t have guys like me and Rick sitting
around going, “Well, here’s our inflows, what should we buy?” These are algos, and they’re charging things. They’re looking at minimum market caps, minimum
volumes, minimum– they have this very complicated thing. They’re throwing money in the market. They’re not going to go downstream into the
juniors so they’re going to play in these bigger caps. We’re seeing that today where historically,
it used to be that the juniors used to be so overvalued relative to the majors and midtiers. Now, we’re seeing that the majors are trading
much closer and even above NAV, so some of these streamers like Franco, they’re treating
above NAV which is your basic future value into it today. That’s because of this passive management
just coming in. In a way, you can argue that that money’s
the dumb money, like in the past, retail money was seen that way. Yet, there’s very little retail money today. You get these juniors that are trading at
a huge discount to NAV and what’s going to happen I think differently were the big gains
aren’t going to be made from necessarily discoveries which they happen but they’re so rare. One in 3000 ever work and become a mine, where
I think it’s going to be about buyout. That’s where I’ve been focusing out on and
you’ve seen so many happen where these larger companies who are trading at a much higher
valuation or premium to NAV buy out something that’s trading at point seven NAV or point
eight. That’s where you want to look at. You want to be able to find quality that’s
low risk, that’s developed trading at low NAV that someone else is going to buy out
and that’s how you get your– what I call the easy doubles and triples and we’ve seen
them happen, like time and again, and we’ve been writing about it. That’s where I think this first phase of moneys
coming in. Then when the market starts seeing many of
these happen in another year or so as gold gets going, then you’re going to see people
go downstream and then all will go up with the rising tide. I don’t think we’re there yet. I think step one is playing that NAV ARB is
where we are right now in the market. The timeframe of this NAV ARB, we’re seeing
it right now. When you look at– when I bought just under
10% of new market, which Kirkland Lake merged, that was just an ARB play. Then you’ve seen it have a 50 bagger return. Same thing happened. You look at what’s going on Atlantic Gold,
my friend Steven Dean just got bought out by St. Barbara, an Australian company that
traded at a much higher NAV came and gobbled them up for cash because it was cheaper for
them to raise cash because they’re trading at a premium to NAV and Biota Jr., well, I
call it a junior because they’re producing less than 200,000 ounces a year– bought out
Steven Dean’s Atlantic, and as because he was trading at a discount to NAV so it was
cheaper for the bigger company to issue cash and play that. We’re seeing that happen in real time and
you’re going to continue to see it happening. Historically, gold is always traded at a higher
premium on both cash flow and NAV. For example, 10 years ago, I wrote about how
stupid it is that these analysts and fund managers use 5% NAV when the mine’s not even
built because the cost of capital is higher than five. The gold guys get away with it, the copper
guys would never get away with that. The base metal guys never get away with it. For some reason, the gold guys get away with
little differences like that so they get away with 5% discount. Well, good luck trying to find five. The only guy who can find 5% money was Ross
Beaty on Equinox. He got it from Mubadala. He got it at 5.50% and that’s because it’s
Ross Beaty, and he’s put almost $200 million himself into the deal. Other than that, there’s no other gold guy
that can get 5% money. Using a 5% discount to your NPV is ludicrous,
except to gold, which they get away with it. The base metals, uranium, you’re looking at
12% discounts, 15% because there’s so much risk priced in. That’s the biggest difference. You got to be in gold and just know where
you are, know your political risk. The other one that I love is– I’m probably
the most hated guy in uranium, because I’ve been saying, “Hey, you got to understand what
the Kazakhs are doing. There’s a cut to kill strategy here that I’ve
been talking about for a couple years.” The world’s largest producer of it has used
my data in their PowerPoint, I don’t work for them. I got no fees from it, but it’s saying that,
“Okay, I’ve been right on this. I was the keynote at the world nuclear futures
market.” I’m one of the largest financiers in the uranium
market saying, “Guys, the spot price is going north for a while. The best way to play that is through royalties.” You want to pick up streams and royalties
when nobody wants it. The game for uranium is not over, but you
got to be realistic and people are using $50 uranium in their evaluations. That’s just not realistic. Your cost of capital, the best way to play
that in my opinion and the way I’m playing it is through a royalty and streaming company
in that sector. I take no production risk and no permanent
risk, you’re just playing the strict ARB and some of the best returns, Franco-Nevada, Silver,
Wheaton, Royal Gold– you look at these guys who’ve done these great deals and that’s how
you play it. The last time Real Vision asked me that, I
picked out Tara which I was the second largest shareholder of that, I was with Ross Beaty. That got bought out at a big premium for my
cost base and my subscribers cost base because of the whole thesis that I’m playing, chasing
developed assets that pay a yield that actually reward the investor. In the gold sector, I’m going to bet– I bet
big with Ross on Equinox Gold. I think that is a no brainer at current prices. I think if you want another one on gold that
no one’s talking about, I think Liberty Gold is a no brainer. I’m one of the largest shareholder so I’m
talking my book, but I don’t give a crap. If it wasn’t good, I wouldn’t buy it. I think they made a world class discovery
and the guys on that are world class with Moira and Cal Everett. Moira Smith is I think one of the best geos
that– here’s an interesting thing. I actually think that our industry is so upside
down. If she was a man, she would get the recognition
and I think everyone would recognize that but because she’s a woman, for whatever reason,
I think that’s how stupid the resource industry is. I think she’s one of the best geologists,
period, I’ve ever met in my life. Liberty is really lucky to have her and I
think it’s a world class discovery that nobody’s talking about and then again I talked about
I think Uranium Royalty Corp is something that I’ve bet big. Your previous get Rick Rule, him and I are
going to– I’m the largest investor, the chairman is the second largest, then Rick’s the third. I think that’s the way to play it. What you have to have? Three-year timeframes on both from today. It’s almost like saying gold versus silver. Why not have a little bit of both? Have all of the above. The point of having money is to make money
and I think that discrediting Bitcoin– I’m by no means any Bitcoin expert. I put my money with Mark Hart. I’m a pretty significant shareholder in his
fund. He’s a good buddy of mine and with Ray that
run that and I just don’t have the time to understand it, but I think he’s really smart
and he’s going to make me a lot of money in it. Why not have US dollars? My portfolio if I was to have my All Star
team, go US dollars, gold, some silver, some Bitcoin. Why not?

54 thoughts on “The Global Impact of Negative Interest Rates (w/ Marin Katusa)

  1. Give the gift of Real Vision to yourself or someone you know for only $99 (regularly $180) from now until the end of the year: https://rvtv.io/YTGIFT

  2. So QE is inflationary and negative interest rates are deflationary? But both are happening. Can someone explain this please? Thanks.

  3. We need to try -100% interest rates. That's negative 100%. We also need to raise taxes to100% and tax carbon at $1000 per tonne.

  4. City of Toronto has passed a NEW Tax called a Levy Yesterday – supposedly for "Affordable Housing " and Transit !!! Who gets the " Affordable housing, Not the home owners of Toronto who have to pay the Levy……" its NOT a tax, Its a Levy "…..It's NOT QE4, it's just a little extra cash to the banks!

  5. GOLD is for OLD MONEY, OLD Minds , OLD ideas. our rockets advancements are improving a lot every 10years. i can see asteriod mining within my life time

  6. So buy gold, silver, bitcoin or any other commodity that can store and protect value. I just don't get why not. Am I missing something or are these investors a bit thick?

  7. So he thinks interest rates will just go lower in a share market correction, could always just reduce tax rates, of course they will try every trick in the book to get every cent in the share market before it drops

  8. Millenial in the basement with the girlfriend and arts degree "finding themselves" ๐Ÿ˜‚๐Ÿ˜‚ Will the west Japanify successfully? I don't know, but I suspect millenials may wake up and vote left by accident, worsening things.

  9. 1. World Depression since 2008. 2. US getting out of China trade deficit allows us to grow out of it by taking economic activity back. 3. Banks are being recapitalized by negative rates on deposits.

  10. If Johnny Smith or Thomas Mรผller would have to pay negative interest rates on their saving account, they would go to the bank and withdraw all their savings. That would immediately lead to a collapse of the money system. So, government need to abolish cash first. I don't see that coming yet to be honest.

  11. Just imagine taking a class in economics 101 ten years ago and telling the professor, 'I want to talk about negative interest rates'. What answer do you think you would get?

  12. guys i know you all are smart, but please for godยดs sake, go out sometimes and do some spots, you look like half died, no offence,but you can read and learn while you are healthy

  13. Facilitated by Central Bank issued Digital Currencies – all part of the plan (easier for the state to collect taxes too since it's on a ledger)

  14. Why is it impossible to have negative rate mortgages? If riskfree rate goes significantly lower and banks get sufficient spread with mortgage rates below zero, why not?

  15. "My kid is a useless millenial, he's probably gonna move in the basement with his girlfriend and they will try to find themselves with their art carrer"

    LOL this guy is awesome, I'd love to see a 2 hour show with this dude.

  16. Would have agreed with the trade that rates are going lower and negative, but since the repo market sink hole opened back in September, I'm wondering if the Fed can keep pushing the beach ball underwater further than it is for that much longer.

  17. The Euro will collapse Ezekiel 7: 19 Psalms 46: 4-6 producing a world-wide financial tsunami due to a banking systems insolvency crisis that reaches Australia immediately.

  18. okay, here is why "imaginary numbers" are mental plague: you have square rooted an operator, not a magnitude. Negative numbers don't exist, only negation. A better term may be numbers of negation, but that's not as pretty as negative numbers, and negnumbers promotes the same plague.

  19. If banks can borrow with negative rates. People with mortgage and car financing should be allowed to refinance to get native rates. Where banks are required to pay you for taking a loan.

  20. I don't understand a lot of his allegorical explanations. I wish he had just stuck to the concepts and explained things in detail.

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