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When you bring up the 2008 crisis, what is very similar today is that when the subprime market blew up in '07, that was over a year before the 2008 financial crisis. But to me, the minute that happened, I was like, "Okay, the crisis is coming." because I had been, you know, warning about subprime, and I knew that it was really the weakest link in a chain, but that, you know, the whole chain was going to collapse.
Most people in the industry, and of course, even at the Fed, like, you know, Ben Bernanke, said, "Well, don't worry about it. It's just contained to subprime. It's not a big deal. It's not going to spill over into the overall mortgage market or the economy." And I knew that was wrong. I knew we were going to have a full-blown financial crisis because I recognized the warning sign that I had been anticipating.
Well, what's happening now with gold and silver, I think is a similar warning, but not about mortgage credit, but about US sovereign debt, about the dollar. So, I think just like the collapse of subprime preceded the financial crisis by about a year, I think what we're seeing now in metals is preceding a dollar crisis and a US sovereign debt crisis maybe around the same amount of time.
So, that means something really bad is coming, and people need to prepare for it. And that's what gold and silver is telling you. I mean, if you're smart enough to understand it, just like if you were smart enough to understand what was going on in '07, when the subprime market fell apart, you weren't surprised by the financial crisis.
You, you know, you you knew it was coming. And but the same people that were clueless to that warning are clueless to the precious metals warning. They're just dismissing it. Um maybe they call it a bubble, but they don't think there's anything significant there. Like, you know, like, maybe we should be worried.
Maybe $4,600 gold, maybe $93 silver, just maybe it's a sign that there's a problem, right? Because people are not rushing in to buy gold and silver because everything is great. I think that mining stocks right now represent an incredible value, even though that they've basically tripled in the last year.
And people would say, "Well, Peter, you know, why you tell me to buy gold mining stocks now they've just tripled, right?" Well, first of all, I didn't wait till now. I've been telling people to buy gold mining stocks from before they tripled, right? So, it's not like I've just discovered them. But, the price of gold and silver have also tripled.
And you may think, "Well, okay, well, that makes sense." It doesn't make sense because a tripling in the price of gold and silver should have a much bigger impact on the price of mining stock. And I think it will. I think right now, uh Wall Street is kind of in disbelief. They don't really know what to make of this rise.
They didn't anticipate it. They don't understand it. They think maybe it's a bubble. So, they're not willing to ascribe the future income to these mining companies if they believe that this is just a bubble and that prices are going to come crashing down. But, if you want to just think of it in in simplistic terms, just to kind of understand the dynamic.
Let's say I'm a mining company and I uh gold, and I'm just making up prices. These are not real prices and come and say I mine gold and gold is $110 an ounce and it costs me $100 to mine it. I make $10 on every ounce. So, I have a $10 profit, right? Let's say gold doubles from 100 to 200 and my cost in this analysis stay the same, right?
Now, they probably wouldn't stay the same. They might go up a bit. Uh but, let's say gold doubles and my cost of mining it are are all constant. Well, now I'm not making $10 an ounce, I'm making $110 an ounce. So, the price of gold doubled, but my profits increased tenfold. Now, if a company's profits go up tenfold, the company itself should be worth 10 times as much cuz it's generating 10 times the profits.
So, you know, that's just an illustration, right? It does of the concept. There is a lot of leverage that you would expect. So, given how much the price of gold has moved up, gold stocks should have moved up a lot more. Now, maybe if gold and silver had moved up more slowly, maybe Wall Street might have confidence in the price, but because they got caught napping by this explosion in the price, they just, you know, they're not bidding up these gold stocks yet.
But, wait till the earnings start to come in this year. The earnings are going to be incredible because oil prices, number one, are low. I mean, we're below $60 a barrel. This is the cheapest oil has really ever been outside of a couple of weeks during COVID. That So, this is the cheapest energy mining companies have ever seen relative to the price of the gold they're mining.
And and this is great for their earnings. But, also what a lot of people don't understand is pretty much all the gold mining companies, they also mine some silver. It's not like they don't mine some. But, their earnings are based on what they get from selling their gold. The way they handle silver is it reduces their costs because it's actually a byproduct of their gold mining.
So, they sell the silver and then they take the income from the silver and they use it to offset the cost of energy, the cost of labor, and stuff like that. Well, the byproduct that was $20, $25 an ounce, you're now close to $100 an ounce. That's going to make a meaningful dent in the costs of pretty much all the the mining companies.
Now, there are silver mining companies that predominantly mine silver, and obviously for those companies, it's even a bigger impact. And the reason you're seeing this strength in the metals is because of a loss of confidence in fiat money, in particular the US dollar. But everybody who's worried about inflation and currency debasement is buying gold.
And it's it's not just speculators, the foreign central banks already decided that they want gold. They don't want to hold dollars. And now investors are waking up, that's where the demand for silver is coming from. It's probably coming more from individual and institutional investors. I'm not worried about the price of gold going down.
I don't I'm buying them because I think the price of gold is going to go up, right? So, I want maximum exposure. But when all of a sudden all this gold mining is going on and nobody is hedging, right? That puts a lot more upward pressure on the prices because all the countries all the companies selling production forward, right?
Those are sales that could keep the prices down. So, when you have, you know, the big gold companies buying up companies that might have had to hedge, but now they're not going to hedge because they're not doing the exploration themselves, Barrick or Newmont or these big companies are financing it all out of their free cash flow.
Yeah, and you know, they may buy back some of their own stock, too, or maybe they'll increase their dividends. But I think a lot of it is going to be buying out the smaller companies, big consolidation. So, I think a lot of the companies that we own in our separately managed accounts and in our fund, I think in a few years they will have been acquired by by at obviously at much higher prices than what what we paid.
Inflation is going to drive up and is driving up all metals prices. I mean, look at copper hit a record high over got above $6 a pound. Look what happened to platinum this year. Platinum is up almost as much as silver. And that's because these metals are just kind of catching up to gold because they weren't going anywhere while gold kept going up all by itself.
And so now they've they've caught up quickly. Um but no, I oil is one of the few commodities that's still really cheap. And I you know, I've recently bought more energy stocks personally. I know we've increased our exposure in our strategies. I think agricultural commodities are just starting to break out, too.
I think you're going to see a big run there. In inflationary times, all those type of assets are what I own. And look, yes, I think the US is headed for a severe recession, but I think the rest of the world, especially emerging markets, is headed for a real boom. Because I think that subsidizing the United States was a burden that the world had to bear disproportionately the emerging markets.
And I think when the world is relieved of that burden, um they're going to see an economic boom because I mean, the world has had to produce a lot of extra stuff for Americans to consume. And that has come at the expense of their own consumption. And a lot of what the world saves is loaned to America to basically be spent on consumption.
And I believe the rest of the world will be better off trading less with the United And so what they end up doing is consuming more of what they produce and investing more of what they save productively in their own economies. So a bust in the US, but a boom many other places. And so that's where we want to concentrate our investments, where we can profit from that boom.
And our funds I think are very well positioned in the companies that will benefit uh from the purchasing power that Americans lose. A lot of things right now that Americans can afford that a lot of other people can't. But when you readjust the exchange rates, all of a sudden, it's the Americans who can't afford those things, and they become affordable for other people.
Right? Because what's produced doesn't change. Right? All the production is still there. What changes is who gets to consume. And it's whoever can bid the most. But that is a function of exchange rates. And when the dollar goes down and these emerging market currencies, the Chinese yuan, you know, goes way up, all of a sudden they outbid us.
And so their standard of living goes up because they can consume more and the American standard of living goes down. Well, you know, the last time something like that happened was in the early 1980s and the US stock market was very cheap when the Dow was 700. I think the dividend yield was maybe 6 or 7%.
The Dow and gold were about the same price. So obviously the Dow was very cheap. And you know, Paul Volcker came in and we bit the bullet. We had 20% interest rates. We had Ronald Reagan coming in, government is the problem, you know, let's have a lot of reforms. So we had some major changes in the early 80s that made US investments attractive again after having been a disaster for a decade.
People made a lot of money in the Japanese stock market, you know, commodities in the 1970s. They could have redeployed that in the US financial assets in the early 80s and and made a lot of money. So it's possible that we can have the same type of confluence of events that would create a high degree of confidence at the same time where the valuations were good.
You know, and of course when that's the case, you know, most people will be selling the US stock market. They'll be writing its obituaries. You know, there'll be blood in the streets cuz things will be really bad. But if things are really bad because we've done the right thing, then you can recognize the opportunity there.
Now if things are really bad because we're still doing the wrong thing, then I don't want to, you know, even look at US stocks. So we have to kind of play it, you know, as it unfolds, you know. And you know, we want to keep an eye on things. We want to hope for the best, but I'm not going to prematurely, you know, get back on the Titanic unless I know for sure it ain't sinking.
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