Money Manager Interviews


Thanks to

Chinese trying to exchange their currency into gold before the arrival of Mao’s triumph over Chiang Kai-Shekgold-store

…and if you want to be a Contrarian, then miners is where you want to be…..0 percent recommendation to own miners by financial advisers (May 13). I guess they didn’t survey me.


Here is a case study question: what caused the past great bull and bear markets in gold and mining shares?

Money Managers





June 13, 2013
London, England

[Editor’s note: Tim Price, Director of Investment at PFP Wealth Management in the UK and frequent Sovereign Man contributor, is filling in for Simon this morning.]

As Ben Graham, the father of value investing, observed, an investment operation “is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”

Challenged to distil the secret of sound investing into just three words, he advocated: “Margin of safety”. Unfortunately for all investors today, the margin of safety has all but disappeared.

To appreciate just how far away we are from normality or any remotely normal “margin of safety”, consider the chart below:

Chart 1- US.jpg

10-year US Treasury yields are at their lowest levels in more than two centuries. Even stranger is that these low yields exist when the US has never been deeper in debt (nearly $17 trillion for the on-balance sheet liabilities) and thus when the supply of Treasuries has never been as large.

Have the laws of supply and demand been repealed ?

If the US bond market is in a bizarre bubble, it is hardly alone. Consider the even longer data series below, a favourite of MoneyWeek’s Merryn Somerset-Webb, via Church House Investment Management.

Chart 2- UK.jpg

In the more than three centuries’ history of the Bank of England, the base rate has never been this low.

Right now, these western government bond yields are so low because western governments and their central banks are rigging the market in their own debt.

Governments issue debt, only to have their central banks buy it right back. This creates liquidity for commercial banks that can put that money to more productive use– like artificially inflating their stock markets.

Because market manipulation is normally illegal, the monetary authorities have coined a phrase to give their market rigging an air of technical sophistication: quantitative easing, or QE.

Look back at that chart of US Treasury yields. From the austerity post-war years through the go-go years of the 1960s and the stagflationary disaster of the 1970s, T-bond yields rose from roughly 2% to a grotesque 16% in the early 1980s.

But we are now back to 1945 era yields. Do we think the future outlook is for higher yields, or lower ones ? What does the chart suggest ?

This is a nightmarish environment to be practising Ben Graham-style value investing – because the margin of safety has been destroyed by central bank market manipulation.

Western government bond yields are widely held as the ‘risk free rate’ against which other investments can be assessed. Now there is no longer a risk free rate, only the yield available on hopelessly rigged government bonds.

The manipulation of bond markets has inevitable effects upon stock market valuations too; everything is relative. Cash as a meaningful investment choice has also been destroyed by central bank action (see, again, that chart of the UK base rate).

This means that we – and in turn our clients – are forced to take more risk than we would prefer even if our intention is simply to keep our heads above water.

Investors are now obsessed about the prospect of the Fed “tapering” down its bond purchase programme.

Having painted itself into such a corner, having become the prime mover behind both bond and equity market momentum, the Fed may never be in a position to taper anything.

Nevertheless, this is the hand we’ve been dealt and which we must play. We think there is now a significant risk that QE ends (whenever it does end) in a currency crisis.

Since central banks can barely afford to let market interest rates rise any time soon, they will keep the printing presses rolling instead– and most fiat currencies will be printed toward destruction.

So the fundamental rationale for holding gold is as robust as ever in this hopelessly distorted world. But as Pimco’s Mohamed El-Erian now asks, are the markets now beginning to lose confidence in central bankers ? We certainly have.

Until next time, 
Tim Price 
Director of Investment, PFP Wealth Management
Sovereign Man Contributor


5 responses to “Money Manager Interviews

  1. I have been looking at quite a few miners, and a lot of them trade for far less then tangible book value, and their operating costs are quite lower then their peers, for example I have in mind Ego, Auy, and a few other junior miners. Would you mind sharing some miners you consider cheap and worth looking into?

    • Sure both of those are good miners. I believe Eldorado can make money with gold at $1,000. I like (but less) AEM and GG. I like the oligopolistic structure of the royalty/streamer companies: SLW, FNV, RGLD and SAND. They can win both ways. If gold goes down their near term value goes down, but then they will clean up on future financing opportunities. They are not super cheap, but you might make 50% to 100% vs. losing (price decline) in the near term 25% to 35%. Better odds than you can find most places. Also, their businesses are widely diversified amongst many projects.

      NGD, GORO, RBY, PPP, RTRAF, GQMNF, AG, SSRI, DRGDF are others with varying positives and negatives. Less than 10 is too little and more than 20 may be too much.

      You can’t go by book value or earnings! Mines are a wasting asset so what are the qualities of the properties—size, infrastructure, potential for growth. Management skill IS KEY!! because mining is a tough business. Miners get valued on production, resources, and operating cash flows. So you want to buy the cheapest ounces of gold/silver that you can find based on those three factors. So RBY doesn’t have production yet, but they have the money and a high quality property. DRGDF and PPP are beginning to ramp up production, but the market won’t pay until they do so. If management has a track record of success then coupled with decinet financing and a quality property, then it might be OK.

      I would go to you tube and type in Don Durrett gold and silver. Watch his videos (ALL of them). He takes you through valuations, but I would ignore his belief in $100 silver. But he does have a good check list of how to understand a mining company for investment. Go to and download his guide. Read his interviews. Go to Obviously read their annual reports, listen to conference calls, and view their company presentations. Note what you don’t understand then try to find answers. Anything not clear, pass.

      What you are really trying to do is buy cheap assets with good management (prior success/low diluters/own meaningful shares) with balance sheets that can carry them through this tough period. I do believe that now (the next twelve months) these companies should be bottoming and they are at historically cheap (2008, 2000/2001, 1976) valuations. for some of these companies, all they have to do is execute on their plans and their prices can double without much help from the gold and silver prices. But you need patience and extra cash to add to positions at the appropriate times. Note today gold was down 1/2% but miners were up 1/2%. Hope that continues 🙂

      • Thank you very much for your extensive answer, as a matter of fact I have bought Sand last week, they have a proven and solid management team, check out a smaller Co but similar biz model also managed by same guy. I am willing to put 20% of my portfolio in a few names and hold it 3-5 years, as is the case with distressed industries, for example nat gas, financials, real estate and so forth recently, it takes time but the industry consolidates, cuts costs and the high quality companies benefit long term. I keep in touch with quite a few value guys especially on twitter, or through blogs and almost never comment at a blog but I absolutely never see anyone pitching miners and I see it as a screaming opportunity. There is so much gloom and negativity out there on these names. I wish you the best and thank you for you lengthy and clear answer.

        P.S : Are you on twitter?

  2. also

    Well, you can’t buy cheaply unless the assets you are buying are hated, despised and shunned. There ain’t no free lunch. Go where the outlook is grimmest.

    By the way, coal looks bleak as well, but I have my hands full in precious metals.

    No, I am a Twit, but I don’t twitter.

    • Geez……..I received two death threats by email for mentioning investment in gold mining shares. I guess sentiment is worse than I thought.

      Well, let’s just say A LOT of bad news (high costs, poor capital allocation, laggard performance) are close to being baked in.

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