A billionaire’s bet on inflation – Frank Giustra interview
[Post reprinted from Tommy Humphrey's CEO.ca]
We had the opportunity to sit down with Frank Giustra last week, the lion behind Lionsgate Films, and an early architect of countless resource companies—most notably Wheaton River Minerals (now known as the $33B Goldcorp, which spun out the $12B Silver Wheaton), Petro Rubiales (now the $7B Pacific Rubiales), and Urasia Energy.
By all accounts Giustra is brilliant, connected and wealthy. He made headlines in 2007 by pledging over $100 million and half of his future earnings to establish a charitable foundation with President Clinton. Outside of philanthropy however, Giustra has been reluctant to draw attention to himself, and rarely speaks publicly about investing.
In 2002 however, he moved heavily into gold and published, “A Tarnished Dollar Will Put the Shine on Gold”, when it was trading under $300 an ounce. Ten years later and with gold now priced over $1600/oz., it still occupies the largest percentage of his investment portfolio, and his views remain the same.
In discussing gold during the interview he said, “I believe it’s going a lot higher…it’s going to have a parabolic spike, caused by some event or some loss of confidence…a US dollar crisis would be a perfect example. That will cause gold to go through the roof, and then everybody will want to own it…I don’t think we’re even close to that yet…Gold will probably have a much greater run than some of the other hard assets–because it’s also a currency.” (19:16)
On the subject of inflation he remarked, “It’s easier to make money with inflation than with deflation. All you need to make money with inflation is money…Those that influence policy are usually the ones that have access to money, or can borrow it very cheaply… They have a conflict of interest… [Inflation is] where a lot of people are getting rich, and the public is being educated—quote “educated” to accept that type of [inflationary outcome].” (11:10)
When asked about the parallels between today’s Western societies and previous civilizations, he replied that a strong example would be, “Sixteenth century Spain. In just over 100 years, it went from an almost nothing nation, to a great empire, and back to a nothing nation. They became a consumption economy…They waged a number of wars with almost everybody on the planet…because they felt they were a superior nation…[and] that’s what’s happening in America today…There’s no way out except currency debasement.” (15:30)
With respect to the mining shares, he said, “The resource market is in the worst state I’ve ever seen it in…people usually connect irrational and stupid market behavior with peaks of markets, but it takes place at the bottom of markets too. And it’s just as bad [at bottoms]…fear is a much stronger emotion than greed…[There are] companies developing world-class assets trading at pennies on the dollar.” (21:50)
Additional topics discussed included agriculture, success, and mentorship (31:07).
Giustra’s predictions for the western world economies are sobering, but his view of the resource sector is optimistic, and his case for inflation is impossible to ignore. We feel this interview is required listening for all those who seek and desire wealth.
So without further comment, here is billionaire mining and entertainment mogul Frank Giustra in conversation at the Vancouver Club last week. Special thanks to Cambridge House and VC for putting us up, and to Frank for joining the program.