The Fed will blow a bubble in small mining stocks, says Doug Casey
The Fed's loose monetary policy will be good for precious metals, says veteran US investor Doug Casey. But beware of overinvesting in junior miners.
Veteran US investor Doug Casey believes the current economic recovery will not last. He thinks we are "in the eye of a hurricane" and worries that by printing "trillions of currency units", central banks "all over the world" are "creating lots of bubbles".
It's not all bad news. Casey, a best-selling financial writer and former classmate of Bill Clinton, thinks the loose monetary policy will bode well for precious metals. "It's very probable that they're going to ignite a bubble in gold and they're going to ignite a really wild bubble in small resource stocks."
But Casey warns retail investors not to overinvest in 'junior' miners. He points out that fluctuating commodity values and political risks make mining stocks very volatile. "For the average person to get into this sector and get overweight in this sector is like giving a six-year-old a chainsaw it's very dangerous."
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He recommends that cautious investors keep 90% of their portfolios in lower-risk sectors, (although he includes gold in this), while the remainder should back more speculative investments. 10% might not seem like much, but 54-year-old Casey points out that returns from a junior miner can be so big that "you only need one of those if you have a halfway decent position in it, once in a lifetime".
What's the most critical thing to consider when buying junior miners? Casey, who runs his own research company, says: "People that's more important than the others put together. Good people make a success and bad people can turn a wet dream into a nightmare."
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