When I go round Sainsbury’s, which at my age has become one of the more dependable pleasures of the week, I am sometimes struck by how little of what goes into the trolley has anything to do with what the financial pages tell me is valuable. The bread was once wheat in a field, and the milk was once grass. The tins were rolled from steel, and the lights by which I read the price of everything were wired with copper and are kept burning by gas or uranium. Nothing on the shelves was produced by an algorithm, though I gather that an algorithm now decides how much I am to pay for it. This is a banal observation. It is also one that most investors have spent the past twenty years contriving to forget, and Doug Casey, who has spent the better part of half a century speculating in the shares of companies that dig things out of the ground, has lately given a long interview to his own International Man newsletter that offers good reasons for remembering it.

I should say at once that I do not read Mr Casey as I would read the Book of Common Prayer. He is a salesman as well as an analyst, and his interviews have a habit of ending with an invitation to subscribe to something. That is no reason to dismiss him. Most men who have made money in markets are salesmen of one sort or another, and a lawyer learns early that the interest of a witness goes to the weight of his evidence rather than to its admissibility. What I propose to do is separate the facts in what he says from the enthusiasm of a man talking his own book, and then explain why I think the facts carry the conclusion without much help from the enthusiasm.

The shape of the market

Begin with his figures, which are striking. Mr Casey says that in the five or so great bull markets in natural resources since 1971, the average gold-mining share rose about tenfold. Some rose a hundredfold, and one that he owned, “purely by accident”, rose a thousandfold. He is careful to add that this happened not over a lifetime but in about five years. When the bear market came, as it always did, most of these shares fell by at least ninety per cent, and many went to nothing or very close to it. The companies concerned are so small that few serious investors admit their existence. They are not even what the trade calls microcaps. In his words, they are “nanocaps”, and some are “picocaps”.

I would not put an “average” gold share into evidence without asking how it was calculated. An average taken across a bull market is very much at the mercy of which companies are included, and a list of mining shares compiled at the end of a boom is a list of survivors. Mr Casey is at least candid that his thousandfold winner was luck rather than judgment, which is more than can be said for most people who tell stories about their investments over dinner. Yet the figures do not need to be exact to establish what matters, which is the shape of the market. Here is an asset class that can multiply ten times over in half a decade and then lose nine-tenths of its value. Common sense draws two rules from that fact. The first is that you buy such things when nobody wants them, since buying them when everybody wants them is how the ninety per cent loss is incurred. The second is that you put into them only what you could watch disappear without having to sell the house.

Mr Casey’s case is that we are at the first of those moments. He says that mining and energy shares are at about the cheapest levels in history relative to other sectors, and that the public is “totally uninterested in them”, its attention being fixed on technology companies. I cannot verify “cheapest in history” to the decimal place, and comparisons of relative value between sectors are slippery things. But one of his illustrations can be checked against general knowledge and is not seriously disputed. In the early 1980s, he says, oil companies alone made up about a fifth of the American S&P 500 index. Today they are about four per cent. The oil has not become less necessary in the meantime. Every motor car and aeroplane in the world still depends on it, and the recent unpleasantness in the Gulf has reminded even the most ardent believers in the weightless economy what happens when it stops flowing. What has changed is fashion, and fashion is a very poor guide to value.

There is a further fact, which Mr Casey mentions almost in passing. In 1971, when President Nixon closed the gold window, the official price of gold was thirty-five dollars an ounce. By Mr Casey’s reckoning it has since risen more than a hundredfold. That is a remarkable return on a lump of yellow metal that pays no dividend and does nothing but sit in a vault. It is better understood the other way round. Gold has not become a hundred times more useful since 1971. The dollar has become very much less so, and the same is true of the pound, as anyone who remembers what a half-crown would once buy can confirm. Commodities are priced in paper money, and when the paper is debased, the honest thing in the transaction is the commodity.

The data centres

The fashionable alternative to all this is artificial intelligence, and Mr Casey’s remarks here deserve attention, because he does not speak as an enemy of technology. He calls artificial intelligence “one of the greatest advances ever in technology” and says that he is a fan. His objection is to the money. The trillions of dollars now going into data centres seem to him “questionable, at best”. So much capital has flowed into one area at once that it is producing, in his phrase, “misallocations of capital and outright waste on a historic scale”. He cannot see how there can be any reasonable return on it. The cleverer sort of investor, recognising that the leading companies are no longer cheap, has turned to the so-called “picks and shovels” businesses that supply the builders of these centres. Mr Casey thinks that they too are late, and that nothing connected with artificial intelligence is now cheap. “At this stage,” he says, “the only way to win this game is not to play.”

I have argued much the same here before, and I see no reason to change my mind. A technology can be entirely real while the investment in it is ruinous. The railway mania of the 1840s left Britain covered with railways and a large number of its middle classes impoverished. Those who bought railway shares at the top financed a national asset from which their grandchildren benefited and from which they themselves received very little. There is no shame in letting other people pay for the future and then buying it cheaply when the receivers are called in.

Mr Casey adds two points that I had not properly considered. The first is that the whole history of computing has been towards smaller and cheaper machines, spread ever more widely. The mainframe gave way to the desk computer, and the desk computer to the telephone in one’s pocket. The present enthusiasm runs the other way. Some of the new data centres cover several square miles and consume as much electricity as a small city. He is willing to bet that the future of artificial intelligence will be “local, dispersed, and smaller”, and that the giant installations now being built may prove to be “analogous to dinosaurs or pyramids”. It is a speculation, and he presents it as one. But it is a speculation grounded in a long pattern, which is more than can be said for most of the forecasts that justify the present spending.

The second point is less comfortable. Mr Casey observes that very little of this vast computing capacity appears to be employed in science or medicine. Most of it is engaged in gathering information about people: who they are, where they are, what they are thinking, and what they are saying and doing. The profits, he says, come “from manipulating people, not creating things in the physical world”. I am unable to say what proportion of the capacity is used for which purpose, and I suspect that nobody outside the companies concerned can say either. But I do not need exact proportions to recognise the danger. Since Entick v Carrington, English law has treated the power to search a man’s papers or pry into his private affairs as something to be granted narrowly, for a stated purpose and under some form of independent control. A machine capable of watching everyone at all times, owned by a handful of corporations that are on the friendliest terms with every government in the West, is a power of a different order. I do not find it surprising that, as Mr Casey notes, the ordinary citizen regards these buildings with fear and dislike. I find it surprising only that so many people are willing to invest their pensions in them.

Copper, and a bull who argues against himself

Copper is the obvious connection between the two stories, and it is here that Mr Casey says what I think is the most valuable thing in the interview. He repeats the commonplace of the trade, that more copper will need to be mined in the next decade than has been mined in the whole of history so far. The old mines are depleting. There have been few major discoveries in recent decades. A new discovery may require a billion dollars of drilling merely to prove what is there, and then a further decade and several billion more to secure the permits and bring it into production. On that account the price ought to go much higher, and Mr Casey owns a number of copper shares that have done well.

He then turns round and examines the case against his own position. Copper, like iron and nickel, is a business that consumes enormous quantities of capital. Its use ought in the long run to grow at only a little more than the rate of growth of the economy as a whole. The present demand from data centres, he thinks, is a distortion of the market, and it depends on the assumption that these centres will be built and used as everyone now expects. He then asks whether it is “crazy to say that at some point soon all the copper going into data centres will be torn out, to become a huge source of copper supply”. He thinks it a real possibility, and so do I. The scrap merchant has always followed the speculator. When the railway branch lines were closed in the 1960s, a great deal of iron came out of the ground with the sleepers, and nobody who had invested on the assumption that the lines would run for ever was consulted.

I was myself rather enthusiastic about copper earlier this year, and I do not withdraw the argument that a serious reindustrialisation of the West cannot happen without it. But a witness who volunteers the weaknesses of his own case is a witness worth listening to, and Mr Casey’s caution persuades me to put copper where he puts it. He says plainly that he is “much more interested in gold and silver because they’re monetary metals”, and that so long as we have paper money and bankrupt governments, the demand for them will only strengthen. Copper is a bet on the course of industry. Gold is a bet on the conduct of governments, and I have had fifty years to observe the conduct of governments. I know which of these two bets I would rather place.

Why a bad business can be a good investment

There remains an apparent contradiction in Mr Casey’s argument, and he states it himself. The resource business, he says, “has always been highly capital intensive”, which is “one of the reasons why it’s usually a terrible place to put your money”. “Who wants to play around in the dirt with big yellow machines,” he asks, “when you can make a lot more money much more quickly by moving some digits around on the internet?” Why, then, should anyone put money into it now?

The answer lies in the word “usually”, and in the nature of a cycle. Mining is a bad business most of the time precisely because, in good times, everybody wants to be in it. Capital pours in, new mines are opened, supply overtakes demand, and prices fall until the weaker companies are ruined. Then capital flees. No one explores or builds, and the existing mines are worked out without replacement. Demand, meanwhile, goes on, because people do not stop wanting electricity or wedding rings merely because the shares of mining companies are out of fashion. There is an old saying in the commodity markets that the cure for low prices is low prices. It means that a long period of neglect sows the shortage that ends it. If Mr Casey is right that resource shares are now as neglected as they have ever been, then the bad business has been starved of capital for long enough to become, for a while, a very good one.

This is what I mean by the common sense of commodities. It requires no theory of history and no gift of prophecy. It requires only the recognition that civilisation runs on physical things whose supply responds slowly to price, and that the shares of the companies producing them are priced in the short run by fashion. Buy necessary things when they are unfashionable, and be patient. The farmer has always known as much. So did every housewife of the post-war years who kept a well-stocked larder on the principle that the shops would not always be open, and she would have regarded a share in a company with no assets and no profits as a form of gambling, which is what it is.

Where I part company with Mr Casey

I do not accept the whole of his prognosis. Mr Casey says that we are “at the top of the greatest inflationary super bubble in all of history”, and that we stand on the edge of what he has long called the Greater Depression. He blames this largely on debt, and he includes almost all government debt under the heading of consumer debt, since most of it has been spent on current consumption rather than on anything that will produce an income. Such debt, he says, “dissipates the capital that’s been saved by past generations, while it mortgages the future of those yet unborn”. On the debt, I agree with every word. The figures for Britain and America are so large that they have ceased to mean anything to the ordinary reader, and they cannot be repaid in money of the present value.

Where I differ is on what follows. I argued here earlier this year that bankrupt governments are more likely to inflate their debts away than to default on them outright, and that this inflation may coincide with a great expansion of real production, driven by cheaper energy and by the political need to rebuild the industries that the West spent a generation exporting. Mr Casey himself allows that we may be “on the cusp” of extraordinary technological progress, and that “there are plenty of reasons for optimism”. He and I therefore differ on whether the next decade will look like the 1930s or like an inflationary version of the 1950s. For the investor, however, the difference matters less than it might seem. In a depression, gold preserves what paper money cannot. In an inflationary boom, real things rise in price while the currency in which they are measured declines. Both roads lead to the same place, and a man who owns gold and silver and a measured stake in the producers of necessary materials is reasonably placed whichever road we take. That is perhaps the best test of a commonsense position: it does not require you to be right about the future in detail.

I come back to the supermarket trolley. Nothing in it depends on the valuation of a technology company, and almost everything in it depends on something that was grown or dug out of the ground by people working with heavy machinery in unpleasant places. For the past twenty years the money of the world has preferred the companies that move digits around to the companies that move earth. That preference has been rewarded, and I do not pretend otherwise. But it has also starved the second kind of company of capital while debauching the currency in which the first kind is valued, and when both of those processes have run their course, I expect the trolley to cost a great deal more than the share prices of the cleverer businesses would lead one to predict. It is not a sophisticated conclusion. It is what any shopkeeper could have told the investment banks, had they thought to ask him.

For the avoidance of doubt, none of the above is to be taken as financial advice. Investments can fall as well as rise, and mining shares, as Mr Casey reminds us, can fall a very long way. Before risking your savings, I advise you to consult someone licensed by your government. He will surely have your best interests uppermost in his mind.