Everyday New York-based investment gurus Jeff Mosseri and Doug Loud make key decisions for their high net-worth clients. Many of those decisions involve strategically positioning investors in small- and micro-cap Gold and Silver plays. In this exclusive interview with The Gold Report, you will learn some of the names of those plays and how they use Mosseri and Loud as hedges against a failing economy.

The Gold Report: Today, we're talking with Jeff Mosseri, president of New York-based Greystone Asset Management and a director of Axiom Capital, as well as Doug Loud, who is the executive director of both companies. How do you go about making your clients money?

Jeff Mosseri: We are paid by our clients to invest in small- and micro-cap stocks. We get very close to a company with a unique or very desirable product and that has recently had a problem or a corporate reorganization. We look for that problem to be solved by new management or with a new business plan. Then we look for an exciting growth picture over the next three years to five years, where we can make a lot of money for our clients. That takes us to mining because we believe that with the slow economy, the Fed will continue to print ad nauseam. The result of that will be that the precious metals, and probably all commodities, will benefit as a protection of buying power.

Doug Loud: As a policy, we hedge a great deal; we often take a hedge-based approach to lot of our precious metals investments.
TGR: Given the uncertainty in the economy and volatility in the markets, what advice are you giving your clients?

JM: Basically, we're expressing caution to our clients. We are as confused as everybody else about where this market is headed. That's why we hedge, because we really don't want to be committed to any one particular direction. We believe that the American economy will probably grow between 0% and 2% over the next three–five years. As such, we want our clients to look for very strong growth possibilities, which should be as immune as possible to the gyrations of the economy.

TGR: What did you think earlier this month when the Fed issued 10-Year Notes at 2.73%, which was the lowest yield ever?

JM: In Economics 101, we learned that part of the growth circle was for the money created to get into the hands of both the consumer and the investor. Right now, the money is circulating between the banks and the government. It's a closed circuit, and the rest of the economy is not benefiting. There is a lot of talk about the banks having all this money on their balance sheets; all they're doing is shoring up what was a huge hole in their balance sheets. They're just paying for past sins. As such, why would they lend to you or me when they can lend to the Treasury at 3.5% or 4% when they borrow at close to zero?

TGR: Could you give us your economic forecast through the end of this year and into 2011?

JM: We think that the big run-up in the market from the lows last year was caused by an anticipation of the numbers that we are seeing in today's economy. We think the fact that the market seems to have topped out and is heading south is basically an indication of where the economy is likely to go over the next several months.

TGR: What in the economy do you fear most?

JM: It's very simple. Everybody is afraid of uncertainty. Everybody is afraid of high taxes coming next year. Management at all kinds of companies is not making investment decisions in people or equipment because of this fear—of not knowing what their income statements will look like next year. They're also afraid of what demand will look like because the unemployment figures don't look particularly exciting either.

DL: You have lots of new regulations and laws coming into effect, but they don't yet have those regulations, so you don't even know what their impact will be.

JM: You've got 2,000+ pages each, in the new health plan legislation and the financial regulation bill recently passed by Congress. No one in Congress has read them all, and no one actually knows what's in there and how the regulations will affect them. Not knowing how your company is going to be taxed, or on what, makes hiring very difficult. They have the uncertainty of the extra charges that are going to come for every existing employee and each one they hire. They just don't know.

DL: You can't always pass all those costs on. Theoretically, manufacturers will push all the costs on to the consumers; but the consumers don't have any money, so that may not happen.

JM: That's why we are protecting ourselves to such a degree. There's a misconception that gold goes up under inflation and gold goes down in deflation. Gold actually goes down when there are higher interest rates. There are no higher interest rates right now. Gold will do well in inflation or deflation. The only thing it doesn't like is nothing happening; it goes sideways with nothing happening.

But the key to gold, which people forget, is interest rates. With low interest rates, there are no costs of holding something. An old boss of mine once said, "gold is sterile, oil is cash flow." Well, it doesn't matter because if you own a producing mine, you'll have cash flow. Either way, we believe precious metals are the kind of place to hide until things get clearer and you know what you're doing.

TGR: Specifically, how are you going to protect your clients?

JM: By hedging—using ETFs, options and all kinds of vehicles to hedge them. We have only four places or "pockets" where we put money.

TGR: What are those pockets?

JM: Anything that comes out of the earth, which includes mining, minerals and energy.

TGR: You mean hard assets?

DL: Well, stocks in hard assets. We don't actually take delivery of the underlying commodities.

TGR: No, but those companies are producing something tangible.

DL: Yes, or explorers, who will.

JM: Exactly. The second pocket is anything that receives government expenditures because we believe that to be a great growth area over the next five years. Third is medical devices and biotechnology, and the fourth is technology. That's basically where we put the money. We consider those pockets to be protective.

TGR: Let's talk about Gold and precious metals. What sort of clients do you deal with?

JM: I would say mid to high net worth.

TGR: In general, what's the asset mix for these clients?

JM: Well, we are approximately between 30% and 40% in cash. That's the first protection we have. Precious metals are a good portion of the rest, probably between 25% and 30% across precious metals, mining and energy. The rest falls into those other three pockets. We are protected against the U.S. dollar because many of the investments we have are outside the USD area. Actually, of the investments we have, I would say 60%–80%, depending on the time, are outside the USD area.

DL: We joke here that, if you buy a Canadian junior and it does nothing, you're still going to make money.

TGR: Because of the exchange rate?

DL: Absolutely. Next time you see gold or oil screaming upward, ask yourself: Is it up because it actually is worth more or just because the USD is worth less?

JM: We view gold and oil as currencies.

TGR: What are your thoughts on the gold price now and through year-end?

JM: We generally don't like to give specific prices or targets; but I suspect over the next few months, gold will work its way higher. Seasonally, gold tends to bottom out around this time of year, and then the next movement is up. We also think that the fundamentals are such that, as they continue to print dollars—and they will because they signaled that earlier this month—we think that will benefit gold, Silver and any other store of value. It's buying power that's the key. That's what we're trying to protect. We are not trying to protect anything else. We're trying to protect buying power.

TGR: Earlier, you mentioned micro caps. A couple of the companies that you're fond of are Silvermex Resources Ltd. (TSX.V:SMR) and First Majestic Silver Corp. (TSX:FR; OTCQX:FRMSF). First Majestic produces silver. Silvermex remains an explorer. Why do you look favorably upon these companies?

JM: I'll let Doug take First Majestic, and then I'll take Silvermex.

DL: We really like to get to know management in the companies, so we actually go to the mine sites and things like that. We're old-fashioned that way. I just visited First Majestic's silver mines in Mexico. One of the great things about a producer, especially one like First Majestic, is that they're in the manufacturing business. They're producing silver, and it has more and more uses so it's easy to sell it. It's not like you build cars and now you've got to go sell them like car manufacturers have to do. And First Majestic keeps finding more silver. If you look at the company's plans for the future, they're constrained by their production capacity—not how much silver they've got. They'll produce more and find more. It keeps going around like that.

They're very well run. One of the things you have to pay attention to is the people on the ground. That's why we go see them. You get really great managers that show up in New York, but you've got to go see the guys working on the ground at the site. They have great depth of management there.

TGR: Are you talking about CEO Keith Neumeyer?

DL: Yes, and COO Ramon Davila, who runs everything down in Mexico. I mean when you're in Mexico, it's Keith and us gringos—and everybody else is Mexican. They are all very well spoken and educated, and everyone knows exactly what they're doing.

TGR: That helps get the locals on side, too.

DL: Oh, yes. They have lots of locals from the area.

TGR: Alright, Mr. Mosseri, what about Silvermex?

JM: In short, Silvermex has superb management that it's imported from Hecla Mining Co. (NYSE:HL) and from Silver Standard Resources Inc. (TSX:SSO; NASDAQ:SSRI), in Chairman Art Brown and President Mike Callahan, plus several other senior people.

TGR: When are they expected to bring Rosario into production?

JM: Before the end of next year.

TGR: Do you have a price target on Silvermex?

JM: Yes, I do; but, again, we don't give out specific numbers. Let's say they will be considerably higher than the price at which they did a financing about four months ago, which was CAD$0.45.

DL: The reason we do mining stocks is because you can later sell them in multiples of the original price. It's very disappointing if they only grow 5% or 10% in a year.

JM: But the key to Silvermex is great management, ease of production and low capital expenditures. They should have a capex of less than $25 million to put the mine into production. When they acquired Rosario, they bought basically everything (including the tailings ponds—everything except the mill itself). It should be relatively easy to put Rosario into production.

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