Eric Sprott

[bubbalouie]

In fact, to
call the current environment an economic crisis is likely understating the situation. What
we really have is a global economic catastrophe.

http://www.sprott.com/pdf/marketsataglance/01_2009.pdf

[mpav]

Very dire, but refreshing as it is one of the few times I have a seen a money manager actually have such a sour outlook....makes me want to just plough my money into my ING account....which means shorting sprott stock might also be a good idea.

[bubbalouie]

Not sure about the mutual fund but I know gold bullion is his biggest holding. There was a rumour last month that he was going to take delivery of physical gold but it didn't pan out.

[marty123]

Very dire, but refreshing as it is one of the few times I have a seen a money manager actually have such a sour outlook....makes me want to just plough my money into my ING account....which means shorting sprott stock might also be a good idea.

He's not a typical money manager. His "broad" Canadian equity fund has short Canadian equities positions, more canadian government bonds than equities and 42% gold and bullions. His "mutual funds" are really hedge funds.

Sprott is a gold bug. He's a smart guy, but even smart guys make mistake. Past performance is not indication of future returns (although he's probably going to outperform me )

[desk4811]

It's a bad situation, but it seems that if people don't have enough money, it would mean that money is becoming more valuable, therefore making capital worth more and gold less. Since homes and stocks are worth less, then capital is worth more, now that it's not so easy to get, which is why rates are low. For gold to go up, inflation has to rise and currencies have to fall, which is the opposite of what's happened.

[lilbit]

So far.

[shmenge]

Sprott is a gold bug. He's a smart guy, but even smart guys make mistake.

Take a real close look at his portfolio again. If he was so smart why wasn`t he in cash or long US bonds. He had his timing right on doing the Sprott IPO , then liquidated his Moly Fund. Timed all that perfect didn't he. BTW, Where was his sell recommendation when all commodities peaked?

[adrian2]

My entry in the hedge fund contest entitled "Long Banks, Short Sprott", and despite the poor performance of banks I'm still #4 - so you can guess my opinion about Mr. Sprott.

[edit: typo]

[bubbalouie]

I'm still #4 - so you can guess my opinion about Mr. Sprott.

it's a pity you weren't short banks and long gold

[adrian2]

My entry in the hedge fund contest entitled "Long Banks, Short Sprott", and despite the poor performance of banks I'm still #4

I have to correct myself and bask in the fleeting glory of having moved into the #1 position.

[montcalm]

Not sure about the mutual fund but I know gold bullion is his biggest holding. There was a rumour last month that he was going to take delivery of physical gold but it didn't pan out.

Not surprising really, panning for gold is a difficult and time consuming activity.

[agape]

Not sure about the mutual fund but I know gold bullion is his biggest holding. There was a rumour last month that he was going to take delivery of physical gold but it didn't pan out.

Yes that's what he said. Did he have second thoughts when considering that kind of diclosure on the basis of being part of a movement to deplete the COMEX of its physical bullion ?

If I was taking delivery, you'd never know. This is what I mean by "second thought."

[George$]

Eric Sprott's May/June Newsletter has some alarming analysis of US debt and how it is being financed
The Solution…is the Problem
Some text ...

The US government raised $705 billion worth of new debt in 2008. The debt was raised to
pay for a $455 billion budget deficit and $250 billion in “supplemental appropriations” for the
wars in Iraq and Afghanistan. In 2009, the US government will (and must) sell $2.041 trillion
in new debt. This debt will pay for a projected budget deficit of $1.845 trillion, supplemental
appropriations of $196 billion for Iraq and Afghanistan, a fund for pandemic flu response and
a line of credit to the IMF. In fiscal 2009, the United States must find buyers for almost
three times the debt that was issued last year.

.....

So, after all this, it should be clear by now as to who is going to cover the difference this
fiscal year. As the lender of last resort, the only purchaser left is the Federal Reserve. In
2008 they were net sellers of almost $300 billion of bonds, but in the first half of this fiscal
year they have been buyers of almost $280 billion of bonds. The Federal Reserve is the
lender of last resort and must support the market for US debt. The policy ‘solution’ that the
Federal Reserve implemented in March 2009 is called ‘Quantitative Easing’. Given our
projections above, this was not an option for them, but a necessity.

Quantitative Easing was pioneered by the Japanese in the early 2000’s. It is an extreme
form of monetary policy used to stimulate the economy when interest rates are at or close to
zero. In practical terms, the Federal Reserve purchases assets, including treasuries and
corporate bonds, from financial institutions using newly created money. The Federal
Reserve typically controls the ‘cost’ of money with interest rates, but since interest rates
can’t be negative, the Federal Reserve now manipulates the quantity of money itself by
printing more of it. The official announcement proclaiming this practice was made in March
of this year, and it was hailed as a new stimulative mechanism to kick start the economy.

The Federal Reserve’s ‘solution’ to the debt problem is the problem. It has resulted in the
Federal Reserve doubling the monetary base of the United States over the span of a mere
nine months. Rather than stimulate the real economy, the QE program has instead resulted
in increasing weakness in the international market for US bonds - the proof of which can be
seen in the chart below. Bond investors are running for the exits, and our discussion above
confirms what we see in this chart. Traditional buyers of US bonds are now sellers, and they
are exercising a non-confidence vote in the US dollar and in US debt.

[George$]

The July 2009 newsletter from Eric Sprott ....
I think he is always worth reading and listening to, even if you might not agree with him ...

It’s the real economy, stupid
a bit of his introduction ..

We are now in the early stages of a depression. The economic indicators we follow to track real
economic activity are all signaling a slowdown of massive proportions. You wouldn’t know it
reading the mainstream papers of course – they all focus on the relative decline in the
slowdown’s intensity. Reading about the slowdown ‘slowing down’ is not the same as growth
however, and does not warrant excitement in our opinion.

[adrian2]

The final paragraph from George's link:

In our view, the only thing propping this market up is investor sentiment. Earnings have not improved. Keep it simple, stupid - investing is and has always been about the real economy, and this market is ignoring the hard data. You can invest in sentiment if you want to, but as we have said before, we prefer to invest in real things.

Of course, real things are, in his view, resources like gold, oil and related stocks. Somehow I guess he's not exactly an impartial observer.

[George$]

...
Of course, real things are, in his view, resources like gold, oil and related stocks. Somehow I guess he's not exactly an impartial observer.

Adrain, Are you sure you are being fair here?

In the article Sprott lists a number 'real things' with data references, like
- Industrial Capacity Collapse: - US industry used only 68.3% of available capacity, etc
- Government Tax Revenue Declining: with specifics
- Retail Sales Slump: with specifics
- Unemployment Catastrophe: with specifics
- US Housing Market Failure:
- Rail Car Loadings Suffering:

For all these and other real reasons, which he explains in other newsletters - he takes refuge (I assume) in real assets like gold, oil etc.

Yes, he may be a gold bug. The real issue I think is: does he have real reasons for being one? I think so - even though I am unlikely to follow him.

[adrian2]

Yes, he may be a gold bug. The real issue I think is: does he have real reasons for being one? I think so - even though I am unlikely to follow him.

Of course there are reasons, and of course there are counter-arguments. To pick one: he's superimposing the graphs of the current market decline on top of the 90% decline in 1929 - so what? History may not repeat itself, but it rhymes - is that an inexorable paradigm that we must follow the same path? Once again, most of the developed world was on a gold standard, several (alleged critical) mistakes were make in the fiscal policy then, etc, etc.

One more idea: the rot in the current crisis started in the housing / banking sector. It's been a few months now since every major financial company in the US has reported good to great numbers, should we wait for more trumpets to sound? It may be a bear market rally like several in the Great Depression, and again it may be not.

Of course I'm not impartial as I'm invested in things that Mr. Sprott isn't, you can even say he's more credible than a semi-anonymous voice on the Internet, caveat lector.

My LOng BAnks Short Sprott fund is still on the podium.

[bones1]

I wouldn't put much faith in what Sprott tells the public. He wants to make money for himself, not give out free advice.

He went public with his funds at the peak of the resource bubble, making a killing for himself while his investors got soaked and are still down about 70%.

Best advice seems to be to do exactly the opposite of what Sprott wants you to do. Make money for yourself; not for Sprott.

[kumquat]

For all these and other real reasons, which he explains in other newsletters - he takes refuge (I assume) in real assets like gold, oil etc.

Yes, he may be a gold bug. The real issue I think is: does he have real reasons for being one? I think so - even though I am unlikely to follow him.

AFAIK, you can't eat gold, oil etc. when the fecal material hits the air turbulence device.

[JaydoubleU]

Actually, I am most grateful to Mr. Sprott, for his decision to go public with an IPO last year was my cue to sell energy and materials. I felt strongly that he "knew" he was tapping the market at the top.

The thing that gives guys like Sprott away is that if he is such a clever stock picker, why isn't he just quietly picking stocks and getting rich? Why is he in the money management business? And that's the reason I pick my own stocks and stay away from managers.

[Arby]

The thing that gives guys like Sprott away is that if he is such a clever stock picker, why isn't he just quietly picking stocks and getting rich? Why is he in the money management business?

I think it was Malcolm Forbes, the publisher of Forbes magazine, who said he makes more money giving advice than following that advice.

[ukridge]

More scary stuff from Mr. Sprott:

When added together, the
combined financial, monetary and fiscal stimuli in the US are more than the cost of the two
World Wars and “The New Deal” combined.

...

In their 2008 annual report, the Bank for International Settlements (BIS) recently reviewed
previous banking crises and suggested that a sustainable recovery would require the
banking system to take losses, dispose of non-performing assets, eliminate excess capacity
and rebuild capital bases. The BIS concludes that “these conditions are not being met and
any stimulus will therefore only lead to a temporary pick up in growth followed by protracted
stagnation.”10 We agree wholeheartedly, and have seen nothing yet to suggest that the real
problems plaguing the world’s banking system are being addressed. In our view, the threat
of a double dip recession remains real. When the stimulus effects wear off there will be
nothing left to replace the artificial demand they have induced. Investors should be prepared
for what awaits us beyond the stimulus.

(From http://www.sprott.com/Docs/MarketsataGlance/August_2009.pdf )

I find Mr. Sprott's view fascinating, and a good counter-balance to the pro-Bank biases displayed by most of the financial media.

- ukridge

[adrian2]

I find Mr. Sprott's view fascinating, and a good counter-balance to the pro-Bank biases displayed by most of the financial media.

Let me once again bask in the fleeting glory of my LOng BAnks Short Sprott hedge fund being second overall in the FWF contest (I must blame Norbert for allowing the contestants to freeze their positions, had I not done that on the short Sprott side I might be challenging Gus for the top spot).

[bones1]

I find Mr. Sprott's view fascinating, and a good counter-balance to the pro-Bank biases displayed by most of the financial media.

Investors in Sprott Inc. are down -70% since he went public last year. Obviously the business of selling advice is a lot more profitable than the business of following that advice.

I take whatever Sprott says with a heaping bucket of salt. You gotta ask: "What is his personal profit motive for saying those things?"

[ukridge]

bones1 says:

I take whatever Sprott says with a heaping bucket of salt. You gotta ask: "What is his personal profit motive for saying those things?"

You can say that of any talking head on the TV financial shows. And you can question the motive of any company doing an IPO ("if your business is so great, why don't you own it entirely?").

To me, one factor that separates Sprott from the rest is that he's ramained fiercely independent. (Now, I'm going to jinx it and he's going to sell out to RBC or something ). Most of the financial media in Canada is fed information by the big bank/insurance companies and affiliates. We need the different perspective, even if only to lend some balance to the overall picture.

And I won't begrudge Sprott credit for having been right so many times in the previous 10 years or so. He's certainly more interesting to watch/follow than most mainsteam mutual funds, most of them not very different from the indexes. I still remember an article he wrote years ago questioning the valuation of financial services companies worldwide against companies producing concrete things.

adrian2 says:

Let me once again bask in the fleeting glory of my LOng BAnks Short Sprott hedge fund being second overall in the FWF contest

You certainly have the bragging rights (for now, at least). Sprott called the fall of the banks right, but didn't anticipate the fall in commodities.

Disclsoure: I'm an indexer for the most part. But I have held a small position in Sprott Canadian Equity through the us and downs.

- ukridge,