This page has been archived and commenting is disabled.
Exclusive: Interview With Eric Sprott
Zero Hedge had an opportunity recently to ask Eric Sprott a variety of questions touching on everything from investment recommendations, to policy guidelines, to a general outlook for the world economy. As Sprott has long been a rare voice of contrarian reason in a field of lemming-like uniformity, lately driven by nothing more than a pursuit of centrally planned momentum and Bernanke-induced "heatmapping", we believe the answers were vastly more interesting and illuminating than anything available for mass media consumption.
Interview with Eric Sprott of Sprott Asset Management
1. The conspiracy of optimism, suggested by the likes of almost anyone appearing in the MSM (print and cable), is that the US is the place to invest in 2011. A glance at the hedge funds you manage (as of the end of 2010) suggest that you are not buying into this hype. Are the short positions you have in your Hedge Funds still mainly in the US? If so what sectors and why?
A: Our short positions are all exclusively in large cap US names, with a focus on the financial and consumer discretionary sectors. We’ve been bearish on US equities for some time, particularly those in the financial sector that remain severely over-levered in this environment. We’ve managed our long/short hedge fund with the view that we entered a long-term bear market in 2000, and we’ve enjoyed maintaining an active short portfolio throughout the decade. It’s provided specific opportunities to produce alpha, and also provided negative beta exposure during the sell offs when downside protection was needed most. I urge all my investors to consider adding a hedge fund that can short effectively. It really is one of the best investment vehicles to own during a long-term secular bear market for equities, which I firmly believe we are still in.
2. Conversely you are mostly long Canadian equities, with some international exposure. What international countries and sectors do you have exposure too?
A: Most of the equities we invest in long are listed in Toronto. Their underlying assets tend to be distributed globally, however. In the case of our mining exposure, we own mines all over the world: Africa, Southeast Asia, United States, South America. Our location in Toronto has proven advantageous in that it grants us access to the best management teams in the resource industry. Toronto is a major mining-finance capital and we have one of the busiest foyers on Bay Street, with various resource management teams visiting with us regularly to provide updates. We’ve been investing in this space for almost ten years now, so we’ve developed deep contacts within the mining industry internationally. Our sector focus is currently concentrated in precious metals and energy equities. We manage all the company-specific risks on an individual basis, but the sector weights are guided by our macro views.
3. We are currently seeing a massive rise in commodity costs across a broad spectrum of raw materials. The result of the Bernanke "wealth effect". What do you see as the consequences of the rise in commodity prices, for equity and credit markets?
A: It’s unbelievable to see. The food inflation is astounding,… when you see vegetable prices rising 40% in a month, grains up 20% on the year, eggs, sugar,… meat, all up 20-30% since July, it makes you wonder how they manage to massage the CPI so effectively. It’s becoming quite a serious issue, really. The Brent price is especially problematic – we always wonder about the consequences higher oil prices could potentially have on this “recovery”. We all saw the peripheral damage it caused in 2008, completely aside from the banking collapse that was happening at the time. There’s little doubt that these price increases are having a major impact across the globe – look at Egypt, for example. How much of that situation was initiated by food inflation? Same with UK with their recent numbers. It’s only a matter of time before we see more direct effects on prices here at home.
4. How do you see the end of QE2 playing out across the credit and equity markets?
A: I don’t think the market is prepared to go it alone yet. I don’t think we can have a strong equity market without more stimulus. It was amazing to see the sentiment shifts in January, as pundits began declaring the end of QE2, and no need for QE3,… but of course a few weeks pass and problems surface somewhere, this time in the Middle East, and Obama has to get up there and promise more printing to prevent a sell-off. I think the US is in such a difficult situation now with their Treasury auctions. We wrote about this in late ’09, asking how the US could realistically fund their debt requirements. The big question is how much of QE2 has been indirectly funneled back into on-the-run issues. It’s obvious the market doesn’t want to go there yet, but that is a vital question in anticipating the need for QE3.
5. Now that the "Wealth Effect" seems to be the main mandate of US the Federal Reserve, do you envision Bernanke having the ability to implement further incarnations of QE? If so under what circumstances?
A: I just think of how much they’ve spent up to this point to keep this thing going. Think of all the programs they’ve initiated. QE 1, QE 2, TARP, TALF, Fannie and Freddie – it’s all adds up to trillions, so it doesn’t seem far fetched to assume they’ll institute more measures to plug the dam.
6. Do you see any bubbles present or being blown in the world right now? If so, where and what are they?
A: I don’t see any greed bubbles in this market. Nobody’s buying T-bonds to get rich. While I do think the US bond market is a ‘bubble’ in the sense that it’s widely mispricing US risk, I don’t think investors are buying bonds with the expectation of selling them higher down the road. Investors are just trying to maintain some level of real return in here. Many are also trying to game the Fed, stay ahead of them. The commentators who call the precious metals market a bubble are laughable. Nobody owns the stuff. It’s extremely tightly held. Plenty of paper gold floating around, but that’s another story.
7. What possible or probable black swan event (timeline of 12-24 months) keeps you up at night?
A: A major supply disruption in the oil market would throw us over the edge. The economy isn’t strong enough to withstand high energy prices for an extended period.
You also have to wonder what happens if they don’t extend QE2 – and the impact the inevitable rise in rates would have on the US and global economy. We’re obviously in a very precarious environment today, so we have to be prepared for a “black swan” type event at any time. We’ve been managing our funds with a defensive view for over ten years now, so I would hope we could weather them better than most.
8. Your views on precious metals are well known. If there is a collapse in the USD and/or fiat currencies in general, how will gold be valued?
A: They’d likely be valued in terms of other goods, rather than in units of fiat currency. Investors won’t care what an ounce is worth in USD if the USD can’t be exchanged for anything. They’ll want to know what an ounce is worth in water, or food, anything consumable.
I think most mainstream investors still struggle to appreciate the changes that have occurred in precious metals market since 2008. Gold is reverting back into a world reserve currency – it’s so clearly visible now. It’s one of the only asset classes that has ‘worked’ for investors and savers. And yet there remains this large contingent who continue to question its legitimacy as an asset class.
One of the great struggles investors continue to have with gold, particularly in the US, is in embracing it as a monetary alternative. There are money managers and pension trustees who refuse to view gold as a store of value. They don’t understand the value argument. It’s a peculiar thing. If we lived in a different environment today, I’d understand their hesitance to embrace gold, but after everything we’ve gone through, and after acknowledging the fiscal reality of the Western powers, I just don’t understand why anyone would question the benefits of a hard currency. We need a hard currency today for SAVERS. Gold is for savers. We all need some sort of risk-free return vehicle in a properly functioning financial system. Bonds pay a negative real return today, so we’re forced to up our risk tolerance into equities or high-yield. You can’t save capital in cash in this environment – it’s as simple as that. You have to find another asset class to perform that function, and precious metals are once again reverting to their traditional monetary status to meet that need.
9. If you had the opportunity, what 3 policies would you enact that you believe would put the US on a path towards sustainable growth?
A: That’s a tough one. I try to focus more on what they’re doing, rather than worrying about what they should do. I think I’ve been fairly clear in articulating the challenges Western governments face today. Realistically, there is only so much austerity a country can take – look at the impact it’s already having in the UK. I just don’t see the US making the sacrifices required to put them back on the right path long-term. When you see the CBO forecasting budget deficits into 2021, one can only assume that the US plans to borrow in perpetuity. That only works as long as you can get the borrow. But we all know the game changes when the US can’t get the borrow through traditional means. We may already be there.
If I were to make recommendations, I’d focus on addressing leverage in the banking system. I firmly believe 20:1 is far too high a leverage multiple to maintain in this environment. I don’t even know what the right number is – maybe it’s no more than 5:1. But we can’t keep this situation going where a mere 5% shift in asset prices can completely wipe out your tangible equity. I would also try removing the “too big to fail” safeguards that allow the financials to reach such insane levels of leverage. And then of course there’s the derivatives issue, which almost nobody even wants to talk about anymore… but it never went away. It’s probably an even bigger problem today.
10. You have been in the financial industry for well over 35 years. If you had to create a portfolio for a 30 year today, what would it look like. How would you advise one to manage said portfolio?
A: I would be invested heavily in precious metals, both the bullion and equities. I would maintain exposure to energy, and I would have some shorts on the table. Buy-and-hold isn’t dead if you hold the right things, but 30 years is probably too long a timeframe to park capital and forget about it. I’ve always been more of a long-term investor than a trader, and although my themes tend to last for many years, I’ve seen many different markets throughout my career. I’ve definitely repositioned my funds over time. I sincerely hope we do see a true bull market in equities again at some point – I would be the first to applaud one because it’s easier to pick stocks in a secular bull market. But for the time being, until we solve the debt problems, I think our current positioning is the best way to be invested. And for what it’s worth I also think there’s plenty of opportunity in this market as well – there certainly has been for us. It’s just a matter of staying on top of macro developments, focusing on valuation and investing with conviction.
Special thanks to Lizzie.
»
- 41464 reads
- Printer-friendly version
- Send to friend
- advertisements -
with the FED's intervention... the markets have been forced up...
Egypt. Food Riots, Market goes up..
Egypt. Suez Canal Sit In, Market goes up..
anything bad or good. Market goes up.
Everyone who is an insider is selling out as fast as possible... becuase the only way left to go, is down.
The manipulation of the markets, to the point of driving off the insiders was strike 3... that is 6 - 9 months ago news... thusly the markets are on strike number 10 and 1/2... at some point the markets will be called out.
Buy physical... Food, Guns and Ammo (X's 3) and then go buy whatever you can in PM's.
The market will come back to earth at some point, dont get caught with your hand in the cookie jar with monies that could have been spent somewhere else.
I believe these are the early stages of a Mises 'crack-up-boom'. The central banks are buying up huge quantities of debt. As long as this monetization goes on there will be serious inflation. If they stop purchasing, interest rates will go through the roof and there will be defaults and another deflationary collapse.
I'd say shares are a good bet in this environment along with PM's and Oil. Max out all those zero percent credit cards and catch the ramp of the crack up boom. If we do have 'the deflation', you, along with almost everyone will be defaulting so who cares? Otherwise, you'll be paying off your mortgage.
physical everything sounds good, storage becomes an issue at some point as most of the tankers are being used as holding tanks already.
and... how do I get my $5m in gold from Mr. Sprott when the World tries to right itself? FedEx? Wire? how do I collect my physical from him when shit goes south?
I see? fly to Canada and then tell customs there that I own all this PM and I am taking it back across with me? Yeah! that will happen when the shit hits the fan.
Wake up people, the only thing keeping the US from being Egypt is food stamps / un-employment checks and Jerry Springer.
JD - good points but on a slightly different topic...is your avatar a picture of your dog? Seems we have so many dog avatars and I'm just curious bout this. What does this say bout ZH'ers? Anything?
Does this keep us from correcting our financial and world paradigms to reality on the ground? Are we pitching our world views to our dogs and in the absence of negative feedback coming to believe we are right and the world wrong?
He is my baby... for him the world. he is a mini schnauzer, all 17 -18lbs of him.. 2 and 1/2 years(ish) now... big boy!
as for the world being floated on new paper? if my theory is off in any way, it is becuase the broader populace is just dumb enough to ignore everything for long enough that the FED finds or creates the next wanna be organic bubble.
over a long enough time line the broader populace is dumb enough to go all in on the next bubble?
it just sounds funny to me, or maybe I am a romantic at heart and I just want to believe that people... broadly are just not dumb enough to go for the same shit over and fucking over again?
http://www.youtube.com/watch?v=ZRG1tWQN6e8&feature=
The Mohawks can surely help you and your cargo back over the border for a small fee.
If I have to go to Canada to find something.. I will use a gps just like everyone else.
+ lol
- Collect and stay there?
- Sell it for something you can take across?
- Use it as collateral with JPM?
My Ex would be there if things got bad, thusly I can not be in the same country as her. but other than that it is a pretty place.. save the 9 months of 12 feet of fucking snow and no blue marlin to catch.
Not 9 months of snow - depends where you live. And awesome fishing to be found if you know where to go.
maybe she was just that cold and froze the land around us every where we walked... that is possible. seriously I love the place (Cananda) it has great natural beauty and like you said fantastic widlife... dont let my ex ruin anyones view of the wonderful, exotic land of Canada.
I'm hedging my posts here by buying some cheap silver from my "sources" tomorrow.
The fact is that silver sources are hard to find on saturday.
Actually, on weekends, they are probably tighter than your wife's pussy.
Was your boss a fat pork chops (on the side) lover too?
"The fact is that silver sources are hard to find on saturday."
Not from my sources.
And I'm not married.
Wow, "i'm not married"........what were the odds (rhetorical).
You lost me there Lizzy.
you can make children while jackin off to a mirror?? surround yourself with some more mirrors you fuckin attention whore
She, like thousands of others, has surely breathed a great sigh of relief.
I'm sorry, but I can't go along with the idea that gold is a risk-free return vehicle.
No counterparty risk. (After being established as money.)
http://www.youtube.com/watch?v=cPQcnjlwtE4
Fiat is destruction of environment and economy.
Live now pay later and fuck you to next generation.
This has to end............now please!
New SGS video (Silver bears).
http://silvergoldsilver.blogspot.com/
My sources tell me that even Wal Mart greeters are buying silver coins: the intermediate top is in.
I bet that Tyler is short the foul-smelling metal.
i just gave my new night clerk, nic from Nepal, $30. dollars and told him he had to go buy a silver coin. he asked how, and i told him he would have to do his own due diligence to find out the answer to his question. i told him he might have to pay the shipping himself.
999.9/1000 Silver smells, does it?
Shows how much YOU know...
Sprott is the man - thanks for posting Tyler. I have been concerned about mining equities too since we are in for a major across the board correction
A 30-40% correction is on the cards. I am long a gold mining ETF for hedging purposes though.
That puts Silver at July 2010 levels, need to see it to believe... Also back the truck up to get as much as I can...
When I am broke and wanting, I will not be calling Uncle Sam anymore. I will be calling Daddy. Hu's your Daddy!
Is it just me or has everyone on ZH suddenly become overly aggressive?
Seriously, what happened to TGIF???
I wondered the same (oh wait, you mean thank god it's Friday...I thought you meant Friday bank closure day)
- miss my morose Friday afternoon buffett of tax payer funded pass throughs.
Gotta love Eric's subtlety....
Mr Eric is just another man with another opinion. Whos the fuck is listening? There is only one devine opinion... Dr. Bernank
All I'm saying is his opinions make a lot of sense to me.
Anyone else find the following quotes laughable?
" The commentators who call the precious metals market a bubble are laughable. Nobody owns the stuff."
"Gold is reverting back into a world reserve currency – it’s so clearly visible now. It’s one of the only asset classes that has ‘worked’ for investors and savers."
So no one owns it yet it's being held for reserves... Interesting.
Think who the "who" is when taliking about a reserve currency -- and all will be clear.
Please point me to the gold that is unowned. I'd love to grab it. Hint: every oz of gold in or above the ground is owned by someone. I like Sprott, but these ridiculous exaggerations have to stop. Just cause we're bullish on gold doesn't mean we need to exaggerate to get people to buy it.
Approximately 1% of Americans own any gold or silver outside of jewelry. This indicates there is no bubble.
Many people , including the president of the IMF are suggesting that gold be used as money or in a basket of goods to value currency. JPM and others are accepting it as collateral. In these respects, it is losing it's status as a commodity and becoming thought of as a monetary substitute.
So, no I don't find the quotes laughable.
In November, he launched a silver bullion IPO. As of two weeks ago, he hadn't received all the silver deliveries. Wish he'd addressed that.
He did. Listen to the most recent King World News interview. And search for articles. They were addressed on Mineweb and BNN (video interview) for the Vancouver Resources gathering a week or so ago.
Bottom line, he got the silver and it took him a lot longer than expected. Thought that he said that the bars looked brand new - meaning that they had been freshly minted. He also said he didn't get it all specifically from one place, so another reason why it took so long.
Why didn't Sprott simply buy silver futures and stand for delivery?
Goldman, Sachs and their buds are engineering a "soft landing" at worst and a soft turn around at best.
Big whoop.
It's totally artificial. Machine generated, similar to the great "Avatar" movie.
Get used to it.
While the Chinese high school graduate gets $1.50 an hour for his career and an American high school grad get $17.00 an hour for his career, EVERYTHING is artificial.
BTW: I'd short the Chinese holdings of American ****-paper, if I knew any way to do that.
EVERYTHING is artificial.
Asteroid about to hit the NYSE in 5 minutes..... market goes up.
4 Horsemen of the appocalypse seen coming over the horizon...market goes up.
Smallpox out break across the globe....market goes up.
Entire Congress wiped out through Swine flu out break....market doubles.
Sun explodes in firey ball....10.9.8.7.6... market goes up...5..4.3..JPM shorts siliver..2.market goes up....1....
The Bernanke catches cold.... market goes down.
The Central Banking Cartel has their very own pseudo Bretton Woods policy in place. The international community is about to pull the plug on the FED charade. Don't take my word for it, just sit back on watch the drama unfold.
Big Sis is going to create more terrorist elevations, the media will amplify the fears. Currency wars tend to neuter a spend thrift.
Fraudulent Ponzi Reconnaissance Plan:
The foot soldiers will be replaced, captains issued new classification. Conclusion, the internet will pinch this entire fraudulent organization. The Kill Switch Bill is all that shelters these criminals. Don't be fooled, its for their protection & not yours.
The only path to sustainable growth is creative destruction.
I wish the goo-goo journalists who ask how we have sustainable growth, would get a clue. Every biological species from the bacteria and ameba on up to the raccoon employs creative destruction to sustain itself and control growth. Humans in terms of development are probably closer to the bacteria, than the raccoon.
I believe that growth cannot be sustained. Compounding growth that goes on indefinitely, at any rate, eventually will double, and anything that continually doubles will be growing exponentially. Exponential growth cannot be sustained indefinitely with finite space and resources.
The Bacteria and the Racoon are both "born", grow, reproduce, die, decay. rinse, repeat.
A theoretical sustainable economy would likewise have inflation, then deflation, in perpetual cycles; GDP over time would become a perfect sine wave.
Yes, I've wondered why PM gurus invariability promote PM mining stocks.
Is it out of concern for Joe Sic Packs welfare or is it a lucrative move on their part because they stand to gain in some leveraged manner if J6P moves into PM stocks.
Who knows, certainly I welcome everyone thoughts on the matter.
Stocks (even mining stocks) are, of course .... a piece of paper, a 'token' that's supposed to represent value (much like a federal reserve note).
To my way of thinking, if the SHTF then physical would have a much greater chance of being an accepted, liquid store of wealth than a certificate from a company on a stock exchange (an exchange that might not even still be open).
So why move into PM stocks, why are they better than shorting Treasuries
or buying blue chip stocks paying dividends? At least then one has diversified.
I suspect if anyone answers, they'll say something to the effect that 'PM stocks offer a greater potential for gain than PM physical'.
If so, then that translates to me as ... they also offer greater loss potential.
Thoughts anyone?
I respectfully suggest that you have bought into the fundamental lies required to support a fiat currency.
i got a lot of respect for that sprott guy, bought my gold mining shares just before they went up five fold back in 2006
the prick
This guy doesn't understand our economic system, the government does not need to fund their debt requirements.
Hope and Change
Two years ago, Barack Obama was inaugurated as president of the United States . In the last two years we have accumulated national debt at a rate more than 27 times as fast as during the rest of our entire nation's history. Over 27 times as fast! Metaphorically, speaking, if you are driving in the right lane doing 65 MPH and a car rockets past you in the left lane 27 times faster . . . it would be doing 1,755 MPH! This is a disaster!
Sources:
(1) U.S. Energy Information Administration; (2) Wall Street Journal; (3) Bureau of Labor Statistics; (4) Census Bureau; (5) USDA; (6) U.S. Dept. of Labor; (7) FHFA; (8) Standard & Poor's/Case-Shiller; (9) RealtyTrac; (10) Heritage Foundation and WSJ; (11) The Conference Board; (12) FDIC; (13) Federal Reserve; (14) U.S. Treasury
Obama? really? cause Bush was a bed of roses debt wise for the prior 8 years? wake up dumbass, there is no spoon... only a lobby that controls the two party system.
I would say how the tea party people blocked the Bush spy bullshit, but the three letter idiots will continue on any way... but it sounded good.
and dare I say the lobby has to bribe a smaller(ish) 3rd party now as well... what money wants, money gets... until there is no money.
The size of the national debt is irrelavent, don't believe fear mongering politicians. The US cannot default.
You tell the guy with the nukes he's late on his payments.
Yep, that is always ace in the hole for the usa
The US most certainly CAN default IF IT WANTS TO. Why would it want to you ask, when it can just print up some more money to pay it's debts? Simple if inflation is raging, and the price of OIL goes above $200/barrel, the choice of default may be deemed better than the alternative.
USG will have to confiscate gold all around the world and bomb anyone who prefers a gold backed intl trade than USD trade. sure USG can plunder its own peasants dry, but its a bit more difficult when the rest of the world prefers gold.
Sprott fishes with the minnows since he knows there is no money to be taken from the sharks. I took pleasure in taking his money on Tournigan since he was trading on insider information which essentially I was providing. Too bad it was bad information. Tough luck asshole.
EGYPT: A model for India?
http://dawnwires.com/investment-news/egypt-crisis-sonia-gandhi-needs-to-...
Mr. Sprott makes some good points about the need for SAVERS to invest in gold. It is the only real "store of value".
Regarding oil and energy, I will repeat. Oil and energy are the basic input to modern economys. The spread between Brent and WTI seems to be a function of the inputs to Cushing from Canadian oil. As such WTI may not represent a good price for WORLD oil, but is representative of the U.S. price. That said, don't forget "comparative advantage". If we have access to cheaper oil than the rest of the world it will be a big advantage. We have to change our profligate ways, but it may buy us some time. I think the banks will start lending as this advantage starts to exert itself. And it is possible that the USD will find some traction in here due to the perception of that "comparative advantage".
gh
Yes the hyperinflation is the only default possible, but it will always make its payments. Can an alchemist run out of gold?
No, but he can run out of people willing to deal with him.
I just talked to someone quite close to Kitco.
Apparently, they aren't just hedging their inventory, they are actually shorting silver at these prices. Bullion brokers don't trade actively unless they know something the rest doesn't. Trade accordingly.
chronologically speaking masturbation precedes copulation and recedes into fellatio before deflating into cunnilagio. The white flag goes up when one accepts only anal and you fall into the grave when you go john lennon about 'imagining' things. Shorting this trend lands you into long john silver's island on one leg with an eye patch that shouts 'black spot' to the local rooster called 'cockburn' before he gets caught and cooked into coq au vin. It was what this guy Sprott shouted at the crowd when he was asked where this was taking us down the road as we churned around the river of no return with Marilyn Monroe in her wonder-bra looking like the seven year itch wanting to be unstitched.
after qe2, we'll have qe3, qe4,qe5... and so on, until the ultimate faillure of the system, then World War III. Good luck trading guys.