Eric Sprott: “Are We Surprised Stocks Are Going Down? We Shouldn’t Be.”
Dec 28, 2018 01:40 pm
By Albert Lu
Eric Sprott, Chairman Emeritus of Sprott Inc.
Stocks crashed on Monday before surging back in dramatic fashion on Wednesday following Christmas. But the 1000-point run didn’t last long. The market sank dramatically again on Thursday before staging a late-session comeback in a swing that saw the Dow Jones Industrial Average span over 870 points for the day.
To put it mildly, it’s been a dramatic year for world markets. In all, $17 trillion worth of assets have been lost so far in 2018, a number that represents almost 20% of the world economy.
Despite the roller-coaster ride, some investors still find room for optimism.
“We still think we’re in this secular bull market that’s going to be led by high growth companies in a low growth world. It’s stocks like Apple and Microsoft, you will get those losses back eventually,” said one trader to CNBC.
But natural resource investor Eric Sprott isn’t buying it.
“Are we surprised that stocks are going down? We shouldn’t be.”
“They were pumping it up and now they’re pricking it … The macro theory is totally playing out here. It looks like the Fed put is not there.”
THE GREAT ECONOMIC FRAUD
Like a growing number of experts, Sprott believes the growth of the last 10 years, spurred by low interest rates and central bank bond purchases, will soon come to an abrupt halt.
“[T]he whole 2009 to 2018 was essentially a fraud created by the Fed, by doing things that no one in the history of the financial world had ever heard about before: printing money and having zero or negative interest rates.”
According to Sprott, the signs of trouble are already apparent.
“We’re going to have serious, serious underperformance of pensions funds this year … And they’re already underfunded.”
He also pointed to FedEx’s recent financial results as a warning of trouble ahead.
“[FedEx] basically said they all of a sudden, saw a marked decline in business … [T]hey see a declining trend going forward into 2019.
“So that is an ominous warning that things aren’t going well. Not that we need warnings because we see housing, we see autos, we see retail, we see bank stocks collapsing. We see transports in a bear market. We see bear markets all over the world.”
THE BIG RUN IN GOLD STOCKS HAS STARTED
On, the bright side, Sprott believes the recent outperformance of gold and gold stocks is a good sign.
“[T]his reminds me of early 2016. There was a day … in 2016 when the golds stocks did the same thing. They went down 5% or 6% in the day and then boom, they hit bottom and they went up probably 100% in a very, very short time.”
“[T]he S&P and most of the averages are down in excess of 15% and gold stocks are up 15%. We’ve had a 30% over-performance in about three months.”
“You’re a portfolio manager. You’re being brutalized. Nothing is working except all of a sudden, the computer shows you, oh, gold is working. Gold stocks are working.”
Sprott U.S. Media, Inc. is a wholly owned subsidiary of Sprott Inc., which is a public company listed on the Toronto Stock Exchange and operates through its wholly-owned direct and indirect subsidiaries: Sprott Asset Management LP, an adviser registered with the Ontario Securities Commission; Sprott Private Wealth LP, an investment dealer and member of the Investment Industry Regulatory Organization of Canada; Sprott Global Resource Investments Ltd., a US full service broker-dealer and member FINRA/SIPC; Sprott Asset Management USA Inc., an SEC Registered Investment Advisor; and Resource Capital Investment Corp., also an SEC Registered Investment Advisor. We refer to the above entities collectively as “Sprott”.
The information contained herein does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.
This report contains forward-looking statements which reflect the current expectations of management regarding future growth, results of operations, performance and business prospects and opportunities. Wherever possible, words such as “may”, “would”, “could”, “will”, “anticipate”, “believe”, “plan”, “expect”, “intend”, “estimate”, and similar expressions have been used to identify these forward-looking statements. These statements reflect management’s current beliefs with respect to future events and are based on information currently available to management. Forward-looking statements involve significant known and unknown risks, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance or achievements could vary materially from those expressed or implied by the forward-looking statements contained in this document. These factors should be considered carefully and undue reliance should not be placed on these forward-looking statements. Although the forward-looking statements contained in this document are based upon what management currently believes to be reasonable assumptions, there is no assurance that actual results, performance or achievements will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this presentation and Sprott does not assume any obligation to update or revise.
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Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.; several of which trade on various exchanges and have price fluctuations based on short-term dynamics partly driven by demand/supply and also by investment flows. Natural resource investments tend to react more sensitively to global events and economic data than other sectors, whether it is a natural disaster like an earthquake, political upheaval in the Middle East or release of employment data in the U.S. Low priced securities can be very risky and may result in the loss of part or all of your investment. Because of significant volatility, large dealer spreads and very limited market liquidity, typically you will not be able to sell a low priced security immediately back to the dealer at the same price it sold the stock to you. In some cases, the stock may fall quickly in value. Investing in foreign markets may entail greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. You should carefully consider whether trading in low priced and international securities is suitable for you in light of your circumstances and financial resources. Past performance is no guarantee of future returns. Sprott Global, entities that it controls, family, friends, employees, associates, and others may hold positions in the securities it recommends to clients, and may sell the same at any time.
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