Bearish Article - Sprott

9623 Views 27 Replies 13 Participants Last post by rayray, Jul 31, 2009

Andrew

Discussion Starter · Jul 16, 2009

Check out this article by Eric Sprott regarding his bearish stance on the future of the equity markets. I found it very informative.

http://www.sprott.com/Docs/MarketsataGlance/July_2009.pdf

Thoughts and opinions?

1 - 20 of 28 Posts

furgy

· #2 · Jul 16, 2009

My opinion is that this is just another opinion to be taken with a grain of salt.

Graphs and numbers can be helpful but really can't predict the future , only the past.

Did Sprott forsee this latest recession using these same graphs , if not , why.?

In the end what does it all mean anyway , in summary Sprott says "You can invest in sentiment if you want to, but as we have
said before, we prefer to invest in real things."

What the hell does that mean?

In my opinion anyway , investor sentiment is where the money is , especially if you're a trader.

I think someone at Sprott was bored and needed something to do the day they wrote that article.

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dogcom

· #3 · Jul 16, 2009

After what we have seen in the past couple of years anything is possible.

Right now I am mostly in short term income and bonds until after the seasonal weak period and will look to be more aggresive in the fall. I may miss some of a rally here but I won't get destroyed if we go into another tailspin from here. I think the S&P 500 is probably following the Japan 1990's senario where we get nice rebounds but keep bumping along the bottom until we finally get the dividend averages above 5 and the PE below 8.

canadianbanks

· #4 · Jul 16, 2009

furgy said:
What the hell does that mean?

He literally means investing in tangibles.

CanadianCapitalist

· #5 · Jul 16, 2009

I beg to disagree on a number of points. Yes, S&P 500 p/e is about average historically. However, stocks valuations don't exist in a vacuum. They should be compared to prevailing interest rates. 10-year bonds are yielding 3.5% today. That's a p/e of 28. So, stock valuations are much better than bonds today.

I suppose Sprott is somewhat self-servingly making a case for investing in commodities. But here's my question: if the US economy is in the early stages of a depression, where is the demand for all the "real things" going to come from -- base metals, precious metals and agricultural commodities. Before someone says China, let me point out that the Chinese miracle is built on US consumers buying cheap Chinese manufactured goods, not local demand.

el oro

· #6 · Jul 16, 2009

You must assume that things that equity analysts produce are self-serving because they are supposed to be.

That being said, I share the view of that document. I think people have been fooled by this bear-market rally into thinking we're in a slow recovery.

Yes, China will be the biggest consumers of these "real things". They've been slowly accumulating it over the past several years. But, unfortunately, commodities will not rise because of economic recovery causing increasing world demand. Instead, commodity prices will increase as the world loses trust in fiat currencies and want to diversify out. That is how commodity prices will potentially rise substantially while the world remains in recession/depression.

The USD will be inflated and since it is the reserve currency, will export the inflation to the world.

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mogul777

· #7 · Jul 17, 2009

Seems to me Sprott has been bearish for the last several years... inlcuding the ones where the TSX doubled. Granted that was largely on the backs of these resource stocks that he likes. As already pointed out that quote obviously means invest in real things, things you can actually touch, as opposed to the paper garbage. But again you can't have your cake and eat it too... meaning you need demand and supply to cooperate which it isn't doing. Sprott had his a$$ handed to him last year which is really embarrassing for his Canadian equity fund facade that he fails to correctly label as a resource fund to the chagrin of his foolhardy investors.

mogul777

· #8 · Jul 17, 2009

$1600 Gold by 2011 said:
You must assume that things that equity analysts produce are self-serving because they are supposed to be.

That being said, I share the view of that document. I think people have been fooled by this bear-market rally into thinking we're in a slow recovery.

Yes, China will be the biggest consumers of these "real things". They've been slowly accumulating it over the past several years. But, unfortunately, commodities will not rise because of economic recovery causing increasing world demand. Instead, commodity prices will increase as the world loses trust in fiat currencies and want to diversify out. That is how commodity prices will potentially rise substantially while the world remains in recession/depression.

The USD will be inflated and since it is the reserve currency, will export the inflation to the world.

Inflated with hot air? I concur. However, if you mean propped up that makes your last sentence incorrect. As you may have noticed last year inflation is exported when the USD drops.

Retired at 31

· #9 · Jul 17, 2009

$1600 Gold by 2011 said:
You must assume that things that equity analysts produce are self-serving because they are supposed to be.

That being said, I share the view of that document. I think people have been fooled by this bear-market rally into thinking we're in a slow recovery.

Yes, China will be the biggest consumers of these "real things". They've been slowly accumulating it over the past several years. But, unfortunately, commodities will not rise because of economic recovery causing increasing world demand. Instead, commodity prices will increase as the world loses trust in fiat currencies and want to diversify out. That is how commodity prices will potentially rise substantially while the world remains in recession/depression.

The USD will be inflated and since it is the reserve currency, will export the inflation to the world.

Sprott is my favorite bear. I haven't read in a while, but he usually makes a compelling case.

I would wager he's suggesting bullion when he references "real things". His article back in Octoberish or Novemberish of last year was pretty famous - "buy gold" in the biggest font they could digitize.

el oro

· #10 · Jul 17, 2009

mogul777 said:
Inflated with hot air? I concur. However, if you mean propped up that makes your last sentence incorrect. As you may have noticed last year inflation is exported when the USD drops.

And the USD dropping is a result of inflation so I guess we agree, eh?

Brad911

· #11 · Jul 17, 2009

Bear market rally? I think the market is stuck in a range and deflation, not inflation, continues to be the concern. When people at the treasury stop talking about "things getting better" is when they'll actually turn around.

The unemployment rate isn't going down (quite the opposite from a report released yesterday) so I'm not sure where all these bears see inflation coming from when wages won't be participating and US consumers won't be buying. Sprott is a smart man, but he's paid by selling an opinion to his investors and makes his money by supporting that style.

Look at the whole picture; we're not going anywhere anytime soon.

CanadianCapitalist

· #12 · Jul 17, 2009

I find it interesting that even among a small group of very smart individuals, we have different opinions and hence a market. It goes to show that how difficult it is to forecast future economic trends with high odds of being correct.

el oro

· #13 · Jul 17, 2009

CanadianCapitalist said:
I find it interesting that even among a small group of very smart individuals, we have different opinions and hence a market. It goes to show that how difficult it is to forecast future economic trends with high odds of being correct.

Yup, if everyone agreed then we'd probably be wrong

. And it`s way more interesting this way.

Brad911 said:
Bear market rally? I think the market is stuck in a range and deflation, not inflation, continues to be the concern. When people at the treasury stop talking about "things getting better" is when they'll actually turn around.

The unemployment rate isn't going down (quite the opposite from a report released yesterday) so I'm not sure where all these bears see inflation coming from when wages won't be participating and US consumers won't be buying. Sprott is a smart man, but he's paid by selling an opinion to his investors and makes his money by supporting that style.

Look at the whole picture; we're not going anywhere anytime soon.

In the US, June CPI was 0.7 compared to 0.1 in May. If you exclude food and energy, June CPI was 0.2.

Price inflation on the things Americans need: food, energy etc.
Price deflation on American's assets: real estate, stocks and bonds, cars etc.

More unemployed Americans = less tax revenue to pay for ever increasing spending by the government. So, money has to be printed to make up the difference. It`s just a matter of time before inflation KOs deflation.

I`ve looked at the big picture and it ain`t pretty!

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dogcom

· #14 · Jul 18, 2009

We might see inflation from food prices, but I don't see where else it will come from in the next year or so. The only way inflation can be achieved is if the government prints big cheques to all Americans so they really can spend the money. Other then that we need debts to be paid down, savings replenished and a growing economy.

furgy

· #15 · Jul 18, 2009

$1600 Gold by 2011 said:
.

I`ve looked at the big picture and it ain`t pretty!

Everyones mind contains a different picture.

Yours is a bad one , but dont try to pass it off as THE picture.

My picture is looking pretty rosy.

If you knew the big picture , you'd be way ahead of the rest of us and not so pessimistic.

You aint seen dick.

mogul777

· #16 · Jul 18, 2009

$1600 Gold by 2011 said:
And the USD dropping is a result of inflation so I guess we agree, eh?

On the main point yes, on the chicken and the egg apparently not... as I already said you have it backwards... inflation is a result of the USD dropping. Get the chickens in a row and you can count your money a lot faster.

el oro

· #17 · Jul 18, 2009

furgy said:
Everyones mind contains a different picture.

Yours is a bad one , but dont try to pass it off as THE picture.

My picture is looking pretty rosy.

If you knew the big picture , you'd be way ahead of the rest of us and not so pessimistic.

True. I just don't want to start/end too many sentences with "in my opinion".

furgy said:
You aint seen dick.

I have. Just not as much as you more experienced folks!

mogul777 said:
On the main point yes, on the chicken and the egg apparently not... as I already said you have it backwards... inflation is a result of the USD dropping. Get the chickens in a row and you can count your money a lot faster.

You're right but inflation came first, like the egg

mogul777

· #18 · Jul 19, 2009

$1600 Gold by 2011 said:
True. I just don't want to start/end too many sentences with "in my opinion".

I have. Just not as much as you more experienced folks!

You're right but inflation came first, like the egg

I agree on the me being right part, but your sadly mistaken on the cause and effect part.

Brad911

· #19 · Jul 19, 2009

Inflation is simply a product/outcome of any number/combination of actions of individuals or government, supply and demand.

We will experience higher inflation in the future, but the question that many fail to adequately cover is by "how much". If we were actually facing a hyperinflation environment (or the prospect of one) gold would be twice the price it is now. The fact it isn't is a very clear indication that 6-12 months out inflationary effects look rather tame.

In almost every high inflationary period we've experienced in North America over the past 100 years (very few) wages have been a significant component in contributing to the high rate of inflation. With unemployment where it is currently the government (either US or Canada) can choose to print as much money as they want, but they're only offsetting the effects of serious deflation in sectors like manufacturing and RE with little effect on inflation.

Will we see inflation at 4-5%?....I believe so, but certainly not 18-20% like so many are suggesting with their crystal balls. Monetary policy has an effect, but its not the sole contributing factor to a hyperinflation situation; that's the bottom line. Believe what you want, but there's not enough inflation in the market (or perceived) to justify much of what any inflation bull has to say at present. Once the economy turns around rates go up fast and you again see more pressure on housing and unemployment could still be around 7-8% easily.

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furgy

· #20 · Jul 22, 2009

$1600 Gold by 2011 said:
"You aint seen dick!"

I have. Just not as much as you more experienced folks!

Well that's ok . look at yourself first , start small.

Maybe one day you'll really see the "big" picture.

As a gold bug I would expect one to be pessimistic on the economy , but I don't think the world is ready to lay down and give up just yet , this is just a small hiccup in the economy.

My portfolio was down over 60% six months ago , I'm now up by about 20% and have taken some profits to boot.

This recession has been a great learning experience for me , one I will profit from far into the future.

As a mainly income investor now , my income alone should be enough to protect me any inflation that may occur.

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