# Bearish Article - Sprott



## Andrew (May 22, 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?


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## furgy (Apr 20, 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 (May 23, 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.


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## canadianbanks (Jun 5, 2009)

furgy said:


> What the hell does that mean?


He literally means investing in tangibles.


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## CanadianCapitalist (Mar 31, 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.


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## el oro (Jun 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 (Jun 2, 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.


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## mogul777 (Jun 2, 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.
> 
> ...


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.


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## Retired at 31 (Apr 20, 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.
> 
> ...


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.


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## el oro (Jun 16, 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?


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## Brad911 (Apr 19, 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.


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## CanadianCapitalist (Mar 31, 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.


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## el oro (Jun 16, 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 (May 23, 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.


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## furgy (Apr 20, 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.


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## mogul777 (Jun 2, 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.


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## el oro (Jun 16, 2009)

furgy said:


> Everyones mind contains a different picture.
> 
> Yours is a bad one , but dont try to pass it off as THE picture.
> 
> ...


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


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## mogul777 (Jun 2, 2009)

$1600 Gold by 2011 said:


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


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


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## Brad911 (Apr 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 (Apr 20, 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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## Cal (Jun 17, 2009)

I don't like it when these guys compare the S&P of 1929 to todays market. The market has a mind of its own (meaning the factors influencing the market are not identical), and the two really can't be compared.

Having said that, I do necessarily agree with Obama in that the 'fire is out'.

Alot of the companies putting out decent Q2 results, are doing so on the backs of all of the payroll that they shed. 

The unemployed are also consumers, and the unemployed don't exactly go on buying frenzies. So I am curious to see the Q3 numbers, when they come out.

Also, Canada seems to be the only place in the world that hasn't realized that housing is overpriced. Perhaps the lowest mortgage rates in several generations will do that. 

I am doubtful that the markets will go up another 30% in another 3 months, and wouldn't be surprised if they were to fall another 30%.

At best we may have a few years of spinning tires to get some traction. Which really wouldn't be that bad.

But then again, I am just a lowly rookie...and this is just my humble opinion at this time.


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## mogul777 (Jun 2, 2009)

It's not hard to beat earnings estimates when the bar is set so low. 

The market didn't have a mind of its own in 1929?? Obviously things change, but the basics stay the same. Forget that and you'll stay a rookie.


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## el oro (Jun 16, 2009)

"The analogy I use sometimes is, we had this beautiful house. And there was a fire. We came in and we had to hose it down. The fire is now out, but what we've discovered is, we need some new tuckpointing, the roof's leaking, the boiler's out, oh, and by the way, we're way behind on our mortgage," Obama said.

So, what was the fire or what caused the fire? And what did they do to put it out? Opinions?

I bet the president claimed "the fire is out" in the first bear market rally of the great depression.


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## Robillard (Apr 11, 2009)

The fire that got put out was the irrational fear that everything was going to zero except US t-bills. That may be an exaggeration, but that's what many saw last Fall. Since then, the interbank lending markets have returned to something resembling normal. Just this past week, CIT was on the brink of bankruptcy, yet it hardly caused a ripple in the market. That is a sign of relative normalcy. Almost no one thinks there is going to be a mass contagion of bank failures anymore. This is the fire that was put out. Some commentators are saying that the credit crunch is still in full swing. While certainly credit conditions are tighter now than they were in January of 2007, this would be expected given the business cycle. When do we say that it is over? When we are back at the height of the boom? The fact is that credit is available, even to many junk borrowers in the current market. 

As for earnings, mogul777 is right that the bar is set really low. Also, it should be noted that many financial firms have written off a significant portion of the value of those mortgage backed securities. I wasn't surprised to hear that Goldman reported bumper profits in the second quarter. Almost half of their competition has been laid low. I can't speak for Morgan Stanley though. 

And as for all this pessimistic talk, we have already pierced the illusion that the sky is falling. Now we are just in a plain old (terrible) recession. Just remember that all recessions end eventually. If you are a medium to long-term investor, you shouldn't worry too much.


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## el oro (Jun 16, 2009)

CIT was saved by it's own bondholders as they would stand to lose $$$$ if they filed for bankruptcy due to CIT being a recipient of TARP funds last year. If they let CIT fail, many Americans will be affected greatly so I didn't see it happening.

There are multiple banks failing every week in the US, just not big enough to be on your radar. Maybe no more big banks will fail. But a headline from a couple of days ago read "Morgan Stanley sets aside 72% of revenue to pay bonuses". Like the old saying goes... a stupid robber robs a bank, a smart robber becomes a banker.

I think we've yet to see the end of the effects of financial weapons of mass destruction such as OTC derivatives.


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## rayray (Jul 30, 2009)

*Sprott Canadian Equity Fund*

Well I am one of the poor Schlobs that invested in Sprott Canadian Equity before the UNFORESEEN Crash. It is still down over 40% from the time I got in.

I have since been watching my other funds climb back to even, or above, or just slightly below on the sentiments of people trading in the market.

I will not claim to have the experience, know how, or reputation of Mr. Sprott, and I certainly second guess myself, when I think there are some pretty fantastic buying opportunities, or when I think that the 25-35% increases in several funds YTD is a good thing. Dare I say I feel, negative sentiment sent the markets down. How much does a Telco suffer in the past year. New business will likely suffer, the mainstay likely not, and yet their stock plummeted with everything else, I say sentiment. 

Any Way I still hold this Bear's Canadian equit 1/3 of the remaining 40% haircut balance, the rest I moved into his Energy and Precious Metals funds, where he is not hiding.

Now the other thing I wonder about is if the Crash somehow effected Mr. Sprott's foresight for the better. If so we should invest in cash, maybe bullion like him, and hide till everything is better. If not well my results certainly speak for themselves.

Is it the same skill that tells you what to buy, as the one that tells you not to buy?

I know I lost money!!!! Same with everyone else! Some are making some back!!! GO Sentiment!!!!


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## fifi (Apr 3, 2009)

Compelling article, but that's the intent. I would like to see how previous, shorter recessions/downturns compare on a graph to the current situation; would it also track the same path, but show that the recent upturn did not return to a downward trend?

I get the feeling that the author has as much knowledge and foresight about what will happen as any of us. Some of us will be right, some not. I wish I knew who will be "most right"!! 

All that I take from the article is that you should be cautious. Nothing new, in any market. Also, if he's right, he's announce it with a megaphone, if not, he won't mention it again. Sound familiar? Just like most of em!

I'll be keeping with my dividend-paying stocks and ride out any storm. I have 20 years to retirement, and I can wait.

fifi


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## rayray (Jul 30, 2009)

*Motivation?*

If we represent several thousand investors and we short the market with their money, then spread fear far and wide as loudly as we can, announce predictions of depression, continued recession overinflated market values, no signs of improvement... If we get enough people "feelin' it"; we make money, and look brilliant.


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