Eric Sprott: The Ongoing Rot in the Economy

sprottThere is clearly no recovery…
If one looks past headline figures, things are not really getting better.   Real disposable income per capita in the U.S. has increased only modestly since the Great Recession. However, all of this increase is due to Government Transfers, not from an improvement in the real economy. If we exclude those transfers from the numbers, disposable income per capita is actually lower than it was at the end of 2005 and has been painfully flat since 2011. Also, those numbers assume that the headline Consumer Price Index (CPI) accurately represents people’s purchasing power.

In this Markets at a Glance, we investigate the U.S. consumer and show that for a large portion of the population, things are not anywhere close to being better, in fact they are worse than before the recession. [Read more...]

Eric Sprott: Connecting the Dots

SProttWe believe that any rational investor considering the collection of facts below would consider, like us, that gold prices are long overdue for a re-rate.  As we all well know, almost all markets are manipulated; and the recent Barclays settlement is one example vindicating our views.
» The global macro environment is weak,
» Supply/demand numbers in our favour,
» Ponzi finance is in full bloom.

We encourage readers to protect themselves with any/all precious metals.

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Eric Sprott Explains The Chinese Gold Vortex

Eric SprottAfter a long and agonizing winter which was attributed to the so-called “Polar Vortex”, we thought it would be appropriate to highlight for precious metal investors the implications of what we call the “Chinese Gold Vortex”.
While it is still early, the Chinese Gold Vortex is firing on all cylinders and data so far this year suggests that demand will far outstrip supply.
Over the past year, we have been very vocal about what we consider an aberration: the complete disconnect between gold supply and demand fundamentals and the actual price of the metal.
The stars are aligned in 2014 for a significant re-rating of the gold price.
The tailwinds are twofold for gold: the Chinese Gold Vortex is putting an undeniable pressure on the physical market, while focus on price manipulation makes it progressively harder for price manipulators to operate. The reversal of this anomalous, yet explicable market dysfunction could provide astute investors with multi-hundred per cent returns.
Do not miss this Golden Opportunity!

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Eric Sprott: The Great Non-Recovery

fiscal cliffWe are now in the 5th year since the “official” end of the Great Recession.   Numerous indicators of the state of the U.S. economy point to a non-recovery:

  • The participation rate is low and supported by baby boomers working more or coming out of retirement.
  • Students (the future labour force) are defaulting on their loans in record amounts.
  • Disposable income is still below its pre-recession level.
  • An ever increasing share of disposable income is being spent on health care, crippling discretionary spending.
  • Higher interest rates are further depressing discretionary spending (home and auto sales).
  • All of which is resulting in anemic business and economic activity.

Claims that the U.S. economy is suddenly rebounding have been made before. They are misleading at best and fallacious at worst. It would not be surprising to see further deterioration, which would force central planners to initiate additional unconventional intervention (i.e. Quantitative Easing). [Read more...]

Eric Sprott Warns: Don’t Miss this Golden Opportunity!

goldIt is obvious to us that precious metals markets were manipulated in 2013. It is also obvious that demand far exceeded annual mine supply. Now let’s analyze what should happen, going forward, with these revelations. If gold prices are back on their long-term trend, ex-manipulation, a linear progression of the gold chart from 2000 to 2014 would suggest a price of $2,100 now (62% higher than the current $1,300 level) and $2,400 by year-end.
Gold and silver have broken their downtrends and have surpassed their 200 day moving averages. The golden cross (i.e. the fifty day rising through the 200 day) still awaits, but it is most likely to happen within weeks.
When was the last time that an obvious reversal of an anomalous, yet explicable market dysfunction allowed you to imagine that you could expect multi-hundred per cent returns over a short time period?
Don’t miss this Golden Opportunity! [Read more...]

Eric Sprott: One More Sign of Manipulation in the Gold Market

sprottAs demonstrated in our Open Letter to the World Gold Council, there was a large supply-demand imbalance in 2013. The evidence presented here suggests that the decline in the price of gold in mid-2013 and the subsequent raid of gold ETFs (but not silver ETFs) was engineered by Western Central Banks to help solve their physical gold supply problem. However, the resulting increase in Indian gold demand exacerbated the problem. The solution was to restrict Indians from importing gold by all means possible in order to help the Western Central Banks regain control of the gold market.
However, the rate of drain in gold ETFs cannot continue forever; at the current pace of 930 tonnes/year, there are less than two years of gold left in ETFs. Moreover, Indians have proved highly creative at finding ways around import restrictions.  Smuggling is on the rise and will most likely increase as smugglers become more sophisticated. Overall, we believe that interest in physical gold from emerging markets will remain a driving force.
Accordingly, we believe that the manipulation of gold prices by central banks, as demonstrated by the below analysis, cannot continue in 2014. Therefore, we expect substantial increases in the price of precious metals as the true shortages become obvious. [Read more...]

Eric Sprott: Inform Act to Bring a Dose of Fiscal Sanity & Awareness to US Public?

Thanks to Boston University’s Larry Kotlikoff, it now seems like the U.S. might be getting closer to acknowledging that it has a serious fiscal problem; or at least this is what one might infer from the strong support from Congressmen and Senators from both sides of the aisle, as well as from fifteen Nobel Laureates in Economics (see Figure 2 for a complete list) and thousands of business leaders and economists from all stripes, for a new bill called the Intergenerational Financial Obligations Reform Act or “Inform Act”.
We find it appalling that, while some of the world’s brightest economists consider this an issue of paramount importance, notwithstanding its introduction to the Senate and the House, the “Inform Act” completely flew under the radar of the mainstream media.
Hopefully, if this becomes law, it will not be possible for people to keep their head in the sand on fiscal responsibility.
[Read more...]

Eric Sprott: The Detroit Template

sprottEconomist and Boston University Professor Laurence Kotlikoff calculates that to fully eliminate the shortfall in Social Security funding, the government would need to either cut all present and future social security benefits by 22%, or increase the Federal Insurance Contributions Act tax (FICA) by 32% (from 12.4% to 16.4%). But this is just to fix Social Security!
For the U.S. Federal Government as a whole, Kotlikoff estimates the fiscal gap to be around $222 trillion!  This is many orders of magnitude larger than GDP. In order to wipe out this gap, the Federal Government would need to permanently increase all taxes by 64% or reduce all expenditures (with the exception of debt servicing) by a whopping 40%.
The problem is clear; every level of government has promised too much and is now faced with the politically unappealing prospect of either drastically increasing taxes for the working age population or significantly reducing benefits for the retired (or future retired). As evidenced by the Detroit bankruptcy, the longer we wait, the worse it will get. The greater the delay, the more pain and suffering citizens will face when the benefits and safety nets they have come to expect from the government suddenly disappear.
Given that the Federal government would need to cut all expenses by 40% to balance the books (according to Kotlikoff), it is not hard to imagine that Social Security, Medicare and Medicaid would suffer haircuts in excess of those experienced by the Detroit pensioners.
Over time, politicians from all stripes have proven adept at cognitive dissonance, but these increases in taxes and cuts to benefits will have to happen, one way or another; it is just a matter of time. [Read more...]

Eric Sprott: Do Western Central Banks Have Any Gold Left??? Part III

Bernanke-Dimon-Fed-TunnelAs we have shown in Part 1 & Part 2, the past decade has seen a large discrepancy between the available gold supply and sales.  The conclusion we have reached is that this gold has been supplied by Central Banks, who have replaced their holdings of physical gold with claims on gold (paper gold).
Many recent events suggest that the Central Banks are getting close to the end of their supplies and that the physical market for gold is becoming increasingly tight.
This (price smash) was all orchestrated to increase supply and tame demand. We believe that central planners are now running out of options to suppress the gold price. After taking a pause, the secular gold bull market is set to continue. [Read more...]

Eric Sprott: Have We Lost Control…Yet?

end badlyAt the last FOMC meeting, by prematurely announcing the timeline and the specifics of an exit from QE, Bernanke might have lost control of rates and volatility. The current US economic growth is still feeble and hinges on housing, which would be slowed down by raising rates. Banks, while better capitalized than pre-crisis, are still not lending to most borrowers and would be dearly affected by too fast increases in rates. Moreover, European woes still threaten the stability of the international financial system and the recent rush to the exit might further exacerbate funding pressures for weak European banks. Finally, the US government (amongst others) debt load, while already unsustainable, would keep on climbing if rates were to increase only by 100bps.
The chaotic reaction by market participants and the corresponding increase in yields now risks destabilizing this very fragile equilibrium.   It is yet unclear whether or not the damage control from the other Fed Presidents will put a lid on yields and market volatility, or if the damage to the Fed’s (poorly executed) exit strategy is permanent. [Read more...]

Eric Sprott: Caveat Depositor

sprottA deal has just been struck with Cyprus. However, it was not the deal that Cyprus saw other countries receive. This was not the deal received by Greece, Italy and Spain. There were no bailed out banks in the aftermath. There was no transfer of risk from over-levered banks to the taxpayers. The risk was pushed back onto the banks. Their equity was wiped out. Their bondholders were wiped out. Their uninsured depositors saw their accounts raided for additional liquidity. It wasn’t just that the rules of the game had changed, the game itself changed. By raiding the depositors’ accounts, a major central bank has gone where they would not previously have dared. The Rubicon has been crossed. Going forward, this is expected to be the “template” for dealing with risky, over-levered banks and the countries which support them. [Read more...]

Eric Sprott: Do Western Central Banks Have Any Gold Left??? Part II

sprottWe are currently in an environment where policy makers are intent on devaluing their currencies in an effort to create growth. Real rates continue to stay negative in most of the developed world. Every marginal dollar of debt that is created is producing lower and lower amounts of growth. In a world overwhelmed by mountains of debt and economic growth which is sub-par at best, precious metals and real assets can act as insurance against the stupidity of policy makers. The evidence pointing towards the suppression of the gold price is becoming increasingly apparent. Don’t be the last person to figure this out! The current sell-off in gold should be viewed not with extreme trepidation but as an unbelievable opportunity to buy the metal at an artificially low value. [Read more...]

Eric Sprott’s Markets At a Glance: Ignoring The Obvious

maag-1-2013.gifEric Sprott has released his latest MUST READ Markets At a Glance newsletter: Ignoring the Obvious.

The purpose of asset purchases by the Fed might no longer be improvements in the real economy, but rather a more subtle financing of U.S. government deficits. However, in the long run, expanding the money supply inevitably leads to inflationary pressures. Luckily for the Fed and the U.S. government, there is so much slack in the labour market that inflation might be years away. And, if we are right about the long run unemployment rate being structurally higher, then the Fed has all the room it needs to continue Quantitative Easing (QE) to infinity. This might allow them to continue to hide the true financial position of the government for many years to come.

Nonetheless, the rising GAAP deficit and the sheer size of the U.S. Federal Government’s liabilities to its citizens makes it clear that one day or another, services (health care, social security) will have to be cut. Financial alchemy can hide reality, but it does not provide any tangible services.

Europe’s (unresolved) experience with its debt crisis provides an insightful window into the future. Austerity measures in Ireland, Portugal, Spain and Greece have caused tremendous pain to their citizens (25% unemployment rates) and wreaked havoc in their economies (double digit retail sales declines).

Are we going to ignore the obvious? [Read more...]

Eric Sprott: Gold: Solution to the Banking Crisis

tier1.gifOur friend Eric Sprott has released his latest Markets At a Glance newsletter titled Gold: Solution to the Banking Crisis.

If the Basel Committee decides to grant gold a favourable liquidity profile under its proposed Basel III framework, it will open the door for gold to compete with cash and government bonds on bank balance sheets – and provide banks with an asset that actually has the chance to appreciate. Given that US Treasury bonds pay little to no yield today, if offered the choice between the “liquidity trifecta” of cash, government bonds or gold to meet Basel III liquidity requirements, why wouldn’t a bank choose gold? From a purely ‘opportunity cost’ perspective, it makes much more sense for a bank to improve its balance sheet liquidity profile through the addition of gold than it does by holding more cash or government bondsif the banks are given the freedom to choose.

Sprott’s Full Letter Below:

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Eric Sprott: Weakness Begets More Weakness- Weekly Earnings Have Been in Contraction for 17 Years!

MAAG_Oct2012-FIG2.gifEric Sprott’s Sprott Asset Management has just sent subscribers it’s monthly Markets At a Glance newsletter.  As always, Sprott’s latest is a MUST READ!!

The figure to the right is courtesy of Shadow Government Statistics, and shows US Average Weekly Earnings adjusted for inflation using two versions of inflation measurement. It is a sobering chart. The blue line shows inflation-adjusted earnings using government CPI, and shows a small but steady increase in real earnings since the mid-1990s. The green line, however, shows what inflation adjusted earnings would be today had the US Bureau of Labour Statistics not made changes to the CPI in the early 90s, and reveals that average weekly earnings have actually been in contraction for over 17 years. Forget blaming our current woes on the hangover from 2008-2009. The average American worker has been losing income in real terms since the late 1990s. This is clearly a long-term trend which has compounded itself over the last ten years. Weakness begets more weakness. [Read more...]