FRA Co-Founder Gordon T. Long deliberates with Eric Sprott about the
outlook for the global economy in 2016. Eric Sprott is a Canadian hedge fund
manager and founder of Sprott Asset Management. He became a billionaire on
paper with the initial public offering of Sprott Inc, the parent of his Sprott
Asset Management firm. In August 2011, Sprott was acknowledged by Bloomberg
as a 'hidden billionaire.' The publication estimated Sprott's worth at $1.3
billion, largely based on his publicly disclosed holdings in Sprott Inc. and
Sprott Physical Gold Trust. Sprott started his career as an analyst at
Merrill Lynch covering everything but commodities. He eventually became known
as a natural-resources and energy investor.
In 1981, Eric Sprott founded Sprott Securities Ltd. (now Cormark
Securities Inc.), an institutional brokerage firm focused on small-to-mid
capitalization companies, servicing Canadian corporate and institutional
investors. In the year 2000, Eric Sprott made the decision to focus solely on
the investment management business. Accordingly, the "investment
management division" of Sprott Securities Inc which became one of
Canada's largest independently owned institutional brokerage firms. In 2000,
Eric divested his entire ownership of SSI to its employees and chose to focus
his sole attention on the investment management business and he formed Sprott
Asset Management. In 2006, Eric was awarded the Ernst & Young
Entrepreneur of the Year Award for Ontario.
In late 2009, Sprott published a well circulated white paper titled,
"Is it all just a Ponzi scheme?" The document dug into who was
actually purchasing recent Federal Reserve U.S. Treasury auctions and
concluded that the biggest new buyer versus the previous year was the U.S.
government.
Eric's approach to philanthropy is straightforward. He wants to help
society change for the better. He is also constantly studying how to best
serve his community through the foundation's philanthropic donations. He
believes that "the world needs true leadership to deal with unrecognized
problems."
2016: What Lies Ahead
"There is nothing constructive to say about the financial ponzi we
have gone through since QE and negative interest rates were initiated."
By knocking interest rates down to zero and in some cases they're
negative, savers are getting crucified. They get no return on their money.
They have to buy the slimiest of assets, US bonds receiving 2%.
QE, printing of money will not do anything for the economy. We saw this
with japan for the last 30 years. QE was only in place to inflate assets
prices and we are all going to pay the consequences for that. It's shocking
that the market has held up as long as it has, and even more shocking is that
during this whole process policies are so irresponsible that precious metals
are not getting enough attention. I feel like a lone wolf believing that
people should be in precious metals to protect themselves against this
recession.
The Focus For Investors
"The most important thing is that roughly 97% of stocks are in
bear markets throughout the world."
Originally only a few stocks in the US were holding things up, and now
they're all getting crushed. In 3 months it would be no surprise to see every
stock in the world being in a bear market. Furthermore it's unbelievable to
think you have a stable economy when oil prices are under 30. There are so
many areas of falling prices; hitting or nearing all-time record lows.
"I do not have much hope for the economy right now; the stock
markets are reflective of that."
The whole issue of medical care in the US is being swept under the carpet;
there are significant expenses for too many people. We need to be very
careful about equity and bond investments. If you begin with the premise that
the US is broke, you have $85 trillion of unfunded liabilities and a GDP of
18 trillion that says enough right there; it's a joke.
This is why I preach to own precious metals because they will survive a
financial meltdown. Risk mitigation is critical, but you have to understand
all the elements of risk. It is phenomenal the risk that you will be taking
in turn for the yield you're expecting.
Precious Metals
Not to put a number on it, but I believe for the last 15 years the demand
for gold has been well above supply and central banks have superficially
provided the extra supply. The physical gold market may overwhelm the paper
market, if or when it does you can imagine a recession or depression or even
a currency crisis which is happening throughout the world.
Black Gold
For oil, when you ask questions about markets that are dominated by paper
and the influence of central planners it is difficult to give an answer that
makes much sense. Ultimately oil should be going back up; very few entities
can produce at $30/barrel. Sooner or later we will see shutdowns, and once
that happens it will be highly unlikely for a restart until prices are at a
profitable amount.
Canadian Dollar
"Government revenues are going to plunge coupled with stocks
falling; 2016 is not looking very bright."
It is a very tough situation because of oil prices are so devastating for
everyone but particularly devastating for US and Canada. People are going to
take all sorts of losses and reclaiming former capital. It is a dark hole
where weaknesses are being amplified unless there is an outside influence to
turn things around.
Closing Statements
"Seeing all the previous crisis happening from the Dot.com to the
2008 crisis you can see what is likely to happen here; it has just been
postponed. But I suspect it will be worse, it will be global and it will not
be as easy to fix as it was in 2008 because now it will have to be
coordinated."
It is a question of whether people believe or don't believe in the market.
Everyone realizes after what has happened is that there is a vulnerability in
the market that people didn't expect. Hopefully we will see signs of precious
metals going up that will indicate the importance of focusing on the real
issue in the financial system is today.
"All indicators are telling you that there is no recovery
happening here anytime soon. It may just keep going down and potentially get
violent. In the midst of all this the key thing is to focus on mitigating
your losses."
