A Perp Walk, a Paradigm Shift, and the Week in Precious Metals - Weekly Wrap-Up (September 20, 2019)

Man: You're listening to the "Weekly Wrap-Up" on "Sprott Money News."

Craig: Hello again from "Sprott Money News" and sprottmoney.com. It's Friday, September 20th, 2019, and this is your "Weekly Wrap-Up." I am your host Craig Hemke, and joining us, as usual, is Eric Sprott himself. Eric, good morning.

Eric: Hey, Craig. Crazy, crazy week with the JP Morgan and the repo stuff. So, lots to chat about.

Craig: Yes, there is. And hey, I've got something for you, my friend. We always talk about the new stuff that we have at Sprott Money and try to emphasize that stuff for everybody that owns and wants to own physical gold and silver. Well, guess what? We now have the eighth release in the popular Queen's Beast Series from the Royal Mint. Eric, this one features The White Lion of Mortimer. What do you think about that? Yeah, Mortimer, that was that guy. You remember him in "Trading Places?" You know, sell Mortimer, sell.

Eric: Yeah, I know the guy. Yeah, sell, sell, sell.

Craig: I didn't know if they could commemorate that, right? Anyway, these babies come in four nine, fine gold and silver. The Queen's B series are very popular among investors. And why wouldn't they be? They're now available at Sprott Money. So you can go to sprottmoney.com or, of course, call us at 888-861-0775. Hey, it's not sell Mortimer sell. There's a little buy Mortimer buy this week. Gold's up actually $10. It may not feel like it, but it is as we speak. And silver is up 35 cents. So almost 1% in gold and about 2% in silver. Let's start there, Eric. A little better than last week.

Eric: Yeah. Well, of course, we've had some...like it's been a crazy week. And as I get to the end of the week and man, you spent so much time trying to figure out this JP Morgan thing and trying to figure what's going on in repo markets and the sulfur markets. And those are markets I don't necessarily understand that well on the day-to-day basis, but it's been consuming, to say the least. So why don't we start off with JP Morgan?

Craig: Okay.

Eric: And I'll just read count one, conspiracy to conduct or participate in an enterprise engaged in the pattern of racketeering activity. That has a wonderful, wonderful ring to it, you know.

Craig: It does.

You know, racketeering activity. Now, but having read the indictment, the indictment, for the most part, deals with spoofing, which I consider to be a relatively, relatively minor crime because it's something you do for the minute of the 15 minutes or just to try to move a price around. The more important thing and this is something that Ted Butler wrote about this week as well, what about the whole, you know, the three-month move with the price of gold down $200, up to $200, clean the table, never lose money, all those trading that goes in the positions at the commercials who, of course, are always the net short guys on the Comex. It's always the major banks that are short. Every contract that an individual or a technical fund buys almost a hundred percent of the time is shorted to them by a commercial seller.

Craig: Yep.

Eric: So they're always, always, always net short, other than the odd time in life when they end up going that long right at the bottom of the market. Of course, they just seem to know that this is the bottom of the market and I got rid of my short position. And of course, when the market's going up and gold... silver gets 19.50, their shorts are massive cause they kind of know that they have the power to move things down. And that is what really should be looked into, this constant flow of money from people and institutions into the commercial banks who seemingly always know which way the price is going. And, of course, spoofing is a little bit of it, but just overwhelming the market.

You know, it's when some guy who wants to sell, you know, a hundred million ounces of silver in a minute. Well, you know, there's no buyer of a hundred million ounces of silver in a minute. Everybody knows there's no buyer buying a million ounces of silver in a minute, but it has the effect of knocking silver down 50 cents just like that. And it's all commercial banks that are doing it. So I'm very happy that JP Morgan's traders, and there's many of them actually, they're victims. They're like co-conspirators, about nine of them. The names are all not mentioned and most people are...Like even JP Morgan is referred to as Bank A, and somebody else as Bank B, and the only names we get are the names of the traders. And I should point out that there were the head derivative traders in precious metals that were indicted.

Craig: Head of the global one. Head of the precious metals desk, Nowak.

Erick: Yeah. Right. So it goes right up there, okay, and maybe higher. So and, of course, the question for you and I and the other precious metals investors is what will these traders do in the future? You know, I can't imagine the new global head of precious metals trading at JP Morgan wanting or expecting to do the same thing that the last guy did because he's going to face an indictment because everyone's watching. So, and I would imagine the heads of other global banks that are involved in this trading might reconsider their position.

Now, that would be a great hope for us because the only person selling is the commercial banks and they sell short. So if they reconsider their position the next time the buying wave comes in, we may see a lot more action than we anticipate. As most of our listeners would know, I've been very keen on silver here recently, certainly for the last couple of months. My interest has not been dissuaded at all by anything that's gone on. In fact, it just gets higher and higher all the time. For example, I just looked at the trading in SLV and GLD yesterday and SLV traded $1 for every $6.70 that went into the GLD.

But the interesting thing about silver is only 25% of the market's available for investment. Ninety percent of the gold market's available for investment. I presume SLV trading has investors as GLD trading has investors. The amount of money trying to get into silver is incredible. And, of course, as we know the price is like 85 to 1 but the money going in is 6.7 to 1. And on a ratio of how much is...there's only three ounces of silver available for investment for every dollar, for every ounce of gold, three to one. But the price is 88 to 1. It's mind-boggling what silver might do here and that's sort of the message. And if ever the commercials are forced not to be active in shorting in the Comex, great things will happen to silver.

Craig: Eric and I just want to add because this is my own personal mission this week. I've been trying to make sure as many people hear this as possible. Silver investors, remember the investigation that... There was a five-year investigation the CFTC put on. It was run by the Division of Enforcement. The head of the Division of Enforcement was a guy by the name of David Meister. Meister closed the investigation saying there was nothing. I mean, this is during the same period that the DOJ has now indicted JP Morgan. Meister could find nothing. He closes the investigation. He leaves the CFTC two days later, goes to work in private practice in DC. And now, he is going to represent Michael Nowak, the head of precious metals trading for JP Morgan as his defense attorney.

Erick: It's an incestuous, dirty little circle.

Craig: Unbelievable.

Erick: For sure.

Craig: Unbelievable. Eric, let's, get back to the news of the week before we get to some questions. Can you go back...I mean, this repo thing is essentially like a temporary, open market operation where the fed is flooding cash to a bank or banks to kind of...Because they have liquidity issues. Is that going to become permanent do you think? Is this a sign of stress in the economy, stress in the banking system?

Erick: Well, for one thing, we know it's a sign of stress in the banking system. Okay. And when you think about it, you know, here are the banks that have to come up with some cash and they're so levered and own so everything that they can't come up with the dough. And, of course, it started on September 15th, for the most part, when a lot of corporations had to remit taxes, their quarterly payments to the government. But it's gone on for four days now. And in case our listeners don't know, the repo rate went from 2% to 5% overnight. No, I think it got to 10 actually. It got to 10%. Yeah. And the SOFR, the Secured Offering Rate, went from two and a half to five overnight.

And the feds had to do four days in a row of repos, including one today. And we don't know what the results of the repo will be until I think it's around 11: 00 o'clock in the morning. And I don't pretend to be an expert on this, but in the first three days, the fed was not offering up enough repo opportunities to state the demand for liquidity in the banking system. I think one thing I take out of this, I'm thinking, "Well, where in the hell was the New York fed that they would let this happen," because it's a warning sign. There's something going on here that why would we be so tight?

We've had 10 years of economic growth. We've 10 years of the banks theoretically getting healthy. And bang, they don't have enough money. So, I mean, that's about all I can say. I don't know all the intricacies of which banks, why, when is it going to end. I mean, every auction, you know, fine, we'll read the results today and see if the auction was big enough to save to everyone and maybe, it's a temporary thing, which was I think suggested by Chairman Powell. But, I mean, for the New York Fed to let it get out of control, that just blows my mind.

Craig: Yeah. And, you know, if it was one day, a bank having, yeah, just a one-day temporary thing, but now it's stretched to four. So it will definitely be something to watch as we head into next week. And we'll check on that again in next week's "Weekly Wrap-Up." At this point, Eri...

Eric: Absolutely.

Craig: ...I'd like to get to some questions. And just so folks know, we do, Eric and I look over every single question that gets sent in over the course of the week. If we tried to hit all of them, we'd be here for an hour or two. So I give Eric the names. This week we had names like Adam Mirra and International Tower Hill minds and Guyana Goldfields.

And those are companies I've asked Eric about. Eric doesn't have an opinion. So we're not going to... We just don't have time to rattle them all off to have Eric say, "I don't have an opinion." So if you don't hear anything about the company that you asked, just understand that Eric just doesn't have an opinion. But Eric does have a opinion on a couple of them. We're going to get to those. A couple of general questions though first, Eric. One was, you know, we always stress diversification. You've got to buy a basket of the miners, especially if you're getting exploration companies. Just so that, you know, if your batting average is about 500, you're going to do great. What do you think your personal batting average is after all these years?

Eric: Oh, God. Well, it's not that high. Okay. But because you always have, in my mind, I have more losers than winners. Okay. But there's one big difference. I recognize when a company...because I invest very early and when I see it's a winner, I press the bet. I ended up owning more of it. I keep going deeper. It's exactly what they said was going to happen when I was looking for the 10 bagger going in is happening and maybe it doubles and I buy more. And maybe doubles again and I buy more because it's all coming together. And I would use the example of Kirkland Lake is like that. I mean, I probably bought my first stock at $4. I bought my last stock at $50. In fact, I bought some this week at $58.

S, you know, you follow these closely when you get in. And I own a lot of stocks. I don't follow them all closely, but typically when I see a stock going up, I kind of have the impression that I knew what I bought for it going in. And I bought it for a reason that it could go up many, many times. And if I see it starting to go, I get very, very interested in that and making sure I stay with it. So that's what I would do. If all the information keeps reaffirming that it's got the goods, you press the bet. And so much so people talk about diversification. I always use the word, "Deworstification." I like to hone in on things that are working. So, for example, today I might even say that Kirkland Lake's third of my portfolio. It doesn't bother me. Okay. I think they got the goods, so it's been a big winner. I'll stay with it. I don't mind having a third of my money in one stock that's working.

Craig: There you go. And then another background question, if you can summarize. I mean, again, we've got to summarize this one. Just some of the steps. What are some of the most important things you look for before determining to buy a company?

Eric: Sure. Well, the biggest thing, particularly when it's precious metal stocks, you know, like what do I imagine the metal endowment is going to be? I'm typically buying companies that maybe aren't in production or maybe are in production, but they got some drilling going on. And I have to make a guess, an educated guess, as to one of my favorite questions, how big can I get? You know, you say you have one, but you think you can get 10 million ounces. Okay, that's a lot different. And why do you think that? And what evidence do you have you're going to get there?

So it's that out-sized return that I typically look for. And, for example, when I bought a lot of silver stocks lately, I've looked at where they were in 2011 and, and typically today, they're one-seventh of where they were in 2011. And that's, of course, when the price of silver was $50. And I'm thinking, "Well, the price of silver can go back to $50. And maybe the guy's made lots of progress in the interim." So I'm checking, well, what progress has he made from 2011 to today or, "Oh, he's way more developed. He's got a 43 101. He he can tell me what is great. He's done lots of drilling."

I feel quite comforted by the fact that it's trading at one-seventh of where it was trading and it's in a commodity that I like that I've spent a lot of time studying that commodity too. And the guy is telling me how good it is and how good it likely could get. o sometimes I can make a pretty quick decision. Well, mind you me for quick. Somebody might say, "Well, we just spent an hour with a guy," and I do spend an hour with the guy typically. So you're learning a lot in an hour. And I can make decisions to buy 20% of a company in an hour and, you know, hope that the dice roll my way.

Craig: And then take it from there. And if it takes off, you put more.

Eric: Yeah, keep watching. Keep watching. Every news release you're watching, every news release, makes sure it's coming out according to what you might've expected.

Craig: And here's a handful of the individual names that have come in this week that just wanted to ask you about. Let's start with Hecla, Hecla Mining.

Eric: Yeah. Well, I've actually spent some time looking at Hecla recently because it's a silver producer. It's a bigger silver producer. It's had its issues. It's probably turning in lesson one seven to where it was in 2011. I have not decided to do anything, but I will say this, it was recently announced that I entered into a joint venture on the Galena Silver Mine, which is in Idaho right beside the Lucky Friday Mine that Hecla has. And I took that interest because I think silver is going to go up. Now, unfortunately, for Hecla, the Lucky Friday Mine has been on strike I believe for over two years.

Craig: Oh, my.

Eric: So, you know, you got no production but you got the carrying costs, so it's really not quite coming together. Hopefully, something could be done there. So that's one I'm watching. Okay. I'm watching because it is a big silver producer and it's of interest to me, but I don't own it today.

Craig: All right. How about Dolly Varden? She works 9:00 to 5:00 apparently.

Eric: Yeah. Well, Dolly, I mean, you got a name like Dolly in front of you, you got to buy it. Right.

Craig: How can you not?

Eric: Anyway, for my granddaughter. I just purchased a part of the issue they did recently. It's in the Golden Triangle. It's got lots of silver opportunities. It's early days. It's one of these things where, you know, well, fine. We'll watch the drilling and there's been good results so far. Let's hope it stays together. And typically, when they find things up there, they're not little. They're big. So I'm rolling the dice.

Craig: Excellon Resources.

Eric: Excellon, a producer in Mexico, one of the highest-grade silver., technically, silver-lead-zinc mines in the world. They've had their issues with one mining production, which seems to have improved dramatically. They had issues with the cost of getting their metal concentrated. I think that maybe has ameliorated a little. Of course, the silver price being up, the stock's rallied some here. I would love to see the production pick up. I noticed that... I had a call from the CEO yesterday. I didn't get to speak to him, but, hopefully, things are getting better. I think the mining was supposed to be getting better, as they suggested. The second quarter would be better than this quarter. So that could make a big difference when you get the price increase and production going up because typically, there's no cost increase, right? So it has an immediate impact on the bottom line. So I'm a very large owner of it. I like the company.

Craig: That's worked for Kirkland Lake quite well over the last year or so.

Eric: Well, that's been the star. Yeah.

Craig: Finally, I will put these two together because they start both start with K, Kootenay and Klondike.

Eric: Well, they're different. They're both up north. One's in the Yukon. One's in the Golden Triangle of British Columbia. Klondex in the Yukon and that's very understandable. And they're trying to drill out what they hope will be a very large gold resource. They've had good results and mixed results. And I think my expectation if gold goes up and the likelihood that they've unraveled the geological mystery there, which they say they have, good things should happen.

Kootenay we recently bought. It was part of this whole process of me getting into silver. That was one of the stocks we purchased. And, again, I mean, it's because of the silver play, potentially a large resource, which could be brought into production. And I'm really expecting silver prices to be quite high, so everyone's going to look at every silver stock in a very different way in the not-too-distant future.

Craig: Yeah. All right. Well, Eric, it has been a very interesting week. And, you know, as we go to wrap up, I'll remind everybody that both gold and silver are up about 15% year-to-date. So as frustrating as the last couple of weeks have been, we've got going to keep our eye on the ball. I would imagine you don't have any problem looking at it that way.

Erick: No, it's been a good year. It's been a great, great, great year. I still believe that all the things that we look at, the technical things, the fundamental things are looking very, very good for both gold and silver here. I hope the JP Morgan thing works to our distinct advantage because it's worked towards massive disadvantage for a long time. So hopefully things will change.

Craig: Yes. And no doubt with all the exciting precious metal stuff going on this year, the best way to stay up to date is just by signing up to the Sprott Money Newsletter. You can sign up to the newsletter by visiting sprottmoney.com. And, of course, don't forget about those White Lion of Mortimer coins that we just got in from the Queen's B Series. You can also call us, 888-861-0775. Eric, my friend, hopefully, we'll see some more guys in cuffs next. Maybe that would be something we can talk about.

Erick: That [inaudible 00:20:50] walk.

Craig: The [inaudible 00:20:55] walk.

Erick: The racketeering conspiracy. Never forget it, and don't also forget the paradigm shift that's going on with zero interest rates and everyone, you know, wondering how the hell they're going to handle it and the breaking out in the money markets here. Like there's some strange stuff going on. So having gold and silver looks pretty good right now.

Craig: It'll be fun to see where we are next week. Have a great weekend.

Erick: You too, man.

Craig: And from all of us, at "Sprott Money News" and sprottmoney.com, thank you for listening and we'll talk to you next week.

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