Adding up the Numbers - Weekly Wrap-Up (October 04, 2019)

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Craig: Well, greetings once again from Sprott Money News and sprottmoney.com. It's Friday, October the 4th, 2019. This is your Weekly Wrap-Up. I'm your host Craig Hemke, and joining us as usual is everyone's favorite retiree and master angler, Eric Sprott. Eric, how are you today?

Eric: Hey, Craig. Good morning. I'm in the Turks and Caicos and I'm out fishing here as we're recording this, so I get to do two of my favorite things at the same time.

Craig: You've got anything on the line yet this morning?

Eric: We've had one small grouper on the line, and we're looking for the big guy.

Craig: Gotcha, gotcha. Hey, if you get called off to reel something in while we do this, I'll just take over. How about that?

Eric: Yeah, okay.

Craig: Before we get started, just a reminder about the terrific Sprott Money and sprottmoney.com...here in 2019, as you might imagine, all sorts of interest in purchasing precious metal, physical precious metal. Well, one thing that keeps new investors from taking the plunge is having a secure place to store them. You can always take delivery and store it yourself, but at Sprott Money you can both buy and store your precious metal. We have six secure faults strategically located in some of the safest countries in the world, plus Sprott Money storage clients receive exclusive offers from us.

So please check us out at sprottmoney.com or, of course, just give us a call 888-861-0775. Eric, we've had quite a week. Big down back on Monday as the quarter ended, but we've been coming back up ever since, and we had the employment numbers this morning. What are your thoughts here on this Friday?

Eric: Well, as I mentioned on our call last Friday, we still had to get [inaudible 00:01:51] in the [inaudible 00:01:54] and the LBMA, which I think effectively expired at about 11:00 our time on Monday morning, and miraculously, that's when Gold bought them. Which makes you believe 100% in the theory that people who can force prices to a low to make options valueless, i.e. max paying for the customers, they do that, and they do it with great regularity. We saw it then, and it's interesting.

We don't know how many contacts are covered. The open interest hasn't fallen that much, particularly in silver. So I hope that they're short as much as they're short, because we've had lots of good things come along in the meantime. They're all very precious metals positive, and I'd probably start with...well, we had [inaudible 00:02:41] today and there was nothing really special [inaudible 00:02:43] 34,000. [inaudible 00:02:46] the wages didn't go up at all. But we had some economic things, and the key economic release was the ISN for non-manufacturing, which was weak.

You know, maybe more important is the car sales. I think the car sales, I don't know if it's an official number, but unofficially, they're down 12% in the month. As I've reported before, we had 25% declines in India. We see big declines in Europe, and you say, "Well, what is going on here," okay?

It happens to be my view that people are at the end of their rope. There's just too much inflation, too many adds on, too many taxes. I read about an example of that just recently where the average cost of health insurance in the States, with an employer plan, and the amount the employee has to pay this year went up 8% year over year. If I'm not mistaken, in the last decade, they've gone up something like 64%, and the [inaudible 00:03:47] have gone up 25%. Well, you know what? Healthcare is a big expense item. You can't have 40% increase in healthcare, which might have started at...let's say it started at 15%. It goes up by 40% percent. That's 6% more. That's 6% of your wages, net, that you've got to come up with. These are not small amounts of money.

So it happens to be my view that the average worker is just at the end of his rope. The other big cost increase that's going on is the cost of cards, credit cards, and bank charges. I saw a thing where the average interest rate in a credit card in the U.S. is down from something like 24% in the last year. So the banks are finding ways to make money that they can't make on the interest rate spread anymore.

So I think inflation is massively understated. People are defaulting on their car loans, and this is with, theoretically, in a low interest rate environment that we have that problem. So I think it's here to stay, that problem.

Craig: Yeah. You know, and a lot of folks can't figure out why it is that the fed had to reverse so quickly, though you and I could see it coming. That's all part of it. Those higher interest rates, higher credit card rates, mortgage rates, I mean, it's not just the public debt that can't be serviced. It's the private debt that can't be serviced if rates go any higher.

Eric: Well, the worst thing about the private debt, they don't get 2% interest, okay?

Craig: Yeah.

Eric: They get whatever somebody can charge you and, you know, guys find ways of charging more all the time. So the average guy's rate is way beyond what the credit markets would suggest, and that's why they keep getting squeezed here, because interest cost. In fact, the interest on car payments went up 8% last year. The charges for car payments went up 8%. So you can see what's going on, and it's not good.

Craig: Eric, those interest rates are certainly falling. We can see that in the bond market, to your note, falling way back. It's down almost 40 basis points just in the last couple of weeks. It certainly seems, with all of the economic data, that we are looking at another fed funds rate cut later on this month, maybe another one in December. That trend certainly working in our favor of gold and silver too.

Eric: It is, and of course, as we've discussed before, this whole repo facility that the fed has established might become permanent, i.e. it really could be another Q4, which can only be good for gold. I mean, everybody in the world gets it, okay? You know, you look at the currencies in the world, and it's not so much [inaudible 00:06:28] the U.S. currency is probably the only strong one, but you imagine in Britain, where gold is at a record high, Japan is probably at a record high, India is at a record high, [inaudible 00:06:38] a record high. I mean, there's a lot of people enjoying the fact that gold is going up here.

So it's only a matter of time, perhaps, if the feds start cutting rates of that dollar, U.S. dollar starts coming under a little bit of pressure too, and it will be a little bit more profitable for American residents to consider having quite a large position in gold and silver.

Craig: Eric, before we get to some of the specific minors this week, I just want to ask you a question about the sector in general. I know it's frustrating a lot of folks in that we've had this tremendous rally in gold, $300 or so, and silver has been participating as well. But yet, you know the GDX is maybe up 40% or 50%. It doesn't seem to catch a consistent bid. To my eye, it looks like we still don't have a lot of institutional acceptance of this idea yet. We don't have a lot of institutional money flowing in yet. It's just like the realm of day traders.

In your experience, what is it going to take to wake up the investment world? Is it a good quarter or two of earnings? What will finally get some institutional flows into our sector?

Eric: Well, the first one is [inaudible 00:07:46] continuing to increase in the price of gold and silver, which I think will get there. You know, we're not far from the all time high, right, a recent high, the 1550 price. So if we can get a little push here and get into a new high ground, the institutions will look back at the last, I'd say four or five months, and now they've got to figure out why the gold stocks were the number one performing group, and by the way, why weren't we in it?

So that, together with the earnings reports, which will come out here shortly...I will certainly get the production reports starting next week. But the production reports aren't going to be the most important thing. That will be the impact of the higher gold prices on their earnings, which starts probably a couple of weeks out, and I think there will be some quite strong earnings that will surprise the market, and people will find out that the gold stocks aren't nearly as expensive as people are thinking.

Craig: Got it. Well, we'll keep an eye on those earnings reports as they start to come in. I would imagine too, you know, we end the year strong. A lot of these money managers will see the top performing sector as the precious metals. That might help too.

Eric: That. I was going to mention one other thing too. I mean, the demise of the cryptos is helping. Not that it's over for the cryptos. But, and then the whole unicorn thing. It looks like that might be coming to an end here, okay, where you're buying some dream that the guy is going to make profits some day, and he never does. In fact, he loses a lot of money, and yet somehow we're conned into believing that it's the greatest investment ever. I think that if we pull away money from the unicorns, the fangs, then it really has to hunt down value here.

I should also mention that there's some very interesting things going on in the physical markets. I mean, it seems obvious. I think you interviewed David Jensen recently, and he gave a wonderful description of what's going on in the palladium market. There's obviously a shortage there. When I look at what's going on in the silver markets, I watch the amount of silver that goes into the ETF. In the last five days it has been something like six million ounces. Well, you know what? That's 300 million ounces a year. We don't have 300 million ounces available for investment, okay? There are other ways of investing in silver too.

For example, I'm a buyer of silver, but I don't buy ETF. I'm not worried [inaudible 00:10:02] there's usually nothing there. But not that people would be buyers of silver away from ETF. So the fiscal markets look absolutely stunning for the precious metals. If that ever catches a bit of a snip here, we could see some exciting action. We are seeing exciting action play [inaudible 00:10:22] all-time high.

Craig: Yeah. Eric, one of the questions we had this week is kind of along those lines. Just as an investor, how do you value silver resources that are still in the ground?

Eric: You know, if it's over in the ground, you know, if it's worth a buck an ounce, it's probably okay. I'm just going to use the word okay. Of course, it depends on the grade of the silver. A lot of people don't understand that perhaps even 200 grade silver, that's only six ounces probably of recoverable silver. That's only worth about $120, $130 bucks, which is the equivalent to about a tenth of an ounce of gold. So two or three grams.

We really want the grade to be significantly higher than the 200 grams, in my mind. So it depends on the grade of the ore. It depends on the size of the deposit, and it depends on the prospectivity, as I've mentioned any times before. One of my favorite questions is, well, how big can it get, okay? That's the other thing we want to see. If you're only paying, let's say, 50 cents an ounce today, but it can double, maybe you're only paying 25 cents an ounce. So that's a pretty good deal.

But I'm not locked into a number, because you've got [inaudible 00:11:30] with the grade and the prospectivity.

Craig: Okay, Eric.

Eric: Okay.

Craig: As we go to wrap up, I want to thank everyone, all of our listeners,that take the time to send us specific names for commentary from Eric. Of course, you can tweet them to us at Sprott Money. You can email them to us at submissions@sprottmoney.com. We've got a list every week. We just simply can't run through all of them, but I ask Eric about all of them just to try to cull the list so we don't waste time with stocks he doesn't know anything about.

So we had questions this week about companies like Nexus Gold and Rise Gold, Spanish Mountain Gold, Red Star...all of these companies are ones that Eric has no comment on at the time. But I do have a couple that we can get into, Eric. Let's start with Pacton Gold, P-A-C-T-O-N.

Eric: Well, Pacton. I bought into Pacton when it was moving into the Australia Pilbara basin. Unfortunately, the Pilbara hasn't really manifested itself the way we'd like to see it manifest itself. Like, we need more consistent grade down there to make it truly economic.

Now, they've also moved into northern Ontario, and they seem to have some interesting properties in the Red Lake area. I'm still not a significant owner of it. I'm a watcher, I'm not a buyer [inaudible 00:12:46] at these levels.

Craig: How about a company called Kerr? K-E-R-R. Kerr Mines.

Eric: Sure. I've owned Kerr [inaudible 00:12:53] the copper stone project in California. I'm a reasonably big owner of the company. They did put in an announcement a couple of days ago, maybe yesterday, actually, suggesting the timeline for production...I don't think the market took too well to the timeline. It keeps getting pushed out. Why, I don't know.

But I guess they want it to be more development before they can [inaudible 00:13:16] put it back into production. Plus, they've got to get at least one permit that they don't have. But I think, you know, [inaudible 00:13:24] mentioning ore body, if they get the green light to go, I think it's going to be a very interesting investment.

Craig: A company called Prophecy Development. Do you have any thoughts on that one?

Eric: Prophecy? Prophecy, yeah. Well, I recently invested in Prophecy on a very small level. They had three assets. A [inaudible 00:13:42] asset in British Columbia, a coal asset in Mongolia, I believe it is. But the most interesting asset is a silver property in Bolivia, in the Potosi region, that has had a significant 43 101. I'm trying to remember the exact number. I think it's, like, 50 million ounces of silver at a very high grade. I think the company will start to focus on that sole asset, and that was the reason we bought into it recently. That's within the last week or two.

So at good grade, a good [inaudible 00:14:14] deposit and, of course, the thought is that it can get a lot bigger with more drilling. So I'm looking forward to hanging onto that company and perhaps increasing my investments.

Craig: Speaking of silver, before we wrap-up, just this note for all of our listeners. Silver is one of the most popular things that you can purchase at sprottmoney.com. In fact, right now the most popular item this week has been the 1000 ounce silver bar. Man, I've got to get me one of those. They're the easiest way to invest, hold and store your physical silver. Plus, that margin per ounce is smaller than other smaller weight options like coins and small bars. You can find a wide selection of 10 ounce, 100 ounce even these 1000 ounce bars at sprottmoney.com. So please go there, check it out, or of course just give us a call any time. 888-861-0775.

Eric, my friend, I hope you get something on the line later today, and you maybe fry it up in some butter and pour a nice glass of some white wine with it.

Eric: Yeah. If I get a big one, I'll send you a picture.

Craig: Well, do that. Take a picture of you standing next to it.

Eric: I'm just saying that for the benefit of the crew, okay? They're kind of enjoying it. By the way, I do own a lot of 1000 ounce, but I'll tell you, they're not nearly as pretty as the 110 ounce bars, okay? They're not all shined up with a nice little seal on them. But, of course, they're very inexpensive to buy. You don't pay much of a premium for them. I'm a big buyer, have a big buyer of those recently, so.

Craig: Nice.

Eric: Yeah.

Craig: Nice.

Eric: Get in the game.

Craig: All right, my friend. Thank you for your time today. Have a great weekend.

Eric: Okay. You too, Craig [inaudible 00:15:54]

Craig: From all of us at Sprott Money News and sprottmoney.com, thank you for listening. We'll talk to you again next Friday.