“I don’t give it any credibility.” - Eric Sprott on the U.S. Jobs report - Weekly Wrap Up (July 06, 2018)

Transcript:

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

Craig: Well, hello again from "Sprott Money News" and sprottmoney.com. It is Friday, July the 6th, 2018, and this is your weekly wrap-up. I'm your host, Craig Hemke, and joining us once again this week is Eric Sprott himself. Eric, good morning.

Eric: Hey, Craig. Good to be here. As you know, I was away last week, and you didn't do a very good job on the metal markets. But I'm back now, okay, so let's get her going.

Craig: Hey, wait. It was bad luck, I think, to have you miss the week, Eric, so we're glad to have you back. We are also glad to have a different exclusive offer for everybody this week from Sprott Money. You can buy a Royal Canadian Mint 100-ounce silver bar. That's probably...let's see, we can do the math on that one pretty quick. It's 16 bucks an ounce, 100-ounce silver bar for a very special prize this week, but you've got to visit sprottmoney.com or, of course, you can call 888-861-0775 for more details. Limited quantities are available though, so don't mess around, and call them as soon as we're done with this podcast.

Eric, the big news today, here on this Friday...Of course, it's the first Friday of the month, that means we have the U.S. Jobs Report. Everything about in line with expectations, even the average hourly earnings numbers were right in line with expectations, just a little bit below expectations year over year. And there's not a whole lot we could probably say about that, but what do you have to say about that?

Eric: Well, I think the best word that you and I use every now and then is the "alleged" Jobs Report. As you know, the whole construction of that report is so flawed it's incredible, and every time, you see the people out of the workforce going up. And I haven't even seen the household survey, but half the time, they say they created 213,000 jobs and then the people not in the workforce goes up by half a million or something, you know?

And it's so incongruous, I don't give it any credibility. I just sort of watch what's going on. And of course, the things around the economy are not helping at all these days, and we've referred to the many times. The fact that interest rates are going up is by far the biggest thing, and it affects everything. We've seen the slow car sales, the retail sales have been kind of punkish, and the average guy, I think, is really feeling it here because inflation's massively understated, so I don't put a lot of credibility in the jobs market.

And between you and I and the listeners, as you know, what goes on in our world seems to have nothing to do with the real world anyway and a lot to do with what various traders illegally want to do on COMEX. And, obviously, they've had their way with us here, but it looks like they've, you know, cleaned everyone's clock for the last six or eight weeks, and we're ready to go back up. I see that you wrote a report on that. I totally concur it looks like we're in a bottoming process here.

Craig: Yeah. That's what we can hope for. You know, a lot of folks talk about summer doldrums, Eric, but they forget just as recently as last year, actually, price bottomed out at $12.10 on July the 7th and then proceeded to rally all the way to September 7th and rallied about $150. The Commitment of Traders' structure is about the same as it was last summer too.

Eric: And, you know, it's probably not coincidental that quarter end is June 30th, and those guys who are short probably like getting the price down on June 30th. And as July starts, well, we can lever right up again because we like playing this game. Run it up, get short, drive it down again for the September quarter end. But we have been making progress, we shouldn't forget that, right? I mean, we've hit a low in late '15, early '16, and we've come up quite a way since then. So I think we're in a bull market, but we've got to put up with these little games that are played on the COMEX pretty well every quarter.

Craig: Yep. All right, so the big news overnight, Eric. You have mentioned several weeks back now, I've been going on now for a couple of months, you've been following this impending trade wars, and it looks like they're getting underway. The little shotgun starts overnight at midnight with a lot of things going into effect. The equity markets have yet to really feel the impact. Do you think now, maybe that's coming?

Eric: Well, the one thing about the trade war is it gets very company and industry-specific, so it's pretty hard not to react to. For example, I mean, just imagine if China said, "Well, we're not going to let GM sell cars in China anymore." I mean, you know what? That's their biggest market, it'd be very difficult for the stock not to react. And just like the Micron thing that happened where they weren't going to let Micron sell their chips there, so it's very, very industry and company-specific, so it's hard for me to imagine that those companies and industries somehow don't escape the obvious deterioration of the fundamentals in their businesses. So, yeah, I think it will have an impact. And, you know, when we look at the stock market generally, I mean, it's been very, very punky lately. I mean, we're almost down 10% in the Dow. China's in a bear market, bear stock market, they're down over 20%. Of course, they have a lot to lose too, and that gets very specific over there as well. And, of course, all of this in what we know is a very financially levered environment. So it's not good. You take a few points of revenue off the top, and it affects a lot of earnings on the bottom, so it will have an impact, for sure.

Craig: And, Eric, do you put much into what we've seen in copper lately? It shot higher in late May and early June and got all the way up to about $330 or $335. And now it has just fallen dramatically, and it's down about 15% in just the last, maybe, four weeks. They call it Dr. Copper, but is that just, again, COMEX digital metal games or do you think copper is foreshadowing global economic weakness?

Eric: Well, I think the Dr. Copper thing is an appropriate descriptive word for copper. And as you look at the trade war, I mean, it's going to be the real things that get affected, right, and then it will be most noticeable. So, yeah, I could imagine that the world's economy, GDPs, start shrinking, and, of course, at the margin, you know, most likely there's less copper use. And it doesn't take much less copper to be used for the price to go down because everything's at the margin, so I think its well worth imagining that the economies are likely to weaken here.

Craig: Certainly feels that way, no doubt about it. And, Eric, let me ask you one last thing about the economy and the bond market, something that the Fed has taken notice of and a lot of market watchers are also seeing is this flattening to near inversion of the U.S. yield curve, which for folks that don't know what that means, where the short-term interest rates are higher than long-term interest rates. And that is almost always a precursor of economic recession, and we're getting awful close to having that curve go inverted where the 2-year rates are higher than the 10-year rates. Are you watching that, Eric? Is that something that you think is coming due to these Fed policies?

Eric: Well, whether it's the flattening of the curve or the outright increase in short-term rates, we had quantitative easing for many years and now we have quantitative tightening. Well, if easing causes stocks to go up, one certainly has to imagine that tightening causes stocks to go down, and that's essentially what's happening. I mean, stocks are down so far this year, and some markets are down dramatically, not the U.S. market, but you want to go to other world markets, I mean, they are getting a little bludgeoned here with the U.S. dollar being as strong as it is and negatively affecting the ability of foreign companies to repay their U.S.-denominated debts. So yeah, they're both telltale signs. The inversion of the curve is very meaningful.
Of course, it's not good for the banking business. And if I'm not mistaken, what are called the globally significant international banks, I think they're in a bear market now.

Craig: Pretty close.

Eric: Yeah, they've been very weak. And, of course, that's part and parcel the inverted yield curve, right? If you're lending long and borrowing short and the short rates are higher than what you're lending out at, your profits are going to come under pressure. And I think those bank stocks are telling us that there's issues coming, and it may not just be the curve, it might be the inability of the borrowers to repay the money, so that's another telltale sign. So, there's lots of signs that suggest that what should've happened long ago, we're kind of in that process where stocks are weakening because of the change in monetary policy.

Craig: Eric, before we wrap up, let's talk about a stock that is definitely not weakening. Folks that have listened to these weekly podcasts, going back to last summer, have heard you talk about a company for which you are the chairman of the board. It's a company called Kirkland Lake. A year ago, it was down in the single digits. Yesterday, it made some new all-time highs, around 22 USD. It looked like they had some interesting news overnight. Is there anything you can add?

Eric: Well, no. In fact, I didn't even know the release was coming out, I was the most pleased guy in the world. As I'm reading the corporate highlights, "Oh, there's Kirkland Lake with some drill results," and they're all pretty stunning. They're all sort of 30- and 40- and 50-gram intersections over quite mineable widths, and I'd suggest that people go and check out the news release. And they indicated that they're finding some new areas that they hadn't seen before. And, of course, the endowment there...this is all up at Macassa in Northern Ontario, the endowment's incredible. Macassa's been running for 100 years. I won't be surprised if it's running in another 100 years because, as you go lower, the grades just keep improving. And this news release is tending to point that out, so it looks good.

As you know, we have two of the world's highest-grade gold mines in Fosterville in Australia and Macassa in Ontario, and the drilling results have been quite good in terms of increasing reserves and resources there. So it looks pretty good, and we should have decent production in the second quarter. And when we get into the Swan zone of Australia, which is a 60-gram zone, in the second half of the year...I'm not sure exactly what we're going to get there, I don't think we'll be in there in July, but maybe as we get to the end of the third quarter, we're on budget. But our production should change rather significantly in Australia, so we have that to look forward to as well.

Craig: There is some good news out there. Sometimes you've just got to scratch the surface a little bit to find it. Just two things before we go for everybody listening. One, our monthly "Ask the Expert" segment is going to be recorded in about a week or so. We've got a brand new guest for everybody, his name is Fraser Buchan. He's a money manager. He's going to be appearing at the Sprott Natural Resource Symposium next week. If you have any questions for the expert, the questions always come from the audience, you can just email them to submissions@sprottmoney.com. And lastly, Sprott Money has received clearance to offer the striking 2-ounce silver Black Bull of Clarence. We've got clearance for the Clarence.

Eric: That's good. I like it.

Craig: All right. There you go, yeah.

Eric: And maybe Clarence organized the clearance.

Craig: Could be. And we're going to put him on clearance. No. Actually, no. It's a pretty good deal, though. The Black Bull of Clarence coin, we have at a very special price. The listeners can again call 888-861-0775 or go to sprottmoney.com. These are in limited quantities. The Black Bull of Clarence can sometimes be hard to find, and we've got them at Sprott Moneys, so, please, everybody check it out. And again, hopefully before too long, we will have found a bottom in prices and prices will start going up, and it'd be worth it to act quickly. So, Eric, hopefully, by next Friday, we'll have a little better environment and we'll get these prices turned and we'll have some more fun stuff to talk about.

Eric: I'll look forward to next week, for sure, should be fun.

Craig: And from all of us here at "Sprott Money News" and sprottmoney.com, thank you for listening. Have a great weekend, and we'll talk to you next Friday.