“I’d like those guys to reflect on that and realize how stupid they were.” — Eric Sprott Weekly Wrap-Up (February 2, 2018)

Transcript:

Announcer: You're listening to The Weekly Wrap-Up on Sprott Money News.

Craig: Well, greetings once again from Sprott Money News and sprottmoney.com. It's Friday 2nd of February, 2018. This is your Sprott Money News Weekly Wrap-Up. I'm your host, Craig Hemke, and joining us today, as usual, is Eric Sprott himself. Eric, good morning.

Eric: Hey, Craig, good morning. Lots of very interesting things and I think precious metals bullish things going, so lots to chat about.

Craig: Yeah, that's for sure. Hey, and again, before we get started, just to remind all of our American listeners this time, that they can actually buy golden silver for their IRA at Sprott Money. Sprott Money has teamed up with New Direction to help assist you in purchasing and storing precious metals in your self-directed IRA. It's easy but, of course, your deadline to contribute is April 15^th. So you gotta call 888-861-0775 for more details, or just check it all out at sprottmoney.com. Eric, I wanna start this morning, we're recording this. It's a little bit before 9:00 EST, the U.S. jobs report came out about 20 minutes ago. And as we were discussing things and getting caught up before the show, you mentioned something that has been overlooked thus far in the reporting of the jobs number and it might be significant. I'll let you take it from there.

Eric: Sure. Well, I was trying to find out the hours worked. I had heard verbally, you know, that it was down, but I couldn't find the number. We have only had a few minutes before this number was announced in this phone call. But we have determined that it fell by two tens of an hour and two tens of an hour cost you 0.6% a year in wages. So, yes, the wages went up by 0.3%, the hours worked went down by 0.6%. So net net, the worker, is not better off in January this year.

Craig: Actually, bringing home less money. I read that that. I just saw that on "Zero Hedge," that the average weekly earning actually fell by about $2.30. It'd be interesting to see as we go through the day if that gets noticed by the algos that seem to run everything.

Eric: Well, unfortunatly, there's a lot of knee-jerk reaction in the market to all sorts of things and I'm sitting here watching, you know, the most dramatic thing that happened, of course, is the yields, okay? They just shot up. And it'll be interesting to see whether the bond market finally figures out, you know, this is not really that strong a report as first expected. And then, of course, the dollar rally, then gold gets pummeled because they wanna pummel gold anyway. And it'll be interesting to see if by the end of the day, you know, stocks aren't really as bad as the pre-opening here down about 200 points, which I suspect, you know, the people behind the curtain will make sure it's not that bad. But the dollar's rally will fade here and then the gold price will levitate back up a little. We'll wait and see, but a lot of people try to make very quick decisions on this without all the information. And all the information is, it was not a bullish jobs report.

Craig: Yeah. Eric, you and I and since, let's just say last year, had been talking about the falling dollar and the idea that eventually, money managers around the world would begin repositioning assets out of overvalued sectors and into undervalued sectors such as commodities. Well, you already mentioned the bond market is selling off as rates are spiking, stock market now is coming down, Bitcoin has just gotten a heck kicked out of it, maybe some of those funds will begin to flow our way.

Eric: Well, that's why I suggested at the offset here that we have some substantial ways of change happening here and one of course is the bond market. And I might even point out in the bond market, I listened to some of the commentary on the financial channels here and the people keep saying, "Well, you know, the data wouldn't cause yields to go up that high," and they're right, the data wouldn't. The problem is it's got nothing to do with the data now, actually to do with the fact that the guy in the bond market knows that the Fed's not coming to the rescue anymore. So, it doesn't matter what the data is, we all know that if the Fed's gonna be selling bonds, if China is gonna sell bonds, if Japan is gonna sell bonds, who's gonna buy the bonds?

So, where could rates go? It's gonna have nothing to do with, you know, how many jobs were created this month or what the inflation necessarily is that month. They'll have some soft effect, but I think the big effect is, you have the dynamic of the bond markets totally change. The central banks are not going to continue to buy bonds, in fact, may become sellers of bonds. We'll see how that plays out. It's not gonna play out well in the stock market in the interim. We can see that now that the market is starting to weaken off. And, of course, then the big question is, "Well, do the central banks stick with their program?" And that, of course, is the real big question. Do they say, "Well, maybe we'll just put a pause on this bond selling here and wait for things to smooth themselves out." But that's where we are.

And as you mentioned, with the whole cryptocurrency thing falling apart, I find it very interesting that Nouriel Roubini was on "Bloomberg" this morning and they said, "Well, how much further do you think it has to go?" He said, "Well, about 99%." Of course, this is after it's already fallen by 60%. And that kind of fall in the short time tells me that it's kind of over, not that I ever...I was never a believer in it. I mean, yes, there's blockchain, but, you know, a thousand different cryptocurrencies, okay, I give up on that. It just makes no sense to me whatsoever. And I think coming out of this, one of the more interesting things, there's a number of vehicles coming along where you can use blockchain and it's backed by gold. And I think people will flock to that. If they really like the blockchain and wanna get away from the banking system and governments, I think they would do that. So, I think all these things are very strong, they're powerful changes in markets, which could create a much, much bigger interest in not only precious metals, but as you say, other hard assets.

Craig: Yeah. And one last thing about the bond market, because I wanna get your thoughts on this. You know, it was just back in September that the ten year U.S. note was yielding 2.02%, this morning it's 2.83%, and that's a move of 40%. And it would seem...you know, I've read stories about guys taking treasuries and putting them up as collateral and, you know, margining in them and getting nine times their purchasing power, if you're using treasuries as collateral. At some point, that could be rather detrimental. Couldn't it? You get some merging calls and...

Eric: Well, for sure. For sure. Well, and not just the merging calls, but the fact that, you know, when interest rates go up by 75 BPS, mortgage rates go up by 75 BPS. I mean, 75 BPS can tip the housing market right over and maybe it's just starting, right? Who's to say that rates won't go up, you know, 200 BPS this year, if there is not buyer of last resort? Now that's the big change of that is the buyer of last resort where all of a sudden, that guy is not there and in some cases, he's become a seller theoretically, U.S. government is... Treasury is theoretically a seller of bonds or the Fed. I mean, there's some guys who have written articles saying they're not really sellers, but anyway, they say they're gonna be sellers. But the fact that they're not there with that bid in the market can cause things to change very rapidly. And of course, the whole...then the economic unraveling starts and it's one an economic thing.

But as your point, it's also a collateral thing where all of a sudden, some guy's got a bunch of collateral that's losing value rapidly and he's got to do something about it. And whether it's, you know, sell the stock position that he was margining with treasuries, it just makes people have to do things. It's almost like watching the cryptocurrencies. I don't know whether they ever had any borrowing against them, but, you know, you can't take a 60% decline in about eight weeks and not have a lot of people having to do something different. And, of course, it's the same with the bond market here, right? Most guys in the bond business admit we're in a bear market, that's the first thing. Well, where does that take you? And of course, all of that leads back to where are you safest, right? Are you safe in stocks, bonds, cryptocurrencies, gold, whatever. And as you and I have discussed many times, we happen to believe that the precious metals are the safest place to have your money invested.

Craig: Yup, yup, and about the only undervalued sector out there. All right, Eric, in our time remaining, let's just have a little fun today because you and I and countless other good decent people out there have been maligned for years as being tinfoil hat wearing, you know, loons that, you know, who are too stupid to understand how the markets actually work, thus we rely on this crutch that they're manipulated. Well, heck, Eric, how about this. Earlier this week, even the CFTC finally came out and actually declared in charging and getting fines out of HSBC, UBS, and Deutsche Bank, they actually declared them as precious metals manipulators.

Eric: Right.

Craig: What do you have to say about that?

Eric: Yeah. Well, it's interesting. We've waited a long time for this and I particularly think about the boys with GATA, the Gold Anti-Trust Association, who started this theme back in 2000 and earlier, if not 1999, late 1999. And of course, I have been a believer in it and a big supporter of GATA for that matter. And all the data seemed to be there. And then we have this decision this week. And I think one of the most interesting things about it, Craig, is the data goes back to 2008, we're doing this since 2008. That's a decade ago. So anybody who said, "These markets look kinda funny here in the last decade," was not smoking dope. Okay? They did look ridiculous and you could see it all the time. It's spoofing that goes on.

I also find it interesting that there's no U.S. banks involved in this. And I said, "Why would there be no U.S. banks? I just don't get it. You're trying to tell me that only European bankers do this?" And everybody must know about spoofing and if anybody in the financial industry knows about spoofing, they must use it all the time, illegally, of course. But I just wonder if it's just too big fail, too big to bail, we're not gonna charge you as banks because we don't wanna go there. But I suspect that it wasn't just the European banks that were involved, okay?

Craig: Let me ask you this, Eric, to that point. I almost got the sense that the CFTC did the minimum because it was almost two years ago that Deutsche Bank settled in that civil lawsuit. And it was then, it was all entered into the public record, all these chat rooms and emails and stuff. And it was the same banks that were implicated through that hard evidence that are on this, from the CFTC. So it was almost as if the CFTC said, "Okay, we gotta do something for God's sake." And so that's as far as they went with just those same three. I mean, could that be an explanation?

Eric: Possibly. But, you know, there might be this get out of jail free card kicking around that you and I don't know about, right? That we don't wanna start taking down our U.S. banks. And by the way, I mean, I find the fines ridiculously minimal. I mean, ridiculously minimal. You're telling me that that guy did that for 10 years and in the case of HSBC, we're gonna fine you $1.6 million? You gotta be kidding. That's $160 grand a year.

Craig: Right.

Eric: How much do these guys make on this thing? So, I think there's something that's keeping them from going away from the U.S. banks and, you know, maybe it has something to do with the whole great financial crisis and the deal that the treasury and/or the Fed had with the banks that you don't have to market to market, you don't have to do this, you don't have to do that. We know the most important thing for national security is the banks are strong. Whether you're crooked or not, it doesn't matter. You gotta be perceived as strong in the public domain. But I would think that something is gonna come out of this.

I mean, if we ever have any civil trials, you know, criminal cases where people are demanding money, we'll get a lot more information that's of what has transpired all this time. But I find it very interesting that, you know, the naysayers, the guys who said, "There's no way there's any manipulation going on." You know, for you and me and many others, I'd like those guys to reflect on all of that, okay, and realize how stupid they were that they couldn't see what was right in front of them. So, anyway, thank you, stupid guys.

Craig: Yeah, thank you, stupid guys. I don't imagine any apologies are forthcoming to the character assassination that they've laid out there for all these years, but that's okay. You know, in the end, it doesn't matter. They have been exposed for what they are, which is either they're just the stupid ones or they're apologists for the system. One last thing though, Eric, I wanna ask you because I had this discussion back at that...the same discussion with Andrew Maguire back when that first lawsuit came out and was settled against Deutsche Bank, whatever it is now, 18 months ago. And he said, "It's not so much the fines, you know, and the size of them, what we're doing here is we're kinda giving them death by a thousand cuts, in that the margins in buoyant banking are now so slim."

Eric: What they're gonna do?

Craig: Yeah, exactly...well, that the margins in buoyant banking are so slim, and supplies are so tight, and the risks are so great to be in this business now that banks are gonna get out of that business and eventually it's gonna break that system.

Eric: Yeah. Well, you see that now. I mean, you know, Goldman's complaining about their commodities business, but Bank of Nova Scotia wants to get out of the metals business. And it probably is there are risks that the bank actually can't control, right, because you got some Yahoo on your trading desk who's talking to another Yahoo at another bank and the next thing you know, they're working together and the bank doesn't know it, but it's the bank who's gonna pay the fine here and have its reputation damaged. Not that they got a lot of room in reputation left anymore, but that's probably what they fear.

And, yes, to Andrew's thought, you know, that the more and more they sort of climb down and start looking for this stuff, yes, the more difficult it is to have the banks take advantage of their customers, which is what they do all the time. They just take advantage of their customers. So, they've lost so many cases and paid so many fines and in every instance, they're taking advantage of their customer, which is kind of an awful state of affairs that we're actually talking about it.

Craig: Well, and that they eventually look at it as, you know, "This isn't worth it." And the whole system begins to fracture and fray. So, you know, if anything, maybe that's the direction it's headed.

Eric: Let's hope so. We'd love to have totally transparent markets here. It'd be a whole different system for us because we always feel like idiots because we know what should happen, but it never happens. It's sort of coming our way in the last few years here in, and of course, it was great for the first 11 years of the gold bull market. But ever since they started QE, I think they've been after the gold price and they've done a good job and maybe the fact that QE is ending, maybe we can see gold do what it normally should have done and get new highs here.

Craig: Right. Well, I think it's gonna be an interesting couple of years. That's for sure. My friend, always interesting to visit with you. One last thing, who do you have winning the Super Bowl this weekend?

Eric: I'm no expert on that. I always hope for the underdog, you know? I'm a believer in gold. Now that I like gold? I like the underdog. I'm gonna hope for Philadelphia.

Craig: Fair enough.

Eric: How about you?

Craig: Fair enough. I'm going with Tom Bratty until proven otherwise. So we'll settle up next Friday. I don't know what we're gonna wager, but we'll come up with something.

Eric: Okay, man.

Craig: All right, Eric, thank you. Happy Super Bowl weekend to you.

Eric: You take care, Craig. Okay, you too. Bye.

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