Eric Sprott on the US’ new chief economic advisor (Weekly Wrap-up, March 16, 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, March the 16th, 2018. This is your "Weekly Wrap-Up." I'm your host, Craig Hemke and joining us as usual is Eric Sprott. Eric, good morning.

Eric: Hey Craig. Happy to be here. Interesting week. We have nothing but wild things happening these days, particularly in the U.S. and a little bit in the U.K. now too. But anyway, it keeps us all on our toes.

Craig: Yes, it does. Hey, I've got something I want to point out to everybody, and I would imagine you have some thoughts on this as well. Our listeners here for these Sprott Money "Weekly Wrap-Ups" can take advantage of a rather amazing deal that Sprott Money is offering. For a limited time, people can buy a 100-ounce Royal Canadian Mint silver bar at just 59 cents over spot., 59 cents. They pull it out of the ground, they refine it, they pour it into a bar, 59 cents an ounce over spot. That's remarkable. You can call 888-861-0775 or visit sprottmoney.com for more information. 59 cents, Eric.

Eric: That is damn cheap, yeah. I don't know if I've ever bought silver that cheap in my life actually.

Craig: You know, it's like you go to the grocery store and they sell bananas for, you know, 25 cents each and you think, "They ship these bananas all the way from Central America and I get 'em for..." How the heck do you sell a silver bar 59 cents for all the work that goes into making that thing? That's incredible.

Eric: That's not paying much to have it refined and then put in a nice shape, 59 cents.

Craig: No, that's for sure. All right my friend, it's been a rather interesting week. Let's start here. Last week, Gary Cohn, Trump's economic advisor, gets shoved out and gold, after initially going up, of course goes down. And then yesterday, they announced that Larry Kudlow is going to replace him and gold of course goes down. Kudlow, of course, thinks that everybody should buy the dollar and sell gold. You probably disagree with that strategy Eric. What do you think of that?

Eric: That's funny that you would conclude that, but you're absolutely right. I find it almost despicable that almost the first thing he says is, you know, "Strong dollar, sell gold." I mean, what the hell is he saying that for? Does he think he's just working at CNBC still, or is he taking his job seriously? And I'm kind of hoping that he ends up having to eat the words, right? It's the wrong time. He should even be opining on things like that. And of course those of us who are in precious metals realize we're at a point in time where things can happen very, very quickly in precious metals because of all the chaos that's going on, and the chaos that you got to stoop to Larry Kudlow to head your Chief Economic Advisor. That tells ya something right there. There's a guy who couldn't smell a problem ahead of time ever in his life, who in '07 thought there's no problem, in '08 there's no problem. This makes me sick to think the record that...and maybe I'm getting a little exaggerated here, but you can tell that I take his appointment and his comments on gold very emotionally here, so I hope we prove him very, very, very wrong. The odds are in our favor with his track record.

Craig: No, that's for sure. Apparently, Jim Cramer turned it down. For crying out loud, it's remarkable. You know, also remarkable, heading into this FOMC this week where everybody keeps talking about, you know, four rate hikes this year, and obviously they say a Fed funds rate hike is a done deal. But the economic data this week was miserable and the Atlanta Fed GDP Now indicator, which used to be reasonably reliable, I don't know what people make of it anymore, but anyway, just six weeks ago, folks down in Atlanta thought the U.S. economy was growing here in the first quarter at 5.4%. They've now got it at 1.9%. That's like a two-thirds reduction, Eric. What would you look for out of the FOMC next week?

Eric: Well, as you point out, I mean there's been some very, very soft data. One, the retail sales were negative. We just had, I think, new home starts came out today. They were weak. We've had car sales that are weak. I noticed that everyone's kind of whining about the fact that we had this tax cut and we thought two things would happen. People would spend more money, not. That companies would spend more money, not. So all this theory, "Oh, we're going to have all these tax cuts and everyone's going to have more money to spend," and nothing happens.

So, you know, we can't do it with a tax cut. It boils down to the basic facts that you and I have discussed, that the average guy is experiencing sharp inflation and no wage increase. So he just gets more and more under the gun. We keep forgetting about, you know, the changes in healthcare premiums, which of course are now consuming huge amounts of everyone's income, and even probably real estate taxes and insurance bills, and oh my god, the things that are going up all the time. The amount of money we have to spend on phones that we never spent on phones 15 years ago. Incredible expenses for families.

So, they're having a tough time and I think that's reflected in the retail numbers here. So I'm not surprised we don't have liftoff, but here we have the FOMC, which you specifically asked about. What are they going to do? I would guess they probably would still carry through with this rate increase and then await further data because if the data stays soft like it is, they better really think about things. Because of course, higher rates slows everything down. It's already slowed down auto sales. It's going to slow down home sales and home prices, so they better be careful here.

And of course, I've always imagined that they won't go through with it and they won't go through with buying back, sorry, selling bonds off their balance sheet here. It's just these rates could really go up with what we see going on in the bond market. So they're in a tough position, but I think their stubbornness might cause them to go through with the rate increase. It shouldn't affect gold. I mean, in fact, maybe we should be looking forward to it because every time there's been a rate increase, gold goes straight up. So, here's for a rate increase.

Craig: Yeah, do you think that's kind of affecting things here? Because for the last couple of weeks, gold has just been dead. At least, you know, as COMEX Gold as it trades, we've seen a lot of open interest get added by the banks in an effort, it seemed, to restrain price earlier this week. But nonetheless we're just kind of hanging. We're down another $5 this week, another 10 cents in silver. It's frustrating and it's agonizing for a lot of folks, but do you think it's kind of everybody waiting to get the FOMC behind them?

Eric: Well, I'm not so sure that's the reason. I mean obviously you and I believe the market's manipulated and, you know, if it had gone to $1370, we could've been off to the races here, right, and have some real fireworks. So, I think that trying to keep the lid on it has been one of the things that the commercial banks have been doing here and as you say, when the open interest goes up, we all assume that the commercial banks have had to short more to keep the lid on.

Trading has been heavy and yes, they probably have increased their short positions, unfortunately. Because that's never good for us because they will try to manipulate it down. But I think the fact that the demand is there and, I mean, every time I think about these exchange for physical things that you and I have talked about, I mean, they're so gargantuan. I mean, they're beyond discussion. I mean, I don't know how that ever happened that, you know, you have an exchange that just keeps leaking business over to London and we never hear about it again. But those numbers are staggeringly large, the number of tons that theoretically get shipped over to London. I don't know whether they ever do get settled or not, but.

Yeah, so, you know, the FOMC is going to raise rates. I think gold will jump again because people got to realize that you know, this four rate increase thing has got to be off the board this year, and I wouldn't be surprised that we may not even get three because the data keeps coming in so softly. So, I don't think it's something that we specifically have to worry about. I think it actually could end up being an opportunity.

Craig: Yeah. Well, okay, so finally let's wrap up with some of the minors and that they continue to frustrate, drive people crazy. I mean, it feels a lot like it did at the bottom in 2015 and early 2016 where just nobody cares. Nobody has any interest in the shares it seems at all. However, there are companies out there that are making a lot of money that present great opportunity. You've been able to share a few of those with us over the last several months. Kirkland Lake where you're involved. I know you're keeping good track of things going on down in Australia and in some other parts of the world, and there are mining shares that are actually going up. You just got to own the right ones. Can you give us a couple of updates on some of the ones that you're familiar with?

Eric: Sure. Well I wanted to talk about Kirkland, one, because we had brought out our fourth quarter, and just to have people think about what happened to Kirkland Lake. In dollars, we earned more money in the quarter than Franco-Nevada. We earned more money than Agnico Eagle. Franco-Nevada's at $91, Agnico Eagle's at $50, Kirkland's at $20. These are all Canadian prices by the way. We earn more cents per share than either of those two companies. Like, there's been a huge renaissance there and I think the market's a little slow and kind of gravitating to the discrepancies in values there, particularly when, in my mind...I mean, this is not investment advice. But when I think of what we might have in front of us, particularly at Fosterville in Australia with these very high grades that we're discovering, as high as 2 ounces a ton, you'd think that our production a couple years out would be vastly different than it is today. So, just something to think about.

Now, we talked about Novo last week and, you know, Novo sort of had this great uprising because in the middle of December they announced they had only half a meter in a conglomerate. Now they said, "Well gee, we found a second conglomerate over at Comet Well, and it looks like we've got 3 to 4 meters in placement of gold there." And I would point out that 3 to 4 meters would be so mineable, it's like a coal seam. You know, you just go in there and gut it out, and I'm talking both open pit and underground here. Now, we don't have the grades yet, but they've sent a lot of samples off to the assaying office and we'll see what that comes back at.

But, you know, when you go back to the theory of Witwatersrand pushing 2 billion ounces because it was an old sea bottom, which is what the theory that Quentin Hemming has, and now it looks like it's starting to shape up because they've done a number of scout holes and they're all hitting this conglomerate over a reasonable length. I think they're going to announce that they've gone about a mile along strike and maybe 200 to 400 meters down dip, and the conglomerate shows in all cases, and it could go a long, long way. So Novo's obviously picked up a lot of interest. It got added to the GDX I guess officially as of probably this afternoon. So that looks good.

And now that I'm at it, I'm going to talk about another stock. Again, it's not investment advice, but there's a little company called Garibaldi that has what looks like could be a very major discovery up in British Columbia. It's a nickel, copper, cobalt, PGMs, gold, silver, it's pretty well got everything by the way, initial discovery. I would suggest that people go to some of these chat lines, whether it's Stockhouse or ceo.ca up here in Canada, and just look at the comments of various people. And there's a number of the interviews of the people who are involved who have the highest respect in the nickel/copper business, and just see what they have to say to get a sense of how big it could be.

There was some thought initially that it would be as big as Voisey's Bay and now it's sort of being compared to Norilsk and Jinchuan, which are much, much bigger. And I would point out that Voisey's Bay got taken out at $4.5 billion. This company, Garibaldi, trading with $300 million today. So, it's going to be exciting to watch. I happen to be a just under 20% owner. But I would encourage people to do a little work on it and see whether it's worth the bet. So that's it for today.

Craig: Eric, you are always a wealth of information, whether the metals are going up or going down, and I think it's just extraordinarily valuable for everybody to listen to these calls each week just to get an update on all the things that you're working on. So, thank you so much for sharing that. At this point, I think it's time to sign off. We got St. Patrick's Day coming up tomorrow. You got any green beer ahead of ya?

Eric: Well let's put it this way, Craig. I drink beer every day, okay? Not necessarily green, but I won't be distinguishing.

Craig: Do you put blue dye into yellow beer to turn it green? I've never quite understood it, but, anyway.

Eric: No, I don't go to those lengths okay? A beer's a beer.

Craig: A beer's a beer. Yellow and free and cold are my three favorite kinds. My friend, have a Happy Thanksgiving...Happy St. Patrick's Day and we look forward to talking to you next week. It'll be an interesting week with that FOMC and everything else going on. So, anyway, have a great weekend.

Eric: Should be a lot of fun. Okay Craig, all the best.

Craig: And from all of us at Sprott Money News and sprottmoney.com, thank you for listening. Have a safe St. Patrick's Day and we'll talk to you nex