Eric Sprott on the midterm elections

Transcript

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

Craig: Well, good morning once again from Sprott Money News and sprottmoney.com. It is Friday, November the 9th, 2018. And this is your Weekly Wrap-Up. I'm your host, as usual, Craig Hemke and our Weekly Wrap-Up expert guest is, of course, Eric Sprott. Eric, good morning.

Eric: Hey, Craig. Good morning. I thought it could have been a little more dynamic week than it was with the election results and all that but, you know, we're kind of hanging in there, a little weakness here a little strength there. So let's talk about some big things.

Craig: Eric, once again, the market just rallied like crazy as soon as the election was done. This time, on the idea, the gridlock, I guess, is going to be the best. Come on.

Eric: It's funny, isn't it? I get a kick out of the two rallies once. Once the day he got elected when it was getting crushed for the first five hours and then that overnight by the way, and then, of course, it rallied strong after the first election in '16 and of course one minute Trump was bad for the market, the next he was good. And, of course, I analogized that. You know, they had the plan that when Hillary got elected, "We're going to run the market anyway. So what should we do guys?" "Let's just run the market." And they did. And same sort of thing yesterday because you don't want anyone to think anything's bad, you know? You don't want them to think gridlock's bad, so you run the market up, then we all forget about it, and we move onto the next issue, whatever that's going to be.

So, and there are lots of issues out there. And the trade issue hasn't gone away. I would say the sort of political chaos is rising quickly with this election. So there should be lots in the news to have people concerned about things. It's interesting the market's kind of cooling off, the stock market's kind of cooling off here after the big Wednesday rally. So we'll see if we get back into the sort of October theme that we had, which was not good. And, of course, the leadership just got trounced.

And I think there's lots of signs that the economy is kind of cooling down. I thought one of the more interesting ones was there was a survey of traveling. And somebody suggested that the travel industries are all of a sudden going down in October. There's sort of a reading that comes out regularly. And, of course, you see some of these surveys where I heard something like 40% of the middle class couldn't pay a $400 bill if it came in the door. So those kinds of things have caused concern.

The whole China slowing down thing is I think very prevalent and we're going to have to see how that plays out. It's hard to predict because you never know what the government's going to do about it. They could sort of taper over for a while. But, you know, as I'm talking about Bank [inaudible 00:02:50] over there. I mean it wasn't a little bank either. I mean supposedly losses are $5 billion. Wow, that's not exactly chump change. So anyway, there are lots of reasons for the market, the general market to be concerned about things.

Craig: Yeah. You know, and they somehow manage to keep it afloat. I guess, when you create 15 trillion Yen, Euro, and Dollars, it's got to go someplace so it just keeps flowing back into equities but we got to three and a quarter on the 10-year note back in early October and that seemed to be the level that really whacked the stock market, and here we are again.

Eric: Yeah. And I don't blame the bond market for selling off here. I mean here we are talking about another tax cut. Oh, my God. How is that going to work out for the deficit? It looks like President Trump is a pretty easy-going spender. So people who have concerns about the financing of the deficit which we all should have because when the Fed's a seller and Russia's a seller and China's a seller, well, who the hell is the buyer? And we got more being issued substantially more in '19 than '18. So I can understand rates going higher here and, of course, it's going to be calamitous to the non-developed countries because most of them have debts priced in U.S. dollars so the interest rates are moving up on them here. So that's not a good thing as well.

Craig: Yeah. And far more interesting 2019 than most folks are envisioning where it's all pretty predictable. The Fed is going to raise rates, the stock market's going to go up. I don't know. We'll see.

Eric: Sure. Sure.

Craig: Hey, two big news items this week. I know everybody's dying to get your thoughts on. Let's start internationally, why Venezuela ever gave their gold back to London after they got it back in the first place seven or eight years ago? I have no idea. And now, President Maduro wants what's left of it back. And he's been told to just go ahead, "Yeah. We'll get it to you," no, it's not, no. They're not going to get any. What do you make of that, Eric?

Eric: Well, it's the same old thing, you know. Anytime anybody asks for a significant amount of gold, it's never tomorrow's delivery if you know what I mean? It takes a long time. And, of course, they're putting it down to, well, they're afraid he's just going to launder it himself, which there might be some truth to that. The country definitely needs the money, that's for sure. But you wouldn't think that you could have that sort of political thing entering into that kind of a decision not to send it back and we'll have to all stand by on that.

There are other sort of interesting things around the gold market too that I think that's kind of more interesting than Venezuela but Venezuela was interesting. And, of course, one is the J.P. Morgan trader who has been charged with spoofing from '09 to '15. Oh, my God. It just makes me sick to think about it, you know?

Craig: Yeah.

Eric: All the times I was there every day, you were there every day. Oh, my god. What we have to put up with. And I thought Ted Butler wrote an interesting write-up and I agree totally with it. It's not so much the spoofing it's the big picture, right? The whole...we just take gold down when we want to take gold down. And we're talking over weeks, and months here, and years, which is the bigger picture rather than what some guy does for one minute. But the fact that that culture was allowed and promoted by his seniors at J.P. Morgan, it's enlightening.

I mean not that we didn't all expect this. We all expected it, okay? We see what happens every day in the stock market, and the commodity markets, and all the weird trading, and the decline of 20 bucks on 10 billion of gold being sold in a minute. I mean what the hell? What are we thinking? And where the hell are the regulators here? Why didn't the CME and the CFTC pick up on this stuff? Why isn't the Department of Justice for God sakes? It's crazy.

Craig: That's for certain my friend.

Eric: Anyway, that's what we have to work with. Yeah.

Craig: I thought it was interesting that the actual press release from the Department of Justice went out of their way to not name J.P. Morgan they just called it a United States Bank. And then it was also spun that this was some low-level guy, yeah, low-level guy who had the title of Vice President, anybody that works in a big organization knows once you're a VP, a full VP, you're like a made-man. And he said he had the approval of his supervisors and managers to do what he was doing.

Eric: Yeah. And was allowed to put an offering out of 2 million ounces of silver just like that, too, which would've been worth $30 million worth of silver. So we had some authority there. Let's face it.

Craig: So Eric, let me just ask you as an aside, you know, there's all these guys out there that write newsletters or they manage money and they all claim that we're just a bunch of tinfoil-hat crazy people to think that prices are manipulated. Do you think they just...do they just not pay attention or do you think they are so in the tank for their own business that if they admit that there is manipulation in any market, that the people that buy their newsletters, or pay them their management fees are going to go away? If there's management or manipulation, why do I pay you? I mean why do these people continue to deny what's so obvious now and admit it?

Eric: Yeah. Well, Craig, it's less likely that a newsletter, right, like there are lots of newsletter writers who know about the manipulation. In fact, I would say the percentage of newsletter writers who realize there is something weird going on is probably pretty high. It's more of the general commentator who you'd be lucky if you get half or 1% of the general commentators think that there's anything nefarious going on. And the funny part is that we see it in everything. We see it in bonds. We see it in the currencies. We see it in gold and silver.

I mean it's hardly a market. I mean they really haven't quite got to the stock market yet although they did nail some individual...I think might even have been living over in the Middle East or something for spoofing the S&P. I mean, that's just incredible this one guy he probably didn't have more than $5 million and he was able to spoof the S&P, which tells you how easy it must be for somebody with deeper pockets to spoof the S&P.

So I mean it's just...it's omnipresent. Who's kidding who? It's omnipresent, which should make everyone sit back and wonder about the stock markets, and what's really going on, and what could happen should a few things...should a few cards start to fall, okay, that's probably the best way of putting it.

Craig: Yeah. It just seems as if everybody is so dependent upon keeping the whole illusion going and nobody wants to call it out, you know?

Eric: Well, that's part of it because they're in the business, right? I mean you take the major institutions they're all in the business of keeping people with their deposits in the bank and not wanting them to take them out or keep it in some product where they're earning a fee every day. So yeah, you would never want to have the system corrected because where would the stocks be if it was corrected? I mean the value of those companies those institutions would go down dramatically if all of a sudden the bond and stock markets went down?

In fact, now that you think of it and with stocks hardly up on the year, I guess maybe they are up a tad now, I'm not sure. And bonds weak, I mean, what's the average pension fund doing this year, you know? Probably doesn't have any gain. What's going to happen a year in when we get another 7% assumption and we earn nothing.

Craig: Right.

Eric: More underfunding. So, and, of course, we won't talk about that either.

Craig: No.

Eric: Anyway, I should close with a couple of other comments. I wanted to talk about...I mean you asked me I think about the Barrick Randgold merger, I didn't think much of it. I was kind of surprised to see the stock go up. Most stocks I think went up 20%. And so it's...you have to pause, "What the hell is going on here?" And obviously, there's some belief that when you put two companies together and you fire a bunch of people that's good for stock prices. And I guess that's the assumption here that they can somehow economize on things because they have merged. And which typically means closing something and some guy losing his job, which ultimately is not good for anybody but that's an interesting thing that those stocks reacted so well to that. So, in fact, I'm kind of happy that finally, a big stock or two has gone up here. So that's noteworthy.

I also wanted to mention about Wallbridge had some pretty good drilling results come out. Anybody can go and take a look at them. Kirkland Lake, well, they had some tours down there at Fosterville. And I noticed a lot of comments about it from the analysts that were there, and obviously, they all realized that Fosterville's a situation where I think we mined something like a year to date 20-gram material and the Swan Zone has 60-gram material. So anybody who wants to put a little math to it can imagine that the production might go up. So hopefully, that will resonate with the market a little after the tour down there.

Craig: It's going to be an interesting last part of the year too, Eric. One last question I want to ask you about is the tax law selling? Because I know the rules are different in Canada as to when you got to take those and all that kind of stuff, and the equities have...and the shares have often rallied the last three or four years after that's over. When's all that done this year?

Eric: I don't know the specific date but it's somewhere around Christmas time. It could be a day before Christmas, a day after Christmas, something like that. And I think they tend to rally before the expiry date, okay? Because everyone normally does their tax planning before that, they don't wait until the last day. So you should see some selling pressure here in November for sure. Guys would be thinking about it. A guy like me thinks about it, you know, like, you know, any taxes this year, do I have something that's losing that I can sell so I can minimize my taxes, there's no sense paying taxes on a winner if you've also got losers, right?

Craig: Right.

Eric: So that, and it kind of ends around the middle of December. And you can get a powerful rally. We've had many, many powerful rallies begin in the middle of December like really 20%, 30% moves in stocks. So that typically happens around here. And, of course, and maybe you take some pressure off the commodities too. Here we got the gold down. We got the big December coming up. Oh, boy, there are so many outstanding contracts that could you honestly think that they're not going to put pressure on it into expiry of the contract? No, I guess, they will. So we got two more weeks to suffer here for a while.

Craig: Yeah. And that's a couple weeks away still. But yet the last four years, prices have rallied in the last couple of weeks of the year and into the first weeks of the New Year, so maybe there is still some hope.

Eric: Sure. Yeah. Absolutely. Oh yeah, no, no. I'm pretty optimistic that things should go up. I mean, of course, I always fall back on the physical buying whether it's Hungary or Poland and Russia or China, there are lots of buying of gold going on here. So it's much better to have physical buying of the product than it is to see something happening in the COMEX that is not going to last that long.

Craig: No doubt about it. And in terms of buying the physical, it is that time, it is getting to be holiday time, it's middle of November now. And, of course, a big favorite every single year is Sprott Money's holiday catalog and it's out now. Collection to inspire some gift ideas, it's a great...from like if you're just a regular collector, you want to give some gifts, to the discerning investor, there is something for everybody. It's at sprottmoney.com. And one of the things you will find there is Eric's pick of the month, man it's the November One-Ounce Queen's Beast, it's The Falcon of Plantagenet Gold Coin. It's the sixth release in the popular Queen's Beast Series from the Royal Mint. So again, you can go to sprottmoney.com or you can go to 888-861-0775 give us a call. And we'll get some of those babies out. Every single ounce helps. And again, as President Maduro and the poor people of Venezuela have found out, if you don't hold it, you don't own it, right, Eric?

Eric: You got that right. And I can tell you I have given away lots of coins in my life and people love getting them.

Craig: That's exactly right, great gift idea. Once you hold an ounce of gold in your hand man, you realize you got something. So, Eric, I'll be looking for you to send me a few. Happy holidays my friend.

Eric: You got it, Craig. All the best buddy.

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