As an unabashed fan of Sprott Asset Management, and (hilariously small-time) unitholder in their mutual funds, I keep tabs on the writings coming from that gold-hoarding golden horde. 
- - - - - -
Here’s the latest from Sprott’s chief gold nut, John Embry. I agree with the thesis that gold will hit an all-time high (in US dollars) — and probably within the next few months. It’s been making all-time highs in Euros already. But once that move starts making it to the front pages of newspapers (or The Economist) then it’s likely to take a year or two to consolidate its gains before eventually moving higher still. At least, based on “history doesn’t repeat but it rhymes” theory. 
The summer months tend to be fairly humdrum.
Gold does well in periods when stocks don’t, and vice versa. So for gold to continue its decade or so of overperformance, one would expect general stocks not to do so well. And in the US, that appears very likely. In the past century, when stocks have been this richly valued, the S&P 500 index has returned a paltry 2% per year, over the subsequent decade. So this data is consistent with the “gold-is-going-up” thesis. Of course, there’s some selection bias on my part, in focusing on this supporting data.
More selection bias comes from the link in this article (the link is titled “Japan - past the point of no return”) which elaborates the troublesome state of Japanese state finances: they took in more money last year from issuing bonds than they collected in taxes; the working-age population is falling even faster than the general population; and only Zimbabwe has a higher gov’t debt-to-GDP ratio.
To be fair, it’s not all bad news: after the catastrophic misery that drastic cutbacks and higher taxes will cause, the resulting drop in the yen’s value should be of benefit for exporters. Mind you, that’s about as ridiculous an attempt to be even-handed, as a historian who says “while the Chinese invented paper, in so doing, they invented paper cuts”.
- - - - - - -
There was a story in the Globe & Mail the other day about how Sprott has actually *lost* assets under management, as some clients have been unhappy with his portfolio’s underperformance since the recovery in March of last year. My guess is that successes in most stocks have been overwhelmed by the catastrophic losses in Timminco, a company which was trying to upgrade metallurgical silicon to solar grade. In the past 2 years it went from from $30 to 82 cents. [at time of original writing] At one point Sprott owned 17% of the company, so that 97% loss most definitely weighed on shareholder returns.
From a contrarian perspective, this is interesting, and would be interpreted as meaning he’s due for some outperformance. Media outlets generally cover streakiness — so a superstar who’s had a good run and gets glowing coverage (e.g. Eric Sprott circa 2008) is likely to have some bad years. And a fallen titan who gets sympathetic coverage (e.g. Eric Sprott circa 2010) is due for a rebound. Not that this should be interpreted as investment advice.
Incidentally, he tried to buy some of the 191 tonnes of gold the IMF recently said it would put up for sale… but was rebuffed. (Admittedly, he may not have been wearing a shirt or shoes…) There’s a healthy minority who think the IMF only owns gold derivatives, and that Sprott was turned down because he would’ve asked for the bars to be moved to a vault in Toronto. Maybe he wanted to swim in them, like Scrooge McDuck.
- - - - - -
In you-can’t-make-this-stuff-up news, a whistleblower who’d sent emails to the US Commodities Futures Trading Commission, claiming JP Morgan Chase and others were manipulating commodities prices for fun and profit, was a victim of a hit-and-run a few days after his name surfaced in testimony. (Fortunately he was also in a car at the time, and so was uninjured.) I doubt the financial firms had anything to do with it, but this isn’t doing much for those institutions’ credibility in what I shall euphemistically call the “gold enthusiast” sector.
.jpg)
