Eric Sprott, Chairman, CEO, and portfolio manager of Sprott Asset Management, has released his most recent newsletter, and presents the following facts and opinions:
- the shares of Citigroup, Bank of America, and the Royal Bank of Scotland fell 77%, 66%, and 92%, respectively, in 2008.
- So far this year (remember, this is only three weeks) the same stocks are already down 50%, 55%, and 74%, respectively.
- Last month, Sprott reported:
- auto sales in the US were down almost 40%.
- housing starts were down almost 50%.
- industrial production is falling off a cliff, with each month worse than the last.
- jobless claims are at multi-decade highs.
- consumer confidence is at multi-decade lows.
- company surveys we follow are showing dramatic declines across the board in economic activity.
- "We challenged the idea that this is a run-of-the-mill, minus-low-singledigit recession and we characterized this Depression (there is no other way to describe it) as "global, pervasive, and deep".
- Since last month the numbers got worse:
- US housing starts fell a further 15.5% in December to 550,000, the lowest on record.
- US industrial production fell a further 2.2% in December, to a 7.8% year-over-year decline.
- European industrial orders (a leading indicator of industrial production) are down 26% year-over-year, the largest decline on record.
- Japanese exports plunged 35% in December.
- US jobless claims are now running almost 600,000 per week.
- Layoff announcements are coming at a fast and furious pace.
- We believe the announced job cuts thus far are only the beginning.
- Stimulus amounts are ineffective - even $10-trillion "just isn't going to cut it."
- Stocks have lost $30-trillion in value and globally housing values have dropped an estimated $30-trillion.
"Although there are those who would espouse that the ‘free markets' have failed, we are of the belief that it is government involvement in the free markets that failed."
"There's been a paradigm shift - a permanent change. People will save rather than spend more than they make. The implications for the economy are enormous. Just envision a world where 25% of all shopping malls close down and try calling that a recession.
"governments the world over [are] taking an increasing role in the functioning of the economy and the financial markets. But are they trying to solve the main problem; namely, too much debt? Quite the contrary, every single solution they've adopted has been trying to get the good ol' days back. Cutting interest rates to zero. Throwing money at the banking system so it can lend again. All these solutions have one goal: to bring back debt."
Eric Sprott makes a compelling case for depression, the ensuing deflation, and the eventual (hyper) inflation that follows, and it should, and must, be taken seriously. In the meantime, the message here is that if you thought 2008 was bad, 2009 looks like and could very well, turn out to be a whole lot worse.
Sprott's argument makes a compelling case for Real Return Bonds, Gold, and on a longer-term basis, commodities and commodities producers, especially the underlevered ones.
To read the complete letter, click here.
Comments are closed.