Legendary Investor Eric Sprott Shares the Greatest Financial Lesson He’s Ever Learned

In the wake of Japan announcing negative interest rates and chaos in the silver market with Thursday’s LBMA silver price fix smashed .84 below spot prices by the 6 fixing bullion banks, we welcomed The Admiral of the Silver Market, Eric Sprott himself to help us break down all the action. In Sprott’s words, the sheer brazenness of the silver fix smash “Reeks of Desperation“.
The discussion offers a unique look into the mind of the Billionaire Asset Manager, as Sprott shares insight into the thought process on how he evaluates whether a market is experiencing a bottom, and the legendary investor also shares the greatest financial lesson he’s ever learned…

• Sprott Breaks Down London Fix Silver Manipulation: It Reeks of Desperation!  The sheer brazenness to think you can just put out whatever price you want…
• How Does Sprott Evaluate if a Market Bottoming Process is Underway?
• With the Value of the CAD Plunging, Have Canadians Started Turning to Gold & Silver For Wealth Preservation?
• Sprott Warns on Systemic Collapse: We Were Right There in ’08, Here We Are 8 Years Later, & the Situation is Worse!
• Sprott Reveals Gold and Silver Demand is WAY Off the Charts- Shortages Are Popping Up Again!
• COMEX Down to 2 Tonnes of Gold- Will Eric Soon Be Able to Take the Last Physical Gold Bar out of the COMEX?

There’s an old saying on Wall Street.  The first five trading days of January often sets the tone for the rest of the year.  Think of it as trader folklore, and historically, there is some truth to the pattern.
Well, to heck with the first five trading days.  January’s stock market action has been downright ugly!  If it wasn’t for the Bank of Japan’s announcement of negative interest rates on Thursday and the Pavlovian ringing of the global liquidity bell, we wouldn’t have seen the S&P 500 gain 2.43 percent on Friday’s close.  That gain repaired some of the mauling sustained by the benchmark.  Nevertheless, carnage this January was exceeded only by the downside action of January, 2009.

I’ve warned many times this month on Weekly Metals & Markets as well as on Dr. Dave Janda’s show that we’re most likely going to see an ongoing bear market decline that takes time to unfold, not unlike the 2000 through 2002 and 2007 (in select assets) through the March, 2009 nadir.  Spike-down crashes are possible.  But an ongoing bear market, with plenty of “normal” bear market rallies is more common than spike down events like Oct., 1987.  In fact, don’t be surprised if we see the S&P 500 rise, on balance, during the month of February.  It’s ripe for a bounce, and with the Bank of Japan upping stimulus, the spice will flow;  more global liquidity is coming, and “Super Mario” already “surprised” the markets with a doubling down on his “whatever it takes” mantra.
Frankly, while I can’t prove this, I think it’s a reasonable speculation to assume that the Bank of Japan is playing its role, taking its turn drinking from the “currency war canteen,” as Jim Rickards likes to joke.  It’s reasonable to assume the BOJ’s action last night is fully coordinated with the ECB, the Fed and the Bank of England.  You can probably toss into the mix the Swiss National Bank and the Bank for International Settlements as well.

The strong US dollar has been contributing to global deflationary forces upsetting financial markets.  The transmission mechanism takes many forms, including the impact to oil (and in turn, degrading balance sheets of energy companies), and to the dollar denominated debt burden faced by developing countries that piled on debt after the Fed led the world down the path towards our zero interest rate paradigm.  This debt doubles as collateral on the balance sheets of energy companies, and the treasuries/central banks of developing countries.  In a roundabout way, the rising dollar is sending earthquakes through the global shadow banking system and financial markets.


The dollar took a breather during early January.  But as you’d expect, the dollar leaped higher today in relation to the Japanese Yen.  Interestingly enough, the Euro also rose against the US Dollar – and has been rising over the last few trading days.  There’s every reason to expect the dollar to keep rising in the short-term, and this is going to probably put pressure on precious metals, quoted in US dollar terms.  But everywhere one looks, incoming economic data paints a picture of the US having already entered a recession.  Even official government stats paint this picture.  At some point, the “currency war canteen” is going to be passed to the US and the Fed is going to take a swig.  The reality of this transition will start to be priced into markets before Janet Yellen reaches for the liquidity canteen, and I expect this shift to start helping precious metals with a dollar tailwind starting within a couple of months.
But well before the dollar tailwind starts to help, we’ve got plenty of forces countering the dollar’s impact.  The laws of economics haven’t been repealed, and the supply/demand trends for physical metal Mr. Sprott discusses will pull the sector higher.  But don’t be surprised if we have another few months of cartel management and a generally stronger dollar before precious metals start to make a sustained move higher.