Eric Sprotts View Of Markets

Sprott sees financial turmoil pushing gold to $2,000

By Stewart Bailey Bloomberg News Service Monday, March 10, 2008

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aVMsmS.ikYd4

Turmoil in global credit markets may lead to the collapse of a North American bank, pushing bullion prices up to $2,000 an ounce as investors seek a haven in gold, Eric Sprott said.

This year's decline in banking and brokerage stocks will worsen, said Sprott, 63, founder and chairman of Sprott Asset Management, which manages about $7 billion.

In response, the company is short-selling financial stocks and increasing holdings in bullion and mining companies, Sprott said.

He declined to name which bank he thought may collapse. "We're in a systemic financial meltdown," Sprott said in a March 6 interview at the company's Toronto headquarters.

"There are probably 10 companies that are broke that are still trading -- banks and financial institutions." Sprott, who in 2004 foresaw uranium and crude-oil prices rising, expects that the global financial system will come under increased stress as banks, faced with slipping stock prices and capital erosion tied to subprime-mortgage loans, battle to raise money to offset losses caused by asset writedowns.

Bear Stearns Cos. dropped as much as 14 percent today on speculation the company lacks sufficient access to capital. The company, the second-biggest underwriter of mortgage-backed bonds, led Wall Street shares lower in the past six months as the world's largest banks and securities firms wrote down $188 billion of assets linked to devalued loans.

The "concentration" of Sprott's short selling is in financial stocks, housing, and consumer products, he said. Short selling involves selling borrowed stock on the expectation share prices will fall, allowing the short seller to buy the equities in the market at a lower price to repay the debt. ...

'Easiest to Short' "The brokerage companies, the investment banks are the easiest to short,"

Sprott said. "Do I understand what's happening in the business? Yes, there is no business." Sprott said his company's offshore hedge funds have increased the proportion of gold in their portfolios to about 30 percent.

The company is also buying small mining stocks that have yet to "blossom," including Dynasty Metals and Mining Inc., Golden Star Resources Ltd., and MAG Silver Corp., he said. Gold has gained for seven straight years and reached a record $995.20 an ounce in New York on March 5.

The precious metal rose 16 percent this year before today, compared with a 12 percent drop in the Standard & Poor's 500 Index and a 24 percent slump in the seven-member S&P 500 Investment Banking & Brokerage Index. ... Funds double The Sprott Gold & Precious Minerals Fund and the Sprott Canadian Equity Fund have both more than doubled in the past five years.

The S&P 500 Index gained 58 percent in the same period. Sprott says the collapse of U.K. mortgage lender Northern Rock in September precipitated some bullion purchases by skittish depositors seeking a safe investment for the money they had withdrawn from the bank.

That presages the larger effect that a banking failure in North America would have on gold demand, he said, since investors will have few good alternatives. "Government bonds are a joke at the interest they're paying,"

Sprott said. "You can buy gold or other real things -- gold, silver, platinum, palladium -- things that hold value."

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Oil touches $109 a barrel

Oil touches $109 a barrel

Tuesday, March 11, 2008

VIENNA, Austria —

Oil prices briefly are surging above $109 (U.S.) a barrel for the first time.
The rise comes as International Energy Agency is warning that there is unlikely to be much relief from current high oil prices because of brisk demand in China and other emerging markets.

Light, sweet crude for April delivery briefly climbed to $109.20 a barrel in electronic trading on the New York Mercantile Exchange by midday Tuesday in Europe.

The contract later fell back to $108.75 but that is still 54 cents above the previous high set on Monday.

Fed to Lend $200 Billion, Take on Mortgage Securities (Update2) By Scott Lanman

March 11 (Bloomberg) -- The Federal Reserve plans to lend up to $200 billion of Treasury securities in exchange for debt including private mortgage-backed securities that have slumped in value as homeowners defaulted on their payments.

The Fed set up a new tool, the Term Securities Lending Facility, to lend Treasuries to primary dealers for 28-day periods, through weekly auctions. The Fed also said in a statement in Washington that it's increasing the amount of dollars available to European central banks through swap lines.

Today's steps are the latest in Chairman Ben S. Bernanke's effort to alleviate increasing strains in financial markets that are curtailing credit to homeowners and companies, even after the Fed lowered its main interest rate by 2.25 percentage points. The Fed last week said it will make up to $200 billion available to banks through other tools to help boost liquidity.

The announcement ``is focused on getting the markets going,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. `` There is a lack of willingness to trade. They are continuing to focus on adding liquidity.''

The measures announced by the Fed are part of a coordinated effort with other central banks, including the Bank of England, Bank of Canada, European Central Bank and Swiss National Bank.
International Effort

The Federal Open Market Committee authorized increasing currency swap lines with the European Central Bank and Swiss National Bank to $30 billion and $6 billion, respectively, increasing the ECB's line by $10 billion and the Swiss line by $2 billion. The Fed extended the swaps through Sept. 30.

The ECB announced it will lend banks in Europe up to $15 billion for 28 days and the SNB announced a similar auction of up to $6 billion. The Bank of England will offer $20 billion of three-month loans on March 18 and hold a further auction on April 15. The Bank of Canada announced plans to purchase $4 billion of securities for 28 days.

Treasuries slid after the announcement, with yields on 10- year notes rising to 3.56 percent at 9:11 a.m. in New York, from 3.46 percent late yesterday.
Traders removed bets on the Fed to lower its benchmark rate by a full percentage point, to 2 percent, by the end of the next meeting on March 18, futures showed. The contracts indicate a 60 percent chance of a 0.75 percentage-point reduction.

The Fed's auctions of Treasuries, which will begin March 27, may be secured by collateral including agency and private residential mortgage-backed securities, the Fed said. The central bank ``will consult with primary dealers on technical design features'' of the new tool.
Primary dealers are a group of 20 banks and securities firms that trade Treasuries directly with the Federal Reserve Bank of New York.

Last Updated: March 11, 2008 09:23 EDT