Eric Sprott was one of the presenters at this week’s Value Investing Conference. MarketFolly has notes on his presentation:
In the past, we’ve seen that Sprott likes gold and has taken a defensive portfolio posture. He continued on that meme at the congress as he presented Norseman Gold Plc (ASX: NGX) as his investment idea. Also, on a macro level, Sprott made interesting comments on the notion that if there is no tax credit extension we could see a 30% housing collapse in January of next year. Sprott also warned that once quantitative easing ends, the world could be in for further trouble. He cited previous government programs like cash for clunkers that had a temporary positive impact but upon expiration led to further declines. Sprott then hypothesized that a similar outcome would arise once quantitative easing disappears. Like many of his other hedge fund manager colleagues, Sprott warned against the implications of the Federal Reserve’s actions, particularly as it relates to Treasury bonds.
He also shifted his focus to banks as he pointed out that if they are leveraged 20:1, they have about 5% of equity supporting merely paper assets. If those assets were to fall in price even by the slightest bit, that would create a huge problem for these institutions. He proclaims that these banks should not be running such high leverage. He also cited the recent large bank failures of Colonial, Guaranty, and Corus which involved writedowns ranging from 11-25%. Clearly he has retained his pessimistic view and defensive portfolio positioning.
And while Sprott did not make these next specific comments at the Value Investing Congress, we thought they were worth mentioning. A few weeks ago in a speech at a University in Canada, Sprott said he was short Research in Motion (RIMM) due to increased competition in the smartphone industry and thinks it will be difficult for them to maintain and grow current profit levels. Also, Sprott said that he thought gold could reach $2,000 having recently breached the $1,000 level. Since inception, Sprott’s hedge fund is up over 400%. For more from Sprott, check out their September commentary as well as their presentation on how gold is the ultimate triple-A asset.
We’re not quite sure what the 30% is referring to, when he refers to the housing market (price, volume?), though with either it seems dramatic. A 30% drop in prices seems especially unrealistic. Update: We’ve cleared it up, the 30% drop refers to home sale volume. There’s a reason why Realtors and the National Association of Homebuilders are burning up telephone lines in Washington hoping to see the tax credit get extended. They’re desperate to see it.