Wednesday 28th September 2016

Resource Clips


‘Unapologetically contrarian’

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Rick Rule celebrates bear market opportunities at the Sprott-Stansberry forum

Vancouver’s “a fairly small financial market that enjoys an outsized place in resource
and development finance on a global basis. And it’s also a fun place to be.”

 

“The precious metals market, as I see it, is very different. People cite many variables. I think the key variables are that gold and gold equities would seem to trade in inverse correlation with the U.S. dollar and the most important determinant with regards to the gold price is the strength of the U.S. dollar and the hegemony of the U.S. treasury as the go-to savings and transaction product in world securities markets.

“It’s instructive to note right now that in the U.S. about 0.3% of investible assets are in precious metals or precious metals equities. At its peak in 1980, they had 8% of the market for investible assets. If the markets were to return to normalcy, which is between 1% and 1.5% in precious metals and precious metals equities, that would imply a four- or five-fold increase in demand in a market in the U.S. that has 24% of the world’s investible assets.

A tipping point could—and I emphasize could—be setting up for this fall, and gold will either succeed or fail at that point.

“That in and of itself, without any global response, would give you a spectacular response in precious metals and precious metals equities. We think that a tipping point could—and I emphasize could—be setting up for this fall, and gold will either succeed or fail at that point.

“Ms. Yellen has demonstrated her favour for increasing interest rates, and I think one interest rate increase has been built into both the U.S. treasury market and the precious metals market. If she raises that interest rate and is able to raise it a second time without measurable damage to the U.S. bond market, the U.S. first mortgage market or the S&P 500, then the U.S. dollar will continue to be an hegemonistic instrument and the gold price and gold equities prices will continue to be soft.”

Emphasizing his belief that an initial interest rate rise has been built into the market because Yellen has “telegraphed it so beautifully,” he continues: “If, by contrast, she is unable to raise the interest rate a second time or if she’s forced to rescind the first one because of damage to home sales or a deterioration in the S&P 500, which would be occasioned by higher savings interest rates relative to dividend yields, then gold would do very well.

All gold needs to do is lose the war less badly. It doesn’t need to win. I think that’s a probability, not a possibility.

“I’m not one who sees a collapse of the U.S. economy and U.S. dollar or a collapse in the hegemony of the U.S. treasury and securities market. I don’t believe that gold will win. But I believe that gold will lose less badly. And if you go back to the earlier illustration, where gold occupies 0.3% of U.S. investible assets relative to 1.5% traditionally, all gold needs to do is lose the war less badly. It doesn’t need to win. I think that’s a probability, not a possibility.

“Notice I didn’t say a certainty,” he points out. “But we see the upside as being so extraordinary that it’s a chance we’re willing to take.”

The how and why of the Sprott-Stansberry symposium

Originally presented by Agora Inc, the symposium was threatened when resource newsletters became a less prominent part of the group’s publishing endeavours. Sprott, already associated with the event, heard clients “ask us in no uncertain terms to save the conference,” Rule says.

Sprott and Stansberry did so, using client feedback to plan the “attendee-driven” event.

As for exhibitors, all the public companies are those “that we have an interest in, that we own, either corporately or in managed accounts,” Rule explains. “That doesn’t mean that every exhibitor’s stock is going to succeed. What it means is that we have reviewed and vetted them to the extent that we own them.

“The non-resource exhibitors have to be ones with whom Agora has had a longstanding relationship and about whom we have received no complaints from customers.” The event turned down about 60 or 70 would-be exhibitors “not because they’re good or bad but because we don’t have any ability to rate them.”

Another key feature will be CEOs “who built large companies from small beginnings, still run the companies and could teach investors how to identify ideas and management teams that could duplicate that process.” Among them are David Harquail, Randy Smallwood and Robert Friedland.

[Attendees] will also benefit from the virtue of being in the company of 500 other aggressive, intelligent and wealthy investors…. The idea that all knowledge emanates from the dais to the auditorium is bullshit.

Then there’s the location. “I think it’s important too that a conference that’s focused on earlier-stage resource opportunities takes place in Vancouver, because Vancouver is a centre of excellence in the classic sense of the term. Vancouver is a fairly small financial market that enjoys an outsized place in resource and development finance on a global basis. And it’s also a fun place to be.”

The attendees, who’ve shelled out considerably for admittance, “will also benefit from the virtue of being in the company of 500 other aggressive, intelligent and wealthy investors…. The idea that all knowledge emanates from the dais to the auditorium is bullshit.

“An audience of 500 people who paid money to be here, an audience that’s rich enough, risk-tolerant enough and experienced enough to be willing to bargain-hunt at the bottom of a bear market, is a rare audience indeed.”

That audience demonstrates Sprott-Stansberry’s success, Rule believes. “Despite the worst bear market in 30 years the conference has grown in attendance from below 300 to over 500. This is a conference that’s unapologetically contrarian and unapologetically oriented to natural resources.”

Read more about the Sprott-Stansberry Vancouver Natural Resource Symposium.

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