Eric Sprott on derivatives and problems

Eric Sprott of Sprott Asset Management is worried what could happen during market declines when derivatives trigger. He said that there is no underlying wealth creation of these things. There is always a seller and a buyer. The thing is which could explode if the contract must be paid off.

What is strange is that most participants in the market believes they are making bugs of this in and out trading. The reality is different. Yes there are some people draining a lot of money out of these derivatives but its on the back of the mass.
The worrisome thing is that the derivatives market is growing very rapidly. We have no what it could cause. If there is not enough money around and a big counterparty fails , who knows what could happen.

Eric Sprott is a Canadian hedge fund manager and founder of Sprott Asset Management. He became a billionaire on paper with the initial public offering of Sprott Inc., the parent of his Sprott Asset Management firm.

Eric Sprott says that the Ponzi scheme Continues in full motion

Even though politicians are fighting hard to continue the current financial system and use different techniques, the people are doing what is logical and withdraw their money from the banking systems which are unsafe. Not only have that but people and investors no longer trusted the sovereign debt and the credibility of countries. He mentions that in the last reported month people took out 65 billion USD from Spain banks. With this speed, Spanish banks will need a huge bailout very soon. LTRO was to safe the banks and we will probably have more as deposits continue to leave. The only way out is to continue print or the system will collapse. Eric Sprott recommends investors to hold gold and silver as well as mining stocks as the countries will debase their currencies when they print to safe the financial system.

Eric Sprott is a Canadian hedge fund manager and founder of Sprott Asset Management. He became a billionaire on paper with the initial public offering of Sprott Inc., the parent of his Sprott Asset Management firm.

Eric Sprott is Super Bullish on Silver

As you know Eric Sprott has been known as strong advocate of precious metal investments. In fact, he has not always been bullish on precious metals so it is not correct to call him perm-bull. During the 1980s, Eric was very optimistic about the stock market. Since 2000, Mr Sprott is known for his rather more pessimistic views and the only things he is bullish on are precious metals and precious metal stocks.

He is very worried about Europe. He shared recently that only the LTRO is keeping the banking system in Europe alive. Banks are now addicted to the 1% credits but even with them things are not rosy. On China, Sprott believes that we might see hard-landing there.
He pointed out to a recent report that predicts a U.S. recession by mid-year, so this might be his view also.

As for the stock market, he points out it went up in the first quarter on decreasing volume. "It's a BS rally," he tells the audience, who would like to believe it's anything but.
"We have a system that is breaking down," he concludes.
Still the protection and best investment is not gold. The answer to all investors’ needs is another.

 The answer is silver.



Why? Let us count the reasons.

1. Demand exceeds supply. Annual production is about 900 million ounces per year, including recycling. Industrial usage alone will rise to 660 million ounces by 2015. That leaves only 240 million ounces for coinage, central bank purchases, and investment. The latter category is huge; as of 2010 holdings of physical silver to back up exchange-traded funds was 577 million ounces.

2. Silver is undervalued compared to gold. The historic silver to gold ratio is 16 to one. The geological silver-gold in situ reserve ratio is 17.5 to one. The current silver-gold ratio is 51 to one. The implied price if silver reverts to its historic ratio with gold at US$1,600 an ounce is US$100 an ounce. The actual closing price on Thursday was US$31.73.

3. The silver price is artificially low. There has been speculation for some time that the price of silver has been kept deliberately low by market manipulation. A further unwinding of short positions is needed to free the metal to rise in value.

We agree with Eric Sprott, silver price will be up multiple times by the end of this decade.

Eric Sprott is a Canadian hedge fund manager and founder of Sprott Asset Management. He became a billionaire on paper with the initial public offering of Sprott Inc., the parent of his Sprott Asset Management firm.