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A Bear's Story: Hedge Fund Manager Says S&P 500 Will Fall Below '09 Lows Next Year

PornAddict

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A Bear's Story: Hedge Fund Manager Says S&P 500 Will Fall Below '09 Lows Next Year

http://www.streetinsider.com/Inside...ill+Fall+Below+09+Lows+Next+Year/5209760.html

December 29, 2009 12:06 PM EST

Today a Bloomberg article is highlighting some very bearish comments made by Eric Sprott, a top money manager over at Sprott Hedge Fund.

Sprott, who has returned nearly 500% to faithful investors over the last 9 years, is arguing that the S&P 500 index will plummet next year, in fact breaking below the 12-year lows set in March of 2009. Sprott believes that investor confidence in the markets will begin to decline as a now-priced-in rebound in economic growth fails to materialize. The hedge fund manager feels that the S&P 500's 67% rally since March was simply reflective of investors misinterpreting economic data.

"We’re in a bear market that will last 15 or 20 years, and we've had nine of them." Sprott points out that the Fed's recent policy has held bond yields and interest rates at artificially low levels, but, as the program expires (expected by the end of March '10), demand will be reduced for fixed-income securities and yields will consequently rise, effectively hindering economic growth.

Going a bit further, Sprott notes that (to counteract the drying-up demand) if the Fed renewed its programs while the US government is still running a deficit, investors would lose faith in the US dollar. "If they announce another quantitative easing, trust me, the gold price will go up another 50 bucks that day."

Finally addressing what optimistic investors have recently considered a bullish indicator -- modestly improving employment reports -- Sprott says that traders are getting too anxious to find signs of a recovery. "We don't have employment gains. We have less of a decline. That’s a sign of weakness. The data is weak."

The S&P 500 is flat today, most recently trading at 1,127.
 

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http://articles.moneycentral.msn.co...t-dispatches.aspx?post=1516276&_blg=1,1516276


40% stock market decline ahead?
A Toronto hedge-fund manager thinks the economic recovery is an illusion and stocks will collapse again.
Posted by Charley Blaine on Tuesday, December 29, 2009 2:42 PM

Want a stock-market prediction that will make your stomach turn? Look no further than Eric Sprott, a Toronto hedge-fund manager.



Sprott told Bloomberg News recently that he believes the stock market is going to collapse more than 40% in the not-too-distant future. pushing the major averages below their March 9 lows.

* Find a better broker for 2009

The reason: He does not see the economy recovering at all. And when investors realize it won't recover, they'll sell.



As of this afternoon, the Dow Jones industrials ($INDU) are up 61% since March 9, with the Standard & Poor's 500 Index ($INX) up 67% and the Nasdaq up more than 80%.



To drop below the March 9 lows would mean:

* A 39% decline in the Dow.
* A 40% decline in the S&P 500.
* a 45% decline in the Nasdaq Composite Index ($COMPX).

Sprott believes the Federal Reserve is the problem because it has kept bond yields and interest rates artificially low through its program to buy the debt of Fannie Mae (FNM) and Freddie Mac (FRE) and purchase mortgage-backed securities.



The central bank expects the securities purchase program to finish by the end of March.



Expiration of the program would reduce demand for fixed-income securities, forcing up bond yields and interest rates and hurting economic growth, Sprott said.



Should the Fed renew the programs while the U.S. government continues to run record deficits, investors will lose faith in the U.S. currency, he said.



"If they announce another quantitative easing, trust me, the gold price will go up another 50 bucks that day," he said.



Gold for February delivery fell 1% today to $1,097 an ounce. It has fallen 11% since peaking at $1,227.50 an ounce on Dec. 3 as the U.S. dollar has rebounded on data that signaled a recovery in the U.S. economy.



Nonetheless, Sprott has been bullish on gold and gold stocks, which are used as a hedge against inflation, since at least 2001, when the precious metal was trading below $300 an ounce.



Sprott's Sprott Hedge Fund returned 496% over the past nine years, while the S&P 500 lost 32%.



Sprott's outlook on the economy is at odds with the forecasts of most economists, who see a slow recovery in its early stages that may pick up speed in the latter half of 2010 or 2011.



We'll see if he's right.
 

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After all, it's just another Ponzi scheme
By The Nation
Published on January 1, 2010

http://www.nationmultimedia.com/2010/01/01/opinion/opinion_30119508.php

The US appears to be printing money hand over fist and cooking the books to make everything seem rosy


The US financial and monetary authorities are running a Ponzi scheme as they scramble to delay economic catastrophe. That's the finding of Eric Sprott and David Franklin in their Sprott Asset Management LP's Markets at a Glance report, "Is it all just a Ponzi scheme?" (December 2009). The authors have detected a phantom account in the US Federal Reserve Flow of Funds Report, which camouflaged its money printing on a gigantic scale from public eyes.

In fiscal year 2009, the US added another US$1.88 trillion to its public debt. There were three main groups of buyers of US treasuries issued to finance this huge amount of deficit spending. The first group was identified as foreign and international buyers, who purchased $697.5 billion. The second group was the Federal Reserve, which bought $286 billion. By buying the US treasuries, the Fed was pursuing a quantitative easing monetary policy, or money printing, to keep both the public finances and the financial system alive. It plans to end its money-printing programme by March 2010. The third group of buyers was identified as the Household Sector, which bought Treasury securities of $528 billion in the first three-quarters of fiscal year 2009. For the whole fiscal year, this Household Sector would have bought a total of $704 billion in Treasury securities.

Sprott and Franklin were wondering who actually made up the Household Sector because, given the current economic conditions, it did not seem that the real household sector would have money at its disposal to purchase Treasury securities. As it turned out, the Federal Reserve defined the Household Sector as a "catch-all category", representing buyers left over who can't be slotted into the other group headings such as money market funds, mutual funds, life insurance companies, retirement funds, and closed-end funds, etc.

"To answer the question - who is the Household sector? They are a phantom. They don't exist. They merely serve to balance the ledger in the Federal Reserve's Flow of Funds Report," said the authors.

"Our concern now is that this is all starting to resemble one giant Ponzi scheme. We all know that the Fed has been active in the market for T-bills … It serves to remember that the whole point of selling new US Treasury bonds is to attract outside capital to finance deficits or to pay off existing debts that are maturing. We are now in a situation, however, where the Fed is printing dollars to buy Treasuries as a means of faking the Treasury's ability to attract outside capital. If our research proves anything, it's that the regular buyers of the US debt are no longer buying, and it amazes us that the US can successfully issue a record number of Treasuries in this environment without the slightest hiccup in the market."

Yes, indeed there are increasingly fewer buyers of US Treasuries. As the export-led economies and oil rich countries have less dollar revenue, they will have fewer dollars to buy US Treasuries and thus to finance the US deficit. Fears about the dollar's stability have also led sovereign wealth funds and investors to shy away from US dollar assets.

As the US government continues to rack up more debt to finance the bail-out costs and other programmes, it will accrue more debt that eventually will soak up the whole economy. Next year the US will run a deficit spending of another $2.2 trillion, compared with $1.1 trillion in 2008 and $1.88 trillion in 2009. The point is, since the US already faces difficulties in finding buyers for its Treasury securities, who will step forward as financier of the $2.2 trillion deficit next year? If there aren't enough buyers, will the Federal Reserve continue to create phantom accounts to purchase Treasury securities?

For how long will the financial markets allow the US to fake its actual financial health? We are fast approaching an end game.

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SkyRider

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The U.S. is starting to resemble Brazil 25 years ago. Printing money will lead to inflation.
 

hinz

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Must be slow traffic/money inflows at Sprott Asset Management lately as the publicly listed company of the same name tanked after IPO.

People may buy Eric's "doom and gloom" message but they are doubtful to pay some 5% MER, on top of the trailer fee/performance fees to somebody like him. You could invest like there's "no tomorrow" by investing on Leverage ETFs at Beta Pros or their American cousins at Proshares/Direxion.

Last but not the least people could invest GLD and SLV of the world, ETFs that the conscpiracy theorists and active fund managers claim these are ponzis/shell games. The only certainty one could tell would be MER (0.4% vs. 3.5% before performance fees).

BTW, only Peter Schiff, son of convicted felon Irwin Schiff for federal tax crimes since the 70s could trump Eric when it comes to spreading the doom and gloom messages. Nouriel and Nassim are not even close to this "doom and gloom bubbles".:rolleyes:

In the meantime, invest in PM or MO of the world, products that Obama and even some of the doom and gloom sayers are loyal patrons.
 

duang

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People may buy Eric's "doom and gloom" message but they are doubtful to pay some 5% MER, on top of the trailer fee/performance fees to somebody like him. .
Sprott's fees are certainly somewhat high [especially the hedge funds with performance bonuses included] but I would just point out that his returns quoted earlier [~22% annually since inception in 2000 for his flagship hedge fund] are net of fees so obsessing about the fees you pay when the NET returns are very high might be missing the point of the exercise. Some might want to pay the lowest fees but I would rather have the highest net return. Just saying...

"Sprott's Sprott Hedge Fund returned 496% over the past nine years, while the S&P 500 lost 32%."

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You could invest like there's "no tomorrow" by investing on Leverage ETFs at Beta Pros or their American cousins at Proshares/Direxion.
.
It should be pointed out that the Beta Pro type 'double exposure to the market' ETF's are seriously flawed for buy and hold investors. They function as intended for daily traders but many longer term holders are very disappointed how their returns work out relative to the underlying indices.

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As far as the bears [and the bulls for that matter], fund managers and economists often make great sense individually even when they are espousing directly opposite points of view with their historical examples and stats. However, no one really knows exactly what will happen in the future no matter how obvious it seems from where we are sitting right now.

I always think of the pithy expression "opinions are like assholes: everybody has one" when listening to the pronouncements from economists and other experts quoted in the media [NB. not aimed at anyone here].

D.
 

hinz

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The U.S. is starting to resemble Brazil 25 years ago. Printing money will lead to inflation.
It's more resemble to Argentina...in fiscal terms.

I may not bet America going up but I am equally not betting against America going down, "on margin" either, like almost everybody else nowadays :rolleyes:

In the meantime, enjoy the Uncle Sam bearish trades when you can, it's not if but when the US dollar makes a comeback/covering huge margin calls. That could coincide the bubble burst in Emerging markets and the possible "black swan" event could be the bubble burst in China and eventual collapse of the government we are now taking for granted.

In other words, the bubbles burst could happen in the following sequences,

Mumbai-terrorist attacks by Al-Qaida affliates in late 2008
Dubai-credit crunch exactly a year after Mumbai attack
Shanghai-could happen soon in 2010 with the Real Estate bubble burst first
Goodbye-the bulk of liquidity flow back to the US instead of Euro since the later is taken "hostage" by the PIGS, with Italy as possible new member to that group. By then we could say "hello" to stagflation.
 
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