Why I'm Short Gold: Because No One Else Is

From 8/22/11

Read my full Forbes post.

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Golden Plays: China Watch

NEW YORK (TheStreet) -- Contributor Eric Jackson explains what's behind China's appetite for gold and what the best China gold plays are.

Fri 03/11/11 06:00 AM EST -- Brittany Umar & Eric Jackson

Stocks in this video: NG | ABX | GLD | FCX | NEM | MT | PKX

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Rosenberg on the Economic Crisis, Part 1

By Eric Jackson10/14/10 - 12:10 PM EDT

NEW YORK (TheStreet) -- Economic and market bears don't get more notable than David Rosenberg, the chief economist and strategist at Canadian investment firm Gluskin Sheff.

Rosenberg generated headlines this August when he advised clients that the "current economic malaise" is a "depression," and not "some garden-variety recession."

The former Merrill Lynch chief economist also was ahead of the pack when he raised alarms about the housing bubble in 2005 and warned of a coming recession in 2007.

Rosenberg remains pessimistic about the economy and contends that home prices could decline another 10% before they hit bottom, as you'll read in the following multipart interview I conducted with him.

You might be surprised, however, to learn that Rosenberg was an unabashed bull earlier in his career, that he believes a Keynesian approach can save the economy if done correctly, that he thinks the U.S. needs a jobs czar and that he sees the dollar rallying soon.

He's predicting gold prices will hit $3,000 an ounce in the next two years and believes a potential currency war is the biggest threat to the global economy right now.

He addressed all these topics and more when he recently sat down with me for the following wide-ranging interview.

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Eric Jackson: When was the last time you were bullish?

Rosenberg: 2000. Most people know me as a permabear. I'm not. I was bullish on equities in the '80s when I was a senior economist at Bank of Nova Scotia(BNS_) and nobody cared what I thought. Then in the '90s, I was also bullish when I worked with Sherry Cooper at Bank of Montreal(BMO_) and helped [with] her book Riding the Wave about the Internet boom. It was only when I started working at Merrill Lynch in 2000 and I saw the onset of the tech wreck that I turned bearish.

In the past 10 years, I've had different shades of bearishness. This has been the time when I've gotten notoriety, so people only associate me with bearish views. I certainly have been overall underweight equities in my recommendations. I missed two very significant peaks and two significant troughs. The reality is that nobody ever got hurt from my picks.

When did you first start to get ultrabearish about what you were seeing in the U.S.?

Since the dot-com bubble we've had a series of bubbles and policy reflation, combating recurrent market deflation, which has produced all this instability. There's no question there have been massive swings along the way. I have a nasty tendency to be early to a fault. I started getting concerned about the housing bubble in 2005 and very bearish on the economic outlook in 2007.

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[** This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.**]

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Be Careful Dogging the Dollar

By Eric Jackson
RealMoney Contributor
10/8/2010 7:45 AM EDT
Click here for more stories by Eric Jackson

The negative chatter about the U.S. dollar's decline is overdone. As we've learned twice already in the past year, just because a crowd of people says something is inevitable does not make it so.

At the end of 2009, the level of pessimism around the U.S. dollar was very similar to that of today. There was no shortage of people saying we were on our way to debasing the currency. The Fed had rolled out its quantitative easing (QE) program, taxes were going to rise, there was no plan to rein in entitlements and the president's health care plans took up much of the headline space available in newspapers.

Back then, I suggested in these pages that the dollar's weakness would probably reverse course and that the currency would rally for most of 2010. I also argued that the dollar would always be a "safe haven" for investors to store value in. That turned out to be the case for the first four months of this year -- and that was when the stock market was also going up. Imagine that: it is possible for the U.S. dollar and equities (not to mention commodities) to rise at the same time. Who knew?

Of course, when the European sovereign debt crisis stole the headlines in late April and into May, we saw a knee-jerk response as investors fled out of equities and into the dollar. The U.S. Dollar Index Future (DXY) bounced from near $74 in early December last year to over $88 in early June.

However, the dollar has since slumped back down. The DXY is back to $77 at the moment and the Cassandras are echoing the same arguments we heard last year. This time, however, there's a slightly new spin. Instead of simply making the case that the U.S. dollar is doomed, we are hearing (with increasing regularity), that all world currencies are in a race to the bottom.

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[*** This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required. ***]

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Digging for Gold Among the Miners

By Eric Jackson
RealMoney Contributor
9/7/2010 11:30 AM EDT
Click here for more stories by Eric Jackson

There's been a lot of excitement about the mergers-and-acquisitions action in the tech sector lately. That has naturally spurred a great deal of speculation as to what other companies might be taken out next -- and, currently, those same dynamics are also present in the gold sector.

Last week, Goldcorp (GG - commentary - Trade Now) announced it had agreed to buy Andean Resources for roughly $3.46 billion, topping another bid from Eldorado (EGO - commentary -Trade Now). Australia-based Newcrest Miningrecently completed its purchase of Lihir Gold, a deal that was worth some A$9.5 billion as of early May. Additionally, Kinross Gold (KGC -commentary - Trade Now) agreed to buy Red Back at the start of August.

We're likely to see a number of similar deals to come, wherein the big gold players -- names such asBarrick Gold (ABX - commentary - Trade Now), Goldcorp, and Newmont Mining (NEM - commentary -Trade Now) -- look to buy assets of some of the junior gold miners.

Why will these gold majors buy now? There are several reasons:

• They have the cash and currency to do so. Just as in the word of large-cap tech, these large majors weren't doing deals two years ago when the walls were closing in on the global economy. The market hasn't returned to the 2006 buyout binge days, but the stock market has at least recovered enough to make the head honchos sufficiently confident to green-light deals.
• The price of gold is near $1,300 an ounce. If you were a CEO of one of these large majors, you'd think twice before going to your board to buy an attractive junior at a time when the price per ounce of gold had collapsed (as had been the case in early 2009). You'd know that would be a tough sell, and that a few directors would be likely to ask, "What's the rush?" The higher price at this point means these boards will likely feel more confident in the economics of buying these assets.
• A physical scarcity of gold has made these juniors even more attractive. There are 162,000 tons of gold in the world. That's it. Printing presses can't print more gold. Therefore, given that gold prices are hovering near all-time highs and that some are predicting event stronger upward moves, it makes sense for these large majors to act now and get a piece of the action.
• These large majors need to add reserves each year. Barrick, in 2009 alone, produced 231 tons (or 7.4 million ounces) of gold -- which means it reduced its reserves by that amount. These large players need to keep filling the top of their reserves funnel in order to show their investors that they are keeping their reserves high. They can't do that through new finds by themselves. They need M&A.

So, as to the virtually certain coming tide of consolidation in the gold space, I like these juniors:

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[*** This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required. ***]

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Gold: The Only Asset Worth Owning - Part II of Eric Sprott Interview

By Eric Jackson, Senior Contributor

06/10/10 - 06:00 AM EDT

Stock quotes in this article: FNM , FRE

Eric Sprott founded Sprott Asset Management in 2001 and has over $5 billion in assets under management. He has been an outspoken gold bull since 2000 and warned that the bursting of the Nasdaq bubble was the start of a long-term deflationary trend that is playing out. I met him last week in Toronto for an interview.

Second of two parts

EJ: You've loved gold for a long time but, when the crisis hit in 2008, gold and junior miners got killed like everyone else. How do you explain that?

ES: I treat what happened to gold stocks in 2008 as anomalous. Now, two years later, gold's at a record price and gold stocks have come back from an absolute pasting.

I'm not convinced the market is always right. The market can be very wrong for a certain time period. I remember in 2006 when homebuilder stocks rallied 60% because people thought housing was turning.

We love gold and silver stocks. I'm still bullish on my prior stock picks of junior miners. [At the May ValueInvesting Congress, Sprott recommended OceanaGold Corp., which is listed in Toronto under OGC, Avion Gold (AVGC.PK), and East Asia Minerals (EAIAF.PK).] Why? Because there could be times in the life of investing when people only buy one thing. That's what happened in the mid-1930s. They only bought gold stocks. So much so, there were 80,000 gold mines in the States then because they could get financing.

I just get the feeling that that could easily happen again. When you look at a system that's in trouble, you think: what's the one thing I could do to get through it? You're thinking survival, because it's not going to befun. By owning gold, you can survive it because it will have its purchasing power vs. anything out there. If we're still eating food and trading things, you will be able to use gold to buy those things.

EJ: So you see us staying in a deflationary environment?

ES: I do, certainly for paper assets. I think you might end up getting necessary inflation in food, energy, precious metals, where there could end up being real shortages.

EJ: Is that why you like energy?

ES: Yes. Unfortunately, one of the things that could happen if the whole financial system has a problem is that your whole ability to produce things goes down. If you can't borrow money in the energy business and you can't drill, your production is going down this year... immediately.

The same thing happens in agriculture. When they had the credit crisis, the farmers couldn't buy fertilizer -- just as little as a year ago. The shortages could develop quickly because of financial problems. So prices will initially drop due to a lack of demand, but then supply plummets.

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[This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.]

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Gold Running in Short Supply: An Interview with Eric Sprott

By Eric Jackson, Senior Contributor06/09/10 - 06:30 AM EDT

Stock quotes in this article: PHYS , GLD

Eric Sprott founded Sprott Asset Management in 2001 and has over $5 billion in assets under management. He has been an outspoken gold bull since 2000 and warned that the bursting of the Nasdaq bubble was the start of a long-term deflationary trend that is playing out. I met him last week in Toronto.

First of two parts

EJ: You've been one of the biggest gold proponents. Where's the price per ounce of gold going?

ES: I don't have a good price target. We get involved in themes that play out for a long time. Interest ratesand reported inflation started going down in the 1980s. No one dreamed of buying gold in 2000. You were an idiot talking about it. I was initially attracted to it because I thought there was a physical shortage then. There still is.

Central governments were selling gold 10 years ago. This put a burden on a very small market. Today, central governments are buying, the miners are unhedged, you have big gold ETFs, you have coin sales going crazy. Some central banks are even telling their people to buy gold.

I've got to believe that a physical shortage will manifest itself somewhere soon. There's only 162,000 tons of it out there -- and I don't know anyone selling it. Someone's going to try to buy a bar of gold sometime and it won't be there.

My partner, John Embry, went into gold many years ago because he thought it would become a substitute for fiat currencies. Governments are printing money and, sooner or later, people will realize that it's better to own gold than any bank deposits. This theme is obviously massively playing out as we speak. You look at the quantitative easing (QE) programs, budget deficits. The global fiscal irresponsibility plays into the hands of the gold owner. More people will figure it out and they'll go there.

We now have large investors -- John Paulson, to name one -- putting their money into gold. If everyone started putting 5% of their portfolios in gold, there wouldn't be enough. I'm convinced the upside for gold is still quite positive. When I see some projections for $2,000, $3,000, or $5,000 per ounce, none of them bothers me. We don't know where the price will go but it will be the inverse of QE. The more they print, the more it will go up.

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[This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.]

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Gold's Appeal, Even in Deflationary Times

By Eric Jackson
RealMoney Contributor
6/7/2010 5:00 PM EDT
Click here for more stories by Eric Jackson

Last week, I met up with Eric Sprott, a hedge-fund manager who has been a pronounced gold bull and market bear since the 2000 Nasdaq bubble burst. I will post a full interview with him later this week inTheStreet. In the meantime, I want to lay out some of his arguments concerning gold for you to consider.

Gold is seen by some investors as a useless yellow rock. You can't eat it, this line of thinking goes. It was something that people clung to centuries ago, but it has no use today -- especially when there are so many compelling stocks to invest in. Besides, the thinking also goes, if you want safety, you can buy U.S. Treasuries. People who pooh-pooh gold also tend to characterize the gold bulls as kooky, end-of-the-world types.

It was anti-gold thinking like this that drove down the price of gold 10 years ago to $250 per ounce. That drop in the price of the metal also coincided with the ultra-high-risk appetite that investors had at the time for tech stocks.

Many non-followers of gold assume that what drives the value of the metal is inflation. But we've seen the value of gold quintuple over the last decade in a period of deflation -- not inflation. And many are of the view that deflation will be with us for the foreseeable future.

Sprott's view of gold is that the metal is -- and will be -- driven by two fundamental factors: (1) limited supply of the metal and (2) a view that the metal will become increasingly seen as a safe and alternative currency vs. other fiat currencies.

On the first factor, physical scarcity, you might not realize that there are only 162,000 tons of gold in the world today. And all the miners of the world are only extracting another 2,500 tons annually. If suddenly all central banks and investors decided that they wanted to allocate 5% of their portfolio to gold, there would not be enough to go around.

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[This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required.]

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