Sprott Inc. · TSX:SII
Sprott — Strong Symposium 2022
23 slides from Sprott's conference presentation, Feb 24, 2022
Slide 1: Inflation, the Financial Markets and Gold
Inflation, the Financial Markets and Gold John Hathaway - Strong Symposium 2022
Slide 2: What do Jay Powell, Arthur Burns, Anchovies and a Dead Horse Have in Common?
What do Jay Powell, Arthur Burns, Anchovies and a Dead Horse Have in Common? John Hathaway Sprott Inc. | 2
Slide 3: Transitory Inflation!
Transitory Inflation! Burns Powell 1972 Until recently, Powell insisted increases in the prices of food, construction materials, used cars, personal • Decimation of anchovies by El Nino drove fertilizer health products, gasoline, car rentals, and appliances and feedstock prices higher in turn drivin
Slide 4: Higher Wages will Affect CPI with a Lag
Higher Wages will Affect CPI with a Lag • 60% or so of all cost inputs • Very sticky compared to commodity cost inputs • Q4 ECEC to be announced March 18, 2022 Employment Cost Index QoQ Click to edit Master title style Economic Slowdown or Recession will not stop embedded inflation John Hathaway Spr
Slide 5: High Unemployment and Inflation
High Unemployment and Inflation • Assumption that high unemployment and inflation are binary is suspect based on 1970s precedent GDP (% change) Unemployment CPI 1973 5.64 4.9% 6.2% 1974 (.541) 7.2% 11.1% 1975 (.205) 8.2 9.1% 1976 5.33 7.8 5.7% 1977 4.62 6.4 6.5 1978 5.55 6.0 7.6 John Hathaway Sprott
Slide 6: Equity Markets Poised to Falter?
Equity Markets Poised to Falter? Market Priced for Perfection Fed Accommodation = Financial Asset Bubble Source: Stephanie Pomboy, MacroMavens as of 12/31/2021. Click to edit Master title style John Hathaway Sprott Inc. | 6
Slide 7: Bear Markets…
Bear Markets… “Exponentially rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.” –Robert Farrell, 10 Rules of Investing, rule #4. “Bear markets have three stages— sharp down, reflexive rebound, and a drawn-out fundamental downtrend.” –Robe
Slide 8: The Powell Pivot
The Powell Pivot • With Fed policy taking a more hawkish turn, the fire hose of liquidity that has fueled the mania is being turned off. Should the Fed not flinch (a major assumption), bubble days would seem to be numbered. A deflation of financial assets would very likely trigger a downturn in econ
Slide 9: Markets are strongest when they are broad and weakest when they narrow
“Markets are strongest when they are broad and weakest when they narrow to a handful of blue chip names.” – Robert Farrell, 10 Rules of Investing, Rule #7 60 year veteran market analyst sees a bear market ahead • There’s much more that’s a problem with this trend. And this is what so confuses so man
Slide 10: Russell 3000 Index… 2009-2022 Channel
Russell 3000 Index… 2009-2022 Channel • A selloff by June 30th to the midpoint of the 2009-2022 channel would represent a 20% +/- peak- to-trough decline. • A selloff by December 30th to the lower band of the 2009-2022 channel would represent a 37% +/- peak-to-trough decline. Source: Carter Braxton
Slide 11: Catalyst for Gold = Bear Market + Loss of Confidence in the Fed
Catalyst for Gold = Bear Market + Loss of Confidence in the Fed • Confidence in the Fed and attraction to gold at the moment appear to be binary. We stand by our comments from our July 2021 You Gotta Have Faith report, “Faith in the Fed’s omniscience is convenient to the investment consensus because
Slide 12: What Nominal Rate is Necessary to Provide a 2% Real Return?
Q. What Nominal Rate is Necessary to Provide a 2% Real Return? A. 7.27% • Back in the mid-to-late 1970’s, when the FOMC raised the Fed Funds rate from 6.5% t0 10.5%, the CPI increased from 6.0% to 13.0%....the “real rate”, the nominal rate less inflation, was minus 2.5%. The inflation was finally st
Slide 13: Accelerating Maturities of Speculative Grade Debt
Accelerating Maturities of Speculative Grade Debt Source: Macro Mavens, LLC. Stephanie Pomboy; John Hathaway Sprott Inc. | 13
Slide 14: Expectations of a return to positive real rates is a fantasy
In other words, expectations of the Fed orchestrating a return to positive real rates is a fantasy Relevance of Intransigent Inflation to Asset Valuations and Gold • It would be a mistake to position gold narrowly as an inflation hedge. While gold performed well during the inflationary 1970s, it als
Slide 15: Gold Bullish Supply & Demand Setup
Gold Bullish Supply & Demand Setup Gold Mine Supply Indian Imports – Highest In 5 Years John Hathaway Sprott Inc. | 15
Slide 16: Asian Demand for Physical Gold has Surged
Asian Demand for Physical Gold has Surged India's 2021 Gold Imports Hit Six-Year High Chinese Investment Strongest In Three Years John Hathaway Sprott Inc. | 16
Slide 17: Gold-Backed ETF Flows
Gold-Backed ETF Flows Source: World Gold Council Gold Hub as of 12/31/2021. Included for illustrative purposes only. John Hathaway Sprott Inc. | 17
Slide 18: GLD Fund Flows
GLD Fund Flows John Hathaway Sprott Inc. | 18
Slide 19: Gold Mining Shares are Inexpensive… In Absolute and Relative Terms
Gold Mining Shares are Inexpensive… In Absolute and Relative Terms Relative Valuations of Gold Mining Equities (GDM)11 vs. S&P 500 Index Gold Mining GDM vs. Since 2006 S&P 500 Comment Equities (GDM) S&P 500 16 YR %-tile EV/EBITDA 6.43 14.65 0.44 0.06 Lowest 6%-tile P/E Ratio 15.56 21.81 0.71 0.08 Lo
Slide 20: Gold Miners vs. S&P 500: EV/EBITDA
Gold Miners vs. S&P 500: EV/EBITDA Gold Mining Equities (GDM)11 EV/EBITDA Relative to S&P 500 Index EV/EBITDA (2006-2021) Source: Sprott Asset Management, Bloomberg. Data as of 12/31/2020. DO WE HAVE ONE THAT IS UPDATED AS OF 2021?? What is footnote 11? John Hathaway Sprott Inc. | 20
Slide 21: A Promising Chart
A Promising Chart John Hathaway Sprott Inc. | 21
Slide 22: John Hathaway
John Hathaway John Hathaway, CFA, Senior Portfolio Manager John Hathaway joined Sprott Asset Management in January 2020. Mr. Hathaway is a Portfolio Manager of Sprott Hathaway Special Situations Strategy and Co-Portfolio Manager of the Sprott Gold Equity Fund. Previously, Mr. Hathaway joined Tocquev
Slide 23: Important Disclosure
Important Disclosure Past performance is no guarantee of future results. You cannot invest directly in an index. This content is intended solely for the use of Sprott Asset Management USA, Inc. for use with investors and interested parties. Investments, commentary and statements are unique and may n