Rick Rule, Chairman of Sprott US Holdings, part of the $10 billion Sprott Group of Companies:
"... I said that bear markets ended in capitulation selling but I hadn’t seen that yet. We are now in capitulation. This is the fourth time in my career that I’ve seen capitulation selling and it gets ugly and spasmodic, but this is the beginning of the end. Certainly I believe the precious metals themselves as bullion are oversold, but they could sell off again. That’s not uncommon, a double bottom.
I think if we do get a [stronger] rebound in the precious metals prices, that it will not in the near term pull over to the equities. I think we’re going to get washout selling this summer---absolute capitulation selling. Then you’re going to have a sideways tail in the equities as both the buyers and sellers are exhausted.
The market will certainly bifurcate. The better names will do better but they will only do marginally better. It won’t feel good. But we are setting up the type of recovery that we saw in 2002, 1994, and 1986. This is the way markets work.
It’s bear markets like this that cause bull markets and the inverse reaction is a function of the strength of the action.
The depth and severity of this down market cycle, the fact that maybe 700 juniors will go away over the next 12 months, sets the stage for a truly spectacular recovery. Bear markets cause bull markets, and bull markets cause bear markets.
... I can’t tell you when it’s going to happen but I will tell you that what we’re going through right now is exactly what we needed.
…I would suspect that the equities markets in the 1975 to 1976 cyclical decline, was more like a 65% decline over nine months. It was truly brutal.
That set the stage for an unbelievable recovery and that’s worth discussing because past is often prologue. In the decade as a whole, the gold price went from $35 an ounce to $850 an ounce.
In the period from 1970 to 1975, gold advanced six-fold from $35 an ounce to $200 an ounce, and suddenly over nine months it gave up $100, from $200 to $100.
Investors who didn’t have either the cash or the courage (or better yet both) to survive a 50% cyclical decline in the secular bull market, those who got shaken out at the bottom missed the move in gold from $100 to $850, an eight-fold move over six short years and the move in the equities was even greater.
That’s a really instructive lesson.
... The truth is that many people don’t have the courage of their convictions which is why those people often go into mutual funds. But the truth is, it’s your decision as to whether you redeem. It’s your decision as to whether you add more capital in bad markets as opposed to adding more capital in good markets.
…Even as we speak, I’m conflicted. I realize that what you do with capitulation bottoms is buy. But rather than buying a broad basis, what I’m trying to do is save lots of cash to participate in private placements which will give me both shares and warrants. I want a leveraged participation to the upside and getting a warrant in a private placement is getting the opportunity (but not the obligation) to double up on your position at a fixed price over a fixed period of time.
ridiculously cheap, I am keeping lots of powder dry because I believe that I will be able to provide capital when nobody else will be willing to provide capital to an industry and get warrants.
This is the time when the A-players go to war.
.. certainly small, focused investors who are willing to allocate capital now and have a two, three, five-year timeframe can expect spectacular returns if they do the work.
I was talking with Eric this morning on the phone and what he sort of reinforced to me was that he built Sprott from a $10 million manager to a $10 billion manager by the aggressive deployment of capital at times like these. Eric has always said don’t be afraid to be right. So that’s where we are.
AI
