Eric Sprott's Latest Commentary: Ignoring the Obvious ~ market folly

Monday, January 28, 2013

Eric Sprott's Latest Commentary: Ignoring the Obvious

Eric Sprott, founder of Sprott Asset Management, is out with his latest 'markets at a glance' outlook.  Entitled "Ignoring The Obvious," the piece points out how the Fed's actions are just masking real problems such as high unemployment, exploding government liabilities, and how money printing doesn't achieve anything constructive.

Sprott writes:

"The purpose of asset purchases by the Fed might no longer be improvements in the real economy, but rather a more subtle financing of U.S. government deficits. However, in the long run, expanding the money supply inevitably leads to inflationary pressures. Luckily for the Fed and the U.S. government, there is so much slack in the labour market that inflation might be years away. And, if we are right about the long run unemployment rate being structurally higher, then the Fed has all the room it needs to continue Quantitative Easing (QE) to infinity. This might allow them to continue to hide the true financial position of the government for many years to come."

Concluding his piece, he simply asks if we're going to ignore the obvious?  Well, the market is certainly ignoring it for the time being as 2013 has begun with a ferocious rally.

Stock Market Ignores the Obvious

While Sprott points out economic realities, it's always worth noting that the market can remain irrational longer than you can remain solvent.  Sometimes you just have to ride the perception until it dissipates, a concept illustrated via George Soros' best investment advice.

As you've undoubtedly seen over the past few weeks, various hedge fund managers have paraded their bullish views like David Tepper and even Ray Dalio said that 2013 will be a year that "cash moves into stuff".

So instead of asking if we're going to ignore the economically obvious (the market already has), perhaps Sprott should re-phrase his question and ask when the Fed's mirage will disappear and when we'll stop ignoring the obvious?

Embedded below is Eric Sprott's latest commentary:

For more from this investor, be sure to check out Eric Sprott's previous commentary as well.

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