Sprott Asset management, CEO, Eric Sprott says that silver producers are being hurt by the volatility in the paper silver market and need to help ensure that the physical market rules the price
Interviewer: Geoff Candy
Posted: Tuesday , 06 Dec 2011
Posted: Tuesday , 06 Dec 2011
GEOFF CANDY: Welcome to this week's edition of Mineweb.com's Metals Weekly podcast - joining me on the line is the chief executive officer at Sprott Asset Management, Eric Sprott. Eric you recently issued a "call to action" letter that was published online, on King World News basically asking that silver producers invest a portion of their cash holdings effectively in the silver that they're producing. Why do you think that's a good idea?
ERIC SPROTT: Sure - we have to go back and one of the things that most people don't appreciate although I'm surprised they haven't with all that's happened in the last three or four years - there's a lot of instances where having money in a bank is a very unwise investment. As you know - and I could give you a list of banks probably 20, 30 or 50 that have failed. Now in almost every instance, some government comes to take them over or inject funds and we should ask ourselves "why do they fail". They fail because they're over levered and with a little decline in the value of paper assets that they own, their equity comes under stress. Obviously as we looked over in Europe recently, we had stock markets down 25% and the sovereign bond market was probably down 15% to 20% and when banks are levered 20:1 it means they only have 5% of their equity supporting 100% of their assets. Well if the assets go down by 10% or 15% there is no equity there and there was a lot of discussion last week before the central banks came in to support things, there were a number of banks at risk. And I just think that the leveraging in the banking system would suggest that all banks are at risk because they've just got so levered that putting your money in there and earning no returns, is not a very good reward for the risk you're taking. So that's the fundamental start - that if you have cash in the bank - you as an individual or company should be worried about that. And yes, the FDIC guarantees whatever the number is - I don't care what the number is but the FDIC has no money. Basically it's the government of the United States backing it, and they have no money and of course most people wouldn't appreciate that either, but there's a lot of data to support that. It starts with what I call the weakness in the banking system.
