Sprott Sees Markets Headed Lower

Date: Friday, October 4, 2002

Canadian-owned Sprott closed the Sprott Hedge Fund LP I to all investors on July 31, and launched the Sprott Hedge Fund LP II on Aug. 31. The new fund, like its predecessor, uses a long/short equity strategy, supplemented by arbitrage strategies, corporate-event opportunities, and the participation in some select private placements. Sprott’s report reiterated its belief that ongoing drops in equity values are “world changing events,” heading the world toward a “Kondratieff Winter.” The company’s guiding thesis is that the underlying economy and the financial markets have an ambiguous relationship, sometimes reinforcing one another but at other times moving in opposite directions and compensating for one another. “Like the grim reaper telling you your time is come,” Principal Eric Sprott, in collaboration with research analyst Sasha Solunac, wrote in its report to investors, “the pillaging that is taking place in financial markets can lead to a death spiral where both the economy and the markets chase each other down.” Corporations facing higher insurance costs are also facing rising pension deficits for their pension plans. Rising pension deficits must lead to increases in contributions, and those higher contributions, too, will mean less money going into production.