Get Informed.The reason for the drop.
Here is an article from the Globe and Mail:
Others with insight also share Sprott's viewpoint.
Hang tough people.
Contrite Sprott blames U.S. actions
But country's best-known hedge fund manager isn't giving up on his belief that oil and gold are headed inexorably higher
BOYD ERMAN
From Friday's Globe and Mail
September 12, 2008 at 2:43 AM EDT
Eric Sprott says he is sorry about the losses investors in his firm'sfunds have had to endure as commodities have sunk, but the country'sbest-known hedge fund manager isn't giving up on his belief that oiland gold are headed inexorably higher.
Shareholders of money manager Sprott Inc. and investorsin the funds it sells have watched huge chunks of value melt away withoil's fall to barely $100 (U.S.) a barrel and gold's plunge below $800.
Mr. Sprott didn't see those declines coming, especially in gold, inlarge part because he never expected regulators to act so aggressivelyto bail out the financial system.
“We apologize for that,” he said on a conference call yesterday aftertelling investors “we thought we were well positioned because wethought that gold would rally.”
The problem has been the stream of government-backed salvage plans forfinancial companies such as Fannie Mae and Bear Stearns Cos. Inc. Theseare keeping bank stocks artificially inflated and taking the wind outof a rally in commodities, he said – a complaint shared by othercommodity bulls. Mr. Sprott expects that the U.S. government will rushto help should Lehman Brothers Holdings Inc. and Washington Mutual Inc.need aid.
“The Treasury and the Fed are breaking all the normal rules of engagement,” Mr. Sprott said.
Still, Mr. Sprott said the bailouts will eventually contribute to arenewed bull market in commodities because the U.S. government ishaving to print so much money to fund them. That will drive upinflation, push down the U.S. dollar and benefit gold.
“The actions that are taking place at the governmental level all argue for owning gold,” he argued.
The bailouts are causing another problem for his funds, Mr. Sprottsaid. They're making it too dangerous to bet on declines of financialfirms, even though he said he still believes the financial system is a“farce.”
“Every time you have a bailout, the financials rocket higher.”
Even with his funds getting hit hard, the firm expects to have positivesales for the third quarter, Mr. Sprott reiterated. The firm didn'thave net redemptions in July or August, and “we do not anticipate thatwe will have net redemptions this month.”
Nonetheless, investors have hammered shares of Sprott, which wentpublic in the spring at $10 and has since fallen more than 50 per centsince on the Toronto Stock Exchange.
And investors in the firm's funds haven't done much better.
The Sprott Canadian Equity mutual fund is down almost 30 per cent thisyear and Sprott Hedge LP fund has slumped 11 per cent so far inSeptember, erasing almost all the year's gains.
The declines have taken a toll on the personal wealth of Mr. Sprott.Besides owning a majority of Sprott Inc., he is also a big investor inall the funds.
“Trust me, we are all in this together,” he said, though he declined tosay how much money he has in Sprott funds “because it's almostembarrassing.”