No subject

It's the irresponsibility of the monetary authorities. These [moves to buy =
up toxic assets and guarantee debt] are not in any rule book you or I have =
ever read. It's a little surreal. We're trying to defy the laws of nature. =
You had a credit bubble that has broken, and you're trying to prevent the l=
ogical outcome.=20



What's your sense of the sentiment out there now?=20



There are two sentiment measures. One is the economy, which has got to be a=
bout as bad as it's ever been. And then there are the financial markets, wh=
ich in some ways are a bit of a game. It's the game of trying to get financ=
ial assets to inflate, which may have nothing to do with the economy. The a=
ccepted belief in the U.S. is you cannot get an economic recovery without s=
tability in the banking system. That's why all this effort, for the most pa=
rt, has been dedicated to the financial system and very little to the econo=
my.=20



You disagree?=20



I think you've got to fix the economy. You can keep stock or bond prices mo=
ving. But ultimately people have to want to lend. And if the economy gets w=
eaker, they're not going to lend. And ultimately, people may not want to bo=
rrow. It can cut both ways.=20



Do you see a widening divergence between the markets and the economy?=20



I could see a scenario where they disengage. If you throw enough money at t=
he system, the money has to go somewhere. Typically, it seeks out a paper a=
sset. You could have stocks going up, because they're hyper-inflating the m=
oney supply.=20



How do you think that will play out?=20



It's a tough call to know whether the economic weakness supersedes the quan=
titative easing. It's not something that I've ever been through before, and=
 I truly don't know the answer. But those are the two forces at work. Wheth=
er quantitative easing has an impact on financial prices, irrespective of w=
hat the economy does, is very difficult to gauge.=20



Do you regard this unpredictability as an opportunity or a handicap, given =
your investing approach?=20



I have to be cognizant of what could happen. As a guy who's short the marke=
t, you always have to look at all the range of possibilities. One of the po=
ssibilities is that people buy stocks.=20



If you're living in Japan today and you're a bear, and the government comes=
 in and says it's going to buy stocks, what do you do? Maybe you say: If th=
ey're going to start buying, I'd better cover my shorts. I may not believe =
in it, but that's the way it is.=20



So what does the ordinary investor do in this environment?=20



I can only tell you what I do and what I do on behalf of our clients.=20



There are only two things we do today: precious metals and shorting. There =
are only three things in the world that have worked [during the crisis]. Ha=
ving cash, which I question, because of the quantitative easing. ... Owning=
 gold and precious metals or shorting the market.=20



I know you have been deeply bearish on financials. What else are you shorti=
ng?=20



I've actually been going a little further into the economic stocks lately. =
You know pretty well that anybody who's related to the economy cannot be do=
ing well.=20



Any that you care to discuss?=20



To me a classic example is Caterpillar. We've seen many, many instances whe=
re the makers of big things get orders cancelled [in bad economic times]. W=
hether it's airplanes, ships, front-end loaders, the orders just get cancel=
led, because there's enough equipment around already. They've already annou=
nced layoffs [at Caterpillar]. And I'd hate to see what the order book look=
s like.=20



Do you ever second-guess your bearish approach, knowing that governments ma=
y be doing enough to prop up the markets, if not the economy?=20



We always question it. I was asked a question today: Do you see any signs o=
f an economic turnaround? No, I do not. But trust me, every day every piece=
 of information that comes out on anything [is analyzed closely].=20



So to sum up, you've still got a solidly negative outlook, despite the heav=
y intervention of governments, or perhaps because of it.=20



I would guess that it's too big to bail. ... They're trying to solve a very=
 complex problem that I suspect they're not going to be able to solve.=20



bmilner at globeandmail.com=20



***=20



MEET THE BEARS=20



Eric Sprott is one of four speakers at A Night With The Bears in Toronto ne=
xt week. In tomorrow's Globe Investor, Ian Gordon, author of the Long Wave =
Analyst newsletter, will explain why he believes "we're only really at the =
beginnings of this massive collapse of the debt structure."=20