Yo-Ho-Ho & Breakdown.   18-11-08

If circumstances demand a career change, a move into
real estate brokerage or tax collection shall be considered a lateral
move and said individual may still keep their pirate status.

Rule 10 a. The Pirate’s Manual.

We open with our cosy 20^th century world order continuing in the process of breaking down.  In the global economies, all the major western ones are in or are headed in to recession. The US real estate bubble burst and thanks to massive Wall Street fraud and greed, detonated the leveraged derivatives gambling economy, now being futilely bailed out by unwilling taxpayers on either side of the Atlantic.  In the world of floating exchange rates, destabilisation has set in, as deleveraging has caused the panic to acquire limited dollars at any price to settle international losses.  However we open today with yesterday’s news that threatens the continuance of our modern way of life. Our 21^st century world operates on the unrestricted flow of oil and to a lesser extent natural gas, and yesterday that flow was successfully attacked by pirates. Below, Petroleumworld and the FT cover the story, with massive implications for world trade.  The Saudi owned VLCC Sirius Star with about $100 million of crude oil en-route to America, was seized for ransom by Somali pirates. As the FT points out below, shipping companies are already abandoning use of the Suez Canal route, in favour of the much longer route to Asia via the Cape of Good Hope. Apart from collapsing Egypt’s revenue if it continues for very long, the disturbing thing about this piracy, is its scale and the distance from Somalia where it took place.  This is not a problem the west can ignore for very long.

Pirates do not go shopping. Pirates go lootin' and plunderin'

Rule 2. The Pirate’s Manual.

Pirates hijack Saudi VLC tanker off African coast: US

DUBAI
Petroleumworld.com, November 18, 2008

Pirates have seized control of the Saudi-owned super tanker Sirius Star off the east coast of Africa and are taking it towards a Somali port, the US Navy said on Monday.
   
The 318,000 deadweight tonnes Very Large Crude Carrier is the largest vessel to be seized in an epidemic of piracy in the region.
   
"According to the latest report we have, the ship is approaching the Somali coast, heading towards Eyl (port)," a spokeswoman for the Bahrain-based US Fifth Fleet told AFP by telephone from Dubai. "Can we assume that the pirates are Somalis? Yes."
   
Sirius Star, which is owned by Saudi Aramco, carried 25 crew members from Croatia, Britain, Philippines, Poland and Saudi Arabia, according to a US Navy statement.
   
The South Korea-built ship, launched earlier this year, is operated by Vela International and registered in Liberia.
   
Vela said the fully-laden tanker was seized by a group of armed men about 420 nautical miles off the coast of Somalia on Sunday.
   
"All 25 crew members on board are reported to be safe. Vela response teams have been established and are working to ensure the safe release of the crew members and the vessel," the company said.
   
The International Maritime Bureau has reported that at least 83 ships have been attacked off Somalia since January, of which 33 were hijacked. Of those, 12 vessels and more than 200 crew were still in the hands of pirates.

-----Last week, the European Union started a security operation off the coast of Somalia, north of Kenya, to combat growing acts of piracy and protect ships carrying aid agency deliveries. It is the EU's first-ever naval mission.
   
Dubbed Operation Atlanta, the mission, endorsed by the bloc's defence ministers at talks in Brussels, is being led by Britain, with its headquarters in Northwood, near London.

------NATO warships, along with ships and aircraft from several other nations have been deployed in the region to protect commercial shipping.
   
Norwegian shipping company Odfjell said on Monday it will no longer sail through the pirate-plagued Gulf of Aden, choosing instead the longer, more expensive but also safer route around Cape of Good Hope.

http://www.petroleumworld.com/storyt08111801.htm

Piracy blows ships off Somali course

By Robert Wright in London  Published: November 12 2008 00:48 | Last updated: November 12 2008 00:48

Growing numbers of shipowners are so concerned about the threat of piracy off the coast of Somalia that they are lengthening voyages by as much as three weeks to avoid the area.

Svitzer, the world’s largest tug operator, last week became the first shipowner to admit publicly that it was sending vessels that needed to move between Europe and Asia via the Cape of Good Hope route rather than the Suez Canal.

Intercargo, the international organisation of dry bulk ship operators, said several of its members were also now using the Cape. Intertanko, the international tanker-owners’ organisation, said members were not using the Cape route but some were seeking to send ships only on voyages that avoided the danger area, which has seen 83 attacks and 33 hijackings this year.

The diversions will push up the number of days customers will need to pay to charter a vessel – although, since rates have plunged by more than 90 per cent since May, costs remain only a fraction of a few months ago.

Jens Viby Morgensen, brand and communications manager for Svitzer, part of AP Møller-Maersk of Denmark, said the operator was avoiding Suez to safeguard people on board its ships.

The operator’s Svitzer Korsakov was seized with six crew in February while making its way between St Petersburg and Sakhalin, in Russia’s far east.

“We have such slow ships and they are so easy to board,” Mr Morgensen said.

http://www.ft.com/cms/s/0/e0f50f32-b017-11dd-a795-0000779fd18c.html

Below, CNBC tallies up the US end of the crony gambling bankers rescue packages. It’s already more than every other US expenditure except for World War 2. Amazingly, still no one has been held to account, and the line for more taxpayer cash gets longer by the day. Stay long precious metals, no one least of all those running the Fed and US Treasury, have any idea when the bailout will end, nor what in the end it will have cost. Add the crony bankers rescue tab to the rest of our former cosy world breaking down.

Financial Crisis Tab Already In The Trillions

By CNBC.com | 17 Nov 2008

Given the speed at which the federal government is throwing money at the financial crisis, the average taxpayer, never mind member of Congress, might not be faulted for losing track.

CNBC, however, has been paying very close attention and keeping a running tally of actual spending as well as the commitments involved.

Try $4.28 trillion dollars. That's $4,284,500,000,000 and more than what was spent on WW II, if adjusted for inflation, based on our computations from a variety of estimates and sources*.

Not only is it a astronomical amount of money, its' a complicated cocktail of budgeted dollars, actual spending, guarantees, loans, swaps and other market mechanisms by the Federal Reserve, the Treasury and other offices of government taken over roughly the last year, based on government data and new releases. Strictly speaking, not every cent is directed a result of what's called the financial crisis, but it arguably related to it.

Some 68-percent of the sum falls under the Federal Reserve's umbrella, while another 16 percent is the under the Treasury Asset Relief Program, TARP, as defined under the Emergency Economic Stabilization Act, signed into law in early October.

http://www.cnbc.com/id/27719011?ref=patrick.net

Next, can the crony banker bailout plan even work as Dr. Bernanke and Treasury Secretary intend. Below, a retired Country Manager for Citibank in three Latin American countries suggests that “this time it’s different.”  It’s not 1929 after all. Dr. Bernanke’s master plan is flawed. From all the flip-flops and bait and switches to the Congress, we already know that the US Treasury Secretary hasn’t got a master plan at all.

Why Paulson and Bernanke's Plans Don't Work

by: James Wood November 17, 2008

Today the world faces its largest economic challenge since the Great Depression of 1929. Ben Bernanke, who has been an avid reader of the causes and solutions to the Depression of 1929, has concluded that throwing a lot of government money at the problem will stimulate the private economy and help us work our way out of the problem. It worked pretty well in the Great Depression.

However, this time it will not work. The risk we face with a continuation of this strategy is destroying the value of the US dollar and causing a greater problem, hyperinflation, than we had with the 1929 Depression. The plans presented by Secretary Paulson and the Fed Chief Bernanke are not viable and will not achieve the objective of stabilizing the economy, preserving the banking system and promoting employment.

-----What’s different this time from 1929 is the pervasiveness of the excessive credit and poor credit. In the 1930s, debt was about 150% of the GDP. Today it is about 350% of the GDP and this is before derivatives. While we do not know exactly how much derivatives increase leverage, it probably doubles the indebtedness. We probably have more than 5 times the indebtedness in terms of GDP now than we had in the Depression of the 1930s. In the 30s, we could increase further our indebtedness. Today, we are obliged to lower our indebtedness to assure the viability of our financial system. Fed Chief Bernanke is applying a solution for a 1929 problem which is not applicable to our highly over leveraged economy of today.

Starting late last year, the world started the process of deleveraging. Every type of financial class now recognizes we have excessive debt level which has created a situation where our financial institutions are not safe. We have many institutions with leverage ranging from 30 to as high as 100, when derivative leverage is taken into account. If you really want to see excessive leverage, look at Freddie Mac. They now have only about $9 billion of net worth going quickly to zero net worth, and they owe much more than $1 trillion in direct liabilities and guarantees. That is more than 100 to 1 leverage in a government supported institution. And it is equally bad in many unregulated and regulated financial institutions, particularly where there is a high use of Credit Default Swaps.

----The Fed can provide money to the banks, but the Fed cannot make the banks lend if they think they will not get back their money from the borrower. The Fed is completely powerless in this situation. They can put the cost of money at zero and they will not convince a bank to lend if the bank does not believe in the capacity of the borrower to repay. The $100+ billion given to the banks in recent weeks from TARP will have no direct benefit to bank borrowers. The recipient banks have said publicly they will hold the money as a cash cushion or they will use the money to buy other banks. Secretary Paulson says his measures are stabilizing the banks. The truth is a $100 billion will provide slightly improved liquidity for the banks for a few weeks but do nothing to fix the underlying problem.

----In short, the fundamental plan of Paulson and Bernanke will fail to stimulate new lending even if they give away $700 billion. The Paulson plan is primarily bailing out bank equity investors; it is not stimulating the economy and banks to lend. Increasing the money supply at this time runs the risk of creating hyperinflation and destroying the value of the US dollar. We are fundamentally in a deflationary cycle which needs to be worked through.

http://seekingalpha.com/article/106322-why-paulson-and-bernanke-s-plans-don-t-work?source=email&ref=patrick.net

Below, the great 2008 havoc continues in the commodities markets. Collapsing prices compounded by currency turmoil, leave the giant natural resource companies best laid plans in ruin.  Sadly miners in many a one horse town are about to pay the price for the central bankers derivatives gambling experiment “gang aft agley.”  No room at the central bankers’ luxury bailout inn for them, just “grief an’ pain for promis’d joy.”  When will the world wake up and see central banking for what it is?

But, Mousie, thou art no thy lane,
In proving foresight may be vain;
The best-laid schemes o' mice an 'men
Gang aft agley,
An'lea'e us nought but grief an' pain,
For promis'd joy!

Robert Burns. 1785.

NOVEMBER 17, 2008

Giant Mines Scramble to Cut Output

Mining companies -- which couldn't dig minerals out of the earth fast enough just a few months ago -- now are struggling to climb out of a very deep hole.

On Friday, the world's biggest miner, BHP Billiton, said major Chinese customers are trying to delay purchases of iron ore as China's building boom slows sharply. The scale of the December delays could cut BHP's iron-ore deliveries by at least 5% for the full year.

The mining giants that feed the world's appetite for iron, copper and other industry staples earned piles of money as commodities prices soared the past few years. But those days are over for now.

Metals prices fell 35% in just four weeks last month -- the steepest decline ever recorded, according to Barclays Capital. Prices for palladium, a key ingredient in automobile catalytic converters, are down 70% since midyear as car buyers make themselves scarce. Half or more of the world's aluminum production is now unprofitable.

Mining companies, a significant barometer of global economic health, are shuttering operations and firing thousands of workers across South Africa, Australia, Canada and Russia.

Rio Tinto cut 10% of its iron-ore production last week, matching a similar move by the world's largest iron-ore producer, Brazil-based Companhia Vale do Rio Doce. On Thursday, Xstrata PLC announced plans to close two nickel mines in Northern Ontario. Alcoa Inc. has so far cut about 15% of its annual capacity.

Big steelmakers world-wide have been cutting production as much as 35%. U.S. Steel Corp., the largest steelmaker in the U.S, last week said it was laying off 2% of its work force due the the slowing economy.

Nearly every mineral is affected. Molybendum, which gives steel its strength, fell 60% to $12 a pound in the past year. Copper -- recently so expensive that burglars would break into houses not to steal jewelry, but to steal the plumbing -- is off more than 50% since April. Tin smelters across Indonesia, where nearly 25% of the world's tin is made, are halting production.

http://online.wsj.com/article/SB122688301012632105.html?mod=testMod

Lonmin to Close Platinum Mines, Halt Expansions as Prices Fall

By Ron Derby and Carli Lourens

Nov. 18 (Bloomberg) -- Lonmin Plc, the world’s third- largest platinum producer, will close mines, halt expansion and cut jobs after the price of the metal plunged.

“We are exercising producer discipline by announcing that we will close those portions of our operations which are uneconomic,” Chief Executive Officer Ian Farmer said in a statement to the Johannesburg stock exchange today.

Lonmin will suspend opencast mining at Marikana in South Africa by Dec. 31. The London-based company said it may close the “uneconomic” Limpopo Baobab mine shaft and put Akanani and other expansion projects on hold, citing the credit crisis.

Platinum has fallen 64 percent from the record $2,301.50 an ounce traded in March as the global economy moves into a recession, eroding demand for jewelry and cars. The metal traded at $827.50 an ounce as of 8:05 a.m. in London. Rival mining company Aquarius Platinum Ltd. said last month it cut production.

http://www.bloomberg.com/apps/news?pid=20601116&sid=aivSv7ehq9QU&refer=africa

Next, is it all over for GM?  Can “the General” cling on to life long enough for President elect Obama to be sworn in to office and order the Fed’s helicopters to start tossing out dollars over GM Detroit?  Can GM make it past year end?  Is it all a great con to get cheap new financing from the US taxpayer?  Who knows but with a new recession starting and the likes of Citigroup starting to fire 60,000, will it make any difference to GM’s survival even if they get their $25 billion taxpayer bailout?  The history in car making suggests that once a manufacturer crashes this badly, they rarely survive no matter the life support.  All the life support ever accomplishes is to allow all the brand owners to come to terms with the passing of their warranty cover.

We seem to forget that a cloistered executive, whose only social contacts are with similar executives who make $500,000 a year, and who has not really bought a car the way a customer has in years, has no basis to judge public taste.

John DeLorean. 1979. Auto Executive. Cocaine Entreprenuer.

November 18, 2008

What Should Congress Do With G.M.?: A Chairman Fights for Carmaker’s Future and His Reputation

By BILL VLASIC

DETROIT — Rick Wagoner cannot afford to leave Washington this week without at least $10 billion in federal aid to keep General Motors in business.

But a major question for Mr. Wagoner, G.M.’s chief executive for the last eight years, is whether he will return to Detroit with his job as well.

While the heads of the Ford Motor Company, Chrysler and the United Automobile Workers are scheduled to also testify before Congress on Tuesday and Wednesday, it is Mr. Wagoner and his company that have become the lightning rods of the debate over whether Detroit should get a bailout.

G.M., the largest American automaker, is in desperate need of cash to survive the worst vehicle market in the United States in 15 years. Mr. Wagoner has, so far, led the industry’s intensive lobbying effort to get federal loans for all three companies.

Like Lee Iacocca, Chrysler’s chief in 1979, Mr. Wagoner has the tall task of convincing skeptical Republican lawmakers to back a Democratic plan to save Detroit.

But unlike with Mr. Iacocca, Mr. Wagoner’s 31-year career at G.M. has not been built on personal charisma and the art of the deal. Instead, he is seen as the leader of a company that has lost $20 billion in the first nine months of this year alone, as its stock price has dropped into the low single-digits from more than $30 a share a year ago.

The company’s cash cushion is shrinking so fast — by more than $2 billion a month — that it has said federal help is needed to keep it from running out of sufficient cash for its operations by the end of the year.

Mr. Wagoner has said that despite its perilous financial condition, G.M. has no plans to file for bankruptcy, or even prepare for the possibility that it may need to seek Chapter 11 protection. But that is the clear threat.

------The debate on Capitol Hill will focus on whether the Detroit automakers can get $25 billion in aid immediately from either the Treasury Department’s $700 billion financial rescue program, or from an existing loan program aimed at improving the fuel-efficiency of Big Three vehicles.

Ford and Chrysler, however, have not made the same dire predictions about their businesses — putting the urgency of the bailout squarely on the shoulders of Mr. Wagoner and G.M.

http://www.nytimes.com/2008/11/18/business/economy/18auto.html?pagewanted=print

Toyota, BMW, Hyundai Workers' Senators Oppose Rescue

By Alison Fitzgerald and Jonathan D. Salant

Nov. 17 (Bloomberg) -- Senators from southern states with factories owned by Asian and European car manufacturers oppose a bailout of U.S. automakers, saying the industry can thrive without General Motors Corp., Ford Motor Co. and Chrysler LLC.

Republican Senators Richard Shelby and Jeff Sessions of Alabama, and James DeMint of South Carolina, are among lawmakers trying to derail Democratic plans, supported by President-elect Barack Obama, to provide at least $25 billion in loans to the three U.S. companies.

``We have a very large and vibrant automobile sector in Alabama,'' Sessions told Bloomberg Television on Nov. 11. ``I don't feel like this is the end of the world.''

Alabama has two assembly plants owned by Stuttgart, Germany-based Daimler AG, one operated by Tokyo-based Honda Motor Co. and one by Seoul-based Hyundai Motor Co. Munich-based Bayerische Motoren Werke AG employs about 4,500 people at a Spartanburg, South Carolina, assembly plant.

The proposal to loan automakers $25 billion from October's $700 billion financial rescue package will be debated during a post-election lame-duck session of Congress this week.

http://www.bloomberg.com/apps/news?pid=20601070&sid=aioYCz6oeXwc&refer=politics

Below, Paul Volker, speaks about the 2008 slump.

Volcker issues dire warning on slump

Paul Volcker, the former chairman of the US Federal Reserve, has warned that the economic slump has begun to metastasise after a shocking collapse in output over the past two months, threatening to overwhelm the incoming Obama administration as it struggles to restore confidence.

By Ambrose Evans-Pritchard Last Updated: 10:39PM GMT 17 Nov 2008

"What this crisis reveals is a broken financial system like no other in my lifetime," he told a conference at Lombard Street Research in London.

"Normal monetary policy is not able to get money flowing. The trouble is that, even with all this [government] protection, the market is not moving again. The only other time we have seen the US economy drop as suddenly as this was when the Carter administration imposed credit controls, which was artificial."

His comments come as the blizzard of dire data in the US continues to crush spirits. The Empire State index of manufacturing dropped to minus 24.6 in October, the lowest ever recorded. Paul Ashworth, US economist at Capital Economics, said business spending was now going into "meltdown", compounding the collapse in consumer spending that is already under way.

Mr Volcker, an adviser to President-Elect Barack Obama and a short-list candidate for Treasury Secretary, warned that it is already too late to avoid a severe downturn even if the credit markets stabilise over coming months. "I don't think anybody thinks we're going to get through this recession in a hurry," he said.

http://www.telegraph.co.uk/finance/economics/3474683/Volcker-issues-dire-warning-on-slump.html

We close for the day with the “art” market, now  collapsing as the credit crunch throws up more desperate sellers than willing buyers.  Worse, buyers credit is now restricted and the interest rate is higher where its available at all.  What to do in an auction house where sales don’t go to the “art nearly always goes up” script? Easy, take a leaf out of Wall Street’s standard  practise game plan, and star comparing oranges to apples.  Below, the Journal takes up the case of credit crunch deleveraging, meeting up with the “Abstract Expressionist.”  With most of modern “art” looking like it was painted in the dark by a drunk with a bad hangover and very little talent, my guess is that this is another easy money sector that won’t be returning for a generation.  Perhaps auction houses can apply to become banks, then the taxpayers can pick up all the bills. It makes as much sense as taxpayer support to make cars that no one wants, in our central bank, fiat money world, broken and now turned upside down.

Art consists of limitation.  The most beautiful part of every picture is the frame. 

G.K. Chesterton

NOVEMBER 15, 2008

Making Sales Look Stronger

The auction houses have an interesting way of reporting their auction results

By LEE ROSENBAUM

By now, you've probably read the accounts of the dismal results of the major evening auctions of Impressionist, modern and contemporary art at Sotheby's, Christie's and Phillips de Pury & Company, which took place this week and last. Some 143 of the 399 offerings -- more than one third -- failed to sell, and many of those that did find buyers went for prices considerably below the auction houses' presale estimates, their published predictions of the range in which an object's hammer price is expected to fall.

Actually, the situation is worse than reported. Contrary to what you might expect, press accounts, relying on the information released by the auction houses, don't normally measure a sale's success by comparing an object's hammer price -- the last amount announced by the auctioneer -- with the presale estimate of hammer price. Instead, they almost invariably compare the estimate of hammer price to a figure arrived at by adding hammer price to the commission that the auction house charges the buyer.

The result is an apples-to-oranges comparison that makes the sale results look better than they actually are, because they've been inflated by the commission. In the current round of sales, this tacked on a hefty 25 percent of the hammer price up to $50,000, 20 percent of the amount from $50,001 to $1 million, and 12 percent of the excess.

For example, Bloomberg News reported that a work by Abstract Expressionist Arshile Gorky, one of 16 drawings consigned to Christie's by Richard S. Fuld Jr., chief executive of the failed Lehman Brothers Holdings, and his wife, sold last Wednesday "for $2.2 million, at the low estimate." But its hammer price was, in fact, $1.9 million -- $300,000 below the low estimate of hammer price. Only after the auction house's commission was added did the price reach the predicted amount.

-----Just how much of an impact this particular reporting method can have on the public's perception of a sale -- and how useful it is for damage control in a down market like today's -- was illustrated at the press conference Christie's held directly following its evening Impressionist and modern art sale on Nov. 6. Auctioneer and Honorary Chairman Christopher Burge stated that 11 percent of that sale's lots had fetched prices that surpassed their presale estimates. Actually, only two of the 46 lots that were purchased, a mere 4.3 percent, sold above estimate, that is unless you added in the buyer's commission.

At a time when confidence in markets has been seriously shaken, it's more important than ever for the auction houses to provide a true reflection of how their sales are performing. They can easily provide hammer price lists and totals, along with the figures that include the buyer's fee. They should then use these figures to draw the correct comparisons -- hammer price to presale estimate -- in analyzing how well their offerings have fared in the saleroom.

http://online.wsj.com/article/SB122670620372529693.html

"If GM had kept up with technology like the computer industry has, we would all be driving twenty-five dollar cars that got 1000 miles to the gallon."

Bill Gates. COMDEX.

In response to Gates' comments, General Motors issued a press release stating:

If GM had developed technology like Microsoft, we would all be driving cars with the following characteristics:

1. For no reason whatsoever your car would crash twice a day.

2. Every time they repainted the lines on the road you would have to buy a new car.

3. Occasionally your car would die on the freeway for no reason, and you would just accept this, restart and drive on.

4. Occasionally, executing a maneuver such as a left turn, would cause your car to shut down and refuse to restart, in which case you would have to reinstall the engine.

5. Only one person at a time could use the car, unless you bought "Car95" or "CarNT". But then you would have to buy more seats.

6. Macintosh would make a car that was powered by the sun, reliable, five times as fast, and twice as easy to drive, but would only work on five percent of the roads.

7. The oil, water temperature and alternator warning lights would be replaced by a single "general car default" warning light.

8. New seats would force everyone to have the same size butt.

9. The airbag system would say "Are you sure?" before going off.

10. Occasionally for no reason whatsoever, your car would lock you out and refuse to let you in until you simultaneously lifted the door handle, turned the key, and grab hold of the radio antenna.

11. GM would require all car buyers to also purchase a deluxe set of Rand McNally road maps (now a GM subsidiary), even though they neither need them nor want them. Attempting to delete this option would immediately cause the car's performance to diminish by 50% or more. Moreover, GM would become a target for investigation by the Justice Department.

12. Every time GM introduced a new model car buyers would have to learn to drive all over again because none of the controls would operate in the same manner as the old car.

13. You'd press the "start" button to shut off the engine.

Sunspot cycle 24.   With sunspot cycle 25, the next two global cooling cycles perhaps. The new “Dalton Minimum?”  A year now with low sunspots numbers, and counting.      http://en.wikipedia.org/wiki/Dalton_Minimum

Smoothed sunspot numbers (SSN). Oct. 0.9. The end of cycle 23.

Sunspot cycle 24: Nov 1.7.  Dec 10.1.  Jan 3.4.  Feb 2.2. Mar 9.3 April 2.9.  May: 2.9. June 3.1.  July 0.5.  August 0.5.  Sep 1.1  Oct. 2.9.

At the Comex silver depositories the figures are up to date again. Final figures yesterday were:  Registered 80.81 Moz, Eligible 48.22 Moz, Total 129.03 Moz.  

The NYSE WIN system is now flat.   The NASDAQ system is also flat. We will wait for better market conditions to resume trading the system.

The monthly Coppock Indicators finished October:

DJIA: -164 down. NASDAQ: -164 down. SP500: -188 down.  All 3 indicators reversed in November 07, ending long term buy signals and have now dropped to negative numbers and are still accelerating to the downside.  We will be looking for a reversal probably in the coming quarter.

This week’s featured links:  Silver & Gold Miners.

With a recession arriving in the west and a major slowdown starting in Asia, most stocks at best are going into a grinding giant churn for several months as many companies flirt with possible deflation.  For now, patience is a virtue with its own reward of capital preservation. However, the arriving recession will reduce demand for base metals with the result that mine production will decline in the year ahead.  As base metal production declines, gold and silver production will decline as well, since gold and silver are the usual by-products recovered from base metal mining.  This will be happening as worldwide precious metals demand is likely to be soaring due to all the central banks monetisation efforts.  I think it is now time to begin selectively scaling into precious metals companies that mostly meet the following criteria:

In production. Adequate cash reserves. Good management. Strong in-ground reserves.  NAFTA based, or else located in countries with strong rule of law.  Are selling nearer their lows than their highs. 

Endeavour Silver Corp. TSX: EDR. http://www.edrsilver.com/s/Home.asp

Semafo  TSX: SMF.TO http://www.semafo.com/home_company_intro.php

ATW Gold Corp. TSX.V: ATW. http://www.atwgold.com/

US Silver Corp. TSX.V: USA. http://www.us-silver.com/s/Home.asp

Excellon Resources Inc. TSX: EXN. http://www.excellonresources.com/

First Majestic Silver Corp. TSX: FR http://www.firstmajestic.com/s/Home.asp

New Jersey Mining Company. OTCBB: NJMC

http://www.newjerseymining.com/index.html

A Personal Disclosure.

Over the last few months, many of the stocks we’ve linked to have made some interesting moves.  Possibly because of the LIR link, more likely because of the underlying company and good management. Going forwards, I expect the commodities demand cycle to last another couple of decades due the economic rise of Asia. But the immediate economic picture looks very threatening.

To me owning most stocks at this time offers a poor risk-reward balance, accordingly I will sit out developments in cash, precious metals and precious metals stocks.  Being long most stocks at the start of a recession has never proved a good idea. There will be ample opportunity to re-enter the market nearer the end of the recession, which hopefully will become visible in the first or second quarter next year.   

As always, it’s important to do one’s own due diligence if thinking about making an investment. No one has more at risk in an investment than you do yourself.  In the difficult economic times arriving, there will likely be several false bottoms before the real one arrives and hindsight allows us to confirm that the bottom is in. For the next several months patience and caution should rule investment decisions.

Graeme Irvine

Global Profiles LLC    http://www.globalprofiles.net

girvine@globalprofiles.net

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