"Why gold?" you ask. This video will be somewhat redundant for investors who already understand why gold does what gold does and why it's been a 5000 year store of wealth. But this is an excellent 5 minute explanation of how and why gold functions to preserve your wealth/purchasing power and why gold is the ultimate hedge against the daily erosion in value of the U.S. dollar (my friend and colleague Jesse of http://www.jessescrossroadscafe.blogspot.com/ brought this video to my attention):
Wednesday, September 30, 2009
When Is The SEC Going To Investigate Jim Cramer?
CIT's stock price plunged 45% today as the company collapses under the weight of billions of dollars of distressed assets (bad loans) and appears headed for some flavor of bankruptcy. YESTERDAY, however, CIT stock ramped up over 31% as a rumor circulated the market that a $10 billion bank loan was being arranged to save CIT from bankruptcy. The majority of that ramp up occurred AFTTER Jim Cramer came on to CNBC and pounded the table for viewers to load up on CIT stock. Here's the link (hat tip to Zerohedge.com): Cramer: CIT to the Moooooon
Anyone who has been following the CIT soap opera knows that Pimco effectively tied up most of the decent collateral, as it engineered (some would say "forced") a $3 billion debt swap in which unsecured bonds were exchanged for super-collateralized bonds. This basically negated any hope of a larger, secured bank debt deal and would put Pimco in prime position to profit handsomely from any future financial reorganization/liquidation.
How come Cramer did not know these facts? Why is Cramer allowed to go onto CNBC and continually issue table-pounding stock buys on imminent train wrecks? He did the same thing a few days before Bear Stearns collapsed. We know by his own admission that he used to front-run stocks on inside information when he managed a hedge fund. How do we know he's not pumping up stocks like CIT and Bear Stearns in order to allow his Wall Street cronies to get out of them before they vaporize?
My question is, WHEN IS THE SEC GOING INVESTIGATE CRAMER AND CNBC? Why is Cramer much different that Madoff? Both are corrupt snake-oil salesmen. I hope some burned investors from the current CIT abortion pursue this matter in court.
Anyone who has been following the CIT soap opera knows that Pimco effectively tied up most of the decent collateral, as it engineered (some would say "forced") a $3 billion debt swap in which unsecured bonds were exchanged for super-collateralized bonds. This basically negated any hope of a larger, secured bank debt deal and would put Pimco in prime position to profit handsomely from any future financial reorganization/liquidation.
How come Cramer did not know these facts? Why is Cramer allowed to go onto CNBC and continually issue table-pounding stock buys on imminent train wrecks? He did the same thing a few days before Bear Stearns collapsed. We know by his own admission that he used to front-run stocks on inside information when he managed a hedge fund. How do we know he's not pumping up stocks like CIT and Bear Stearns in order to allow his Wall Street cronies to get out of them before they vaporize?
My question is, WHEN IS THE SEC GOING INVESTIGATE CRAMER AND CNBC? Why is Cramer much different that Madoff? Both are corrupt snake-oil salesmen. I hope some burned investors from the current CIT abortion pursue this matter in court.
Tuesday, September 29, 2009
ECU and Aquiline Resources: A Little Risk, A LOT of Return
The fund I manage owns both of these stocks, for the record (ECU.TO/ECUXF; AQI.TO/AQLNF). I have personally owned ECU since mid-2005. To say the least, it's been a wild ride. Both Companies are intermediate-stage exploration miners who have discovered extremely large silver deposits. ECU's deposit is in Valerdena, Mexico, in the heart of one of the most prolific silver mining regions in the world. AQI's holy grail is located in Navidad, Argentina, in the Chebut province. At the end of the day, I view these two emerging silver miners as being "twin" companies in terms of the outright size of their respective deposits and relative stages of development. Both have obstacles to overcome in order to unlock their massive upside value. Either one could possibly be sitting on what will end up being the largest untapped silver deposit in the world. Both stocks are extremely undervalued relative to the potential value being given by the market right now for their proven in-ground silver.
AQI to date has proved up 750 million ounces of silver on its Navidad site. The stock has been moving higher over the past couple months as the political climate in its province in Argentina appears to be moving toward being more amenable to allowing open pit mining and the use of cyanide, which is used in processing mined ore. At it's peak valuation before the 2009 bloodbath in junior mining stocks, AQI had reached a market cap of approximately $850 million. The current market cap is $337 million, or about 45 cents per proved ounce of silver in the ground. AQI also has two gold mines it is developing, one of which is in Peru should be operational some time in 2010.
ECU has a proven approximately 431 million ounces of silver at its three main properties, with the Valerdena deposit being the largest. Interestingly, MICON, one of the most respected of the mineral resource testing and validation firms, also believes that ECU's deposits have "Mineral Potential: 569,524,000 to 930,400,000 ounces of silver equivalent." ECU's current market cap is $133 million, or about 31 cents per silver, as strictly measured, in the ground. But based on Micon's potential estimates - let's use a mid-point of roughly 700 million ounces - ECU is being valued at 19 cents per ounce of silver in the ground. ECU is currently processing ore stockpiles using a mill it acquired earlier this year. One of the surprises - and which could be another big source of upside for ECU - is the amount of gold which has been discovered and is being produced from the ore stockpiles. In other words, as ECU further develops and unlocks the metallurgy of its silver discoveries, there is a lot of gold also embedded as part of the ore mix. The stock market is not giving any credit whatsoever to the fact that ECU has not only begun to produce mining revenues, but that a large part of this revenue stream will come from gold. ECU has always been viewed as a pure silver play.
Just to quickly address the source of Micon's "mineral potential" statement. The ultimate source of the mineralized veins discovered on ECU's Valerdena property has not yet been determined. However, the geologists at ECU believe they have identified the location of a Massive Sulphide Zone (MSZ), which they believe, off-the-record, could be as big as 500 million ounces. The potential silver content of this MSZ is not included in Micon's "silver potential" estimates. ECU's goal is to use the revenue being derived from their mill to pay for the deep drilling required to explore and prove the content of this MSZ. I have always believed, based on several conversations with management AND with people who have been down to see the mine, that this MSZ would eventually be defined and would give ECU's stock serious upside potential.
Similar to ECU's hurdle to valuation nirvana, the instant that the cyanide and open pit mining ban is lifted in AQI's Chebut province, AQI's stock could go parabolic - at least a triple from here very quickly.
I do believe, however, that while ECU is unbelievably undervalued relative to AQI, both stocks have unique risk/return characteristics which make them two of the most attractive junior mining stock plays I have seen in the last 8 years. And one more variable to consider if you decide to put some of your own numbers to the valuation potential for ECU and AQI. Both are trading below 50 cents per ounce in the ground right now. For general valuation purposes at the peak of the junior mining stock valuation run which culminated in May 2006, silver minining companies, on average, were being valued at $5 per ounce in the ground. Back then silver topped out a little over $15/ounce. We've seen silver go over $21/ounce in the last 18 months. Imagine what the ultimate stock price/valuation potential is for Companies like ECU and AQI when silver goes back over $20 and stays there AND the market reverts to valuing silver in the ground at several dollars per ounce.
AQI to date has proved up 750 million ounces of silver on its Navidad site. The stock has been moving higher over the past couple months as the political climate in its province in Argentina appears to be moving toward being more amenable to allowing open pit mining and the use of cyanide, which is used in processing mined ore. At it's peak valuation before the 2009 bloodbath in junior mining stocks, AQI had reached a market cap of approximately $850 million. The current market cap is $337 million, or about 45 cents per proved ounce of silver in the ground. AQI also has two gold mines it is developing, one of which is in Peru should be operational some time in 2010.
ECU has a proven approximately 431 million ounces of silver at its three main properties, with the Valerdena deposit being the largest. Interestingly, MICON, one of the most respected of the mineral resource testing and validation firms, also believes that ECU's deposits have "Mineral Potential: 569,524,000 to 930,400,000 ounces of silver equivalent." ECU's current market cap is $133 million, or about 31 cents per silver, as strictly measured, in the ground. But based on Micon's potential estimates - let's use a mid-point of roughly 700 million ounces - ECU is being valued at 19 cents per ounce of silver in the ground. ECU is currently processing ore stockpiles using a mill it acquired earlier this year. One of the surprises - and which could be another big source of upside for ECU - is the amount of gold which has been discovered and is being produced from the ore stockpiles. In other words, as ECU further develops and unlocks the metallurgy of its silver discoveries, there is a lot of gold also embedded as part of the ore mix. The stock market is not giving any credit whatsoever to the fact that ECU has not only begun to produce mining revenues, but that a large part of this revenue stream will come from gold. ECU has always been viewed as a pure silver play.
Just to quickly address the source of Micon's "mineral potential" statement. The ultimate source of the mineralized veins discovered on ECU's Valerdena property has not yet been determined. However, the geologists at ECU believe they have identified the location of a Massive Sulphide Zone (MSZ), which they believe, off-the-record, could be as big as 500 million ounces. The potential silver content of this MSZ is not included in Micon's "silver potential" estimates. ECU's goal is to use the revenue being derived from their mill to pay for the deep drilling required to explore and prove the content of this MSZ. I have always believed, based on several conversations with management AND with people who have been down to see the mine, that this MSZ would eventually be defined and would give ECU's stock serious upside potential.
Similar to ECU's hurdle to valuation nirvana, the instant that the cyanide and open pit mining ban is lifted in AQI's Chebut province, AQI's stock could go parabolic - at least a triple from here very quickly.
I do believe, however, that while ECU is unbelievably undervalued relative to AQI, both stocks have unique risk/return characteristics which make them two of the most attractive junior mining stock plays I have seen in the last 8 years. And one more variable to consider if you decide to put some of your own numbers to the valuation potential for ECU and AQI. Both are trading below 50 cents per ounce in the ground right now. For general valuation purposes at the peak of the junior mining stock valuation run which culminated in May 2006, silver minining companies, on average, were being valued at $5 per ounce in the ground. Back then silver topped out a little over $15/ounce. We've seen silver go over $21/ounce in the last 18 months. Imagine what the ultimate stock price/valuation potential is for Companies like ECU and AQI when silver goes back over $20 and stays there AND the market reverts to valuing silver in the ground at several dollars per ounce.
Monday, September 28, 2009
Chuck Schumer (D-NY) Is Wall Street's Favorite Senator
Schumer gets $1.65mm, or 15% of the $11mm given to Senators, from Wall Street since January 1st. Let's see if Schumer helps the Fed implement its scheme to dump toxic bank assets into your money market funds. Here's the link (hat tip: Clusterstock.com):
Schumer To Goldman Sachs: Thanks For the Donation
Schumer To Goldman Sachs: Thanks For the Donation
Latest Monetary Policy Proposal From the Fed Puts Your Money Market Fund At Risk
"Nothing good can come from the Federal Reserve… It's immoral, unconstitutional, impractical, promotes bad economics, and undermines liberty," from the book "End the Fed," by Congressman Ron Paul.
The Federal Reserve is discussing the possibility of using "reverse repo" transactions with money market funds that would be aimed at draining liquidity from the financial system. The transaction would involve swapping the toxic assets on the Fed's balance sheet for part of the $3 trillion sitting in investor money market funds. Typically a repo transaction is a policy tool used by the Fed and executed with the Fed's primary dealers in order the "fine tune" systemic liquidity and regulate the Fed Funds rate. They are short term in nature and involve swapping short term Treasuries in exchange for cash, with the Treasuries being the collateral in order to "guarantee" that the short term trade can be unwound with little or no risk.
Here's the link to the article that revealed this proposal: Fed Wants To Drain Money Market Funds
The current Fed proposal is based on the fact that the primary dealer system only has enough cash to drain $100 billion from the system. Here's what is really going on with this proposal (without getting into the technical details of how repos work):
The Fed has purchased trillions of dollars of toxic assets from banks. We don't know what price the Fed paid and we don't know how corrupted the underlying collateral is (the Fed refuses to disclose both pieces of valuable information). Most of the securities involve severely distressed underlying collateral like credit card receivables, subprime mortgages, auto loans and now commercial real estate mortgages. Most of these assets will eventually be worth less than 10 cents on the dollar. If the Fed were to hold onto these assets, the Fed, and the banks that ultimately are the shareholders of the Fed, stand to lose trillions.
What the Fed proposal would do would move these toxic nuclear waste assets from the Fed's balance sheet and into money market funds, in exchange for cash sitting in the money market funds. The biggest problem is the Fed has no basis for valuing these assets other than the price it paid the banks for them, so at what price will the Fed value these securities in order to establish the market value basis for the repo transaction? In other words, the Fed can stick a random price on these assets and swap them for the cash in the money market funds and say "trust us, we're Fed - we'll make you whole."
Without going in-depth into the problems that could occur which might make the Fed's promise wothless, this proposal, if made effective, would expose money market funds to a significant, if not catastrophic level of risk. To be sure, each fund individually has charter limits which would put a cap on the amount of cash the Fed could "repo" out of the individual fund and replace it with garbage assets. However, these assets were fraudulently rated AAA in the first place and have no business being put into money market funds. Money market funds are supposed to be basically risk-free funds in which investors "park" cash and earn a small amount of interest.
At best, this is a move by the Fed to justify draining a large amount liquidity from the system by using one of its monetary tools to drain cash from money market funds. This has never been done before and is well outside of the traditional boundaries of repo/reverse repo tool used by the Fed with primary dealers. At worst, I believe this is a veiled attempt by Bernanke to move toxic assets from the Fed's balance sheet and onto the public, under the false pretenses of using money market funds to drain liquidity from the system, rather than putting these near-worthless assets back on to the balance sheets of the Fed's primary dealers.
Hopefully this idea goes away. If it does become reality, I would not, under any circumstances trust this situation and would withdraw all funds from any money market funds you own and either move the cash into gold or into a short term Treasury bond fund.
The Federal Reserve is discussing the possibility of using "reverse repo" transactions with money market funds that would be aimed at draining liquidity from the financial system. The transaction would involve swapping the toxic assets on the Fed's balance sheet for part of the $3 trillion sitting in investor money market funds. Typically a repo transaction is a policy tool used by the Fed and executed with the Fed's primary dealers in order the "fine tune" systemic liquidity and regulate the Fed Funds rate. They are short term in nature and involve swapping short term Treasuries in exchange for cash, with the Treasuries being the collateral in order to "guarantee" that the short term trade can be unwound with little or no risk.
Here's the link to the article that revealed this proposal: Fed Wants To Drain Money Market Funds
The current Fed proposal is based on the fact that the primary dealer system only has enough cash to drain $100 billion from the system. Here's what is really going on with this proposal (without getting into the technical details of how repos work):
The Fed has purchased trillions of dollars of toxic assets from banks. We don't know what price the Fed paid and we don't know how corrupted the underlying collateral is (the Fed refuses to disclose both pieces of valuable information). Most of the securities involve severely distressed underlying collateral like credit card receivables, subprime mortgages, auto loans and now commercial real estate mortgages. Most of these assets will eventually be worth less than 10 cents on the dollar. If the Fed were to hold onto these assets, the Fed, and the banks that ultimately are the shareholders of the Fed, stand to lose trillions.
What the Fed proposal would do would move these toxic nuclear waste assets from the Fed's balance sheet and into money market funds, in exchange for cash sitting in the money market funds. The biggest problem is the Fed has no basis for valuing these assets other than the price it paid the banks for them, so at what price will the Fed value these securities in order to establish the market value basis for the repo transaction? In other words, the Fed can stick a random price on these assets and swap them for the cash in the money market funds and say "trust us, we're Fed - we'll make you whole."
Without going in-depth into the problems that could occur which might make the Fed's promise wothless, this proposal, if made effective, would expose money market funds to a significant, if not catastrophic level of risk. To be sure, each fund individually has charter limits which would put a cap on the amount of cash the Fed could "repo" out of the individual fund and replace it with garbage assets. However, these assets were fraudulently rated AAA in the first place and have no business being put into money market funds. Money market funds are supposed to be basically risk-free funds in which investors "park" cash and earn a small amount of interest.
At best, this is a move by the Fed to justify draining a large amount liquidity from the system by using one of its monetary tools to drain cash from money market funds. This has never been done before and is well outside of the traditional boundaries of repo/reverse repo tool used by the Fed with primary dealers. At worst, I believe this is a veiled attempt by Bernanke to move toxic assets from the Fed's balance sheet and onto the public, under the false pretenses of using money market funds to drain liquidity from the system, rather than putting these near-worthless assets back on to the balance sheets of the Fed's primary dealers.
Hopefully this idea goes away. If it does become reality, I would not, under any circumstances trust this situation and would withdraw all funds from any money market funds you own and either move the cash into gold or into a short term Treasury bond fund.
Sunday, September 27, 2009
THIS IS WHY WE NEED TO HAVE A THOROUGH AUDIT OF THE FEDERAL RESERVE
Any citizen who cares about this country should watch this question and answer sesson between Rep. Alan Grayson and Scott Alvarez, General Counsel for the Federal Reserve. Alan Grayson is one of the very few highly intelligent Congressmen, in general, and one of the few who truly understands the financial and legal complications embedded in the system.
At best, Alvarez was clumsily evasive of Grayson's questions - the worst case is that he also lied under oath. Please note, the guy obviously drew a blank when Grayson asked him name just one primary dealer of the Fed - he was able to muster up the most obvious, JP Morgan, since JP Morgan himself founded the Fed. He also was unable to directly answer whether or not the Fed manipulates the stock market. Bon Appetit:
Here is Grayson's partial curriculmn vitae: Grayson graduated from Harvard College, then received a law degree (with honors) from Harvard Law School as well as a Master of Public Policy from Harvard's John F. Kennedy School of Government. Grayson is an alumnus of the Bronx High School of Science.
Grayson went on to work as a judge's assistant at the D.C. Circuit Court of Appeals, working with current U.S. Supreme Court judges Ruth Bader Ginsburg and Antonin Scalia, and former U.S. Attorney General Robert Bork.
At best, Alvarez was clumsily evasive of Grayson's questions - the worst case is that he also lied under oath. Please note, the guy obviously drew a blank when Grayson asked him name just one primary dealer of the Fed - he was able to muster up the most obvious, JP Morgan, since JP Morgan himself founded the Fed. He also was unable to directly answer whether or not the Fed manipulates the stock market. Bon Appetit:
Here is Grayson's partial curriculmn vitae: Grayson graduated from Harvard College, then received a law degree (with honors) from Harvard Law School as well as a Master of Public Policy from Harvard's John F. Kennedy School of Government. Grayson is an alumnus of the Bronx High School of Science.
Grayson went on to work as a judge's assistant at the D.C. Circuit Court of Appeals, working with current U.S. Supreme Court judges Ruth Bader Ginsburg and Antonin Scalia, and former U.S. Attorney General Robert Bork.
Friday, September 25, 2009
US large-loan bank losses triple to $53 billion
U.S. regulators said total losses from large loans at banks and other financial institutions nearly tripled to $53 billion in 2009, due to a deteriorating economic environment and continued weak underwriting standards. According to an annual report released by the four federal bank-regulatory agencies on Thursday, credit quality deteriorated to record levels this year.Here's the question to ask: are these big banks still paying out massive bonuses and paychecks because they avoided taking $100 billon losses (and eventually losses will be in the trillions - trust me on that) OR are they paying massive bonuses because they were smart enough to convince the Government to keep them going with trillions in taxpayer money?
Here's the article link: Banks Lose Billions, CEO's Earn 10's of millions
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