Some time back I opined that the IMF would emerge as the guiding light during the financial crisis/recession/depression, or whatever they’re calling it now.

I suggested that the Fund’s $300 billion reserve would get used up fairly quickly by member nations in need, and that additional funds would be forthcoming.  I also believed the IMF’s Keynesian bias would see a lot of that money get earmarked for public projects and especially infrastructure. I can’t seem them just handing it over without any provisos for its use.

After all, those loans must be repaid plus interest, which is something like a fraction of a point. Bankers like to see some kind of ability to repay.

At the G20 conference this week members resolved to give more money to the Fund, among other measures which included a clamp down on tax havens and tighter regulations for hedge funds.

A British official said the group would likely approve allocating more than US$500 billion to the Fund.  I suggested the reserve could eventually top $1 trillion.

I think we may be embarking on a new era of global financial cooperation which will see international agencies such as the IMF assume a kind of financial ‘United Nations’ role.

Ultimately this will be a good thing, since the central bankers of Europe and North America have neither the dataset nor the vision required to lead the world out of the current malaise. I think global problems require global solutions.  Regionalism is dead.

Anyway, imagine the benefits for the both lender nations (such as Japan, which has been trying to give the IMF another $100 billion for months) and those who will participate in any global infrastructure build-out. Half a point’s interest on a trillion dollars is a lot of do re mi, and I think it’s safe to say that we in the west will be the key beneficiaries of any worldwide ‘New Deal’ these guys come up with.

I’m thinking energy, in particular.

Careful out there.

Greetings investors!

I think the next two months are a good time to sell.

I’m cynical about the markets. I think the whole game is rigged by a cadre of well positioned fatcats both within and without the former Bush Administration, and within the SEC as well. These people took great risks over the past eight years to influence or even coerce policy makers into approving legislation that allowed them to make obscene profits at the expense of the entire financial system. Moreover, I think a few of them had expert knowledge of the president’s executive powers. In other words, they were in government, and have been for a long time. They knew what they were doing.

I wouldn’t call it a conspiracy exactly; merely a kind of unbridled opportunism by people who forgot or ignored their social consciences and public responsibility.  I would suggest this opportunism went beyond the banks’ approval of subprime lending and the subsequent repackaging of those dubious loans (and the rating of them!) within derivatives that should never have been elevated above junk status. I think the whole Iraq war was a part of it as well.

Let me put it this way: A Vice President who is earning more than $30 million a year as the director of a company which stood to profit handsomely from the conflict overseas, is either hopelessly cynical or just plain stupid when he states for the record that he ‘doesn’t see any conflict of interest’ there. And the public watchdogs who did nothing more than jail Martha Stewart for a few months to try and create the illusion that they were tough on white collar crime were just as cynical or stupid or worse; they were probably paid off.

I don’t blame the brokerages or the banks; merely the people at the top of the pyramid, whoever they were (and I have a few ideas about that but I’ll leaving the name dropping to somebody else!).

I started to smell a rat about four years ago when the markets began to defy gravity, going up when they should have been going down. My sneaking suspicion that some people in power had a backchannel to the regulators was more or less confirmed last October when the Fed passed a temporary embargo on short selling the banks.  Public moves like that are usually the tip of the iceberg. The influence has probably been occuring surreptitiously for some time.

And yes, I think the media is probably controlled as well. That’s why we’ll see and hear a lot of positive financial stories from all the usual media outlets for the next six weeks, which is more or less designed to create an opportunity for the short term money to ’sell in May and go away’.

We’re in a bear market rally, pure and simple. When the 2nd Qtr earnings are released in June we’ll have another bottom; a so-called ‘millionaire’s depression’.

Don’t get suckered, folks. Sell with the smart money before the current quarter is out and wait for the technicals to flash a real buy signal before getting back in.

Kb

This is fundamentally sound. The Great Depression probably went on for as long as it did because of the very two words we used to describe it. The stock market recovered by 1933; however, the depression dragged on for 10 years. When FDR said the people had nothing to fear but fear itself, I think he was essentially correct.

This time around we’re going to see the New Deal applied again. Liquidity for the banks, and lots of large public works. The critics of current fiscal policy call this a stop gap solution and I think that’s precisely what it is intended to be. Something to tide everyone over until we can repair or replace the economy. A French philosopher once said that no single problem can withstand sustained public interest. I think that is true unless the public believes there is no solution.

That’s where I part company with the critics. As long as they keep harping on the problem, the solution will elude us. Moreover, I can’t find fault with the current economic system for the simple reason that it has worked for 30 odd years. That’s pretty good, actually. How long is an economic system or philosophy supposed to last anyway? Ten years? A hundred? No system works forever. It goes against nature, it’s counter evolutionary.

For example, if you took all the wise guys out there who have been harping about the foolihardiness of the tax and spend and deficit policies of the last few decades, and charged them with finding another fiscal policy to replace the one we have, and they succeeded in doing that, I can guarantee you that it  won’t last. It may work for awhile, it may create prosperity, but its trajectory will eventually end and it will crash. Nobody - and I mean nobody - will dispute that. Everyone gets proven wrong eventually, even Einstein.

In fact, I happen to know that the world’s bankers are even now beavering away on a methodology for restoring what is essentially a bankrupt Western World. I think they will arrive at a solution which reforms the fiat currency system by standardizing the rates of exchange. Also, I think capitalism is in for a drubbing. There will be more rules to restrict the means and scale of speculation in the financial markets. I’d go as far as to say we could have a new era of global socialism. We won’t call it that, of course. But the state is going to be far more involved in the free market than we’re used to.

There is only really one question for the investor: What is the smart money going to do? There are two cardinal rules about the smart money. One, you never know where the smart money is positioned until they’ve liquidated and fled. That’s because the smart money only goes into vehicles which are non transparent. We find out about it afterwards. Like credit swaps, which amounted to nothing more than a $45 trillion short on banks and corporate debt. Who knew about that? Nobody. There was no transparency in that market until recently, and even now it’s pretty opaque. I’ve heard the brokerages explain that $45 trillion away by saying the premiums were cheap, and that’s what encouraged speculation. Ok, but $45 trillion? C’mon guys. It looks more to me like somebody with a lot of money had a real good idea a few years ago of where things were heading.

Oh yeah, rule number two about the smart money: It never gambles. The smart money only goes into a sure thing. Zero risk. Which means the smart money is at the top of the food chain: Government, industry, banks. The smart money never second guesses the market because it makes the market. So given these two rules, what chance does an investor have of figuring out where the smart money is going? Good question.

Did I say there were two rules about the smart money? I lied. There are actually seven:

The smart money makes money going up, and going down. It always knows where the top is.

The smart money does not invest in yesterday’s ’sure thing’. Backward Ho! is not their rallying cry. Having created the bank/commodities bubble and burst, they’ll look around for something new. The smart money does not buy the flavour of the week. It is the flavour of the week.

The smart money always buys cheap. If you got out of the market with a ton of money in ‘08, wouldn’t you want to get positioned in something really, really cheap?

The smart money thinks big. It’s very interested in essential industries, like power utilities. There’s nothing quite as reassuring as having 35 million people pay you $45 per month because they have to.

The smart money is patient. A couple of years, or maybe three, is what it takes to get truly positioned.

The smart money is never idle. Shakespeare wrote: “Foul cankering rust the hidden treasure frets. But gold that’s put to use more gold begets.”

So we’re back at my original question: What is the next Big Thing?

More about that later.

Greetings folks.

Some time back - last summer in fact - we cautioned investors against getting into $1.00 gold stocks, and as I recall we weren’t too keen on the fifty centers either.  We reasoned that in the event of a blow off those stocks would be heavily sold, and also have the highest potential returns in any subsequent rally.

After the sell off occured we advised readers to get into a pair of my faves that went down to a quarter, West Timmins Mining and Western Geopower, trading on the TSX and TSX-V respectively (please see our October post called The Gathering of the Clans). Western Geopower was actually a $0.50 stock.

Both of those are now cooking right along, and I’m suggesting investors take some money off the table on both in the coming days, and pocket a 25-50% gain. I think we’re at the start of a bear market rally that will take many junior stocks higher, and these two in particular to just under their 52 week averages. I advise adding to positions if and when we hit another dip.

Also, I erred in my comments on West Timmins, (trading symbol WTM.TSX), when I said they had intersected 1 gram per tonne gold on their wholly-owned Thorne property in Timmins, Ontario: The cores had actually returned better than 10 g/tn in a gold rich sub zone of the Golden River West property there.  In fact, they hit grades ranging to 23 g/tn over widths of 1.0 to 4.5 meters.

Subsequent to that, the company has drilled seven holes into what it calls a ‘continuation’ of that gold rich sub zone, and logged broad intercepts of mineralization ranging from 13 to 45 metres, including 37.50 metres of 1.60 g/t.  That earlier high grade zone remains open to the west and down plunge.

Actually WTM has done ever better than that of late, grade wise, on its Thunder Creek JV with Lakeshore Gold, also at Timmins. They’ve hit 11.2 g/t over 10.4 meters at the Rusk property, which is less than a kilometer from Lakeshore Gold’s Timmins West deposit, and apparently at the same depth.

I have high hopes for the Rusk zone, for a pair of reasons: For one, that Timmins West mine has a rather high cash cost, extending to $600 per ounce. It’s very important for Lakeshore to find some high grade gold zones near it, and quickly too, because production is scheduled to begin in the first quarter of ‘09. They have to get their costs down.  Consequently, I believe that exploration at the Rusk zone will be a very high priority in the coming months, and let’s face it - companies have to be very selective about that they choose to spend money on nowadays. Not every good property is going to be drilled until risk appetite returns and financing becomes more readily available.

The other reason is the bigger picture. I think that both Ontario and Quebec have been overlooked as companies scrambled to find and develop the giant, near-surface copper/gold porphyry systems of Latin America.  The Quebec and Ontario camps are loaded with gold, but they’re a little more expensive to drill and the deposits are certainly more difficult to model. But the multi million once deposits are definitely there to be discovered! As the political risk in Latin America, and around the world, continues to grow, I think it is slowly dawning on investors that Canada is a darned good place to make world class discoveries, no matter what the challenges are.

So, long story short, I’m still hoping somebody will find and map another world class project along the lines of Prime’s Hemlo discovery in the 1980s, and soon.

Lakeshore and West Timmins are both in the running for that.

Careful out there!

Kb

I’m scouring the pink sheets for the cheapest gold deal I can find.  Originally I had a budget of $100, and I wanted to accumulate at least a million shares for that, excluding commissions. In hindsight, that may have been a bit optimistic. However I did stumble across something  called Consolidated Golden Quail Resources Ltd., trading symbol GQRFF, which trades for a thousandth of a cent per share. The trouble is there’s no trading on the stock.

Golden Quail is a British Columbia corporation with a business address in Carlsbad, California. It has no assets which I can find. However, by some incredible coincidence I just happen to know the CEO, a guy in Vancouver. Well whaddya know! So I’ve put this one on my watchlist.

Here’s one that is liquid: Hunt Gold Corp, symbol HGLC, a non reporter in Florida with a market cap of $58 million and some 290 billion shares issued and outstanding as of last June. The stock traded 641million shares by today’s close, down 300 thousandths of a cent.  It has a 52 week high of over $3 per share and volume has been growing exponentially over the past two weeks. The company lists several gold properties in its public filings but I can’t seem to get any information on them.

More tomorrow…

Meanwhile, I´m looking for different investment reading fodder these days. It’s no secret I think the mining industry needs to change, that it needs to reach out to a younger, more hip, less gullible audience. That calls for two things chiefly: greater disclosure, and less fibbing. These kids today aren´t stupid!

I’ve found a couple of guys who seem to be hitting the mark. One is Jim Letourneau (the Big Picture Speculator, and I’ll have more on him in subsequent editions), and the other, with whom I´m rather enamoured of late, is Kevin Graham. He has a website called grahamanalytics, and his posts are funny, irreverent, and wickedly accurate.

I particularly like his June 2 post, Run Hard, Run Fast, in which he questions the veracity of television, the wisdom of experts, and the rather prudent act of heeding Winnie the Pooh.

Check it out, and hey….

Be careful out there.

The worry going forward is dwindling global steel demand. Teck has said it will dispute (that’s my word, the company actually said ´discuss´) the desire of some customers to defer contracted coal volumes for the current year. Not a good sign! Meanwhile, it has said it will pursue other asset sales. Also not a good sign. The company would make an attractive candidate for a merger if it were relatively debt free, but it isn´t, so I don’t think we´ll see the usual Saturday night swains lining up to dance.  Owww major shrinkage there!  In fact, I´d go so far as to say it’s in imminent danger of being viewed by the industry as a bit of a pariah. I’m not ruling out the possibility of a friendly merger with an asset poor but cash rich rival though. It’s an outside chance but it’s not impossible … nothing is impossible in this market! .. in which case Teck could indeed get bigger.

The worse case scenario I can envision is a hostile takeover by a syndicate or investment consortium who will take the wrecking ball to its portfolio, although I can´t see that happening because the company´s share structure is very well-buttressed. So are Tck.A and Tck.B shares worth their current valuation of $9.75 and $6.25 respectively? Somebody believes so: Yesterday (Wednesday) they were at $9 and $4.55.

I think the rally was a wake up call, but that the shares will go lower before they go higher from here. We’re in a bear market after all. It’s risky business, but I rate the B shares a buy if they fall back below this week’s lows.

Careful out there.