Bear Market Race to the Bottom – Week 89 – The Baby Boomers go Double or Nothing

The 1929 & 2007 Bear Market Race to The Bottom Week 89 of 149

The Baby Boomers go Double or Nothing.
Huge Increase in NYSE Margin Debt

Mark J. Lundeen

26 June 2009

Color Key to text below
Boiler Plate in Blue Grey
New Weekly Commentary in Black

Below is my BEV chart for the Bear Race.

The Bull closed the week below the DJIA’s BEV -40% line. I’m referring to this market as a Bull as it had a nice bounce off its BEV -50% line. But this is only a courtesy. If we had a real Bull, the -40% line would be no problem for him. As it is, he seems stuck on it.

June saw the lowest daily volatility for well over a year. Considering that we saw the second worst DJIA Bear Market Low since 1885 only 4 months ago, I think June’s low volatility is an anomaly. Such an extreme low should have created huge upward pressure for the DJIA, and a reduction in daily volatility should have benefited the Bulls. But it did not. That is something we should keep in mind.

Forget last March’s lows below the BEV -50% line. Let’s pretend our market is one with little public or official expectations of it. We saw such a stock market from 1940 to 1971. As we can see in the chart below showing the DJIA Daily Volatility’s 200 Day M/A since 1900, from 1940 to 1971, the DJIA had the lowest daily volatility of the 20th Century.

Why would that be?

There was a generational hangover from the 1930s market. After the 1930’s, retail investors disappeared from Wall Street and didn’t come back until the Baby Boomers, born long after 1929, became old enough to become investors.

NYSE Margin Debt (see charts in next section) never recovered from its 1929 highs. The stock market was un-leveraged.

And maybe the most important factor was that the US Dollar still had a link to the Bretton Wood’s gold standard.Before 1971, the “policy makers” didn’t have the “liquidity” to move markets that they clearly have since 1971.

These are 3 circumstances not at play in our market! The public is up to their eyeballs in stocks. May & April of 2009 saw a huge increase in NYSE Margin Debt. And the US dollar is experiencing historic inflation, with much of this inflation targeted at the stock market.

So I have reasons to believe that June 2009’s low volatility is a freakish occurrence within a massive Bear Market. When volatility picks up again, we should see a drive downwards to new Bear Market lows in the DJIA. That is how I’m envisioning the market in the months to come.

But the market has a way of frustrating its prognosticators. Who knows exactly what the future holds? I don’t! So the market may still have a few good months ahead of it. If that is the case, I have no problem watching it rise up without me.

Below is my 8-Count & DJIA BEV Chart

Well June may have had abnormally low daily volatility for a Bear Market, but it couldn’t keep its 8-Count down to zero for more than 2 days.

Look at the chart above. From March 2006 to July 2007 there was only one 2% day! This 16 month period took the DJIA from 11,000 to 14,000. By following these 2% day (up or down 2% days, makes no difference to the Bear) we can see when the DJIA started to have problems; July 2007.

Seeing the 8-Count bumping up and down above its zero line is historically very Bearish. Seeing June of 2009 with four 2% days is not a good omen of things to come.

Daily Volatility Statistics for Wk 89

70% A-DMonday8339.01-2.35%2-75.43Tuesday8322.91-0.19%2-Wednesday8299.86-0.28%2-Thursday8472.40+2.08%2-Friday8438.39-0.40%2-

Historical Daily Volatility is < 1.0% Source Dow Jones DJIA Volatility Milestones MarketMoving Average Maximum ValueTrading Days Post BEV Terminal ZeroDate of Peak Val1929/3240 Day M/A: 3.81%77 Days13 Dec 19291929/32200 Day M/A: 2.50%803 Days17 May 19322007/0940 Day M/A: 3.83%284 Days21 Nov 20082007/09200 Day M/A: 2.12385 Days21 Apr 2009* 3 Types of Daily Volatility from 1900 to 2008 * Type 1: DJIA Close to Close Price Volatility's 200 Day Moving Average Oscillates Above and Below 0.5%. Type 2: DJIA Close to Close Price Volatility's 200 Day Moving Average Ranges Between 0.5% & 1.0%. Type 3: * Persistent Extreme Volatility * Consists of Two Parts Part 1: DJIA Close to Close Price Volatility's 200 Day Moving Average Rises Above 1.0% and Stays There for Over a One Year Period Part 2: DJIA Close to Close Price Volatility's 200 Day Moving Average Peaks Above 1.5%. The Lundeen Bear Box and Step Sum is below. For the past 24 trading days, the DJIA has completely ignored its Step Sum. Step Sum goes up or down, the DJIA mostly just hung around the BEV -40% line munching those green shoots. But then, the last 24 trading days were in the month June, and June had almost no daily volatility. But like Dr. Fudd said: “push hard enough & it will fall down.” I will be interesting to see which way the Step Sum will be pushing the DJIA this summer, up or down. The Step Sum is an indicator of market sentiment. When the underlying sentiment is bullish, the Step Sum will rise. When bearish, it falls. Think of the “Step Sum” as the sum total of all the up and down price “steps” in a data series over time; an Advance Decline Line for a data series derived from the data series itself. Logically, bull markets will have more net up days, while bear markets will have more net down days. Understanding the Step Sum is no harder than that. The Baby Boomers go Double or Nothing. Huge Increase in NYSE Margin Debt I didn't say I was going away, just that I was going to reduce my weekly work load. So when I do my weekly update of data from Barrons', and I see something interesting, I'll pass it along. I wrote about NYSE Margin Debt in March 2009. You may want to review this report. The NYSE published weekly Margin Debt (NYSE MD) numbers from the 1920s to 1965. Starting in 1966, they switched to a monthly basis. The change in data is clearly evident in the BEV Chart below. NYSE Margin Debt are loans made by brokerages to retail customers for the purpose of leveraging positions. If someone has $10,000, but wants to purchase $20,000 of a stock, they can do this with the use of margin debt. Buying your stocks with someone else's money can double gains, * and losses * in a hurry. The numbers for May 2009, NYSE MD's came out last week in Barron's. I found the increase in retail investor's leverage alarming. As with any financial series concerning debt or money, we can see how monetary inflation has increased since 1926. What's amazing about this chart is the abrupt U-Turn NYSE MD has taken since April 2009. NYSE MD has increased 79% from its lows of February! Has this ever happened before? Examining this data as published will not answer that question. So let's look at NYSE MD with a BEV Chart. The BEV Chart below uses the same data as above, but is processed by my BEV Formula: (Data Point / Last All-Time High)-1 Or as Written on my Excel Sheet =K4995/MAX(K$988:K4995)-1 New all-time highs are recorded as zeros in a BEV Chart. The last zero of a bull market is called the "Terminal Zero." All other data points are register as a negative percentage from their last all-time high. The BEV Chart strips away the decades of monetary inflation, uncovering much useful information. Above is a BEV Plot of every NYSE MD data point published in Barron's. Look at the extreme moves in NYSE MD from 1929-48. I take the 95% drop in August, 1932 very seriously. The 82% drop of 1940 I ignore. Why? Look at the next chart. The 95% drop in 1932 was the bottom of highly leveraged market of 1929. Where did the credit for these speculative loans of the Roaring 20s come from? The Federal Reserve. The extremes drops in MD, seen from 1932 to 1966, occurred in markets free from excessive leverage. I wish I could show exactly when the NYSE MD exceeded the 1929 highs, but the monthly values, post 1966, are incompatible with the weekly values. I don't know why this would be. Going back to my first chart on NYSE MD, it's all too obvious the stock market tops of 2000 & 2007 occurred with excessive leverage by retail investors via margin loans. Like 1929, spikes in NYSE MD of the past 10 years were red flags warning of Bear Markets to come. When these positions were liquidated, retail investors with levered positions suffered in the Bear Markets that followed. We in 2009 can see what happened three times before when Retail Investors assume significant leverage via NYSE MD. The spike in 1929 happened in isolation. This is not the case for the spike in 2000 which was followed with another, even more extreme spike in 2007. The difference between the two cases (1929 & 2000) can only be from differences in “economic policy” and communications technology targeted at consumers. Bears are seldom allowed the same access to the media as bulls. So it's not surprising to see retail investors returning again and again to the stock market. Knowing that Social Security has massive problems, what choice do people really have? As people are now older, it's logical that they would leverage their positions to make good their losses since 2007. I believe this reason is the cause for the massive increase in NYSE MD since February. We have to wait a month to see if NYSE MD for June also rises. But what happened in just the past few months tells me that investors believe the worst is over and are making a huge gamble in the stock market. There is something is terrible wrong happening in NYSE MD. In 1929, 2000 & 2007, too many people with no knowledge of the markets were purchasing stocks using margin debt. With the 20/20 vision of historical hindsight, we can see the red flags in the charts above. Now for the 4th time since 1926 we see NYSE MD rising perilously. A 79% increase in only a few months is a sign of great recklessness. When these positions are unwound, expect new lows for this Bear Market. A -60% DJIA Bear is even more likely now. I want no part of this market. If you want my opinion of what you should do, I'd think going cash is a good move right now. And by cash I mean $10 & $50 bills and T-Bills no longer than 6 months in duration. I like gold and silver coins and bars. I really like junk silver coins. You know; old coins that were used as money before they started minting coins from slugs of copper and other base metals in the 1960s. If you have children, and want to do something for your future grandchildren, go to the bank and buy a few boxes of pennies and nickels. Put them aside and forget about them for 20 years. When inflation picks up again in the next year of so, the Feds are going to stop minting pennies and nickels. Those still in circulation will be sent back to the mint and melted down. This is exactly what happened to the coinage of quarter, half and dollars coins minted in silver. I don't know how many old silver dollars and mercury dimes were melted down since 1964. I suspect most of those beautiful old coins did not survive the 1970s. Old coins of silver and gold are much rarer than people think and are well worthwhile to buy and hold for investment purposes. There is just something magical about a Morgan Silver Dollar with an 1879 mint date. Old coins of silver and gold are wonderful to look at and hold. They also make great gifts too! The $1 bills will be discontinued too. Crisp new $1 bills will one day become collector's items also. I'm just thinking ahead. Mark J Lundeen 26 June 2009 Dow Jones -40% Declines From 1885 to 2008 is the article that inspired this race of 1929 & 2007 Bear Markets. You may want to read that article to understand my “BEV Chart.” Dow Jones Industrials Average Market Volatility is the source for my volatility studies. The Lundeen Bear Box and Step Sum is the source for my Lundeen Bear Box and Step Sum Chart Note For the Record: Mark Lundeen does not want a devastating bear market in the next two years. However, in full view of Congressional Market Oversight Committees and under the supervision of Government Regulatory Agencies, things were done that I believe will make a historic bear market inevitable. If you have a problem with this bear market, contact Washington, not Mark Lundeen.

US Spending & Income: Two Charts

by Adrian Ash
Friday, 26 June 2009

“Everyone says higher saving rates are needed. Just not yet please…?”

“STOCKS SEESAW as savings rate jumps,” said the AP on Friday, amending its earlier “Stocks decline” headline to try and fit the moves to the news, rather than the other way round.

Either way, reckon the newswires, “Investors are nervous because consumers are saving more than they’re spending.”

But if it really was the 15-year high in US personal savings rates way up at 6.9% of gross income that spooked investors, just wait until Wall Street gets down to crunching Uncle Sam’s give-and-take in the latest Commerce Dept. figures.

And heaven forbid the Chinese take a peek at US consumers’ earnings…

Falling below zero for the first time since 1960 or earlier, nominal US wages have fallen off a cliff in the last six months.

Gross income earned from employment has fallen year-to-date each month in 2009, dropping in May to its lowest level since Oct. 2007 and down more than 2% from the peak of last August.

So how come consumers spending AND saving both rose last month, while pay packets shrank?

“Obviously, for the long run, it has been desired for decades that Americans save more,” said one fund manager to Reuters from Illinois. “But in the midst of this recovery [sic] and the stimulus packages that have been put forward, the hope would be to have them spending the money now.”

And there’s the devil in the detail: the government stimulus.

The Bureau of Economic Analysis’s Personal Income & Outlays release shows government benefits last month hitting a record both in Dollar terms and as a proportion of gross personal earnings, rising above 17.9% of income across the economy.

For comparison, Uncle Sam’s donation to US personal income peaked at 14% during the early 1990s recession. The five-decade average is 11.1%.

Unemployment insurance benefits, meantime, were almost twice the Dollar volume in May of October last year. And yet the Street’s apparently worried by US citizens putting too much money aside, rather than by how much Washington’s stepped up to support them.

Still think the fiscal or monetary stimulus will make for the exit any time soon…?

Adrian Ash

Gold price chart, no delay | Gold in 2009

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault winner of the Queen’s Award for Enterprise Innovation, 2009 where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events and must be verified elsewhere should you choose to act on it.

Eurasian Minerals: The Early Bird Once Again Gets the Worm

A Monday Morning Musing from Mickey the Mercenary Geologist
June 15, 2009
Three weeks ago, I posted a Mercenary Musing detailing the risks and rewards of exploration in emerging environments. I explained the qualifying criteria a company must use to make sound investment decisions in emerging market countries, and the advantages of exploring in frontier geological settings.

This is the second of a series of musings on select companies operating in emerging countries. The first was posted three months ago on Lydian International Ltd (LYD.T) and discussed its exploration success in Armenia and how quickly that success occurred (Mercenary Musing, February 23, 2009). Not all companies will get that lucky that fast, but you know the old saying about making your own luck. Lydian positioned itself as the first mover in a previously unexplored geological environment and was rewarded.

A favorite old saying of mine is the early bird gets the worm. Once again that has proven true, and I now give you another junior explorer who was “first in”. They have the best available ground in one of the world’s most recent emerging markets.

The company is Eurasian Minerals Inc. (EMX.V) and it is led by my friend and colleague Dave Cole. Dave is a geologist who worked briefly with me as a young pup some 21 years ago. I was consulting to Newmont Exploration out of Elko, Nevada and Dave was a Newmont junior geologist fresh out of college with a degree in geology and a minor in skiing. It didn’t take me very long to realize that he was smart, energetic, and enthusiastic and someday would make his mark in the exploration and mining business.

It was simply a matter of when and where.

After a recent field visit, I’m convinced that the “where” is Haiti. Only time will tell about the “when” part of this emerging environment equation.

Eurasian Minerals has been on my watch list for over a year and a half after I saw some gaudy copper-silver samples at its trade show booth. Since then, Dave Cole and I have reviewed the company’s progress every few months. This spring EMX developed their Haiti prospects to the point where they were ready for an initial analyst tour.

We scheduled a field trip in early May, and I flew out of Albuquerque for a long Sunday of travel thru Dallas and Miami with a final destination of Providenciales, Turks and Caicos. I was to meet the EMX crew and a couple of other analysts there on Sunday night.

Unfortunately, my plane was an hour late out of DFW and the connection to T and C was scheduled 40 minutes after an on-time arrival. My best option was then a mid-morning Monday flight from Miami to Port-au-Prince. I booked that flight with American Airlines, got a whopping $15 voucher for dinner and breakfast, and waited nearly an hour for the hotel pickup. Jeez the hotel couldn’t even give me a tube of toothpaste until the next morning, and then sent the airport shuttle off five minutes early without me. Despite this, I made my flight on time and things were looking better.

But the EMX crew was now in Cap Haitien. Arrangements had been made for someone to meet me upon arrival in the Haitian capital. But there were problems at the airport: I was delayed at customs because no one told me where we were staying in Cap Haitien. Worse yet, I was there but my bags weren’t. By the time I made it thru customs, baggage carousel, lost baggage service, and immigration, the guy waiting to meet me was long gone.

I also was informed before leaving Miami that morning there would be a helicopter to meet me at the domestic airport and fly me to Cap Haitien. So I hired a taxi driver with rudimentary English and we went on a lark from the international airport to the domestic airport to the UN military base and back to the domestic airport with no sign of a helicopter anywhere and no report of anyone seeing one. Finally the driver grew tired of this wild goose chase, and dumped me off with only briefcase in hand.

Another snafu: My cell phone didn’t work in Haiti. And I could tell by whimsical looks from the locals when I picked up a couple of pay phones that they never worked either so me, myself, and I had a serious debate amongst ourselves as to what to do next.

Since I knew the crew was basing out of Cap Haitien, I bought a one-way ticket in a small plane to that town on the north-central coast. While doing this, I spied a friendly-looking fellow with a British passport, a Chicago accent, and an ability to speak French doing the same thing so I struck up a conversation. Pretty soon Dan Phillips and I were pals and he graciously lent me his Haitian-based cell phone to call the travel agent in Denver. I was hoping she knew where the crew was staying in Cap Haitien. But she didn’t have a clue either.

The next step in my journey was the flight to Cap Haitien, a check in my new found friend’s Lonely Planet Guidebook, and a compromise with Dan to stay in the second best hotel in town. We not-so-easily negotiated a taxi and the driver got lost twice, but we eventually found the place. By this time, I was on my third call to the aforementioned travel agent and I finally convinced her to call Russell, Dave Cole’s extremely efficient assistant in EMX’s Littleton office. I was confident that Russell would solve my dilemma. After 30 hours of travel, I checked in and immediately jumped into a meager shower that was interrupted by a welcome phone call. It was from Dave Cole, he had spoken to Russell, the group was back early from the heli tour because of high winds, and I was found.

Within an hour, Dave was there to pick me up and take me to the Mont Joli, the best hotel in town, complete with cold beers at the swimming pool and a gorgeous view of the sea. All that was lost was half of the project tour, my bags, and a few hundred dollars in expenses for an unscheduled plane flight, a couple of taxis, three meals, and an extra hotel room for that night.

Even at the time, it seemed a small price for the self-satisfaction of once again proving that I can find my way to where I’m supposed to be despite the curves that are thrown in the third world.
I’m glad you’ve indulged my storytelling. But you aren’t reading this to learn about travel logistics and difficulties. To this end, let’s briefly review the history, geographical, and environmental settings of the country of Haiti:

Columbus landed on the island of Hispaniola in present day Haiti in 1492. The Spanish exploited the country for gold and the native population was decimated by rebellion, slavery, and disease by the early 1500s. They began importing African slaves and French pirates settled the western part of the island in the 16th century. In the 1660’s, Spain conquered the French. However, French farmers continued to settle in the west and established tobacco, sugar, and indigo plantations. After years of conflict, the Spanish and French finally divided the island in 1697.

A series of slave rebellions beginning in 1791 and sporadic attempts by France to re-conquer the island eventually led to independence in 1804 making Haiti the only country in the world born of a slave rebellion. During the 19th century, the country was plagued by a series of coups as the military, the elite French class, and commercial interests fought for control of the island and its people.

The United States occupied the island from 1915-1934 to protect its economic investments. From 1957-1986, the country was under control of the brutal dictatorship of the Duvalier family leading to emigration and large Haitian communities in the U.S. eastern seaboard and Quebec. The period of 1990-2004 was marked by free but disputed elections, turmoil and chaos, corruption, and coups supported by France, Canada, and the United States. A 26 nation United Nations peace-keeping force was established in 2004 and the current president was elected in 2006.

Haiti occupies the western one-third of Hispaniola and is a mountainous country about the size of Maryland. In the north there is a narrow coastal plain and the west-northwest-trending Massif du Nord which marks a plate tectonic boundary. The majority of prospective mineral deposits are located in this belt. The central region consists of two mountain ranges and two plains areas. In the south is the nation’s highest mountain range forming a long west-trending peninsula and there is an arid plain with salt lakes in the southeast.

Haiti on the Western Side of the Island of Hispaniola
Haiti is the poorest country in the Americas with average GDP of less than $800. Eighty per cent of the 9.0 million people live in poverty and 54% in abject poverty, with two-thirds subsisting as farmers. The population is 95% black and 80% Catholic with an estimated 50% practicing voodoo. It is burdened by rapid population growth of over 2%. The official language is French, Haitian Creole is the generally spoken language, many in the eastern border region speak Spanish, and English often is spoken by those with business interests. The literacy rate is 53% with essentially no public school system.

Haiti suffers from high inflation, limited infrastructure, a lack of private investment because of security issues, and a severe trade deficit. There is a large Haitian diaspora: 25% of GDP is from foreign remittances and these are double the total exports. There is little industrial development other than a small but growing textile manufacturing industry supported by the United States that comprises 50% of total export value. Agricultural exports consisting of mangoes, coffee, and cocoa comprise the rest. Foreign aid contributes 30-40 % to the government budget.

Massive deforestation plagued Haiti in the 20th century with only 2% of virgin forest remaining due to the burning of wood and charcoal for fuel. Deforestation has led to desertification and subsequent severe erosion as the island is subject to periodic hurricanes and massive flooding most recently in late summer of 2008. Since it is on a plate tectonic boundary, it is in a tectonically active area.

In a recent editorial in the Globe and Mail, Canada’s equivalent of US Today, Paul Collier, Professor at Oxford University and author of “The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It” makes a compelling case for increased foreign aid to Haiti. He notes that Haiti has stabilized and is occupied by a UN peacekeeping force including 9000 Brazilians, the USA has provided Haitian exporters with privileged market access, and Canada is the second largest aid donor to the country. According to Collier, lack of infrastructure is inhibiting economic growth and he makes the case that should be addressed with foreign aid. Once infrastructure is funded and built by foreign governments and world financial institutions, risk is mitigated by their guarantees and private capital investment will follow. This government and private funding combination is the model that is presently being implemented in Haiti.

From this review, it is obvious there is substantial geopolitical risk in Haiti. But the geology is just so damn good. I’ll have more on that later but first let’s take a closer look at Eurasian Minerals Inc:

Eurasian Minerals was founded in November 2003 with the reverse takeover of a former Alberta Stock Exchange shell. It is a prospect generator that follows the joint venture model by turning its early reconnaissance exploration successes to partner companies at the initial or early drill stage. EMX originally was focused on properties in Serbia and Turkey, soon added Kyrgyzstan to the list, and later became involved in Haiti.

Since founding Eurasian has successfully monetized properties in Serbia and Turkey that no longer remain core assets in the exploration portfolio:

In late 2006 EMX sold its Serbian interests to a start-up junior for a combination of cash, shares, work commitment, and NSR. In Turkey, it had a JV deal with Barrick Gold in the past and currently has a property ventured to Chesser Resources, a royalty agreement with a small Turkish miner on two base metal properties, and a joint venture on three properties with Centerra Gold, a mid-tier gold producer.

In Kyrgyzstan EMX has drilled 11 core holes on its Orgatash project with encouraging results including 42 m of 1.48 g/t Au and 45 m of 1.18 g/t Au. It currently is assessing strategies for continuing exploration. The company recently acquired a past producing gold mine in the historic, giant Golden Quadrilateral district of Romania with an estimated 50 million ounces of production since Roman times.

EMX’s foray into Haiti is led by Keith Laskowski, geologist and country manager. For years, I’ve heard many good things about him. In fact, I worked with his younger brother Randy at Newmont 21 years ago when I met Dave Cole. But Keith and I had never crossed paths until a month ago.

Keith Laskowski headed Newmont’s effort in the region as Caribbean Exploration Manager in the mid-1990’s. When Haiti once again went to hell-in-a-hand-basket, Newmont pulled the plug. But like all good geologists, Keith recognized the geological potential and knew all the best prospects. After years of political turmoil, a multi-nation UN peace-keeping force was embedded in Haiti in mid-2004, a free election was held in 2006, and foreign investment has started making its way back into the country.

Keith contacted Dave about making a run at Haiti in early 2006. Dave in his usual enthusiastic manner said, “Go for it!” They made the necessary political and business connections, acquired the best ground in stages from 2006 to 2009, and entered into a strategic alliance Newmont last year.

Eurasian Minerals has made a major exploration play in Haiti controlling mineral rights on 30 concessions, roughly 282,000 ha: That’s over 10% of the country’s land mass. They presently have three flagship properties in the country: La Miel, Treuil, and Grand Bois.

The Newmont strategic alliance required that they buy 1.7 million EMX units for $3.5 million, and they initially contribute $750,000 and EMX $250,000 for regional exploration. Once Eurasian Minerals spends $200,000 exploring a concession, it can be offered to Newmont as a designated project. NEM has 120 days to accept or decline. If they decline, Eurasian owns the property 100% and can advance or deal it with no further interest on Newmont’s part. If they accept, NEM must spend $10 million over the next six years to earn a 70% interest. Once earned, EMX has three options: Fund their 30% interest; be carried to production with a 25% interest; or withdraw with a retained 3.5% NSR. Prior to this strategic alliance, La Miel and La Mine projects were joint ventured to Newmont with the same basic agreements and options but on 65-35% bases with $30 million and $20 million work commitments respectively and feasibility study requirements.

In addition to its projects, Eurasian’s share structure grabs my attention. For a six year old company, it has a low number of outstanding shares at 28.5 million and fully diluted at 34.7 million. Included are 2.1 million warrants currently out of the money at $2.00 expiring in October of this year, 1.3 million warrants at $2.50 expiring in April 2010, and 2.8 million options at $1.00-1.81 with expiries from August 2009 to May 2014. Insider and tightly held shares comprise 54% with the four largest shareholders the Rule Family Trust, Newmont Mining, the Lundin Family, and Dave Cole. Institutional funds hold about 14%. Public stock float is estimated to be nine million shares or about 32% of total outstanding.

The two year chart shows the company has traded in a range from about $2.25-$2.50 cents during the peak of the market in mid-2007 and in February and March of 2008 to a low of 51c during tax loss selling and the bottom of the junior resource market in mid- November to mid-December 2008. Starting in January, it has rallied along with most other juniors focused on advanced gold projects and has built a very strong chart in the past six months. In the past 30 days the stock has run from a low of $1.09 to as high as $1.74 which matches the 52 week high. Current trading is in the $1.35 – $1.50 range. The company has a market capitalization of about $40 million, current working capital of $8 million, and $1.5 million in marketable securities.

Two Year Chart for Eurasian Minerals (EMX.V)

The people at Eurasian Minerals are top-notch. I mentioned CEO Dave Cole, and Haiti Country Manager Keith Laskowski. The Board of Directors includes Michael Winn, a geologist and analyst with a track record of success in the junior resource sector, Brian Bayley, the CEO of Quest Capital, and recent addition Steve Enders, an experienced geologist who was President of Phelps Dodge Exploration and VP-Worldwide Exploration for Newmont Mining. Other names of note are major investors Rick Rule and Lukas Lundin.

The technical teams must be given all credit for EMX’ success with respected regional exploration managers in Haiti, Kyrgyzstan, Turkey, and Eastern Europe supervising native geologists, geotechnicians, and local labor. I have seen first-hand that they have a crack field team in Haiti led by Keith and Dr. Dominique Boisson.

Now let’s delve into the geological setting of Haiti and what makes it a favorable location for major ore deposits:

Northern Haiti is located on the boundary between the Caribbean and North American tectonic plates. In the neighboring country of the Dominican Republic, that same tectonic boundary hosts the Pueblo Viejo deposit with over 20 million ounces of gold reserves and significant copper and silver. The Massif du Nord of Haiti is highly prospective for copper-gold porphyry-skarn, volcanogenic massive sulfide, epithermal gold, and metamorphic copper-silver-gold veins. The country hosts past-producing bauxite, copper and limestone deposits but currently has no mining industry.

Eurasian Minerals Landholdings in the Massif du Nord Metallogenic Belt
From 1972 to 1985, the United Nations Development Program conducted regional geological studies and exploration programs in order to assist Haiti’s economy. The UN discovered and documented many gold and copper occurrences, including gold mineralization at EMX’s La Mine, Gran Savanne, and Gran Bois properties, and copper-silver mineralization at Treuil.

I missed the first day of the tour to one of the flagship projects, La Miel, because of the aforementioned travel (mis-)adventures. However, I got a project review from Keith Laskowski and an assessment from fellow geo-analyst Brent Cook.
La Miel is located on the border with the D.R. and with similar geology and alteration to Pueblo Viejo. It is a high sulfidation epitermal system covering 325 sq km with silicified, brecciated felsic tuffs and shallow intrusives and gold-copper-silver-barite mineralization.
There are four main target areas: Savanne La Place, Grand Savanne, La Croix, and Morne Bazile. Seven trenches at the Savane La Place main zone all ran ore-grade gold over impressive widths with the best at 243 m of 1.71 g/t gold. Newmont has established a field camp there and will start drilling soon.

EMX’ Discovery Team: Savane La Place, La Miel Designated Project Keith Laskowski and Dr. Dominique Boisson: Standing, First and Third from Left

I joined the team for the second day of helicopter touring. We flew to the Treuil project west of Cap Haitien for an office session with EMX geologists Peter Mitchell and Freddy Marino. They are working on target scale mapping and sampling out of a remote, mobile tent camp with local support. Although the terrain is difficult, logistics are not particularly so with road access within ten kilometers.
EMX controls 88 sq km of highly prospective copper-bornite-silver mineralization. Host rocks are strongly deformed andesite phyllites with low metamorphic grade albite-chlorite-epidote alteration. Mineralization occurs in relatively narrow veins within a six by three kilometer zone and the geology closely resembles the famous Kennicott district of Alaska. For those unfamiliar, this is the mining camp where mighty Kennecott Mining, now part of mining giant Rio Tinto, got its start.

Unfortunately we were unable to land on the prospects themselves because of pilot inexperience. At present, three main zones have been discovered with the most advanced being the Champagne prospect. Sampling and trench results are shown below:

Treuil Project: Champagne Prospect Trench Results

To the north of Treuil is the La Mine project which has gold-copper-silver prospects, Colombo with known gold occurrences, and La Porte, a porphyry copper-gold target. EMX recently has offered La Mine, Treuil, and Colombo to Newmont as designated projects.
After a detour back to the Cap Haitien airport to re-fuel, we flew to the third of EMX’ current Haiti flagships, Grand Bois. It covers an area of 50 sq km and is located 28 kilometers southwest of the port adjacent to National Highway #1 that connects Cap Haitien and the capital city of Port-au-Prince.

Grand Bois is the most advanced of Eurasian’s projects with 88 historic drill holes by Kennecott, Penarroya, the United Nations, and KWG Resources from 1975-1997. The United Nations defined a historic resource of 4.3 million tonnes averaging 2.24 g/t Au and 14.92 g/t Ag at a 0.5 g/t Au cut-off. The deposit is a tabular body mineralized, oxidized volcanic rock and is roughly circular in outline with current dimensions of 300 m x 350 m x 20 m.

It is a high sulfidation epithermal deposit that occupies a prominent ridgeline so a potential open pit would have low strip ratio. Preliminary metallurgical tests indicate high recoveries can be expected in a typical heap leach process. There is ample room for expansion of gold ounces by using a lower cut-off grade, a higher rock density due to the barite content of the deposit, and with successful exploration outside the current resource. Joint venture partner Newmont is currently laying out delineation and exploration drill holes.

Grand Boix Designated Project: Drilling and Historic Resource
I’ve briefly covered Eurasian’s three flagship properties but suffice to say, other reconnaissance exploration successes are likely to follow with 27 other projects and the best of the best in country. Recently they acquired another potential flagship project, the past producing La Meme copper-gold mine in NW Haiti with production of two million tonnes grading 2.0% Cu and a UN historic resource of 1.5 million tonnes grading 2.0% copper and 2.0 g/t Au. That, my friends, is high-grade and every good geologist knows that grade is king.

Eurasian Minerals Inc is a high risk speculative stock play. The share structure, people, and projects all meet my Mercenary criteria for investment. There is ample cash in the bank and the company follows the prospect generator-joint venture model so burn rate is relatively low. The wild card in this deck is the country of Haiti with a traumatic and unstable past for centuries and continuing into the past few years. Now there is a concerted effort by the international community on the military, social, and economic fronts to stabilize and develop a modern economy in the country.

But as I said earlier: The geology is just so damn good. Eurasian Minerals and Newmont have assessed the risks and the rewards and made the decision to invest in Haiti. I did the same, became a shareholder of the company, and am biased. You must do your own due diligence and make your own investment decisions.

After a long day in the helicopter, we made the usual third world congested and tortuous drive from the airport thru “downtown” Cap Haitien, over hill and dale, and down to our resort hotel on a gorgeous beach west of the city. Fresh lobster was eaten that evening, the 15 year old Barbancourt Reserve served over ice and lime flowed for hours, and the midnight swim included a brief torrential rainstorm. Dave doesn’t remember much of the evening, but I will attest a good time was had by all.

Too early the next morning, we backtracked to the airport, and caught a brief flight north to the resort capital of Providenciales in Turks and Caicos. My bags, now missing for three days, awaited me at the ticket counter, and with clean socks and underwear, it was all good. A relaxing day on the beach and at the bar allowed me to collect my thoughts, review the projects with Dave Cole and Scott Close, EMX’ IR director, and organize this report.

The next morning we were off on a successful charter fishing boat for small (well that’s what we caught) yellowfin tuna:

Gwen Preston of the Northern Miner and Yours Truly Display: “What’s for Dinner”.

And on the very next, I flew to New York, exchanged field gear and beach attire for a business suit, and prepared for two days examining prospective companies at the New York Hard Assets Investment Conference.

Such is a life of travel for The Mercenary Geologist. Hey, sometimes I must remind myself that I actually get paid to go on adventures and work in the outback parts of the world. All in all, it’s pretty hard to beat.

At the show in NYC, I found an exciting company which you will hear about in the coming weeks. Does this theme sound familiar: Advanced exploration of a high sulfidation gold deposit in an emerging environment?

Stay tuned.

Ciao for now,

Mickey Fulp
Mercenary Geologist

The Mercenary Geologist Michael S. “Mickey” Fulp is a Certified Professional Geologist with a B.Sc. Earth Sciences with honor from the University of Tulsa, and M.Sc. Geology from the University of New Mexico. Mickey has over 30 years experience as an exploration geologist searching for economic deposits of base and precious metals, industrial minerals, coal, uranium, and water in North and South America and China.
Mickey has worked for junior explorers, major mining companies, private companies, and investors as a consulting economic geologist for the past 22 years, specializing in geological mapping, property evaluation, and business development. In addition to Mickey’s professional credentials and experience, he is high-altitude proficient, and is bilingual in English and Spanish. From 2003 to 2006, he made four outcrop ore discoveries in Peru, Nevada, Chile, and British Columbia.
Mickey is well-known throughout the mining and exploration community due to his ongoing work as an analyst for public and private companies, investment funds, newsletter and website writers, private investors, and investment brokers.

Disclaimer: I am a shareholder of Eurasian Minerals Inc. and the company is a sponsor of my website. I am not a certified financial analyst, broker, or professional qualified to offer investment advice. Nothing in a technical report, commentary, this website, and other content constitutes or can be construed as investment advice or an offer or solicitation to buy or sell stock. Information is obtained from research of public documents and content available on the company’s website, regulatory filings, various stock exchange websites, and stock information services, through discussions with company representatives, agents, other professionals and investors, and field visits. While the information is believed to be accurate and reliable, it is not guaranteed or implied to be so. The information may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. I accept no responsibility, or assume any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information. The information contained in a technical report, commentary, this website, and other content is subject to change without notice, may become outdated, and will not be updated. A technical report, commentary, this website, and other content reflect my personal opinions and views and nothing more. All content of this website is subject to international copyright protection and no part or portion of this website, technical report, commentary, and other content may be altered, reproduced, copied, emailed, faxed, or distributed in any form without the express written consent of Michael S. (Mickey) Fulp, Mercenary Geologist.
Copyright © 2009 Mercenary Geologist. All Rights Reserved.

Anatomy of a Crisis: That Appears Only Julius Caesar Ever Understood! – June 3, 2009

Anatomy of a Crisis: That Appears Only Julius Caesar Ever Understood!
by Martin A. Armstrong (c) June 2009
Former Chairman of Princeton Economics Intl.

ArmstrongEconomics -(at)-
OR send email to k58 -(at)- for a faster reply.
(c) May 22, 2009 All rights Reserved

Questions can be directed by postal mail to: (because he has very limited internet access)

Martin A. Armstrong
FCI Fort Dix Camp
PO Box 2000
Fort Dix, NJ 08640

Publish at Scribd or explore others: Business & Economics Research anatomy martin armstrong

Elliot Wave Gold Update 23

Alf Field
25 November 2008

As this is going to be the last of these Updates, it is appropriate to review the reasons for writing this series of articles on Elliott Wave and the gold price. This will involve revealing a lot of personal detail and also unveiling an extremely high forecast for future gold prices. The first article titled “Elliott Wave and the Gold Price” was published on 25 August, 2003. This article can be reviewed at the following site: Elliott Wave & The Gold Price

In August 2003 the gold price was in the region of $350 and there were a number of conflicting views about the future direction of the gold price. Robert Prechter, for example, was predicting a move to below $253 and possibly below $200. For a number of reasons I was of the opinion that gold was in the very early stages of a major bull market. My views were thus the opposite of Prechter’s and I eventually plucked up the courage to say so.

I count Robert Prechter as a friend, so my purpose was not to disparage his views. I was more interested in setting up some parameters or guidelines that would help determine the likely outcome if the gold price exceeded those levels. I concluded that if the gold price dropped below $309, the odds would favour Prechter’s view. If it pushed above $382, then my bullish view would probably be favoured.

This was more than just an academic exercise because in 2002 I had made a major change to our family investments, moving some 40% of the capital into gold and silver bullion plus a selection of gold and silver mining shares. If Prechter’s view prevailed, our family finances would have taken a serious drubbing.

Another reason for publishing the Updates was to illustrate a major advantage of the EWP, which is the ability to prepare a template forecast (or “road map”) of how the market is likely to unfold in both the long and short term, including the possible terminal prices. The original article produced a template based on the rhythms that had been observed in the early stages of the bull market, based naturally on the assumption that my bullish views would prevail.

The early stages of the bull market revealed corrections of 4%, 8% and 16% at increasing orders of wave magnitude. Those numbers were used in the original template published in that 2003 article, a template that forecast that the first major move upwards could reach $630 after which a correction of the order of 25% to 33% would probably follow. In fact, if the sequence had been extended logically, the larger correction should be double 16%, or 32%, but this was shaved to 25-33%.

I thought that the $630 forecast was conservative and that this number would probably have to be adjusted upwards later once the minor waves unfolded. In 2003, with gold in the mid $300’s, a forecast of $630 was both courageous and extremely daring. There was no purpose served in taking the exercise beyond that point until after the $630 target had been achieved.

In addition, the 2003 article concluded that if $382 was surpassed, then the gold price would move rapidly to $424 without a serious correction. That did indeed happen, with gold reaching $425 before the anticipated correction occurred. That success encouraged me to write an article updating the original forecast. I did not anticipate that the consequence of that first update would be the production of this Update 23 some five years later.

There was a further undisclosed reason for writing these articles and that was to eventually highlight the massive potential of the gold bull market. I was reluctant to reveal what I really believed in 2003 as it was so bullish that it would have invited the arrival of the guys with straight jackets and padded cells.

As this will be the last of these Updates, I will reveal my previously unpublished “back of the envelope” calculations in 2003. They were as follows.

Major ONE up from $256 to approximately $750 (a Fibonacci 3 times the $255 low);
Major TWO down from $750 to $500 (a serious decline of 33%);
Major THREE up from $500 to $2,500 (a Fibonacci 5 times the $500 low);
Major FOUR down from $2,500 to $2,000 (another serious decline);
Major FIVE up from $2,000 to $6,000 (also a 3 fold increase, same as ONE)

A case can be made for an 8 fold increase in Major FIVE, which would continue the Fibonacci sequence 3, 5, 8. You can do the maths if you like, but the fact is you can pick your own number for the gain in Major FIVE. Three times the low of $2,000 was actually the conservative expectation, producing a bull market peak target of $6,000.

I would not have invested 40% of the family capital into gold, silver and the corresponding mining shares based solely on my bullish EWP expectations. The following is a quote extracted from “Elliott Wave and the Gold Price” written in 2003 and referenced above:

“I am not a gung-ho advocate of the EWP. I discovered not only its strengths but also its weaknesses. I prefer to have fundamentals, technicals and the EWP all in place (if possible) before committing myself to an investment.”

As mentioned in this quotation, I prefer to have fundamental and technical analyses in line with the EWP before committing to a position. Obviously I was satisfied with the fundamental and technical out look for gold when I made the dramatic change in our investment portfolio in 2002.

The technical analysis included the following:

The 21-year bear market in precious metals had ended with the multi-decade down trend line being broken on the upside.
The precious metal markets were oversold with sentiment and emotional indicators sporting extreme negative readings with bullish connotations.
In the 1970’s bull market, gold increased from a low of $35 to a peak of $850, a massive 24.3 times the low price. If the current bull market was to be of the same order, then one could project an ultimate peak of over $6,221 ($256 x 24.3). This matched the $6,000 target determined under the EWP.
The fundamental analysis was the real clincher. I had become convinced that the world, and especially the USA, was heading for a major financial crisis that would be so powerful that it would overwhelm all other factors. It would become the single most important criteria impacting on investment decisions. Privately I referred to this as the “Big Kahuna” crisis.

I anticipated that the Big Kahuna would give rise to the risk of a systemic meltdown, which would result in the authorities “throwing money at problems”, bailing out all the banks and large corporations that got into trouble. This would lead to the destruction of the currency. I wrote about this in more detail in “Seven D’s of the developing Disaster” in April, 2005, an article that can be found at: The Seven D’s Of The Developing Disaster

The consequence of the systemic meltdown would be a vast increase in newly created money which would result in a massive rise in the gold price of the order that I was anticipating. A further consequence would be the introduction of new national and international monetary systems. Several articles followed in the next few years, culminating in “Crisis Cogitations” which was published just 2 weeks ago at: Crisis Cogitations
If you haven’t read “Crisis Cogitations”, I would urge you to do so in order to better understand the current crisis. Obviously the current financial crisis is the Big Kahuna that I had been anticipating, although I didn’t expect it to take five years to emerge.

Reverting back to the situation in 2003, both the technical and fundamental underpinnings for gold seemed to be pretty solid. Consequently I felt confident that the bullish EWP forecasts, both the shorter term and the undisclosed longer term expectation, would work out. There was no purpose served in revealing the potential for the market to reach $6,000. To get there, gold had to get to the $630 target first, which was a sufficiently daring forecast in 2003.

The current situation

The chart below depicts the COMEX Gold price on a weekly basis. In February 2006, in Update IV, the $630 target was increased to $768 as a result of intervening market action. A couple of months later the gold price exceeded $630 and moved to $733 in May 2006. From that point a 23% correction to $563 occurred.

Confusion reigned because a relatively minor correction had been anticipated, to be followed by a rise to $768. Thereafter the long awaited 25% to 33% correction was scheduled to occur. Instead, the decline measured 23% and the obvious conclusion was that this was the long awaited 25% to 33% correction, albeit slightly stunted. Quite possibly I was overly influenced by my previously unpublished rough target of $750 followed by a decline to $500. The actual outcome of a peak of $733 and a correction to $563 was remarkably close to my rough estimate and seemed to adequately fit the requirement for the end of Major ONE and the corrective wave Major TWO. In coming to this conclusion I glossed over the fact that the correction to $563 was an obvious triangle, and triangles are almost always 4th waves, yet I was calling it a 2nd wave, Major TWO. I also glossed over the fact that the correction was below the 25% to 33% magnitude required.

I mentioned previously that the early corrections were 4%, 8% and 16% at increasing orders of magnitude. If one were to be pedantic, one would say that the next level of correction should be 32%. Looking at the chart below, the correction from $1015 to $699 is 31%! It sticks out like a sore thumb. Surely this is exactly the 32% correction that we should have been anticipating for Major TWO?

Assuming that the $699 low on 23 October 2008 turns out to be the actual low point of the correction, and that remains to be proven, then we can conclude that we have seen the low point for Major TWO. That will allow us to update my original “back of the envelope” template to much higher levels, as follows:

Major ONE up from $256 to $1,015 (actually 4 times the $255 low);
Major TWO down from $1015 to $699, say $700 (a decline of 31%);
Major THREE up from $700 to $3,500 (a Fibonacci 5 times the $500 low);
Major FOUR down from $3,500 to $2,500 (a 29% decline);
Major FIVE up from $2,500 to $10,000 (also a 4 fold increase, same as ONE)

Once again, you can pick your number for the gain in FIVE and multiply it by $2,500. The numbers become astronomical and can really only be possible in a runaway inflationary environment, something which many thinking people are suggesting has become a possibility as a result of the actions taken during the current crisis.

Concentrating on the $3,500 target for Major THREE, which is a five fold increase from the low point of about $700, there is a case advanced in “Crisis Cogitations” for a five fold increase in money and prices in order to arrive at a “Less Hard” economic landing. In the USA, total debt recently exceeded $50 trillion and this is unsustainable given an economy with a GDP of only $14 trillion. The suggestion is that the debt level will reduce through bankruptcies to say $35 trillion while the new money created to save the situation will push up the nominal GDP to $70 trillion. A $35 trillion debt level is manageable with a GDP of $70 trillion.

It requires a five fold increase in prices to achieve the above result. Gold has retained its purchasing power over the centuries and will no doubt continue to do so in the current environment. Consequently gold will almost certainly increase five fold (or more) if the level of prices in the USA increases five fold.

In “Crisis Cogitations” it is acknowledged that the current credit/debt deflation could get out of hand and result in a serious deflationary depression. There is debate as to how gold will react in a deflationary environment, but the fact is that in a serious depression bankruptcies will be rife and price levels will decline. This may result in cash and Government bonds performing better than gold, but this is not certain. Gold cannot go bankrupt and is thus an asset that people can hold with confidence in a deflationary depression. It is possible that demand for a “safe haven” investment may be large enough to cause the metal to perform better than cash or Government Bonds.

The odds, however, strongly favour an inflationary outcome. Given a strong will and the ability to create any amount of new money via the electronic money machine, it seems a foregone conclusion that runaway inflation will be the end result. If Mugabe could do it in Zimbabwe, there seems little doubt that Ben Bernanke and his associates in other countries will have no trouble in doing it too.

Why quit writing these reports?

I have noticed from the emails that I receive that many people are using these reports to guide their trading activities in gold. I have had no objection to this in the past, but feel that it would be foolish to trade gold in the circumstances of the Big Kahuna crisis that we are living though at the moment. It has become a question of individual financial survival in an environment where things are happening more rapidly and with increasing violence. I feel very strongly that it is time to quietly hold onto one’s gold insurance and not attempt to trade it. I do not wish to provide interim levels that may cause people to be encouraged to trade their gold to skim a few extra fiat dollars or other currencies, but lose their gold as a result.

So it is Good Bye, Good Luck and God Bless,

Alf Field
25 November 2008
Comments to:

Disclosure and Disclaimer Statement: The author is not a disinterested party. He has personal investments in gold and silver bullion, as well as in gold, silver, uranium and base metal mining shares. The author’s objective in writing this article is to interest potential investors in this subject to the point where they are encouraged to conduct their own further diligent research. Neither the information nor the opinions expressed should be construed as a solicitation to buy or sell any stock, currency or commodity. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions. The author has neither been paid nor received any other inducement to write this article.

T2 Partners Presentation on the Mortgage Crisis – June 2009

Whitney Tilson and Glenn Tongue of T2 Partners have come out with a very well done presentation on the mortgage crisis. Link here (pdf file). This is a crash course outline of what is detailed in their book More Mortgage Meltdown: 6 Ways to Profit In These Bad Times. (Which I think is a very worthy read. Probably one of the best assessments on the mortgage crisis I have read so far. )

The presentation puts the crisis into perspective through many data points and charts showing, where we have been, where we are currently, and what is to be expected down the road, which isn’t pretty…

Some of the things that stood out to me are:

1. They mention that wave 1 of the mortgage crisis began with speculators who jumped ship quickly and defaulted on loans. This is largely behind us.

2. Wave 2 came from borrowers who defaulted when their mortgages reset due to payment shock. These were mostly the “subprime loans” that you heard so much of in the news. As the teaser rates reset, the payments increased dramatically, thus leading to defaults.

3. There are still 3 “waves” of defaults that have yet to hit. These will come from defaults on Prime Loans (the cream of the crop) that are A.) under water because of home price declines and/or B.) cannot be paid because of job losses. Jumbo prime loans, seconds and HELOCs have yet to see a major set of defaults, which are inevitable…..

But most importantly, the $3.5 Trillion commercial real estate market has yet to go through a serious round of price write-downs and defaults. It’s coming… and it won’t be pretty.

4.) $2.4 Trillion in Alt-A mortgage resets still lie ahead of us. And this peak in resets goes out to January of 2013 !!!

All of this leads any rational speculator to scoff at the idea of “green shoots” or whatever other stupid name the spin-doctors have come up with. This debacle is going to carry on for a long time because the political goons refuse to let the market self-correct. We may be following the Japanese lost decade (actually two-decades) template.

I have no doubts that we will see a reflation in asset prices, because of the stupendous amount of money printing that is going on across the globe.. but the timing of it all, I’m not so certain. There are still massive debts that will simply disappear due to bankruptcies and defaults, which is all counter-productive to the Fed’s inflationary policies. So this tug-o-war going on is jerking the markets back and forth.

At the end of the day, however, I’m of the opinion that the inflationary pressures will come sooner than later and all these deflationary scares will be a non-event. If only, because the Fed’s ability to print is infinite and at this point I really think they have commited themselves to that necessity if pushed into the corner. And let’s not forget a politician will never just sit on his hands !!

The key to navigating through all of this unscathed and richer, is to anticipate where the money will flow. My bet is out of bonds, out of the dollar, out of Euros, out of housing, and into foreign equities (in particular BRIC nations, minus Russia. So BIC), into commodities, into gold and silver, into farmland, into agriculture, into well run companies with the pricing power…. and … and….. many other places.

We are seeing a massive paradigm shift occurring. Study history and you will see how fortunes are lost and fortunes are made during these times.

Good luck!


— Pip Tradewell
Editor for

Chinese students laugh at Geithner’s assurances

Editor’s Comments: What else did Geithner expect. That they would eat up his words like in America??

Geithner Tells China Its Dollar Assets Are Safe
By Glenn Somerville
Monday, June 1, 2009


BEIJING — U.S. Treasury Secretary Timothy Geithner on Monday reassured the Chinese government that its huge holdings of dollar assets are safe and reaffirmed his faith in a strong U.S. currency.

A major goal of Geithner’s maiden visit to China as Treasury chief is to allay concerns that Washington’s bulging budget deficit and ultra-loose monetary policy will fan inflation, undermining both the dollar and U.S. bonds.

China is the biggest foreign owner of U.S. Treasury bonds. U.S. data shows that it held $768 billion in Treasuries as of March, but some analysts believe China’s total U.S. dollar-denominated investments could be twice as high.

“Chinese assets are very safe,” Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.

His answer drew loud laughter from his student audience, reflecting scepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.
The Beijing-based Global Times greeted Geithner by publishing a survey of Chinese economists who called big holdings of U.S. debt “risky.”

Geithner renewed pledges that the Obama administration would cut its huge fiscal deficits and promised “very disciplined” future spending, possibly including reintroduction of pay-as-you-go budget rules instead of nonstop borrowing.

“We have the deepest and most liquid markets for risk-free assets in the world. We’re committed to bring our fiscal deficits down over time to a sustainable level.

“We believe in a strong dollar … and we’re going to make sure that we repair and reform the financial system so that we sustain confidence,” he said.

Geithner also offered strong backing for a bigger Chinese role in international policymaking.

“China is already too important to the global economy not to have a full seat at the international table,” he said.
Geithner, who is due to meet President Hu Jintao and Premier Wen Jiabao during two days of talks, described the recession as still “powerful and dangerous” in much of the world.

Recent signs of improvement were not enough to change an International Monetary Fund prediction that world output would shrink this year for the first time in 60 years. And credit was likely to be tight for some time, Geithner said.
But he added: “The global recession seems to be losing force.”

Moreover, the U.S. financial system was healing and it now seemed assured that the world would avoid financial collapse and deflation.

But Geithner said there could be no return to business as usual either for the United States or China: Both must change their growth strategies as U.S. consumers pay down debt after years of living beyond their means.

For China, which he said was in “an enviably strong position” that meant reducing its dependence on export-oriented growth.

“Purchases of U.S. consumers cannot be as dominant a driver of growth as they have been in the past,” he said.
“In China … growth that is sustainable will require a very substantial shift from external to domestic demand, from an investment and export-intensive growth to growth led by consumption.”

To that end, Geithner said, a more flexible exchange-rate regime for the yuan, which would almost certainly see the value of the Chinese currency rise against the dollar, was particularly important because it would spur more Chinese demand.
A stronger yuan would make imports cheaper for China and Chinese exports more costly for foreign buyers.

Geithner offered U.S. backing for a higher-profile role for China in running global institutions including the IMF — a controversial proposition since it raises the sensitive issue of reducing Europe’s voting share in the global lender.

“The United States will fully support having China play a role in the principal cooperative arrangements that help shape the international system, a role that is commensurate with China’s importance in the global economy,” he said.

In words clearly intended to soothe Chinese concerns that its vibrant export economy might be targeted by U.S. lawmakers who are feeling pressure from soaring American joblessness, Geithner said the Obama administration would resist any such moves.

“As we go through the severe stresses of this crisis, we must not turn our backs on open trade and investment,” he said. “In return, we expect increased opportunities to export to and invest in the Chinese economy.”

Geithner said he was hopeful that General Motors Corp. and Chrysler would be able to stand on their own feet once they emerge from bankruptcy.

GM will file for bankruptcy on Monday, U.S. officials said, forcing the 100-year-old automaker once seen as a symbol of American economic might into a new and uncertain era of government ownership.

“We want a quick, clean exit as soon as conditions permit,” Geithner said. “We’re very optimistic these firms will emerge (from restructuring) without further government assistance.”