The Globe and Mail
OTTAWA and TORONTO — Away from Wall Street and Bay Street, the economic engines that power the North American economy are sputtering for lack of fuel and lubricant.
The failure of U.S. politicians to secure a financial rescue Monday and the stock-market collapse that ensued now threaten to make life in the real North American economy even worse.
For the banks, the cost of short-term cash – the foundation of their consumer and business lending – was already at record levels. Now uncertainty about whether the $700-billion (U.S.) plan can be saved is likely to make credit markets even tighter, with negative implications for companies in Canada as well and the prospect of a broader retrenchment in consumer spending.
As U.S. banks tighten lending, an ongoing massive loss of wealth from the meltdown in stocks risks shattering the fragile confidence of the world's most powerful consumers. They had already been curtailing spending amid the worst financial crisis since the Great Depression, and Monday's tumble alone erased more than $1-trillion in American investor savings.
And while the centre of the storm remains on Wall Street, Canadian companies are already feeling the effects.
“There is no money available for even good companies,” said Kacee Vasudeva, chairman and chief executive officer of closely held Maxtech Manufacturing Inc., a maker of automobile parts in Waterloo, Ont. “If this bailout fails, there will be a bloodbath.”
Most economists say the U.S. economy was already on its way to recession before the historic plunge in the Dow Jones Industrial Average led it to shed 777.7 points, or 6.9 per cent. The drop was 840.9 points for Toronto's benchmark index, also a 6.9-per-cent loss.
“My personal concern is that people are going to act so conservatively that it becomes a self-fulfilling prophecy,” said Jack McDonald, who runs Leeza Distribution, a Montreal-based company that stockpiles and delivers countertops. “We're certainly rationalizing our inventory.”
Lenders aren't likely to do anything to encourage Americans to return to the box stores or buy a home any time soon.
Banks around the world are hoarding cash out of fear of lending to the next financial institution to be brought down by exposure to toxic assets linked to subprime mortgages.
The bailout plan conceived by U.S. Treasury Secretary Henry Paulson was intended to restore confidence in markets by using taxpayers' money to remove bad debt from the balance sheets of financial institutions.
There is a real risk the uncertainty will cause more banks to fail, making credit even harder to come by.
“I am dead scared,” said David Laidler, a professor emeritus of economics at the University of Western Ontario and a former adviser at the Bank of Canada. “My guess is the financial system is really going to start coming apart in a big way and it's going to happen quickly.”
Maxtech's Mr. Vasudeva said credit has been unavailable for auto-parts makers for six to eight months. The company has developed new joints for automotive exhaust systems that could save auto makers as much as $15-million a year – except Mr. Vasudeva can't get anyone to lend him the money to develop the idea.
“If you can't develop the innovation and take it to the marketplace, you will die a natural death,” he said.
Less than a year ago, Canada's mining industry was basking in what was being called the greatest resource boom in half a century. Now, the financial chaos has investors fleeing the once red-hot sector.
“There is no access to capital right now, zero,” said Ian Delaney, a stock-market veteran and the chairman of Toronto-based resource producer Sherritt International Corp., which has coal-mining operations in Western Canada and oil assets in Cuba.
Mr. Delaney said he had “never seen it like this, as consistently and as dangerously, in my life.” Sherritt has sought to “avoid economic calamity” by keeping debt off its balance sheet and streamlining operations, Mr. Delaney said.
In Saskatoon, Jerry Grandey, the chief executive officer of Cameco Corp., the world's largest uranium producer, said the financial crisis has prompted the notoriously prudent company to reassess its capital expenditures.
As grim as things are, Canada likely will avoid a recession, said George Vasic, chief economist at UBS Securities in Toronto. While the U.S. economy will contract over the second half of the year, Canada's gross domestic product likely will shrink in only one of the final two quarters of the year, Mr. Vasic is forecasting.
For Leeza's Mr. McDonald, this may be a challenging time in terms of consumer demand but he's looking at expansion and riding through it.
Most of the company's sales are in Canada, where the housing market has mostly held up, supporting demand for the countertops it distributes. Leeza has just secured fresh credit at reasonable terms and is thinking about preying on some of its distressed competitors in the U.S. northeast.
“There might be some companies to pick off,” Mr. McDonald said. “If you can pick up some infrastructure down there, you do it.”
Tuesday, September 30, 2008
ECU Silver Signs Concentrate Sales Agreement
TORONTO, ONTARIO, Sep 29, 2008 (MARKET WIRE via COMTEX) -- ECU Silver Mining (CA:ECU: news, chart, profile) (the "Company") is pleased to announce that it has entered into a contractual agreement with MK Metals Trading S.A. de C.V., a division of Nexxtrade ("MK Metals"), an international broker, for the sale of both our lead concentrates and our zinc concentrates. This is an important event for the Company as it underscores the ability of the Company to realize value for its lead and zinc concentrates in a market where sales of mineral concentrates to smelters has been very difficult and limited for several junior mining companies.
Several months ago the Company opted to curtail the processing of mineralized material for a number of reasons including the fact that our mining efforts were beginning to interfere with our exploration activities in the region we were exploring at that time. Since then, our exploration has advanced to other areas and with the ongoing strength in commodity prices, we resumed the processing of our mineralized material. The Company's main focus continues to be on exploration and over the past several months we have reported tremendous successes with our exploration program and we expect to provide an updated N.I. 43-101 as soon as possible. Coincident with our recent exploration successes, we have been milling at our flotation plant in Velardena at an approximate rate of 200 tonnes per day (tpd) where we are generating a lead concentrate, a zinc concentrate and a pyrite/gold concentrate. The majority of our silver product is incorporated within the lead concentrate whereas the majority of our gold is within the pyrite/gold concentrate.
The lead and zinc concentrates can be sold to various smelters around the world. As such, we have secured the sale of our concentrates through an international broker who can package several small quantities of concentrates from junior producers and offer global smelters concentrate packages in sizes that can essentially compete with major producers. In this way, these brokers can negotiate more attractive terms with the smelters thereby allowing small producers to obtain respectable prices for their concentrate.
The Company has sold MK Metals an initial inventory of 400 tonnes of lead concentrates and 450 tonnes of zinc concentrates. The shipments started on Saturday and will be finished this week. The total value of these shipments will be approximately US$1.2 million.
With regard to our gold/pyrite concentrate, we have conducted several metallurgical tests to optimize the Net Smelter Return (NSR) value of the pyrite/gold concentrate. We are in the process of evaluating certain options for this concentrate and once we have identified the best option we will report it to our shareholders. We currently have a pyrite/gold concentrate inventory of 7,000 tonnes containing approximately 5,000 ounces of gold and 35,000 ounces of silver.
The ability to realize value for our concentrates is exceedingly important in that it provides additional integrity to the quality of our expanding mineral resource. We expect that the expansion of our mineral resource will incorporate the successful results we have announced over the past several months, namely; i) the discovery of both the western extension (press release dated August 29, 2007) and the eastern extension (press releases dated March 31 and May 28, 2008) of the main Terneras Vein on the main Velardena Property, ii) the discovery of a new vein at Chicago (press release dated May 8, 2008) which provides ongoing evidence of the exploration potential on the Chicago Property, iii) very encouraging results at our San Diego joint venture property (press release dated June 23, 2008) and iv) our most exciting discovery this year, the massive sulphide lenses at depth (press release dated July 9, 2008) which we believe are located very close to the intrusive which created the source of mineralization for the extensive system of veins at Santa Juana on the main Velardena Property.
Additional Information:
ECU Silver Mining Inc. is focused on the exploration, development and mining of gold, silver and base metals at its Velardena District Properties in Durango, Mexico. The area is comprised of three properties, the Main Velardena Property, the Chicago Property and the San Diego Property. The properties are located near to each other and include five historical mines - Santa Juana, Terneras, San Mateo, San Juanes, and the San Diego mine. ECU's goal is to establish a significant polymetallic mineral resource in the heart of Mexico. ECU's mission is to become a pre-eminent silver and gold producer through the development of existing, and additional potential resources at Velardena.
Several months ago the Company opted to curtail the processing of mineralized material for a number of reasons including the fact that our mining efforts were beginning to interfere with our exploration activities in the region we were exploring at that time. Since then, our exploration has advanced to other areas and with the ongoing strength in commodity prices, we resumed the processing of our mineralized material. The Company's main focus continues to be on exploration and over the past several months we have reported tremendous successes with our exploration program and we expect to provide an updated N.I. 43-101 as soon as possible. Coincident with our recent exploration successes, we have been milling at our flotation plant in Velardena at an approximate rate of 200 tonnes per day (tpd) where we are generating a lead concentrate, a zinc concentrate and a pyrite/gold concentrate. The majority of our silver product is incorporated within the lead concentrate whereas the majority of our gold is within the pyrite/gold concentrate.
The lead and zinc concentrates can be sold to various smelters around the world. As such, we have secured the sale of our concentrates through an international broker who can package several small quantities of concentrates from junior producers and offer global smelters concentrate packages in sizes that can essentially compete with major producers. In this way, these brokers can negotiate more attractive terms with the smelters thereby allowing small producers to obtain respectable prices for their concentrate.
The Company has sold MK Metals an initial inventory of 400 tonnes of lead concentrates and 450 tonnes of zinc concentrates. The shipments started on Saturday and will be finished this week. The total value of these shipments will be approximately US$1.2 million.
With regard to our gold/pyrite concentrate, we have conducted several metallurgical tests to optimize the Net Smelter Return (NSR) value of the pyrite/gold concentrate. We are in the process of evaluating certain options for this concentrate and once we have identified the best option we will report it to our shareholders. We currently have a pyrite/gold concentrate inventory of 7,000 tonnes containing approximately 5,000 ounces of gold and 35,000 ounces of silver.
The ability to realize value for our concentrates is exceedingly important in that it provides additional integrity to the quality of our expanding mineral resource. We expect that the expansion of our mineral resource will incorporate the successful results we have announced over the past several months, namely; i) the discovery of both the western extension (press release dated August 29, 2007) and the eastern extension (press releases dated March 31 and May 28, 2008) of the main Terneras Vein on the main Velardena Property, ii) the discovery of a new vein at Chicago (press release dated May 8, 2008) which provides ongoing evidence of the exploration potential on the Chicago Property, iii) very encouraging results at our San Diego joint venture property (press release dated June 23, 2008) and iv) our most exciting discovery this year, the massive sulphide lenses at depth (press release dated July 9, 2008) which we believe are located very close to the intrusive which created the source of mineralization for the extensive system of veins at Santa Juana on the main Velardena Property.
Additional Information:
ECU Silver Mining Inc. is focused on the exploration, development and mining of gold, silver and base metals at its Velardena District Properties in Durango, Mexico. The area is comprised of three properties, the Main Velardena Property, the Chicago Property and the San Diego Property. The properties are located near to each other and include five historical mines - Santa Juana, Terneras, San Mateo, San Juanes, and the San Diego mine. ECU's goal is to establish a significant polymetallic mineral resource in the heart of Mexico. ECU's mission is to become a pre-eminent silver and gold producer through the development of existing, and additional potential resources at Velardena.
Monday, September 29, 2008
Alaska Leadership Team Prepares Pebble Project For Permitting
September 29, 2008, Vancouver, B.C. -- Northern Dynasty Minerals Ltd. ("Northern Dynasty" or the "Company") (TSX: NDM; AMEX: NAK) reports that the Pebble Limited Partnership ("PLP", "Pebble Partnership" or the "Partnership") executive and management team that will oversee completion of a Prefeasibility Study in the second half of 2009, and lead the Pebble Project into permitting, is largely in place in Anchorage, Alaska.
Along with its 50-50 partner, an affiliate of Anglo American plc, a wholly-owned affiliate of Northern Dynasty established the Pebble Partnership in mid-2007 to design, permit, construct and operate a modern, long-life mine in southwest Alaska. The mineral resource at Pebble is acknowledged as one of the most important accumulations of copper, gold and molybdenum in the world today.
Following the appointment of prominent Alaska business leader John Shively as CEO in April 2008, the Partnership has successfully recruited experienced Alaska business professionals to fill most of its senior posts. Mr. Shively was formerly Commissioner of the Alaska Department of Natural Resources, President of the Resource Development Council of Alaska and a senior executive with NANA Corporation -- the Alaska Native Corporation that partnered with Teck Cominco in the development and operation of the Red Dog zinc mine.
"In John Shively, we have one of the most credible business, government and community leaders in the state," said Northern Dynasty President and CEO Ron Thiessen. "John is not only respected for his management acumen, but also for his career-long effort to facilitate responsible resource development that improves the lives of Alaska's Native and rural populations. His is precisely the kind of leadership this project requires, and it's a big part of the reason we have been successful in attracting other high-caliber professionals in the state."
Other notable Alaskans who have been recruited into leadership positions with the Pebble Partnership under Mr. Shively's leadership include:
* Vice President, Environment - Ken Taylor.
Mr. Taylor has worked as a wildlife biologist in the State of Alaska for more than 30 years, most recently as Deputy Commissioner of the Alaska Department of Fish & Game. He spent 10 years as an Area Biologist in the region of southwest Alaska where Pebble is located.
* Vice President, Public Affairs -- Mike Heatwole.
Mr. Heatwole is a long-time Alaskan communications professional with experience in private industry, government and consulting. His resource development experience includes eight years as Director of Public Affairs with the Alyeska Pipeline Service Company.
* Vice President, Human Resources & Administrative Services -- Josie Harmon.
Ms. Harmon is a lifelong Alaskan, a shareholder of Chugach Alaska Corporation and a human resource professional with 18 years of experience in consulting and management within Alaska's resource development sector.
In total, there are 27 staff in the Pebble Partnership's corporate office in Anchorage -- including Finance Manager Matt McDaniel, Stakeholder Relations Manager Heidi Franklin, Permitting Affairs Manager Charlotte MacCay, Environmental Studies Manager Jane Whitsett, Information Technology Manager Ubon Boutsomsi and Business Development Manager Debi Schmit. In addition to extensive Alaskan experience, the PLP management team includes Alaska Natives and those with professional and personal histories in the project area.
Contract and full-time personnel working at the Pebble Project site near Iliamna, Alaska peaked at 232 this summer. Some 130 individuals from local communities have worked on the project in 2008.
"Pebble is one of the leading mineral development projects in the world, and the Partnership has set commensurately high expectations for itself in terms of financial, environmental and social performance," Thiessen said. "World-class performance requires a world-class team, and that is precisely what we are assembling in Alaska today."
Stephen Hodgson, P.Eng. continues to lead the large, multi-disciplinary team developing a Prefeasibility Study for the Pebble Project. Over the course of a 32-year career, Mr. Hodgson has experience in consulting, project management, feasibility-level design and implementation, and mine operations at some of the largest mineral development projects in the world -- including the Red Dog zinc mine in Alaska and the Oyu Tolgoi copper-gold project in Mongolia. Mr. Hodgson is directing a dedicated study team of about 20 engineers and technical specialists, many of them seconded from Anglo American plc, as well as 58 leading engineering firms and other specialized consultancies from the United States and around the world.
For further details on Northern Dynasty and the Pebble Project, visit our website at www.northerndynastyminerals.com and the Pebble Partnership website at www.pebblepartnership.com, or contact Investor Services at (604) 684-6365 or within North America at 1-800-667-2114.
Ronald Thiessen
President and CEO
Along with its 50-50 partner, an affiliate of Anglo American plc, a wholly-owned affiliate of Northern Dynasty established the Pebble Partnership in mid-2007 to design, permit, construct and operate a modern, long-life mine in southwest Alaska. The mineral resource at Pebble is acknowledged as one of the most important accumulations of copper, gold and molybdenum in the world today.
Following the appointment of prominent Alaska business leader John Shively as CEO in April 2008, the Partnership has successfully recruited experienced Alaska business professionals to fill most of its senior posts. Mr. Shively was formerly Commissioner of the Alaska Department of Natural Resources, President of the Resource Development Council of Alaska and a senior executive with NANA Corporation -- the Alaska Native Corporation that partnered with Teck Cominco in the development and operation of the Red Dog zinc mine.
"In John Shively, we have one of the most credible business, government and community leaders in the state," said Northern Dynasty President and CEO Ron Thiessen. "John is not only respected for his management acumen, but also for his career-long effort to facilitate responsible resource development that improves the lives of Alaska's Native and rural populations. His is precisely the kind of leadership this project requires, and it's a big part of the reason we have been successful in attracting other high-caliber professionals in the state."
Other notable Alaskans who have been recruited into leadership positions with the Pebble Partnership under Mr. Shively's leadership include:
* Vice President, Environment - Ken Taylor.
Mr. Taylor has worked as a wildlife biologist in the State of Alaska for more than 30 years, most recently as Deputy Commissioner of the Alaska Department of Fish & Game. He spent 10 years as an Area Biologist in the region of southwest Alaska where Pebble is located.
* Vice President, Public Affairs -- Mike Heatwole.
Mr. Heatwole is a long-time Alaskan communications professional with experience in private industry, government and consulting. His resource development experience includes eight years as Director of Public Affairs with the Alyeska Pipeline Service Company.
* Vice President, Human Resources & Administrative Services -- Josie Harmon.
Ms. Harmon is a lifelong Alaskan, a shareholder of Chugach Alaska Corporation and a human resource professional with 18 years of experience in consulting and management within Alaska's resource development sector.
In total, there are 27 staff in the Pebble Partnership's corporate office in Anchorage -- including Finance Manager Matt McDaniel, Stakeholder Relations Manager Heidi Franklin, Permitting Affairs Manager Charlotte MacCay, Environmental Studies Manager Jane Whitsett, Information Technology Manager Ubon Boutsomsi and Business Development Manager Debi Schmit. In addition to extensive Alaskan experience, the PLP management team includes Alaska Natives and those with professional and personal histories in the project area.
Contract and full-time personnel working at the Pebble Project site near Iliamna, Alaska peaked at 232 this summer. Some 130 individuals from local communities have worked on the project in 2008.
"Pebble is one of the leading mineral development projects in the world, and the Partnership has set commensurately high expectations for itself in terms of financial, environmental and social performance," Thiessen said. "World-class performance requires a world-class team, and that is precisely what we are assembling in Alaska today."
Stephen Hodgson, P.Eng. continues to lead the large, multi-disciplinary team developing a Prefeasibility Study for the Pebble Project. Over the course of a 32-year career, Mr. Hodgson has experience in consulting, project management, feasibility-level design and implementation, and mine operations at some of the largest mineral development projects in the world -- including the Red Dog zinc mine in Alaska and the Oyu Tolgoi copper-gold project in Mongolia. Mr. Hodgson is directing a dedicated study team of about 20 engineers and technical specialists, many of them seconded from Anglo American plc, as well as 58 leading engineering firms and other specialized consultancies from the United States and around the world.
For further details on Northern Dynasty and the Pebble Project, visit our website at www.northerndynastyminerals.com and the Pebble Partnership website at www.pebblepartnership.com, or contact Investor Services at (604) 684-6365 or within North America at 1-800-667-2114.
Ronald Thiessen
President and CEO
Sunday, September 28, 2008
Thursday, September 25, 2008
CEO: Fannie/Freddie Bailout Makes America 'More Communist than China'
Has America created its own variety of communism with the U.S. Treasury Department’s bailout of two beleaguered government-sponsored enterprises (GSEs), Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE)? According to Rogers Holding CEO Jim Rogers, the answer is yes.
“America is more communist than China is right now,” Rogers told CNBC Europe’s “Squawk Box Europe” September 8. “You can at least have a free market in housing and a lot of other things in China. And you can see that this is welfare for the rich. This is socialism for the rich. It’s bailing out the financiers, the banks, the Wall Streeters."
Rogers, known for launching the Quantum Fund with left-wing heavyweight George Soros, said the bailout was not benefiting homeowners or helping average citizens improve their standing for a home mortgage.
“It’s not bailing out the homeowners who are in trouble, by the way,” Rogers said. “It’s not bailing out people who want a mortgage – it’s just bailing out financial institutions. This is not my idea of the way things are supposed to be, but if that’s what America wants, you know, it can elect people who are going to do it. I think it’s a mistake.”
The Rogers Holdings CEO had little confidence that Democratic presidential nominee Sen. Barack Obama, Ill., or Republican vice-presidential nominee, Alaska Gov. Sarah Palin, would be able to do anything to steer Fannie or Freddie on a more stable path.
“This is a big huge mess and neither one of them has a clue as to what to do next year,” Rogers said. “Bank stocks around the world are going through the roof, that’s because they’ve all been bailed out. You don’t see the homeowners in Kansas going through the roof because they’re not being bailed out.”
Rogers had previously called for Fannie and Freddie to be allowed to go bankrupt. “They should not be bailed out,” he told “Worldwide Exchange” July 15. “This is outrageous. Who are these people who are taking our money and doing this and ruining America?”
“Let the patient go bankrupt,” he said. “We have courts in America; they will be reorganized.”
Fannie Mae and Freddie Mac were “wove a mantle of invincibility” through lobbying according to a September 8 Wall Street Journal “Deal Journal” blog post. According to the Journal’s Heidi N. Moore, the mortgage giants had $170 million in lobbying bills in the past decade and spent $3.5 million on lobbying just in this year’s first quarter, spreading their largesse among 42 outside lobbying firms.
Earlier on September 8, CNBC “Mad Money” host Jim Cramer called the bailout “a homerun plan” on MSNBC’s “Morning Joe.”
“America is more communist than China is right now,” Rogers told CNBC Europe’s “Squawk Box Europe” September 8. “You can at least have a free market in housing and a lot of other things in China. And you can see that this is welfare for the rich. This is socialism for the rich. It’s bailing out the financiers, the banks, the Wall Streeters."
Rogers, known for launching the Quantum Fund with left-wing heavyweight George Soros, said the bailout was not benefiting homeowners or helping average citizens improve their standing for a home mortgage.
“It’s not bailing out the homeowners who are in trouble, by the way,” Rogers said. “It’s not bailing out people who want a mortgage – it’s just bailing out financial institutions. This is not my idea of the way things are supposed to be, but if that’s what America wants, you know, it can elect people who are going to do it. I think it’s a mistake.”
The Rogers Holdings CEO had little confidence that Democratic presidential nominee Sen. Barack Obama, Ill., or Republican vice-presidential nominee, Alaska Gov. Sarah Palin, would be able to do anything to steer Fannie or Freddie on a more stable path.
“This is a big huge mess and neither one of them has a clue as to what to do next year,” Rogers said. “Bank stocks around the world are going through the roof, that’s because they’ve all been bailed out. You don’t see the homeowners in Kansas going through the roof because they’re not being bailed out.”
Rogers had previously called for Fannie and Freddie to be allowed to go bankrupt. “They should not be bailed out,” he told “Worldwide Exchange” July 15. “This is outrageous. Who are these people who are taking our money and doing this and ruining America?”
“Let the patient go bankrupt,” he said. “We have courts in America; they will be reorganized.”
Fannie Mae and Freddie Mac were “wove a mantle of invincibility” through lobbying according to a September 8 Wall Street Journal “Deal Journal” blog post. According to the Journal’s Heidi N. Moore, the mortgage giants had $170 million in lobbying bills in the past decade and spent $3.5 million on lobbying just in this year’s first quarter, spreading their largesse among 42 outside lobbying firms.
Earlier on September 8, CNBC “Mad Money” host Jim Cramer called the bailout “a homerun plan” on MSNBC’s “Morning Joe.”
ATW Venture Corp Amends Stock Options
September 23, 2008
Vancouver, BC – ATW Venture Corp. (TSX-V: ATW) (the “Company”) further to the Company’s news release of September 19, 2008 announcing the grant of 815,000 options exercisable for a 5 year term at a price of $0.38, the Company is increasing the exercise price.
As a result of recent positive market conditions, the Company has increased the exercise price from $0.38 to an exercise price of $0.55. All other terms of the options remain unchanged.
To find out more about ATW Venture Corp., please contact Luke Norman at 604-662-8184 or email info@atwventure.com.
ON BEHALF OF THE BOARD OF DIRECTORS
ATW VENTURE CORP.
“Brent Butler”
Brent Butler
President & CEO
Vancouver, BC – ATW Venture Corp. (TSX-V: ATW) (the “Company”) further to the Company’s news release of September 19, 2008 announcing the grant of 815,000 options exercisable for a 5 year term at a price of $0.38, the Company is increasing the exercise price.
As a result of recent positive market conditions, the Company has increased the exercise price from $0.38 to an exercise price of $0.55. All other terms of the options remain unchanged.
To find out more about ATW Venture Corp., please contact Luke Norman at 604-662-8184 or email info@atwventure.com.
ON BEHALF OF THE BOARD OF DIRECTORS
ATW VENTURE CORP.
“Brent Butler”
Brent Butler
President & CEO
Wednesday, September 24, 2008
Dr. Ron Paul, U.S. Congressman - Time Is Running Out
Dear Friends,
Whenever a Great Bipartisan Consensus is announced, and a compliant media assures everyone that the wondrous actions of our wise leaders are being taken for our own good, you can know with absolute certainty that disaster is about to strike.
The events of the past week are no exception.
The bailout package that is about to be rammed down Congress' throat is not just economically foolish. It is downright sinister. It makes a mockery of our Constitution, which our leaders should never again bother pretending is still in effect. It promises the American people a never-ending nightmare of ever-greater debt liabilities they will have to shoulder. Two weeks ago, financial analyst Jim Rogers said the bailout of Fannie Mae and Freddie Mac made America more communist than China! "This is welfare for the rich," he said. "This is socialism for the rich. It's bailing out the financiers, the banks, the Wall Streeters."
That describes the current bailout package to a T. And we're being told it's unavoidable.
The claim that the market caused all this is so staggeringly foolish that only politicians and the media could pretend to believe it. But that has become the conventional wisdom, with the desired result that those responsible for the credit bubble and its predictable consequences - predictable, that is, to those who understand sound, Austrian economics - are being let off the hook. The Federal Reserve System is actually positioning itself as the savior, rather than the culprit, in this mess!
• The Treasury Secretary is authorized to purchase up to $700 billion in mortgage-related assets at any one time. That means $700 billion is only the very beginning of what will hit us.
• Financial institutions are "designated as financial agents of the Government." This is the New Deal to end all New Deals.
• Then there's this: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." Translation: the Secretary can buy up whatever junk debt he wants to, burden the American people with it, and be subject to no one in the process.
There goes your country.
Even some so-called free-market economists are calling all this "sadly necessary." Sad, yes. Necessary? Don't make me laugh.
Our one-party system is complicit in yet another crime against the American people. The two major party candidates for president themselves initially indicated their strong support for bailouts of this kind - another example of the big choice we're supposedly presented with this November: yes or yes. Now, with a backlash brewing, they're not quite sure what their views are. A sad display, really.
Although the present bailout package is almost certainly not the end of the political atrocities we'll witness in connection with the crisis, time is short. Congress may vote as soon as tomorrow. With a Rasmussen poll finding support for the bailout at an anemic seven percent, some members of Congress are afraid to vote for it. Call them! Let them hear from you! Tell them you will never vote for anyone who supports this atrocity.
The issue boils down to this: do we care about freedom? Do we care about responsibility and accountability? Do we care that our government and media have been bought and paid for? Do we care that average Americans are about to be looted in order to subsidize the fattest of cats on Wall Street and in government? Do we care?
When the chips are down, will we stand up and fight, even if it means standing up against every stripe of fashionable opinion in politics and the media?
Times like these have a way of telling us what kind of a people we are, and what kind of country we shall be.
In liberty,
Ron Paul
Whenever a Great Bipartisan Consensus is announced, and a compliant media assures everyone that the wondrous actions of our wise leaders are being taken for our own good, you can know with absolute certainty that disaster is about to strike.
The events of the past week are no exception.
The bailout package that is about to be rammed down Congress' throat is not just economically foolish. It is downright sinister. It makes a mockery of our Constitution, which our leaders should never again bother pretending is still in effect. It promises the American people a never-ending nightmare of ever-greater debt liabilities they will have to shoulder. Two weeks ago, financial analyst Jim Rogers said the bailout of Fannie Mae and Freddie Mac made America more communist than China! "This is welfare for the rich," he said. "This is socialism for the rich. It's bailing out the financiers, the banks, the Wall Streeters."
That describes the current bailout package to a T. And we're being told it's unavoidable.
The claim that the market caused all this is so staggeringly foolish that only politicians and the media could pretend to believe it. But that has become the conventional wisdom, with the desired result that those responsible for the credit bubble and its predictable consequences - predictable, that is, to those who understand sound, Austrian economics - are being let off the hook. The Federal Reserve System is actually positioning itself as the savior, rather than the culprit, in this mess!
• The Treasury Secretary is authorized to purchase up to $700 billion in mortgage-related assets at any one time. That means $700 billion is only the very beginning of what will hit us.
• Financial institutions are "designated as financial agents of the Government." This is the New Deal to end all New Deals.
• Then there's this: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." Translation: the Secretary can buy up whatever junk debt he wants to, burden the American people with it, and be subject to no one in the process.
There goes your country.
Even some so-called free-market economists are calling all this "sadly necessary." Sad, yes. Necessary? Don't make me laugh.
Our one-party system is complicit in yet another crime against the American people. The two major party candidates for president themselves initially indicated their strong support for bailouts of this kind - another example of the big choice we're supposedly presented with this November: yes or yes. Now, with a backlash brewing, they're not quite sure what their views are. A sad display, really.
Although the present bailout package is almost certainly not the end of the political atrocities we'll witness in connection with the crisis, time is short. Congress may vote as soon as tomorrow. With a Rasmussen poll finding support for the bailout at an anemic seven percent, some members of Congress are afraid to vote for it. Call them! Let them hear from you! Tell them you will never vote for anyone who supports this atrocity.
The issue boils down to this: do we care about freedom? Do we care about responsibility and accountability? Do we care that our government and media have been bought and paid for? Do we care that average Americans are about to be looted in order to subsidize the fattest of cats on Wall Street and in government? Do we care?
When the chips are down, will we stand up and fight, even if it means standing up against every stripe of fashionable opinion in politics and the media?
Times like these have a way of telling us what kind of a people we are, and what kind of country we shall be.
In liberty,
Ron Paul
Barrick Sees `Large-Scale' Gold Buying on Bailout
Sept. 24 (Bloomberg) -- Barrick Gold Corp. Chairman Peter Munk said bullion prices will go higher, driven by large-scale buying by ``major, major'' holders of dollars who fear the effects of the U.S. government's bailout plan on the currency.
Central banks or sovereign wealth funds are among those likely to buy gold to diversify their investments and hedge against the risk of a weaker dollar, given the government's $700 billion plan to support the banking system, Munk said today.
``That impact on holders of U.S. dollars in China or Russia or Abu Dhabi or Kuwait is that they're going to say, `What is that going to mean for the U.S. dollar, and what alternative are we going to have?' '' Munk said in an interview in New York. ``So gold is going to have very powerful support.'' Munk, 80, founded Toronto-based Barrick in 1983 and made it the world's largest gold producer.
Gold has surged about 20 percent since Sept. 11 as investors shifted assets into precious metals as a haven after the bankruptcy of Lehman Brothers Holdings Inc. Treasury Secretary Henry Paulson plans a rescue fund to allow banks to dispose of devalued assets such as mortgage-backed securities.
Paulson and Federal Reserve Chairman Ben S. Bernanke told lawmakers this week that failure to approve the plan would threaten markets and the U.S. economy. Gold may be set to benefit both from the weaker dollar if the plan is approved by Congress, or from the potential failure of the banking system if it isn't.
Rescue Package
``I, like anybody else, hope the package will go through because we do not want the system to collapse,'' Munk said. ``From a gold point of view, a bailout package just means a further devaluation'' of the dollar, he said.
Gold futures for December delivery rose $3.80, or 0.4 percent, to $895 an ounce on the Comex division of the New York Mercantile Exchange after earlier reaching $907.80. The metal, often bought as a hedge against inflation or in times of market volatility, gained 13 percent last week, the most since October 1999.
The price could surpass the $1,033.90 record touched on March 17, Barrick Chief Financial Officer Jamie Sokalsky said in a separate interview. The bailout plan is another ``big'' reason to buy the metal, he said.
Barrick rose $1.15, or 3 percent, to C$39.95 at 2 p.m. in Toronto Stock Exchange trading, taking its gain in the past week to 13 percent.
Investor Support
The bullish view on gold has support from investors, with Jean-Marie Eveillard, who manages the $22 billion First Eagle Global Fund, and John Hathaway, manager of the $800 million Tocqueville Gold Fund, predicting the inflationary effects of the Fed's plan will help push prices higher. Chief executive officers of mining companies such as Newmont Mining Corp. and Goldcorp Inc. also predict new records for bullion.
Munk has been acting chief executive officer since March, when Greg Wilkins stepped down because of illness. He's overseeing a plan to dig mines in the Americas and Africa to benefit from seven straight years of price gains.
A search for a permanent replacement for Wilkins is under way, with a successor expected to be named by the end of the year, company spokesman Vince Borg said in an interview.
Barrick's standing as owner of the world's largest gold reserves will make it easy to attract buyers for its debt even as credit tightens, Munk said.
``We have to look long term, and we have to make billions of dollars of investments and investment decisions,'' Munk said. There were ``people lining up for our bonds. We are really the counterplay to the market -- in market turbulence, people do like gold.''
Central banks or sovereign wealth funds are among those likely to buy gold to diversify their investments and hedge against the risk of a weaker dollar, given the government's $700 billion plan to support the banking system, Munk said today.
``That impact on holders of U.S. dollars in China or Russia or Abu Dhabi or Kuwait is that they're going to say, `What is that going to mean for the U.S. dollar, and what alternative are we going to have?' '' Munk said in an interview in New York. ``So gold is going to have very powerful support.'' Munk, 80, founded Toronto-based Barrick in 1983 and made it the world's largest gold producer.
Gold has surged about 20 percent since Sept. 11 as investors shifted assets into precious metals as a haven after the bankruptcy of Lehman Brothers Holdings Inc. Treasury Secretary Henry Paulson plans a rescue fund to allow banks to dispose of devalued assets such as mortgage-backed securities.
Paulson and Federal Reserve Chairman Ben S. Bernanke told lawmakers this week that failure to approve the plan would threaten markets and the U.S. economy. Gold may be set to benefit both from the weaker dollar if the plan is approved by Congress, or from the potential failure of the banking system if it isn't.
Rescue Package
``I, like anybody else, hope the package will go through because we do not want the system to collapse,'' Munk said. ``From a gold point of view, a bailout package just means a further devaluation'' of the dollar, he said.
Gold futures for December delivery rose $3.80, or 0.4 percent, to $895 an ounce on the Comex division of the New York Mercantile Exchange after earlier reaching $907.80. The metal, often bought as a hedge against inflation or in times of market volatility, gained 13 percent last week, the most since October 1999.
The price could surpass the $1,033.90 record touched on March 17, Barrick Chief Financial Officer Jamie Sokalsky said in a separate interview. The bailout plan is another ``big'' reason to buy the metal, he said.
Barrick rose $1.15, or 3 percent, to C$39.95 at 2 p.m. in Toronto Stock Exchange trading, taking its gain in the past week to 13 percent.
Investor Support
The bullish view on gold has support from investors, with Jean-Marie Eveillard, who manages the $22 billion First Eagle Global Fund, and John Hathaway, manager of the $800 million Tocqueville Gold Fund, predicting the inflationary effects of the Fed's plan will help push prices higher. Chief executive officers of mining companies such as Newmont Mining Corp. and Goldcorp Inc. also predict new records for bullion.
Munk has been acting chief executive officer since March, when Greg Wilkins stepped down because of illness. He's overseeing a plan to dig mines in the Americas and Africa to benefit from seven straight years of price gains.
A search for a permanent replacement for Wilkins is under way, with a successor expected to be named by the end of the year, company spokesman Vince Borg said in an interview.
Barrick's standing as owner of the world's largest gold reserves will make it easy to attract buyers for its debt even as credit tightens, Munk said.
``We have to look long term, and we have to make billions of dollars of investments and investment decisions,'' Munk said. There were ``people lining up for our bonds. We are really the counterplay to the market -- in market turbulence, people do like gold.''
TECHNICAL ANALYSIS OF GOLD
The immediate action suggests an ongoing correction towards $850. Gold has experienced a major significant breakout to the upside which is targeting a volatile up trend to $989, on break of which Gold will target a new all time high of above $1200 by Feb. to March 2009.
A FAILURE to break above $989 and follow the forecast trend would imply a sideways trend in the range of $989 and $800 for probably the next 11 months i.e. until the next bullish seasonal time period approaches.
... More
Tuesday, September 23, 2008
US dollar set to be major casualty of Hank Paulson's bailout
Whether or not tomorrow’s accounts of today’s turmoil prove David Owen of Dresdner Kleinwort right; whether or not this is the beginning of the end of the dollar’s pre-eminence in the world’s central banks and foreign exchanges, the economic landscape has undoubtedly changed forever.
The US taxpayer bail-out of America’s banking sector is an event whose significance will reverberate for many years. What it means for free markets, for the way Western economies are run, for the prosperity of the world economy, must remain to be seen.
But as investors scrambled to make sense of last week’s events, already one conclusion was all but irrefutable – the US dollar will have to take another major fall.
The dollar rally that began in July and pushed the pound’s value against the greenback significantly lower has come to an abrupt end as markets face up to the fact that the currency will have to absorb the effects of a sudden shocking increase in America’s budget deficit.
When Treasury Secretary Hank Paulson announced that the world’s biggest economy was about to embark on the world’s biggest bail-out for its financial sector, the first concern economists had was about the long-term prospects for the nation’s finances and its currency.
Might the dollar now be vulnerable to a run? In the longer term, might this signal the beginning of the end for the dollar’s status as the world’s reserve currency?
The US Treasury was already planning to borrow $438bn (£237bn) next year to shore up its budget deficit. That could now rise to $1 trillion or more after the cost of the $700bn mortgage rescue fund is taken into account. Budget deficits of that kind are usually enough to scare many foreign investors away, and indeed the dollar slumped 1.1 cents to $1.8441 against the pound yesterday, and in late trading was down almost two cents against the euro at $1.46880.
Ironically, despite the pound’s comparative strength against the dollar – having risen from just above $1.75 in the past few weeks – it remains extremely weak against other world currencies, due to investors’ fears about the UK’s own home-grown problems.
“The magic trillion-dollar deficit is within sight,” says Simon Derrick, of Bank of New York Mellon, “The combination of the fiscal position and loose monetary policy is likely to be significantly dollar-negative. With an expanding supply of US paper they might want to hold something else as their safe haven, which might mean other currencies and might just as easily mean commodities such as gold.”
When a government opens the spending taps and borrows more, investors invariably take flight, fearing that assets denominated in those currencies will lose their value as inflation rises and the currency weakens.
However, with the Treasury still reluctant to spell out precisely how the rescue package, modelled on the late 1980s’ Resolution Trust Corporation, will work, analysts are still unclear about how far the dollar has to fall.
It is likewise still unknown precisely what effect the quasi-nationalisation of Fannie Mae and Freddie Mac will have for the nation’s finances, though the implications will again almost certainly be negative.
According to Mr Derrick, “the sums have changed so quickly on the fiscal side within the space of two weeks, and clearly the outlook for the US economy relative to where people were forecasting before Freddie and Fannie. Investors will also have a radically different outlook for the future.”
The biggest question, however, is whether the reserve managers in central banks in China and elsewhere will treat this as a justification for selling off some of their massive mountain of dollar-denominated investments. If this were to happen, it could cause a catastrophic drop in the US currency, potentially compromising its status as the world’s reserve currency.
However, with the euro area facing its own economic and financial crises, it looks unlikely to be able to step into the breach. This helps explain the leap yesterday in gold and oil prices as investors seek to buy tangible commodities in place of currencies that may easily be devalued in the coming years.
What was perhaps even more worrying for investors was an item in the small print of Hank Paulson’s rescue plan. It said that, separate to the $700bn markets rescue package, the US Treasury would plunder the Exchange Stabilisation Fund – the US currency reserves, established in the 1930s – in order to pay for an insurance scheme for the money markets.
“The Treasury has committed the nation’s FX reserves to supporting the money market industry,” said Chris Turner, head of foreign exchange strategy at ING. “That suggests to us that the dollar has fallen down the list of the administration’s priorities – a worrying development for foreign investors in the US.”
The fund’s cash is being funnelled into a new scheme designed to protect money market mutual funds, which mirrors the Federal Deposit Insurance scheme for consumers’ bank savings. “What worries us is that the US Treasury has committed the nation’s FX reserves at a time when the dollar is exceptionally vulnerable,” said Mr Turner.
The US taxpayer bail-out of America’s banking sector is an event whose significance will reverberate for many years. What it means for free markets, for the way Western economies are run, for the prosperity of the world economy, must remain to be seen.
But as investors scrambled to make sense of last week’s events, already one conclusion was all but irrefutable – the US dollar will have to take another major fall.
The dollar rally that began in July and pushed the pound’s value against the greenback significantly lower has come to an abrupt end as markets face up to the fact that the currency will have to absorb the effects of a sudden shocking increase in America’s budget deficit.
When Treasury Secretary Hank Paulson announced that the world’s biggest economy was about to embark on the world’s biggest bail-out for its financial sector, the first concern economists had was about the long-term prospects for the nation’s finances and its currency.
Might the dollar now be vulnerable to a run? In the longer term, might this signal the beginning of the end for the dollar’s status as the world’s reserve currency?
The US Treasury was already planning to borrow $438bn (£237bn) next year to shore up its budget deficit. That could now rise to $1 trillion or more after the cost of the $700bn mortgage rescue fund is taken into account. Budget deficits of that kind are usually enough to scare many foreign investors away, and indeed the dollar slumped 1.1 cents to $1.8441 against the pound yesterday, and in late trading was down almost two cents against the euro at $1.46880.
Ironically, despite the pound’s comparative strength against the dollar – having risen from just above $1.75 in the past few weeks – it remains extremely weak against other world currencies, due to investors’ fears about the UK’s own home-grown problems.
“The magic trillion-dollar deficit is within sight,” says Simon Derrick, of Bank of New York Mellon, “The combination of the fiscal position and loose monetary policy is likely to be significantly dollar-negative. With an expanding supply of US paper they might want to hold something else as their safe haven, which might mean other currencies and might just as easily mean commodities such as gold.”
When a government opens the spending taps and borrows more, investors invariably take flight, fearing that assets denominated in those currencies will lose their value as inflation rises and the currency weakens.
However, with the Treasury still reluctant to spell out precisely how the rescue package, modelled on the late 1980s’ Resolution Trust Corporation, will work, analysts are still unclear about how far the dollar has to fall.
It is likewise still unknown precisely what effect the quasi-nationalisation of Fannie Mae and Freddie Mac will have for the nation’s finances, though the implications will again almost certainly be negative.
According to Mr Derrick, “the sums have changed so quickly on the fiscal side within the space of two weeks, and clearly the outlook for the US economy relative to where people were forecasting before Freddie and Fannie. Investors will also have a radically different outlook for the future.”
The biggest question, however, is whether the reserve managers in central banks in China and elsewhere will treat this as a justification for selling off some of their massive mountain of dollar-denominated investments. If this were to happen, it could cause a catastrophic drop in the US currency, potentially compromising its status as the world’s reserve currency.
However, with the euro area facing its own economic and financial crises, it looks unlikely to be able to step into the breach. This helps explain the leap yesterday in gold and oil prices as investors seek to buy tangible commodities in place of currencies that may easily be devalued in the coming years.
What was perhaps even more worrying for investors was an item in the small print of Hank Paulson’s rescue plan. It said that, separate to the $700bn markets rescue package, the US Treasury would plunder the Exchange Stabilisation Fund – the US currency reserves, established in the 1930s – in order to pay for an insurance scheme for the money markets.
“The Treasury has committed the nation’s FX reserves to supporting the money market industry,” said Chris Turner, head of foreign exchange strategy at ING. “That suggests to us that the dollar has fallen down the list of the administration’s priorities – a worrying development for foreign investors in the US.”
The fund’s cash is being funnelled into a new scheme designed to protect money market mutual funds, which mirrors the Federal Deposit Insurance scheme for consumers’ bank savings. “What worries us is that the US Treasury has committed the nation’s FX reserves at a time when the dollar is exceptionally vulnerable,” said Mr Turner.
Financial crisis: will China help?
There have been plenty of rumours going around in the last few days that China is ready to step in and purchase chunks of Wall Street.
Much of Wall Street could soon belong to China
But the people actually doing the buying have been Barclays, Nomura and now Mitsubishi.
All that Chinese Investment Corp (CIC), the giant sovereign wealth fund, has done is put out a job ad. It wants to hire more than 30 financiers to do everything from economic research to stock picking.
Perhaps CIC is getting tired of the dismal advice it has been getting from seconded American bankers (buy Blackstone! buy Morgan Stanley!)
One important side effect of Wall Street's meltdown is that the Chinese have been disabused of the supposed superiority of the American financial system.
Even in the less panicky stages of the credit crunch, one senior Chinese regulator had only one word to describe big Western banks to the Economist: "s**t".
And on top of the (public) money that China has already lost in Morgan Stanley and Blackstone comes the real kicker - the value of the dollar is plunging as the US cranks up its presses and prints its way out of the crisis.
The $1.8 trillion of foreign exchange reserves held by China are still largely denominated in greenbacks and there must be some horror in Beijing at the plans put forward by the Fed. Alex Patelis, an economist at Merrill Lynch, has put together a handy list of what the US is planning to spend:
1. Treasury buying mortgage-related assets: $700bn
2. Potential supplementary stimulus package favoured by Democrats: $100bn
3. Insuring money market funds: $50bn
4. Treasury fortifying the Fed's balance sheet: $100bn
5. Expansion of temporary swap lines with central banks: $180bn
6. Loan to AIG: $85bn
7. Fed purchase of agency discount notes & ABCP: amount not specified
8. Fed loans through the Primary Dealer Credit Facility: $20bn through sep 17
9. Fed's discount window: $33bn balance
10. Treasury purchase of GSE MBS this month: $10bn
11. Potential cost of Fannie/Freddie bailout: $200-$300bn
With a neat symmetry, the $1.5 trillion-or-so total is what some people believe the Iraq war will end up costing.
As investors bail out of the dollar, China's mandarins will have lost (yet more) face with their public for their poor investment decisions. And there will be serious economic consequences. Just as the US threatens to slump into recession, Chinese-made goods will become more expensive for American consumers.
Since China's economy is still strongly dependent on exports, there may be a painful knock-on effect. Stephen Green, an economist at Standard Chartered, has already significantly marked down his estimates for growth in the next two years.
So if Chinese government officials are not keen on wading even further into the mire of Wall Street, who can blame them? Link Here, More
Much of Wall Street could soon belong to China
But the people actually doing the buying have been Barclays, Nomura and now Mitsubishi.
All that Chinese Investment Corp (CIC), the giant sovereign wealth fund, has done is put out a job ad. It wants to hire more than 30 financiers to do everything from economic research to stock picking.
Perhaps CIC is getting tired of the dismal advice it has been getting from seconded American bankers (buy Blackstone! buy Morgan Stanley!)
One important side effect of Wall Street's meltdown is that the Chinese have been disabused of the supposed superiority of the American financial system.
Even in the less panicky stages of the credit crunch, one senior Chinese regulator had only one word to describe big Western banks to the Economist: "s**t".
And on top of the (public) money that China has already lost in Morgan Stanley and Blackstone comes the real kicker - the value of the dollar is plunging as the US cranks up its presses and prints its way out of the crisis.
The $1.8 trillion of foreign exchange reserves held by China are still largely denominated in greenbacks and there must be some horror in Beijing at the plans put forward by the Fed. Alex Patelis, an economist at Merrill Lynch, has put together a handy list of what the US is planning to spend:
1. Treasury buying mortgage-related assets: $700bn
2. Potential supplementary stimulus package favoured by Democrats: $100bn
3. Insuring money market funds: $50bn
4. Treasury fortifying the Fed's balance sheet: $100bn
5. Expansion of temporary swap lines with central banks: $180bn
6. Loan to AIG: $85bn
7. Fed purchase of agency discount notes & ABCP: amount not specified
8. Fed loans through the Primary Dealer Credit Facility: $20bn through sep 17
9. Fed's discount window: $33bn balance
10. Treasury purchase of GSE MBS this month: $10bn
11. Potential cost of Fannie/Freddie bailout: $200-$300bn
With a neat symmetry, the $1.5 trillion-or-so total is what some people believe the Iraq war will end up costing.
As investors bail out of the dollar, China's mandarins will have lost (yet more) face with their public for their poor investment decisions. And there will be serious economic consequences. Just as the US threatens to slump into recession, Chinese-made goods will become more expensive for American consumers.
Since China's economy is still strongly dependent on exports, there may be a painful knock-on effect. Stephen Green, an economist at Standard Chartered, has already significantly marked down his estimates for growth in the next two years.
So if Chinese government officials are not keen on wading even further into the mire of Wall Street, who can blame them? Link Here, More
This journalist held back no punches
This video clip is recommended by Peter Grandich, one of my favorite analysts.
'Unprecedented wave' of gold and silver mergers forecasted
Originally published here
There will be an unprecedented wave of merger and acquisition activity in the gold and silver space that will see junior miners and development companies victimized by factors beyond their control snatched up by senior and mid-tier producers making use of their healthy cash flows and stable balance sheets, according to a new report from Blackmont Capital.
“While there remain several junior companies with projects that are expected to ultimately be economic under the current gold price, a significant amount of upcoming mergers and acquisitions are likely to be done under the assumption that the gold price will increase in the longer-term,” analyst Richard Gray said in a research note.
He said seniors like Barrick Gold Corp. and Newmont Mining Corp. are likely looking for immediate production, Kinross Gold Corp. is trying to fill in its growth gaps, and names like Goldcorp Inc., Yamana Gold Inc. and Agnico-Eagle Mines Ltd. are seeking to capitalize on strong cash flows.
At the same time, mid-tier gold producers like Eldorado Gold Corp. may be trying to pick off geographically strategic development projects, while names like Iamgold Corp. and New Gold Inc. trying to meet stated goals of growth through acquisition.
Junior producers like Semafo Inc. are also likely seeking more assets, with companies like Jaguar Mining Inc. expected to take advantage of its strong balance sheet and Northgate Minerals Corp. its strong cash flow, Mr. Gray noted.
“We also expect the struggling junior market to look towards more mergers in order to gain the critical mass to be relevant,” he added. “In the current uncertain market, investors look for size and liquidity and the one-project juniors typically do not provide these important characteristics.”
On Monday, First Quantum Minerals Ltd. said it is seeking takeovers after the credit crunch caused financing difficulties for its smaller competitors. Octagon Capital analyst Hendrik Visagie agrees with that approach, suggesting that cash rich juniors without projects in development seek tie-ups with juniors that have production but need financing to survive.
"Cash and cash flow are king," he said in a note. "Juniors who do not have a large treasury and cash flow are having difficulty raising capital to finance their projects, even if they are extremely attractive."
He believes it is cheaper to buy projects than to develop them, and recommends that investors look at names that are in a good position to use their balance sheets to acquire undervalued assets.
Blackmont's Mr. Gray suggested that a three-way merger between Aurizon Mines Ltd., Jaguar and Semafo, for example, would look a lot like Iamgold, but they would have a combined market cap roughly 38% lower. “In this market, bigger is quite likely to be considered better,” Mr. Gray said.
In the silver sector, major players Fresnillo plc, Pan American Silver Corp., Silver Wheaton Corp., Hecla Mining Co. and Coeur d’Alene Mines Corp. are all said to be looking for opportunities in the devalued junior space. If any two or three of Pan American, Coeur d’Alene and Silver Standard Resources Inc. were to merge, this would create a big cap name that could compete with Fresnillo and possibly get some of the same big cap bias senior gold producers get, the analyst said.
Mr. Gray recommends investing in larger producers such as Kinross and Yamana, saying they are not only potential targets for their larger rivals, but offer attractive valuations and generate strong cash flows. He also suggested clients have positions in Jaguar, First Majestic Silver Corp. and Siliver Standard due to their healthy fundamentals and takeover potential.
To demonstrate the mood of the market and how they are valuing miners’ resources, the analyst noted that senior gold names are trading at an average of US$198 per ounce compared to US$74 for the mid-tiers and US$29 for the juniors. Senior silvers, meanwhile, trade at an average of US$3.22 per ounce versus US98¢ for the juniors.
While other factors come into play when an acquisition is being considered, Mr. Gray said this advantage is nonetheless important when justifying the premiums often seen in gold and silver deals.
There will be an unprecedented wave of merger and acquisition activity in the gold and silver space that will see junior miners and development companies victimized by factors beyond their control snatched up by senior and mid-tier producers making use of their healthy cash flows and stable balance sheets, according to a new report from Blackmont Capital.
“While there remain several junior companies with projects that are expected to ultimately be economic under the current gold price, a significant amount of upcoming mergers and acquisitions are likely to be done under the assumption that the gold price will increase in the longer-term,” analyst Richard Gray said in a research note.
He said seniors like Barrick Gold Corp. and Newmont Mining Corp. are likely looking for immediate production, Kinross Gold Corp. is trying to fill in its growth gaps, and names like Goldcorp Inc., Yamana Gold Inc. and Agnico-Eagle Mines Ltd. are seeking to capitalize on strong cash flows.
At the same time, mid-tier gold producers like Eldorado Gold Corp. may be trying to pick off geographically strategic development projects, while names like Iamgold Corp. and New Gold Inc. trying to meet stated goals of growth through acquisition.
Junior producers like Semafo Inc. are also likely seeking more assets, with companies like Jaguar Mining Inc. expected to take advantage of its strong balance sheet and Northgate Minerals Corp. its strong cash flow, Mr. Gray noted.
“We also expect the struggling junior market to look towards more mergers in order to gain the critical mass to be relevant,” he added. “In the current uncertain market, investors look for size and liquidity and the one-project juniors typically do not provide these important characteristics.”
On Monday, First Quantum Minerals Ltd. said it is seeking takeovers after the credit crunch caused financing difficulties for its smaller competitors. Octagon Capital analyst Hendrik Visagie agrees with that approach, suggesting that cash rich juniors without projects in development seek tie-ups with juniors that have production but need financing to survive.
"Cash and cash flow are king," he said in a note. "Juniors who do not have a large treasury and cash flow are having difficulty raising capital to finance their projects, even if they are extremely attractive."
He believes it is cheaper to buy projects than to develop them, and recommends that investors look at names that are in a good position to use their balance sheets to acquire undervalued assets.
Blackmont's Mr. Gray suggested that a three-way merger between Aurizon Mines Ltd., Jaguar and Semafo, for example, would look a lot like Iamgold, but they would have a combined market cap roughly 38% lower. “In this market, bigger is quite likely to be considered better,” Mr. Gray said.
In the silver sector, major players Fresnillo plc, Pan American Silver Corp., Silver Wheaton Corp., Hecla Mining Co. and Coeur d’Alene Mines Corp. are all said to be looking for opportunities in the devalued junior space. If any two or three of Pan American, Coeur d’Alene and Silver Standard Resources Inc. were to merge, this would create a big cap name that could compete with Fresnillo and possibly get some of the same big cap bias senior gold producers get, the analyst said.
Mr. Gray recommends investing in larger producers such as Kinross and Yamana, saying they are not only potential targets for their larger rivals, but offer attractive valuations and generate strong cash flows. He also suggested clients have positions in Jaguar, First Majestic Silver Corp. and Siliver Standard due to their healthy fundamentals and takeover potential.
To demonstrate the mood of the market and how they are valuing miners’ resources, the analyst noted that senior gold names are trading at an average of US$198 per ounce compared to US$74 for the mid-tiers and US$29 for the juniors. Senior silvers, meanwhile, trade at an average of US$3.22 per ounce versus US98¢ for the juniors.
While other factors come into play when an acquisition is being considered, Mr. Gray said this advantage is nonetheless important when justifying the premiums often seen in gold and silver deals.
Prayer Before Work
Dear Heavenly Father:
As I enter this work place, I bring your Presence with me.
I speak Your peace, Your grace, Your mercy, and Your Perfect order into this office.
I acknowledge Your power over all that will be spoken, thought, decided, and done within these walls.
Lord, I thank You for the gifts you have blessed me with.
I commit to using them responsibly in Your honour.
Give me a fresh supply of strength to do my job.
Anoint my projects, ideas, and energy; so that even my smallest accomplishment may bring You glory.
Lord, when I am confused, guide me. When I am weary, energize me. When I am burned out, infuse me with the light of the Holy Spirit.
May the work that I do and the way I do it bring faith, joy, and a smile to all that I come in contact with today.
And oh Lord, when I leave this place, give me traveling mercy. Bless my family and home to be in order as I left it.
Lord, I thank you for everything You've done, everything You're doing and everything You're going to do.
In the Name of Jesus I pray, with much love and thanksgiving, Amen.
As I enter this work place, I bring your Presence with me.
I speak Your peace, Your grace, Your mercy, and Your Perfect order into this office.
I acknowledge Your power over all that will be spoken, thought, decided, and done within these walls.
Lord, I thank You for the gifts you have blessed me with.
I commit to using them responsibly in Your honour.
Give me a fresh supply of strength to do my job.
Anoint my projects, ideas, and energy; so that even my smallest accomplishment may bring You glory.
Lord, when I am confused, guide me. When I am weary, energize me. When I am burned out, infuse me with the light of the Holy Spirit.
May the work that I do and the way I do it bring faith, joy, and a smile to all that I come in contact with today.
And oh Lord, when I leave this place, give me traveling mercy. Bless my family and home to be in order as I left it.
Lord, I thank you for everything You've done, everything You're doing and everything You're going to do.
In the Name of Jesus I pray, with much love and thanksgiving, Amen.
Monday, September 22, 2008
Nobody will confuse Sarah Palin with Al Gore on environment
Link Here
Gov. Sarah Palin, the Republican candidate for vice president, is a staunch believer in Alaska resource development -- and generally skeptical of measures that she thinks could slow or block development.
Here's where she stands on key environmental issues:
POLAR BEARS
Gov. Palin sued to overturn the Department of Interior's decision to list polar bears as a threatened species under the Endangered Species Act. She argued that Interior's decision was based on inconclusive science and that state biologists didn't agree with their federal colleagues.
Later, e-mails obtained -- despite Palin's initial resistance -- through Freedom of Information Act requests showed that three state biologists, including the top marine mammal scientist, agreed with federal conclusions.
This called into question the governor's reliance on science. Does she go only with the science she likes, in the manner of President Bush, or is she willing to face the results of a rigorous approach, even if those results create policy problems for her?
In addition, she worried that a threatened listing for the bears could curtail any development that increased greenhouse gas emissions. That's a possibility that both environmentalists and development advocates agree on, but it's not clear how the courts would rule and how much latitude federal or state governments would have in balancing economic against environmental interests.
PEBBLE MINE
Gov. Palin was a prominent foe of Ballot Measure 4 during the primary election in August. Proponents argued that the measure would sharply curtail mining waste discharges into Alaska waters to protect both people and salmon. The measure didn't mention Pebble Mine by name, but was aimed at stopping the proposed giant copper and gold mine in the headwaters of Bristol Bay, Alaska's largest salmon fishery.
Critics of the measure said its poor drafting cast the future of current mines in doubt. Campaign ads quoted the governor as saying Alaska already has sufficiently stringent regulations in place to protect Alaska's waters. Yet, after the vote, Teck-Cominco, owner the of the Red Dog zinc mine, tentatively settled a lawsuit by agreeing to build a 55-mile pipeline to route wastewater away from the Wulik River to the Chukchi Sea -- and to install filtration systems in every home in the village of Kivalina, which draws its drinking water from the Wulik.
The governor hasn't come out for or against Pebble, though most of the region's fishermen oppose it. Her opposition to Measure 4 riled Pebble foes, who argue that the longer Pebble stays in play, the greater the momentum to develop the mine. Voters agreed with the governor and Measure 4 was soundly defeated.
GLOBAL WARMING
Gov. Palin acknowledges the reality of global warming.
"There is little doubt that the world's climate is warming," she wrote in a commentary for the Daily News earlier this year.
She is not, however, convinced that human activity is a major contributing cause.
"I'm not an Al Gore, doom-and-gloom environmentalist blaming the changes in our climate on human activity," she said last December.
Yet in her interview with ABC's Charlie Gibson, she challenged him to show her where she had ever absolutely ruled out human activity in global warming.
Early in her administration, she appointed a commission to study ways Alaska can adapt to climate change and to reduce greenhouse gas emissions. No major state initiatives have yet resulted, apart from an inventory of government emissions sources.
Gov. Palin seems out of sync with McCain here; the presidential candidate believes greenhouse gas emissions are a major contributor to global warming and wants to reduce them.
ANWR
Open it, says the governor. That's hardly a surprise in Alaska, where no politician runs for statewide office in opposition to oil exploration and development on the coastal plain of the Arctic National Wildlife Refuge. Again, she'll have to reconcile her view with that of presidential candidate John McCain, whose will to drill reaches offshore but not yet as far as ANWR.
PREDATOR CONTROL
Gov. Palin grants that predator control is controversial -- especially shooting wolves from the air. But her administration has supported the predator control program she inherited from Gov. Frank Murkowski -- one of few Murkowski initiatives she hasn't overturned. That program permits private pilots and gunners to shoot wolves from the air and keep the pelts for their trouble. Voters turned down an August initiative to curtail the program.
HABITAT PROTECTION
The governor's restoration of the state Division of Habitat to the Department of Fish and Game from the Department of Natural Resources was a popular move with habitat biologists, lawmakers and environmentalists. She reversed a Murkowski administration change designed to give habitat protection less weight in resource development decisions.
ENERGY
"Drill, baby, drill" is not a coherent energy policy, even for those who favor increased U.S. oil and gas production. Vice presidential candidate Palin has played up the drill bit. Gov. Palin took a more balanced approach. Early on, she proposed a $200 million renewable energy fund to jump-start projects that might tap Alaska's alternative energy promise -- wind, geothermal, hydro, tidal. In 2008 the Legislature approved a five-year, $250 million renewable energy fund for the same purpose.
So where does Sarah Palin stand on environmental issues?
Environmental groups have found much to criticize, little to like. But a more fundamental criticism is this -- we don't know exactly what Sarah Palin's environmental philosophy is. Former Gov. Jay Hammond made his clear: When in doubt, err on the side of conservation. So, for that matter, did Gov. Frank Murkowski: full speed ahead with resource development.
But Sarah Palin seems to be undecided about Pebble and about global warming. She's taken a firm stand on the polar bear decision -- but with a shaky attitude about both science and her pledge of transparency in government. She's proven she's got the gumption to stand up to powerful interests, so presumably would do so if she held an environmental principle was at stake. But what are those environmental principles?
Her environmental thinking -- beyond the Alaska platitude of "responsible development" -- is a mystery.
BOTTOM LINE: Sarah Palin is somewhere between resource raider and greenie backpacker -- but where, exactly, and why, it's hard to tell
Gov. Sarah Palin, the Republican candidate for vice president, is a staunch believer in Alaska resource development -- and generally skeptical of measures that she thinks could slow or block development.
Here's where she stands on key environmental issues:
POLAR BEARS
Gov. Palin sued to overturn the Department of Interior's decision to list polar bears as a threatened species under the Endangered Species Act. She argued that Interior's decision was based on inconclusive science and that state biologists didn't agree with their federal colleagues.
Later, e-mails obtained -- despite Palin's initial resistance -- through Freedom of Information Act requests showed that three state biologists, including the top marine mammal scientist, agreed with federal conclusions.
This called into question the governor's reliance on science. Does she go only with the science she likes, in the manner of President Bush, or is she willing to face the results of a rigorous approach, even if those results create policy problems for her?
In addition, she worried that a threatened listing for the bears could curtail any development that increased greenhouse gas emissions. That's a possibility that both environmentalists and development advocates agree on, but it's not clear how the courts would rule and how much latitude federal or state governments would have in balancing economic against environmental interests.
PEBBLE MINE
Gov. Palin was a prominent foe of Ballot Measure 4 during the primary election in August. Proponents argued that the measure would sharply curtail mining waste discharges into Alaska waters to protect both people and salmon. The measure didn't mention Pebble Mine by name, but was aimed at stopping the proposed giant copper and gold mine in the headwaters of Bristol Bay, Alaska's largest salmon fishery.
Critics of the measure said its poor drafting cast the future of current mines in doubt. Campaign ads quoted the governor as saying Alaska already has sufficiently stringent regulations in place to protect Alaska's waters. Yet, after the vote, Teck-Cominco, owner the of the Red Dog zinc mine, tentatively settled a lawsuit by agreeing to build a 55-mile pipeline to route wastewater away from the Wulik River to the Chukchi Sea -- and to install filtration systems in every home in the village of Kivalina, which draws its drinking water from the Wulik.
The governor hasn't come out for or against Pebble, though most of the region's fishermen oppose it. Her opposition to Measure 4 riled Pebble foes, who argue that the longer Pebble stays in play, the greater the momentum to develop the mine. Voters agreed with the governor and Measure 4 was soundly defeated.
GLOBAL WARMING
Gov. Palin acknowledges the reality of global warming.
"There is little doubt that the world's climate is warming," she wrote in a commentary for the Daily News earlier this year.
She is not, however, convinced that human activity is a major contributing cause.
"I'm not an Al Gore, doom-and-gloom environmentalist blaming the changes in our climate on human activity," she said last December.
Yet in her interview with ABC's Charlie Gibson, she challenged him to show her where she had ever absolutely ruled out human activity in global warming.
Early in her administration, she appointed a commission to study ways Alaska can adapt to climate change and to reduce greenhouse gas emissions. No major state initiatives have yet resulted, apart from an inventory of government emissions sources.
Gov. Palin seems out of sync with McCain here; the presidential candidate believes greenhouse gas emissions are a major contributor to global warming and wants to reduce them.
ANWR
Open it, says the governor. That's hardly a surprise in Alaska, where no politician runs for statewide office in opposition to oil exploration and development on the coastal plain of the Arctic National Wildlife Refuge. Again, she'll have to reconcile her view with that of presidential candidate John McCain, whose will to drill reaches offshore but not yet as far as ANWR.
PREDATOR CONTROL
Gov. Palin grants that predator control is controversial -- especially shooting wolves from the air. But her administration has supported the predator control program she inherited from Gov. Frank Murkowski -- one of few Murkowski initiatives she hasn't overturned. That program permits private pilots and gunners to shoot wolves from the air and keep the pelts for their trouble. Voters turned down an August initiative to curtail the program.
HABITAT PROTECTION
The governor's restoration of the state Division of Habitat to the Department of Fish and Game from the Department of Natural Resources was a popular move with habitat biologists, lawmakers and environmentalists. She reversed a Murkowski administration change designed to give habitat protection less weight in resource development decisions.
ENERGY
"Drill, baby, drill" is not a coherent energy policy, even for those who favor increased U.S. oil and gas production. Vice presidential candidate Palin has played up the drill bit. Gov. Palin took a more balanced approach. Early on, she proposed a $200 million renewable energy fund to jump-start projects that might tap Alaska's alternative energy promise -- wind, geothermal, hydro, tidal. In 2008 the Legislature approved a five-year, $250 million renewable energy fund for the same purpose.
So where does Sarah Palin stand on environmental issues?
Environmental groups have found much to criticize, little to like. But a more fundamental criticism is this -- we don't know exactly what Sarah Palin's environmental philosophy is. Former Gov. Jay Hammond made his clear: When in doubt, err on the side of conservation. So, for that matter, did Gov. Frank Murkowski: full speed ahead with resource development.
But Sarah Palin seems to be undecided about Pebble and about global warming. She's taken a firm stand on the polar bear decision -- but with a shaky attitude about both science and her pledge of transparency in government. She's proven she's got the gumption to stand up to powerful interests, so presumably would do so if she held an environmental principle was at stake. But what are those environmental principles?
Her environmental thinking -- beyond the Alaska platitude of "responsible development" -- is a mystery.
BOTTOM LINE: Sarah Palin is somewhere between resource raider and greenie backpacker -- but where, exactly, and why, it's hard to tell
Sunday, September 21, 2008
The Bailout Plan - what does it mean?
Link Here
Many investors in the Precious Metals sector are worried that the "bailout plan" announced yesterday will resolve the crisis with the effect that things will return to normal and gold and silver will as a result go into retreat once more. Nothing could be further than the truth. There are several important observations to make regarding the "bailout plan". The first is that it is obviously born out of desperation. The second is that it is Grand Larceny as its aim is to unload all of the debts and obligations accrued by banks, brokers and various other large corporations and institutions as a result of years of recklessness and incompetance and sheer greed off onto the taxpayer, the underlying reason for this being the extensive crony connections between Wall St and Washington and the associated enormous political clout Wall St exercises in Washington. The third observation is that as far as arresting the financial crisis is concerned, it simply can't work and won`t work - the proposed $1.2 trillion slush fund intended to fund this giant garbage dump is still peanuts compared to the towering $47 trillion debt market and the even larger derivatives time bomb.
Not only will the bailout plan not work, but it is set to spread the contagion to a crucial area that has so far been sacrosanct - the US T-bond market. There are several reasons for this. One is that continued government interference in the free market to defend wrongdoers from the consequences of their actions is rapidly destroying Wall Street`s credibility as a global financial center. A blatant example of this is the banning of short selling in the stocks of selected companies which amounts to nothing less than criminal interference in free market processes, which is what you would expect to see implemented in a Command Economy - this is the sort of thing the Commies used to do. The second is that the US government and the Fed are clearly treating international investors as idiots - does it seriously expect them to go on endlessly buying Treasury paper when they know that the proceeds are going to be used to bail out and prop up companies that have arrived at the brink of collapse due to mismanagement and incompetance? They are not going to and that is the reason for the collapse in T-bonds on Friday and when foreigners stop buying Treasury paper the US government has got itself a big, big problem - the result will be skyrocketing interest rates and an economic implosion.
Experienced gardeners know that if you want to maintain the health and vigor of a rose bush, you must on occasion make the sacrifice of cutting off the big, woody branches - endlessly cutting off small twigs simply does not work. In the same way periodic recessions within an economy serve to weed out inefficiency and excess, and create the conditions for renewed stable growth. However, in the "I want it all, I want it now" economic kindergarten of the United States of recent years, recession has come to be regarded as something gross and unacceptable, something to be avoided at all costs. This was why at a time when a recession would have been painful, but have had a necessary purging effect, the Greenspan Fed averted it by dropping real interest rates to near zero in the early years of this decade, thus sowing the seeds of the housing boom and the now unfolding disaster. Now the United States is like an old gnarled rose bush full of big woody branches and totally gone to seed - the only thing that will save it is to take an axe to it. The axeman is coming to the United States, and the desperate and pathetic attempts of politicians and corrupt business leaders, as displayed by their seedy and unwholesome display late last week, to prevent his arrival can only delay it a little, not prevent it. It's going to be painful folks, but as Mrs Thatcher, The Iron Lady of Great Britain used to say, "There is no alternative". Mrs Thatcher transformed Britain by taking painful but necessary steps to sweep away inefficiency and decay, which resulted in the relative prosperity of recent times, although that is now fading fast due to the UK having since followed the US down the debt path. Of course we can only make a limited comparison with Britain in the 1970's because the systemic problems now facing the United States are infinitely worse.
The big danger now is that the T-Bond "gravy train" will come to a screeching halt. If that happens the United States as we know it is finished. Having gutted its own manufacturing base, partly through outsourcing, and partly through simple lack of competitiveness, it is economically dependant on inflows of foreign capital and goods, a sizeable part of which is supplied by means of selling Treasury paper. If foreigners suddenly decide that they have better uses for their money, sales of T-bonds could collapse, leading to an immediate credit and funding crisis in the debt-wracked US economy and in order to attract buyers rates will have to be ramped up dramatically, which in the current fragile environment would lead swiftly to an economic implosion. The abuses of funds now being perpetrated by the government in order to bail out unworthy corporations and institutions are greatly increasing the risks of this happening.
Some investors in Precious Metals are worried that the government riding to the rescue with its bailout plan will "save the day", and restore relative normality to the markets so that people will go back to buying bank and financial stocks and dumping resource stocks, especially as gold reacted quite sharply yesterday. As stated in the opening paragraph of this article nothing could be further from the truth. The bailout plan is in itself hugely inflationary, as it requires massive amounts of money which, as it does not currently exist, will have to be conjured up out of thin air. As we can see on the 6-month gold chart, the reaction yesterday was actually modest compared to the rise that preceeded it, and reasonable given that gold had become so overbought after what was clearly a breakout move. Rather than worry about whether the bailout plan will spoil gold's party, gold and silver investors should consider that the huge surge in gold on Wednesday was actually caused by Smart Money getting wind of the bailout plan ahead of the public and piling in. Viewed from this perspective the outlook is clearly strongly bullish.
You were warned of an imminent collapse in US T-bonds in an article posted on the site on Wednesday, which was written following candelstick analysis of the 30-year T Bond chart. Bonds plummeted on Friday and this move is believed to mark the start of what is likely to turn into a savage and possibly unprecedented bearmarket in US bonds.
Saturday, September 20, 2008
Rescue plan seeks $700B to buy bad mortgages
Saturday September 20, 2008, 12:03 PM
The Bush administration is asking Congress to let the government buy $700 billion in toxic mortgages in the largest financial bailout since the Great Depression, according to a draft of the plan obtained Saturday by The Associated Press.
The plan would give the government broad power to buy the bad debt of any U.S. financial institution for the next two years. It would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the massive rescue. The proposal does not specify what the government would get in return from financial companies for the federal assistance.
"We're going to work with Congress to get a bill done quickly," President Bush said at the White House. Without discussing details of the plan, he said, "This is a big package because it was a big problem."
The White House and congressional leaders hoped the developing legislation could pass as early as next week.
Administration officials and members of Congress were to negotiate throughout the weekend. The plan is designed to let faltering financial institutions unload their bad debt on the government, and in turn the taxpayer, in a bid to avoid dire economic consequences.
Bush said he worried the financial troubles "could ripple throughout" the economy and affect average citizens. "The risk of doing nothing far outweighs the risk of the package, and over time we're going to get a lot of the money back."
He added, "People are beginning to doubt our system, people were losing confidence and I understand it's important to have confidence in our financial system."
"In my judgment, based upon the advice of a lot of people who know how markets work, this problem wasn't going to be contained to just the financial community," the president said. He said he was concerned about "Main Street" and that what happens on "Wall Street" affects "Main Street."
Democrats are insisting the rescue include mortgage help to let struggling homeowners avoid foreclosures. They also are also considering attaching additional middle-class assistance to the legislation despite a request from Bush to avoid adding controversial items that could delay action. An expansion of jobless benefits was one possibility.
Asked about the chances of adding such items, Bush sidestepped the question, saying only that now was not the time for political posturing. "The cleaner the better," he said about legislation he hopes Congress sends back to him at the White House.
If passed by Congress, the plan would give the treasury secretary broad power to buy and sell the toxic mortgage-related assets without any additional involvement by lawmakers. The proposal, however, would require that the congressional committees with oversight on budget, tax and financial services issues be briefed within three months of the government's first use of the rescue power, and every six months after that.
In a briefing to lawmakers Friday, Paulson and Federal Reserve Chairman Ben Bernanke painted a grave picture of an economy on the edge of a major recession and telling them that action was urgent and imperative.
In a session with House Democrats, they described a plan where the government would in essence set up reverse auctions, putting up money for a class of distressed assets -- such as loans that are delinquent but not in default -- and financial institutions would compete for how little they would accept for the investments, said Rep. Brad Sherman, D-Calif., who participated in the conference call.
"You give them good cash; they give you the worst of the worst," Sherman said. A critic of the plan, he complained that Bush and his economic advisers were trying to panic lawmakers into rubber-stamping it.
Paulson said the new troubled-asset relief program must be large enough to have the necessary impact while protecting taxpayers as much as possible.
"I am convinced that this bold approach will cost American families far less than the alternative -- a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion," Paulson said. "The financial security of all Americans ... depends on our ability to restore our financial institutions to a sound footing."
Administration officials hoped the rescue plan could be finalized this weekend, to lend calm to Monday morning's market openings, said Keith Hennessey, the director of the president's economic council. The goal is to have something passed by Congress by the end of next week, when lawmakers recess for the elections.
Friday, September 19, 2008
Text of Paulson's news conference Friday 09.19.2008
PAULSON: Good morning, everyone. Hope you got a lot of sleep last night.
Now, last night the Federal Reserve chairman, Ben Bernanke, SEC Chairman Chris Cox and I had a lengthy and productive working session with congressional leaders. We began a substantive discussion on the need for a comprehensive approach to relieving the stresses on our financial institutions and markets.
We have acted on a case-by-case basis in recent weeks, addressing problems at Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ), working with market participants to prepare for the failure of Lehman Brothers (nyse: LEH - news - people ) and lending to AIG (nyse: AIG - news - people ) so it can sell some of its assets in an orderly manner.
And this morning, we've taken a number of powerful tactical steps to increase confidence in the system, including the establishment of a temporary guarantee program for the U.S. money market and mutual fund industry.
Despite these steps, more is needed. We must now take further decisive action to fundamentally and comprehensively address the root cause of our financial system stresses.
The underlying weaknesses in our financial system today is illiquid mortgage assets that have lost value as the housing correction has proceeded. These illiquid assets are choking off the flow of credit that is so vitally important to our economy.
When the financial system works as it should, money and capital flow to and from households and business to pay for home loans, school loans and investments to create jobs.
As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to have significant effects on our financial system and on our economy.
As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put - put too many families into mortgages they could not afford. We are seeing the impact on homeowners and neighborhoods with 5 million homeowners now delinquent or in foreclosure.
What began as a subprime lending problem has spread to other, less risky mortgages and contributed to excess home inventories that have pushed down home prices for responsible homeowners.
A similar scenario is playing out among the lenders who made those mortgages, the securitizers who bought, repackaged and resold them, and the investors who bought them.
These troubled loans are now parked or frozen on the balance sheets of banks and other financial institutions, preventing them from financing productive loans.
The inability to determine their worth has fostered uncertainty about mortgage assets and even about the financial conditions of the institutions that own them.
The normal buying and selling of nearly all types of mortgage assets has become challenged. These illiquid assets are clogging up our financial system and undermining the strength of our otherwise sound financial institutions.
As a result, Americans' personal savings are threatened, and the ability of consumers and businesses to borrow and finance spending, investment and job creation has been disrupted.
To restore confidence in our markets and our financial institutions so they can fuel continued growth and prosperity, we must address the underlying problem.
The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy. This troubled asset relief program must be properly designed and sufficiently large to have maximum impact while including features to protect the taxpayer to the maximum extent possible.
The ultimate taxpayer protection will be the stability this troubled asset relief program provides to our financial system, even as it will involve a significant investment of taxpayer dollars.
I am convinced that this bold approach will cost American families far less than the alternative: a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion.
I believe many members of Congress share my conviction. I will spend the weekend working with members of Congress of both parties to examine approaches to alleviate the pressure of these bad loans in our system so credit can flow once again to American consumers and companies. Our economic health requires that we work together for prompt, bipartisan action.
As we work with Congress to pass this legislation over the next week, other immediate actions will provide relief.
First, to provide critical additional funding to our mortgage markets, the GSEs Fannie Mae and Freddie Mac, will increase their purchases of mortgage-backed securities. These two enterprises must carry out their mission to support the mortgage market.
Second, to increase the availability of capital for new home loans, Treasury will expand the MBS purchase program we announced earlier this month. This will complement the capital provided by the GSEs, it will help facilitate mortgage availability and affordability.
These two steps will provide some initial support to mortgage assets, but they are not enough. Many of the illiquid assets clogging our system today do not meet the regulatory requirements to be eligible for the purchase by the GSEs or by the Treasury program.
I look forward to working with Congress to pass necessary legislation to remove these troubled assets from our financial system. When we get through this difficult period - which we will - our next task must be to improve the financial regulatory structure so that these past excesses do not recur.
This crisis demonstrates in vivid terms that our financial regulatory structure is suboptimal, duplicative and outdated. I have put forward my ideas for a modernized financial oversight structure that matches our modern economy and more closely links the regulatory structure to the reasons why we regulate.
This is a critical debate for another day. Right now our focus is on restoring the strength of our financial system so that it can again finance economic growth.
The financial security of all Americans, their retirement savings, their home values, their ability to borrow for college, and the opportunities for more and higher-paying jobs depends on our ability to restore our financial institutions to sound footing.
Thank you. Now I'll take several questions.
Q: Mr. Secretary, you said this needs to be - you said this needs to be of significant size. Are we talking hundreds of billions, a trillion dollars?
PAULSON: We're talking hundreds of billions. This needs to be big enough to make a real difference and get at the heart of the problem.
Q: What specifically will you be asking Congress for? Have you brought them a proposed legislative package?
PAULSON: We are going to be coming to them with a proposed legislative package and then working with them to flesh out the details through the weekend. And we're going to be asking them to take action on legislation next week.
Q: Mr. Secretary, what is the alternative here? What is the dire picture you painted for members of Congress last night to try and convince them to support this effort? What is the alternative?
PAULSON: This is what we need to do. Because for some time we've been saying that the root cause of the problems in our economy and our financial system is housing, and until we get stability in the housing market we are not going to get stability in our financial markets.
We've worked with Congress on a number of the steps, all of which were important, leading up to this. But this is the way we stabilize the system and get at the root cause.
Thank you all very much. Thanks.
END
Thursday, September 18, 2008
The AIG Bailout: What’s Next?
Casey Research
By Olivier Garret, CEO
Sunday, Sept. 14: Secretary Paulson finally makes a brave decision; enough is enough, let Lehman go bust. After all, the federal government shouldn’t be rescuing every financial institution that stumbles… or should it?
Monday, Sept. 15: The financial markets react badly to the news, and the Dow suffers its biggest drop since 9/11/2001.
Tuesday Sept. 16: The Fed succumbs to political pressure and promises to write a check for an $85 billion rescue package for AIG, hoping to bring some relief to the markets.
What is wrong with this picture?
First, Bear Stearns, then Indie Mac, then Freddie Mac & Fannie Mae, now AIG…
Where does it stop?
When will the country’s taxpayers cry “Enough”?
Can our federal government bail out the entire U.S. financial sector?
And what about our troubled auto industry (save Main Street instead of Wall Street!)?
And the airline industry (critical to the functioning of our economy and the beat-up victim of oil speculators)?
Are these measures further steps toward a centrally planned economy? Where is the triumphant capitalism of the post-Cold War era?
I spent six years as a business turnaround consultant. I’ve seen the good that comes from letting private companies deal with their own problems – either face up to mistakes or suffer as they get worse. After bankruptcy, if that’s what happens, comes a fresh start. But government rescue efforts sabotage that painful but healthy process. The longer the government delays the unwinding of the current financial bubble, the greater will be the cost and uncertainty for our country, its economy and its taxpayers.
Keep in mind that the government isn’t run by wizards, geniuses or even people with ordinary, practical experience. It was our government that sponsored the disastrous housing bubble by forcing interest rates to artificially low levels (negative real rates), by deregulating financial institutions while continuing to guarantee their liabilities and, finally, by encouraging the FHLB, Fannie Mae & Freddy Mac to loosen credit standards and make it easy for a homebuyer to get in over his head.
Without knowing what it was doing, the federal government offered irresistible incentives for crafty financiers to use dare-devil leverage to pile up huge profits for as long as the government could keep the system going.
The consequence of the reckless mismanagement that government incentives pleaded for is a huge overhang of derivatives -- over $500 trillion, or more than 10 times the market cap of the all of the world’s public companies.
Does the Fed honestly believe that handing out another $85 billion in capital will solve a $500 trillion problem? The Fed is continuing to reward bad behavior and is delaying the inevitable. There is a time-tested rule, whether with employees, children, or even pets; rewarding poor behavior results in more of the same. Financial managers respond in the same way.
No matter what the consequences might be, the faster we get through this crisis, the better off we will all be. A fresh start is what we need at this point, no matter how painful!
Instead, our government will bail AIG out of its troubles, changing the rules of the game once again. Instead of letting the bankruptcy court distribute AIG’s assets based on established creditor claims, the Fed is stepping in, becoming a secured creditor and de facto owner without the consent of existing shareholders and creditors.
In the restructuring world, this is called “preference” and is usually thrown out by bankruptcy courts, since it is contrary to established rules for “cramming down” new debt on the stakeholders of distressed companies. Disregard for the rule of law by our own government using authority granted in the Federal Reserve Act isn’t going to reassure the foreign holders of trillions of U.S. debt – a particularly inconvenient fact when we need their support more than ever.
Our Chief Economist Bud Conrad provides a picture of how fast money is already leaving our country.
A great and inevitable deleveraging of financial excesses is underway. Our dollar will be collapsing, investors will be running for the exit, and panic will be moving in.
The AIG and any subsequent bailouts may delay the pain, but that is the best they can do. Our recommendation to investors is to use the little time they have left to find refuge in real, tangible money -- specifically gold -- and in the stocks of companies that produce gold and other commodities the world uses, especially food and energy.
Wednesday, September 17, 2008
Gold - the innocent bystander to the hurricane
A leading US precious metals analyst predicts gold will jump back as fast as it has come down and reach $1,000 again this year or early next - and perhaps $2,000 in the next few years.
Author: Lawrence Williams
Posted: Wednesday , 17 Sep 2008
LONDON -
Gold is still lingering around the $780 mark, but many analysts predict that this will not continue with fundamentals set to drive prices higher once the current financial meltdown steadies - although how long this will take is the major uncertainty.
I am indebted to Jeffrey Nichols of American Precious Metals Advisors for the following quote: "...goldʼs swift descent in the past few weeks is a direct consequence of the unfolding global credit crisis. In short, gold has been an innocent bystander to the financial hurricane hitting Wall Street and global markets"
The past few months have seen a huge fall in the gold price from its brief plus thousand dollar peak. Latterly, gold followed the oil price downwards and on some days one could have virtually superimposed a gold price graph over the top of the oil price one and it would have been tough to tell the difference.
This led to comments that the oil and gold prices were inescapably linked and for several weeks this indeed seemed to be the position. Memories are short though as the gold price hadn't followed oil up to its July peak. Mineweb commented in July - just a few days before oil started its price correction - that the oil price looked overcooked and suggested that oil at $90 and gold at $900 might be something we could see shortly. Well, at least we were half right! But, as noted above gold came back virtually pari-passu with oil and ploughed well below the $900 mark, right back to around $750, but at this kind of level has seen huge physical demand resurrected in the Middle and Far East - and even in the USA - as consumers believe that gold is a bargain at these kinds of levels.
But, it may have taken the Lehman collapse to begin to see the inevitable decoupling of the gold price trend from that of the oil price with the latter continuing to fall - below $90 at one stage - but gold making at least a small recovery.
Overall though there does seem to be a major dichotomy in the way gold has been behaving. The past few weeks have seen enormous physical demand reported as some 300 percent above the same time last year in some traditional gold trading areas, yet the metal price has remained weak, well below the $800 level.
Of course the problem for the market is gold held by big investment funds and in ETFs which, in a financial crisis such as that we are seeing at the current time, does not necessarily behave the way one would expect it to. Gold is considered to be a ‘safe haven' protecting the investor against the kind of market meltdown we are currently seeing. However the need for liquidity, as the crisis is so severe for some investors, is such that precious metals holdings are being sold to cover this which, in turn, has put additional downward pressure on the price.
Nichols puts this as follows: "The yellow metalʼs own positive fundamentals - and even its role as a safe haven in turbulent financial seas - have simply been overwhelmed by the massive storm-surge flight to cash and the indiscriminate selling of securities and commodities, selling that has been amplified and accelerated by automatic program trading, short covering, and technical triggers on the way down."
As financial turmoil continues there may be more liquidation of inflation protecting assets like gold, but at some stage logic tells us that this should cease with the metal's strong fundamentals coming to the fore. A key player here will be the US dollar with gold tending to move in the opposite direction to the perceived value of the US currency. At some stage the current better value perception of the dollar has to reverse yet again as the US economy remains in serious trouble with the continuation of the country's huge deficit which continues to trend upwards. If the Fed - as some believe - is forced into cutting rates again, Nicholls feels this could be the trigger which could see the dollar dive again and gold recover strongly.
Global inflation, too, seems to be accelerating which is likely to be another stimulus for an increase in the gold price. So with physical demand running high, inflation rising, gold production static or falling, leading economies in disarray, or even in crisis, all the factors favouring a gold price increase would seem to be in place.
Nichols comments: "Long-term price prospects remain as bright as ever -- and nothing in the recent market performance has changed our forecast of record high prices in the next few years: We still expect to see gold back over $1,000, if not late this year, then almost certainly in the first quarter of 2009. With the right confluence of economic and geopolitical developments we could see gold as high as $1,500 or even $2,000 an ounce in the next few years -- and a buying frenzy, such as is often seen late in the price cycles of financial and commodity markets, could briefly take the metal much higher."Original Link Here
Author: Lawrence Williams
Posted: Wednesday , 17 Sep 2008
LONDON -
Gold is still lingering around the $780 mark, but many analysts predict that this will not continue with fundamentals set to drive prices higher once the current financial meltdown steadies - although how long this will take is the major uncertainty.
I am indebted to Jeffrey Nichols of American Precious Metals Advisors for the following quote: "...goldʼs swift descent in the past few weeks is a direct consequence of the unfolding global credit crisis. In short, gold has been an innocent bystander to the financial hurricane hitting Wall Street and global markets"
The past few months have seen a huge fall in the gold price from its brief plus thousand dollar peak. Latterly, gold followed the oil price downwards and on some days one could have virtually superimposed a gold price graph over the top of the oil price one and it would have been tough to tell the difference.
This led to comments that the oil and gold prices were inescapably linked and for several weeks this indeed seemed to be the position. Memories are short though as the gold price hadn't followed oil up to its July peak. Mineweb commented in July - just a few days before oil started its price correction - that the oil price looked overcooked and suggested that oil at $90 and gold at $900 might be something we could see shortly. Well, at least we were half right! But, as noted above gold came back virtually pari-passu with oil and ploughed well below the $900 mark, right back to around $750, but at this kind of level has seen huge physical demand resurrected in the Middle and Far East - and even in the USA - as consumers believe that gold is a bargain at these kinds of levels.
But, it may have taken the Lehman collapse to begin to see the inevitable decoupling of the gold price trend from that of the oil price with the latter continuing to fall - below $90 at one stage - but gold making at least a small recovery.
Overall though there does seem to be a major dichotomy in the way gold has been behaving. The past few weeks have seen enormous physical demand reported as some 300 percent above the same time last year in some traditional gold trading areas, yet the metal price has remained weak, well below the $800 level.
Of course the problem for the market is gold held by big investment funds and in ETFs which, in a financial crisis such as that we are seeing at the current time, does not necessarily behave the way one would expect it to. Gold is considered to be a ‘safe haven' protecting the investor against the kind of market meltdown we are currently seeing. However the need for liquidity, as the crisis is so severe for some investors, is such that precious metals holdings are being sold to cover this which, in turn, has put additional downward pressure on the price.
Nichols puts this as follows: "The yellow metalʼs own positive fundamentals - and even its role as a safe haven in turbulent financial seas - have simply been overwhelmed by the massive storm-surge flight to cash and the indiscriminate selling of securities and commodities, selling that has been amplified and accelerated by automatic program trading, short covering, and technical triggers on the way down."
As financial turmoil continues there may be more liquidation of inflation protecting assets like gold, but at some stage logic tells us that this should cease with the metal's strong fundamentals coming to the fore. A key player here will be the US dollar with gold tending to move in the opposite direction to the perceived value of the US currency. At some stage the current better value perception of the dollar has to reverse yet again as the US economy remains in serious trouble with the continuation of the country's huge deficit which continues to trend upwards. If the Fed - as some believe - is forced into cutting rates again, Nicholls feels this could be the trigger which could see the dollar dive again and gold recover strongly.
Global inflation, too, seems to be accelerating which is likely to be another stimulus for an increase in the gold price. So with physical demand running high, inflation rising, gold production static or falling, leading economies in disarray, or even in crisis, all the factors favouring a gold price increase would seem to be in place.
Nichols comments: "Long-term price prospects remain as bright as ever -- and nothing in the recent market performance has changed our forecast of record high prices in the next few years: We still expect to see gold back over $1,000, if not late this year, then almost certainly in the first quarter of 2009. With the right confluence of economic and geopolitical developments we could see gold as high as $1,500 or even $2,000 an ounce in the next few years -- and a buying frenzy, such as is often seen late in the price cycles of financial and commodity markets, could briefly take the metal much higher."Original Link Here
All Swans Are Black
Saturdays and Sundays
Used to be fun
Weekends were holidays
Perhaps time in the sun
But now it’s all changing
Changing for worse
As bankers are draining
The public’s thin purse
Northern Rock Fannie Mae
Freddie Mac and Bear
What’s next we all wonder
Who will it be where?
Lehman’s a lemming
As was Bear Stearns
WaMu AIG
They’re all gonna burn
Only one thing is for certain
And that will be when
The next bank that fails
It’ll be on a weekend
Used to be fun
Weekends were holidays
Perhaps time in the sun
But now it’s all changing
Changing for worse
As bankers are draining
The public’s thin purse
Northern Rock Fannie Mae
Freddie Mac and Bear
What’s next we all wonder
Who will it be where?
Lehman’s a lemming
As was Bear Stearns
WaMu AIG
They’re all gonna burn
Only one thing is for certain
And that will be when
The next bank that fails
It’ll be on a weekend
The Paulson Doctrine: An Uncertain Prescriptive for Uncertain Times
Unwittingly or not, Treasury Secretary Paulson has effectively created the Paulson Doctrine. The doctrine states that firms that he deems too big to fail (but we're not exactly sure where the line is drawn: LEH? No. BSC? Kind of. MER? Maybe. AIG, FNM and FRE? Definitely.) get the U.S. Government (and the U.S. taxpayer) as new senior shareholders, while the others are either left to execute an orderly private markets Good Bank/Bad Bank restructuring (if they can, like Mellon in the late 1980s) or a hurried Chapter 11 Good Bank/Bad Bank restructuring (if they can't: see BCS/LEH circa 2008). Sure, the headline reads that the Fed bailed out AIG, but was anyone other than Mr. Paulson pulling the strings? I doubt it. So what of this doctrine, and what does it mean for the global financial markets, the integrity of the U.S. regulatory regime and the U.S. taxpayer?
In the short run, the Paulson Doctrine helps the markets. It creates the liquidity-driven optionality only available through the U.S. Government's philanthropy, protecting against wholesale liquidations that could further depress asset prices and start a daisy-chain of events leading to a radical marking down of assets globally. As those of us from Wall Street know, once there is blood in the water markets get pushed further and further away from intrinsic value, and the only way back is through securing of liquidity (which generally occurs at a market bottom after total despair has set in). So rather than a radical restructuring taking place in an accelerated manner, out of sheer necessity, the U.S. Government and their well-heeled central bank brethren have decided to slow the pace of the correction to forestall an extremely painful fall-out.
But is this a good thing? Well, given the position of the U.S. as the debtor to the world and the political and market power wielded by China and Russia, in particular, Mr. Paulson's wielding of the Paulson Doctrine keeps these governments from dumping our dollar-denominated debt. We have little room to maneuver, thanks to President Bush's budget-busting spending habits, our debt-fueled consumption party, lousy financial disclosure and sheer greed. This enables us to continue our profligate spending habits that got us in this mess in the first place. Better to defer pain for another day rather than sucking it up and squaring up, I guess. This is no different than the charades that are Social Security and Medicare - bail out Bill Gross, Putin and our other unfriendly financiers, and we'll pay for it all later. While I fundamentally believe that the U.S. Government's actions, particularly with respect to AIG, create real option value through the provision of liquidity, it sends a very, very bad message to those in dire need of a really, really good message: you make your own safety net. And that safety net is called prudent financial management.
You know who comes out looking really good in the mess of the last 96 hours? Barclays. They did exactly what they should do. Let the market come to them. Focus on their core goals and strategy. Put in an offer that gives them exactly what they need as a franchise for a price that implies a very short payback period and minimal portfolio risk. This is a company thinking about their shareholders. They didn't assume an uncertain pool of opaque assets (see BAC/MER) to get what they really wanted (unlike BAC, who wanted the retail brokers but took everything else for a mere $50 billion). $250 million for the North American assets plus $1.5 billion for the headquarters building and two data centers. Kudos, John and Bob. Job well done. Ken Lewis? The jury's out, and will be for a long time. But would I want to be a BAC shareholder right now? No, I wouldn't.
I'm a pragmatist: the Paulson Doctrine has its place. But only if the market understands the rationale behind the doctrine and the breadth of its application. He is reacting just like a hedge fund manager whose illiquid asset portfolio is blowing up in his face. Investors (the U.S. taxpayer, in Mr. Paulson's case) have no transparency. Market participants have no idea how to plan. Redemption notices are starting to roll in. And the actions taken have been entirely reactive and inconsistent. This is neither the way to run a bailout nor to manage taxpayer funds. We need more transparency and better disclosure from our financial institutions. And we need the same from Mr. Paulson.
Original Link Here
China paper urges new currency order after "financial tsunami"
Tue Sep 16, 11:12 PM ET
Threatened by a "financial tsunami," the world must consider building a financial order no longer dependent on the United States, a leading Chinese state newspaper said on Wednesday.
The commentary in the overseas edition of the People's Daily said the collapse of Lehman Brothers Holdings Inc (LEH.P) "may augur an even larger impending global 'financial tsunami'."
The People's Daily is the official newspaper of China's ruling Communist Party, and the overseas edition is a smaller circulation offshoot of the main paper.
Its pronouncements do not necessarily directly reflect leadership views, but this commentary by a professor at Shanghai's Tongji University suggested considerable official alarm at the strains buckling world financial markets.
China's central bank earlier this week cut its lending rate for the first time in six years, a move analysts said was aimed at bolstering the economy and the battered stock market.
"The eruption of the U.S. sub-prime crisis has exposed massive loopholes in the United States' financial oversight and supervision," writes the commentator, Shi Jianxun.
"The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."
But Vice Premier Wang Qishan, on a visit to the United States, told U.S. trade officials in a meeting on Tuesday that China and the United States needed to maintain close economic ties with global markets going through such turbulence.
"The Chinese government is well aware of the fact that the United States, which is the world's largest developed country, and China, which is the world's largest developing country, should have constructive and cooperative economic and trade relations," he said.
China is a major buyer of U.S. Treasury bonds, and through its sovereign wealth fund it has taken stakes in two large U.S. financial institutions.
In July 2005, China revalued the yuan and freed it from a dollar peg to float within managed bands. But the yuan and China's trade remains tightly linked to the fortunes of the dollar.
The commentary suggested China must brace for grave economic fallout and look to alternatives, saying the crisis brings to mind the Great Depression of the 1930s.
"Lehman Brothers announced bankruptcy will not only have a domino effect on the global financial world, it will bring a shock to the world economy," the front-page comment stated.
(Reporting by Chris Buckley; Editing by Ken Wills)
Threatened by a "financial tsunami," the world must consider building a financial order no longer dependent on the United States, a leading Chinese state newspaper said on Wednesday.
The commentary in the overseas edition of the People's Daily said the collapse of Lehman Brothers Holdings Inc (LEH.P) "may augur an even larger impending global 'financial tsunami'."
The People's Daily is the official newspaper of China's ruling Communist Party, and the overseas edition is a smaller circulation offshoot of the main paper.
Its pronouncements do not necessarily directly reflect leadership views, but this commentary by a professor at Shanghai's Tongji University suggested considerable official alarm at the strains buckling world financial markets.
China's central bank earlier this week cut its lending rate for the first time in six years, a move analysts said was aimed at bolstering the economy and the battered stock market.
"The eruption of the U.S. sub-prime crisis has exposed massive loopholes in the United States' financial oversight and supervision," writes the commentator, Shi Jianxun.
"The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."
But Vice Premier Wang Qishan, on a visit to the United States, told U.S. trade officials in a meeting on Tuesday that China and the United States needed to maintain close economic ties with global markets going through such turbulence.
"The Chinese government is well aware of the fact that the United States, which is the world's largest developed country, and China, which is the world's largest developing country, should have constructive and cooperative economic and trade relations," he said.
China is a major buyer of U.S. Treasury bonds, and through its sovereign wealth fund it has taken stakes in two large U.S. financial institutions.
In July 2005, China revalued the yuan and freed it from a dollar peg to float within managed bands. But the yuan and China's trade remains tightly linked to the fortunes of the dollar.
The commentary suggested China must brace for grave economic fallout and look to alternatives, saying the crisis brings to mind the Great Depression of the 1930s.
"Lehman Brothers announced bankruptcy will not only have a domino effect on the global financial world, it will bring a shock to the world economy," the front-page comment stated.
(Reporting by Chris Buckley; Editing by Ken Wills)
Conditions ripe yet gold inert
Hedge fund selling, central banks blamed
Peter Koven, Financial Post Published: Wednesday, September 17, 2008
Link Here
This is just the scenario that the gold bugs anticipated. But the commodity is not playing along.
For many years, gold's biggest boosters have warned that mounting debt and sketchy lending practices would bring ruin to the U. S. financial system and leave gold as the much-needed safe haven.
The thesis ended up being exactly right. So why is gold in a downward trend and holding below US$800 an ounce as the U. S. banking system unravels?
According to the gold bugs, hedge fund selling and central bank intervention have put a temporary lid on the commodity. But the recent financial upheaval has made them only more bullish in the long term.
On the surface, they point out that all the factors seem to be in gold's favour: market turmoil, a shortage of gold coins and other fabricated products, and soaring costs for mining companies that make it tough for them to make money at these prices.
But in the short term, they said all of that is being superseded by hedge funds that are desperate for cash and are selling all their liquid assets.
"The financial meltdown has brought some people into gold as a safe haven. But for everyone coming in, there's somebody going out who needs to liquidate to raise money for other things," said Peter Grandich, editor of the Grandich Letter and one of the most bearish commentators on the U. S. economy.
He said he is unconcerned about gold's current weakness, because the soaring physical demand for the commodity indicates the paper price will eventually catch up.
Gold bugs have long complained about central banks selling bullion to allegedly prop up their currencies, and many believe that it has happened in the past few weeks. "[Central banks] particularly do not want a rising gold price when the system is melting down because it would be a warning that there are deep problems within the financial system," said James Turk, founder and chairman of GoldMoney.com.But he added the U. S. dollar has stalled and appears set to go down again. To counter the financial crisis, the Federal Reserve and other central banks have poured hundreds of billions of dollars of liquidity into the system. That is ultimately inflationary and makes the gold bugs even more bullish on bullion's prospects.
On the mining side, they expect that gold should receive support from soaring costs and weak grades that are stalling some production. Goldcorp Inc., for example, recently delayed its Pamour mine in Ontario.
John Ing, president of Maison Placements Canada, calculated that cash costs in the industry are hovering around US$625 per ounce of gold produced (not including byproducts) and that production in low-cost South Africa appears to be in steep decline. Add it all up, and the gold
bugs are certain it will be above US$1,000 and much higher in the months ahead as it re asserts itself as the one safe haven.
Peter Koven, Financial Post Published: Wednesday, September 17, 2008
Link Here
This is just the scenario that the gold bugs anticipated. But the commodity is not playing along.
For many years, gold's biggest boosters have warned that mounting debt and sketchy lending practices would bring ruin to the U. S. financial system and leave gold as the much-needed safe haven.
The thesis ended up being exactly right. So why is gold in a downward trend and holding below US$800 an ounce as the U. S. banking system unravels?
According to the gold bugs, hedge fund selling and central bank intervention have put a temporary lid on the commodity. But the recent financial upheaval has made them only more bullish in the long term.
On the surface, they point out that all the factors seem to be in gold's favour: market turmoil, a shortage of gold coins and other fabricated products, and soaring costs for mining companies that make it tough for them to make money at these prices.
But in the short term, they said all of that is being superseded by hedge funds that are desperate for cash and are selling all their liquid assets.
"The financial meltdown has brought some people into gold as a safe haven. But for everyone coming in, there's somebody going out who needs to liquidate to raise money for other things," said Peter Grandich, editor of the Grandich Letter and one of the most bearish commentators on the U. S. economy.
He said he is unconcerned about gold's current weakness, because the soaring physical demand for the commodity indicates the paper price will eventually catch up.
Gold bugs have long complained about central banks selling bullion to allegedly prop up their currencies, and many believe that it has happened in the past few weeks. "[Central banks] particularly do not want a rising gold price when the system is melting down because it would be a warning that there are deep problems within the financial system," said James Turk, founder and chairman of GoldMoney.com.But he added the U. S. dollar has stalled and appears set to go down again. To counter the financial crisis, the Federal Reserve and other central banks have poured hundreds of billions of dollars of liquidity into the system. That is ultimately inflationary and makes the gold bugs even more bullish on bullion's prospects.
On the mining side, they expect that gold should receive support from soaring costs and weak grades that are stalling some production. Goldcorp Inc., for example, recently delayed its Pamour mine in Ontario.
John Ing, president of Maison Placements Canada, calculated that cash costs in the industry are hovering around US$625 per ounce of gold produced (not including byproducts) and that production in low-cost South Africa appears to be in steep decline. Add it all up, and the gold
bugs are certain it will be above US$1,000 and much higher in the months ahead as it re asserts itself as the one safe haven.
Rivals move to fill AIG's shoes
TARA PERKINS AND JANET MCFARLAND
From Wednesday's Globe and Mail
September 17, 2008 at 9:16 AM EDT
Canadian competitors of American International Group Inc. are moving to take advantage as its Toronto-based unit reassures worried policy holders.
Elan Pratzer, chief executive officer of Toronto-based Executive Risk Insurance Services, said yesterday it was "crazy times" at his company, which has already been approached by brokers seeking new coverage for clients who hold AIG policies.
Executive Risk Insurance specializes in liability insurance to protect directors and officers if they are sued, and AIG is one of the largest players in the industry in Canada, Mr. Pratzer said.
The policies, bought by virtually every public corporation and many private companies, can be fairly easily cancelled and clients can quickly move to new insurers if they are concerned about AIG's liquidity.
Executive Risk has been actively targeting AIG's Canadian clients this week, a move Mr. Pratzer defended.
"A lot of directors and CEOs are asking the question, 'Why do we want to take the risk of having an AIG policy?' " he said.
AIG has property, casualty and specialty lines of business in Canada through American Home Assurance Co. and Commerce and Industry Insurance Co. of Canada.
Meanwhile, the head of AIG Life Insurance Co. of Canada was seeking to reassure worried policy holders this week that the Canadian life insurance business is secure.
New York-based parent company AIG has been taking "all possible action" to improve its financial performance, AIG Life of Canada chief executive officer Peter McCarthy said in a letter obtained by The Globe and Mail.
He suggested that the insurer's operations in Canada will be insulated from the parent company's troubles.
AIG Life of Canada is a separate legal entity that has not been affected by the U.S. credit crisis and remains strong and well capitalized, the letter said. Policies held with the firm are "safe and secure," it added.
Reached in his office yesterday, Mr. McCarthy declined to comment or confirm the veracity of the letter, referring calls to the New York office.
An executive at a rival Canadian life insurer said that, in general, insurance customers tend to be easier pickings when a firm is in trouble and the company does expect to benefit from AIG's troubles.
Besides watching for business that could come their way, Canada's insurers were looking at their own exposure.
Toronto-based insurance conglomerate Fairfax Financial, for example, got a lift yesterday thanks to credit default swaps it holds on AIG that amount to a bet that its financial condition would worsen. But shares of Manulife Financial and many other Canadian institutions dropped on worries about potential exposure.
Fairfax has long held a pessimistic outlook on a number of major global financial institutions, and a spokesman confirmed it holds credit default swaps on AIG. Scotia Capital analyst Tom MacKinnon estimated Fairfax has AIG swaps with a notional value of $1-billion, which are likely worth about $300-million, up from $135-million at the end of June. That would translate into $6 per Fairfax share in the company's third quarter.
Sun Life Financial, Great-West Life and Manulife appear to have immaterial exposure to AIG, Mr. MacKinnon said in a note to clients.
Late yesterday, Manulife reported that, in total, about one-half of 1 per cent of its total $164-billion in assets is exposed to struggling U.S. financial firms, including AIG and Lehman Brothers.
"In avoiding the perils of many other parts of the capital market, we made the decision to invest in what were deemed to be highly rated, sophisticated and regulated financial institutions. While these developments are extremely disappointing, to date we have avoided the worst problems in the credit markets and our track record remains exemplary," stated chief investment officer Donald Guloien.
Manulife expects to take a charge in the third quarter as a result of its exposures.
A spokesman for Toronto-Dominion Bank said yesterday that the bank's exposure to AIG is "within reasonable limits," and that a failure of the New York-based insurer "would have no material impact" on TD's overall operations.
A spokeswoman for RBC said the company limits its exposure to any single name.
Other banks declined to comment.
From Wednesday's Globe and Mail
September 17, 2008 at 9:16 AM EDT
Canadian competitors of American International Group Inc. are moving to take advantage as its Toronto-based unit reassures worried policy holders.
Elan Pratzer, chief executive officer of Toronto-based Executive Risk Insurance Services, said yesterday it was "crazy times" at his company, which has already been approached by brokers seeking new coverage for clients who hold AIG policies.
Executive Risk Insurance specializes in liability insurance to protect directors and officers if they are sued, and AIG is one of the largest players in the industry in Canada, Mr. Pratzer said.
The policies, bought by virtually every public corporation and many private companies, can be fairly easily cancelled and clients can quickly move to new insurers if they are concerned about AIG's liquidity.
Executive Risk has been actively targeting AIG's Canadian clients this week, a move Mr. Pratzer defended.
"A lot of directors and CEOs are asking the question, 'Why do we want to take the risk of having an AIG policy?' " he said.
AIG has property, casualty and specialty lines of business in Canada through American Home Assurance Co. and Commerce and Industry Insurance Co. of Canada.
Meanwhile, the head of AIG Life Insurance Co. of Canada was seeking to reassure worried policy holders this week that the Canadian life insurance business is secure.
New York-based parent company AIG has been taking "all possible action" to improve its financial performance, AIG Life of Canada chief executive officer Peter McCarthy said in a letter obtained by The Globe and Mail.
He suggested that the insurer's operations in Canada will be insulated from the parent company's troubles.
AIG Life of Canada is a separate legal entity that has not been affected by the U.S. credit crisis and remains strong and well capitalized, the letter said. Policies held with the firm are "safe and secure," it added.
Reached in his office yesterday, Mr. McCarthy declined to comment or confirm the veracity of the letter, referring calls to the New York office.
An executive at a rival Canadian life insurer said that, in general, insurance customers tend to be easier pickings when a firm is in trouble and the company does expect to benefit from AIG's troubles.
Besides watching for business that could come their way, Canada's insurers were looking at their own exposure.
Toronto-based insurance conglomerate Fairfax Financial, for example, got a lift yesterday thanks to credit default swaps it holds on AIG that amount to a bet that its financial condition would worsen. But shares of Manulife Financial and many other Canadian institutions dropped on worries about potential exposure.
Fairfax has long held a pessimistic outlook on a number of major global financial institutions, and a spokesman confirmed it holds credit default swaps on AIG. Scotia Capital analyst Tom MacKinnon estimated Fairfax has AIG swaps with a notional value of $1-billion, which are likely worth about $300-million, up from $135-million at the end of June. That would translate into $6 per Fairfax share in the company's third quarter.
Sun Life Financial, Great-West Life and Manulife appear to have immaterial exposure to AIG, Mr. MacKinnon said in a note to clients.
Late yesterday, Manulife reported that, in total, about one-half of 1 per cent of its total $164-billion in assets is exposed to struggling U.S. financial firms, including AIG and Lehman Brothers.
"In avoiding the perils of many other parts of the capital market, we made the decision to invest in what were deemed to be highly rated, sophisticated and regulated financial institutions. While these developments are extremely disappointing, to date we have avoided the worst problems in the credit markets and our track record remains exemplary," stated chief investment officer Donald Guloien.
Manulife expects to take a charge in the third quarter as a result of its exposures.
A spokesman for Toronto-Dominion Bank said yesterday that the bank's exposure to AIG is "within reasonable limits," and that a failure of the New York-based insurer "would have no material impact" on TD's overall operations.
A spokeswoman for RBC said the company limits its exposure to any single name.
Other banks declined to comment.
Tuesday, September 16, 2008
Barrick, Goldcorp still bullish on gold
Barrick Gold Corp. and Goldcorp Inc. are still bullish on long-term gold prices despite the recent correction in the precious metal, according to a new note from Credit Suisse
In a wrap-up of last week's Denver Gold Forum, analyst Anita Soni told clients that Barrick believes the re-emergence of global inflation, low real interest rates and renewed credit concerns will continue to support higher gold prices.
Barrick added, she said, that underpinning these issues, is an environment of supportive supply demand fundamentals including declining mine supply and emerging market demand for gold.
Goldcorp meanwhile argued that investors are only half way through a longterm bull market for gold, despite the surprise correction that has seen gold fall more than 10% this summer, the analyst wrote.
Ms. Soni also said that several producers expect M&A activity to pick up now that the recent pullback in equity prices has provided some attractive opportunities, especially for those companies with large cash balances.
In a wrap-up of last week's Denver Gold Forum, analyst Anita Soni told clients that Barrick believes the re-emergence of global inflation, low real interest rates and renewed credit concerns will continue to support higher gold prices.
Barrick added, she said, that underpinning these issues, is an environment of supportive supply demand fundamentals including declining mine supply and emerging market demand for gold.
Goldcorp meanwhile argued that investors are only half way through a longterm bull market for gold, despite the surprise correction that has seen gold fall more than 10% this summer, the analyst wrote.
Ms. Soni also said that several producers expect M&A activity to pick up now that the recent pullback in equity prices has provided some attractive opportunities, especially for those companies with large cash balances.
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