Ron Paul Rising

Does Simon Constable Have A Beef With Gold?

It is often noted by subscribers of Bill Murphy's LeMetropoleCafe.com website that Simon Constable represents the worst in precious metals market news commentary. Constable's main gig is at TheStreet.com, where he offers summary stories on precious metals trading and occasional "investigative" pieces.

Numerous people have complained that Constable presents gold and silver analysis in a consistent negative frame. For example, last May Peter Grandich informed Constable that no further interviews would be granted. Grandich was frustrated by Constable's lack of journalistic integrity. "I believe my original interview was twisted by him to suit a bearishness and/or dislike he has had for gold ever since he started interviewing me some time ago." (see the May 29, 2007 Grandich "alert" published in PDF format - click here.)

Adrian Douglas at LeMetropoleCafe.com often jokes about his "moron of the year" award for worst precious metals market coverage, with Constable frequently the leading candidate. Upon seeing this, our first reaction was to assume this was rather mean spirited. But Constable's consistent use of bearish framing on almost all of his stories in the least makes it fair to question his assumed journalistic objectivity.

Now, we have the latest gem from Constable: a video story mocking Ron Paul and the Liberty Dollar. It was released on December 21st., 2007. Click here for TheStreet.com site and video.

It's not clear when the video was produced. But for many weeks, Ron Paul liberty dollars have been trading on eBay for over $100, the result of the federal government shutting down the offices of the Liberty Dollar. Constable mocks Paul's stance on the Federal Reserve and then proceeds to try to get a shoe shine, hot dog and other goods and services for a Ron Paul $20 silver coin. At no time does Constable explain that silver is trading at almost $15 per ounce. In the least, we assume the hot dog vendor would have taken the coin assuming he was like any other gruff New Yorker with basic knowledge of getting paid more than his asking price. The fact that average people have no idea what an ounce of silver is worth has nothing to do with Ron Paul and everything to do with why the current bull market in precious metals is going to make the last one look tiny in comparison.

Constable makes no effort to tell his man-on-the-street compatriots that the coin is trading on eBay at over $100. Again, perhaps this was recorded well before the coin's value skyrocketed. We simply don't know. But it's clear that the video was released long after the coin skyrocketed in value, and it's clear that Constable is framing the discussion and presentation of this "investigative reporting" piece to purposely cast a negative light on not only Ron Paul, but the idea of questioning the value of the US dollar, and maybe even the value of silver itself.

Members of LeMetropoleCafe.com have been right all along. While it might be harsh to mock Constable, there can be no doubt that Constable consistently elevates bearish points of view on everything gold and silver.

For readers interested in a constantly updated sampling of news and editorials on precious metals and markets in general, we recommend visiting the "dispatches" page at GATA.com. The page is edited by professional newsman Chris Powell, the Secretary/Treasurer of Gold Anti-Trust Action Committee Inc. and the managing editor of the "Journal Inquirer" in Manchester, Connecticut. Mr. Powell does a wonderful job bringing together important stories that often fail to reach mainstream status. Click here to visit the "dispatches" page.

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ADDENDUM: It has come to our attention TheStreet.com published a Simon Constable article today that just so happens to report exclusively on the 2008 projections of gold bulls. While the timing of the latest article is certainly ironic, we stand by our observations in the above essay. We will let the weight of Mr. Constable's past coverage speak for itself. If he's turning over a new page towards greater objectivity, all the better.

Happy Holidays!

To all of our friends celebrating Christmas, we wish you a joyous holiday. Happy holidays and all the best in the coming year to you all!

The updated portfolio table appears below. We've generated a return of 10.85% since the portfolio's November 15th inception - a strong performance given overall market conditions.

This will likely be our last post for 2007. In the first week of January we will present our forecast for the coming year. 2008 should prove to be a challenge. We're looking forward to it! Join us on a profitable adventure.

All the best,

Investor Intelligentsia

PORTFOLIO: CLICK ON IMAGE


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Portfolio Update: Up 9.05% Since Nov. 15th Inception

Well what do you know? That really was Santa darting across the sky. Our missive typed in the wee hours of Friday proved to understate Saint Nick’s jolly mood, what with green splashing across market terminals across the land. This posting will serve as an update to the portfolio. We’ll return with more analysis later. All things considered, we’re pleased with our 9.05% return. Generating that performance level in less than two months is respectable, all the more so given current market conditions. Market volatility has been nothing short of wicked. The last two quarters have marked some of the most challenging markets we’ve seen in a very long time.

Portfolio Accounting Update

Pediment Exploration: On December 19th, our limit order for another 2000 shares at C$2.70 executed. C$2.70 was the low for the previous day, but in the real world it would be rare to get a fill at the bid. The price jump on Friday and return to slightly higher volume suggest that tax loss selling may be over in Pediment. Time will tell. Our point was not to attempt to grab the exact bottom for our additional shares, but merely to add exposure. This time next year, we will not be surprised to see the stock trading at more than twice current levels. Pediment will be recorded in the model portfolio table with a Canadian purchase price of C$2.70 per share, multiplied by 0.9954, which was the opening exchange rate for Canadian/US dollars. Thus, the US basis price is $2.68758.

Agrium, Inc.: 100 shares were purchased at the market open on the NYSE. The portfolio table basis per share will be recorded as $62.55 per share.

Hanfeng Evergreens: 300 shares were purchased at the market open on the Toronto Stock Exchange. Trading opened at C$13.13. We will multiply this Canadian basis by 1.004, which was the opening exchange rate for Canadian/US dollars. Thus, the US basis price is $13.18252

AGCO Corp.: 100 shares were purchased at the market open on the NYSE. The portfolio table basis per share will be recorded as $68.69 per share.

Transocean, Inc.: 100 shares were purchased at the market open on the NYSE. The portfolio table basis per share will be recorded as $137 per share.


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Portfolio Update: Spreading Manure For Growth

Santa Claus Rally?

Was that Santa darting across the sky this early morning? It sure appears global markets have begun to flirt with a better late than never "Santa Claus Rally." We've seen reasonably strong gains across almost the entire world. In fact, trading in the last 24 hours shows the first global embrace of risk and return to equities since the disappointing Fed rate cut announcement and continued conflicting statements by Federal Reserve Board governors. Previously, one region would rally while another spent the follow-up session digesting the latest toxic paper write-off. Odds are, we'll have some carry through for a few days. That should be a refreshing change. Hey, hedge fund managers need to tweak their performance records. It's bonus time.

Global growth in 2008 is an open question. We are in the camp that believes the US will experience a modest recession, and that in fact it probably has already started - certainly the case if one accurately accounts for inflation, unlike the US government. Nevertheless, there are industries that should perform well no matter the 2008 global economic backdrop. Agriculture ranks high on the list, and the closer one gets to the farm as either a producer, input provider or efficiency enhancer the better.


Portfolio Update: Farm Equipment, Fertilizer & Deep Sea Drilling

On the open, we will add the following positions:

• Agrium Inc. (AGU: NYSE): 100 shares, market price
• Hanfeng Evergreen Inc. (HF: Toronto): 300 shares, market price
• AGCO Corp. (AG: NYSE): 100 shares, market price
• Transocean Inc. (RIG: NYSE): 100 shares, market price

Readers have no doubt noticed the relative strength in the fertilizer industry. This will continue throughout the balance of this decade. Global grain inventories are at forty year lows and as developing economies grow, diets trend towards higher protein content - further taxing global grain productive capacity. Analysts are slowly coming around to the realization that there's much more going on than just a biofuels story. The agricultural bull market would merely have been delayed if the biofuels boom didn't exist.

Agrium is a large diversified North American fertilizer company. Its shares reflect a lower relative valuation to industry peers, in part due to its diversified operations and the fact that the company has a lower profile as a Canadian-based company. The stock is attractive at the current quote. Going forward, we expect the shares to close the valuation gap with peers.

Hanfeng Evergreen is one of the largest producers and distributors of fertilizer in China. It has the opportunity to increase market share and sales will likely maintain a compound annual growth rate well in excess of 30% over the next five years. The shares trade at about 21 times 2008 earnings, reflecting a healthy discount for the highly competitive market it serves and favorable taxes. The stock is undervalued and less well known among US institutional investors. It would not be surprising to see the stock turn in at least 50% upside over the course of 2008.

AGCO Corp. is a leading US-based farm equipment manufacturer. Deer & Co. recently reported stellar earnings and we believe AGCO's next earnings report will leave analyst estimates in the dust. AGCO has yet to see the type of multiple expansion investors afford Deer. Simply put, the shares are far from pricing in a multi-year bull market in agriculture. The next earnings report should accelerate the stock's advance.

Transocean Inc. is the world leader in deep ocean drilling. In the years ahead, a greater percentage of global oil production will be sourced from deep sea fields. Transocean trades at about ten times 2008 earnings. To be perfectly blunt, this is an absurd valuation. Institutional investors are terrified the global deep sea drilling market will go soft in 2009 or 2010. Given global decline rates of existing super giant fields and limited ability to increase capacity by conventional means, the world simply has no choice but to make extensive efforts to develop more difficult to obtain oil resources. The phenomena commonly referred to as "Peak Oil" is not a theory. It's a scientific fact, with the only real debate focused on the timing and nature of peak. Deep sea drilling will continue to play a critical role in procuring global energy supply and we believe it's not likely drill ship capacity will become an issue until well after 2012.

We will provide further updates and fundamental analysis on agriculture and the energy sector in the days and weeks ahead.

Portfolio Accounting Note: Pediment Position Doubled

Our order to buy an additional 2000 shares of Pediment Exploration executed this week. All of the above positions will be formally entered into the portfolio table within the next blog posting.

Portfolio Balancing Act: Up 5.66%, S&P 500 Unchanged

It's high time for a portfolio tracking update and more regular posting. The development of the blog and other services planned for the near future will evolve at a much faster rate going forward. Stay tuned. Catching up with some unfinished business, the official accounting entries of established positions appear below. All orders executed exactly as outlined in previous blog postings.

Gold positions have been a bit of a bummer, but overall portfolio performance kicked off a net gain of 5.66% between November 15th and December 14th. During the same period, the S&P 500 opened at 1,468.04 and closed last Friday at 1,467.95, for a rounding error loss of 0.09 points. Let's call it "unchanged" for the period. Market volatility has been absolutely wicked during this period, making the S&P's unchanged status for the period highly ironic.

All things considered, the model portfolio has turned in a satisfactory performance, with a strategic asset allocation creating a balance that has so far managed to weather overall market turmoil. Other than minor losses in China Life and Dianna Shipping, downside has been exclusively seen in precious metals focused positions.


Lesson From Livermore

The legendary speculator Jesse Livermore famously said, "Men who can both be right and sit tight are uncommon." Livermore understood his greatest profits came when he identified a trend and stuck to his convictions. Separating noise from a true change in a long-term trend is often more art than science. Indeed, sitting tight can be excruciatingly painful -- even downright lonely. No one ever said being a contrarian would be easy. But outsized profits are seldom had following the herd. The long-term bull market in gold and bear market in the US Dollar remain in place. Livermore might have "lightened-up" around the edges of trading positions, but we'd be so bold as to suggest he'd see this as but one more time where sitting tight is the most wise disposition.


Gold and Silver: Fundamentals Have Only Grown Stronger

Talk of Russian, Chinese, OPEC and other central bank diversification out of the US Dollar and into gold caught the market's imagination in 2005. Many will recall the famous Putin photo-op signaling the Russian central bank's reserves management shift. Don't believe the theater recently staged by Saudi Arabia for the benefit of providing political cover for the Gulf States. 2008 will see further movement among OPEC countries away from the dollar. The rise of titanic sovereign wealth funds will also serve to channel US dollars into real assets as China and other countries seek to diversify their foreign exchange holdings while securing strategic assets vital to their economic development. Above all else, bailing out the global financial system from the mortgage-backed asset credit crunch will prove to be a highly inflationary process.

In the short-term, we have seen the Canadian and UK central banks lower interest rates at a time when coordinated action to support the US Dollar is most helpful. Central banks have also acted in coordinated fashion to manage the rise of gold. The ECB dumped 42 tonnes of gold on to the market in November; all things considered, the fact that gold barely moved in the face of that onslaught just testifies to the power of the bull trend.

We've also seen the short-term impact of higher CPI and PPI inflation reports motivating currency traders to take the view that the US Fed will be less quick to cut rates going forward - a short-term positive arrow in the dollar bull's quiver. This is nothing but noise. The dollar may very well stage a short-term bounce that lasts for up to three months. That is what happened the last time dollar bearish sentiment became too excessive in the Dec. 2004 period. On balance, during 2008 the US Dollar will likely lose at least 15% vs. major trading currencies. Worse still, almost all major currencies will decline in value vis-a-vis gold as global central banks conduct a coordinated campaign to deal with the credit market crisis.

Anytime one can identify the causal factors behind the decline in a position or sector, it's possible to determine if "sitting tight" remains a fundamentally sound investment decision. At present, gold and silver shares are down for very specific reasons. November marked a near-term speculative peak that was capped by modest excessive bearishness in the dollar bear camp, but importantly, contrary to mainstream media representation we didn't see excessive bullish sentiment directly in gold nor silver.




KITCO.com web traffic statistics clearly demonstrate that the level of relative excitement among the general public investigating gold prices at the internet's leading precious metals quotation site prove in absolute quantitative terms that November's peak in the gold shares came at a time when far fewer investors were participating in the gold move. In fact, the last 18 months have marked a long and painful consolidation period, for the most part, where investors were punished by dreadful performance among "junior" gold and silver shares.

Tax loss selling is now upon us, adding insult to injury. Once again, the shares of "junior" companies are among those getting hit the hardest. This is to be expected given the poor level of investment sentiment throughout the sector and losses sustained in many of these shares earlier in the year. It's impossible to call the exact bottom, but within the next week or two, specific shares reverse and ultimately toss off gains of 30% on average for the entire sector over the coming three months - with many specific companies doubling or better.

We will be adding additional exposure to the junior gold and silver market sector in the days ahead. For now, we will establish an open order to buy an additional 2000 shares of Pediment Exploration at C$2.70. This order will be good until canceled. We will take no action on Carpathian Gold at this time. Tax loss selling in Carpathian has been particularly vicious, and investors are also apparently drawing unjust conclusions on the company's desire to add geographic diversification to it's project profile (e.g., concluding projects in Romania are in trouble when that is not the case).

# # # #

On November 23, 2007 the following positions were established:

• E-House (China) Holdings (EJ: NYSE): 100 shares were purchased on the open at $19.65
• San Gold Corp. (SGR.v: Venture Exchange, Canada): 3000 shares were purchased on the open at Canadian $1.30. The exchange rate opened that morning at 1.0145. Thus the position will be established with a US basis share price equivalent per share of US$1.319

On November 20, 2007 the following positions were established:

• China Mobile (CHL: NYSE): 120 shares were purchased on the open at $84.07 per share
• China Life (LFC:NYSE): 120 shares were purchased on the open at $82.00
• National Oilwell Varco: (NOV: NYSE): 150 shares were purchased on the open at $65.67
• EnCana Corp. (ECA: NYSE): 100 shares were purchased on the open at $66.78
• ABB Ltd. (ABB: NYSE): 200 shares were purchased on the open at $27.06
• Diana Shipping (DSX: NYSE): 200 shares were purchased on the open at $31.50
• CF Industries Holdings (CF: NYSE): 100 shares were purchased on the open at $79.76
• Mosaic Co. (MOS: NYSE): 100 shares were purchased on the open at $60.84
• Potash Corp. (POT: NYSE): 50 shares were purchased on the open at $107.50
• Devon Energy Corp. (DVN: NYSE): 80 shares were purchased on the open at $85.95

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2 Portfolio Additions: San Gold and E-House At the Market Price for Friday, Nov. 23rd

I will add 3000 shares of San Gold at the opening price in Canada today. The Canadian company is an attractive producer with exploration blue sky. The shares trade on the Venture exchange under the ticker SGR, as well as on the OTC under SGRCF.

I will also add 100 shares of E-House (China) Holdings Limited (EJ: NYSE). E-House owns China's real estate multi-listing service, a tremendous asset for leveraging it's overall release services offering. The shares went public in an IPO earlier this year and have witnessed a massive correction in the last few weeks. The fall is excessive. The shares may keep falling, but establishing an initial position of 100 shares for now is perfectly acceptable -- falling knife be dammed. I believe there's a very good chance the stock will bounce this Friday and we just hit the low. But if I'm wrong, I will dollar cost average at a later date.

The next update will include detailed profiles.

Portfolio Additions And Summary

Today, a flock of new positions will be added to the Investor Intelligentsia $200,000 model portfolio. On the open, the following positions will be established at market price:

1. China Mobile (CHL:NYSE): 120 shares
2. China Life (LFC:NYSE): 120 shares
3. National Oilwell Varco (NOV: NYSE): 150 shares
4. EnCana Corp.: (ECA:NYSE) 100 shares
5. Devon Energy (DVN: NYSE): 80 shares
6. ABB Ltd. (ABB: NYSE): 200 shares
7. Diana Shipping (DSX: NYSE): 200 shares
8. CF Industries Holdings (CF: NYSE): 100 shares
9. Mosaic Co. (MOS: NYSE): 100 shares
10. Potash Corp. (POT: NYSE): 50 shares

A summary of each company will follow. In addition, the portfolio as of the close of November 19th is summarized in the graphic below.


Portfolio Summary: November 19, 2007 (click to enlarge)


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Model Portfolio Update: 2 New Companies

This will be a short update, recording the entry positions established by the first post. Two new positions will be established today at the market open. Later this week, a fundamental review of market conditions will be posted. Stay tuned.

PORTFOLIO ADDITIONS:

• Carpathian Gold, Inc. (CPN.Vancouver): Buy 4000 shares at market open in Canada and convert price to US$ for portfolio tracking purposes. The company's shares can be traded in the US via the OTC ticker CPNFF.
  
  
• Exmin Resources (EXM.Vancouver): Buy 10,000 shares at market open in Canada and convert price to US$ for portfolio tracking purposes. The company's shares can be traded in the US via the OTC ticker EXMIN.

Carpathian Gold is developing attractive properties in Romania. Investors have widely considered the shares risky due to the problems experienced by fellow Canadian mine developer Gabriel Resources. But it's unfair to paint both companies with the same brush. Carpathian will not use cyanide and to date, there has been no indication from the Romanian government or local constituents that Carpathian's plans are at risk. Gabriel Resources is a high profile situation given the size of the resource and the fact that the NGO community has sought to shut the company down. Gabriel Resources' problems offer an opportunity for investors to buy Carpathian at fire sale prices. Carpathian has established an initial 43-101 Canadian compliant resource estimate for it's Colnic and Rovina projects, showing an indicated 1.82 million ounces of gold equivalent and a total inferred equivalent of 3.69 million ounces. Geologists that have reviewed the property believe the company will be able to prove-up more ounces, perhaps well past five million. But even with back-of-napkin numbers, using 3 million ounces of gold equivalent, the stock trades at a valuation of less than US$37 per ounce of gold. (Assumptions: 147.6 million fully diluted share capital, a stock price of C$0.74 times 1.02 for a US$ $111,408,480 market cap, divided by 3 million ounces). Not all ounces are equal, of course! In Carpathian's case, political risk aside, they have what looks to be low cost, economically viable projects. While one can find Jr. mining companies with lower gold-based valuations, it's quite difficult to find companies with advanced stage resources proven to be both large and highly likely to be economically viable to mine. Were it not for the political situation, Carpathian would easily trade at prices between two and three times the current quote. This provides the patient investor an arbitrage opportunity. Over time, as Carpathian moves past milestones, the shares should advance strongly.

EXMIN Resources: I profiled EXMIN Resources in a previous post. Please see that write-up for more information. The shares have drifted lower once again on the back of tax loss selling and the current quote represents a fantastic entry point for patient investors. The news flow with joint venture partners will be strong over the coming months and the shares will respond, moving higher.


ESTABLISHED POSITIONS SUMMARY

Each order executed as planned. The portfolio now holds the following:

• 400 Agnico-Eagle Mines shares bought at $50.00
• 200 Petrobras shares bought at $100
• 350 Suntech Power Holdings shares bought at $63.75
• 2000 Pediment Exploration Shares, bought at C$3.07

The Pediment Explorations position will be carried at a cost basis of US$6,311.92. This is derived by multiplying the opening trade on Nov. 15th (C$3.07) by 2000 shares and then multiplying by the Canadian/Dollar exchange rate of 1.028, which was both the high and opening rate of exchange for that day (see chart below).

For each position, a flat rate commission of $10 will be subtracted from cash and added to the cost basis. The Investor Intelligentsia model portfolio will be as close to "real world" as this format permits.

November 15th Canadian/Dollar Exchange Rates (click graphic to enlarge):




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DUBIN MISSIVE: Money Markets Break The Buck; Ben Bernanke Is A Liar - and more....

Greetings friends and compatriots of the "Friends of Eric" list.

This will be another installment of "the newsletter before the newsletter." The muse struck, so here I write.

In this missive:

- Money Market Funds BREAK The Buck

- Ben Bernanke Is A Liar

- Stock Market Action This Week

- The End Game

- Newsletter update: It's coming...

Money Market Funds BREAK The Buck

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Did you catch the whopper about money funds breaking the buck? Here they come... The list of institutions reported in the Bloomberg story below and the actions taken qualify this as a seven sigma event. This has NEVER happened before. The good news is that the total dollar amount is "manageable" (with Helicopter Ben liquidity injections over the next two years papering over this monstrosity and many more soon to come). In fact, this entire credit crisis revolves around a dollar amount that is containable - even if we ultimately exceed the one trillion dollar hurdle. With an identifiable target, the system can be "fixed."

The bad news is that these damn infectious SIVs and problematic asset-backed paper is darn near everywhere and it only takes a small amount of rotten meat to make a whole sausage go bad. I'm not among bears that believe we are headed for a deflationary crash on the back of a collapse in credit. Again, the system and the powers that be face an identifiable threat -- even though the bad paper is spread across a wide swath of the global financial system. The patient can be treated with liquidity - massive amounts of liquidity.

The specific case of money market funds is worth paying extra attention to. I wouldn't be surprised if over 50 funds need capital injections when all is said and done. That could very well shock people. We are already at a precarious place when it comes to

sentiment. Assaults to the perceived sanctity of money market funds could have unpredictable impacts to mass psychology.

Ben Bernanke Is A Liar

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I kind of miss the Alan Greenspan days. Good old Mr. Magoo would testify before Congress and provide such absurd, obfuscations the English lexicon is now blessed with the term "Greenspan Speak." Many of "our" fearless Congressional representatives trembled at the idea of looking stupid in the face of misperceived brilliance from "The Maestro" (just when did Bob Woodward fall from investigative journalistic grace to become a hack insider?). Greenspan had the talent of not lying quite as often as Bernanke. Anytime Grandpa Al wanted to do away with an uncomfortable subject he'd just embark on a circumlocutious obfuscation and no Congressional representative would dare ask just what the heck was said for fear of being seen as an idiot.

Enter Ben Bernanke and his policy of a more "open" Federal Reserve. Last week he testified before Congress that the risks of economic slowdown and rising inflation were balanced. Nothing could be further from the truth. in fact, we're going to have both, and the Fed is powerless to prevent stagflation. We might get lucky and 2008 will prove to be a healthy year for the global economy overall. Generally speaking, I subscribe to the camp that holds this forecast. But the US economy is still going to experience considerable pain. Last week's testimony was in service of supporting the Dollar - attempting to slow down its fall. To some extent, it worked. Gold and oil and cross currencies were due for a breather and the unwinding of the Japanese carrytrade took a particularly nasty turn on Monday, sending hedge funds scurrying to liquidate positions in commodity-based investments and cyclical momentum stocks tied to the thesis of global economic growth.

The Fed and the Treasury are interested in having a slow, orderly decline in the Dollar, not a crash. The theatrics of the last ten days are not surprising. Now, we are right back where we started from and the bias for a slowly declining dollar, and rising oil and gold have returned.

The Fed will most definitely cut rates no later than the next Open Market Committee meeting, regardless of the propaganda floated since the last cut and throughout last week. They have no choice. The systemic risks to the credit system remain as bad as August. They just can't speak of that reality in plain English and all at one time. To do so would facilitate a Dollar crash, and that's not in anyone's interest.

Stock Market Action This Week

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Today was just another day in our schizophrenic market. For every reason a bull can point to for a bottom setting in, there are more "unknowns" that haunt the minds of both bulls and bears -- for the bears know just how bad things could get if the credit system freezes.

Did I tell you I was thinking of getting a dog? No, really. In fact, hanging out with one like this

http://youtube.com/watch?v=Ljrv979j7tw

might help me get into the minds of average fund managers! Agreed?

It's clear a great many traders are itching to get back into financial services companies. On Tuesday, Goldman Sachs reported that they had net negative exposure to troubled release asset backed paper. They've been particularly successful shorting the market. That announcement, combined with reasonably strong sales reported by WalMart sent the market rocketing higher in a broad-based rally. But no one seems to ask the logical question: who's on the other side of those Goldman shorts? Can you say Citigroup and hapless hedge funds? Just because Goldman happens to have a reasonable balance sheet does not necessarily translate into a signal that it's ok to go back into the water. Furthermore, Wallyworld's sales are up precisely because a great many more American's are getting squeezed -- and the fact that the price of food and gas WalMart sells has been on the rise.

Bear Stearns reported this morning their write-offs for the current quarter would be less than expected. That certainly helped carry over yesterday's festive mood. But by the end of the day, the financials had, for the most part, given back all of today's gains. In technology, bellwethers like Apple failed to have profoundly bullish news carry over through today. It was reported that China Mobile will eventually offer Apple's iPhone to a subscriber base in excess of 400 million. That sent Apple back from the depths of a nasty correction yesterday, but follow-through entirely failed today. One could see similar weakness in the action of Google and other sentiment bellwethers among momentum technology stocks. This is anything but healthy, particularly as it comes in the wake of last week's sizable NASDAQ correction. The schizophrenic nature of the market continues.

We can hope that a great deal of the asset write-downs will have been reported within a couple of weeks. New accounting rules coming into effect will help facilitate this process. It's possible that within about two weeks market volatility will calm down for a period of two months, give or take -- until the next cycle of asset write-down reportage begins. Until then, expect continued massive volatility.

The End Game

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Whatever happens, some elements of the end-game are indeed perceivable. Having a healthy allocation to gold, silver and assets that perform well under conditions of high inflation are an absolute necessity in today's world. It just so happens that many hard asset related investments can be justified for reasons above and beyond the credit crisis. For example, a heavy exposure to energy and alternative energy investments is a sound portfolio decision for a variety of reasons beyond the scope of this particular letter.

This credit crisis will be fixed with liquidity injections AND DIRECT MONETIZATION of troubled assets by the Federal Reserve accepting them as collateral for loans that will, in the long run, be forgiven. We will also likely see some bastard clone of the Resolution Trust Corporation created ala the "Savings and Loans Crisis." As this creature eats bad paper, aggregate national debt will rise on the back of a taxpayer subsidized bailout. The latter might not necessarily be a terrible thing if these problematic securities were sold at reasonable prices ($0.20 on the dollar, anyone?). But instead, bureaucrats will serve their masters and the system and the average price paid for damaged goods will likely be above $0.80 on the dollar, hosing the tax payer. Check back with me in two years.

Maybe we'll be lucky and "our" representatives will come up with one of those cute government program names. "SIV Condom Corporation?" "ADR Act"? (aka "The American Dream Restoration Act of 2008"). Don't ask me. Naming the thing is well beyond my paygrade. Have no fear. Treasury Secretary Paulsen will be on the case. Americans will have a nice sounding name to cheer and salute as the inflation tax sneaks up and bites us in the ass.

Vacuum-cleaning up the bad paper along the lines of an ADR Act will most certainly infuse liquidity into the system. But that infusion is tied to the creation of more debt and is similar in character to much of our day to day system activities anyway. Dealing with the crisis by direct monetization, however, is an entirely different animal - so much so that most people don't think it would dare be attempted. But don't scoff. Back in August, in news reports that didn't receive much analysis, it was noted that the Fed accepted as collateral realestate asset backed paper for liquidity injections. The media reported that this was the first time in history that action was taken. No one in the financial press has bothered to go back to the Fed to see what happened to that collateral. While I can't prove this at this time, I believe the odds are high that collateral was flushed down the toilet, and that the Fed never had any intention of attempting to collect on this particular short-term lending. That was a moderate case of direct monetization, exactly as Ben Bernanke described as being necessary from time to time in his famous speech about how to prevent another Great Depression - helicopter money.

Are you ready to pay nearly $5 for a loaf of bread? In two or three years, that's going to happen -- and I'm talking about bland mass produced bread, not the fine artisan loafs we've got around San Francisco fetching near $4 already.

Newsletter update: It's coming...

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My money management activities have been quite time consuming. Staying ahead of intense volatility hasn't left me with enough free time to finish newsletter infrastructure development. But I hope to have a skeleton operation up and running by the end of the month. Anyone on the "Friends of Eric" list will be alerted to the formal launch of the letter - and if you got this email directly from me, you're on the "FOE" list :-)

With Thanksgiving soon approaching, I'd like to wish you all a wonderful holiday should I not have the opportunity to speak directly with you in the days ahead. Through all the turmoil, we have much to be thankful for. I'm certainly looking forward to a few extra days of downtime for reflection and for catching up on newsletter infrastructure!

Best investing to you,

Eric Dubin

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Bank of America, Legg Mason Prop Up Their Money Funds (Update6)

By Shannon D. Harrington and Christopher Condon

Nov. 13 (Bloomberg) -- Bank of America Corp., Legg Mason Inc. and at least two other companies are propping up their money-market funds to cushion them against possible losses on debt issued by structured investment vehicles.

Bank of America, the nation's second-largest bank, may provide as much as $600 million to funds that bought debt from SIVs, Chief Financial Officer Joe Price said at an investor conference today.

Legg Mason, SEI Investments Co. and SunTrust Banks Inc. have stepped in to make sure their funds don't fall below the $1 a share net asset value, known as ``breaking the buck.'' The 10 largest managers of U.S. money funds have about $50 billion in short term debt of SIVs, some of which has defaulted.

``This is the first real case'' of securities held by money-market funds defaulting, said Peter Crane, founder of Crane Data LLC, the Westborough, Massachusetts-based publisher of the Money Fund Intelligence Newsletter.

For "FAIR USE" ONLY

FULL STORY:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a9FE97M9y63g&refer=home

$200,000 Model Portfolio Launch

Starting today, Investor Intelligentsia will manage a US$200,000 model portfolio. Portfolio selections will have a bias towards investments in the natural resource sectors, including exposure to oil and gas, precious and base metals, agriculture, water and technology companies that help these resource industries thrive. In addition, extensive coverage of international markets, infrastructure, technology and alternative energy industries will be profiled. There will be no specific restrictions on the type of investments and investment methodologies employed. All portfolio constituents will be publicly traded securities.

The following orders are now "live" and in place before the market open:

1. Agnico-Eagle Mines Ltd. (AEM.NYSE): Buy 400 shares at a limit price of $50, good until canceled.
2. Petroleo Brasileiro - aka "Petrobras" (PBR.NYSE): Buy 200 shares at a limit price of $100, good until canceld
3. Suntech Power Holdings Co. Ltd. (STP.NYSE): Buy 350 shares at a limit price of $63.75, good until canceled
4. Pediment Exploration LTD (PEZ.V): Buy 2000 shares at the open in Canada, and convert basis price to US Dollars for tracking purposes; OTC shares trade in the US under the ticker PEZFF
   

Agnico-Eagle is a fabulous company. We profiled them in an earlier message when they were trading in the $30s. With the rise in gold and our expectation that 2008 will see gold trading in four digit price territory, Agnico-Eagle remains an attractive core holding for exposure to gold. They are a midtier producer with sufficient size to be attractive to institutional investors. But unlike larger gold companies suffering from questionable ability to grow reserves, Agnico-Eagle will be bringing new mines into production in the coming years, and management has proven to be effective at keeping costs low - not easy in the current mining environment, what with rising energy costs and shortages of key resources ranging from skilled engineers to equipment. Earlier comments on Agnico-Eagle can be read here.

Petrobras is the national oil and gas company of Brazil. By any metric, it ranks among the largest oil companies in the world. However, not all oil majors have rapidly expanding reserves. In fact, it's not well appreciated by average investors that companies like Exxon, Shell and BP face tremendous challenges increasing their reserve life indices. The more well known publicly traded majors also have production sharing agreements with host countries that have percentage royalties that escalate as the price of crude rises. In specific cases, it actually is in the interest of these companies to see LOWER oil prices! As a state-sponsored entity with the majority of its assets in Brazil, Petrobras does not face quite as many onerous production sharing agreements. The company also has a number of stellar attributes, including an extensive deep water drilling technology and highly prospective regions for exploration off the coast of Brazil. Recently, the company announced the discovery of a light grade oil field estimated to hold between four and eight billion barrels. This news set the NYSE ADR shares soring to just under the $120 mark, only to see the fall just as rapidly as oil prices corrected toward $90 WTI on a cash basis. There will be more discoveries announced in the months and years ahead. The basis Petrobras is exploring is one of the last regions on earth where new large fields are likely to be found. The shares are a compelling value for long-term energy bulls and simultaneously offer diversification away from US-based political risk. Unfortunately, there is likely more political risk holding a company like Exxon than Petrobras.

Suntech Power is the largest Chinese manufacturer of solar panels. They have the scale economies, industry relationships and technology to remain a player for well into the next decade. In this booming industry, that's not a trivial consideration. They are not technology leaders in specific applications such as "thin film" panels, but their product breadth and manufacturing economies have earned them growing market share. They have long-term contracts with silicon suppliers, and they have invested in integrated solar products (solar cell technology developed as part of actual building materials such as roof shingles). Suntech represents the best value among solar companies. Even though the shares have witness a significant move and both trailing and forward price-to-earnings ratios are not cheap, the shares are still attractively valued relative to the explosive earnings growth the company should generate. Other companies like SunPower and First Solar are attractive, but their valuations are nestled around the flight paths of migratory birds. We will review and consider other solar companies in the future. For now, a clear investment case can be made for SunTech

Pediment Exploration: Mark Twain once quipped, a mine was nothing more than "a hole in the ground owned by a liar." The mining industry has come a long way since the 1800s, but the sad fact is that the vast majority of exploration companies never graduate to the stage of mine developers or take-out candidates. Pediment is likely on the way to proving the exception to this rule. They have multiple projects in Mexico and more than one chance of bringing a mine operation into production. Throughout the summer, Pediment reported outstanding drill results at its San Antonio gold project in Baja, California. Results including a drill hole with 1.64 grams per tone gold over 152 meters. There's no doubt they have found an economically minable resource. It's just a question of how big it will be. Gary Freeman, President & CEO, beams when he describes the project in an interview with Al Korelin and Jay Taylor. But Pediment isn't a one trick pony. The company recently announced the purchase of "La Colorada," a gold and silver property in Sonora State, Mexico. It was a high grade underground mine in the 1800s that was shut down following the Mexican Revolution. Eldorado gold re-worked the mine between 1993 and 2000 but low gold prices halted that effort. Eldorado estimated another 450,000 ounces remained (estimate not in compliance with modern Canadian standards), and Pediment's management believes much more gold can be proved-up. They now control an option to acquire a 100% interest in the project, including infrastructure and a processing plant, by investing $1.1 million initially, and another $1.8 over the course of two years. This is a relatively low risk exploration and re-development operation that has a high probability of delivering high value cash flow and low costs. Excitement surrounding the San Antonio project pushed the shares well into the C$1 to C$2 and change range. Today, Pediment is bouncing at about C$3 and attempting to move higher. As investors come to appreciate development work at "La Colorada" and other projects in the Pediment stable, the shares should perform strongly.


Profile, Disclosure, Compliance and Disclaimer: Click Here

Profile, Disclosure, Compliance and Disclaimer!

Investor Intelligentsia provides financial market commentary drawn upon a wide variety of disciplines. Eric Dubin serves as executive editor. Mr. Dubin is an independent buy-side analyst and portfolio manager based in San Francisco, California. He managed the "Tech Stalker" "Strategy Lab" portfolio for MSN Money for over two years, and served as the lead communications and end markets analyst and managing editor for INFRASTRUCTURE, the first technology-focused financial securities letter published on the internet. He can be reached by sending an email to "Eric" at the internet domain InvestorIntelligentsia.com ("eric" and the domain name are separated here to prevent automated spam email address harvesting - just combine the two when addressing).

FULL DISCLOSURE AND COMPLIANCE:

If a security is profiled for inclusion or removal within a portfolio hosted by Investor Intelligentsia, neither Investor Intelligentsia nor its principals will trade said security during the three days prior to the date of profile publication, nor during the three days following date of profile publication. This compliance rule will also apply to securities that happen to be the "substantive" focus of Investor Intelligentsia articles or research reports published herein, where "substantive" is defined as going beyond the mere reporting of events in the financial markets during any given week where specific securities are mentioned in said reportage. Following the passage of the three-day rule, it should be assumed that securities held within Investor Intelligentsia model portfolios or mentioned favorably by Investor Intelligentsia or its principals may be held by Investor Intelligentsia principals.

Neither Investor Intelligentsia nor its principals accept any form of remuneration from companies that happen to be profiled or discussed. Investor Intelligentsia welcomes information packages from private and publicly traded companies, AND NOTHING MORE.

DISCLAIMER:

Neither Investor Intelligentsia nor its principals are registered as a securities broker-dealer or investment advisor with the U.S. Securities and Exchange commission or any state securities regulatory authority. Investor Intelligentsia is published in according with the Investment Advisers Act of 1940, as amended (the "Advisers Act") provided for in Section 202(a)(11)(D). This exemption is available for the publisher of any "bona fide financial publication of general and regular circulation." Neither Investor Intelligentsia nor its principals are responsible for trades executed by readers and/or subscribers to Investor Intelligentsia and affiliated services. Information contained therein do not represent individual investment advice nor a recommendation to buy or sell securities or any financial instrument, nor to serve as an endorsement of any security or investment. Because individual investment objectives vary, neither Investor Intelligentsia nor its principals can be seen as providing investment advice. The appropriateness of any given investment can only be determined by the individual, in consultation with his or her financial, legal and tax advisors. Any action taken as a result of reading Investor Intelligentsia is solely the responsibility of the reader. Investor Intelligentsia nor its principals do not profess to be a professional investment advisors, and strongly encourages all readers to consult with their legal, tax and financial advisors before making any investment decision. Furthermore, material presented at Investor Intelligentsia does not constitute an offer or solicitation to buy or sell any securities or individualized investment advice.

All data and information contained or referenced at Investor intelligentsia has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of the date of publication and are subject to change without notice.

Neither Investor Intelligentsia nor its principals make any representations as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to or incorporated herein, and takes no responsibility therefore. Third party statements contained herein and information contained in any source cited herein are not endorsed by or adopted by Investor Intelligentsia unless otherwise noted.

Information in foregoing discussions contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). In particular, when used in the preceding discussion, the words "plan," "confident that," "believe," "scheduled," "expect," or "intend to," and similar conditional expressions are intended to identify forward-looking statements subject to the safe harbor created by the Act. Such statements are subject to certain risks and uncertainties and actual results could differ materially from those expressed in any of the forward-looking statements. Such risks and uncertainties include, but are not limited to, future events and the financial performance of companies profiled which are inherently uncertain and actual events and/or results may differ materially.

Starting Model Portfolios Long After A Bounce: A True Test Of Investor Accumen

The last three months have been marked by the return of volatility. Any investor new to the markets within the last three years might have thought tranquility was the norm. Lately, we have been blessed with weeks were triple digit moves on the Dow Jones Industrial Average are par for the course.

On August 20th, 2007 it was clear to me that an important bottom had been set with the August 16th fear driven spike-down capitulation low. The carnage in the broad averages were in keeping with a standard correction. But what was most telling was the profound damage seen in stocks related to the natural resource sector, emerging markets and small capitalization shares in general. It was quite common to see shares having lost 20 to 50 percent of their value over the course of the previous 30 trading days, with a capitulation spike bottom marked on August 16th. These are the signals one looks for when navigating a correction. Certainly, the Fed's surprise 50 basis point cuts to the Federal Funds Rate and Discount Rate on August 17th played a major role in solidifying the bottom, but shares in the most volatile sectors were already making their way back up late in the day after the early morning capitulation spike bottom low.

Now, if I was smart, I would have launched Investor Intelligentsia on Monday, August 20th, and loaded up model portfolios with my favorite down and out shares. No such luck. I was tending to my own portfolio and the needs of my clients. The easy money off that correction represented some 40% moves, on average, for my favorite stocks. Nevertheless, the challenge coming later to the markets during this ongoing "credit crunch" period provides Investor Intelligentsia with all the more opportunity to exhibit superior market investing agility.

I would like to add some content developed immediately following the August 16th bottom, however. The material below is posted on a Yahoo members group and can be accessed with permission of the moderator. I find it helpful to review both mistakes and correct calls. Analysis of core fundamentals is crucial when a huge correction is underway. The below is but one example, using the gold sector and two companies for illustration.

----- Original Message -----

From: Eric Dubin:

Sent: Friday, August 17, 2007 7:37 AM

Subject: Re: Today's blue light specials

The FED move to cut the discount rate was announced minutes after I sent out my email about gold and Agnico-Eagle and EXMIN. Needless to say, that FED move took away the "easy money" entry range I was talking about with Agnico-Eagle ($35 to $37). But even entering at anything below $40 is a great price to get in for an initial position, especially if you are light on blue chip gold exposure.

As for EXMIN, so long as you approach it as risk capital, and so long as you employ a dollar cost averaging method of accumulating it and are willing to deal with big volatility, I see entry attractive even on up to US$0.58. At the moment it's trading at $0.41 Canadian, with a day range of 0.38 to 0.43. The current Canadian/US$ exchange rate is 0.94193 so the bid/ask spread translates into US$0.377 x US$0.386. This is still a lower risk entry point - given how far the stock fell in the last month.

--

Eric

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----- Original Message -----

From: Eric Dubin

Sent: Friday, August 17, 2007 5:19 AM

Subject: Re: Today's blue light specials

Greetings,

I'll toss out an idea for solid prospecting - literally. GOLD mining companies. ...and if you don't own physical gold right now you shouldn't be bashful about accumulating it. More on physical gold later.

I don't have time to write a big email this morning (holy cow - now that I'm done and I'm looking over what I wrote, I see that a big email flew out anyway :-).

I'll come back this weekend and write more. However, the thesis for owning gold is straightforward. We've had a medium-sized decline in gold and a HUGE decline in miners on account of the unwinding of the Yen carry trade, the needs of hedge funds getting redemption request by the August 15th deadline for their industry, and margin calls in general. The dollar's bounce in response to the flight to "quality" as traders and investors flee from risk and into money market funds and US Government tbills on up to 2yr. notes also creates a temporary hit to gold. Sentiment for gold sucks - the level of despondency among even gold bugs is about as low as it gets and this certainly falls into the contrary indicator category. Finally, add to the mix the fact that physical demand has remained strong in a seasonally weak period even in the face of considerable gold selling by central banks patching up their credit profiles (Spain) or attempting to cap the price of gold (all of them). All told, gold and precious metals mining shares have been hit hard, but the fundament thesis for owning them - and gold in particular - hasn't been stronger in decades, if not EVER (no joke, given the state of global financial derivatives notional value and systemic risk).

In the "junior" and "exploration" sector, the damage is utterly massive. It's not hard to find companies that have lost half of their value in the last month. But there are even great values among large, blue-chip firms. At the very top of my list I'd recommend looking at Agnico-Eagle Mines (NYSE: AEM and also trading in Toronto). This is my largest holding in the gold space. Unlike the giant firms like Newmont or Barrick, Agnico-Eagle actually has a stunningly attractive production growth profile over the next four years. The company is big enough to be considered a blue-chip, but small enough to be a take-over target by the majors. If you're trying to get exposure to gold but doing it by buying Newmont or Barrick, that's actually a less than ideal strategy given that these lumbering giants have a problem with reserve replenishment. The sweet spot to be in for lower risk are among the large mid-tier players that have growing production profiles, and Agnico is, in my opinion, the absolute best pick of the litter.

They're gushing cash - and that's going to ramp up as their new production comes on line. They're among the industry's low cost producers. Their properties are in politically secure and mining-friendly political jurisdictions. When it comes to top quality gold mining companies, I submit that there is no better company than Agnico-Eagle at this time (a title that used to belong to GoldCorp but GoldCorp now has a heck of a lot of base metal exposure, and base metal exposure can be tricky when dealing with the chance that global economic growth will slow). Getting in at anywhere between US$35 to US$37 for a 50% position using a dollar cost averaging strategy of buying - leaving some dry powder - is a good strategy.

http://stockcharts.com/h-sc/ui?s=AEM&p=D&b=5&g=0&id=p90700177598

Gold and gold miners are an interesting segment to consider at this stage. Concerns of global economic slowdown will, on balance, not have a negative impact (although physical gold demand beyond investor demand is subject to economic growth, especially in India, the largest gold consumer). On balance, however, this is an asset class that should be ok regardless of economic recession or growth prospects in the US and globally. In particular, as the US economy slows down further and as the Fed deals with the credit crunch, interest rates are going to fall and this will provide a swift kick higher to gold. Frankly, we're already in a recession, and the backward looking stats we see on employment and other "positives" people point to are painting an incorrect picture. The economic stats are butchered too. Things like the GDP price deflator that is used to remove the impact of inflation from the reporting of real growth is a joke. Inflation is running at least twice as high as reported figures. The statistics have been rigged and it's actually easy to demonstrate this because our lying government has surprisingly been rather open about all the various jiggering they've done to things like the CPI. It's not conspiracy theory but rather, publicly documented in the records of various commissions such as the Boskin commission and in the papers that the Fed and executive branch agencies produce (but this is a big subject for another day).

Anyway, as the credit crunch ravages the financial system in stages, we'll eventually see a shift. At the moment, gold and gold share trading have been dominated by liquidity needs among investors and in particular, traders and hedge fund managers. This is going to change in the not too distant future. It's hard to nail a specific date on this, but I think half other liquidity grab is already behind us. The balance of supply and demand is going to soon switch to reflect more investor demand attracted to gold's traditional roll as bulwark against credit inflation. The Fed is talking tough now - particularly St. Louis Fed Gov. William Poole (I'm no fan of Jim Cramer but Cramer is right about Poole's forecasting ability). This credit crisis is already spinning out of control and things are already breaking in the financial system. We've had over 100 small and medium-sized mortgage financial companies declare bankruptcy, and you all know how much pain is visible at the big firms (I can't believe I cashed out of my Countrywide Credit puts a week ago - DOH! Dumb move, Eric). In a few months it's going to be clear that a major reflation effort is going to be needed to "fix" the latest in a long series of deflated bubbles. At the moment, gold is actually bouncing higher, and the Yen carry trade has been bouncing between a periodic laying in of new positions and then, but minutes later, more unwinding by other players. Things are in flux. But you can see in gold at the very second I write this note part of the process of the line of buyers moving into the "investor demand" line. The trend hasn't started yet. But the first signs of it happening can be seen.

Gold at this point has the unique aspect of not having a heck of a lot of downside related to any type of economic condition you can conjure up. Historically, it performs reasonably well during periods of deflation. But ultimately, I think we're going to have some prodigious reflation efforts hitting the global system within months, and that's going to push the dollar down, gold up, and inflation up. By the end of 2008 gold will have taken out $1000/ounce and we're going to take out the 1980s high within six months.

If you want some tremendously powerful leverage, I recommend you look at a company called EXMIN. This is a "junior" company based in Canada with properties in Mexico. Compared to their peers they have an extensive inventory of highly attractive properties, with over 20 projects and one of the largest - if not THE largest - land position in Mexico. They have a highly qualified management team. They have major joint venture partnerships, and in fact their enter business model is focused on finding economically viable gold and silver resources and farming out the development of mines. Their most significant relationship is with Hochschild, a cash rich strong mining company that ranks as the fourth largest silver producer in the world. Hochschild is expanding into Mexico and their means of doing it is primarily through working with EXMIN.

Early on, during the bear market in the mining industry, the executives at EXMIN scoped out great properties to own and they put together a fantastic stable of exploration claims just as the bull market in precious metals was getting started. Their relationship with Hochschild recently advanced to a higher stage - they struck-up an expanded joint venture, with Hochschild taking a ~20% stake in EXMIN - and they will be funding the development of a mine project (Moris) that will be cash positive later this year (and eventually, they'll be jointly developing other targets as well).

Cash burn is a major problem with junior mining companies, but EXMIN might be in a long-term position to not have this issue - at least not to the extent that dilutes their peers. That's a great position to be in as they turn their attention towards developing their top quality projects and exploration lands. But it also means that they don't have a need for extensive relationships with investment banks. You will not see much focus on this company by the traditional mining-friendly investment banks. I consider that a good thing, on balance. Companies like Mag Silver

http://stockcharts.com/h-sc/ui?s=MAG.V&p=D&yr=3&mn=0&dy=0&id=p62821415773

have had astounding success with the joint venture model and I believe that among juniors, EXMIN has the best chance of replicating what Mag Silver has done.

EXMIN also has other joint venture partners on other projects, including one with Mexican mining giant Industrias Peñoles (the largest silver producer in the world - a giant in the Mexican mining industry).

EXMIN is a high risk, high reward situation. Widows and orphans stay away! But it does have much lower average risk vs. other junior companies given that they've got near-term cash flow coming from an actual mine (Morris), and given their industry-leading joint venture partnerships. I kid you not. This stock could very well be a "50 bagger" over the next five years from yesterday's closing quote. But even without that vision of titanic upside, I consider a double from yesterday's closing quote within the next 52 weeks to be a reasonably high probability bet (but again FOR "RISK CAPITAL ONLY").

It trades in Canada:

http://www.stockwatch.com/swnet/charts/charts_histproc.aspx?symbol=EXM&region=C

http://stockcharts.com/h-sc/ui?c=exm.v

but you can buy it in the US using the pink sheet OTC shares

http://finance.yahoo.com/q?s=EXMFF.PK

(use a limit order, calculate the exchange rate equivalents of the bid/ask you see in Canadian quotes, with delayed quotes perhaps best seen using the TSX.com website http://tinyurl.com/2h8las</a> )

Investing in "junior" mining companies can be like playing with dynamite. These stocks are explosively volatile. However, I think there's a very good chance that the washout in the last month arguers well for this being the bottom in EXMIN&nbsp;- or at least, not far from the bottom. But keep in mind that the shares could very well fall another 30% from yesterday's closing quote factoring in the very worst case scenario and just random volatility. It's thinly traded and this sort of volatility can happen with these sort of companies. But at that level, the fundamental value of the company's prospects would put an absolute floor on the shares - and I actually think we're not far from that fundamentals-trumping-fear floor level right now. The risk/reward is favorable. REMEMBER, a dollar cost averaging as a method of accumulation is essential when dealing with dynamite like this. THIS IS ONLY FOR RISK CAPITAL (but you're not going to find many situations that can top the risk/reward profile EXMIN commands so do your due diligence - have a look).

***

I've read through Guru threads "The Big Picture" and "What's Really Going On" and I'll probably jump into that conversation this weekend when I have more time. But the logic of owning precious metals right now fits with those discussions too.

Alas, I doubt today is going to be a quiet day on Wall Street so I think I'm going to slink away for now and go find a bunker somewhere.

Best,

Eric

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