Wednesday, January 30, 2008

More than the Ice Caps are Melting Down

U.S. Fed Rate

I'm not in the least bit surprised by last weeks .75pt cut or Wednesday's .50 pt cut of the U.S. Fed rate, I'm well on my way to meeting my prediction of a 2.0% rate by years end, hell the way it's going it could by the 3rd quarter.

What I am wondering is how such a large cut over such a short period of time has not hit the USD index much harder? Yes, the Canadian Dollar and other currencies have strengthened over the last 8 days but I'm quite surprised they did not rally much higher, obviously the market expects the BoC and other central banks to echo the U.S. cuts. While I think other central banks will cut I do not believe anybody else will be so aggressive.


The $150 Billion stimulus package has passed the first hurdle in the Senate Finance committee receiving only a few tweaks on who gets how much. The revised package now sizes out at $157 Billion but what's a few more billion compared to the $9+ Trillion of the official federal debt.

The Senate was good however and made only a few small changes that could keep the package from being OK'd by the full Senate or vetoed by Bush. As I stated previously this is just the first of several packages that will get rolled out as the economy unravels further and those idiots soon to face re-election become panicked. House of Representatives Speaker Nancy Pelosi has already stated that if needed more stimulus will be created.

Buy votes, create more debt, encourage more unsustainable consumerism and move towards hyper inflation all at the same time, you can't claim this bunch is underachieving.

The next big issue

As I touched on a couple of weeks ago the next wave in the overall financial crisis (Bond insurers)is cresting and will soon wash away 100s of billions in value as bond insures lose their high credit ratings and report more loses. Just today Bloomberg reports that there is belief in the market that MBIA Inc. and Ambac Financial Group could be facing another 11.6 billion dollar loss EACH. To further make my point rating agency Fitch hit Financial Guaranty Insurance Co, the worlds forth largest bond insurer, with a rating cut from AAA to AA, following their earlier re-rating of Ambac to AA and Security Capital Assurance Ltd to A, only a couple of steps above the Magical Junk category that would force massive sell offs by regulated pension funds that must hold investment grade bonds.

It appears Fitch is the only rating agency even attempting to do it's job. When this all washes out their marginally more accurate ratings will give them an advantage on the other agencies, provided any of them survive the eventual lawsuits.

I got too tired to finish this post only to find another pertinent article first thing Thursday, as MBIA announced it's loss of $2.3 Billion or 18.61 per share. Read the article, I honestly don't think they can raise new capitol as fast as they can lose it.


You have to be happy over the performance of Silver and Gold since the New Year with both metals avoiding any large correction or rigged sell off. Ted Butler must be jumping for joy at the losses the Silver shorts are taking, in his most recent interview/article he claims that the Silver shorts have taken 3 Billion in loses since the beginning of the year. If the big anonymous shorts are the Chinese they won't even blink but if this turns out to be a bank or banks already hurting from mortgage exposure then it's going to hit the fan pretty soon.

If you're in the mind to buy some silver, this is the time despite the recent highs. If one or more of these mystery shorts is required to cut and run the price spike would be significant. I don't see the possibility of more than a buck or two downside this year but I see $10 or more upside. That sounds like pretty good odds to me.


Fear that the bull is just a fad or is soon over has left the juniors underperforming the metals by a good margin. I don't believe the bull is over and yet and I'm seeing small producers’ way off their two year highs, and exploration plays down significantly from where they were when I started this blog.

Silver is at a post Hunt Brothers high, gold at a )non inflation modified) all time high and yet small companies with financing in place and a solid plan for production are getting no respect. This is the buying opportunity of a life in my opinion. Pure speculation plays will still rely on “hot tips”, pumpers, drilling results for movement but there are many choices with a compliant resource in place that should move up markedly from these lows. If the U.S. Fed keeps pumping inflation and debasing fiat money then eventually simply having gold or silver in the companies name will attract the sheeple investors. When that happens the sky will be full of money and my garage full of fleeces.

TAX time

It's RSP time Canada, consider putting some of your new money into mining juniors, a gold index, a physical gold rsp by questrade. Even consider leaving some small portion of your expected contribution outside a RSP in physical silver.

It's wild and crazy out there these days, be safe and trust nothing the TV or the Gov tells you about the markets.

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