Friday, June 06, 2008

Canadian Silver Bug - this weeks stuff

Hidden Rot

One thing we have not seen much of so far is the mass of hidden paper held by non bank organizations like pension funds and Insurance companies. While some pension funds have reported lower earnings or in some cases real loses, few have actually fessed up and told the public how much exposure they have to CDOs. A friend who works for a major Canadian Insurance company tells me there is a large sum of CDOs on the ledger books which are still marked at book value not marked to market. Don't allow the lack of bad news convince you your insurance company or pension is secure especially with the news that MBIA and AMBAC have had their credit rating slashed from AAA down two levels to AA by Standard and Poor's, both companies are also on Credit watch from Moody's and could suffer further downgrades. Such downgrades change the rating on all the bonds these companies insured which represents around a Trillion U.S. dollars.

While I'm not sure of the mechanics or time frames to liquidate positions, I do know that pension funds cannot legally hold onto bonds that lose investment grade rating and should credit ratings continue to slip the market could be flooded with 10s or 100s of billions in mortgage backed paper. If such a glut of bonds hit the market there will not be nearly enough suckers willing to buy them, at least not anywhere near their book value. Once prices fall enough vultures will enter the market to snatch some of these up at a substantial discount in hope it they can be sold at a profit later. The result of this forced selling will gut pension funds and if like most people, you probably don't have an option of cashing out without losing money up front and/or without paying a huge tax bill to get at your cash.

While you may not have the means to buy a lot of metals for pure speculation both the U.S and Canada have ways to hold some form of metals in retirement accounts , see if you can find some way to divert a portion of your retirement funds in that direction as insurance against the threat of exploding pension funds.

General stuff

The economy is slowing in Europe, the U.S. and in Canada we actually announced a GDP contraction for the last reported month. I don't think this means we're in worse conditions than other countries I just believe our numbers a little more upfront and honest than the Bogus U.S. stats. Here in Ontario we've had a series of reported job cuts by automakers which is a very important segment of our economy but I can't get too worked up about it. I believe that between the coming financial crisis, oil prices and eventual fuel shortages the end of the car culture is in sight, and bail outs and bribes to GM to save jobs is just wasted money.

These most recent GM cuts are at plants that makes trucks and SUVs, but what would you expect? GM has been so intent on flogging these high end, high margin, gas hogs that they've neglected to keep up with Japan or Korea in making reasonably sized, efficient, good quality cars. How these north American automaker can continue to be so far behind the curve in reading the market for Gas prices and public demand is beyond me. Their vehicles are sized wrong, over powered, poorer quality and behind the Japanese in hybrid technology.

I have no doubt that the current recession will soon lead to GMs Bankruptcy so they can beat down the unions and shed their responsibility for a hugely under funded pension program. See how this meshes with my first warning, GM's pension is already massively under funded and what do you want to bet that the assets they do hold include a whack of these soon to be junk rated CDOs?
When you devalue the pension fund by 30-50% to cover bad investments what's left will be pitifully insufficient.

Don't expect a housing market rebound to save the CDO market, the value of the these bonds have no hope of recovering as housing prices continue to slump. There is no point in me showing you more stats when this sale that just ended in the San Diego area says it all; buy one 1.6 Million dollar home and get a second one worth $400,000 free.

Other builders have been offering mega upgrades to sell homes , lower prices, offers of a new car in the driveway and maybe some of those urban myths about agents who will do "anything" for a sale are finally coming true.

Many home builders are really hurting such as Oregon's Legend Homes which has failed to pay subcontractors after getting its main credit source cut off. Legend is playing down bankruptcy talk and has hired a restructuring expert.

Banks for the most part are still hemorrhaging but even then you can't trust their numbers as accounting loopholes are still allowing them to lie about the real damage to their books.

Lehman Brothers is facing an especially large problem as it finds itself being heavily shorted as investors either believe it's destined to crash or are encouraging it to do so. This heavy shorting follows the pattern that started the run on Bear Stearns and might be an attempt drive it into the hands of some other bank to consolidate the industry and the risk.

Money, crap and the real kind.

In the last couple of weeks the U.S. dollar has been irrationally strong but I'm not going to waste a lot of time explaining yet again why it's irrelevant to the long term trend of dollar meltdown. The last 24 hours has erased a weeks worth of hard fought dollar gains quite easily. Exuberance is one thing but when the job numbers are bad even after Government lying you know there is a problem.

Gold and silver have been bouncing around but I think they are just being played in a range while they consolidate. There have been some weird moves like the one Thursday where gold was down by a faction but silver was up by 2%. Today it looks like the dollar slap down will allow both Silver and Gold to make a strong week ending statement and hopefully signal an new up trend.

For those of you still trying to find Silver bullion

As of Wed the main Scotia Branch in Toronto, Bay and Adelaide does has some bullion but only in 100oz bars. I wanted to pick up a few small pieces but since I'm car shopping a 100oz purchase would not have been prudent. The Coin store in the arcade at Younge and Temperance has 100oz bars too, but nothing else.


I've not mentioned my stock holdings for some time as little was happening, but in the last month I sold my position in Quinto at about 300% profit because I was very disappointed that a low ball, all share takeout by Thompson Consolidated mines was accepted by Quinto's board. This company was worth more than this offer for just the iron ore resources and the takeover gave absolutely nothing for the graphite and titanium prospects which each could have been company makers. While there may be a secondary offer I'm not very hopeful so I sold Quinto and moved it into Minefinders and Silver Wheaton.

In the last two years with Quinto and Lionore, I've actually done better with base metals than the small Gold and Silver stocks which are suffering a lot of shorting in the market. This constant shorting on companies that are in production or on the verge is insane. The spring keeps getting wound tighter on this market as good juniors get undervalued even when they are showing profits and/or increasing resources. The value on some of these companies are just stupid cheap and represent a huge opportunity should the next leg up crush the shorts as I expect/hope.

I would recommend that anyone who is frustrated by the poor prices of juniors check out the discussions on the Financial Sense News hour the last couple of weeks on stock fraud, manipulation and illegal trading. It's definitely worth listening to and if you make complaints about such activity we might finally get regulators to deal with such obviously illegal activities.

It's finally hot where I live, so I'm gonna go look for a patio and a cold one, have a good weekend

Wednesday, June 04, 2008

World Water Crisis

Sorry folks this was meant for a different Blog but it's impact on world stability and our finances is still important even if not metals and economics centric.

Water shortages are becoming a world wide issue as global warming and drought team up with rising populations, rising consumption and waste in a way that could make water one of the most contentious topics in next decades. Add to this a growing move to privatize and commoditize water and we have a new and compounding crisis to add to problems of peak oil and predicted famine.

An interesting article titled Coming soon, War for Water from India's Commodity online

After global warming, what is the biggest problem the globe is facing now? It is water. If you want to know the seriousness of the situation just take the case of India’s Cherrapunjee.

Cherrapunjee once boasted of being the ‘wettest place on earth’. Now also it gets around 40 feet of rain a year. However, Indian government is now seeking Israeli water management experts’ help to manage and retain water that today sluices off the area’s deforested landscape so that the area can get water when there is no rain.

Take another example of Rajasthan where lakhs of people (almost always women) spend hours per day carrying water up to several miles for their family’s needs because no source is close at hand.

On the other side of the globe, in Barcelona, Spain, people are paying a fine of $13,000 if they were caught watering their gardens.

According to media reports, a tanker ship is docked in Barcelona this month carrying 5 million gallons of precious fresh water and officials are scrambling to line up more such shipments to slake public thirst.

Again, Cyprus is ferrying water from Greece. Australian cities are buying water from farmers and building desalination plants.

Thirsty China plans to divert Himalayan water. In southern California, citizens are bracing to face water-rationing.

So, the world may go to war for water in the coming years. Experts say that water is the oil of this century.

Blue Gold
According to researchers, developed nations have taken cheap, abundant fresh water largely for granted. Now global population growth, pollution and climate change are shaping a new view of water as “blue gold”.

Global water markets, including drinking water distribution, management, waste treatment, and agriculture are a nearly $500 billion market and growing fast.

But governments pushing to privatize public water systems are colliding with a global “water is a human right” movement. Because water is essential for human life, its distribution is best left to more publicly accountable government authorities to distribute at prices the poorest can afford.

According to experts, the world is at a transition point where fundamental decisions need to be made by societies about how this basic human need is going to be provided. The profit motive and basic human need for water are just inherently in conflict.

What’s different now is that it’s increasingly obvious that the world is running up against limits to new fresh water supplies, says a water expert. It’s no longer cheap and easy to drill another well or dam another river.

The idea of “peak water” is an imperfect analogy. Unlike oil, water is not used up but only changes forms. The world still has the same 326 quintillion gallons.

But some 97 per cent of it is salty. The world’s remaining accessible fresh-water supplies are divided among industry (20 per cent), agriculture (70 per cent), and domestic use (10 per cent).

Meanwhile, fresh-water consumption worldwide has more than doubled since World War II to nearly 4,000 cubic kilometers annually and set to rise another 25 per cent by 2030.

Up to triple that is available for human use, so there should be plenty, the report says. But waste, climate change, and pollution have left clean water supplies running short.

The world has ignored demand for decades, just assuming supplies of water would be there. Now people have to learn to manage water demand and – on top of that – deal with climate change, too.

Population and economic growth across Asia and the rest of the developing world is a major factor driving fresh-water scarcity. The earth’s human population is predicted to rise from 6 billion to about 9 billion by 2050. Feeding them will mean more irrigation for crops.

Increasing attention is also being paid to the global “virtual water” trade. It appears in food or other products that require water to produce, products that are then exported to another nation. The US may consume even more water – virtual water – by importing goods that require lots of water to make. At the same time, the US exports virtual water through goods it sells abroad.

As scarcity drives up the cost of fresh water, more efficient use of water will play a huge role, experts say.

In the US today, about 33.5 million Americans get their drinking water from privately owned utilities that make up about 16 per cent of the nation’s community water systems.

But private companies’ promises of efficient, cost-effective water delivery have not always come true. Bolivia ejected giant engineering firm Bechtel in 2000, unhappy over the spiking cost of water for the city of Cochabamba.

Last year Bolivia’s president publicly celebrated the departure of French water company Suez, which had held a 30-year contract to supply La Paz.

.Private water industry officials say those pushing to make water a “human right” are ideologues struggling to preserve inefficient public water authorities that sell water below the cost to produce it and so cheaply it is wasted — doing little to extend service to the poor.

Global warming isn’t going to change the amount of water, but some places used to getting it won’t, and others that don’t, will get more. Water scarcity may be one of the most underappreciated global political and environmental challenges now. Water woes could have an impact on global peace and stability.

China & India
In the developing world – particularly in China, India, and other parts of Asia – rising economic success means a rising demand for clean water and an increased potential for conflict.

China is one of the world’s fastest-growing nations, but its lakes, rivers, and groundwater are badly polluted because of the widespread dumping of industrial wastes. Tibet has huge fresh water reserves.

While news reports have generally cited Tibetans’ concerns over exploitation of their natural resources by China, little has been reported about China’s keen interest in Tibet’s Himalayan water supplies, locked up in rapidly melting glaciers.

Himalayan water is particularly sensitive because it supplies the rivers that bring water to more than half a dozen Asian countries. Plans to divert water could cause intense debate.

Tibet is not the only water-rich country wary of a water-poor neighbour. Canada, which has immense fresh water resources, is wary of its water-thirsty superpower neighbour to the south.

But don’t look for a water pipeline from Canada’s northern reaches to the US southwest anytime soon. Water raises national fervor in Canada, and Canadians are reluctant to share their birthright with a United States that has mismanaged – in Canada’s eyes – its own supplies.

The lack of clean, safe drinking water is estimated to kill almost 4,500 children per day. In fact, out of the 2.2 million unsafe drinking water deaths in 2004, 90% were children under the age of five. Water is essential to the treatment of diseases, something especially critical for children.

The world water crisis is created by a confluence of factors including climate and geography, lack of water systems and infrastructure, and inadequate sanitation, something that 2.6 billion people (40% of the world’s population) lack access to.

The future will offer less fresh water as global warming melts glacial ice that supplies parts India, China, Tibet, Andean countries and even a portion of Alberta and Saskatchewan.

Current discussions for or against bio fuels will also need to take into account water usage as the argument spreads from food or fuel to include water or fuel. Added to that, decisions will have to made balancing the importance of water for agriculture vs. drinking , water for agriculture vs. industry and with water being commercialized the danger will be that without water for industry there may be no jobs so people can afford clean drinking water.

I know that water issues are becoming very touchy in the Andes as mining companies fight indigenous peoples to tap glacial waters for ore processing and in one case they wish to blast and move a glacier to get at gold below the ice.

Canadians will find themselves under more pressure to export water to the States, we will need more water for irrigation as temperatures rise, evaporation rates will increase which may shrink lakes, and our declining infrastructure will continue to waste more water each year through leaks.

We need to work to make access to water a human right, we need moves to curb personal/industrial use as well as waste like leaks. The scale of rotting infrastructure is immense in North America, as an example, last year Atlanta suffered a drought that was close to draining their lake, yet leaks accounted for 11 million Gallons a day, 18% of the total consumption.

People and industry must start paying realistic prices for water, without creating a barrier for basic uses like drinking and cooking. We need to support the third world with water management expertise as well as weening them of water intensive crop varieties like those Monsanto's and others flog and let farmers go back to crops that are actually adapted to their conditions. The same marketing ploys have convinced farmers to buy animals that require far more water than indigenous breeds would.

It starting to get pretty crazy out there as a series of overlapping crisises are poised to jump on civilization with both feet.