Agoracom

In a CNBC special feature this morning discussing solutions to America’s energy crisis, Boone Pickens (and Byron Wein, Chief Investment Strategist at Pequot Capital) predicted higher gold prices as Chinese and other large holders of US dollars “look for alternatives”.

Why? Their extensive dealings with investors around the world reveals they are beginning to feel “skiddish” about the size of the $US holdings and looking for alternatives. Gold was the first and only alternative they mentioned.

During the interview, Boone and Byron make it pretty clear they’ve been around and seen it all, including the oil shock of the early 70’s. As such, when they speak we should listen. To this end, you can view clips of his extensive energy solutions on Squawk Box this morning. Some interesting tidbits:

• Cars Per Thousand People (USA = 750; World = 120; China = 4)
• Barrels Per Person Per Year (USA = 25; China = 2)
• $US 700 Billion Is Heading Out Of The USA This Year To Pay For Oil

Wow. China clearly has years of increased oil consumption in front of it.

Regards,
George

As all of you know by now, I’ve been calling checkmate on the US Fed for 7 months now. In fact, I think it’s safe to call checkmate right now and it appears the folks over at Barclay’s and RBS would agree.

As such, I’m now making another call - Big Ben’s days are numbered. To be fair, he didn’t have a chance. He inherited a pretty perilous credit/sub-prime situation that required forced him to keep rates low despite watching the inflation train coming right at him. I say “forced” for two reasons:

• White House pressure from an administration that didn’t want to see epidemic foreclosure and subsequent homeless rates;
• Wall Street pressure from a parade of bankers on CNBC that demanded lower and lower interest rates to save their hides.

Now, he has an inflation problem to add to the housing/credit/banking crisis that he could not solve despite super human efforts. Inevitably, one or both of these dominoes are going to tumble (no, they haven’t tumbled yet) and everyone is going to point the finger at Ben.

He won’t completely deserve it - but somebody has to take the blame. Ben will be replaced by the next US President.

Regards,
George

p.s. Gold closed at $941 today, with a high of $947.

After a pretty harrowing ride courtesy of sub-prime and Bear Stearns, it seems like all is quiet on the Western Front. Make no mistake about it, the fundamental problems have not gone away - but the market clearly believes the Fed can keep them “contained” (where have we heard that before). I still 100% contend the market was headed for a complete disaster had it not been for the Fed stepping in to save the day - and still remain weary - but we can all breathe a sigh for now.

According to this Marketwatch article, that sigh of relief is also supported by technical analysis that includes the following charts:

CONCLUSION

According to the article, “the S&P’s chances of clearing the 1,400-to-1,406 area look relatively good. If it happens, a decisive breakout would likely induce serious short covering — as well as natural buying — sending the U.S. markets on their next leg higher. Even more importantly, a breakout would confirm the March-through-April bottoming process, likely signaling a primary trendshift.”

For the many of you that are not well versed in TA (tech analysis) the article is a great read and helps explain the chart action.

For the gold bugs out there that think the gold ride may be over, I say quite the contrary. Why? Though a destructive US economy is bullish for actual gold prices, it most likely scared the hell out of investors that did not want to be invested in any individual stocks. If the pattern above actually plays out, gold itself may get weaker but gold stocks should actually get stronger with the reduced threat of a market meltdown.

At the end of the day, we may get a happy medium where gold is trading at a very healthy $800 - $900 range, which is more than economical for most exploration companies or small mining companies with quality projects.

Regards,
George

Good afternoon to you all. The title is neither a mistake, nor a gimmick. Jim Sinclair, whom the NY Times referred to as “perhaps the best-known gold speculator of his era”, has built a legendary reputation for his gold market calls since the 1970’s. For example:

• In the 70’s he predicted that gold would hit a high of $900 (it hit $875)
• Achieved his renown status when he sold 900,000 ounces of gold at an average price of $810 in early 1980, when gold was capping a decade-long bull market that commenced in 1971
• Called for a 15-year bear market in gold (it lasted 21 years)
• Has been a buyer of gold since it hit $250 in 2001
• Predicted that gold would hit a high of $1,650 in this cycle, since 2003.

PYMWYMI - $1,000,000 Challenge

With gold now about 10% of its $1,030 high, gold bears are saying the party is over thanks to a recovering US financial sector. Jim thinks otherwise but rather than wasting time “flapping gums” he is exercising his right to PYMWYMI (Put Your Money Where Your Mouth Is) and challenging any bear to do the same by laying $1,000,000 on the line.

It looks like Jim is specifically hunting for big game by targeting “any party on Bloomberg, CNBC or CNN Business“. I don’t know about you but I personally admire anybody who will man up and lay down that kind of money to back up his words. Right now, Jim Sinclair is the Muhammad Ali of the markets for going beyond plain predictions and providing specific details of his victory.

THE AGORACOM INTERVIEW

After first hearing about the wager on my friend Barry Ritholtz’s blog, I had to know more and decided to call Sinclair directly. We had never met before and he was reluctant at first to conduct any kind of interview, stating “I didn’t do this for publicity, just tell your audience about the wager”. No publicity? Now I couldn’t give up. After 10 minutes, I convinced him that my intent was not to glamorize the bet - but to uncover his reasoning behind his gold call. … I also told him I was 6′4, 240 lbs and had a great working knowledge of Google Maps, so he finally agreed.

I interviewed him this morning at 11:00 and discovered this was no conspiracy theory ladened gold bug. He was incredibly well reasoned and even sympathized with Ben Bernanke and his actions, however futile they may be. Yes, the sky is falling but he prefers it wasn’t happening. He isn’t cheering for gold to advance as a result of a crumbling US Dollar but his logic tells him it is simply a consequence of events and policy that started with Alan Greenspan.

I could put together a highlight list but it would not do Jim’s words any justice. This is one interview you have to listen to.

Having said that, I will provide you with one provocative morsel:

“What else is there to do? If they stepped away right now and let Bear Stearns go broke, the ramifications for the man walking on the street is he should walk straight to the soup kitchen.”

I look forward to your comments.

Regards,
George

If you’re an investor in the junior gold mining and exploration sector, then you owe a hat tip to Pierre Lassonde. Lassonde is apparently the man responsible for consolidating 3 juniors into one earlier this week.

If you haven’t heard by now, Metallica Resources Inc., New Gold Inc. and Peak Gold Ltd. combined to create a new, mid-sized gold producer with a market cap of approximately $1.6-billion. I’m not going to bother with the details, GlobeInvestor.com carried the full story here. I’m covering this because it points to both a problem and solution in the junior mining and exploration sector.

LASSONDE HATES PEANUT BUTTER..YOU SHOULD TOO

What the hell does that mean? Listen closely. This is important and will only take a minute.

If you had told me 18 months ago that gold, silver, copper, platinum, etc were trading at today’s prices, I would have danced a jig while celebrating sky-rocketing share prices in the junior sector. So would many of my friends at Sprott, Pinetree and Canaccord, as well as, just about every one of our clients in the space.

Unfortunately, that has not transpired.

Why?

Over supply. Much like an overbuilt condo market, there is far too much supply of junior mining and exploration companies, especially exploration companies. Today, just about anybody with a piece of land in a far away location, whose grandfather once spotted a shiny rock, has become an “explorer”.

This creates a peanut butter effect where investors are thinly spread out over a far too large sector. If you think this sounds cute, don’t be fooled. The Peanut Butter Effect can take down some pretty big whales. It almost took down Yahoo, until a Senior Vice-President wrote the now infamous “Peanut Butter Manifesto“ in which he summarized the company as follows:

“I’ve heard our strategy described as spreading peanut butter across the myriad opportunities that continue to evolve in the online world. The result: a thin layer of investment spread across everything we do and thus we focus on nothing in particular.  I hate peanut butter and so should you”

This is exactly what is happening in this industry. A thin layer of investors spread across way too many companies, with no particular focus on the good companies.

CONCLUSION

Lassonde obviously hates peanut butter, so he took action. We should all hate peanut butter and take similar action. Let the fly by nights die, consolidate those with decent assets and let the superstars stand up on their own two feet.

Quality over Quantity folks.  It is that simple.

It worked for AGORACOM in building this community to more than 10,000,000 pages per month.  It has started working for Yahoo in re-building its business.  It will work for the junior mining and exploration sector.  The sooner the better.

Regards,
George

Reuters is reporting that U.S. short-term interest rate futures rose strongly on Sunday after the Fed announced their “emergency measures”.

As a result, the chances of the Fed lowering the federal funds rate by 100 basis points at or before Tuesday’s policy meeting is now at 84%.

A 125 basis point cut is now pegged at 25%.

A 100 basis point reduction would push the feds rate to 2.0 percent from 3.0 percent, the lowest since December 2004.

If you have cash and great credit, get ready to buy your dream home 12 months from now.

UPDATE:

10:52 AM EST (Monday) - A 100 basis point cut is now pegged at 94%

Regards,
George

“Quality Diversified Assets, Steady Current Income”. Sure sounds good…too bad diversity was nothing more than $22 Billion in residential mortgage backed securities.

—————

Just announced on CNBC World. Carlyle Capital is liquidating. I’ll update this post as more info comes out.

UPDATE:

Here is the full story. However, if you take a close look at the numbers, it doesn’t make sense:

1] The fund held some $22 billion in U.S. AAA-rated residential mortgage-backed securities issued by Fannie Mae and Freddie Mac.

2] Carlyle Capital said on Thursday it has defaulted on $16.6 billion of debt.

3] Carlyle Capital faced margin calls of $97.5 million caused by the decline in the value of its mortgaged assets. That was on top of the $400 million it was already facing.

4] Carlyle Capital has received default notices from its remaining two lenders, who have now taken possession of substantially or all of its securities.

If you have $22 billion in AAA securities and only $16.6 billion in debt, wouldn’t you make a measly $497.5 million in margin calls?

CONCLUSION

The question is a slightly rhetorical one for those of you that have followed this blog - but it just goes to show you that AAA isn’t worth anywhere AAA. The question is, what is it really worth and which AAA-bloated bank is the next to have lenders come knocking.

Regards,
George

No surprise here but gold is running on the Bear Stearns collapse..the chart above is courtesy of Kitco and should continue to update itself throughout the night. As such, depending on when you are reading it, the price of gold will be higher or lower than $1,030.

This is going to be one hell of a ride for gold and gold juniors. Here is a list of the metals companies represented by AGORACOM. It will take you no more than 10 minutes to read through the summary descriptions of each and find one or more that are best suited for your portfolio.

For those of you that are new to the gold dynamic and it’s connection to both the Bear Stearns collapse (micro) and the sub-prime issue (macro), here is a quick tutorial.

THE MICRO VIEW

An excerpt from this Reuters article:

The dollar sank to a record low against the euro on Monday (Asian markets) as investors said the acquisition of Bear by JPMorgan showed the seriousness of the problems faced by U.S. financial markets.

“Flight-to-quality buying is boosting gold as the market is losing faith in the dollar,” said Tatsuo Kageyama, analyst at Kanetsu Asset Management in Tokyo.

“The market is completely bearish on the dollar. The market is also very pessimistic about the dollar’s outlook.”

THE MACRO VIEW

You are going to need about an hour of reading but make the time and go through all of my recent posts in the Gold $1,000 category. Yes, I created a category for it.

Finally, you should also give the following blog post a quick read.

Regards,
George

Good evening to you all. If you have not heard, Bear Stearns has officially gone under. Technically, they were acquired for $2/share (NOT-A-TYPO), so they didn’t actually announce a bankruptcy….unless you consider the fact that it was trading at $70 on Monday!

What does Ben Bernanke have to say? I’ve got one quote from him back on May 17, 2007 and another one tonight…Ok I actually made up the one from tonight but it is a pretty educated guess into how he is going to respond to this.

May 17, 2007 (from Forbes.com article)

The subprime mess is grave but largely contained, said Federal Reserve Chairman Ben Bernanke Thursday, in a speech before the Federal Reserve Bank of Chicago. While rising delinquencies and foreclosures will continue to weigh heavily on the housing market this year, it will not cripple the U.S. economy, he said. The speech was the Chairman’s most comprehensive on the subprime mortgage issue to date.

“Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited,” Bernanke said.

March 16, 2008

“I continue to believe the troubles in the subprime sector on the broader housing market will likely be limited to every bank and neighborhood in the country. So, unless you have a savings account or you own a home, you should be just fine.”

We can’t confirm he’s actually made this official statement but if I know the “don’t worry, be happy” Fed Chairman, this will be pretty close

Regards,
George

The US Federal Reserve Board continues to run the Die Hard Playbook right into the hands of inflation and de-valuing of the US Dollar. They’re level of predictability has driven them to the point of becoming boring…but I still have to report on it…so here it is.

Tonight, the U.S. Federal Reserve cut to its lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created another lending facility for big investment banks to secure short-term loans. Go here to read the full story.

Now, in an incredible feat of clairvoyance and prophetization (I don’t care if it’s not a word), I am going to predict the following:

• Further $US Weakness
• Higher Gold Prices
• Higher Oil Prices

I’m scary. Cue the music from The Omen.

Regards,
George