Bank Troubles Continue

July 30, 2008 at www.argmaur.com

In spite of the good performance of many large companies, like Union Pacific Railroad and Comcast, to name a few, people still believe our economic situation is worsening. Don’t forget that the banks are dragging down the markets–creating an illusion that the entire economy is in trouble. New employment figures and housing data are beginning to look more promising:

- An ADP report showed that the private sector gained 9,000 jobs in July – Reuters

- The Orlando and Phoenix area are showing signs of a positive real estate market reversal. Data from last month confirmed that existing home sales was up slightly in the two highly desirable metro areas – Orlando Business Journal

Home sales have been on the decline in both areas since late 2005 instead of 2006/07 like other major areas. Although prices will not jump back to old highs, they’ll stabilize and stay rather low giving new house hunters a bargain.

The other aftereffect of financial problems has been the legitimate run on the banks that we have been discussing. Each week since, we’ve seen yet more and more proof:

- We witnessed what regulators said was the 2nd largest bank failure in US history as depositors rushed to withdraw from California-based IndyMac – LA Times

- Yesterday (July 29), Merrill Lynch released news that it will write down another $ 6B in mortgage related debts – Reuters

In total, we’ve seen over $400 billion in total bank write-downs, but it’s not limited to the U.S.:

- After losing 55% in value, The National Australia Bank chose to write-down $1 B in mortage-related investments – The West Australian

- Germany’s corporate DZ Bank is facing yet another write-down, this time for just €300 M – Reuters

- Royal Bank of Canada, the country’s largest, may have nearly $ 1.5 B in third quarter write-downs – Bloomberg

The biggest beneficiary of the recent bank run concerns has been the value of the US Dollar as a decline in the markets has kept it from dropping a lot more than it could have gone. You see, bank runs cause deflationary effects. Demand for the physical currency is heightened when everyone wishes to simultaneously withdraw money. This is how the US dollar has been allowed to stabilize at its current position against other major currencies. In terms of commodities, however, the purchasing power of not just the dollar but all other major currencies will decrease. The reason is that the bank run is already spurring investments in commodities ETFs physical precious metals purchases, bullion storage units, and of course–mining stocks. The most astute investors seek undervalued companies with valuable assets during crises.

Our next new moon starts a new month on Friday. Some of our mining stocks have already reversed a downtrend begun last week. Again, we’re bullish on trading Rubicon Minerals (RBY) which should head to $ 1.50 or more within 1 to 2 weeks. Expect most commodities and mining stocks to follow the uptrend within the next few trading days.

Silver & Gold Are Back in Business

Originally posted on July 15, 2008 at www.argmaur.com.

In our last 2 commentaries we described a disruption in the normal cyclical behavior of our selected mining stocks and now things appear to be back on track. The disruption coincided with rare astronomical events that occurred over the past two weeks. On Independence Day, astronomers observed the alignment of planets Mars and Saturn with Regulus. Then on July 5th, a crescent moon (exactly 25% complete) joined the planetary alignment giving astronomers a spectacular show. By Thursday July 10th, Saturn and Mars converged in an occurrence we won’t see again for another 14 years.

As we expected, precious metals and some of our mining stocks have increased in value and have returned to normal cyclical behavior. The price of gold went from below $900/oz. to $980 (9%) and silver went from under $17 to a high of $19.40 (+14%) as the threat of war with Iran ensued over the past 2 weeks. Our stock pick (recommended on June 20), Rubicon Minerals (RBY) increased from $1.15 to $1.50 (+30%) on news that miners have intercepted a “Bonanza Grade” (mineral rich) gold zone at its Phoenix, Red Lake, Ontario mine. As we near a full moon, gold, silver, and some mining stocks are now sending overbought signals.

Platinum, oil and our other mining stocks spent the last 2 weeks in a continued correction phase. Nevertheless, on July 10th, platinum, Anooraq Resources (ANO), Apollo Gold (AGT), and ROY (International Royalty) reversed both a short downtrend that began 2 weeks earlier and a longer one that began in late May. The test to see that the correction has ended will be a convergence of the 50- and 200-day moving averages, leading to a greater MA (50). Since it’s still possible that platinum, ANO, ROY, and AGT will get back on track with normal cycles, we’ll wait until Friday July 18th before taking action; however it seems as though we could expect an uptrend for July 21- 31 for both Anooraq Resources (ANO) International Royalty (ROY).

This week we received more news that affirms the positive outlook for precious metals. Lenders Freddie Mac and Fannie Mae are in lot of trouble, housing prices are still on the decline, inefficient companies are shedding their workforce, consumer inflation persists, and once again, the threat of an attack on Iran are all issues that are forcing the most astute investors to shift their money into commodities. Billionaire investor, George Soros echoed what we said all along: the banking and lender crises are far from over and are the worst in our lifetime (http://www.reuters.com/article/newsOne/idUSN1444921820080715).

Most notably of all was a Reuters article that said UBS, who had previously estimated gold at $850/oz. for 2008, changed its forecast to $1,050 based on a surge in ETF holdings. Remember a few months ago when Goldman Sachs also told investors to sell gold positions at $870/oz? We told our readers not to listen to them and now gold is at $975 an ounce and is on its way back to $1,000 in a month. Now as platinum and mining stock prices reach lows unseen since mid-March, we now have another great buying opportunity. So, if you didn’t invest in precious metals or quality mining stocks in mid-March, it’s still time to seek, find, and wait for that perfect entry.