Miners Moving Upward - Economics 101 on Bonds
Both gold and silver are holding very well. There seems to be a struggle between the boyz and strong buying. The boyz are particularly well financed and represent a substantial combatant in these markets. We do not know who else is involved. Richard Russell indicates that we are in the early stage three of the bull market in precious metals. He says that gold above 1003 and higher would be a strong indicator of the third phase when the "gold rush" is fueled by the lemmings who climb aboard at the last minute.
Gold is 953.10 up 1 and silver is 14.65 up 0.04 with both on up ticks. The DOW is off 43.25 at 8430+. Our miners are DROOY 9.56; HL 2.23; HMY 11.47; SLW 9.54, and VGZ 2.43. All are holding near recent highs. We will be watching as it may be wise to add to our holdings at these higher prices. A gentle correction is possible to provide a real buying opportunity, but only time will reveal if this will happen.Below are some interesting article by our conservative "friends." Note Williams' article on the housing bubble and Sowell's and Will's on the supreme court.
Revisit the housing bubble with Walter E. Williams from Townhall.com:
Hot off the press is my colleague Dr. Thomas Sowell's 43rd book, "The Housing Boom and Bust." The book is an eye-opener for anyone interested in the truth about the collapse of the housing market that played a major role in our financial market crisis.
The root of the problem lies in Washington. The Community Reinvestment Act of 1977, later given teeth during the Bush and Clinton administrations, forced financial institutions to make risky mortgage loans they otherwise would not have made. President Clinton's Attorney General Janet Reno threatened legal action against lenders whose racial statistics raised her suspicions. Bank loan qualification standards, in general, came under criticism as being too stringent regarding down payments, credit histories, and income. Fannie Mae and Freddie Mac, two government-sponsored enterprises, by lowering their standards for the kinds of mortgage paper they would purchase from banks and other mortgage lenders, gave financial institutions further incentive to make risky loans. Read it HERE.
From Town Hall.com:
Sotomayor: "Empathy" in Action
It is one of the signs of our times that so many in the media are focusing on the life story of Judge Sonia Sotomayor, President Obama's nominee for the Supreme Court of the United States.
You might think that this was some kind of popularity contest, instead of a weighty decision about someone whose impact on the fundamental law of the nation will extend for decades after Barack Obama has come and gone.
Much is being made of the fact that Sonia Sotomayor had to struggle to rise in the world. But stop and think.
If you were going to have open heart surgery, would you want to be operated on by a surgeon who was chosen because he had to struggle to get where he is or by the best surgeon you could find-- even if he was born with a silver spoon in his mouth and had every advantage that money and social position could offer?
If it were you who was going to be lying on that operating table with his heart cut open, you wouldn't give a tinker's damn about somebody's struggle or somebody else's privileges.
The Supreme Court of the United States is in effect operating on the heart of our nation-- the Constitution and the statutes and government policies that all of us must live under.
Barack Obama's repeated claim that a Supreme Court justice should have "empathy" with various groups has raised red flags that we ignore at our peril-- and at the peril of our children and grandchildren.
"Empathy" for particular groups can be reconciled with "equal justice under law"-- the motto over the entrance to the Supreme Court-- only with smooth words. But not in reality. President Obama used those smooth words in introducing Judge Sotomayor but words do not change realities.Read it HERE.
From TownHall.com:
Identity Politics on the Supreme Court
May 27,2009WASHINGTON -- Responding to early 19th-century rumors that they drank excessively, the Supreme Court justices decided to drink nothing on conference days -- unless it was raining. At the next conference, Chief Justice John Marshall asked Joseph Story to scan the sky for signs of rain. When Story said he saw none, Marshall said: "Our jurisdiction extends over so large a territory that the doctrine of chances makes it certain that it must be raining somewhere -- let us refresh ourselves."
Americans have argued about the court's jurisdiction forever. They should not stop, especially now that the president has nominated U.S. Appeals Court Judge Sonia Sotomayor.
The 1987 fight over President Reagan's nomination of Robert Bork interred the tradition that the Senate, in evaluating judicial nominees, would not delve deeply into the nominee's jurisprudential thinking. Bork's defeat was unjust, but the new approach to confirmations was overdue, given the court's increasingly central role in American governance.
Before Sotomayor's confirmation hearings begin, the Supreme Court probably will overturn a ruling she supported on the 2nd Circuit -- the propriety of New Haven, Conn., canceling fire department promotions because there were no African-Americans (although there was a Hispanic) among the 18 firemen the selection test made eligible for promotion. A three-judge panel of 2nd Circuit judges, including Sotomayor, affirmed a district court's dismissal of the firemen's complaint, doing so in a perfunctory and unpublished order that acknowledged none of the large constitutional questions involved. Read the article HERE.
From MineWeb.com:
The rising cream of the gold crop
A glance at 50 of the most in-demand listed gold stocks, busy running away from the rest of the global investment universe.
Author: Barry SergeantPosted: Wednesday , 27 May 2009
JOHANNESBURG -
By now it can be argued that the most positive defining instrument of the global appetite for risk and reward is represented by gold bullion, as also seen in gold bullion exchange traded funds (ETFs), of which the biggest by far remains the SPDR Gold Shares ETF, which currently holds physical gold bullion of just less than 36m ounces, worth USD 34.5bn.
SPDR Gold Shares, which represent a proxy holding in physical gold bullion, is trading, like gold bullion itself, just 5% below dollar price highs, seen during March 2008. By the same token, silver bullion and silver ETFs are trading roughly 25% below the price high seen for the physical precious metal, also recorded just over a year ago.
The performance of gold bullion and gold ETFs has not only outclassed any other kind of publicly available and widely traded investment in absolute terms, but has also given a steadier 12-month return, defying the traditional perception of volatility attached to the metal. Established gold royalty companies such as Franco-Nevada have also performed very well, much in line with gold ETFs, in trading close to highs at this point in time. Read the article HERE.
From MineWeb.com:
Harmony actively seeking to buy assets, now that it's debt free
Harmony Gold Mining said it had met its long-stated target of being debt free by mid this year, and was still actively seeking to buy assets but had yet to identify any worthwhile mines.
Posted: Tuesday , 26 May 2009JOHANNESBURG (Reuters) -
Harmony Gold Mining Co. said on Tuesday it had met its long-stated target of being debt free by mid this year, and was still actively seeking to buy assets but had yet to identify any worthwhile mines.
The company has previously said it would consider acquisitions around the world once it became debt free, targeting companies in financial trouble because of the global financial crisis.
Harmony said in a statement it had repaid its 1.7 billion rand convertible bond, and interim Financial Director Frank Abbott told Reuters the world's fifth biggest gold producer had 1.5 billion rand in cash by the end-April.
Harmony said the convertible bond was issued on 21 May 2004 and was listed on the London Stock Exchange.
"Harmony's balance sheet is in excellent health. With cash in the bank, we are in an exciting and advantageous position," Graham Briggs, Harmony's Chief Executive said in a statement. Read it HERE.
HMY is one of my core holdings and it is looking even better with this good news.
From John Embry in Investors Digest:
China, western central banks out of sync on gold
Get the PDF article HERE.
China Seeks to Dethrone the Dollar, Transforming the Yuan into the Dominant Global Currency
By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report
China has taken yet another step to transform the yuan into the dominant global currency, a long-term initiative that could ultimately dethrone the dollar as the world’s top unit of exchange.
In the last four months alone, China has signed currency swap agreements worth more than $95 billion (650 yuan) with an array of nations - including: Argentina, Brazil, South Korea, Indonesia, Malaysia, Belarus and Hong Kong - that are only too glad to move away from the increasingly shaky U.S. dollar. Read it HERE.
These articles on China indicate that China is a real threat to the global supremacy of the dollar. Notice the emphasis of the Chinese on gold. This is important news and we should keep it in mind.
Below is more on the intervention of the U. S. government into the precious metals markets. It is a shame that too many people dismiss this as false. The article is well written by James Turk who is vitally concerned about the situation.
From Freemarket Gold & Money Report FGMR.com:
Behind Closed Doors
Copyright © 2001 by Freemarket Gold & Money Report. All Rights Reserved.
First published on April 23, 2001 in FGMR #283
This past December in "The Smoking Gun" I provided substantive proof that the Exchange Stabilization Fund was intervening in the gold market. From publicly available reports prepared by the Federal Reserve, I established that the weight of gold held as a component of the US Reserve Assets has been changing, and that these changes - some of which are of significant size - result from activity by the ESF. These Federal Reserve reports conclusively demonstrate that the ESF has been intervening in the gold market since at least 1996.
Though these Federal Reserve reports make clear that the ESF is involved in the gold market up to its 'earmarks', a lot of people remain skeptical. I don't know why that is. It is worth noting that many of the most obstinate skeptics who deny US government involvement in the gold market live overseas and have little, if any, experience or understanding of the way the US government really works. But even Americans find it difficult to accept that the US government intervenes in the gold market. Ironically though, they readily admit that the government intervenes in the debt markets, foreign currency markets, and according to a growing number of people, even in the US stock market. It is therefore most baffling that they do not concede the ESF's involvement in the gold market. Read it HERE.
I want to discuss for your information the relationship of bonds and interest rates. There is a growing pressure on the Federal Reserve to increase interest rates. I do not believe that it will be coming very soon, but we are seeing a slowly increasing rate of interest on newer issuances of the Treasury. This has been necessary to satisfy buyers of Treasury bonds and notes. Inflation is the other situation which will eventually force the Fed to increase interest rates. Thus, we are in a period of time where interest rates would be expected to rise. This is negative for bonds.Let's look at the situation on bonds. For example, if one is holding $1000 face value bonds which were issued at 5% interest (the prevailing rate at the time the bonds were issued), he would expect to receive $50 annual interest on the bonds. He is all set and feels very safe with his investment.
However, were the prevailing interest rate to go upward the situation would drastically change. To illustrate, let's say the interest rate would double to 10%. The newer bonds would be issued at or very near 10%. Our investor holding the $1000 face value 5% bond would experience a significant drop in the market value of his bond.Why does this happen?
In a 10% interest environment, a person could if they were available could buy a $500 face value bond which would then pay $50 a year in interest. Thus, the holder of the $1000 5% bond would find that his bond now has a market value of $500. He has lost 50% of its original value.
Thus, it is not economically rational to purchase bonds in an environment in which interest rates are rising. On the other hand, the purchase of bonds is rational in a period when interest rates are dropping, Because the opposite is true.
Many who invest in bonds will be traders as the interest rates change.
I am an optimist, because I know that my Redeemer lives and that He loves me and His people. He has made many promises to His people and we can rest comfortably in faith, because He does not lie. He is in control and will fulfill every promise. We must also work for His glory and the spread of His Kingdom in response to His love and care. Praise King Jesus and serve Him with the mind, soul, and strength that He has given each of us.
Best to each, Doug
posted by Doug @ 8:30 AM
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