THE FRUSTRATION WITH GOLD STOCKS
HOW DID WE GET INTO THIS MESS? – SUB-PRIME AND BEYOND
THE KOSOVO QUESTION – AGAIN
ECONOMIC INDICATORS

THE FRUSTRATION WITH GOLD STOCKS

Since the most recent rally got underway from the August lows, gold is up 39 per cent, silver is up about 49 per cent and the Gold Bugs Index (HUI) is up 42 per cent. Sounds good, but in reality the huge leverage that is supposed to come with owning gold stocks just has not kicked in at all. Some HUI components such as Harmony Gold (HMY-NY) have barely budged. But the real frustration lies with the junior producers not included in the HUI and the junior exploration plays, which in many instances have actually fallen even as gold and silver prices have shot up.

There is a malaise in the entire market. Many of the juniors – seen as high risk at the best of times – seem to have attracted a much higher than normal risk premium. Until that perception changes these stocks will remain depressed, although in many instances it is difficult to fathom how much further they [ read more… ]

This past week important meetings were taking place, headed by Toronto lawyer Purdy Crawford, to try and fix the huge asset-backed commercial paper (ABCP) mess here in Canada. At issue is some $35 billion of ABCP that has been frozen for months. Friday was supposed to be the
deadline. They didn’t quite make it so talks will have to continue into the New Year. According to an article in the Globe & Mail (Compromise raises hopes for ABCP – Boyd Erman and Sinclair Stewart, December 15), the meetings almost collapsed because Canada’s big banks
balked at the demand that they put up billions of their own money for back-up loans. But according to the article intervention by the Bank of Canada was helping to forge a last-minute deal.

The ABCP is to be swapped for new longer-term floating rate notes. We say – that’s a solution whereby money that was placed for 30 days now becomes placed for 30 years. So all that says is maybe, possibly someday you might get your money back if we are lucky and all goes well and the markets return to normal.

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The write-offs just keep on coming. A table we saw from Agora Financial
(www.agorafinancial.com) showed the following in write-offs in the third and fourth quarters, in
billions of US$: Citigroup $11.3, Merrill Lynch $8.5, Morgan Stanley $4.7, Bank of America
$3.9, Barclays $2.7, Wachovia $2.5, Bear Stearns $2.0, J.P. Morgan Chase $1.7, Goldman Sachs
$1.6, Lehman Brothers $0.7.

We have also seen the following numbers from Canadian banks: CIBC $0.46, Royal Bank of
Canada $0.36, Bank of Nova Scotia $0.19 and Bank of Montreal $0.50. BMO’s losses followed
earlier ones (on natural gas futures) of some $0.6 billion. We still need to hear from Toronto
Dominion and National Bank of Canada.

Click here to read more of “Just how bad is it”