IndyMac, Freddie, Fannie, & Feds (BSC anyone?)

It's been awhile (read: less than 6 months) that the Feds have had to release an emergency news update regarding Freddie Mac and Fannie Mae discount mortages.

After all, if you ran a business and you made a wrong decision and bought red wine when your clients preferred white wine... is anyone going to bail you out with taxpayer's money when you go out of business?

Apparently, in socialist America - Sunday night is when companies like FNM and FRE does. Long live capitalism?

Associated Press

Monday July 14, 7:17 pm ET By Martin Crutsinger and Alan Zibel, AP Business riters

WASHINGTON (AP) -- Now that the federal government has thrown a lifeline to mortgage giants Fannie Mae and Freddie Mac, taxpayers could be on the hook for billions more if the crisis of confidence spreads.

There were encouraging signs Monday for the rescue plan, but also signs of concern -- notably on Wall Street, where shares of the two companies slumped further -- that the plan won't be enough.

Other banks are already teetering: National City Corp. shares fell nearly 15 percent on rumors of financial trouble, even though it said it was experiencing no unusual depositor or creditor activity. And Washington Mutual Inc.'s shares fell 35 percent, to a paltry $3.23 amid worries about whether it had enough cash to handle the mortgage market downturn. WaMu said that it did.

And worried customers lined up Monday to pull cash out of their accounts at IndyMac Bank, seized on Friday by the federal government.
Some critics said they fear the Fannie-Freddie rescue effort will make more bailouts inevitable by sending a message that some institutions are too big to fail and thus encouraging risky behavior.

"It sends the wrong message to the world," said Joshua Rosner, managing director of research firm Graham, Fisher & Co. in New York.

One of the worst fears of any banker is what happened over the last year to a bank called IndyMac - a large retail chain of banks in the eastern US states. It traded around $30/share last year... last Friday it closed at a paltry $0.15.

FIFTEEN CENTS. That's less than many of the quality penny stock juniors on the TSX.

Funny enough, almost akin to BSC's announcement on the fated Wednesday before its weekend collapse, Indymac denies it's going to collapse.

Battling rumors that it may collapse, Pasadena-based IndyMac Bancorp
acknowledged Monday that its financial position had deteriorated but described
the fears as overblown and said it was working with regulators to improve its
"safety and soundness."IndyMac, a national home lender burned by the mortgage
meltdown, went public after depositors lined up at San Gabriel Valley branches
starting Friday to pull out their money. Striving to reassure them, the thrift
said nearly all their deposits were insured by the Federal Deposit Insurance
Corp.

Nonetheless, Elizabeth Brown closed four accounts totaling $200,000 Monday at an Arcadia branch where about 20 customers were lined up at noon, saying: "The only reason I'm panicking is if anything happens, my money is tied up.

"I don't want to take the chance," said Brown, 62, of Temple City. "I'm going to put my money somewhere else, and if they come back, I'll come back."Rick McPherson, 64, said he grew worried after hearing news reports that IndyMac was struggling, and withdrew $1,000 he had at IndyMac. "I'm not certain what happens when a bank fails," said McPherson, a printer from Arcadia. "I don't trust the economy right now."

The company's stock sank 19 cents Monday to close at 62 cents a share. The shares are down 90% this year.IndyMac, which had specialized in making -- then often selling -- jumbo mortgages, sub-prime loans and mortgages with little or no income verification, was hit hard last year when defaults caused the market for such nontraditional loans to collapse. It has since recast itself as a maker of loans that can be sold to government-sponsored loan buyers Fannie Mae and Freddie Mac, but its May loan production, at $2 billion, was down 72% from a year earlier.

The above is the single biggest fear of any banker - bank runs.

A bank run (also known as a run on the bank) is a type of financial crisis. It
is a panic which occurs when a large number of customers of a bank withdraw
their deposits because they fear it is, or might become, insolvent. This action
can destabilize the bank to the point where it becomes insolvent. Banks retain
only a fraction of their deposits as cash (see fractional-reserve banking): the
remainder is invested in securities and loans. No bank has enough reserves on
hand to cope with more than the fraction of deposits being taken out at once.

After all, no matter how sophisticated an investor you are - at the end of the day all that zero and numbers in your online banking / brokerage account is just that - a figure. What does it equal? A whole bunch of treasury bills backed by a soon-defunct government? Dollar bills that the Feds are using freely to bail out multi-billion dollar errors greedy execs made?

No wonder USD is going down and trending down further. (see graph at top)

Of course, those of us in the precious & base metal companies will know that this long term erosion of dollar will mean more sunny skies for gold, copper, zinc, & various metal producers and explorers (lag behind).

Kinross Gold (KGC) is one of my personal favorites. It's up nicely today on further news of USD inflation and free money printing by the Feds for unjustified bail outs.

http://finance.yahoo.com/q/ta?s=KGC&t=1y&l=on&z=m&q=c&p=e200,b&a=r14,m26-12-9&c=

Kitco's Gold prices is up to $970/ounce. Remember last month when it hovered around $890?

http://www.bloomberg.com/apps/news?pid=20601012&sid=a2Bq4RVCKg0c&refer=commodities

I'd pick up the juniors and profitable producers now... USD is rapidly deteriorating and no improvements in sight. When fiat currency isn't worth anything, would you rather have something that has intrinsic value (gold) or can be used to build something (copper / moly)... or portraits of past Presidents?

TNR.v - TNR Gold Corp Sues XStrata / MIM. Level II and its uses

Having been swamped at work I didn't get to follow one of the more promising companies on my radar for a day or two. XStrata is known to be one of the biggest mining groups in the world. I'm sure I've talked about them several times in the past - they encompass several mectals and commodities incs - Xstrata Copper, Gold, etc all throughout the globe. They trade on the London Stock Exchange and has a market cap of nearly $70 Bililion last I checked. Remember my post a few days about Minera Andes expanding the mineralization zone?? http://mining101.blogspot.com/2008/07/minera-andes-maito-expands.html

Xstrata PLC - Has various divisions for base metals, precious metals, and other lines of business.
Share prices is at $3649 GBP/share (multiply by 2x for $USD conversion roughly $7298/share) and market cap of $71,082 Million.

TNR Gold Corp. - has various properties in Argentina (South America) and involvement in Alaska with Novagold. Promising projects and plenty of recognitions from majors like Barrick in the industry.
Share price is at $0.29 now and market cap is a paltry $22 Million.

Now I can see why Xstrata, the giant, is looking to take candies from the baby (TNR). Will it be this easy? It's certainly an uphill battle but let's take a look at Level II on the TNR chart today. What is Level II activity reporting you ask?

Nasdaq Level II is used when stock trading to provide a list of all buyers and sellers for each stock traded on the Nasdaq exchange. Bids (i.e. offers from active buyers) are arranged in descending price order (highest to lowest) and Asks (the sellers) are arranged from the lowest to the highest price. NASDAQ Level II will enable a stock trader to determine the depth of the market for his chosen stock and can help him to decide whether to stock trade or not (depth is the 'size' of the market for a particular stock - how liquid is it?). In order to use a level II system to any effect, a stock trading player must get to grips with the relative importance of each participant and market maker on his screens. A direct access stock trading system using NASDAQ Level II may make stock trading more fun, as it may make you feel more 'Wall Street'

Here's what a typical Level II quote would look like.

Click the picture and full size it for clarity.

L2 Summary above shows:

Bid Level - this is the price the bid / ask is at for that block of orders. This should be self explanatory.

#MM - this refers to the Market Maker's #. In Canada this could be refered to as Brokerage House #. For example you would have your Wood Gundy (CIBC Brokerage), Nesbitt Burns (BMO), Canaccord Capital, and E*trade listed here.

Sizes - The price could be misleading if the size of the orders or trades are small. Investing $10,000 and finding out the daily volume of the stock is less than $1,000 could mean you'll be sitting on the ask (sell) for awhile before you get your money back!

Going further with the TNR example let's take a look at Level II so far:

			Bid								Ask
Price	0.275	0.28	0.285	0.29		0.295	0.3		0.31		0.33		0.35		0.38
# Shares	102,500	25,000	253,500	335,500		135,000	30,000		41,000		30,000		25,000		25,000
# Orders	2	1	3	2		1	2		3		2		1		1

Excuse my terrible Word 2007 formating skills. Next time I will do a picture JPG instead. Above was taken from Stockwatch, which as you can see quite reflects the picture above.

In this case, the bid strongly outpaces the ask... in which case there's a tendency for the stock price to move up!

The total amount people wants to buy (bid) totals to more than 800,000 shares up to as high as $0.295, whereas the amount of stock for sale start at $0.30 at less than 150,000 shares available.

Putting things simply and referring to supply and demand (remember that?)

Going by the graph, if 800,000 people wants something and there's only 150,000 available, what would happen?

A move of the demand line to the right would mean an upwards move on the Y axis (price)

What do you think?

Money as Debt

One of the links I have had on the side of this blog is a video called "Money As Debt".

http://video.google.com/videoplay?docid=-9050474362583451279

It's a 47 minutes long video so you probably have to wait until lunch time to watch it, but it gives a great overview of our current monetary system and how the banking system really works. Quite a fascinating watch and certainly gives investors an idea why gold is at its level now.

Watch it and let me know what you think.

Stock / Investment Selection Process Part II

Continuing from our Part I - how does an investor fully understand what gleaming gems of a company to invest in this depressing market?

Well, going further, one simple fact is - numbers don't lie.
We look at Financial Summary , and one thing that has to be considered with caution is various accounting terms that may allow deferral of existing loans and liabilities until a later date. Those should be factored in as well.

Financial Summary would typically include things such as:

Various figures from the Balance Sheet - especially major assets, cash on hand (important!!), and pending liabilities and/or loans.

Example - a company wouldn't be going anywhere fast without some working capital (cash) for day to day operations, would they? Typcially assets would include drilling and mining equipment - unless companies contract out to full service contractors.

Liabilities is an interesting issue - it could be from earn-in rights that has not been fulfilled but likely to be (positive results), owed fees for services and goods,

Included in liabilities include any ongoing litigations and what's the company's position?? If the company is likely to win - that could be a positive - likewise the opposite could be a dramatic blow to the company especially when it loses the case.

Example : Company A owned a piece of land and rents out portions of it to Company B. Company B doesn't use parts of the land so gives it back to Company A. Years go by and the area starts to look really good. Company B wants the land back - even though it's been under Company A's title/name for the last few years. Who do you think makes more sense?

Recent financings and share numbers should also be applied into the equation - more dilution to the stock will mean less value for the shareholders unless the company keeps growing!

Summary of the Corporate Philosophy and Business Plan (less than 100 words)

I know we're all investing and rock fanatics here, but I'm sure we all go out once in awhile. Have you heard of this fast food chain called... McDonalds? I hope so as it's a $65Bn Market Cap food giant. My point is though, despite their multifacted business routes - their mission statement is very straightforward.

"McDonald's vision is to be the world's best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile."

If a $65 billion dollar company can only afford to do a few things well, how do you expect microcap exploration companies to do 10 different things all at once?

A company - should be focused in its efforts and stick to what they know. You won't see Microsoft (MSFT) venturing to fashion and competing with Lululemon (LLL) by making their own yoga pants anytime soon.

Why?

Last I checked, Steve Ballmer was not a Yoga enthuthiast nor did he have much experience in retail especially to the yuppy generation.

If the current CEO of the mining company specializes in explorations and has track record of success with junior companies - I would be more inclined to invest in the company compared to another CEO that was successful in management an accounting firm and wants to try his luck at digging for gold now that it's $900/ounce.

Bottomline - there must be a fit with the management and the goal of the company.

J.Taylor then goes on to ask his potential candidates to Summarize Flagship Properties, which we will get to, next post : )

The market after a long weekend in the US

Welcome back! Hope everyone had a nice July 4th long weekend. Wasn't it nice early this morning when S&P and NASDAQ were up a bit on positive news?

I have to say, seeing headlines like "Dollar firms as oil drops" and "Oil barrages as dollar lowers" starts to concern me day after day. What's more frightening is the blatantly obvious prediction and reactionary calls that the journalists and analysts seem to take after these supposely objective editorial pieces.

Jim Sinclair and his experienced writers is a website I check in at least once a week. While they tend to be on the negative side - their experience, past records, and knowledge certainly gives them the right to be. Myself I am positive and optimistic on certain companies with solid fundamentals (ie. positive revenue and solid projects) and blue-sky potential (industry recognition, strong financier backings).

I quote Trader Dan, a frequent writer on JSMineset:

"Do you ever get the idea that you are watching the final stages of a cheap horror flick? To give you an idea how absurd the US markets have become and why their inexplicable movements are making jackasses out of wire service-quoted "analysts", check this out. The "experts" quoted said that the reason that the Dollar was higher in today's session was because CRUDE OIL WAS LOWER. Just a few stories above that one, another "expert" says that the reason Crude Oil was lower was because the DOLLAR WAS HIGHER!

Aren't you glad that such stunningly insightful, bold, daring and brilliant comments are available to help we lesser mortals understand the markets? I sure sleep better knowing that such wisdom resides in the world of market analysts! So, which one is it fellas? Is the dog wagging the tail or is the tail wagging the dog? Here’s a bit of advice to the pundits – I am obviously in the advice dispending mode today – “hey guys – if you don’t know why the markets are doing what they are doing just keep your mouths shut and save yourselves from looking like first class nitwits”."

I have to say, you must chuckle at the chicken and the egg dilemma. So which is it... did oil fall first or did dollar get stronger? Hindsight is certainly much easier, no? I, too, can say that back in 2004, Google (GOOG) was a great buy at $85!

While it's easy to point and criticize - one must realize that analysts are people too. There is only so many hours in the day they can be in connection with the markets and economy... when the market opens at 9am EST (6am PST)... they have to be ready to give a direction and face the consequences if their calls are right or wrong.

Heck, even Goldman Sachs lost money last quarter on majority of trading days... and they're one of the best!

July 7 (Bloomberg) -- Goldman Sachs Group Inc., the securities firm that generates more trading revenue than any of its U.S. rivals, lost money on 20 days last quarter, more than the prior period, as the value of credit products fell.

The New York-based investment bank lost at least $100 million on nine trading days in the three months to May 30, compared with six days in the previous quarter, according to a filing with the U.S. Securities and Exchange Commission today. The firm lost money on 17 days during the first quarter. The days when Goldman earned more than $100 million by trading fell to 27 from 28, the filing showed.

If you're an investment banking private client paying CFAs with advanced degrees telling you to buy a certain stock through their in-house brokers (and paying a hefty 10-20% fee)... would you be happy with your portfolio dropping 20-30% over the last little while?

If not - it's time to do your own due dilligence. Part II tomorrow.

All about Indexs HUI, XAU, Gold, and more!

From time to time, one may hear of analysts and brokers discussions regarding indexes breaking the support and price levels fluctuations. What exactly does this mean and how does it affect the average investor?

Due to the sheer volume of stocks trading on an exchange, an analyst or broker cannot be realistically be expected to follow 100+ different stocks to get an idea of how the market is doing.

As we discussed, companies vary in size depending on shares issued and of course - their total market cap. In certain indexes - such as the S&P 500, the index is essentially a collection of the biggest companies trading on the index.

The S&P 500 is a stock market index containing the stocks of 500 Large-Cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill. S&P 500 is used in reference not only to the index but also to the 500 companies that have their common stock included in the index.

The S&P 500 index forms part of the broader S&P 1500 and S&P Global 1200 stock market indices.

All of the stocks in the index are those of large publicly held companies and trade on the two largest US stock markets, the New York Stock Exchange and Nasdaq. After the Dow Jones Industrial Average, the S&P 500 is the most widely watched index of large-cap US stocks. It is considered to be a bellwether for the US economy and is a component of the Index of Leading Indicators. It is often quoted using the symbol SPX or INX, and may be prefixed with a caret (^) or with a dollar sign ($).

Likewise then, for Gold there is the HUI and XAU, both of which see plent of action day in and day out. HUI refers to AMEX's Gold BUGS Index and it's comprised of 15 largest "unhedged" gold mining stocks. The stocks are equal-dollar weighted - which means the largest stocks will carry more weight on the index price than smallest.

Take a look below for a sample HUI index from a few years back - Kinross, Newmont, and GoldCorp are all included as part of that list - if you recall these are companies in the $20B (yes that's billions market cap). Much like peope use NASDAQ or DOW Jones Industrial to measure how the overall sector is performing, HUI and XAU have their uses.

Company	Symbol	% of Index
Newmont Mining	NEM	16.1%
Gold Fields	GFI	15.9%
Freeport McMoran	FCX	10.3%
Iamgoldcorp	IAG	5.5%
Meridian Gold	MDG	5.5%
Harmony Gold Mining	HMY	5.3%
Goldcorp	GG	5.2%
Randgold Resources	GOLD	5.1%
Agnico Eagle Mines	AEM	4.9%
Kinross Gold	KGC	4.8%
Glamis Gold	GLG	4.7%
Hecla Mining	HL	4.4%
Eldorado Gold	EGO	4.3%
Golden Star Resources	GSS	4.0%
Coeur D'Alene Mines	CDE	4.0%

Minera Andes ( MAI.to ) expands mineralization on Xstrata & TNR Gold Corp ( TNR.v )'s Los Azules Property

It's always an interesting matter when a jointly held property (whether it is through joint venture, exploration agreement, or whatnot) hits a tangible value stage.

As I mentioned before, analysts love their exploration companies with a property that's about to get a resource estimate like Minera Andes (MAI.to), Xstrata, and TNR Gold Corp's collective property - Los Azules.

One of the great things I like about Argentina is the fact that its an underdog next to a superstar. The superstar I'm referring to in this case of course - is Chile. In my previous entry about copper production and copper mines around the world - Chile stands out as a major source - so why not Argentina, which in some province's case - is right next to the Chile border??

The property's drilling program so far has been very promising...

The potential of Los Azules is suggested in successive exploration drilling programs in which significant high-grade copper mineralization has been discovered. For example, in 2006 an 11-hole drilling program returned intervals including 1.62 percent copper over 221 meters (about 725 feet) and one percent copper over 173 meters.

For the 2007-2008 field season, a 10,000-meter, 24-hole drilling program will further gauge Los Azules' potential.

Let's take a step back and look at each of the companie's involved.

Minera Andes - producer at San Jose mine / explorer in Argentina and South America - 2nd key property is arguably now Los Azules given recent promising results.
Market cap is at $250 Million or so at $1.33/share today's market prices.

Xstrata PLC - Has various divisions for base metals, precious metals, and other lines of business.
Share prices is at $3649 GBP/share (multiply by 2x for $USD conversion roughly $7298/share) and market cap of $71,082 Million.

TNR Gold Corp. - has various properties in Argentina (South America) and involvement in Alaska with Novagold. Promising projects and plenty of recognitions from majors like Barrick in the industry.
Share price is at $0.29 now and market cap is a paltry $22 Million.

Given that each company has at least 20% involvement in the property - which do you think has the biggest room to move in terms of its stock price?

The company that is at $250M Market cap, the industry giant at $71,082M, or the still-quiet $22M junior?

I think the answer's pretty obvious. Especially in light of the mineralization zone and project growing - announced last week by Minera Andes.

"SPOKANE, WA June 27 /PRNewswire-FirstCall/ - Minera Andes Inc. (TSX: MAI; US OTC: MNEAF) is pleased to report that the final results from core holes drilled during the 2007-2008 exploration field season at the Los Azules porphyry copper project confirm that the copper target is open to the north. Several positive indicators including hole AZ-08-37A drilled at the northern limit of this seasons drilling, geologic mapping, and historic drilling indicate that the copper target at Los Azules extends another 3 kilometers to the north of the drilling completed this field season (see URL for map: http://files.newswire.ca/530/ProyectLosAzules07-08.doc)."

Without a doubt - if MAI's promise that by fourth quarter 2008 that it arrives at a resource estimate - the smaller company involved with this project should see some good value for its investors!