Wednesday, March 31, 2010

Yes, Virginia, There Is A Jobless Recovery

Every time economic statistics are released by an entity, other than the Bureau of Labor Statistics (BLS), we get a much better read on what's really going on.  Private company Automatic Data Processing (ADP), a  firm which handles payroll accounting for employers, released its employment report this morning and the results were dramatically at odds with the hype emanating from the White House.

Non-farm private employment decreased 23,000 from February to March on a seasonally-adjusted basis, according to the ADP National Employment Report®.  The estimated change of employment from January 2010 to February 2010 was revised down slightly, from a decline of 20,000 to a decline of 24,000.

The March employment decline was the smallest since employment began falling in February of 2008. The lack of increase in employment from February to March is consistent with the pause in the decline of initial unemployment claims that occurred during the winter.  I'm sure this is all the weather's fault (sarcasm intentional)!

The ADP survey covers only private-sector jobs, while the numbers produced by the BLS on non-farm employment, to be released Friday, includes government workers.  The addition of workers for the 2010 census is expected to lift federal government payrolls.  This makes any rise in employment suspicious, temporary and subject to substantial downward revision in the coming months after the census is completed.

The ADP number is very disappointing given the expectations of a 50,000 gain projected by economists in a Dow Jones Newswires survey.  The change in employment from January 2010 to February 2010 was revised down slightly, from a decline of 20,000 to a drop of 24,000.

Economists surveyed by Dow Jones expect the BLS will report that March payrolls jumped by 200,000 jobs, following a drop of 36,000 in February, when blizzards along the east coast cut into business hours and kept workers snowed in.  Should this report disappoint, at least we'll know the weather was at fault (sarcasm intentional)!

Other economic data, released this morning, was a bit more positive, however.

Demand for manufactured goods rose by 0.6% in February, to a seasonally-adjusted $383.53 billion, the Commerce Department said.  The increase is the 10th in the past 11 months.  Orders in January rose 2.5%, revised up from a previously reported 1.7% increase.

U.S. consumer confidence rebounded in March from a sharp February drop.  The Conference Board, a private research group, said this week that its index of consumer confidence increased to 52.5 in March, from 46.4 in February.

However, the index remains below its readings of December and January, as Americans remained concerned about jobs and, presumably, the weather!

Job losses since the beginning of the downturn in late 2007 have reached 8.4 million.

Regardless of the Friday BLS report, the more reliable private data continues to show that the "recovery" is a complete phantom.  Given that the massive stimulus of the Federal Reserve's "quantitative easing" is now ceasing with the end of the first quarter, one can only wonder how bad the economy will get once the heroine needle of monetary juicing is removed or even curtailed.

Marko's Take

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Tuesday, March 30, 2010

Taxing Banks Gains Favor, But Is It The Answer?

In January, President Obama floated an idea to tax banks as a means of compensating America for the tremendous financial damage caused by the collective stupidity and greed of the banking sector.  That idea is gaining support on both sides of the Atlantic.

Anti-Wall Street sentiment, in conjuction with concerns over the ballooning  budget deficit, have Democratic leaders on Capitol Hill embracing the proposal.  Obama's proposal is expected to raise up to $117 billion to cover projected bailout losses.   Republicans have been silent as their instinctive opposition to tax increases is in conflict with their fear of defending big bankers.

The administration has opposed interfering with bonuses in the past, saying shareholders and Boards of Directors should be responsible for determining corporate compensation.  

“We’re already hearing a hue and cry from Wall Street suggesting that this proposed fee is not only unwelcome but unfair,” he said.  “That by some twisted logic it is more appropriate for the American people to bear the cost of the bailout rather than the industry that benefited from it, even though these executives are out there giving themselves huge bonuses.”

The proposed tax would apply to bank, thrift and insurance companies with more than $50 billion in assets and would start after June 30.  It would not apply to certain holdings, like customers’ insured savings, but to assets in risk-taking operations. 

The concept is gaining momentum in Europe.  However, different countries have proposed varying structures.

Germany and Sweden would use the money to fund a "resolution authority" that would use the money to shut troubled banks whose failure would put the broader economy at risk.  Others, such as France, would assess the fee after a crisis passed.

Officials in the U.S., Europe and the IMF say the bank-tax concept has gained so much momentum that it is likely to be on the agenda when of the Group of 20 industrial and developing nations meet in Canada in June. "Reforms would put in practice the principle that large institutions should bear the costs of any losses to the taxpayer," U.S. Treasury Secretary Timothy Geithner said in a speech last week.

In the U.K., Prime Minister Gordon Brown has been championing a global levy, including one in which revenues would be used to help pay down deficits.  The opposition Conservative Party says it will press ahead regardless, although the fee's size will depend on how far other countries follow

The IMF plans to recommend a bank tax when global economic officials convene in Washington in April and is leaning toward a fee in advance to fund a resolution authority, said officials involved with the IMF effort.

Support for a bank tax isn't unanimous among the G-20.  Canada, which now has an outsized role in the group's deliberations because it hosts this year's meeting, opposes a tax on its banks.

Instead, Canada, whose banks weathered the crisis well, is pressing the G-20 to stiffen leverage requirements to avert problems, a proposal that has already been on the group's agenda.  India and China haven't taken positions.

Unfortunately, any industry specific tax, like the old "windfall profits tax" imposed on oil companies in the 1970's, will only make a troubled situation worse.  The problem in the finacial industry has always been "moral hazard", the practice of allowing banks take excessive risks and then rescuing them when their ill-advised risk-taking backfires.  This practice incentivizes a "heads I win, tails I DON'T lose" mentality.

The other problem is the very "cozy" relationship between the big banks, the Treasury, the Federal Reserve and the administration itself.  Major banks should be treated at arms-length, but they're not.  With an administration made up of Goldman Sachs alumni, the "conflicts of interest" will undoubtedly lead to legislation that looks tough on the surface, but will instead leave the banks with a "bank-door" way to coin money.

The only mechanism to enforce a fair playing field is to HAVE a fair playing field.  WE DON'T.

Marko's Take?   Don't waste our time with legislation that will only buy votes from angry Americans and get out-of-bed with these institutions.  Only then can we create a competitive and fair financial system.

Marko's Take

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Monday, March 29, 2010

Recovery, Recession, Or Depression ?: An Update

Nothing like economic "statistics" to clarify things.  Unfortunately, the numbers coming out of Washington are now so "massaged" that it's absolutely impossible for us mere mortals to understand what on Earth is going on with the economy.  Our first-hand experience is generally sending us messages that things still stink.  Yet, we are constantly told that things are improving and handed a slew of data supposedly proving it.

We posted a "Marko's Take" on this very topic in December ( and were equally as confused as we are now.  Here we are 3 months later... and things continue to baffle.

Corporate earnings for the end of 2009 have been reported and they came in strongly.   Pretax profits increased 8% to a seasonally-adjusted $1.5 trillion annual rate in the fourth quarter from the third quarter, the Commerce Department said Friday, as well as slightly revising its estimate of fourth-quarter economic growth downward.

Gross Domestic Product (GDP) grew at a 5.6% inflation-adjusted annual rate.  The small adverse change of 0.3% stemmed from weaker than previously estimated business and residential investment, as construction spending declined.  Economists are currently projecting more modest growth for the first quarter, with most estimates around 2.8%.

The 8% quarterly increase in profits, which isn't adjusted for inflation, followed a 10.8% increase in the third quarter.  Profits were stimulated by an increase in output, as companies re-stocked inventories and non-existent growth in wages, which boosted profit margins.

The combination pushed fourth quarter pretax profits 30.6% higher than a year earlier — marking the biggest increase in 25 years.  For the full-year, however, 2009 profits were down 3.8% from 2008.

While conditions are clearly improving for companies, consumers still aren't yet confident in the economic recovery.  An index of consumer sentiment remained flat at 73.6 in March from the prior month, the University of Michigan and Reuters said Friday.  Clearly this reflects the joblessness of the recovery. 

Consumers' gauge of current conditions improved slightly, but their optimism about where the economy is headed declined.

While there is some good news to be sure, the bad news is quite troublesome.  The nation's money supply, as broadly measured, has now begun to contract on a year-over-year basis.  The falloff in real M3 since late-2009 is suggesting an imminent intensification of the extraordinarily protracted and deep economic contraction.

So, despite the apparent economic recovery, the ongoing pattern of job losses has yet to abate.  Of course, this may change with the Friday jobs report, but thus far, all the stimulus and spending has yet to create any uptick in employment.

Here's to hoping YOUR sentiment remains positive!

Marko's Take

Please visit our YouTube channel at  Our next episode on the legality of the Personal Income Tax will be posted within the next 48 hrs.

Sunday, March 28, 2010

Treasuries Having Harder Time Finding A Good Home

It was inevitable.  You can't spray the world with an endless supply of something and not expect an adverse price effect.  The U.S. has been living on borrowed time, but now our bonds are looking square in the eye of the "Grim Reefer".  Country after country has either drastically curtailed buying our debt, stopped buying our debt altogether, or is looking for ways to offload it on someone else.

It's utterly amazing that nothing has happened... yet!  Now, the over-supply is creating a saturation in the market place, whose consequences have yet to be felt.  Another week, another financial problem.  That's what happens in a BEAR market:  whatever CAN go wrong, WILL go wrong!

For more than a year, analysts have been warning that record-sized debt sales by the U.S Treasury were utterly inconsistent with a 10-year yield below 4%.  This past week, the yield on 10-year notes jumped from 3.65% to as high as 3.92% on Thursday.  On Friday, it was 3.87%.

Tame "reported" inflation, rising unemployment, the housing market slump, the Federal Reserve’s policy of a virtually zero Fed Funds rate and its purchase of up to $1.7 trillion in bonds have all helped keep Treasury yields near historic lows.

But, this week the mood sharply deteriorated as yields for $118 billion of newly-issued U.S. debt were much higher than forecast, sparking overall selling of Treasuries.  Sentiment also deteriorated in the U.K. bond market after the government’s proposed budget failed to resolve doubts over future spending and debt reduction.

It hasn’t helped that the U.S. announced a big overhaul of its healthcare system this month, adding to worries about the scale of U.S. spending.  Thank you Obamacare! (sarcasm intentional!)

Also un-nerving U.S. investors this week was a report by the Congressional Budget Office that falling payroll taxes, resulting from high unemployment, means that Social Security will pay out more in benefits than it receives for this fiscal year.

“A sustained rise in yields is upon us and bond funds will start to incur losses,” says Jim Caron, Global Head Of Interest Rate Strategy at Morgan Stanley.  He expects 10-year yields to reach 4.5% in the second quarter, as investors pull their money from bond funds.  March looms as the first month for negative returns for investors in Treasuries this year.   Year-to-date, Treasuries have returned a scant 0.7% and threaten to slip into negative territory.

The 10-year note’s yield rose 15 basis points, or 0.15% , to 3.85%, according to BGCantor Market Data. The price of the 3.625% note due in February 2020 fell  $12.19 per $1,000 face amount.

The increase in the yield was the biggest since an advance of 0.27% for the week that ended Dec. 25.  The yield touched 3.92%  on March 25, the highest level since June 11.  The two-year note’s yield rose 0.05% to 1.04% and reached 1.12%  this week, the highest level since Jan. 4.

Unfortunately, the unsatiable appetite to fund America's bloated budget can only get worse.  The world has had it with our fiscal irresponsibility and the era of low interest rates will become harder to sustain. 

Marko's Take

For new readers, please visit us on YouTube at  Our newest episode on the legality of the Personal Income Tax will be posted in the next two days.

Saturday, March 27, 2010

Obamacare Making Corporate America Sick

A few months ago, we did a 3-part in-depth analysis of Obamacare.  If you find the issue complex and hard-to-fully understand, "Extra, extra, read all about it!' by clicking the following series of links: (, ( and (

I've maintained all along, and will continue to insist, that this ill-conceived piece of legislation will NEVER be enacted, unless preceeded by the complete suspension of civil rights and is MANDATED by some sort of executive order.  America not only does not want it, 36 states are suing to ENJOIN it!

This is probably the most incredible act of political suicide I think I've ever seen.  Any one voting "yea" will be voting either himself, or herself, out of office in 2010.  If you know a congressperson, send a subscription to "Marko's Take" will ya?   It's free and they might learn something!

It's been a humungously "successful" week for Democrats.  Obamacare passed Congress in its final form on Thursday night and the dividends are already being realized.  Yesterday AT&T announced that it will be forced to make a $1 billion writedown due solely to the health bill in what has become a wave of such corporate losses.

This utter unabated destruction of wealth and capital came with more than ample warning.

Using their well-lubed "spin machine" to make this new entitlement look affordable under Washington, D.C. accounting conventions, Democrats decided to raise taxes on companies that do the public service of offering prescription drug benefits to their retirees instead of dumping them into Medicare.   Democrats waved off objections from Corporate America as self-serving or "political."

Of course, Democrats are acting only in the interest of "average Americans" (sarcasm intentional!).

On top of AT&T's $1 billion, the political wrecking ball so far includes Deere & Co., $150 million; Caterpillar, $100 million; AK Steel, $31 million; 3M, $90 million; and Valero Energy, up to $20 million! Verizon has also warned its employees about its new higher health-care costs - and there will be many more in the coming days and weeks.

John DiStaso, of the New Hampshire Union Leader, reported this week that Obamacare could cost the Granite State's major ski resorts as much as $1 million in fines, because they hire large numbers of seasonal workers without offering health benefits. "The choices are pretty clear, either increase prices or cut costs, which could mean hiring fewer workers next winter," he wrote.

All this in two days?  Thank God we have Obamacare, since I, and the rest of America are about to get pretty damn sick.

Think I'm being unfair to the "well-intentioned" and "non-political" Democratic Party, our President or the Obamacare at large?  TAKE ME ON!

Marko's Take

We will be posting our next YouTube video on the legality of the Personal Income Tax in the next couple of days.  If you haven't seen some of our video blogs, we hope you take a minute to check us out at

Friday, March 26, 2010

When Irish Eyes Aren't Smiling: More Problems In The Euro-Zone

The Euro-Zone is falling apart country-by-country.  We've written about the panoply of problems facing Greece, Portugal and Great Britain (

Ireland is also suffering and perhaps as badly as Greece (

Ireland's deeper recession continued in the fourth quarter of 2009, as the economy shrunk another 2.3%,  as the result of devastating floods in the west of the country and a steep decline in building activity, following the crash in real estate.

This marked a reversal from the third quarter, which had shown a small increase in Gross Domestic Product (GDP) of 0.3% – giving rise to false optimism that Ireland had come out of recession.  Third quarter GDP was later revised to a negative 0.1%.

Minister of Finance, Brian Lenihan, said the year-on-year GDP decline of 7.1%  was “marginally better” than the estimate at the time of the budget in December of 7.5%. 

Economists, however, were more gloomy.  Alan McQuaid,  of Bloxham Stockbrokers, said “not only did Ireland not come out of recession in Q3, but it actually went into a deeper downturn in the final quarter”.

He calculated the cumulative decline in GDP since the end of 2007 was a “staggering” 12.7%, more than double the rate of the slowdown in the Euro-Zone as a whole!

Ireland is particularly beset with fall-out from the "boom-bust" in real estate.  Officials estimate the number of house completions in 2009 at 26,000, half the 52,000 built in 2008.  With an overhang supply of 120,000 houses for sale or rent, not including vacant homes, the rate of housebuilding in 2010 is expected to halve again.

At the height of the boom in 2007 there were 87,000 houses built in Ireland.  This compares with England and Wales, an area with 13 times the population, where house building is running at about 150,000 units a year.

Finance Minister Lenihan warned on Tuesday that the nation faced “the challenge of [its] life”, as he slapped higher taxes on the middle classes in an emergency budget aimed at tackling the spiralling economic crisis.

Mr. Lenihan outlined plans to set up a national asset management agency to take over an estimated €80 billion-€90 billion of bad loans extended by local domestic banks to developers and property companies that now look as if they will not be able to repay.

Forecasting an 8%  drop in Ireland’s GDP this year, Lenihan said he had to tackle soaring government borrowing and called on political opponents to “set aside narrow sectional interests” and support the tax increases, which are highly unpopular domestically.

Rating agency Standard & Poor’s recently downgraded Ireland’s sovereign debt.  Even after Tuesday’s measures, Mr Lenihan forecast government borrowing would be the equivalent of 10.75% of GDP – more than 3 times the limit on countries joining the Euro.

So, unhealthy countries continue to get less healthy.  Tragically, this vicious cycle is threatening the entire Euro-Zone and is making it impossible for the EU, as a whole, to provide emergency aid.  As a result, the situation threatens to be a contagion to the entire global financial community.

Marko's Take

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Thursday, March 25, 2010

Soverign Debt Redux: Spill-Over Affecting Healthy Countries

Lately, we've observed the number of countries in trouble and whose sovereign debt has been both under scrutiny and appears to be signalling a global domino effect ( and (

Greece and Portugal have been front-and center in the news, rattling investors on both sides of the pond, but now another country is now gotten in the mix - China (  Clearly, China is now recognizing that the Euro-Zone problems could affect the tenuous Chinese economy.

Growing concerns about spreading sovereign debt issues got China's attention.  Until recently, China had remained fairly mum on the issue. Yesterday, a senior Chinese central banker warned that the Greek crisis was just the beginning.

“We don’t see decisive actions telling the market we can solve this,” Zhu Min, a deputy governor of the People’s Bank of China, was reported as saying.  One has to wonder, how China will react to this crisis.

His comments caused the Euro to dip to a new 10-month low versus the dollar, and encapsulated a growing worry among a growing group of investors that high levels of government indebtedness is one of the main risks facing the global economy.

Of immediate concern is the Euro-Zone.  A two-day summit of European leaders convenes today and investors need to hear that they have been able to knit together a safety net for Greece, which has had trouble rolling over the €20bn of debt maturing over the next couple of months.

But there is a potentially a more important issue emerging.

The poor reception given to the auction of $42 billion of US 5-year notes on Wednesday points to reluctance among buyers of US government debt.  If this continues, yields will rise, but not for the hope-for reason – economic recovery.  Instead, it will signal a undigestable supply and lack of demand.  This could jeopardize the apparent economic recovery and adversely affect asset markets - particularly equity markets hard.

Moody's investor service, on Monday said that the world's largest AAA rated issuers:  the U.S., Great Britain, Germany and Spain, were all in danger of losing their blue chip status.

Meanwhile the Greek crisis continues in limbo and further raises the prospect that this situation will spread to a global financial crisis.  Yet, no definitive solution appears imminent.

Disturbing is the lack of consensus of how to address the issue.  All potentially affected countries agree as to the magnitude of the problem, but the proposed solutions have absolutely no consensus and have created divisions among the affected countries.  In the case of Germany, domestic controversy and oppostion to jeopardizing Germany's solid financial status have led to heated internal politcal debate.

The only positive note is that troubled Dubai appears to be making progess on its debt issue thanks to commitments from Abu Dhabi

Despite the good news from the Dubai situation, more cracks are appearing in the global dam than are being plugged. 

Marko's Take

Please visit our new YouTube channel at  Our new piece on the legality of the personal income tax will posted within the next several days, followed every week or so by a series of new videos primarily covering more political issues and world events.

Wednesday, March 24, 2010

More Euro-Zone Problems: Who's Next?

Yesterday, we discussed the acute and growing problems in Greece (  Sadly, the problems in the Euro-Zone are showing signs of spreading. 

Portugal's sovereign debt was just downgraded.  Sentiment soured towards the Euro after rating agency Fitch downgraded Portugal’s credit rating to AA- from AA.  Fitch cited “significant budgetary underperformance in 2009” and “structural weaknesses”.

Ahead of the announcement, the Euro was already under pressure as hopes faded that this week’s two-day European Union summit, which starts on Thursday, would result in a concrete pledge of financial support for Greece.

Germany said for the first time, that it would consider financial support for Greece, but pegged its support to 3 conditions.  First:  Greece would have to explore any alternative options to attempt to gain access to the credit markets.  Second:  the International Monetary Fund must be a significant participant to the rescue, and Third:  any potential aid package must be accompanied by additional means of verifying strict compliance.

The growing uncertainty has raised speculation of a temporary Greek exit from the euro-zone to address the currency issue, which would put further pressure on the single currency.

In Great Britain, banks were told to expect “payback time”, as Alistair Darling, Chancellor of the Exchequer, put the finishing touches to a budget that intends to propose new bank taxes and force them to improve the way they deal with customers and small businesses.

The Chancellor’s pre-election budget on Wednesday will employ tactics to force the banks to repay society for the damage inflicted on the economy over the past two years.  Lord Myners, City Minister, set the tone on Tuesday when he said: “The taxpayer rescued the banking system 18 months ago.  The time now is for payback.”

Treasury officials say they no longer “trust the banks as much” to deliver on promises to voluntarily improve their level of service and that the budget marks an attempt by Mr Darling to treat them more like a utility.

He is expected to announce measures to improve service to small enterprises, amid a myriad of complaints about both the onerous rate of charges and difficulties in obtaining credit.  Business organizations are confident the budget will include a mechanism allowing entrepreneurs to challenge adverse lending decisions, or rises in interest rates.

The inter-connectivity of the global financial system makes dealing with individual country's interests quite problematic, as the result of the spill-over into other countries.  The most frightening aspect of the situation, BY FAR, is that the number of problem countries grows as the proportion of "healthy" countries countinues to shrink.

Marko's Take

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Tuesday, March 23, 2010

Escalating Greek Crisis Threatening Global Financial System

The crisis in Greece is getting serious.  It began as a problem with the fiscal credibility of one euro-zone state, but has exposed political and financial fault lines running through the entire European Union.  Politicians are becoming increasingly divided on either side of the Greece/Germany debate, increasing the risks that Greece becomes a big problem for the global financial system.

The seriousness of the crisis is somewhat reflected in Greek bond yields — which rose recently to close to 6.5%, for 10 year-maturities.  German Bunds are now at 3.06% -  their lowest yield in around a year and close to the low of 2.9% hit in the depths of the financial crisis.  This reflects 3 separate forces at work: a flight-to-German safety trade, a preference for German fiscal prudence and fears over the possible spill-over damage the Greek crisis could inflict on the euro-zone economy and financial system.

Another sign of the escalation of concern is the response of European Central Bank (ECB) President Jean-Claude Trichet, who has softened the ECB's hard line on Greece and switched to playing diplomat.  He said Greece could receive loans from other governments if the euro-zone was threatened.

He further suggested the ECB might yet reconsider its collateral rules to allow Greek government debt to remain eligible beyond the end of this year if further ratings downgrades occur. 

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, warned that the Greek crisis could affect the U.S. economy, resulting from a broad shock to financial markets that could impact the banking system or lead investors to retreat from sovereign debt.

The Greek economy is in shambles and rapidly deteriorating.   Greek unemployment vaulted to an 8-year high of 10.3% in the fourth quarter, up sharply from a 9.3% rate in the third, the National Statistics Service said Thursday.

The data showed unemployment rose across all age groups, impacting young workers between the ages of 15 and 29, who have the highest joblessness with a rate of 20.4% in the fourth quarter, up from 18.5% in the third.  Unemployment for 30 to 44-year olds rose to 9.3% from 8.3%, while for the 45 to 64-year-old age group, joblessness rose to 6.3% from 5.7%.

Germany's potential role in the escalating Greek crisis has led to consternation domestically.  Originally, it appeared that Germany would offer some sort of "bail out" program.  However, in discusssions among euro-zone members, the German government has been thwarted by its concern that plans to help Greece would violate a “no bail-out” clause in EU rules on the euro and expose it to legal challenges before Germany’s highest court, officials said.

Instead, Germany is leaning towards involving the International Monetary Fund should Greece call for help to stem its budget crisis, a move Berlin hopes would help avoid potential constitutional court objections to a German bail-out.

The situation remains fluid in any event and one that has "game-changing" potential.  The longer the situation festers, the greater the threat to the U.S. and world financial system. 

Marko's Take

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Monday, March 22, 2010

Gold Market Update: Time To Go To Cash!

Boy I hate being wrong!  For the last week, we've mentioned a number of companies in anticipation of "the new leg" launch upward.  Get your eggs and tomatoes ready if you plunged your hard-earned cash in.  Gulp!  I think it may be best to go to cash.  (Ducking!)

What changed?  Friday's action was horrible!  Monday morning's action, so far, has been horrible!  The Dollar, which looked cooked, now seems to have gotten a second wind.  Not that it's in great shape mind you.  The EURO and POUND are in WORSE shape!

So, what's spooking me?   Not the fundamentals, but the technicals.  If we were really ready to launch into a new bull run, the GOLD market would absolutely NOT have gotten smacked for $20 Friday and another $15 this morning as we went to print.

I learned the hard way that it's best NOT to fall in love with either a particular viewpoint nor a particular position.  I love the viewpoint that GOLD is going sky-high, but the evidence, AT THIS TIME, does not support that it's imminent.

Markets often telegraph as to what's coming, whether we listen or not is up to us.  The action of the last couple of days is suggesting that all is not right in the USA. 

U.S. Treasuries now yield MORE than Berkshire Hathaway, Proctor & Gamble, Johnson & Johnson and Lowe's corporate debt of the same maturity.  I believe this is unprecedented.

Banks are continuing to fail in near-record numbers.  Regulators on Friday shut down 7 more banks in 5 states, bringing the number to 37 so far this year.  This follows the 140 that were closed or sold last year.

Banks that are surviving, have tightened their lending standards.  U.S. bank lending last year posted its steepest drop since World War II, with the volume of loans falling $587.3 billion, or 7.5% from 2008, the FDIC reported recently.

These signs add credence to the notion that the "second dip" of the "Double-Dip Hyperinflationary Depression" is just around the corner.  Stocks are in trouble.  Gold is in trouble.  All financial assets and commodities are in trouble.

One key, if not THE key to surviving financial markets is being flexible.  Since no one has a crystal ball, it's vital to factor in new information as it comes and, if necessary, abandon old viewpoints in favor of new ones. 

Marko's Take?   Bad time to be stubborn.  Time to go to cash!   However, please be aware that this is a SHORT-TERM viewpoint only.  I maintain my LONG-TERM view that Gold will head to $5,000 per ounce.

If you want to castigate me for imploring a bum short-term investment in the Gold market, TAKE ME ON!

Marko's Take

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Sunday, March 21, 2010

Inflation Stays Tepid in February: Or Does It?

The Consumer Price Index (CPI) was basically flat in February - even with volatile food and energy removed from the equation.  Prices ticked up a scant 0.1%, the Labor Department said Thursday.  Over the past year, prices have increased 2.1%, or 1.3% omitting food and energy, the smallest rise in six years.

Reported inflation statistics continue to remain low as the result of an excess capacity of workers, factory space and homes.  Until more of the nation's productive resources come into use and starts pulling workers off the unemployment line, the sellers of everything from sandwiches to machine tools have little ability to raise prices.  The problem is exacerbated by continued tightness in credit, which makes it harder to juice economic growth through bank lending to absorb the economy's substantial slack.

Thursday's report showed weakness across a range of categories.  Owner's equivalent rent, a measure of home costs that is by far the CPI's largest component, was flat in February.  Weak home prices and a glut of homes for sale have held down shelter costs.  Apparel fell 0.7% last month and personal computers fell 0.5%.

Some analysts and investors see inflation as inevitable in the longer run as the result of huge government budget deficits and the necessity to monetize those deficits with excessive dollar creation.  There also are concerns — both inside and outside the Fed — that the economy may have less surplus capacity than seems apparent, since some unused capacity will never be brought back online.  In addition, wages aren't keeping pace even with this tame inflation: real average weekly earnings fell 0.2% in February from January.  Over the past six months, average weekly earnings have been essentially unchanged.

According to the brilliant Dr. Williams of ShadowStats (, "anecdotal evidence continues to mount of higher prices across a much broader spectrum of products and services.  A short-lived dip in February energy prices has been followed by higher prices in March and accordingly, the CPI and PPI should show fairly strong gains in March’s reporting, following February’s 'contained' inflation.  Without other issues, such as dollar weakness, eventually — within six-to-nine months — the broader inflation issues also should surface in official reporting.  Upside risks for near-term inflation, however, remain severe, coincident with any heavy or panicked selling of the U.S. dollar and dollar-denominated paper assets."

Dr. Williams ascribes the relatively muted February data to a temporary drop in average gasoline prices.  However, a renewed surge in oil and gasoline prices in March 2010, suggests an upward swing in both the monthly and annual inflation rates for March.

If one uses ShadowStats' 1980 methodology for calculating inflation, the result is an annualized rate of nearly 10%, as opposed to the roughly 2% number reported by the Bureau of Labor and Statistics (BLS).  This explains why so many items seem to be jumping in price, while the official government numbers meticulously have been massaged to ignore them.

As to inflation-adjusted Gold and Silver Prices, if we use the 1980 highs in GOLD of $850 per ounce and the accompanying Silver high of $50 per troy ounce, the 2010 equivalents, according to Dr. Williams, would be approximately $7,500 per ounce and $435 per ounce respectively!

As we approach the Spring Equinox, here's to hoping the only thing that inflates is your wealth!

Marko's Take

We hope that you keep reading our essays and visit the sites of some of our co-conspirators in revealing the truth.  Toward that end, take a minute, if you have one and stop by and visit our friends at Phoenix Film Group ( and StockMavrick (  Or, take a gander at our own YouTube channel (  Five new episodes were filmed yesterday and our next one, on the legality of the personal income tax, will be posted in the next week.

Saturday, March 20, 2010

Has California Real Estate Bottomed?

We've contended, in prior blogs, that real estate would perform better in 2010 than the consensus view and that, in particular, California real estate would be more sturdy (

In large part, the basis for this speculation was the suggestion that several factors would add support, such as a falling dollar, the oncoming hyper-inflation train and the complete wash-out that occurred in 2007-2009.

The "attractiveness" of real estate, in most people's views, is uni-dimensional and is fixated on price alone.  Has the price gone up or down?  That perspective is understandable, but incorrect. 

Real estate should be viewed as BI-dimensional - incorporating two factors: price and carrying cost.  A low price is not helpful if interest rates are sky-high.  High prices are far less onerous if interest rates are low, in particular "real rates", the difference between the nomimal rate and the underlying rate of inflation.

In the best of worlds, buyers should pray for low prices combined with low, or even NEGATIVE real rates of interest.  Why?  The low price is obvious, but the real rate may not be.

If you think about it, a mortgage, especially a FIXED rate mortgage, is nothing more than a bond.  A lender is "long" the bond, while a borrower has actually "short sold" a bond.  If rates go up, bond prices go down, and a "short seller"  will make money as the value of the bond depreciates.

If real rates are extremely low, or even NEGATIVE, as they are now, the market is in a state of extreme dis-equilibrium.  Negative real rates mean that borrowers are paying you to borrow!  Here's an easy way to look at it:  Let's say that inflation is running at 4% per year but you can borrow at 2%.  Every year, you pay in dollars worth 4% less than they were the year before, while tacking on 2% in additional costs.  Therefore, you are being paid to borrow!

Negative real rates are NOT NORMAL.  Historically, the real rate of interest has tended to oscillate between positive 1% and 3%, as investors typically will not accept negative returns.  So, what's different today?  An entity known as the Federal Reserve, combined with an administration desperate to keep the budget from spiralling out of control, have intervened in the credit markets to keep rates artificially low(  Ergo, negative real interest rates.

The evidence that this bullish fundamental combination of factors is bolstering real estate is dribbling in.  California's median home price rose 11.2% in February from February 2009, although home sales in the state slipped for the second consecutive month compared with a year earlier, according to a report released Thursday by MDA DataQuick, a La Jolla, Calif., housing-data provider.

The median home price increased to $249,000 in February from $224,000 a year earlier, DataQuick said, and represented a 0.8% rise from January 2010.  Home sales in the state fell 3.8% in February from a year earlier to 28,111 sales, but were up 0.9% from January 2010.

The San Francisco Bay Area's median home price rose 20% from February 2009 to $354,000, while home sales fell from year-earlier levels for the second straight month.  In Southern California, the median home price rose 10% to $275,000, led by a 13% rise in San Diego, while the number of home sales rose from year-earlier levels for the 20th consecutive month.

The increase in the statewide median price, the biggest year-over-year jump since March 2006, partially reflected a shift in the types of homes being sold in the state, as fewer foreclosures and stiff competition for bargains ate up inventory at the market's lower end, said DataQuick analyst Andrew LePage. "There has been a shift in what's selling and what's not selling," Mr. LePage said. "The high end has woken up, whereas it was comatose a year ago."

While the news is improving, there remain widespread problems.  For example, default notices jumped 19.7% in February from January, though they were down 37.7% from February 2009, according to a report released earlier this month by research firm

The supply of foreclosed homes that banks need to sell is rising again, signaling further downward pressure on home prices in some parts of the U.S.

Even though the number of people behind on mortgage payments kept rising last year, the flow of homes into bank ownership slowed markedly because of efforts to determine which distressed borrowers could qualify for programs that attempt to avert foreclosures by reducing monthly payments.  Meanwhile, brisk demand from investors and first-time buyers helped banks unload many of the homes they held.

The outlook for sales of  homes depends heavily on the extent to which the economy improves, jobs get created and, of course, real interest rates.  It will also be affected by how many distressed borrowers can be rescued from foreclosure through loan modifications.  Nearly 8 million households, or 15% of those with mortgages, are behind on mortgage payments or in the foreclosure process.  Foreclosures are heavily concentrated in a few states, notably Florida, Arizona, Nevada, California and Michigan.

So, the real estate market is absorbing two countervailing forces:  the crummy economy and people's ability to stay in their homes versus the upward pressure from inflation and low negative rates.  Marko's Take?
The one-two combo of accelerating inflation and negative rates will win.

Think I need to "get real" on the real estate outlook?  TAKE ME ON!

Marko's Take

For any readers in the Southern California Area, the California Wildlife Center is having an open house tomorrow, Sunday, March 21 between 12pm and 4pm.  The CWC is in Malibu.  Please come out and support this worthy cause.  If you do and want to say hi, I plan to be there around noon.  For more information, including their address and mission, click here (

Friday, March 19, 2010

Vista Gold: An Explorer Worth Exploring

We continue our series of interesting junior precious metals companies for investors to consider. 

Vista Gold Corp. (VGZ) is an international gold mining company based in Littleton, Colorado, with a 20-year history of Gold exploration, development and operations.

Vista has positioned the company to benefit from higher Gold prices and has acquired a number of impressive gold projects from 2001 to 2006.  During 2006 and 2007, Vista completed transactions that resulted in the formation and successful spin-off to its shareholders of Allied Nevada Gold Corp. (ANV).

Since the spin-off, Vista has sold one project and currently holds six projects with an estimated 1.3 million ounces of proven and probable reserves, 12.8 million ounces of measured and indicated resources and 4.6 million ounces inferred.  Vista has undertaken programs to advance the Paredones Amarillos gold project, located in Baja California Sur, Mexico, including a definitive feasibility study, the purchase of long delivery equipment items and the purchase of land for the processing facilities, related infrastructure and the desalination plant.

The results of a Preliminary Economic Assessment completed in 2009 on the Mt. Todd gold project in Australia are encouraging and Vista is undertaking other studies to advance the project. Vista's other holdings include the Yellow Pine gold project in Idaho, Guadalupe de los Reyes gold project in Mexico, Long Valley gold project in California and Awak Mas gold project in Indonesia.

The spin-off of intermediate-producer Allied Nevada has proven to be a huge home run to shareholders.  ANV, which produces Gold in Nevada, has a market capitalization of more than $1 billion, as opposed to micro-cap Vista, which at current prices, has a market capitalization of UNDER $100 million!

Fellow explorer Seabridge Gold, recently featured on Marko's Take, ( has yet to successfully see a project advanced to the production stage with the unbridled sucess of the Allied-Nevada spin-off.

As an explorer, Vista's earnings are fairly meaningless.  More important, by far, is Vista's track record, longevity, management and financial situation.

Vista recently released full-year results.  A quick review of the balance sheet reveals plenty of cash and liquid resources totalling approximately $30 million, or one-third of the Company's entire market capitalization.  Offsetting that somewhat is long-term debt of about $25 million, principally in the form of convertible notes.
The convertible notes are currently "out of the money" with a strike price of $4.80 per share.  The Company has been able to repurchase some of the notes in privately arranged transactions.

In September 2009, Vista successfully sold 10.3 million shares for $2.25 per share - realizing proceeds of $20.3 million, bolstering the balance sheet and providing additional liquidity to fund its ongoing exploration and development.

In the interest of full disclosure, I personally own shares of Vista Gold.

Vista was recently recommended by the excellent technician Clive Maund (

Happy Investing!

Marko's Take

Other investing sites of merit that we recommend:  LeMetropole Cafe ( and StockMavrick ( and Global Green Forex LLC (, a money management firm specializing in foreign exchange trading.

Check out our YouTube channel at (

Thursday, March 18, 2010

Tara Minerals: On A Tear-A

In keeping with this week's theme of pointing out some interesting ideas in the junior precious metals space, we introduce a very unknown company called Tara Minerals Corp. (TARM).

Lately Tara has been quietly vaulting higher.  The stock closed yesterday at $2.50 despite having sold for about $.50 as recently as September 2009.  Tara is, as far as I can tell, completely unknown to most precious metals afficionados, but seems destined to hit the radar screens of the invesment community in short order.

The Company was organized May 12, 2006 and is engaged in the acquisition, exploration and development of mineral resource properties in Mexico.  The Company owns 100% (minus one share) of common stock of American Metal Mining, S.A. de C.V., which was established in December 2006 and operates in México.   All of Tara Minerals’ operations in Mexico are conducted through American Metals Mining, since Mexican law provides that only Mexican corporations are allowed to own mining properties.

Tara Minerals has an interest in several gold/zinc/lead/silver mining properties.  The properties are located in the northern part of the La Reforma Mining District of northeastern Sinaloa State, Mexico, which has been mined for more than 300 years.  The Company believes that this area may potentially host base metals that were never discovered, or exploited, as the result of market conditions, lack of technology, and lack of funding.

Tara Minerals is fully funded and focused on generating revenue from its 100% owned high-grade Gold, Zinc, Lead and Silver Don Roman project.  Production began in the third quarter of 2009 and is expected to generate significant revenue - allowing the financing of all near-term exploration and production goals.

In 2010, the Company is expecting to produce approximately 900,000 ounces of Silver and 24 million pounds of Lead and Zinc concentrate.  The value per tonne of mined rock is currently approximately $350 versus a cost of $80.  Tara has also discovered a rich vein of Gold in its San Felipe property.

Tara's CEO and President is Robert Wheatley, former Director of North and Central American Exploration for Yamana Gold (AUY).

The Company has approximately 50 million shares outstanding, however, 80% is owned by parent company Tara Gold, leaving a fairly small float of approximately 8 million shares.  Tara Mineral expects to seek listing on the American Stock Exchange, which requires a period of greater than 10 consecutive days with a $2 or better share price.  If this listing is realized, the Company will obtain greater access to capital markets and investor accessibility.

For full disclosures purposes, I am currently a shareholder of TARM.

While most investors in precious metals companies will be rewarded, the upcoming environment will prove especially conducive to those who find and select the "sleepers".  Tara Minerals appears to be one of them.

Happy investing!

Marko's Take

For new readers, we are expanding our partners in the investment community.  One of them is StockMavrick, (, a site specializing in under-followed penny stocks in all industries.   For those more interested in political and world events, we will be continuing with our YouTube series which can be accessed at  Finally, we're grateful for the excellent site LeMetropole, which can be accessed here

Wednesday, March 17, 2010

Samex Mining: A Grand "Slam" Ex?

We are getting ever so close to the final precious metals launch into the stratosphere.  In fact, we believe that yesterday's $20 rise in the price of Gold will prove to be the "foreshock" to the earthquake ready to rattle investors.   With that in mind, we're continuing our series on promising junior mining companies.

Today's featured company is a very speculative play called Samex Mining (SMXMF-OTCBB or SXG.V).  This company was first brought to my attention, as was ECU Silver Mining, ( by Bill Murphy's must-read LeMetropole (

But if you're not a reader of LeMetropole, which you should be, you may not know about this incredibly promising company.

Samex is an explorer, which is different than a miner in that explorers chiefly find promising deposits.  How they dispose of those finds can vary.  Some like Vista Gold  Corp. (VGZ) have spun-off projects to shareholders.   Vista spun-off a company called Allied-Nevada Gold Corp. (ANV), which is a first-class producer in, where else, Nevada!

Samex explores the Andean Cordillera of Chile for rich deposits of gold, silver and copper.  This area is one of the most bountifully mineralized regions on Earth, where many of the globe's largest deposits have been discovered.

Normally, I tend to avoid companies that operate in areas that may be considered geo-politically risky.  Just ask the shareholders of Crystallex (KRY), who had their fabulous Venezuelan deposits expropriated by Hugo Chavez.  KRY sold for more than $5 per share in 2007, now languishing at about $.30 and is engaged in a war of words with the Venezuelan Government.  It would a shareholder want to "kry"!

Chile is no Venezuela and is known for mining friendliness.  Since the 1990’s, Chile has been the first port of call in terms of investing in South America and, as a result, numerous foreign companies have developed the country’s burgeoning mining sector.  Chile is recognized as the mining capital of Latin America and can be credited with initiating the investment surge to make Latin America the world’s primary mineral target.

As an explorer, earnings as a barometer of value are entirely irrelevant.  The value is highly qualitative - more a function of the quality of managment, properties owned and the company's ability to maintain funding as it completes its program. 

Samex has been steadily reporting rich finds.  The company's latest press release elaborates (

While Samex is not particularly well capitalized, it was able to realize proceeds of nearly $1.2 million in a warrant offering in November, 2009.  Thus, the company, despite its very low stock price of about $.30 is still able to access capital markets.

Anyone considering investing in Samex has got to look at it as a high risk/potential high return proposition.  This company is not for the feint of heart - as is ANY explorer. 

For disclosure purposes, I am an owner of Samex shares and believe that the high potential rewards MORE than justify the risk.  I would NOT recommend it to anyone... just those who are looking for an excellent roll of the dice and perhaps some diversification in a portfolio of juniors.  I would NOT place Samex as a core holding as I might view either Seabridge Gold ( or Hecla Mining (

Finally, I want to thank our new partners at "Stock Maverick" (, a fabulous website for penny stocks like Samex, although with a broader mandate to cover promising companies in sectors not just limited to commodities and natural resources, as we are at "Marko's Take".  Check it out for some excellent ideas!

Happy investing!

Marko's Take

For new readers, we also have a YouTube channel, which is more oriented toward World Events and Politics, as opposed to pure investment issues.  It can be accessed here:  We will be filming 5 new segments this coming Saturday and start releasing them on a weekly basis, along with our partner, Phoenix Film Group,


Tuesday, March 16, 2010

Peak Oil: Going Mainstream

We've written twice about "Peak Oil", the notion that world oil production has peaked with no possibliltiy of exceeding the brieflly achieved record in 2008. ( and (

The notion of Peak Oil has been controversial, especially given the claims from larger Middle Eastern producers that their reserves keep growing.  Most Middle-Eastern producers, including giant Saudi Arabia, have not let Western scientists access to geological data necessary to verify their reserves.  However, now the conventional wisdom is shifting dramatically.

Kuwait has now admitted that global production will peak in 2014.  Their work represents an updated version of the famous Hubbert Model, which correctly predicted in 1956 that U.S. oil reserves would peak within 20 years.  Many researchers have since tried using the model to predict when worldwide oil production might peak.

Thier prediction is flawed.  Even their own scientists acknowledge that the world continues to consume its oil reserves at a rate of about 2.1%  each year.  According to the Hubbert Model, that rate of decline will accelerate.  They plan to continue including new data that can refine the model as time goes by.

Some, like Marko's Take, have said production has ALREADY peaked, barring the fluke discovery of some unknown humungous, readily accessible oil field.  FAT CHANCE!  One earlier model by Swedish researchers suggested that oil would peak sometime between 2008 and 2018.  Other researchers have argued there are decades to go before oil production goes into irreversible decline.  The only thing they all agree on:  OIL IS FINITE!

The issue's profile was raised recently with a new report projecting increased demand.  After peaking above $140 a barrel in mid-2008, crude oil prices dipped to below $40 in early 2009, as global demand tanked amid the recession.  Prices have been rising ever since and are above $80 now.  Recently, the International Energy Agency (IEA) said it expects demand to resume the sort of growth that was common in recent years.  Much of that growth has involved the modernizing economies of China and India.

Production cycles reflect the influence of new technological innovations in the oil industry, government regulations, economic conditions and political events.  The factors include the discovery of new oil deposits, the recent economic recession (aka DEPRESSION) and the rise of renewable energy.  As we've pointed out, renewable energy, AT THIS TIME, is insufficient to materially dampen the supply for oil FOR YEARS!

A perfect example is Mexico.  The nation, which has been a top oil exporter, has experienced cacscading production and might even begin IMPORTING oil within the decade, the New York Times reports!  Its troubles have arisen from a lack of technology to explore more inaccessible oil deposits and a misguided, nationalistic policy stemming from a 1938 law that banned foreign oil companies.

More complications may still change the ultimate end date for peak oil.  OPEC's latest projection suggests that world oil demand will grow by 900,000 barrels per day in 2010, according to an Associated Press story this week.  That follows a period of low oil demand during the height of the worldwide recession in 2009.

There is now little doubt that Peak Oil is more than just a lunatic "doomsday" notion.  As oil does peak, if even by some fluke, it occurs this year or next year instead of 2008 as we have contended, the result will be  the same:  MUCH HIGHER OIL PRICES!

Marko's Take

We have two video blogs on "Peak Oil" if you wish to familiarize yourself with some of the statistics backing up our assertion.  They can be found here

Monday, March 15, 2010

Seabridge Gold: How To Buy Gold For Under $15 Per Ounce!

As Gold and Silver prepare to launch their imminent maniacal climbs, we've decided to point the spotlight at a few companies of substantial merit for those who don't want to go through the Exchange Traded Fund (ETF) route.

Today's nugget is Seabridge Gold (SA), a company with a vastly different business model than your typical precious metals miner.  The main reason is that Seabridge has no interest in becoming a miner!

Instead, Seabridge Gold  is designed to provide its shareholders with exceptional leverage to a rising gold price through the acquisition and development of existing projects.  From 1999 through 2002, when the gold price was lower, Seabridge acquired nine North American projects with substantial gold resources, including the multi-million ounce Courageous Lake and Kerr-Sulphurets-Mitchell (KSM) deposits. Subsequent exploration by Seabridge has significantly expanded its acquired gold resource base.

Seabridge measures its performance by increasing its gold resources per common share.  Project acquisitions and exploration programs are carefully chosen to ensure that equity dilution required to fund these activities is more than offset by additional ounces of gold resources.

Seabridge pursues several value-enhancing strategies.  First, the Company continues to search for gold projects in North America, which would be accretive in terms of gold ownership and are subject to little geo-political risk.  In addition, Seabridge funds exploration on projects considered likely to expand gold ownership. Finally, Seabridge enters into partnerships to advance its projects toward production, while limiting risk and share dilution.

Seabridge is currently moving ahead with key programs to enhance the value of its KSM project, which is one of the five largest undeveloped gold projects in the world.  Measured and indicated resources now total 38.9 million ounces of gold and 10.0 billion pounds of copper.

While meticulously avoiding major shareholder dilution, the Company completed an equity offering in early March to shore up its balance sheet.  Pursuant to the offering, the Company issued 2,875,000 common shares at a price of $22.90 per share, for aggregate gross proceeds of approximately $65.8 million.

Since the company is primarily in the business of holding mineral deposits, it is not informative to look at earnings.  Instead, Seabridge is an asset play.  While the KSM project holds 38.9 million ounces of Gold, along with substantial Copper resources, the entire company has 64 million ounces.

Fully diluted, the number of shares outstanding following the recent offering is 42.2 million shares.  So, let's do the math:  64 million ounces divided by 42.2 million shares gives Seabridge 1.5 ounces of Gold per share!

SA closed at $21.75 per share on Friday, which, when divided by 1.5 ounces of Gold per share, implies a per ounce valuation of less than $15!  Naturally, one has to consider all the cost of removing the Gold, but even then a recent research report by Seabridge's underwriter, Dahlman Rose, places the Company's valuation well in excess of $100 per share AT CURRENT GOLD PRICES!  What might Seabridge be worth at a $2,000 Gold price?  We'll soon find out!

Disclosure:  I both own some shares of SA and on behalf of others.  The reasons why ought to be obvious.

Marko's Take

For new readers, we hope you thumb through our building archives, which cover everything from politics, world events, economics, finance and occasionally feature individual companies.  For those most world-event and politically inclined, we are in the process of turning our blogs into videos on YouTube.  Our first four video blogs can be found here

Sunday, March 14, 2010

Hecla Mining: At 119 Years Old Producing Record Cash Flow!

Last Friday, we discussed the magnificent earnings results starting to be recorded by the major precious metals miners Goldcorp (GG), Newmont Mining, (NM), and American Barrick (ABX)( and how this is so bullish for the mining sector.

However, phenomenal results have been delivered by the juniors as well.  In today's piece, we're going to take a look at a junior silver miner not only hitting a home run in operations, but attractively priced to give investors some major potential upside.

First a disclosure:  I currently own a position in Hecla Mining Company (HL).  Having said that, I own this position for very good reasons.

Hecla Mining Company (HL) was established in 1891 in northern Idaho's Silver Valley, making it the oldest U.S.-based precious metals mining company in North America and the largest producer of silver in the U.S. Headquartered in Coeur d’Alene, Idaho, this international, publicly traded company is 119 years old.

Hecla mines, processes or explores for silver and gold in the U.S. and Mexico.  The company currently produces silver from two silver mines, Greens Creek and Lucky Friday.  In 2009, the Greens Creek mine in Alaska, which is the sixth largest silver mine in the world, produced 7.5 million ounces of silver; the Lucky Friday mine in northern Idaho produced 3.5 million ounces.  Hecla has two development projects, San Juan Silver in Colorado and San Sebastian near Durango, Mexico.

Approximately 70% of the Greens Creek Mine was acquired from Rio Tinto in April, 2008, for $750 million.  The size of the acquisition, coupled with the timing, nearly brought Hecla to insolvency.  The purchase closely coincided with the peak in precious metals prices and the subsequent freeze in capital markets resulting from the financial meltdown in late summer and fall 2008.  As a result, Hecla was forced to sell stock at extremely depressed levels to raise cash - creating substantial dilution just as operations were hammered by falling Silver and Gold prices.

In the 6-month period from late April 2008 to November 2008, the company's stock fell by a mind-numbing 90% to a low of $1.40.  As operations suffered and capital markets were inaccessible, repayment of the bank debt taken out to complete the deal with Rio Tinto was in substantial doubt.

Since then, Hecla has staged an incredible turnaround and is now poised to handsomely reward shareholders.

Results for full year 2009 were nothing short of stellar.  Operating cash flow was an all-time record of $115 million.  Silver production came in at 10.9 million ounces - a 26% increase over 2008.  Gold production increased to more than 67,000 ounces.

More importantly, the Company reduced cash costs 55% to $1.91 per ounce from the prior year.  As a result, Hecla's net income increased to $54.2 million, the third highest in Hecla's history.  Revenues were $313 million - an all-time annual record.

As a result, the Company was able to repay $161.7 million of bank debt taken on in the acquisition of Green's Creek and establish a new $60 million credit facility.

In the fourth quarter of 2009, Hecla recorded a gross profit of $36 million, the second highest quarter in Hecla's history.  Net income came in at $0.11 per diluted share.  Annualized, this would give Hecla a very attractive Price to Earning Ratio (P/E) of about 12-13, given the closing price of the stock on Friday of $5.50.

Hecla Mining is one of the most attractive junior producers and has virtually no geo-political risk given its operations in Idaho and Alaska.  Given its still very attractive price, which is still less than half its $12 peak in 2008, this company should be considered in any portfolio of junior Gold and Silver miners.

Marko's Take

Next week we begin production of 5 new video blogs soon to be added to our YouTube collection.  Our channel can be accessed at

Saturday, March 13, 2010

Economic Data Strengthens While Fundamentals Weaken!

We are in the midst of what some folks refer to as an "inflection point", a place in time where a significant shift is in the process of occuring.   Just like a well-trained illusionist, they divert your attention to where you should NOT be looking in order to pull off their "magic".

As far as the economy goes, a slew of data continues to pour in adding credence to the notion that we are in a building recovery.  This data is both misleading and guiding the uninformed to make decisions that will prove costly.

Retail sales, a key barometer of economic activity, showed surprising strength.   As reported by the Commerce Department yesterday, they rose last month by 0.3%.  Economists, surveyed by Dow Jones Newswires, had forecast a 0.3% decrease in February sales.  With the Super Bowl early in the month, electronic store sales soared.  (Now, somehow I seem to recall reading somewhere that the weather was lousy and the sales were supposed to be pretty bad! (

Retail sales data are an important indicator of consumer spending.  Consumer spending makes up 70% of demand in the U.S. economy.  The unexpected increase moved Macroeconomic Advisers to push their forecast for first-quarter gross domestic product growth up, by four-tenths to 3.1%.

Excluding the car sector, all other February retail sales rose 0.8%.  Economists had forecast a 0.1% increase.  Excluding automobiles, sales in January rose 0.5%, revised from a previously estimated 0.6% gain.

Then, of course, we had more "good" news as the unemployment rate fell below 10% despite the fact that, on net, jobs were LOST! (

The brilliant Dr. Williams of Shadow Stats ( has weighed in with his ungarbled data to help set the record straight!

Dr. Williams reports that the heavy public hype of the anticipated large jobs gains ahead completely ignores the impact of census hiring.

Accoring to Williams, the census will have only a very temporary impact on employment and virtually no impact on the economy.  While hundreds of thousands of part-time census jobs will boost payroll employment in March through May 2010, they all will be lost in sharp cutbacks in June through September.  That, at least, was the pattern of jobs change around the 2000 census, which also was conducted as of April 1st of that year.  Details of temporary census jobs patterns seen around the last two census periods are available from The Bureau of Labor Statistics (BLS).

The retail sales report for February 2010 indicated a statistically insignificant, seasonally-adjusted monthly gain of 0.34% and followed a revised 0.15% (previously 0.48%) monthly gain in December.  Although the February numbers likely reflected some dampening effect of severe blizzards, the monthly gain was artificially boosted by downward revisions to prior reporting as well as ongoing inflation.

On a year-to-year basis, the February 2010 retail sales were reported up by 3.85% from February 2008, versus a downwardly revised 4.08% (4.71%) annual gain in January.  Rising gasoline and food prices  —  as suggested by increased gasoline station and grocery store revenues  —  accounted for 58% of the reported monthly gain in February sales!

If we remove the effects of inflation, according to Williams, February 2010 retail sales activity likely will show both monthly and annual gains, although the revised real January number has turned negative month-to-month in revision.  

Perhaps this explains why consumer sentiment and among small business owners continues to drop.  The supposedly beneficial economic activity isn't translating into anything material as far as middle-America goes, even if the folks at "Government Sachs" continue to reap huge profits ! ( and (

Are we being unfair to "da boyz club" in Washington, D.C.?  If you think so, TAKE ME ON!

Marko's Take

We realize that times are tough and not many folks have much to spare.  This is a free site and we intend to keep it that way.  There are three fabulous organizations that we support. California Wildlife Center, Carol's Voice and Global Green Forex, whose logos and websites are accessible simply by clicking on them on the right side of this site.  We hope you visit them and consider participating!

Friday, March 12, 2010

Major Gold Producers Deliver Stellar Earnings

Yesterday, precious metals behemoth Goldcorp (GG) reported excellent results for the quarter ended December 31, 2009, joining fellow "Big Three" majors Newmont Mining (NM) and American Barrick (ABX) in "showing precious metal mining company investors the money".  Finally!

Long suffering investors in precious metals mining stocks have had their patience tried by the underperformance of the underlying stocks versus that of the metals themselves.  The reasons were not that complex:  gold and silver miners' profitability was lagging - which might be expected given the higher prices of gold and silver themselves.

The reasons for lagging profitability were varied - including losses from ill-advised hedges to higher input costs, especially oil.  Mining is particularly energy intensive and higher oil prices immediately impact the bottom line.  So, despite higher Gold and Silver price's helping revenue, margins were not improving as oil prices soared, especially in the commodity run-up in early 2008.

Since then, precious metal prices have crept higher, while oil has remained, for the time being, in a comfortable range near $80 per barrel, thus allowing margins to improve.  In addition, the larger Gold and Silver miners, led by American Barrick, have undertaken the painful process of unwinding hedges, giving them more direct benefit from higher Gold prices.  Thus, the foundation has been laid for better earnings, and, as a result, higher precious metals mining company prices.

Goldcorp announced record gold production of 2.42 million ounces during 2009 and generated operating cash flows of $1.2 billion, a 29% increase over 2008.  Average realized gold prices per ounce were significantly higher during the quarter at $1,107 as compared to $797 a year earlier.

Adjusted earnings, which exclude non-cash foreign exchange gains and losses on future income tax liabilities, rose to $182.7 million during the quarter from $84.4 million a year ago.

According to analysts, the company is set to report earnings of $1.13 a share for 2010 and $1.67 a share for 2011, up from $0.49 in 2009.  The stock has 13 buy, 6 hold and 1 sell rating, according to The Street's Analyst ratings guide.

Newmont Mining's report was just as phenomenal.  The largest U.S Gold producer, NM reported quarterly earnings of $1.13 per share versus $0.01 in the similar quarter one year ago.  For full-year 2009, Newmont posted profit of $1.3 billion, or $2.66 a share, up from $831 million, or $1.83 per share, a year earlier.

Sales revenue was $2.518 billion on the quarter, up 90%, also beating Wall Street expectations of $2.02 billion.

American Barrick reported quarterly earnings of $.60 per share - more than doubling last year's $.27 per share, citing higher realized Gold prices.

During the quarter, Barrick completed the elimination of its gold hedges based on an increasingly positive outlook for gold, using net proceeds from both equity and long-term debt offerings.  In the last two years, Barrick has eliminated its legacy project gold hedge position of 9.5 million ounces at an average gold price of about $930 per ounce.

The process of restructuring operations to more fully take advantage of higher gold prices is paying unquestionable dividends.  And, the last roadblock to better prices for precious metal's miners has been removed.

Marko's Take

For new readers, we have begun to convert some of our blogs to YouTube.  They can be seen at  For those of you mystified by the secretive Federal Reserve and what on Earth this institution is all about, our latest video has just been posted.  We have another 5 episodes to be posted over the coming few weeks covering topics such as Social Security and the Personal Income Tax.

Thursday, March 11, 2010

Budget Deficit On Parabolic Path

In February, the U.S. Government ran its largest ever monthly deficit — $221 billion, the U.S. Treasury said in releasing its monthly budget statement Wednesday.  By comparison, the government in February 2009 ran a budget deficit of nearly $194 billion.

The U.S. February deficit came in below the Congressional Budget Office's (CBO's) estimate of $223 billion.  The CBO projected the year-to-date budget deficit would hit $655 billion.

The CBO has forecast a $1.56 trillion deficit for fiscal year 2010, or 10.6% of the economy measured by Gross Domestic Product (GDP).  This funding gap is up from a 9.9%  share of GDP in 2009.  But, the shortfall was forecast to shrink to 8.3% of GDP in 2011.  This would be a drop of 50% from the level Obama inherited when he took office by the time his term ends in January 2013.  Right! (Sarcasm intentional!)

The deficit's rise in 2010 was partly due to the $787 billion stimulus package Obama pushed through Congress soon after taking office last year to fight the recession.  Obama, a Democrat, and ever so eager to accept responsibilty (sarcasm intentional!), pinned the financial mess firmly on his Republican predecessor President George W. Bush. 

The CBO's budget deficit forecasts are premised on some pretty flimsy assumptions, such as that the GDP will grow by 2.7% in 2010, 3.8% in 2011 and more than 4% in successive years.  As readers of Marko's Take already know, the economy is poised to re-enter the second dip of the Double-Dip-Depression, therefore, this assumption is preposterous.

The budget also assumes unemployment will fall to 8.2%  in 2012 from 10% this year, while inflation stays mild and interest rates rise only slightly. 

Government receipts posted a rare increase in February, while soaring spending pushed the nation's year-to-date deficit up to a record $651.60 billion.

The government's fiscal 2010 year-to-date deficit is up 10.5% from fiscal year 2009.

February 2010 marks the 17th consecutive month in which the U.S. has posted a budget deficit.  The country has posted a budget deficit for 43 of the last 56 Februarys.

There was some good news. The government saw its monthly receipts in February increase on a year-over-year basis for the first time in nearly two years.  An increase in corporate tax collections, coupled with lower refunds to individual taxpayers, drove receipts up 23% to $107.52 billion in February 2010 from $87.31 billion in February 2009.

The U.S. spent $16.1 billion last month to service its debt, an annualized amount of approximately $200 billion.  Given the nearly $14 trillion  in national debt, a 1% increase in interest rates would add $140 billion to debt service.  That's why interest rates will NOT be allowed to rise until forced to do so by hyper-inflation and the demands of the market.

Undoubtedly, the "rosy" projections of the CBO will vastly understate the budget deficits that will ultimately be realized.  In turn, this will create demand to borrow more money, which will expand the deficit and the vicious cycle will continue until the U.S. Dollar is debased to nearly worthless.

Think the country's on the right path?  If so, TAKE ME ON!

Marko's Take

Please visit our new YouTube channel at  We have 5 new episodes to be added over the coming weeks.  Stay tuned!

Wednesday, March 10, 2010

FED Speaketh With Forked Tongue

While declaring its allegiance to transparency, no other institution in modern history has ever said so many things to so many people so many times - yet said absolutely NOTHING!

The famous practioner of "FED-Double-Speak" was none other than the "Maestro" Alan Greenspan.  The man had the ability to deliberate on a "yes" or "no" question in 30 minutes without every even giving an answer.  Mr. Greenspan was so well-versed at non-answers, that during routine Q and A sessions in the House and Senate, congress-people routinely nodded off.

Lately, various FED spokespeople have begun the process of telegraphing future interest rate policy, which until recently, they have been hesitant to do.  But on Monday, one of their chief lieutenants, the man charged with implementing FED policy, offered a pretty clear take on the likely timing of a move up in interest rates. The official, New York FED Markets Group chief Brian Sack, who has no formal role in setting monetary policy, suggested in a speech some sort of rate tightening will occur by late year.

“The current configuration of yields and asset prices incorporates expectations that short-term interest rates will begin to rise around the end of this year,” Sack told a group of economists in Virginia. “The markets seem prepared for the risks toward tighter policy,” he said, adding a “decent-sized term premium” on longer-dated yields suggests low chances of a “sizable upward shift in yields" when that tightening comes.

Sack’s speech also provided a road map for the monetary stimulus unwind.  He envisions the FED removing reserves on a temporary basis, then raising rates, while allowing the $1.7 trillion in mortgage and Treasury assets it will have purchased by March to mature.  Any active sales will come much later.  Importantly, he said the actions will be taken by mid-year, lending additional support to the idea the FED can start easing rates up off 0% by year end.

Some Fed officials, like St. Louis FED President James Bullard, have implied that a rate increase may not come this year or next.  On the other hand, New York FED President William Dudley, San Francisco FED President Janet Yellen and Dallas FED President Richard Fisher, have affirmed the need for low rates to be maintained for an extended period.

With so many voices saying different things, what conclusions can we draw?

First of all, any hint that interest rates may rise is premised on the notion that an economic recovery of substance is underway and gathering momentum.  It isn't!  In fact, the FED's ability to predict economic cycles is laughable at best.  As the second-dip of the Double-Dip Depression takes hold, it will absolutely constrain any desire to raise rates.

Second, even IF the FED were to gradually raise interest rates, inflation will accelerate thereby keeping the FED "behind the curve".   Undoubtedly, any increase in interest rates is likely to be substantially less than 1%, while it is virtually certain that the rate of inflation will increase MORE than 1% and probably MUCH more!  As a result, the "real" interest rate will continue to become more negative and any increase in rates will be completely illusory.

Ultimately, the MARKET and not the FED will set interest rates.  At the prevailing absurdly low interest rate structure, the only buyers of substance, such as Japan and China, have curtailed purchases. 

The FED's utter mismanagement of monetary policy, coupled with its propensity to create asset bubble upon asset bubble, has put it and the U.S. Economy in a most unfortunate situation.

Marko's Take

For more background on the FED, how it works and what its mission is, click here (

Tuesday, March 9, 2010

Why Is The Federal Reserve So Frightened Of An Audit?

Despite overwhelming bi-partisan support, the Federal Reserve (FED) continues to fight an audit "tooth and nail".
For some background on the FED you can watch the latest episode of our YouTube series (

It's not too hard to speculate as to why... maybe they have something to hide?  Maybe they've got a HELLUVA LOT to hide!

According to an article in the Huffington Post, which has been covering the ongoing battle to force an audit, the Treasury Department is vehemently opposed to a House-passed measure that would open the Federal Reserve (FED) to an audit by the Government Accountability Office (GAO), a senior Treasury official said yesterday.  The House version has more than 300 co-sponsors.

Instead, the official said the Treasury prefers a preposterously watered-down substitute offered by Rep. Mel Watt and would like to see it enacted as part of the Senate bill.

Watt, a Democrat from North Carolina, has introduced an amendment intended as an alternative to the measure to audit the Federal Reserve introduced by Reps. Ron Paul (R-Texas) and Alan Grayson's (D-Fla.) . But instead of increasing transparency, as the amendment claims to do, Watt's measure would instead make the institution more opaque.

Under the "Watt Amendment, an auditor could not look at loans or liquidity arrangements the FED enters into, the terms of those arrangements, or the effect of those loans and other liquidity deals on "reserves, the balance sheet or financial condition of a Federal reserve bank or the Federal Reserve System."

I guess the FED, like Garth Brooks, has friends in LOW PLACES!

Asked whether he supports the House-passed measure to open the FED to an audit, which was co-sponsored by Reps. Grayson and  Paul, a senior Treasury official stated he is intensely opposed to it.

The official said the measure would undermine the independence of monetary policy and could restrict the ability of the Fed to act in times of crisis.  Ironically, the FED is much better at CREATING crises than solving them!  He said that the GAO already has audit authority and that the chairman routinely testifies before Congress.

Love the FED?  Hate the FED?  TAKE ME ON!

Marko's Take

Monday, March 8, 2010

A Non-Bull In A China Shop!

China certainly has no shortage of investment fans, including such notable names as legendary investor Jimmy Rogers, who, along with billionaire-activist George Soros, co-founded the famous Quantum Fund.  Recently, UBS and Morgan Stanley have turned bullish on Chinese real estate, despite fears that the market is in the midst of a massive bubble.

However, Marko's Take does not share their enthusiasm for China's prospects as articulated in some prior essays.  To recap, China's demographic structure, which has been butchered by its population control efforts, is NOT conducive to long-term prosperity (

China is also experiencing slower growth and  economic stresses resulting from its currency peg to the Dollar (

But, the cracks in the ice continue to spread.  Worsening economic problems have forced China to pare back its planned budgetary outlays.

According to a recent article in the Wall Street Journal, total government spending is slated to increase a relatively modest 11% this year, down from the 21% increase in 2009.  Slower gains in both infrastructure and social programs are expected, China's finance ministry said in a presentation last Friday to the annual meeting of the legislature.  While it promised more money for many of the administration's priorities, like education and housing, new spending was constrained by dim prospects for tax revenue this year.

The reports to the National People's Congress reflect the recent dis-harmony between Chinese official rhetoric, which still emphasizes the need to propel the economy and a series of actions in recent months to slow growth to head off possible overheating.

"There is insufficient internal impetus driving economic growth," Premier Wen Jiabao told delegates to the legislature, warrning of continued weakness in the global economy and persistent problems at home.  Though he pledged that policies supporting economic growth will continue this year, he admitted that the scale is being reduced as the government worries about future strains on its finances.

China will shoot for around 7.5 trillion Yuan (around $1.1 trillion) worth of new local-currency loans this year, lower than the record 9.59 trillion Yuan worth of new loans banks extended last year.  It will also seek to slow growth in broad money supply, or M2, to around 17% this year from nearly 28% in 2009.

One area of particular concern is the country's property market.  Quickly-rising prices in some cities are discouraging many from purchasing homes, creating a political as well as an economic problem.  "Bubble Speak"  is mushrooming among China-watchers too, with some noted critics comparing China's situation to Dubai (

Another issue is the Chinese currency, formerly known as the Renminbi, which has remained pegged to the U.S. Dollar.  Economists and currency-market participants increasingly expect that China will at some point this year allow its currency to rise against the greenback. Inflation in China is picking up as the economy recovers and from the booming increase in money supply.

Trade frictions are also on the rise.  The currency peg has helped the country's exporters take advantage of the recent recovery in world trade, but has drawn increasing criticism from the U.S. and Europe, as well as China's Asian neighbors.  For those critical of Chinese currency policy, Central Bank Governor Zhou Xiaochuan's indication that he is considering an exit from the peg was welcome.

The generally accepted notion that China is THE emerging superpower is quickly becoming more myth than reality.  Those legions of Sino-philes are looking at some unpleasant surprises as China's many policy mistakes filter through the economy. 

Still a fan of investing in China?  TAKE ME ON!

Marko's Take

We expect our next segment on YouTube, explaining the Federal Reserve, to be posted within the next 24 hours.  You can find our new series of video blogs here: