Investing Success - Resource Sector Trading & Investing Advice / Newsletter

2010 promises to be an eventful year on the markets. The smug comfort that exists right now after a stellar recovery from the March 2009 lows may continue for a bit yet, but at some point will give way to a feeling of unease as people are reminded yet again that the markets can be nasty at times.

The Bernanke Fed has pinned short term rates at next to nothing. Clever bankers are scooping up capital almost for free and investing in risk free Bonds to scalp a nice return. Ta' hell with lending money to anybody - just sit back and scalp off some risk free returns and pay yourself a bonus along the way. This will stop in 2010. Bernanke has got to get the banking system lending again. In the closing weeks of 2009 Obama openly chastised the bankers for not lending. This is like giving the Fox a blast of shit for eating your Chickens when you left the door to the Chicken house propped open.

I say by the end of Q1, the Fed moves to raise its short rates in an effort to spur the bankers into action.

Net effect should be a small uptick in the economy as bankers heed to their Obama warning and lend to consumers seeking access to capital for larger ticket purchases. Larry Kudlow of the Kudlow report calls this pending event a mini-boom and I agree with him.

As short rates are nudged upwards, we may see an unwinding of the US Dollar carry trade where Hedge funds were accessing capital cheaply in America for investing opportunities elsewhere. This will be a net positive for the US Dollar.

We are also at a key turning point as far as longer term rates are concerned. As Jim Grant (of Grant's Interest Rate Observer) notes, interest rates move in generational cycles. From the peak in 1982, we have now bottomed. The next 20 years will see a gradual rise in interest rates. For example, the yield on the 30 year bond has risen from <3% to over 4.5% in 2009 alone. Once people start to realize the bond market is no place to be in a rising rate environment, there will be a re-newed interest in equities. When exactly this revelation hits home - I am not sure. Might be in 2010, might be later.

Interest rates nudging up will send out a clear message to buy hard, physical stuff that will keep pace with inflation. Such "stuff" will include the metals, teh grains, the energies, the fertilizers, the mining stocks and the exploration stocks.

2009 was less than kind to the US Dollar. From April right through to the end of November, the trend was down, down and down. A peek at a chart for the Dollar shows that the 200d moving average is at 79. Oddly enough, this is also the Fibonacci 38% retracement of the April to December down-move. The 50% retracement is at 80.5. This level aligns with the consolidation area recorded in June 2009. I think the Dollar will test the 80.5 level soon enough, spurred on by the notion that the economy is holding its own and US equities are not headed for a double dip.

I fervently maintained in 2009 that Gold was not going to skyrocket to $2000 an ounce. Well, looks like going against the herd can pay off. A look at the charts shows that Gold recorded a nice move of just over $300 from August to December 2009. The 50% retracement of this move is at $1075 an ounce - and we have recently tested this level. The 62% retracement of this move would see Gold fall to $1030. We could well see $1030 if the US Dollar keeps pressing higher. If we break $1030, get set to hit the eject button and pull the ripcord on your chute....things could get ugly for the Gold bugs. But, if things do get ugly for Gold, I expect it to be short lived. Going forward I say Gold trades in a range of $950 to $1400.

I say look for some nasty stuff in the Middle East in 2010. Iran is pushing the envelope just a bit too hard. I say (and this is a bold, brazen thing to say...) that Israel takes a swipe at Iran's nuclear operations. Prime Minister Netahyahu has said as much and Mr. Obama is really quite powerless to stop him from enacting such an attack. Oil will trade between $68 and $81 in 2010, but when Israel launches an assault on Iran (or even threatens openly do to so), we could see Oil prices spike to $150. As of year end, the amount of Oil in storage is right where we were at in Dec 2008. The Strategic Petroleum Reserve is chock full and the amount of Distillate and Gasoline product in inventory is at an ample level. So steady as she goes until Israel rocks the boat.

Watch Copper. Inventory levels are below where they were a year ago and price is now around the $3.30/lb mark. Will 2010 see a re-test of the $4/lb price levels? I say quite probably. They say Copper is the metal with the PhD so - the robust Copper market is suggesting to me that the global economy is rebounding and that hard physical "stuff" is in fashion.

As for Lead and Zinc, I see a conundrum. Inventory levels are above where they were a year ago, but yet price keeps rising. Again, this is money moving into physical "stuff". I need to get more clarity on the rising price/rising inventory conundrum, so I shall not offer any more advice just yet on any Lead or Zinc equity stories.

Watch Uranium. The US is drawing closer to that fateful day when the program of dismantling Soviet warheads is finished. In the final days of 2009, Soviet leader Putin was on record as saying he might start increasing his arsenal again. With 104 operating reactors, the US needs to quickly figure out a plan to source Uranium post 2012. As the US diddles and fiddles, China is busy locking in supply agreements with Australia and Africa. Wake up America...

Watch the grains markets in 2010. As the global economy starts to recover, the demand for grains will resume in earnest - driven by an increased desire for more meat protein in diets. To provide meat protein takes animals. To raise animals takes grain. It's that simple. Watch my blog space in 2010 as I make a more concerted effort to share technical chart analysis with readers for things like Oat, Soybean, Wheat and Corn futures.

Ahhhh...the $64,000 question. What will the equity markets do. Well, I have outlined above my thoughts that banks in 2010 will start lending again, but that interest rates will start to trend higher. This lending may spur a mini-boom (to quote Larry Kudlow). Rising rates may also prompt a renewed interest in equities as people exit bond funds. In what order this dance ticket will play out is anyone's guess. Some pundits out there are saying that any rise in rates will choke off economic activity. I disagree. I say the consumer can handle a modest rise in lending rates and I say this because consumers are unlikely to take on more debt than they can comfortably handle. A painful lesson has been learned by the consumer over the past year and a bit - don't live beyond your freakin' means. There is no free lunch. 2009 has seen a stellar rebound in the markets. The S&P500 finished the year at 1115. A move higher to 1156 will complete the 62% retracement of the 2008 decline. I say this is quite likely to play out in Q1. Then, I say we enter a period of sideways consolidation which will take us through the end of Summer 2010. Somewhere along the way in 2010, we may experience a sharp drop - and this may be tied to any sort of move either real or threatened on the part of Israel to take out Iran's nuclear enrichment plants.

When I was a retail broker between 2002 and 2007, I was fortunate to be introduced to a fine gentleman - Don Vialoux of www.timingthemarket.ca.

Don educated me as to the notion that markets move in 16 year long cycles. These long cycles tend to alternate between 16 "nice" years and 16 volatile years. We are over half way through a volatile cycle right now (2000 - 2016) and so far history is living up to its reputation. I remain an ardent student of these cycles and that is why I say we should look for some sort of a sharp drop on 2010 brought on by an external event. For the markets to blissfully continue their unabated rise would be entirely out of character.

Stay tuned to my site during 2010 and I will strive to provide you with my thoughts ( technical, provocative, political and otherwise) on what I see happening in the markets and in the economy. I enjoyed writing in 2009 and I do look forward to an eventful 2010.

2009 has been all about Gold. Many say Gold is headed higher in 2010. Here at InvestingSucces we are taking a more cautious stance. We still feel the seeds of deflation are out there and if not dealt with could prove problematic. Case in point - Japan. This week the Japanese Central Bank injected another huge amount of money into the banking system. Banks can lend this money at 0.1% to stimulate the economy. Will it work? Probably not...

Could Gold act as a safeguard in the event of some deflation wafting over the US landscape? Perhaps it could. Whatever the course of events in 2010, one thing will be for sure. Gold will be volatile and will provide some excellent trading opportunities. The next question then is - which Gold stocks are worthy of looking at as trading candidates?

What follows is a summary of but a handful of Gold stocks that can be found on the markets. In the months to come I will build upon this list. What I have done here is to briefly tell you where the companies are active and how much they have in the ground by way of reserves and/or resources. I then calculate for you what you would be paying per ounce in the ground if you were to buy all of a company's fully diluted shares. You will note that some companies appear to be trading at a low valuation. This often tends to be indicative of a problem with the project. Perhaps the metallurgy is problematic. Perhaps the grade is too low. Others in the list that follows trade at more sensible valuations. These are the ones that will provide the best trading opportunities. In any case, I make clear my thoughts on all the companies in the following list. In future newsletters, I will build upon this list. May the Holiday Season bring you excitement and joy and may 2010 bring continued trading opportunities for all of us.

Terrane is making progress on its Mt. Milligan project in British Columbia, Canada. Terrane reports 482 million tonnes of ore grading 0.2% Copper and 0.39 grams/tonne Gold for contained metal of 2.1 billion lbs Copper and 6 million ozs Gold. Terrane is still waiting for its environmental clearances from the Gov't and expects to recieve this clearance in Q4, 2009. Capex to build the mine is pegged at a whopping $915 million. Mining plans are based on 60,000 tonnes per day of mill throughput. Concentrate will be shipped by rail to the port of Vancouver and thence to Asia by boat. Terrane feels it can make money shipping concentrate to Asia. Wardrop Engineering has calculated a 17% IRR based on $2 Copper and $800 Gold. But - here is my big question. What is the selling cost of the concentrate that Terrane plans to sell? Sadly, I cannot find this data in their 43-101 report. Some quick calculations show that the Mt. Milligan project contains 11.7 million ozs of gold-equivalent based on $3 Copper prices and $1100 Gold. Terrance reports 407 million shares fully diluted. So, on this basis Terrane is worth some $50 per gold-equivalent ounce. My take on Terrane - I remain skeptical. I think the grade is too low and I need to see more info the selling prices of the concentrate before I can get excited. At $1.42 a share, it appears overvalued.

Company is sitting on 860 million tonnes of ore grading 0.65 grams/tonne Gold at the Livengood project in Alaska for contained Gold resources of 7.6 million ounces. Some 60% of the deposit is oxidized and amenable to heap leaching. The balance contains Sulfide geology. Lab scale tests have shown some quite reasonable Gold recoveries which is encouraging. ITH has 56 million shares out and 62 million fully diluted. Shares are trading in the $7 range. On a fully diluted basis, ITH is worth some $57 per ounce of Gold resource. Fairly valued. Good trading candidate.

Tyhee has a Gold project north of Yellowknife in Canada. Reported grades are a healthy 3.4 grams per tonne. Tyhee is reporting Gold resources of 1.5 million ozs. Capex to build a mine will be a decent $150 million. Mine throughput will be 3000 tonnes per day, cash costs will be $400/oz and mine life will be 7 years. The possibility of finding additional Gold mineralization in the area is also good. Lab scale tests show excellent Gold recoveries. Tyhee shows 196.7 million shares basic and 236.7 million fully diluted. On this fully diluted basis, Tyhee is worth $35 per ounce of Gold. Right now work is ongoing to gather data for a feasibility study and for environmental applications. If Tyhee can expand its Gold resource by locating additinal deposits in the area, this could be an interesting story. Watch it....

Northern Freegold has a pair of interesting projects in the Yukon in Canada. On its Nucleus zone located at Freegold Mtn, resources show 67.6 million tonnes at 0.50 grams/tonne for contained Gold resources of 1.08 million ounces. NFR reports 70.5 million shares basic and 96 million fully diluted. Using the fully diluted figure and recent trading price of 33 cents, we see that NFR is valued at $29 per ounce of Gold resource. Certainly much cheaper than other companies out there. But, here is where it gets interesting. NFR also has its Tinta project which contains a resource of 70,000 ounces Gold, 2 million ounces Silver, 8 million pounds Copper, 25.7 million pounds of Lead and 42.8 million pounds of Zinc. The only drawback is the remote location and lack of infrastructure of this Tinta zone. This stock appears to be one to watch. Higher metal prices will make the Tinta project more amenable to infrastructure being input. Delineation of more Gold at the Nucleus Zone will add some jazz to this story.

Cluff has 3 projects - Cote D'Ivoire (100%), Burkina Fasso (78%), and Sierra Leone (100%). Sierra Leone reports total resources of just over 2 million ounces Gold at a respectable 3 grams per tonne. Burkina Fasso reports 800,000 ozs Gold at a decent 1.5 ozs Gold while Cote D'Ivoire has 450,000 ozs Gold at a decent 1.5 grams/tonne. Cluff has been producing at Cote D-Ivoire since 2008. Cluff has 108 million shares basic and 116.5 million fully diluted. Stock is trading at the $1.20 level. Using the fully diluted figure, we see that Cluff is valued at $43 per ounce of Gold resource - not too bad at all. Cluff Gold is certainly one to watch given its track record of being able to bring a producing mine on line.

Lake Shore Gold is situated in the Timmins gold camp in northern Ontario, Canada and I must add this area is seeing quite the revival. Lake Shore reports 3.8 million tonnes of ore at 10.4 grams per tonne for contained Gold resources of 1.2 million ounces. Lake Shore just announced a merger with West Timmins mining so watch for a re-issuance of resource numbers to reflect what the newly combines entity has. The combined entity will have 321 million fully diluted shares. On a per ounce basis with what has been stated as being 43-101 compliant, we see the new entity will be valued at $170 /oz which is way to expensive for me.

Alexandria Minerals is a junior exploration story with 6 projects in northern Ontario,Canada. Projects are all located along a very prolific geological feature called the Cadillac-Larder Break. On just 2 of these projects, Alexandria has unveiled resources of 542,780 ounces Gold at grades around about 1.8 grams/tonne which is decent. Stiock trades at 11 cents and there are 71.4 million shares outstanding basic and about 86 million fully diluted. On a per ounce basis, we see that Alexandria is valued at $17 per ounce of Gold resource which says this stock is undervalued. The Cadillac-Larder break is prolific and as AZX unveils more Gold, the valuation metrics will firm up.

Northgate is a producer with projects in Canada and Australia. A quick check of their website shows Gold reserves and resources of some 14 million ounces. NGX has 290.4 million shares basic and 294 million fully diluted. On a per ounce basis we see that NGX is trading at $72 per ounce. This is a reasonable figure given the fact that the company is a producer. Cash costs are about $540/ounce which is not too awful bad and the company also has 80 cents a share in cash on its balance sheet. Definitely a stock to watch.

Detour Gold is sitting on Canada's largest undeveloped Gold reserve of 8.8 million ounces grading 1.15 grams/tonne. At $900 Gold prices, this project is estimated to produce an IRR of 20% with estimated mining costs of $420 an ounce. Estimated capex to build the mine is set at $844 million. Detour has

49.6 million basic shares and 53.74 million fully diluted. On a fully diluted basis, Detour trades at $101 per ounce. From my perspective, yes this is a good project - but I think it is presently way too far ahead of itself. I will be watching for a cool off of sorts...

NO, this one is not in Timmins, Ontario. Timmins Gold is ramping up for a full production scenario in Sonora State, Mexico. Plans are to produce 80,000 ounces per year at a cash cost of $412/oz using a throughput of 1500 tonnes per day. Total Gold resources are 779,000 ounces. Fully diluted, there are 140 million shares out. Stock is at $1.20 or so. On a fully diluted basis, this company is valued at $215 per ounce of resource which is quite ridiculous...Avoid this one.

Hawthorne is situated in British Columbia,Canada. Its 60% owned Frasergold project comprises Gold resources of 1.8 million ounces grading 0.56 grams/tonne which is a tad low for my liking. Its Taurus prospect has Gold resources grading a bit better at 1 gram/tonne for a contained resource of 1 million ounces. Hawthorne claims to have a mill rated for 270 tonnes per day which is too small by any measure. The company has 77.2 million basic shares and 98.2 million fully diluted. Shares trade at 34 cents. Using the fully diluted figure, we see that Hawthorne is valued at $16 per contained ounce which is cheap. Cheap because the small mill on site is useless to anyone. What Hawthorne needs to start focusing on is building a larger mill, something like 5000 tonnes per day to handle its Taurus project. As for the Frasergold project, the company needs to now start focusing on the requisite environmental studies to eventually get permission to build a mill.

This company is situated in the State of Durango, Mexico. The company reports 14.7 million ounces of Gold on a measured/indicated basis plus 1.9 million ounces of inferred resource. Grade is about 0.65 grams/tonne. CKG has 38.3 million basic shares out and 45 million fully diluted. Shares trade at around $6 a share. On a fully diluted basis, CKG is valued at about $16 per ounce of Gold resource in the ground. Why so cheap you ask? Well....it turns out the mineralization is of the sulfide variety which stands to pose some metallurgical challenges to an eventual mining operation. Here is what the company states on its website: Metallurgical testing at Resource Development Inc. and Hazen Research have demonstrated that the generation of a bulk rougher sulfide flotation concentrate followed by oxidation of the concentrate would achieve high recoveries of gold and silver during subsequent cyanidation. Roasting and pressure oxidation has achieved overall gold recoveries in the range of 85% - 90%.

So, this sounds positive. In addition, the company notes it is working on a feasibility study that is based on 85% recovery and 60,000 tonnes per day mining throughput. I shall be watching closely for this report. I think this company could be a winner if the cost to build a mining operation proves reasonable and if the economics look decent.

Greystar is firmly established in Colombia. Company is reporting 330 million tonnes at 1.09 grams/tonne for contained Gold resources of 11.54 million ounces. But, metallurgical challenges exist. Part of the deposit is oxide variety and part is sulfide mineralization. The oxide portion of the deposit could be heap leached. The sulfide stuff would have to be flotation concentrated and sold as a concentrate product. Greystar has 70.8 million basic and 91.6 million fully diluted. Shares are at about $6. Using the fully diluted figure, we have this company valued at $48 per ounce of Gold. A reasonable figure and a story worth watching...

Andina is focused on its Volcan project in Chile. Company reports total Gold resources in al categories of 9.9 million ounces grading 0.85-0.90 grams/tonne. Basic shares out are 92.9 million, fully diluted there are 99.3 million. Shares trade at about $1.42. Using the fully diluted figure, we see Andina is valued at $14 per ounce of Gold resource. Definitely cheap for such a sizeable deposit, so what gives? Turns out mineralization is of the sufide variety, but apparently leachable at recoveries ranging from 57 to 77%. In the Andean high mountains water is a challenge and Andina must obtain some key environmental permits to gain unfettered access to the water rights. I may watch this one and once I see some progress on the water issue and some more work in the lab to enhance recovery rates I will warm up to the story more.

Crocodile Gold is an Aussie based firm with a series of projects on the go. Measured resources are 6000 tonnes at 17.3 g/tonne for 3400 oz Gold. Indicated resources are 27.8 million grading 1.2 to 4.9 g/tonne for 2.48 million ounces and Inferred Resources are 22.7 million tonnes grading 1 to 4 g/tonne for 1.66 million ounces. Company has 136.7 million basic and 190.8 million fully diluted. Using the fully diluted figure and a share price of $1.38 we see it is valued at $60 per ounce of Gold resource. A reasonable figure given the future potential to add more ounces to the equation going forward. Certainly one to watch.

Give 'em a A+ for effort. These folks have been slogging away in Saskatchewan, Canada for what seems like ever and ever. Basic shares are 152.6 million and fully diluted 190.4 million. Golden Band has Gold resources of 1 million ounces grading between 1 gram/tonne and all the way up to 14 grams per tonne. Shares trade at 28 cents. Using the fully diluted share figure, we see GBN is valued at $53 per ounce. This means that the lowly figure of 28 cents is probably a fair valuation. Why so low? Turns out GBN is having some environmental issues. To make a long story short, their project includes a fully permitted mill. But the tailings pond that they wanted to use had live fish in it. Trying to get Gov't permits to kill a few fish...well good luck with that. Ultimately GBN will succeed and wil become a producer of Gold, but for now we sit and wait as the bureacrats do their thing.

Tungsten, also called wolfram, is a chemical element that has the symbol W on the Periodic Table and atomic number 74. A very hard, heavy, steel-gray to white metal, tungsten is found in several ores including wolframite and scheelite and is remarkable for its robust physical properties, especially the fact that it has the highest melting point of all the non-alloyed metals and the second highest of all the elements after carbon. Tungsten can be cut with a hacksaw when it is very pure (it is brittle and hard to work when impure) and is otherwise worked by forging, drawing, extruding, or sintering. Of all metals at temperatures above 1650 °C (3000 °F), this element has the highest melting point (3422 °C) (6192 °F), lowest vapor pressure and the highest tensile strength. Tungsten has the lowest coefficient of thermal expansion of any pure metal.

The pure form is used mainly in electrical applications but its many compounds and alloys are widely used in many applications, most notably in light bulb filaments, in X-ray tubes (as both the filament and target), and in superalloys. Tungsten is the only metal from the third transition series that is known to occur in biomolecules.

Its corrosion resistance is excellent and it can be attacked only slightly by most mineral acids. Steel alloyed with small quantities of tungsten greatly increases in toughness. The largest use of Tungsten is as tungsten carbide (W2C, WC) in cemented carbides. Cemented carbides (also called hardmetals) are wear-resistant materials used by the metalworking, mining, petroleum and construction industries. Tungsten's high melting point makes it suitable for aerospace and high temperature uses which include electrical, heating, and welding applications, notably in TIG welding. Hardness and density properties make this metal ideal for making heavy metal alloys that are used in armament, heat sinks, and high density applications, such as weights, counterweights, ballast keels for yachts and tail ballast for commercial aircraft. The high density makes it an ideal ingredient for darts, normally 80% and sometimes up to 97%. This allows darts containing tungsten to have a smaller diameter than those of other metals at the same weight, permitting tighter groupings. High speed steel contains tungsten and some tungsten steels contain as much as 18% tungsten. Superalloys containing tungsten are used in turbine blades and wear resistant parts and coatings. Examples are Hastelloy and Stellite. Tungsten powder is used as a filler material in plastic composites which are used as a nontoxic substitute for lead, in bullets, shot, and radiation shields. Tungsten chemical compounds are used in catalysts, inorganic pigments, and tungsten disulfide high-temperature lubricants which are stable to 500 °C (930 °F).

Since this element's thermal expansion is similar to borosilicate glass, it is used for making glass-to-metal seals. It is used in kinetic energy penetrators, usually alloyed with nickel and iron or cobalt, to form heavy alloys, used as an alternative to depleted uranium. Tungsten is used as an interconnect material in integrated circuits. Contact holes are etched in silicon dioxide dielectric material, filled with tungsten and polished to form connections to transistors. Typical contact holes can be as small as 65 nm. Used extensively for shielding in the radiopharmaceutical industry. Tungsten is used in the emitters of focused ion beam and electron microscopes.

Tungsten is also beginning to be used in jewelry. Its hardness makes it ideal for rings that will never scratch, are hypoallergenic and will not need polishing. This property is especially useful in designs with a brushed finish.

Watch what happens in China. With 61 percent of global reserves and more than 75 percent of world mine production, China exerts a major influence over the global tungsten market. The biggest operating tungsten mine in the world is currently the China Minmetals-controlled Xianglushan mine in Jiangxi province, which produces about 2650 tonnes of tungsten a year. Tungsten price trends look positive because the market is figuring out that supply from China will become increasingly restricted. In fact, the Chinese are warning that by 2012 a deficit situation will develop unless export restrictions are imposed.

I think it is abundantly clear that the Tungsten market is going to be robust in the years to come. The trick is to start paying attention for companies that are in the Tungsten space. There are a few in Australia but getting trading access to them could be tricky. I am not sure if a platform like ETrade will allow Aussie stock trading for North American residents. There are several opportunities to look at in North America though. Consider North American Tungsten ( TSXv:NTC). Problem is, they just put their producing mine in the yukon territory in northern Canada on care & maintenance. They do have a new deposit that appears economical, but getting project financing to build it could be tricky. Stock is stalled at 17 cents. Take a look at Playfair Mining (TSXv:PLY) and its Tungsten projects in Newfoundland, Yukon and Northwest Territories. Could be interesting. But the one to really watch ( and evidently the markets are doing that !!!) is Galway Resources (TSXv:GWY) with their Tungsten plays in Nevada and New Mexico. Galway, if it becomes a producer, would be the only Tungsten miner in the USA.

I shall be watching the markets for new players that happen to arrive on the scene with a Tungsten exploration play or two. I shall also be delving into these players a bit deeper and posting my thoughts on blogs and Trading Notes. Stay tuned....

The question on everyone's mind these days is "what is the next commodity that will get the markets excited ?".

Wind power is fast becoming the preferred method for governments to add additional power capacity to their grids. To cite one example, California wants to be generating 20% of its power from wind by 2017. Whether Arnie's cash squeezed State can afford this or not remains to be seen, but talking the "green" talk is where its at these days for the political types. In Canada, various Provinces are ramping up their wind power operations. Just this week, the Province of Saskatchewan was blabbering about more wind turbines in the face of some public pushback over a proposed nuclear reactor.

But, here's the rub. If the wind ain't a blowin', you are not generating electricity. Funny how the political types fail to mention this brief tidbit of information as they wax eloquently about "green" power.

To electrical grid engineers, predictability is the most critical issue. With nuclear and fossil fuel–powered plants, power generation can be controlled from second to second to keep the grid balanced, so the amount of energy being put into the wires exactly matches demand. If the grid goes out of balance, power surges can damage transmission lines and equipment. So, build all the wind turbines you want - unless the reliability of wind power can be improved, engineers will have an increasingly difficult time keeping the system balanced. This raises the spector of power blackouts, which consumers will not tolerate.

But, there is a solution. Some 20 years ago Maria Skyllas-Kazacos, a tenacious professor of electrochemistry at the University of New South Wales in Sydney, Australia invented a battery that can absorb and release huge amounts of electricity at the drop of a hat and do so over and over, making it ideal for smoothing out the flow from wind turbines and solar cells.

Brilliant !! Install banks of these batteries at wind power generating sites and capture the power. When the wind is not blowing sufficiently hard to generate

needed amounts of power, tap into the battery system and release the stored power into the grid.

Maria Skyllas-Kazacos started her research by building on the foundational work on flow batteries done by NASA in the mid-1970s. The space agency’s scientists recognized that flow batteries could store solar power on a spacecraft, but they gave up on them after hitting a snag known as cross-contamination. When two liquid electrolytes made of different substances are separated by a membrane, sooner or later the membrane is permeated and the two substances mix, rendering the battery useless. The early NASA flow batteries, which used iron and chromium, quickly ran down as a result. So, Skyllas-Kazacos set out to find an element that could be used on both sides of the membrane.

After much searching, Skyllas-Kazacos settled on Vanadium, a soft, bright white, relatively abundant metal named for Vanadis, the Scandinavian

goddess of beauty and youth. Vanadium has four oxidation states, known as V(+2), V(+3), V(+4), and V(+5); in each state the element carries a different amount of electric charge.

But, simply having different oxidation states is not enough to make an element work for a liquid battery. The element has to be soluble, too. NASA had considered and rejected vanadium because the technical literature insisted that the solubility—and hence energy density—of the useful V(+5) form of the element was extremely low. Skyllas-Kazacos recognized, however, that just because something appears in print does not necessarily mean it is

true. Previous studies had started by leaving a compound of vanadium, vanadium pentoxide, to dissolve in solution. This was a very slow process that could take days, and it never produced more than a tiny amount of V(+5) in solution. Skyllas-Kazacos approached the problem from a less direct route. She started off with a highly soluble form, V(+4), then oxidized it up to produce a supersaturated solution of V(+5). From then on it became clear that the battery would actually work.

In 1986 came a major milestone: Her university filed for a patent on the vanadium battery. In 1987 Agnew Clough, an Australian vanadium mining company, took out a license on the technology. But nothing came of the deal.

The vanadium battery finally got its first chance to shine in 1991, when Kashima-Kita Electric Power, a Mitsubishi subsidiary located north of Tokyo, took out a new license on the technology. Kashima-Kita powers its generators with Venezuelan pitch, a fuel rich in vanadium. Skyllas-Kazacos’s battery was a perfect fit. Here was a technology that allowed the company to recycle the vanadium from its smokestack soot and flatten out fluctuations in demand for its electricity at the same time. The world’s first large-scale vanadium battery went into operation in 1995, able to deliver 200 kilowatts for four hours—enough to power about 100 homes. It was a success, but Kashima-Kita sold the license and didn’t build another.

The buyer, Sumitomo Electric Industries, a giant Osaka-based company, had been working on NASA-style iron-chromium flow batteries since the early 1980s. Things looked up for Skyllas-Kazacos’s invention when Sumitomo switched to vanadium and licensed the technology in 1997. Three years later Sumitomo began selling vanadium batteries, including a 1.5-megawatt model that provides backup power to a Japanese liquid crystal display factory. By maintaining power during blackouts and thus preventing production losses, the battery reportedly paid for itself in six months.

Sumitomo has since demonstrated vanadium technology in at least 15 other implementations, including a 170-kilowatt battery at a wind farm in Hokkaido.

All are located in Japan, their development subsidized by the government. Sumitomo doesn’t sell outside Japan,possibly due to the battery’s high manufacturing cost.

One company is now taking up the vanadium banner worldwide: Prudent Energy, a Vancouver, British Columbia, start-up that bought most of the early intellectual property rights to the technology. The company is targeting the market for hybrid systems used to power remote, off-grid telecom applications. In places like Africa, cell phone towers are typically powered by little putt-putt diesel engines that run 24/7, By adding a vanadium battery to the system, one can run the diesel generator while charging the battery, turn the diesel off, run the battery, then repeat the cycle nonstop. Prudent has installed 5-kilowatt batteries at two cell phone tower sites in Kenya. The firm’s other recent sales include a 20-kilowatt system, worth $300,000, that will deliver nine hours of backup power for an undisclosed major telecom

company in Sacramento, California. These customers are learning firsthand what Skyllas-Kazacos learned two decades ago. The vanadium battery really works.

One vote of confidence comes from China, where large-scale energy storage systems are needed as backup during natural disasters such as the recent Sichuan earthquake. A group led by Huamin Zhang at the Dalian Institute of Chemical Physics in northern China has finished testing 2-, 5-, and 10-kilowatt vanadium battery modules and is currently evaluating a 100-kilowatt system. Vanadium “will have a potential market in China with the increasing development of renewable energy supported by the Chinese government,”

So the vanadium battery may play a big role both invisibly at the electric utility and very visibly in the home, smoothing out Mother Nature’s rough edges so that renewable power works just as well as coal or natural gas.

Stabilizing a future national grid that draws the majority of its power from renewable sources may seem like a tall order for a technology that delivers megawatts, not gigawatts, of power as it is used today, but some industry

insiders are confident batteries can rise to the challenge. “At this point, [a 1.2-megawatt battery] is fairly large-scale, but we are at the front end of this curve,” Jim Kelly of Southern California Edison says. “Five years

from now that will seem so trivial. It’s like comparing the first personal computer you had with the ones we have today. You look back and laugh. I think we’ll see that same thing happen with the battery industry. We are taking baby steps, in part because the industry is not mature, the technology winners have not been determined, and the costs are still high. But these are all the things you expect as a revolution happens.”

Certainly one will find some pure play Vanadium companies in the marketplace, but there is a more unique approach - one that I like to call a "two fer". That is, an opportunity where you can get two for one. The unique approach I talk about is the Colorado Plateau. This geologic feature is predominant in the 4-corners area of the USA where Arizona, New Mexico, Utah and Colorado meet.

The mineralogy on the Plateau contains both Uranium and Vanadium. Typically this ratio is 5:1. So, for every pound of Uranium in a deposit, there will be 5 pounds of Vanadium. So, find yourself an exploration firm with Uranium projects on the Colarado Plateau and you will have an ideal Vanadium play as well. Examples include Strategic Resources (TSXv:UVR) with its project in the Datil Mountains of New Mexico, Laramide Resources (TSX:LAM) with its LaJara Mesa Project, Strathmore Minerals (TSX:STM) with its Roca Honda Project and of course Denison Mining (TSX: DML).

The price of Vanadium has certainly fallen as part pf the global financial crisis, but prices have recovered nicely from last April's lows to now trade in the $7 range.

For sure, the Vanadium battery is in its early stages. But, then again, that's what we were saying about Lithium last year at this time and look at what the Lithium stocks have done lately.

Mention the word Lithium these days and investors break into a feverish sweat and reach for the phone to call their Financial advisor. Lithium stocks have surged lately as the marketplace senses that battery powered cars may be the wave of the future. General Motors has now started construction of its $43 million Lithium battery production facility in Brownston Township, Michigan. This facility will produce some 300 Lithium-ion batteries a day once operational in 2010. The VOLT electric car is expected to make its debut in late 2010. The excitement surrounding electric cars is bound to intensify as other auto makers announce their respective versions of electric cars. In an interesting move, Toyota has now announced that it will be using Lithium ion batteries in its 2010 model Prius. Daimler AG has taken a 10% equity stake in electric car maker Tesla which uses Lithium battery technology to power its cars.

Simply stated, the demand for Lithium by the traditional battery industry is growing in leaps and bounds. Global output of Lithium in 2010 is projected at 130,000 tonnes and the battery industry will take up fully 1/3 of this output. The traditional battery industry is consuming more Lithium every year at a double digit rate of increase. Take a look around and see where Lithium batteries are used in your routine. Laptops, camcorders, calculators, and the list goes on. I have even started seeing Lithium based AA and AAA batteries for sale at WalMart. By 2015, if the traditional battery industry keeps growing as it has been, we will see a literal head-butting contest between the traditional battery industry and the automotive sector as electric cars powered by Lithium-ion batteries become widely available to consumers. With the potential for this competitive head butting contest on the horizon, small wonder then that the crowds have swarmed into these Lithium related stocks.

So does this mean you should follow the crowds and pile into Lithium related stocks right now? At www.investingsuccess.ca we say – caveat emptor – buyer beware at this juncture. The financial markets are doing what they do best right now – delivering price discovery. There is an equilibrium price somewhere out there for these Lithium related stocks. The next several months should see a gradual calming of the choppy waters and a leveling off of the parabolic curves that so many of these stock charts have come to resemble. As we wait for this settling out, investors should take the time to gain a more detailed understanding of the Lithium market. What follows is what we call An Investor's Roadmap to Lithium Stocks. While by no means the definitive, seminal work on the subject, what follows will provide one with a handy guideline to assist with investment decisions.

Lithium is the 3rd element on the Periodic Table of Elements. It is a silvery white metal, softer than lead but with a density about half that of water. Lithium first came into serious recognition during WW 2 when it was used in alkaline batteries to power submarines. Additional uses were then found in lubricating greases for both high and low temperature extremes. As the space age evolved, Lithium found a use in ceramic material that could withstand high temperatures. In the 1950’s the Atomic Energy Commission used Lithium Hydroxide to extract the Lithium -6 isotope for use in the Hydrogen bomb. Lithium during this time period came from hard rock deposits in places like Canada, Rhodesia and North Carolina.

Right now, the bulk of the world’s Lithium currently comes from South America where it is extracted from brine waters. In the 1970’s, the Chilean Geological Institute discovered high concentrations of Lithium in an area called Salar de Atacama in the northern part of the country. By 1988 Chile had become the world’s largest supplier of Lithium Carbonate. Meantime, the Argentinians discovered a similar brine deposit at Salar del Hombre Muerto. At Salar de Atacama the brines are extracted and evaporation quickly removes any water in the brines thus leaving a concentrated Lithium salt which is then refined into Lithium Carbonate. The Chileans reckon they are sitting on nearly 7 million tonnes of Lithium in the Salar de Atacama. A more conservative estimate by the US Geological Survey says there are more like 3 million tonnes. Production data obtained by the USGS suggests that the Chileans have extracted some 500,000 tonnes of Lithium to date from this area. Annual production is approaching 60,000 tonnes a year. Although the numbers suggest that at this rate, there is enough Lithium in Chile to last the world for a long time, there is one caveat to note. That is, the Chileans have been “high grading” the deposit. The cream of the crop has probably been removed by now. Going forward, production will come from lower grade areas of the Salar which will mean higher production costs. This notion has for sure added some fuel to the investor frenzy.

At Salar del Hombre Muerto in Argentina, a proprietary process involving adsorbtion onto alumina is used to extract Lithium from the brine solutions. It is estimated that this area contains some 375,000 tonnes of Lithium and at an annual production rate of 15,000 tonnes, there is enough to last a while. But, this deposit is quite small by comparison which too has added to the investor frenzy.

The Bolivians have recently discovered Lithium at the Salar de Uyuni. No production has taken place yet, but the USGS estimates that the deposit contains up to 5 million tonnes of Lithium. The one complicating factor is the presence of Magnesium which will have to be removed by adding Calcium Hydroxide at an additional operating cost before the Lithium can be recovered. It should also be noted that the thickness of Lithium-containing material at this salar area is only some 11 meters – much shallower than the deposits in Chile and Argentina. If production from Salar de Uyuni can be brought on in an economic fashion, great - the current frenzy will have time for a short breather. If, however, problems are encountered or if the economics prove marginal, expect global Lithium prices to increase. Then there is the environmental card. Salar de Uyuni is a breeding ground for flamingos and pressures from the World Wildlife Federation are already starting to mount. It will be interesting indeed to see how Bolivian President Evo Morales handles the situation. If he concedes to the environmentalists - look out - the Lithium market will literally catch fire when it becomes apparent that this future supply is off the table.

Despite the amounts of Lithium present in South America, the market is signaling that additional sources must be found in order to meet future demand projections for the automotive industry. This has prompted a veritable flurry of activity in Canada and the USA. The remainder of this report will now focus on several of the companies that have been involved in this scramble to obtain new Lithium projects.

The Clayton Valley area of Nevada is situated in Esmeralda County, 200 odd miles northwest of Las Vegas, near the town of Tonopah, NV. This area is the home to the only Lithium producer in the USA today. The history of this area extends back to the 1960’s when the Foote Chemcial Company (now called Chemetall Foote) pioneered the extraction of Lithium from brine wells in the area. Geologically, Clayton Valley and Fish Valley are depressions filled with clay minerals, volcanic sands, gypsum and halite. These sediments are saturated with a sodium chloride bnine. At Chemetall Foote, this brine is pumped to surface and sent to a vast array of solar evaporation ponds covering 4000 acres. Lithium in the brine is at a concentration of 100-300 ppm. After a 12-18 month drying period, the water evaporates and the Li concentration approaches an optimal 5000 ppm. It is then sent off to a treatment plant where Soda Ash is added to precipitate out Lithium Carbonate. Chemetall Foote has been very tight lipped about its production parameters and remaining reserves. If one digs deep enough into various US Gov’t and State Geological websites, what emerges is the notion that the remaining brines in the Clayton Valley area are on the decline. This notion is another big part of what is driving the frenzy in the Lithium market today.

There are two companies that have staked claims in this area. One is Rodinia Minerals (TSXv:RM) and the other is TNR Gold ( TSXv:TNR).

Rodinia has staked 50,000 acres of land and is planning an aggressive exploration program. What investors absolutely must come to terms with is the concept of time. In the USA, mineral exploration programs must be approved at both State level and by the Bureau of Land Management at the Federal level. Dealing with these agencies can be time consuming and getting approvals for exploratory drilling can take 6-9 months if all goes well. If an Environmental Assessment (EA) or an Environmental Impact Study (EIS) is requested, this time frame can quickly mushroom. Rodinia has seen its share price record a classic wave pattern from lows made in February 2009. At this time of writing, the stock has completed a 5 wave pattern and is now consolidating. A move below the June 2009 swing high at 50 cents could signal that consolidation is underway in an earnest fashion. Be careful with this one until you get a clearer sense of how the exploratory drilling permitting process is going. Also, I am a bit worried about the notion floating around out there that the Lithium brines in this area may be on the decline. Just keep this in mind if you are taking any kind of a substantive position in Rodinia.

TNR Gold has staked 960 acres in nearby Fish Valley. Again, same thing – TNR will have to go through the lengthy permitting process to get drilling approvals. And, if nearby Clayton Valley might be on the decline, one will have to keep a close watch on TNR shares if taking a large position just in case this Fish Valley play does not pan out. But, TNR has taken matters a step further to protect shareholder value and has acquired a unique Lithium brine project in Argentina and has applied for exploration licenses on a hard rock pegmatite project in Ireland. The Argentine project covers an entire old salt flat (called a “salar”). An exploration program is set to get underway shortly. Results from this program could give the stock some good interim momentum while it goes through the permitting process in the USA. TNR is also developing plans to spin off its Lithium assets into a separate company to be called International Lithium. Watch this story closely.

Keep an eye on Pershing, Churchill and Humboldt counties in Nevada. Junior explorer Ashburton Ventures (TSXv:ABR) has just acquired 37 lode claims (740 acres) in Pershing and Churchill counties. This geology in these more northern areas of Nevada is primarily clay mineralogy. The Lithium is present in these clays at concentrations of up to 0.50%. A number of large US firms studied this clay mineralogy in the 1970s and 1980s. Energy giant, Chevron, ended up patenting a process which involves heating a slurry mixture of clay material and then adding Soda Ash to precipitate out a Lithium Carbonate product. This process has never been commercialized so the economics of it are not firmly established right now. In Humboldt county near the Oregon state line, Western Lithium (TSXv:WLC) has assembled a huge land base and has done considerable work to identify a resource of 11 million tonnes of Lithium Carbonate equivalent. Western Lithium has delivered a classic measured move on the charts and is now consolidating. Given that the team at Western Lithium led by Pamela Klessig have already identified a resource in the ground, this is one stock to watch closely for attractive buying opportunities.

Canada too has seen some interesting activity of late on the Lithium front. The Research Council of Alberta has historical data that suggests the presence of ample amounts of Lithium in deep brines associated with oil and gas resources in the west central part of the province. WestStar Resources (TSXv: WER) and First Lithium ( TSXv: MCI) have acquired properties that are highly prospective. Keep an eye on these two stories to see how events shape up.

Canada also has a number of areas that have geological structures with hard rock, Lithium-bearing, pegmatite formations. First Lithium recently announced that it will soon be issuing its 43-101 compliant report on its Godslith project in Manitoba. Previous work on this project many years ago by Inco reported a resource of 4.8 million tonnes of rock containing just over 1% Lithium.

In 2008 Canada Lithium (TSXv:CLQ) under the skillful leadership of CEO Judy Baker acquired a former producing Lithium mine near Val D’Or, Quebec from IAMGOLD. Japanese trading house Mitsui has now entered into a marketing agreement for production that could come out of this project. Canada Lithium continues to work with SGS Lakefield Research to optimize a metallurgical process for Lithium Carbonate recovery. Definitely a story to watch. The stock has had a good run of late and is now consolidating.

Lithium One (TSXv:LI) has a 224 hectare property in northern Quebec near the Eastmain River. Historical work on this property dates back to the early 1970s. Pegmatitic dykes in the area are thought to contain 121,000 tonnes of Lithium-bearing pegmatite per 100 vertical meters. Based on the limited historical drilling done in the 1970s, there is potential for 12 million tonnes of ore in the immediate area at grades up to 1.7% Li. Lithium One stock has had a powerful ride from pennies a share all the way to $1.80 a share. Some consolidation is in order, but do keep a close watch on this stock and use any market weakness to perhaps build a small position. One of the key drivers behind this story is management. Lithium One is closely related to Potash One and to a soon to be formed company - Copper One.

The last Canadian play I will mention is Avalon Ventures (TSX:AVL). Avalon is primarlily focused on rare-earth mineral plays, but it does have its Big Whopper project near Kenora, Ontario. A quick scan of the company website did not reveal any major news on this Lithium play, so I remain uncertain as to what is happening.

So, no shortage of companies to look at – that’s for sure. Just be aware that current prices of just about all of these Lithium stocks are not sustainable. There will be a consolidation and this appears to be underway right now. Let the consolidation play itself out. Going forward, I suspect there will be enough of a trading range on all these stocks for the nimble player to have considerable fun. The Lithium story is just evolving. If the electric car theme catches on - and I am sure it will - the Lithium sector will be a great place to play in for the next number of years.

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As an engineering student in the mid-1980s, I was required to take at least one social science type elective course. My Professors argued that I should take an economics course as every engineering student needed to have a basic understanding of the social science called economics. I followed this sage advice and I must admit I thoroughly enjoyed the macroeconomcs portion of the course by far the most. Later in the 1990's when I took my MBA degree I again found myself enjoying macroeconomics as the course material steered me deeper into the thinking of people like Keynes and Milton Friedman.

Sadly today we find ourselves at a dark crossroads with only a tattered and worn roadmap to guide us forward. Macroeconomics has been seriously discredited. Nobel Prize laureate and leading economics thinker Paul Krugman says " the past 30 years of macroeconomics has been spectacularly useless at best and positively harmful at worst". A stinging criticism if ever there was one.

The history of macroeconomics starts in the mid-1930s when economist John Maynard Keynes challenged the then widely held belief that full employment in an economy will always prevail. What people earn, they either spend or invest. Nothing gets left behind according to the classical

beliefs. Keynes advanced the idea that investment was governed by "animal spirits" within entrpreneurs as they faced an uncertain outcome of their ventures. Likewise, this same uncertainty drove individuals to hoard some of their money as liquid cash rather than invest it. This so called "liquidity preference theory" eventually came to hold sway over the financial markets and interest rates. Keynes published his ideas in 1936 in the "General Theory of Employment, Interest & Money". If the "animal spririts" surged and people hoarded money, he argued, the economy would falter and unemployment would rise. Keynes argued that the Government should bear a responsibility to manage the demand in an economy by cutting interest rates and spending taxpayer dollars on stimulative public works projects that would create jobs.

This mode of thinking was largely adhered to right up until the 1970s when the North American economy experienced for the first time something called "stagflation" - a lethal combination of inflation and stagnant growth. This stagflation conundrum led to a split of the macroeconomcs academic field into two camps -the purists and the pragmatists. The purists argued that Central Bankers should refrain from meddlesome policies because the economy over time will always right itself. The pragmatists argued that policymakers should by all means meddle in an effort to revive the economy. The high inflation and stagnant growth that marked the 1970's eventually did correct itself after Paul Volcker at the Federal Reserve raised interest rates dramatically high in a successful attempt to wring the neck of inflation. As the 1980s got underway, pursists and pragmatists reached a middle of the road concensus on matters relating to macroeconomics and a period of quiessence ensued.

In the early 1970s, economists began giving thought to asset prices. Eugene Fama at the University of Chicago began exploring a theory that said the price of an asset always reflects the amount of available information in the public domain that is relevant to its price. In 1978 economist Michael Jensen took the matter one step further and boldly announced that there was no other theory with more solid empirical

evidence supporting it than the Efficient Market Hypothesis (EMH). From the EMH it then followed that any price deviations in a financial asset would not last for long and that bubbles could not form.

Wall Street embraced the EMH and went on to structure the profession of financial engineering around these notions. Derivatives ranging from simple futures and options to the infinitely more complicated credit default swaps and collateralized debt obligations soon became the norm on Wall Street. People entering the brokerage profession were beaten over the head with the notion of the EMH. The much coveted CFA designation also embraced the EMH with open arms. As a CFA candidate in 2004, it simply got to the point where I could no longer stomach the nonsense being touted in the CFA texts. In Canada, even the Canadian Securities Course - which every Investment Advisor must take - was firmly in the EMH camp. Politicians too embraced EMH. The Reagan, Bush and Clinton administrations embraced the EMH notion and made big strides to allow the markets to regulate themselves. Looking back, we now call this "laissez faire" economics. This mode of thinking contributed to the behavior of Alan Greenspan at the Federal Reserve who not so subtly structured his policy around asset valuations in the market place. Laissez faire economic thinking culminated in an aggressive move that saw passing of the Gramm Beach Bliley Act in 1999. This Act effectively dismantled the Glass Steagall Act of 1933. With this repeal, banks could now own other financial companies.

As we all have now painfully realized, a deregulated financial industry is not necessarily capable of acting un-supervised. The past number of years have also underscored the weakness of the Efficient Market Hypothesis (EMH).

The Long Term Capital Management (LTCM) fiasco of 1998 that saw a group of Ph.D. experts make and subsequently lose massive sums of money in itself was a stunningly clear cut example that the Efficient Market Hypothesis does not work.

When the Nasdaq was at the 1150 level in 1997, that price level (in theory anyhow) was an unbiased reflection of all information including the risk.

In 2000 when the Nasdaq surged to over 5000, are we then to believe that this price level too was an unbiased reflection of the risk involved and a reflection of fair value? In 2003 when the Nasdaq had crashed back to the 1150 level, are we to believe that this price level was a reflection of the risk ? Try explaining this to the individual investors that lost heavily in high-tech and dot-com stocks that their financial advisors had told them to buy.

Are we to believe that those sliced and diced tranches of collateralized debt that Moody's and Fitch gave AAA ratings to were fairly priced? Are we to believe that those savvy investors who made huge sums of wealth from the collapse of sub-prime mortgages did so purely by accident?

As we now sit at a dark and dusty crossroads, the financial industry is admitting it is somewhat lost and is thus willing to look at new ideas to get itself back on track. On a recent flight from Toronto, I took the time to read a new book - The Origin of Financial Crises - by George Cooper (2008).

George Cooper is a former investment banker who today makes his home in London, England. To find this book, call the folks at Books for Business on Adelaide Street in Toronto at (416) 362-7822 or go to their website at http://www.booksforbusiness.com

Mr. Cooper does an eloquent job of tackling the whole Efficient Market Hypothesis head on, no punches spared. He then goes on to present in an equally eloquent fashion the thinking of one Hyman Minsky, an economist who receives far too little recognition in our "efficient" world.

Minsky is noted for his Financial Instability Hypothesis. Where the Efficient Market Hypothesis argues that markets will strive towards a state of equilibrium being influenced along the way by external stressors, Minsky's theory of Instability argues that financial markets can generate their own internal stressors that cause waves of credit expansion and asset inflation followed by waves of credit contraction and asset deflation.

Mr. Cooper then goes on to weave into the fabric of this book a critical examination of Central Banks and their flawed policies. As he points out, if markets are so efficient, then why do we even need Ben Bernanke and the FOMC to set key interest rates? Why not just let the market forces take care of that task ?

Sadly, today we have what Mr. Cooper calls an assymetric governance system. During economic expansions, responses from the Fed are slow and delayed, but during economic contractions the response is swift and sure. Think about recent events and you are sure to agree. Alan Greenspan could have easily slowed the housing bubble, but no - he took a hands-off, "laissez faire" approach. Now that crisis is upon us, the Fed is throwing money out of helicopters... or so it seems.

Mr. Cooper concludes that we should scrap the Efficient Market Hypothesis and embrace the leanings of Minsky and his Instability Hypothesis.

Behavioural Economics is another school of thought now gaining credibility. This notion posits that human beings tend to be too confident of their own abilities and tend to extrapolate trends into the future. This is the stuff bubbles are made of. Ask yourself, how many times you have heard a friend or neighbor brag about how much his house has risen in value since he bought it and how high he thinks it will go. Behavioral economics also asserts that as market prices correct, people can act irrationally and sell in a panic thus exagerating the depths of the sell-off. One of the most noted proponents of behavioral economics is Robert Shiller of Yale University. He is most noted for the Case Shiller Housing Index which accurately forsaw the coming housing debacle.

Lastly, a school of thought that is trying to gain momentum under the guidance of M.I.T. Professor Andrew Lo is that of the "Adaptive Market Hypothsis". Dr. Lo argures that humans work by trial and error. If one investment strategy does not work , they try another. Thus old strategies become obsolete and new ones are called for. Dr. Lo is calling for an independent investigative board to examine all financial failures, much like the NTSB investigates all civilian airline accidents.

The case is exceedingly clear. Macroeconomics has entered a dark period and must be redefined and reinvented. The concept of risk needs to be re-examined. The role of Central Bankers needs to be looked at with a

sceptical eye. The idea of bubbles has to be critically reviewed. Economics professors must come out of their dark office corners and walk down the hall to embrace Finance professors. New theories to explain how and why liquidity can suddenly sieze up must be set forth.

As we begin to do these things, the way forward from the current dark crossroads will become clearer and new light will be cast upon macroeconomics as a social science.

The notion of the Efficient Market Hypothesis pervades the material that people read when preparing for a career in the financial industry. The Canadian Securities Course ( a complete joke !! if there ever was one) as well as the material for the CFA designation are full of references to the Efficient Market Hypothesis.

Let me share with you a snippet from one my CFA textbooks that still adorn my bookshelves. I must add, these books make wonderful dust collectors !

" Security prices adjust rapidly because profit maximizing investors are competing against one another".

" Because security prices adjust to all new information, the security prices that prevail at any given time are an unbiased reflection of all currently available information including the risk involved in owning the security".

Now, here is a snippet or two from a book used in conjunction with the Canadian Securities Course.

" An Efficient Market is one in which every security price equals its fair or intrinsic value"

" In a market following the weak form of the EMH ( efficient market hypothesis), it is impossible to make abnormal profits by using past prices to formulate buying and selling decisions".

" In a market following the semi-strong form of the EMH, it is impossible to make abnormal profits by using publicly available information to formulate buying and selling decisions"

"In a market following the strong form of the EMH, it is impossible to make abnormal profits by using publicly or privately available information to formulate buying and selling decisions"

Let's take a more simplistic view of this crap that is force fed to people in the financial industry.

When the Nasdaq was at the 1150 level in 1997, that price level was an unbiased reflection of all information including the risk.

In 2000 when the Nasdaq surged to over 5000, are we then to believe that this price level too was an unbiased reflection of the risk involved and a reflection of fair value?

In 2003 when the Nasdaq was again at the 1150 level, are we to believe that this price level was a reflection of the risk ?

Are we to believe that those sliced and diced tranches of collateralized debt that Moody's and Fitch gave AAA ratings to were fairly priced?

Are we to believe that those savvy investors who made huge sums of wealth from the collapse of sub-prime mortgages did so purely by accident?

Efficient Market Hypothesis my ass !! The crap that people are being fed in the financial industry is apalling. Combine this with the laissez-faire attitude of securities regulators and I think we can begin to see the whys and wherefores of the boom-bust, merry-go-round situation we find ourselves in today.

On a recent Air Canada flight from Toronto to Regina I took the time to read a new book - The Origin of Financial Crises - by George Cooper (2008).

Mr. Cooper does an eloquent job of tackling the whole Efficient Market Hypothesis head on, no punches spared. He then goes on to present in an equally eloquent fashion the thinking of one Hyman Minsky, an economist who recieves far too little recognition in our "efficient" world.

Sadly, today we have what Mr. Cooper calls an assymetric governance system. During economic expansions, responses from the Fed are slow and delayed, but during economic contractions the response is swift and sure. Think about recent events and you are sure to agree. Maestro Greenspan could have easily slowed the housing bubble, but no - he took a hands-off approach. Now that crisis is upon us, the Fed is throwing money out of helicopters...

Mr. Cooper concludes that we should scrap the Efficient Market Hypothesis and embrace the leanings of Minsky and his Instability Hypothesis.

He further goes on to conclude that right now at this critical juncture in time, our options are severely limited. While not entirely pallatable, about the only option available is to fire up the printing presses and print money to try to wiggle our way out of the current mess. And if we look around, we can easily see that this is already the course that the Federal Reserve and Congress have opted for. As we emerge from this chaos, our leading financial guardians must then quickly move to adopt a new way of thinking, for if they do not.... we will find ourselves back in the same scenario again, except next time it could be so bad that we cannot recover.

I highly recommend this book. It is an easy read and it will change the way you think about finance....

The Commodity Supercycle Report

www.investingsuccess.ca

Malcolm Bucholtz B.Sc, MBA

June 2009 Edition

Uranium - An Investor's Guide _Part 2

In this edition of the Supercycle Report, I continue my look at the various types of uranium deposits that investors should be aware of with a review of 4 particular models.

Quartz Pebble Conglomerate

Quartz pebble conglomerate type deposits are generally made up of a mix of 55% archean rocks ( old rocks.....) and pegmatite plus 45% quartz veining. Over geological time, this material has been moved around and re-deposited. The quartz veins often ( but don't always ) contain Gold. Perhaps the most striking example of this type of deposit occurs in S. Africa in the Witwatersrand Basin. Take a look at a company called First Uranium ( TSX: FIU). Another less than stellar example of this deposit type occurs in the Elliot Lake area of Ontario, Canada. This area was mined in the 1970's but shut down in the early 80's when falling uranium prices made it un-economic. One company that has been trying to generate excitement in Elliot Lake is Pele Mountain Resources ( TSXv:GEM). Pele has an inferred resource with some low grades ( 0.04% ). How much of this inferred resource can ultimately be deemed proven and probable remains to be seen. Investors should be careful with this one. Could be lots of sizzle, but not much steak. Investors also need to be careful with these resource estimates. An inferred resource is something companies love to promote heavily. Sadly, it means very little as an inferred resource simply means that - the mineralization is inferred to be there, or is probably there.

Calcrete Deposits

A calcrete deposit is one in which uranium occurs in nearer to surface sand and clay deposits that have been cemented by calcium and magnesium carbonates. Grades in these deposits tend to be modest. Over geological time, uranium rich granite and volcanic rock has been liberated of its uranium by oxidizing surface water flows. The uranium has been redeposited in shallow basin catchment areas. There are a couple notable stories pertaining to calcrete deposits. In Namibia, Paladin Resources (TSX:PDN) is pursuing its Langer Heinrich deposit with good success. In Australia, Encounter Resources is pursuing what is now being called the world's largest calcrete deposit ( the Yeelirrie Deposit) in Western Australia near the town of Wiluna. Watch this one....

Sandstone Deposits

Sandstone deposits are common in the SW part of the USA. In late Jurassic time, sandstone sediments were spread out in fluvial fans and in channels over top of beds of existing shale material. Oxidizing ground waters then remobilized the uranium in this sandstone sediment and percolated it downwards where it contacted reduced plant debris, FeS, H2S and chlorite type rock. At this redox boundary, the uranium precipitated out. So, in a sense, it can be argued that a sandstone deposit is also an unconformity type deposit as the sandstone layers do rest unconformably on top of the shale layers. The area around Grant's, New Mexico has prolific amounts of uranium in a sandstone type deposit, but this area right now is a political hotspot rife with First Nations issues. There are a number of firms with projects in the area, but until the politics are resolved, little will happen. Laramide Resources (TSX: LAM) is one notable player in the area with its Laharah Mesa project. Another to watch is Strathmore (TSX:STM) with its Roca Honda project. The Uravan Mineral Belt which extends up into Utah and Colorado is also noted for its sandstone type deposits. Be careful with Colorado, though. This State is ripe with tree huggers and nature lovers. Not a good place to walk into a local coffee shop and announce that you are a uranium exploration firm. Utah, by contrast, is much more friendly and if looking at a company involved in the Uravan Mineral Belt, make sure they are in the Utah portion of the mineral belt. Further to the south, there is an area south and west of Albuquerque, NM that is getting some attention now. The Red Basin area is a sandstone type deposit that was aggressively explored during the last uranium cycle by the likes of Gulf Oil, Occidental Petroleum, Anaconda Mining and Federal Resources. One player of note in this area is Strategic Resources (TSXv: UVR). In Wyoming and also on the south Texas Gulf Coast, sandstone type deposits take on a feature called roll fronts. Oxidizing ground waters have liberated and carried uranium laterally through sandstone type geology where it has contacted humates (old rotten vegetation and carbonaceous material). This has caused uranium to precipitate out in a "C" shaped formation, or roll front. In these areas, the sandstone has a semi-permeable layer of shale above and below it, creating almost an aquifer. In Wyoming and also in south Texas, the plan is to inject fluids into this so called aquifer and then pump them back up to surface. This method of uranium recovery is called in-situ leach (ISL) or in-situ recovery (ISR). Note that for ISL or ISR, it is essential to have the sandstone roll front formation bounded on top and bottom by the semi-permeable layer of shale. Without this boundary effect, ISL or ISR is not possible.

Breccia Pipes

The final deposit type that investors need to be aware of is the much talked about Breccia Pipe. In Arizona along the north rim of the Grand Canyon there are thousands of these pipes which are made of limestone, mudstone and silty sedimentary rocks. Over geological time, oxidizing groundwaters carried and remobilized uranium downwards in the pipes. If it so happened that this uranium contacted reduced brines in limestone layers, a precipitation event occured. If no such contact was made, then uranium did not accumulate. Hence, not all pipes are uranium bearing. But, that is not the bad news. The bad news is what the political types have done to this area. Without going into a complex rant, it looks as though the politicians will now succeed in eventually shifting the border of Grand Canyon National Park northwards all the way to the Utah state line. Any company pursuing a breccia pipe project will most likely be forced to walk away.

And that brings me to an end of my cursory review of uranium deposits. If you really want to get serious and read more, be sure to look for writings by Dr. Cuney of France and Dr. Kyser of Queen's University in Canada. If you have any questions on what you have read in these newsletters, be sure to contact me.

The Commodity Supercycle Report

www.investingsuccess.ca

Malcolm Bucholtz B.Sc, MBA

May 2009 Edition

Uranium - An Investor's Guide

For many investors in the uranium sector of the markets, the notion of where uranium comes from is something that they have probably not thought about. Here at InvestingSuccess, we think it is highly important to understand the origins of uranium, the mechanisms that have caused it to be deposited in the earth’s crust and the various types of deposits that host it. With this knowledge in hand, the average investor will be able to better discern the good uranium stories from the less than good.

The Big Bang

Scientists reckon that the Earth was formed almost 4.6 billion years ago as remnants of material ( probably from an exploded star) collided in space and formed a critical mass. At first this mass was molten and it took perhaps 0.5 billion years before it cooled down appreciably to form a thin crust on its outer layers. Today, this crust is what we live on, and for mineral exploration firms, this crust is what hosts the much sought after minerals that are the subject of exploration attention. But the crust of the Earth only accounts for 1% of the Earth’s mass. The mantle accounts for 68% of the mass and the inner core (which is still molten) accounts for 31% of the mass. Today, when we witness a volcanic eruption, what we are seeing is material coming up from the mantle which has been heated by the core. During the Big Bang when the Earth was formed, the bits of material that came together to form the critical mass we today call Earth had small amounts of uranium in them. Over geological time, this uranium has been brought to surface in certain areas by volcanic action, tectonic plate movement and hydrothermal action. Today, these deposit areas are the subject of scientific investigation and also the subject of exploration programs by mineral exploration firms - the same firms that investors are attracted to.

The uranium atom and its various associated uranium ions are strange creatures that do not blend well with other minerals. Over geological time, there have been many instances of tectonic plates getting subducted, moving about, and of volcanic action bringing hot lava and fluids (containing uranium) up from the mantle. As this hot lava solidified, the uranium content was not easily taken into the newly formed crystalline rock structures, but was rather rejected where it eventually found a home in certain surrounding granitic type rocks that were to its liking. As a former Metallurgist, I am well versed with this phenomenon and in technical terms we say that the uranium is rejected ahead of the freezing interface, or solidus. It is this behavior that causes uranium to be enriched enough to make a deposit area economical to exploit. Uranium is also interesting in that it can exist in an oxidative state and a reductive state. In its oxidative state, uranium is mobile. That is, the action of something as simple as groundwater can cause it to move (or remobilize). In its reduced state, it is not so easy to move. When uranium in its oxidized state comes into contact with a rock formation containing material in a reduced state, uranium will be encouraged to precipitate out of solution. Thus when geologists look for a deposit area they pay close attention to the types of rocks in the area.

Geological time has caused erosion, metamorphic folding, faulting and thrusting of the uranium that has been brought to surface. All of this geological action has been responsible for uranium being re-distributed and re-deposited at various locations around the world. Geologists have now defined up to 12 different models to explain the different types of uranium deposits. The challenge of the exploration firm then is to identify those areas where deposits may significant enough to be of economic value. As investors, it is important to be aware of these models so as to ensure we make wise investment decisions with our money.

In this edition of the Commodity Supercycle Report, I take a look at three of these deposit models. These models are well documented in academic literature. There are two researchers that I follow quite closely – Dr. Michel Cuney of the Universite de Nancy in France and Dr. Kurt Kyser of Queen’s University in Canada. These researchers have done a stellar job of defining these models and investors who have an interest in the uranium sector should strive to obtain the writings of these two men.

Model #1 - Unconformity Deposits

Canada and Australia are noted for this type of deposit model. In fact, the unconformity type deposit is responsible for 33% of global uranium supply.

Unconformity type deposits are associated with basin formations. These basin structures appear to have been formed between 1.1 and 2 billion years ago at a time when the Earth’s crust was still in the process of solidifying. Geologists refer to “Orogeny” events during this time which means that huge sections of crust were moving around and breaking up. Geological conditions at the time were ideal for the formation of sandstone layers in these basins. At the outset of this report, I referred to uranium being remobilized. In fact, these basin structures became ideal trapping areas for oxidized uranium minerals that were swept up by water movements across the landscape. Other scientists claim that oxidized uranium also came up from the depths of the mantle contained in superheated hydrothermal flows. In any event, the sandstone layers in these basins contained organic rich material which acted as a reductant source for the uranium in its oxidative state. The uranium precipitated out of solution at the boundary (or at the unconformity) between the sandstone layer and the underlying older rocks.

For the typical investor, there is little need to explore the finer details of these unconformity deposits any further. What the investor does need to know however, is where these basins are located.

In Canada, when one hears reference to the Hornby Basin, the Thelon Basin, the Athabasca Basin, the Otish Basin - these are all basins that host or have the potential to host unconformity style deposits.

In the Thelon Basin, players to watch are Triex (TSXv:TXM), Pitchstone (TSXv:PXP), Ur-Energy (TSX: URE). Be sure to contact these firms and do your due diligence before investing.

In the Thelon Basin you may find these players active as well in addition to Bayswater ( TSXv: BAY) and Uranium North ( TSXv: UNR). You will also find French uranium giant Areva active in this area with its large Kiggavik project.

The Athabasca Basin has been seriously combed over in search of new deposits to rival Cigar Lake and McArthur River. French giant Areva is a key player in this area as is Cameco ( TSX: CCO, NYSE: CCJ). Many smaller players have staked their existence on this Basin and have gone on to fail. So investors need to be cautious when it comes to these basins. Do however, take a look at UEX Corp ( TSX: UEX) and Hathor Exploration ( TSXv:HAT). Again, be sure to talk to these companies and do your due diligence.

There is perhaps one player of note in Quebec’s Otish Basin and that is Strateco (TSX:RSC). Strateco has made significant progress in the area. Do some due diligence and you may well find other juniors in the area.

In Australia, pay attention for names such as McArthur Basin, Ngalia, Middleback, Kombolgie Basin, Nabberu, Bangemall, Hamersley, and Kimberly. Players to watch in Australia are: Cameco (TSX: CCO, NYSE: CCJ), Laramide (TSX: LAM), Paladin (TSX: PDN), Mega Uranium (TSX: MGA), Wealth Minerals (TSX: WML), Uranium One (TSX: SXR), and giants BHP (NYSE: BHP) and Rio Tinto (NYSE: TTP). Again, be sure to do your due diligence before investing.

Other areas to keep an ear open for are the Roraima Basin and the Corrego and Rio do Ouvo basins in South America.

Model #2 - Intrusive Deposits

Intrusive type deposits tend to be large in scale and quite often lower in grade. It is often the size of these deposits that allow for economies of scale when mining.

Intrusive deposits are formed when peralkaline magma comes up from the Earth’s mantle. Peralkaline magma is magma in which the Sodium and Potassium content outweighs the Aluminum content. Uranium is easily taken into solution in this type of magma which means the uranium gets an easy trip up from the mantle to the Earth’s crust. In addition, zircon and rare earth minerals are also attracted to this type of magma and quite often can be brought to surface with the magma.

Intrusive style deposits can be difficult animals to deal with. The uranium in these deposits can (but won't always) end up forming complex mineral chains. The downside is that the cost of crushing, grinding and milling these refractory minerals can be so expensive that the deposit, however large and good looking, may simply be uneconomical to exploit.

For the investor, if the mention of Greenland should ever be made, there is a sizeable intrusive deposit in South Greenland called the Ilimaussaq deposit which is probably uneconomical due to the complexity of the minerals that host the uranium. Likewise, in Alaska there is the Bokan Mountain deposit being pursued by U-Core Uranium (TSXv:UCU). Bokan Mountain was mined previously in the last uranium cycle at a time of high US Gov’t subsidies. Today, it is doubtful that Bokan Mountain could be revived economically. Thus, when hearing about intrusive type deposits, investors really need to do some serious due diligence.

Model #3 - Partial Melting Deposits

Partial melt deposits are caused when extremely superheated magma (containing some uranium) comes up from the mantle and actually causes the surrounding sedimentary rocks (also containing some uranium) to partially melt. As the surrounding rocks partially melt, uranium is enriched in the melt solution ( thanks to the phenomenon of rejection ahead of the freezing interface) and the result upon solidification is what geologists call a pegmatite formation or an alaskite formation.

Perhaps the most famous such deposit is the Rossing deposit in Namibia which has been in production since the late 1970’s. The Rossing deposit consists of biotite schist and banded gneiss below a minor unconformity. Above the unconformity are layers of gneiss, marble, dolomite and schist. The uranium has been emplaced in dyke formations, lensoid formations and dome formations. I use these strange sounding expressions as a reference so that investors can look for this language when assessing Rossing style deposits that companies claim to have.

I say claim to have because the term “Rossing” is probably one of the most abused and mis-used expressions in the investment world. Investors need to be cautious when they hear this expression being tossed about. Investors need to be aware that the uranium grade at Rossing is low ( 300 grams per tonne …or ~0.66 lbs per ton). Rossing was developed in the late 1970’s and it is in Namibia where wage structures for workers fall far short of more developed areas of the world. It is not clear whether a Rossing style deposit could even be put into production without substantial Gov’t subsidy in a more developed nation today. The capital costs of mine development could be prohibitively huge.

Investors should note that this pegmatite type geology does exist in Quebec, especially in certain locations along the north shore of the St. Lawrence River. A company receiving its fair share of attention is Uracan Resources ( TSXv: URC). Uracan appears to be sitting on an inferred resource of uranium hosted in a pegmatite style geology, although the reported assay grades are very low. As noted above, it is not clear that such a deposit could economically stand on its own two feet without Gov’t subsidy. What Uracan needs to do quickly is prepare a pre-feasibility study along with a series of laboratory scale tests to assess the milling characteristics of the rock. If it can be shown that this resource is feasible, Uracan could be the stock to watch. Another company that appears to have a property in this region is Abbastar Resources (TSXv:ABA). Remember - do your own due diligence before investing. These pegmatite deposits are complex animals.

In my next edition of the Commodity Supercycle report I will continue my look at uranium deposit models. In particular I will look at sandstone hosted deposits and quartz pebble conglomerates. I will also take a look at breccia pipe deposits in light of the bizarre political events that stand to halt development of these type of deposits in Arizona.

The Commodity Supercycle Report

www.investingsuccess.ca

Malcolm Bucholtz B.Sc, MBA

April 2009 Edition

On the Razor's Edge

The media reports grim data one day and not so grim data the next. President Obama says he sees a glimmer of hope. When this author drives from his home in Canada to Albuquerque, New Mexico he can count on his ten fingers the number of motorhomes he sees on the freeways and highways. Tourist towns like Tombstone, and Bisbee, Arizona are flat on their backs like gunslingers that lost the draw at high noon. So what is really going on out there?

What follows in this April edition of the Supercycle Report is an attempt to clarify the various stimulus efforts currently in play. A roadmap of sorts to help you put it all in perspective. I offer my humble opinions along the way on where we are and I conclude with a frightful scenario that stands to originate half way around the globe.

The Failed TARP Program

In his waning days in office back in September 2008, Treasury Secretary Paulson pressured a confused Congress to give him $700 billion to buy up toxic assets from the big banks. Hence the name TARP = Troubled (Toxic ?) Asset Relief Program. Paulson argued that it was imperative that he buy these troubled assets from the banking system to restore lending confidence.

"Troubled assets" accoring to Paulson were defined as "(A) residential or commercial mortgages and any securities, obligations, or other instruments based on or related to such mortgages, that in each case originated or were issued on or before March 14, 2008. and (B) any other financial instrument

that the Treasury Secretary, after consultation with his buddies at the Federal Reserve, felt should be bought to promote financial market stability.

In short, TARP was designed to allow the Treasury to purchase illiquid, difficult-to-value assets from banks and other financial institutions. But, it all came with a catch of sorts.

TARP required financial institutions selling such troubled assets to issue equity warrants or equity shares to the Treasury.

But...on October 14, 2008, Secretary Paulson and President Bush announced revisions to the TARP program. They announced their intention to instead buy senior preferred stock and warrants in the nine largest American banks. The shares would qualify as Tier 1 capital and would be non-voting. In order to qualify for this program, the Treasury required participating institutions

to meet certain criteria, including: (1) ensuring that incentive compensation for senior executives did not encourage unnecessary and excessive risks that threatened the value of the financial institution;

(2) the clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate;

(3) the prohibition of the financial institution from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and (4) agreement not to deduct for tax purposes

executive compensation in excess of $500,000 for each senior executive." The Treasury also bought preferred stock and warrants from hundreds of smaller banks, using some $125 billion of TARP money.

Why the change you ask? Turns out this change had a British flavor to it and came after a visit to Washington by British PM Tony Blair who told the Paulson-Bush crowd of his plans in the UK to inject capital

into the banking system by way of purchasing preferred stock.

On December 19, 2008, President Bush used his executive authority to declare that TARP funds could also be spent on any program he personally deemed necessary to avert the financial crisis. This then allowed President Bush to extend the use of TARP funds to support the auto industry, a move we are still grappling with.

So what's the bottom line here ? The $700 billion of TARP money never was used to buy troubled assets of any sort. The crux of the issue appears to be one of valuation. The banks were carrying these troubled assets on the books at historical cost values and the Government likely would have offered only pennies on the dollar for the assets. This would have resulted in a round of massive writedowns which would have shocked the markets. In this author's opinion, this would have been the thing to do. Write off the crap, take the hit and move forward. Instead, Paulson ended up allocating $125 billion to the 9 largest banks and $125 billion to smaller regional banks. AIG was on the recieving end of the TARP nipple for $80 billion and Citigroup hungrily sucked in tens of billions more as did Bank of America. As Paulson was cleaning out his desk and as Tim Geithner was picking out new office furniture, the TARP plan had been whittled down to

$200 or so billion and nary a toxic asset had been bought. A classic Washington failure if ever there was one.

Geithner's Public-Private Investment Fund

On February 10, 2009, the newly confirmed Secretary of the Treasury Timothy Geithner outlined his plan to use the $200 billion or so dollars remaining in the TARP funds. He stated plans to use $50 billion for foreclosure mitigation

and stated plans to use the rest to help fund private investors to buy toxic assets from banks. This highly anticipated speech coincided with a nearly 5 percent drop in the S&P 500 and was criticized for being short on details.

On March 23, 2009, Geithner came back to the media and announced a Public-Private Investment Program (P-PIP) to buy toxic assets from banks' balance sheets. The major stock market indexes in the United States rallied on the day of the announcement rising by over six percent with the shares of bank stocks leading the way. Geithner elaborated that P-PIP is kind of like TARP in that toxic assets will be bought from banks at a subsidized price. As the toxic crap is auctioned off to the private sector, the private sector

buyers will too recieve some Government subsidies to incentivize them to buy this festering doo-doo. The question then is - how much of this festering doo-doo is really out there? According to market watcher Nouriel Roubini - there could be up to $ 4 trillion. Some estimates, including one made by Giethner himself, peg the number at closer to $6 trillion. In any case we are talking some big numbers here. Add to the equation the amount of money that will be needed to incentivize both buyer and seller and we are talking about some serious shit here. The picture gets even dimmer when one theorizes that some assets sitting on some bank balance sheets that are currently merely only slightly troubled could grow downright toxic if real estate markets do not stage a meaningful recovery. In that case, P-PIP would take on an almost incomprehensible dimension.

TALF - to the rescue of the Asset Backed Securities sector

On November 25, 2008 Paulson and the gang at the Treasury Department along with the crowd at the Federal Reserve announced the creation of the Term Asset-Backed Securities Loan Facility (TALF), a $200 billion program intended to provide liquidity to issuers of asset backed securities (ABS) backed by loans to consumers and small businesses, student loans and credit cards. The asset backed market was in danger of grinding to a halt without this intervention. By providing Government guaranteed, discount priced bundles of bonds to the asset backed market players, the Government hoped to reinvigorate lending in these asset classes, thereby restoring access to lower cost credit for consumers and small businesses. Problem is, TALF has done a big belly flop off the diving board. The "shadow" banking system ( read...the Hedge Funds and Private Equity crowd) who normally would play with these ABS assets are steering clear of them for fear that the Obama crowd may impose salary and bonus restrictions on those who elect to play with these Government subsidized assets just as they did with the TARP players. Only $4.7 billion of these Government backed ABS securities changed hands in March 2009 under the TALF plan and the month of April is shaping up to be worse yet. The fact that the Obama crowd has now expanded TALF to up to $1 trillion seems insignificant with no players stepping up to the line of scrimmage to play ball. The failure of TALF has me worried. If the asset backed commercial paper market withers on the vine, surely we could find ourselves subscribing to a recessionist/depressionist mentality for some time to come. The only alternative then would be for the Federal Reserve to itself step into the ABS market, but that would almost imply a complete nationalisation of the financial system. TALF is seldom talked about in the mainstream media - but its failure is potentially lethal - so pay attention.

HASP - Housing Recovery Program

Recall under the Bush - Paulson watch, Fannie Mae and Freddie Mac were de- facto nationalized in August 2008. Some say this was done to appease

the Chinese who were the holders of massive amounts of Freddie/Fannie bonds. But whatever the reason, these two organizations now are in need of more money - they already own some 26% of the $12 trillion residential

real estate market. The HASP program is designed to provide up to $200 billion more so these organizations can keep supporting the residential real estate market. Details are sketchy on HASP, but from what I can gather

you can refinance your mortgage if your loan to value ratio is 80 to 100%. If your situation is otherwise, you might qualify to be able to simply modify your loan under a $75 billion component of HASP. ( Thanks - Suzy Orman for clarifying that ). But, apparently if you are delinquent or are in default or in foreclosure proceedings already, you do not qualify. Thus, HASP seems ( to me anyhow) to be a clever plan to reward lenders who wish to refinance safer morgages. And, if you look back a week or so ago at the Q1 earnings of

Wells Fargo - they boasted about their robust Q1 earnings that largely resulted from mortgage refinancing fees. Will HASP be the magic bullet that puts the real estate market back on its feet? I seriously doubt it.

Where to we go from here ??

TARP, TALF, HASP - somebody deserves an A+ for fancy acronym creation. But taking a step back and looking at it all leaves me to conclude that the Obama gang are heading down the wrong path. True, the markets have staged an impressive rally over the past 6 weeks, but I doubt it is sustainable. The cost of sopping up the troubled ( er...shall I say Toxic) assets is going to be mind boggling in the end. The economy and its recovery is joined at the hip to the asset backed securities market. A collapse in student loan lending, auto lending, a tightening of credit card lending, a dive in commercial real estate lending will absolutely kill the economy that is perched already on a razors edge. How Obama can say he sees a glimmer of hope is beyond me. As for HASP, it is this authors opinion that the housing market is in bigger trouble than many may think. My opinion has been largely shaped by data from the famed Case-Shiller House Price Index and from listening to what Prof. Shiller himself has to say. From the peak in 2006, house prices (adj. for inflation) are down 26%. This almost rivals the so called Great Depression when home prices fell 30%. If interest rates cannot be maintained at low levels or if a shock reverberates through consumer-land, expect more carnage in the residential real estate sector which will add more fuel to the recerssion/depression mentality that already pervades much of North America. Are we headed for the Greater Depression ?

Pressure from Abroad - What if ??

Lastly, there is a "what if" type scenario that we should all be cognizant of. What if a series of seemingly unrelated events started to unfold that sent a shockwave around the globe? Can't happen you say ? Think again....I say. Think back to a tiny, seemingly insignificant island called Iceland. The implosion of its banking system in 2008 played a key role in the market demise chain of events in 2008. If such a tiny island contributed so much to the global market meltdown, what would the failure of a series of larger banks do ? I strongly suggest you take the time to read a rag called the Economist. If you think the world ends east of Manhattan, think again. Right now there is a veritable storm of toxic debt brewing in Eastern Europe. As America was enjoying a real estate boom, so too were the developing Eastern European nations. Consumers in places like Poland and Hungary were enticed into taking out loans in Euros and Swiss Francs. In fact some $1.7 trillion in such loans was engineered. Counterparties to these loans were banks not in these Eastern European nations...but...in Austria, Italy, Sweden, and Belgium. As the currencies of these Eastern European nations melted down in 2008, debt holders suddenly found themselves severely stretched to make their

monthly payments in Euros or Swiss Francs. Right now Austria is frantically trying to piece together a rescue package to deal with the $800 billion exposure its banking system has to these developing nations. You don't hear that story on CNN do you ? Think of it this way - if homeowners in these developing nations start defaulting in droves, it is not the developing nation itself that suffers. It is the Austrian banking sytstem, the Belgian banking system, the Swedish banking system - the players that made these loans to start with. If these banks also have exposure to US troubled assets, Europe will go into a state of paralytic shock. Global markets could spin out of control and new lows could be made.

Stay Alert - Be Careful Out There

A nice market rally has a funny way of making us relax our grip on the steering wheel. Throw in some soothing words from the financial media and suddenly all seems well again. To give you a personal example, I stopped in to see my travel agent the other day and she was beaming with delight that the TSX Composite Index in Canada was now over 9000. See what I mean ? Give a person a glimmer of hope, and the world suddenly is a warm, fuzzy place.

But, don't be lulled into a false sense of security. The Obama crowd still have not got the economic bus under control. We are still careening wildly out of control and the chances of a head on collision with an equally out of control European transport carrying a cargo of toxic debt are very real indeed. Much work on the policy front remains to be done. The margin for error is growing smaller all the time. We are sitting on the razor's edge.

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The Commodity Supercycle Report

www.investingsuccess.ca

Malcolm Bucholtz B.Sc, MBA

March 2009 Edition

Metals - What is the Data saying ??

Is the worst over? Are we gearing up to embark on the next leg of the grand Commodity Supercycle?

If one looks at the basic data, the answers to these questions are NO and NO.

To illustrate, let us now look at some price charts and inventory charts.

First, Aluminum. As the following chart shows, Aluminum prices are still in a downtrend and invesntory levels of late have surged as the global economy has stumbled. In fact, invesntory levels are now well above anything we have seen in the past 5 years. Certainly not good news for investors holding shares in Alcoa. Certainly not good news for Rio Tinto who acquired Alcan Aluminum in Canada at the peak of the frenzy in 2007.

Copper has a unique looking chart. Note the triple top style of chart formation. Triple tops never hold, or so the adage goes and this chart adds credence to the adage. Inventory levels have also shot up and it will take some work to claw these back. In the meantime, Copper exploration and development stories will be pressured.

Nickel is likewise a problem. Price action of late has broken below what was a good line of support back in 2004-2006. Inventory levels have likewise spiked in response to global issues.

So, all in all, not a healthy looking picture at the moment. Markets are all in a tizzy these days with Mr. Geithner's plan to start mopping up toxic assets, but until that task is done and until demand for physical commodities picks up, the resource sector may remain under pressure.

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The Commodity Supercycle Report

www.investingsuccess.ca

Malcolm Bucholtz B.Sc, MBA

February 2009 Edition

The Power of Market Cycles

When I was an Investment Advisor from 2002 to 2007 , I used to tell folks that markets moved in cycles. This used to totally baffle the people who

were in love with their Mutual Funds at Investors Group and the myriad of other "brain dead", "buy & hold till you rot" financial planning shops out there.

Sadly, for those who did not listen to me, the past year has certainly taught them a lesson in humility. I am obviously no longer in the brokerage biz, but maybe, just maybe my warnings about market cycles are now causing a loud ringing sensation in some people's empty heads. For all those who did heed my advice, kudos to you. You may well have taken a hit this last while, but I doubt if you were fully invested during the recent malaise.

Let's now take a closer look at cycles. No examination of cycles would be complete without reference to Nikolai Kondratieff - a modest Russian economist who published his empirical work in 1925. His observations

were taken from commodity prices, interest rates, savings, trade, wages, industrial production and consumption and even gold consumption from 1790 to 1920. He concluded that economic activity moves in long cycles that are 48 to 60 years long.

Sadly, Kondratieff's thinking did not agree with the evil Josef Stalin and to silence any notion of cycles, Stalin banished Kondratieff to Siberia where he died in the 1930's.

Fortunately, Kondratieff was not alone in his thinking. European economist Joseph Schumpeter took up the cause and made sure that Kondratieff's good work continued to be recognized.

Under Schumpeter's fine tuning of Kondratieff's work, it was determined that the upward rising portion of each Kondratieff wave is associated with a technological breakthrough. In addition, credit creation becomes

vitally important to ensuring the strength of any upwave.

The period 1787 to 1842 (the Industrial Revolution) can be said to represent the first Kondratieff cycle. The second cycle played out from 1842 to 1897 and was driven by steam power (railroads which drove commerce) and the growing steel industry. The period 1897 to 1949 represented the third cycle which was driven by cars, motors, electricity and chemistry. The fourth cycle can arguably be said to have gone from 1949 to about right now. Drivers of this cycle have included the semiconductor, nuclear energy, aerospace, consumer amassing of goods and the digital/Internet revolution.

We are now trying to finish out this cycle and get going on another cycle, but as we can all see the economy is having trouble gaining traction. This is not at all surprising given how previous cycles have played out. The tail ends of previous cycles have all ended badly with events like the panics of 1819 and of 1837. Consider also the crash of 1929 and then the LTCM debacle of 1998 followed by the market failure of 2001 and the recent panic of 2008.

It is also disconcerting to note that as a new upleg in a Kondratieff cycle gets underway it is often marked by tension. The French Revolution, the Napoleopnic wars, the Crimean War, the Civil War, the Franco-Prussian War, WW1 and the Bolshevik Revolution were all part of the rising part of a cycle. As we emerge from the tail end of our current cycle and start anew, can we expect a rise in global tension? Quite possibly so at the hands of a restless China or a power hungry Russia or a Pakistan (and its nuclear arsenal) that has been taken over by Islamic fundamentalist radicals. And of course, don't rule out America and the ever murky war in Afghanistan and the ongoing sniping with Iran.

The downward portion of a Kondratieff cycle is also consistent with deeper recessions. And what are we in now as we navigate the tail end of this current cycle? Quite probably the deepest recession in decades. Clearly the empirical observations of this modest economist have endured the test of time.

Economist Schumpeter, in addition to keeping the Kondratieff notions alive, further took the liberty of dividing Kondratieff cycles into small subdivisions called the Juglar cycle (7 to 11 years long) and the Kitchin cycle ( ~ 40 months long).

Let us now take a look at some charts to see of these cycles are evident:

The following chart depicts price action on the Dow Jones Industrial Average from 1949 to 1966. Considering that a new Kondratieff cycle started in 1949, we can clearly see the smaller Kitchin cycles. Note that by about 1960, 3 full Kitchin cycles have played out which equate to one Juglar cycle.

The following chart shows the Dow from 1966 to 1982. By 1974, 3 more Kitchin cycles have played out, which again equate to one Juglar cycle. Strange, isn't it that these cycles line up with the 1974 major market low that occured when Richard Nixon was forced from office. By 1982, 3 more smaller cycles have played out which equate to another Kitchin cycle.

The following chart shows the dow from 1982 to 1998. By 1990, another Juglar cycle has played out.

The following chart shows the Dow from 2000 to 2004. By 2002, 3 more small cycles have evolved to trace out one Juglar cycle. Strange how the completion of this Juglar cycle aligns strikingly well with the major market low in 2002.

The following chart shows the Dow from 2004 to present.

We have now completed 2 smaller Kitchin cycles as of late 2008 and the next 40 or so months will see the third one completed to give us a full Juglar cycle. Odd how this next and third Kitchin cycle will align with Barrack Obama's term in office. Perhaps the volatility that will characterize the next number of months will prove to be the undoing for "change we can believe in". While predicting the future can be nigh impossible, it does seem fair to say that we may well be headed for a serious market low in the 2011 time frame. This will also complete the Juglar cycle and if one takes the period 1949 to 2011 we get 62 years. Kondratiff said his long cycles would last up to 60 years so again we seem to be on track over the next 3 or 4 years to finish off a complete Kondratiff cycle. Most certainly, this is something that we will never see again in our lifetimes. What exactly will propel the world forward as the next Kondratiff cycle gets going in 2012 is unsure at this point. Maybe, there will be a major medical breakthrough that cures cancer with the popping of a pill. Maybe we will all start driving "green" vehicles. Who knows.....

But whatever happens, know this - the financial markets are not a safe, tame place for you to park your money. Success in the financial markets demands discipline and knowledge. Success demands that you be cognizant of market cycles. Success demands that you know when to play and also when to walk away from the table. To think otherwise is just plain foolish. To think otherwise is to place yourself on the same wavelength as all those buy and hold investors out there right now who are wondering what has hit them. On that cheery note, I will leave you to ponder cycles as you reflect on what the markets have done lately......

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The Commodity Supercycle Report

www.investingsuccess.ca

Malcolm Bucholtz B.Sc, MBA

January 2009 Edition

Crude Oil - To Our Masters We Bend

The question that analysts and investors are trying to grapple with these days is – what dark forces were responsible for the implosion of Oil prices ?

The line of thought being pushed across news wires says that Oil simply got caught up in a bubble and that bubble has now burst.

If you have a narrow view of the world, you are probably all too willing to accept this explanation. But, here at Investing Success we are not narrow minded. In fact, we don’t sleep at night until we find answers to questions that haunt us. What follows is a description (call it the Investing Success theory if you will) of what we think happened with the price of Oil.

To really put it all in perspective, one has to go back 30 some years in time. In 1971, President Nixon cut the link between Gold and the US Dollar so the US could print unlimited sums of fiat paper currency to finish paying for the Vietnam War.

In 1974 OPEC (led by the Saudi’s) engineered a huge increase in Oil prices as the Arab world exerted its influence. Secretary of State Kissinger reached a deal with the robed shieks to price international sales of Oil in US dollars. The dollars paid to the Saudi's for Oil would be recycled and spent in America. America would provide Saudi Arabia with technology and defense items along with Treasury Bonds and Notes. Thus, the concept of the PetroDollar was born.

Over time, the relation between Oil and the PetroDollar became so cozy that several of the Gulf nations pegged their currencies to the US greenback.

However, by 2007 the Saudi’s and others in the Gulf had become unhappy. The US Dollar was weak and the PetroDollars being received for Oil were losing their purchasing power. Kuwait spoke loud and clear and severed its peg to the US Dollar. Qatar, Bahrain, Oman threatened to follow suit. A watershed event was shaping up. The Saudi’s began exerting pressure on the situation by raising the per barrel price of Oil exported. There is no doubt that speculators jumped into the fray and were responsible for the final push to $147 a barrel, but it was the Saudi’s that precipitated the whole issue by raising prices out of sheer frustration with a weakening Dollar.

When Oil surpassed about $130 a barrel, the US economy began to shut down. Gasoline prices at the pump broke the $4/gallon barrier and consumers gasped. Something had to be done.

That something is reflected in the following chart of the US Dollar Index. Without warning, the US Dollar began an almost surreal rally that caught many by surprise. What prompted this sudden turn of events is open to speculation. It is no secret that the President’s Working Group (a.k.a. the Plunge Protection Team) has wide sweeping powers to meddle in markets and so it remains plausible to think that the Dollar rally had a mysterious helping hand. Note that the Dollar is once again trying to claw its way higher, possibly with a little mysterious help.

By making the Dollar stronger, the US was moving to appease concerns of the Gulf nations. If it was a stronger Dollar they wanted, then it would be a stronger Dollar they got. As the Dollar strengthened, the Saudi’s and others responded in kind with big price cuts to Oil. This sent a wave of fear through the speculator community who were placing bets on $200 Oil and caused Hedge Funds carrying "long only" Crude positions to implode like balloons at a festive party.

So what does the future hold? Well, the Saudi’s continue to send 1.5 million barrels of Oil a day to America. America needs this Oil in a bad way. America also needs to hold the Saudi’s close to its bosom so as to keep the Middle East from falling apart completely. America meanwhile has learned a valuable lesson. He who sets the price of a commodity is in the driver’s seat. The Saudi’s have now demonstrated what happens when the US lets its currency weaken too much. The US is now in an uncomfortable position and will be forced to walk a fine line with its masters in the Gulf region. Can the Plunge Protection Team indefinitely keep the Dollar propped up? Doubtful, I say. Keep a close watch on the Dollar. If it starts to slide, Oil prices will ratchet up and the US economy will wince in pain. Can the day when Oil is denominated in a "basket" of global currencies be far away?

Sleepless Nights at the Fed

Fed officials are getting nervous. Ben Bernanke can see that the banking system is still not lending enough to spur an economic recovery – despite having received $350 billion in TARP money. Mortgage and loan rates are still not as low as they should be given that the Fed funds rate is near zero. Private forecasting firm Macroeconomic Advisors LLC reckons that the US economy is embarking on a trajectory that could see it retrench by 5.5% in 2009 unless something is done to spark some action. Think about that one !! A pullback of 5.5% is truly scary. Can you imagine what would happen if CNBC starting talking about this scenario?

All eyes now will be on the new Obama team as they get comfortable in the White House. Expect the first order of business to be the unveiling of plans to use the remaining $350 billion of TARP money. This will most likely be used to purchase packages of car loans, home equity loans, student loans and what have you from institutions. In addition, expect the Obama team to introduce a massive stimulus package that could exceed $1 trillion. Don’t be surprised to see the Gov’t buy toxic assets directly from the banking system. This could all be part of what Mr. Bernanke talked about some months back when he hinted at the making of a Big Bad Toxic Bank to hold garbage assets.

Pop Goes the Bubble ?

Over the Holidays I had the good fortune to read a riveting book – Mr. Market Miscalculates – written by James Grant who is the author of Grant’s Interest Rate Observer. One of the theses he advances is that interest rates move in generational long cycles. He asserts that from double digit highs in the early 80’s, rates have now declined and are finishing a cycle. From here, interest rates will trend higher over coming years, thus placing a restraint on the economy as it tries to recover. When I look at a chart of longer term 30 year bond yields I almost have to conclude that we are finishing off this very long cycle in an almost bubble-like fashion. Yields on the 30 year product have plummeted like a falling rock. If Mr. Grant is right, and I have every reason to think he is, rising bond yields will be the cold kiss of death for the ailing US economy.

As China Goes, So Goes the Rest of the World

China's economy expanded an at an annualized clip of only 6.8% in Q4. Quite a contrast to the 12 and 13% growth rates we are used to hearing about.

At issue is falling demand for Chinese made goods in other Asian markets. Here at InvestingSuccess we thought maybe that if America slowed down, China would have enough demand from its Asian neighbors to keep charging ahead. After all, 40% of China's GDP is export related. But, alas, such is not the case. China needs the rest of the world to be in buying mode if it is to continue with its double digit growth. Problem is, right now the rest of the world is ailing.

China has now unveiled a $585 Billion stimulus plan, reduced export taxes and is offering tax cuts and subsidies for 10 key industries including autos and steel. Chinese bosses are also pressuring state owned banks to increase lending to consumers. (Take note Mr. Obama...)

But perhaps the bigger issue is that of social unrest. Officials estimate the official jobless rate could rise to 4.6%, the highest in 30 years. This is sure to spark fresh rounds of unrest as masses of people who were given a taste of the capitalist way of life now see that way of life yanked away from them. Here at InvestingSuccess we have been cautioning about this for some time now. Tiananmen Square - Round 2 may be just around the corner.

Technical Trading Idea

Here at InvestingSuccess we are firmly convinced that Uranium has a brilliant future ahead of it. America produces only 5 million lbs a year while consuming 50 million lbs a year to run its 103 reactors. Surely not a mathematical relation that can hold together long. One ideal way to play Uranium price moves is by way of Canadian listed Uranium Participation Fund - ticker symbol on the TSX Exchange is U. The following chart shows recent price action of U. Note how I have drawn a triangular wedge on the chart. If price action breaks out of this wedge to the upside ( ie gets above $8), get ready to buy the stock. A run to previous highs near $10 would then be in play.

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