Thanks,
Goldnotes

Blair Freedom Day: -3.

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.

Warren Buffett

Last week several major holders of collateral from the rapidly sinking Bear Stearns hedge funds, found out what LTCM learnt almost a decade earlier, when a one-way bet goes wrong it goes wrong for all the other market participants simultaneously. In the race for cash, after the few plums and cherries are sold off, all the rest is illiquid junk with virtually no buyers at all. Why, because no one can tell what part of a CDO pool may be real, what part was fraudulent all along, and what greater damage is still too come from yet more defaults ahead. In effect, why take a risk and buy now when, if we’re lucky enough to be around at this time next year, even the best collateral may be picked up for pennies on the dollar.
Sophisticated Bear Stearns has gone in a week, from having virtually no capital at risk in the faltering hedge funds, to having $3.2 billion of its capital on the line, with legitimate doubts now about the ability of Bear Sterns to survive if the bailout fails due to continued market events far beyond BS’s control. Having just seen the future of a lock up in the liquidation process, wise investors will start to pull money out of other non involved hedge funds, before the system faces a lock up later in the year. Below, prestigious Bank of America thinks we’re only at the tip of the iceberg. Who am I to disagree. Time to get safely back to cash. I will be liquidating this week, all but my holdings in Derek oil and Gas, Quaterra Resources and MacMillan Gold. It is not that the other companies don’t have very real merit, I just want for now to carry only NAFTA energy and precious metals companies.

Bank of America Report Sees Worse Mortgage Defaults

By Sebastian Boyd and Will Edwards

June 22 (Bloomberg) — Losses in the U.S. mortgage market may be the “tip of the iceberg” as borrowers fail to keep up with rising payments on billions worth of adjustable-rate loans in coming months, Bank of America Corp. analysts said.

Homeowners with about $515 billion on adjustable-rate home loans will pay more this year, and another $680 billion worth of mortgages will reset next year, analysts led by Robert Lacoursiere wrote in a research note today. More than 70 percent of the total was granted to subprime borrowers, people with the riskiest credit records, they said.

Surging defaults on subprime loans have pushed at least 60 mortgage companies to close or sell operations and forced Bear Stearns Cos. to offer a $3.2 billion bailout for one of two money-losing hedge funds. New foreclosures set a record in the first quarter, with subprime borrowers leading the way, the Mortgage Bankers Association reported.

“The large volume of subprime ARMs scheduled to reset at higher rates in ’07 and ’08 will pressure already-stretched borrowers,” putting more loans into foreclosure, the Bank of America analysts wrote from New York. A collapse of the Bear Stearns funds “could be the tipping point of a broader fallout from subprime mortgage credit deterioration,” they said

—-The proportion of income that U.S. households with mortgages used for making payments in the first quarter of 2007 was close to or above the previous high in the late 1980s and early 1990s, the analysts said. U.S. mortgage borrowers will continue to find it harder to pay their debts until the end of next year, the analysts said.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aKltYe1AuvX0

Below, part of why I think the derivatives problem will continue to grow and eventually trigger a crisis.

Central banks should keep raising rates: BIS’s Knight
Sunday June 24, 2:44 pm ET
By Krista Hughes and Sven Egenter

BASEL , Switzerland (Reuters) – Central banks around the world should raise interest rates further to curb inflation pressures, the Bank for International Settlements said on Sunday.

The global economy is poised for a fifth straight year of growth above 4 percent, but risks remain and have as their common thread the highly accommodative financial conditions that have buoyed it in recent years, BIS General Manager Malcolm Knight said.

Tighter rates would have the added benefit of reining in financial markets, which Knight said were still loaded with risk, possibly sowing the seeds for a nasty correction in assets and currencies.

“Financial conditions are still accommodative, access to credit remains easy and credit spreads are at record lows,” Knight said after talks with about 250 central bankers at the BIS annual general meeting.

“Containing inflationary pressures seems to require further tightening in most jurisdictions, as is expected by financial markets.”

http://biz.yahoo.com/rb/070624/bis.html?.v=1

BIS warns of Great Depression dangers from credit spree
By Ambrose Evans-Pritchard Last Updated: 8:32am BST 25/06/2007

The Bank for International Settlements, the world’s most prestigious financial body, has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood.

Virtually nobody foresaw the Great Depression of the 1930s, or the crises which affected Japan and southeast Asia in the early and late 1990s. In fact, each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a ‘new era’ had arrived”, said the bank.

The BIS, the ultimate bank of central bankers, pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.

“Behind each set of concerns lurks the common factor of highly accommodating financial conditions. Tail events affecting the global economy might at some point have much higher costs than is commonly supposed,” it said.

The BIS said China may have repeated the disastrous errors made by Japan in the 1980s when Tokyo let rip with excess liquidity.

“The Chinese economy seems to be demonstrating very similar, disquieting symptoms,” it said, citing ballooning credit, an asset boom, and “massive investments” in heavy industry.

Some 40pc of China ‘s state-owned enterprises are loss-making, exposing the banking system to likely stress in a downturn.

It said China ‘s growth was “unstable, unbalanced, uncoordinated and unsustainable”, borrowing a line from Chinese premier Wen Jiabao

In a thinly-veiled rebuke to the US Federal Reserve, the BIS said central banks were starting to doubt the wisdom of letting asset bubbles build up on the assumption that they could safely be “cleaned up” afterwards – which was more or less the strategy pursued by former Fed chief Alan Greenspan after the dotcom bust.

It said this approach had failed in the US in 1930 and in Japan in 1991 because excess debt and investment built up in the boom years had suffocating effects.

While cutting interest rates in such a crisis may help, it has the effect of transferring wealth from creditors to debtors and “sowing the seeds for more serious problems further ahead.”

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=LRRIX1CJ0MPULQFIQMFCFFOAVCBQYIV0?xml=/money/2007/06/25/cncredit125.xml

Not that “cash” is necessarily a safe option. Below, the BIS sees a dollar drop ahead. “And how”, is all I can add. Dollar supremacy is ending, and the US is headed for bankruptcy, on present policies. There is no sign that present policies will change without a crisis triggering event.

Dollar `Vulnerable’ to Drop in Investment, BIS Says

By Lukanyo Mnyanda

June 24 (Bloomberg) — The dollar is “vulnerable” to a drop in the investment inflows that the U.S. relies on to fund its trade and current-account deficits, according the Bank for International Settlements.

The currency has been supported by purchases of Treasuries by foreign investors attracted to U.S. yields and central banks that buy dollars to curb appreciation in their exchange rates. Such investors now own a record 80 percent of Treasuries due in three to 10 years, according to research from HSBC Holdings Plc.

“The dollar clearly remains vulnerable to a sudden loss of private-sector confidence,” the Basel , Switzerland-based BIS said in its 77th annual report today. “The reliability of public-sector inflows has also become more uncertain.”

Central banks may reduce purchases of dollars and allow their currencies to strengthen in a bid to curb inflation, the BIS said. They may also invest a greater proportion of new foreign-exchange reserves outside of the U.S. to earn higher returns, adding to the “threat” to the dollar, it said.

Inflation in China accelerated to a two-year high of 3.4 percent last month, and a stronger currency would help curb gains in consumer prices by lowering the cost of imported goods.

http://www.bloomberg.com/apps/news?pid=20601103&sid=aHlb_k7gVajg&refer=us

Below, why dollar supremacy is over. Two of the new dynamic players in the global economy have both signalled they want it to end. They are each too powerful to block in the decade ahead. For now, they’re polite in their requests for a global rebalancing, better orderly and agreed and phased. There simply is no sign that anyone is listening in Washington . There, a ruinous trade war against China is in planning. Stay long gold and silver. The age of fiat currency is in its terminal phase.

China warns IMF over renminbi

By Richard McGregor in Beijing

Published: June 20 2007 19:41 | Last updated: June 21 2007 00:56

China on Wednesday issued a pointed warning to the International Monetary Fund not to back US pressure for a faster appreciation of the renminbi in a planned review of global exchange rates.

The People’s Bank of China, the central bank, said in a statement on its website that the IMF “should carry out its duties based on mutual understanding and respect”, especially for the views of developing countries.

Without directly naming the US, the PBoC said the IMF should step up supervision of member states issuing “major reserve currencies that play a pivotal role on the global systemic stability”.

The IMF announced this week a decision on a new framework. It will expand its coverage of currencies to “all major emerging market currencies”.

http://www.ft.com/cms/s/4f8c027e-1f5b-11dc-ac86-000b5df10621.html

Russia calls for new economic world order
ST PETERSBURG , Russia (Reuters) – Russian President Vladimir Putin called on Sunday for the creation of a new world economic order that gives greater clout to fast-growing emerging nations.

Days after attending a Group of Eight summit in Germany , Putin suggested that club was outdated and failed to reflect a shift in economic power away from the industrialised West to countries like his own.

“If 50 years ago, 60 pct of the world’s gross domestic product came from the G7, now it’s the other way round, and 60 percent of the world’s GDP is produced outside,” Putin said in a speech to a major economic conference.

He also took aim at financial organisations such as the International Monetary Fund and World Bank, saying they were created in “a completely different reality” and had lost relevance in the fast-changing global economy.

Russia is enjoying an unprecedented spell of economic growth that has enabled it to pay down its foreign debts and accumulate foreign exchange reserves of over $400 billion — the world’s third largest.

Putin said the world needed to reduce its dependency on the dollar as a reserve currency, and plugged the rouble as one alternative. Russia abolished capital controls last year.

“We need several financial centres and several reserve currencies,” Putin told an audience of international chief executives and government leaders attending the St Petersburg International Economic Forum.

http://news.scotsman.com/latest.cfm?id=907492007

Back in the world of hedge funds, signs of excess liquidity is everywhere. There is a feeding frenzy building to cash in at the top. Below, following Blackstone’s lead, today’s latest development. To me it is a sign that the top is near. Time to let other’s carry the risk.

Hedge Fund Based in London to Go Public in United States

By MICHAEL J. de la MERCED

Published: June 25, 2007

GLG Partners, one of Europe ’s largest hedge funds, will go public in the United States through a $3.4 billion merger with an investment company, Freedom Acquisition Holdings, according to people briefed on the transaction.

The unusual deal, which is expected to be announced today, would give GLG, based in London , a footprint in the United States and access to public markets at a time when investors still seem eager for the enormous returns that hedge funds have generated in recent years. GLG, which was founded in 1995 as a division of Lehman Brothers and became independent in 2000, is widely known in Europe but relatively unknown in the United States .

Though GLG had been considering going public for some time and started preparations in April, an approach by one of Freedom’s co-founders, Nicolas Berggruen, helped solidify its plans, a person close to the hedge fund said.

Freedom is a so-called special-purpose acquisition company — a publicly held company that has no operations of its own but is designed to take over other companies. It was founded last year by Mr. Berggruen and Martin E. Franklin, chief executive of a consumer products conglomerate, Jarden.

Freedom will pay GLG $1 billion in cash and 240 million shares, according to people briefed on the transaction. The hedge fund’s management company — as opposed to one of its multibillion-dollar funds — will then be listed on the New York Stock Exchange under the ticker GLG, in place of Freedom, which is listed as FRH on the American Stock Exchange.

GLG’s principals will hold about a 45 percent stake in the new company, while other top-level executives of the hedge fund will own about 11 percent.

The transaction is scheduled to close in the fourth quarter of the year, these people said. After the deal closes, GLG’s investors are expected to reinvest about half their after-tax profits into the company’s more than 40 funds.

http://www.nytimes.com/2007/06/25/business/worldbusiness/25hedge.html?ref=business

Next, how hedge fund madness has consequences for nearly all. Forgotten now, how a change in the make up of a Goldman index, set up Amaranth for a fall.

Amaranth gas trades ‘hit US consumers’

By Jeremy Grant in Washington

Published: June 25 2007 03:20

Hedge fund Amaranth and its star trader Brian Hunter built up such large positions in the US natural gas derivatives markets last year that they single-handedly sparked abnormally high gas prices for consumers across the US, a congressional report claims on Monday.

The report is the first to lift the lid on months of frenetic trading that eventually cost Amaranth over $6bn in losses and sparked renewed fears over a hedge funds meltdown.

Concern is focused on the over-the-counter markets, where deals are negotiated privately between counterparties. Industry experts say OTC accounts for 75 of US energy trading.

Yet they fall largely outside the scope of the US futures regulator, the Commodity Futures Trading Commission.

http://www.ft.com/cms/s/73243382-2280-11dc-ac53-000b5df10621.html

Hedge fund managers aren’t gods after all. The many times bigger CDO problem risks over the summer turning into a 500 trillion derivatives crisis. A giant monetisation will probably follow. Better to be long precious metals early rather than late. Suddenly silver is piling up in the Comex depositories, I suspect some smart money is swapping paper for metal.

At the Comex silver depositories there was a lot of movement on Friday. 592,422 ozs was added to Registered at HSBC. 1.88 Moz was added to Eligible at HSBC while 592,000 ozs was withdrawn, while 3.1 Moz was added at Scotia Mocatta. Final figures were Registered 71.91 Moz, Eligible 64.67 Moz, Total 136.59 Moz.

The NYSE WIN system is now flat. The NASDAQ system is long. Since playing a black box system in the current geo-pol/economic climate, isn’t the wisest thing to do, we will adjust long positions to carry an offsetting deep-out-of-the-money matching option position to provide an automatic fail safe stop in the event another 1987 like event occurs before the PPT can step in.
More details on the WIN system are available at link below.

http://website.lineone.net/~audluk/tocframe.htm

The monthly Coppock Indicators finished May:

DJIA: 175 up. NASDAQ: 108 up. SP500: 149 up.

All three have confirmed the long trend as up.

This week’s featured link: Quaterra Resources Inc.

TSX-V: QTA.

QUATERRA RESOURCES INC. is a junior exploration company focused on making significant mineral discoveries in North America . The Company uses in-house expertise and its pipeline of consultants, prospectors and industry contacts to identify, acquire and evaluate prospects in mining friendly jurisdictions with the potential to host large base, precious metal or uranium deposits.

The Company’s preference is to acquire a 100% interest in properties through initial evaluation.

http://www.quaterraresources.com/

Note: I have a position in the company and will continue to hold a position in Quaterra.

A Personal Disclosure.

Over the last few months, many of the stocks we’ve linked to have made some interesting moves. Possibly because of the LIR link, more likely because of the underlying company and good management. Going forwards, I expect the commodities demand cycle to last another couple of decades due the economic rise of Asia . I expect the pace of interest in natural resource stocks to quicken. I also expect many junior resource stocks will become takeover or consolidation targets. I expect NAFTA based resource stocks to be especially prominent.

BUT, I expect a particularly difficult summer ahead as the CDO problems start to surface far from where we might expect. Owning most stocks at this time offers a poor risk-reward balance, accordingly I will sit out the summer largely in cash and precious metals stocks. While the last Fed chairman Mr. Greenspan sees the odds as 2:1 against a US recession, I would put the odds as 2:1 on a US recession, due to the speed of the troubles of real estate and derivatives. While others might see opportunity in adversity and seek to gain by doubling up, to me that’s gambling and gambling’s more fun in Atlantic City , or Las Vegas , or Monte Carlo . I will review my stance later in the year.

Below is the list of natural resource stocks I will hold after disposing of most of my holdings. In no particular order, they are:

MacMillan Gold MMG. http://www.macmillangold.com/

Quaterra Resources Inc QTA. http://www.quaterraresources.com/

Derek Oil & Gas Corp DRK. http://www.derekoilandgas.com/s/Home.asp

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Sometimes the daily LIR gets “bounced” out of the receiver’s server. When this happens it sometimes bounces you out of the LIR database as well. If you suddenly stop receiving the daily update but didn’t actually want a break from my daily insanity, just email me at the link below to get back onto the daily list.

Graeme Irvine

Global Profiles LLC

girvine@globalprofiles.net

http://www.globalprofiles.net

Cdn. Dollar/Euro Spot Rate 1.4402 0.6944
Gold AM PM
London Gold Fix (US) $652.00 $652.85

Spot Crude Oil Future(US) $69.14 +$0.49 or +0.71%

NEWS
North American markets were slammed by triple-digit losses on Friday as both Toronto and Wall Street ended a losing week of erratic trading fuelled by rising oil prices and inflation concerns.

Toronto’s S&P/TSX composite index lost 109.7 points to 13,986.03. Since Monday, the TSX has logged three sessions of losses and two of gains, starting the week at 14,137.

So far this month, the Toronto market has been engaged in a tug-of-war between posting higher results and slipping below new records. In June, the market has closed ahead nine times while it has ended down six times. The current record sits at 14,176.42 points set on Monday.

The Canadian dollar wrapped up ahead 0.44 of a cent to 93.49 cents US.
South of the border trading has also been volatile this week with the New York markets all closing down three times and up two times, on fears of higher interest rates and the health of hedge funds. On Wall Street, the Dow Jones industrials were down 185.58 points to 13,360.26. The Nasdaq composite index was down 28 points to 2,588.96 and the S&P 500 index dipped 19.61 to 1,502.58.

On the TSX, all sectors slipped into the red and industrials stocks led the decline, losing 1.19%. Canadian National Railway Co. lost $1.68 to $54.55. Energy stocks slid 0.99% although the light sweet crude contract for August rose 49 cents to US$69.14 a barrel on the New York Mercantile Exchange.

The gold sector was down 0.79%. The August bullion contract on the Nymex rose $2.80 to US$657 an ounce, but down $1.70 for the week.

Further confidence on the future of the U.S. economy couldn’t motivate investors to turn around losses.A report from the International Monetary Fund said U.S. economic activity should pick up for the rest of this year and into 2008 as the drag from a decline in the housing market dissipates. But the IMF warned that growth is uncomfortably close to the 2% “stall speed” associated with past recessions.

The trading session featured the initial public offering of a stake in the management arm of Blackstone Group LP. The most talked-about IPO since Google Inc. values the buyout shop at US$33 billion. Blackstone stock jumped almost 20% in its debut on the New York Stock Exchange.

Media giant CanWest Global Communications and the CanWest MediaWorks Limited Partnership say that the partnership plans to issue US$650 million in 10-year notes as part of its plan to go private. This debt, along with C$950 million in senior secured credit facilities announced earlier this month, will be used to finance the privatization of the CanWest MediaWorks Income Fund and for general corporate purposes. (Canadian Press).

TSX

Most Active By Trading Volume*

Symbol Price $ Change % Change Volume
SAG 0.040 -0.005 -11.11 10,917,267
ZMR 0.215 +0.040 +22.86 9,849,348
BBD.B 6.390 -0.080 -1.24 8,931,554
BWR 2.840 +0.110 +4.03 7,066,372
BCE 40.160 -0.580 -1.42 6,994,346
FAN 0.740 +0.020 +2.78 5,061,315
NRI 0.205 -0.020 -8.89 4,729,541
EQN 3.380 -0.080 -2.31 4,378,323
TIM 5.850 +0.850 +17.00 4,113,942
XLX 0.035 +0.005 +16.67 3,742,300
WTN 2.750 +0.040 +1.48 3,508,930
UTS 6.040 +0.140 +2.37 3,393,601
K 13.510 -0.250 -1.82 3,006,665
TLM 21.460 -0.280 -1.29 2,913,299
UMN 8.410 +0.010 +0.12 2,820,099

TSX VENTURE
Most Active By Trading Volume*

Symbol Price $ Change % Change Volume
BBP 2.400 +0.060 +2.56 10,684,357
SAU 0.080 +0.010 +14.29 3,065,500
GZZ 0.770 +0.150 +24.19 2,097,850
C 1.370 +0.020 +1.48 2,008,540
MCK 0.225 +0.060 +36.36 1,820,000
SA 2.290 +0.110 +5.05 1,817,488
RRM 0.240 +0.030 +14.29 1,717,250
ROI 0.230 +0.010 +4.55 1,706,567
NRS 0.950 -0.340 -26.36 1,632,550
SOR 1.820 +0.180 +10.98 1,611,490
GCL 0.930 +0.060 +6.90 1,517,900
TMG 0.590 +0.060 +11.32 1,314,490
GUL 0.470 +0.090 +23.68 1,300,500
FO 2.560 -0.100 -3.76 1,288,111
R 0.325 +0.025 +8.33 1,273,600

TRADING HALTS/RESUMPTIONS
Trading Halt – Canext Energy Ltd – CXT , Pending News
Trading Halt – Trimox Energy Inc. – TRM.A; TRM.B , Pending News
Trade Resumption – Gastem Inc. – GMR
Trade Resumption – Gulfside Minerals Ltd. – GMG
Trading Halt – Iberian Minerals Corp. – IZN , Pending News

NEW LISTINGS
GlobalBanc Advantaged 8 Split Corp. To Trade On Toronto Stock Exchange GBA , up to 8,625,000 Preferred Shares and up to 8,625,000 Class A Shares of the Company, of which up to 7,500,000 Preferred Shares and up to 7,500,000 Class A Shares will be issued and outstanding, and up to 1,125,000 Preferred Shares and up to 1,125,000 Class A Shares will be reserved for issuance upon completion of an initial public offering (the “Offering”).will be posted for trading at the opening on June 26, 2007.

TeraGo Inc. To Trade On Toronto Stock Exchange TGO , 7,008,943 common shares will be issued and outstanding, and 6,139,370 common shares will be reserved for issuance pursuant to an initial public offering, will be posted for trading at the opening on Tuesday, June 26, 2007

Horizons BetaPro S&P/TSX Global Gold Bull Plus ETF To Trade On Toronto Stock Exchange HGU , 1,002,500 redeemable, transferable Class A units (the “Units”) of the ETF, all of which will be issued and outstanding and none will be reserved for issuance upon completion of an initial public offering., will be posted for trading at the opening on Tuesday, June 26, 2007.

Horizons BetaPro S&P/TSX Global Gold Bear Plus ETF To Trade On Toronto Stock Exchange , HGD , 1,002,500 redeemable, transferable Class A units (the “Units”) of the ETF, all of which will be issued and outstanding and none will be reserved for issuance upon completion of an initial public offering., will be posted for trading at the opening on Tuesday, June 26, 2007.

Anthony Clark International Insurance Brokers Ltd. To Trade On TSX Venture Exchange ACL , are currently listed on Toronto Stock Exchange and will be delisted from trading effective at the close of business on June 22, 2007., Effective at the opening Monday, June 25, 2007, the common shares of the Company will commence trading on TSX Venture Exchange

Sources include Advisors.ca, TSX.com, Canadian Press, Yahoo Finance,
Stockhouse.com
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Captain Smith. Commander of the Titanic

The entire CDO class of assets is now over priced, many perhaps completely worthless. Few will bother to make adjustments in their books. Like central banks pretending that “leased” gold hasn’t been given away and sold into the market never to return, the hedge funds, banks and pension funds will pretend that nothing has changed and list the assets at full price on the books, hoping that no one notices.

But despite the pretence, the emperor has no clothes. The half a quadrillion derivatives lockup, has already kicked off. The funny money game so beloved by former Guru Greenspan, has gone into toxic shock. Behind the scenes the PPT will be trying to monetise a solution, but with over a trillion of CDO’s alone, spread around a global largely unsuspecting money manager world, the problem is far beyond the control of a US shady agency mostly charged with keeping fiat dollar supremacy working. Stay long gold and silver and add more for the backstop pension plan. The financialisation of the global economy process, set in motion by President Nixon’s adoption of fiat money in August 1971, has begun the process of collapse. But first, Wall street has found a new group of “investors” to load up with some of the new cheaper, if dodgy, CDOs.
Colleges Buy Up
Risky Debt After
Bear’s Debacle

By CRAIG KARMIN and SERENA NG
June 22, 2007 ; Page C1

With Wall Street scrambling to offload risky mortgage-backed securities, potential buyers of subprime debt are emerging — among university endowments.

“There’s an opportunity out there to buy these loans at a discount,” says Lou Morrell, vice president for investments and treasurer at Wake Forest University in Winston-Salem , N.C. The university’s $1.2 billion endowment is in the process of placing about $25 million with a hedge fund to invest in subprime mortgages. Because these loans could sell for steep discounts, he says, “they will be popular with a lot of endowments out there.”

Late Wednesday, Merrill Lynch & Co. — a lender to the Bear hedge funds — auctioned off some assets it had seized from the Bear funds. The investment bank sought bids for $850 million in securities, some of which were backed by subprime mortgage bonds, but ended up selling less than half that amount, according to people familiar with the matter.

Most of the trades Merrill made were at prices of 85 to 95 cents on the dollar. A person familiar with the auction said some bids — which didn’t result in trades — were as low as 30 cents on the dollar.

http://online.wsj.com/article/SB118247744627844360.html?mod=home_whats_news_us

I suspect few will want to buy at 85% and many won’t be cheap at 30% before the gathering CDO rout is over.

Before the fiat currency system ends in return to intrinsic value, many countries will go through some version of the Zimbabwe tragedy. Like the unfortunate and wrong Captain Smith, few now see the tragic end all fiat currency achieves, but most never saw Enron and Refco for the frauds that they were either. Most stayed in denial right up to the end. The CDO debacle will be little different. We open with the sad case of how a fiat currency ends.

Zimbabwe currency crashes; inflation as high as 9,000%

POSTED: 1701 GMT (0101 HKT), June 21, 2007

HARARE , Zimbabwe (AP) — The value of the Zimbabwean dollar suffered its worst crash in memory, dealers said Thursday, sparking a run on dollars and forcing stores to close early to put new prices on their meager stock.

Black market exchange rates — fueled by the central bank buying at the illegal rates to pay the mounting debts of crumbling state fuel and power utilities — rose to upward of 300,000 Zimbabwe dollars to one U.S. dollar in large offshore deals, said one trader.

The official exchange rate is 15,000-1.

“It’s gone crazy,” said the trader, who spoke on condition of anonymity because his dealings are illegal. “People are holding out for the highest bidder and mentioning as much as 400,000-1 which could be tomorrow’s price. It’s changing by the hour.”

The going rate doubled since Monday, he said

In local deals, the U.S. currency fetched at least 140,000-1 in cash and around 200,000-1 in electronic bank transfers.

Shortages of Zimbabwe bank notes created the premium on bank transfers, said the illegal dealer.
Zimbabwe has the world’s highest rate of inflation, estimated officially at around 4,500 percent but calculated by independent finance houses at closer to 9,000 percent.

A hardware store in northern Harare closed its doors Monday through Tuesday to re-price all its goods. Supermarkets and other shops are planning to shorten opening hours to make price changes, enabling them to buy replacement stock at higher prices.

A journalist for Zimbabwe ‘s official Herald newspaper reported that she had returned home from a week in South Africa to discover that during her absence the price of beef had increased 2.5 times, a bottle of cooking oil had doubled and bus fares had gone up between three and fivefold.

“The price movements in the past week are nothing short of total madness,” wrote Victoria Ruzvidzo in Thursday’s edition of the newspaper, a government mouthpiece.

—-”If it goes on like this, we’ll have nothing to sell, we’ll have no staff and we’ll have to close down completely,” said one store manager who asked not to be identified out of fear of being targeted for being “a prophet of doom” by often-violent ruling party militants.

http://edition.cnn.com/2007/WORLD/africa/06/21/zimbabwe.ap/

So how could two obscure and relatively small Bear Stearns hedge funds have put us further down the road to ruination? Quite simply because though all will try to pretend for a while that the CDO’s are still worth face value, when investors want their money back, the collateral isn’t there to be sold, in some cases, in others it will be worth just a tenth to a half of face value. Merrill and BS have just established what the true market value is for toxic junk. A value likely to get lower with the passage of time. There was no such thing as a triple A rated CDO. Now everyone’s rushing to read the small print. Below, we open with contagion starting to spread. Is Barclays, approaching its Overend, Gurney & Co. moment? Get Yale and Harvard on the phone, fast.

Barclays faces hit over sub-prime loans turmoil
By Ambrose Evans-Pritchard Last Updated: 1:31am BST 22/06/2007

Barclays Capital is at the centre of concerns over its exposure to two Bear Stearns hedge funds facing collapse.

Sources said the bank may have lent far more money to the high-risk funds than originally thought, much of it linked to the lower tier “sludge” category of sub-prime mortgages most vulnerable to rising US default rates.

“This could hit Europe harder that people realise,” said one banking specialist. “We understand that Barclays Capital has lent $1.2bn (£603m) to these funds.”

CNBC reported yesterday that Barclays held $300m of the assets in the Bear Stearns pair, which are battling for survival after Merrill Lynch and Deutsche Bank invoked their right to seize more than $1bn in securities.

Barclays has declined to comment on the extent of its exposure, or whether it plans to join the liquidation drive.

Merrill appears to be having second thoughts about the forced sale after receiving “pitiful” prices for some of the riskier tranches of debt.

All the creditors are under intense pressure to avoid an auction process that could set off a chain reaction, causing a wholesale markdown in prices. The risk is of a sweeping downgrade of mid-quality debt that forces mass liquidation by institutional investors.

JP Morgan, Goldman Sachs, and Bank of America have all chosen to do deals with Bearn Stearns to limit risk rather than cause a “disorderly unwind”. Barclays appears to be in the same camp.

Chris Cox, head of the US Securities and Exchange Commission, said he was keeping a close eye on the Bear Stearns crisis. “Our concerns are with any potential systemic fall-out,” he said.

The securities, known as Collateralised Debt Obligations, are packages of mortgages that are sliced and diced into segments according to credit-worthiness.

The process allows the bulk of sub-prime mortgages to be marketed as high-grade AA or even AAA debt, while concentrating all the risk in the bottom tier.

CDO issuance exploded to $503bn last year. There is now over $1,000bn in outstanding CDO debt.

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=CBON5I3APXT4HQFIQMGCFFOAVCBQUIV0?xml=/money/2007/06/22/cnbarc122.xml

Below, BS considers monetising the solution. While $3.2 billion might cover the hapless investors who fell for a line from BS, they might even borrow it from the Fed, who will monetise the remaining holders of over $1 trillion in other CDO’s, spread as they are round the world? Besides is it really the American taxpayers roll to bail out giant banks in London?

Bear Stearns May Take on $3.2 Billion of Fund Loans, People Say

By Jody Shenn and Yalman Onaran

June 21 (Bloomberg) — Bear Stearns Cos. may take over about $3.2 billion of loans that banks and securities firms made to one of its money-losing hedge funds to prevent creditors from seizing more assets, according to people with knowledge of the plan.

Bear Stearns, the biggest broker to hedge funds, offered to assume the loans after Merrill Lynch & Co. took assets that backed $850 million in credit lines, said the people, who declined to be named because the proposal is confidential. Lehman Brothers Holdings Inc. and JPMorgan Chase & Co. also put some of their collateral up for sale.

An agreement between the creditors and New York-based Bear Stearns, the second-biggest underwriter of mortgage bonds, may avert a fire sale of the fund’s assets. Bear Stearns has spent the past few days attempting to rescue the two hedge funds after they made bad bets on so-called collateralized-debt obligations, securities backed by bonds, loans and derivatives.

“For the sake of its reputation, Bear needs to put this behind it as soon as possible,” said Peter Goldman, who helps manage $600 million at Chicago Asset Management, including shares of Bear Stearns.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aq1AgBoZS7Ws&refer=worldwide

Eventually, after denial ends, some savvy City slickers will try to invoke the protection of the credit default derivatives, it’s partly what they are there for after all. The trouble is that many were issued by poorly capitalised SPEs, little more than brass nameplates hanging on a wall in Bermuda, who knew they might one day be called on to do more than take in the premiums. As the reality of the CDO collapse sinks in, and the reality sinks in of the extent of America ’s financialised, often fraudulent, real estate bubble, central banks will eventually be monetising trillions of failed obligations. Don’t laugh at poor Zimbabwe’s currency fate too soon. Stay long precious metals for the long run, I don’t think we know the meaning of contagion and spillover yet.

Below, the latest wheeze spawned by the liquidity bubble, to keep the Us lifestyle “non negotiable”. We will borrow and spend our way to prosperity.

Reverse-mortgage market zooms forward

Plenty of new products are emerging, but consumers still need to be wary

By Andrea Coombes, MarketWatch

Last Update: 8:25 PM ET Jun 21, 2007

SAN FRANCISCO (MarketWatch) — As more homeowners nationwide tap into reverse mortgages, banks are jumping into the market to offer their own versions of these sometimes controversial loans.

The new breed of reverse mortgages generally allow for higher loan amounts and lower fees than the traditional, government-backed loans, but may charge higher interest rates.

There’s even a new product that sidesteps banks entirely and structures a reverse-mortgage loan between family members.

Reverse mortgages allow homeowners who are 62 and older to convert home equity into income, with the lender paying out via a lump sum, monthly payments or a credit line. When the house is sold, the lender is paid back with interest. With a typical reverse mortgage, the homeowner never owes the lender more than the value of the home.

“More lending institutions are getting comfortable with reverse mortgages and offering more variety so there is more choice available. There are more resources, more products. I think we’re going to see an explosion of this kind of lending,” said John Rother, policy director at AARP.

For instance, Bank of America) , which recently acquired the reverse-mortgage business of Seattle Mortgage Company, said it will soon launch nationwide a reverse-mortgage product it’s offered to customers in Arizona since November. The product, called Senior Equity Maximizer, offers loans on up to $10 million of home equity, said Colin McCormick, reverse-mortgage product executive at Bank of America.

—–Today about 90% of reverse mortgages are the traditional government-backed product, the most prevalent of which is the Federal Housing Administration’s home equity conversion mortgage, according to the National Reverse Mortgage Lenders Association, a trade group.

Borrowers have taken out about 71,500 new FHA-based reverse mortgages so far this fiscal year (which began Oct. 1), a 49% jump from about 48,000 loans in the same period a year earlier. From 1990 through to the present, about 310,000 such loans have been taken out, according to the NRMLA.

http://www.marketwatch.com/news/story/new-reverse-mortgages-bring-perks/story.aspx?guid=%7BBC7C70D1%2DDDBD%2D4EE4%2D9E38%2D4D138AF8DC3B%7D

Something tells me this smacks of desperation and eating the seed corn of tomorrow.

Below, the beauty and charm of Potsdam , failed to soften the hearts of the negotiators at the world trade talks. “Make poverty history” looks like being a slogan to be around for quite a while.

Talks to rescue trade deal fail amid recriminations

Carl Mortished, International Business Editor

Efforts by four leading trading powers to salvage a world trade deal foundered in Potsdam yesterday when the European Union, the United States, Brazil and India failed to reach a broad agreement on reducing tariffs and subsidies.

The last-ditch effort to bridge the gap between richer and poorer nations failed amid recriminations on both sides of the wealth divide. The collapse of the Potsdam talks is a severe setback to Pascal Lamy, director-general of the World Trade Organisation, who nevertheless insisted that a global deal was still possible.

The Doha round of trade talks, launched in 2001 in the Gulf city and intended to lift the developing world out of poverty through expansion of trade, has been stymied by the unwillingness of rich countries to abandon tariffs and subsidies that protect their farmers.

At the same time the emerging industrial powers of the developing world, such as Brazil and India, are resisting demands that they lower tariffs on imported industrial goods. The row continued in Potsdam as Brazil and India cut short the talks two days ahead of schedule. “It was useless to continue the discussion on the basis of the numbers put on the table,” Celso Amorim, Brazil’s Foreign Minister, said.

Kamal Nath, India’s Commerce and Industry Minister, blamed the collapse of the talks on America’s unwillingness to reduce trade-distorting subsidies to US farmers sufficiently. “If the round is to move forward, there will have to be a substantial attitude change,” he said.

The Doha talks will now return to the wider forum of 150 nations in Geneva but Peter Mandelson, Britain’s EU Trade Commissoner, said: “It places a very major question mark on the ability of the wider membership of the WTO to complete this round.”

http://business.timesonline.co.uk/tol/business/economics/article1969093.ece

We end for the week with an update from China . This time Xinhua reporting in the well watched English language media edition, a message meant for the trade and currency negotiators in Washington . I hope it won’t be misread in Tehran. We are trading in very interesting times.

Poll shows Bush’s approval rating hits new low

WASHINGTON, June 21 (Xinhua) — The latest Newsweek poll found U.S. President George W. Bush’s approval rating has hit a record low, with only 26 percent of the respondents endorsing him.

Meanwhile, a record high 65 percent disapprove of him, including nearly a third of Republicans, according to poll results released by the Newsweek website on Thursday.

Most notably, the 26 percent rating, a two-point drop from the last Newsweek poll in May, puts Bush lower than Jimmy Carter, who sunk to his nadir of 28 percent in a Gallup poll in June 1979.

In fact, the only president in the last 35 years to score lower than Bush is Richard Nixon.

Nixon’s approval rating tumbled to 23 percent in January 1974, seven months before his resignation over the botched Watergate break-in.

The war in Iraq continues to be the major factor that drags Bush’s rating down.

A record 73 percent of Americans disapprove of the job Bush has done handling Iraq .

Despite “the surge” of U.S. forces in Iraq , a record-low 23 percent of Americans approve of the president’s actions in Iraq , down 5 points since the end of March.

Moreover, Bush scores record or near record lows on every major issue: from the economy (34 percent approve, 60 percent disapprove) to health care (28 percent approve, 61 percent disapprove) to immigration (23 percent approve, 63 percent disapprove).

http://news.xinhuanet.com/english/2007-06/22/content_6275058.htm

Another weekend and time to investigate what the weather has been up to in terms of global crops. Not too good in the case of northern hemisphere wheat, I think. Despite the already high price and a harvest under way in the first producing areas, a few out-of-the-money call options look interesting to me. Have a great summer weekend everyone.

At the Comex silver depositories 623,267 ozs was added to Eligible at Scotia Mocatta. Final figures were Registered 71.32 Moz, Eligible 60.28 Moz, Total 131.60 Moz.
The NYSE WIN system is now flat. The NASDAQ system is long form last night’s close. Since playing a black box system in the current geo-pol/economic climate, isn’t the wisest thing to do, we will adjust long positions to carry an offsetting deep-out-of-the-money matching option position to provide an automatic fail safe stop in the event another 1987 like event occurs before the PPT can step in.

More details on the WIN system are available at link below.

http://website.lineone.net/~audluk/tocframe.htm

The monthly Coppock Indicators finished May:

DJIA: 175 up. NASDAQ: 108 up. SP500: 149 up.

All three have confirmed the long trend as up.

This week’s featured link: Longview Capital Partners. TSX-V: LV

Longview Capital Partners is a global resource group. The current portfolio of companies we have founded, developed and invested in now enjoys a combined market capitalization of over $900 million.

Our model is to selectively invest in private or undervalued assets, augment management teams with our expertise and assist in the going public process. Once public, Longview Capital Partners continues to invest and brings an awareness of the opportunity to our network of retail and institutional investors.

http://www.longviewcp.com/

A Personal Disclosure.

Over the last few months, many of the stocks we’ve linked to have made some interesting moves. Possibly because of the LIR link, more likely because of the underlying company and good management. Going forwards, I expect the commodities demand cycle to last another couple of decades due the economic rise of Asia . I expect the pace of interest in natural resource stocks to quicken. I also expect many junior resource stocks will become takeover or consolidation targets. I expect NAFTA based resource stocks to be especially prominent.

Where I hold a position prior to a company being featured as a link, this will be disclosed. Where I will be investing during the week of linking, this too will be disclosed.

In no event should my investing or not investing substitute for doing your own due diligence, if you are considering an investment in the stock.

My circumstances and resources are probably very different to other potential investors. All stocks linked in LIR, I consider to merit the link, whether or not I invest in the company. As before, neither LIR, Global Profiles nor myself get paid for featuring a link. Lastly, because I invest in a stock it does not necessarily turn it into a sure thing winner. Happily though, neither will my investing turn it into an automatic loser.

Below is the list of natural resource stocks I hold an interest in. In no particular order, they are:

Birch Mountain Resources Ltd. BMD. http://www.birchmountain.com/

Canadian Royalties Inc CZZ. http://www.canadianroyalties.com/en/

MacMillan Gold MMG. http://www.macmillangold.com/

Quaterra Resources Inc QTA. http://www.quaterraresources.com/

MBMI Resources Inc MBR. http://www.mbmiresources.com/

Candax Energy Inc CAX. http://www.candax.com/

Derek Oil & Gas Corp DRK. http://www.derekoilandgas.com/s/Home.asp

Consolidated Spire Ventures CZS. http://www.spireventures.com/pmt.php/index

Cornerstone Capital Resources Inc www.cornerstoneresources.com

Pacific Asia China Energy Inc.www.pace-energy.com

If you have a junior resource company you think has merit and don’t mind sharing it with others, feel free to send it along. If space permits and they have no objections, we’ll try to put up a link.

Junior resource companies are not suitable for everyone, but for those who are interested in that sector, we aim to provide companies of merit. As the new century unfolds and natural resource demand soars, I think, that there will be big money to be made from prudent investment in the sector. As always, it’s important to do one’s own due diligence if thinking about making an investment. No one has more at risk in an investment than you do yourself.

If you like this report, feel free to share it with others. It is not copyrighted but open sourced. If you have comments, witty remarks, or information to share, please send them along as well. If permission is granted, we may use them in this report.

Sometimes the daily LIR gets “bounced” out of the receiver’s server. When this happens it sometimes bounces you out of the LIR database as well. If you suddenly stop receiving the daily update but didn’t actually want a break from my daily insanity, just email me at the link below to get back onto the daily list.

Graeme Irvine

Global Profiles LLC

girvine@globalprofiles.net

http://www.globalprofiles.net

Blair Freedom Day: -6.

“Deeply regret advise you TITANIC sank this morning after collision with iceberg, resulting in serious loss of life. Full particulars later.”

J. Bruce Ismay, Director of the White Star Line
Time to get into the lifeboats, there is something seriously going wrong behind the scenes. How else can one interpret the sharks turning on their own. Forget another LTCM type bailout, suddenly it’s become “every man for himself”. I have to assume that the Merrill’s, Morgan’s and Goldman’s hire the best and have access to the best information on the street. If they’re grabbing collateral and scrambling to get out fast, I have to assume an almighty CDO debacle and rout is at hand. Is there another Refco in the wings. Below, this morning latest reports. Are well over a trillion in CDO’s and related derivatives about to re-price sharply lower and by how much? How many entities are about seize up on June 30 ths end-of-half valuation date? While US Treasury Secretary Paulson testified “I do believe that we are at or near the bottom”, he would say that for fear of starting a panic. I doubt we are anywhere near the bottom.

Merrill sells assets of Bear Stearns hedge funds

J.P. Morgan cancels auction, to negotiate with Bear fund managers

By Alistair Barr & Greg Robb, MarketWatch

Last Update: 6:27 PM ET Jun 20, 2007

SAN FRANCISCO (MarketWatch) — Merrill Lynch & Co. is selling roughly $850 million of assets from two Bear Stearns Cos. hedge funds that have been battered by turmoil in the subprime mortgage market, a person familiar with the situation said Wednesday.

An auction by Merrill, one of several investment banks that lent money to the funds, was completed late Wednesday, but more sales are planned on Thursday, the person added. The assets for sale include mortgage-backed securities, collateralized debt obligations and credit default swaps.

J.P. Morgan Chase another creditor, also planned an auction for some of the funds’ assets, but cancelled it on Wednesday afternoon, two other people familiar with the situation explained. J.P. Morgan has now decided to negotiate directly with the Bear Stearns funds to unwind positions via private transactions, they said.

It’s usually a sign of trouble when a lender sells collateral from a hedge fund client. Treasury Secretary Henry Paulson was asked about the problems suffered by the Bear Stearns funds on Wednesday.

“I tried to make clear we will be dealing with the subprime issue for some time and that there will be losses along the way,” Paulson said, while stressing he was not commenting specifically about the Bear Stearns situation. “It is a natural outgrowth of what we’ve seen in the housing market and certain lending practices.”

“As mortgages continue to reset, this will take time to work its way through the system,” he explained. “But I continue to believe that this risk is largely contained. It doesn’t pose a significant risk to the economy overall.”

—–Merrill sold mostly CDO debt that it had seized from the Bear funds on Wednesday, said one fixed-income fund manager who saw the list of assets on offer.

Demand wasn’t very strong for some of the more illiquid assets – those that trade infrequently, the person noted on condition of anonymity.

Other lists of assets from the Bear hedge funds were also circulating on Wednesday. Some of these so-called bid lists were sent out for execution within roughly an hour, which is unusual, the person noted. Sellers typically give investors one or two days to analyze the assets and bid, they added.

That suggests some lenders were keen to sell the assets quickly and weren’t so interested in getting the best price, one expert said.

http://www.marketwatch.com/news/story/merrill-auctions-off-assets-troubled/story.aspx?guid=%7BAC457F42%2DEF10%2D47EE%2D8D87%2DACB45059F6E4%7D

Rate Rise Pushes Housing, Economy to `Blood Bath’

By Kathleen M. Howley

June 20 (Bloomberg) — The worst is yet to come for the U.S. housing market.

The jump in 30-year mortgage rates by more than a half a percentage point to 6.74 percent in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, the National Association of Realtors reported.

“It’s a blood bath,” said Mark Kiesel, executive vice president of Newport Beach, California-based Pacific Investment Management Co., the manager of $668 billion in bond funds. “We’re talking about a two- to three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually it will take the stock market and corporate profit.”

—– “It’s not just a housing recession anymore, it looks more and more like an economic recession,” said Nouriel Roubini, a Clinton administration Treasury Department director and economic adviser who now runs Roubini Global Economics in New York.

—- “This has been a drag on the economy,” Treasury Secretary Henry Paulson said at a press briefing today after he testified in front of the House Financial Services Committee. “I do believe that we are at or near the bottom.”

http://www.bloomberg.com/apps/news?pid=20601103&sid=akV2sasSGUY8&refer=us

Banks fear rout on risky US bonds

By Ambrose Evans-Pritchard Last Updated: 1:09am BST 21/06/2007

Credit markets across the world were braced for trouble last night after Merrill Lynch abandoned efforts to save two Bear Stearns hedge funds, forcing the sale of $850m (£426m) of sub-prime mortgage bonds and other assets for debt repayment.

JP Morgan and other key creditors have yet to decide whether to enforce margin calls as a panic sell-off in the market for 2006-vintage mortgage securities pushes the two asset management funds towards the brink.

Credit markets across the world were braced for trouble last night after Merrill Lynch abandoned efforts to save two hedge funds, forcing the sale of $850m (£426m) of sub-prime mortgage bonds and other assets for debt repayment.JP Morgan and other key creditors have yet to decide whether to enforce margin calls as a panic sell-off in the market for 2006-vintage mortgage securities pushes the two asset management funds towards the brink.
Sources close to the deal said Bear Stearns was trying to organise “an orderly unwind”, conceding that the funds could not be saved.

The mushrooming crisis is the worst hedge fund upset since last year’s collapse of Amaranth Advisers, which lost $6.7bn betting on gas futures. This time, the ramifications may be broader as the worsening property slump engulfs a large chunk of America ‘s $2,000bn sub-prime sector.

Robert McAdie, a credit strategist at Barclays Capital, said traders were watching closely for signs of distress in any other funds playing the securities and debt markets.

—–What’s critical is whether the rating agencies now conclude that losses are so high that they downgrade the better AAA debt. A lot of banks holding these assets would be forced to sell on a very large scale, and that could cause a market rout.”

Mr McAdie said there was risk of a chain reaction through the market for collateralised loan obligations (CLO), a risky debt security now being issued on a massive scale.

“Many of the same investors are also buying CLOs and they are becoming wary of high leverage and ‘covenant-lite’ loans,” he said, referring to deals that impose few if any conditions on borrowers.

Standard & Poor’s published a report last week called The Covenant-Lite Juggernaut warning that these sorts of risky CLO assets exploded to $48bn in the first quarter of this year, double the figure in all of 2006. It said lenders would “rue the day” when the credit cycle turns.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/21/cncredit121.xml&CMP=ILC-mostviewedbox

Governor issues ‘toxic’ debt warning
By Edmund Conway, Economics Editor Last Updated: 2:18am BST 21/06/2007

The Bank of England Governor has warned the City that an explosive rise in lax loans and complex debt instruments now represents a major threat to global financial stability.

In a remarkable speech at the Mansion House last night, Mervyn King issued a caution to the corporate debt market, where banks have dramatically loosened their lending conditions and devised ever more advanced means of extending cash to customers.

He singled out collateralised debt obligations (CDOs) as a specific threat, warning those trading in these complex products that they may be dicing with risks “which we do not understand with any great precision”.

He said: “The risk of the entire return being wiped out can be much greater than on simpler instruments. Higher returns come at the expense of higher risk.”
It is the first time Mr King has spoken out publicly about the growing risks faced by lenders, though his warning echoes those from the Bank’s own Financial Stability Report, as well as a host of other City figures.

CDOs – complex pools of debt sliced up, sometimes piled on top of each other, and sold to investors – were once described by former Financial Services Authority chairman Sir Howard Davies as “toxic waste”.

Regulators fear that their complexity means that few traders are aware of the risks of borrowers defaulting. Yet, according to the Bank for International Settlements, sales of CDOs hit a record $251bn (£126bn) in the first quarter of the year alone.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/21/cnboe121.xml&CMP=ILC-mostviewedbox

While blood flows in the back rooms of Wall Street, the message is “business is booming” in Washington. Below, the global economy has never been better, says US Treasury Secretary Paulson. Non Americans never had it so good.

Global economy ‘firing on all engines,’ Paulson says

Treasury chief hails progress on narrowing U.S. current account deficit

By Greg Robb, MarketWatch

Last Update: 10:23 AM ET Jun 20, 2007

WASHINGTON (MarketWatch) — Treasury Secretary Henry Paulson on Wednesday gave Congress an upbeat report on the global economy, saying it was stronger than any time in the past two decades.
“The global economy is now firing on all engines in a way that produces better balance, more sustained growth and expanding opportunities,” Paulson said in testimony prepared for delivery to the House Financial Services Committee.

Worldwide, gross domestic product expanded at a 5.4% rate in 2006, the highest rate of growth in over 30 years, according to the International Monetary Fund. Current projections call for continued strong growth this year and next, Paulson said.

“In sum, global economic growth is widespread and moving at a faster pace than in the 1980s or the 1990s,” he said. “Inflation is down, fiscal positions have improved and vulnerabilities have been reduced.”

Acceleration in world economic growth has heightened concern that imbalances in global financial conditions might lead to a sharp decline in the value of the U.S. dollar.

But Paulson was sanguine on the matter, pointing out that the U.S. current account deficit has narrowed to 5.7% of U.S. GDP in the first quarter from a peak of 6.8% in the final three months of 2005.

—-”Openness to trade and competition fuels economic dynamism, innovation and deployment of new technologies that raise standard of living and productivity across the globe,” Paulson said.

“We cannot turn back the clock; the global economy is here to stay,” he said.

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B2EBD43E4%2DDDE9%2D4800%2DBE5F%2DB22D20C5EE81%7D&siteid=nwtpm

As if to drive home his point, Japan ’s exports are on a roll largely due to a US approved rigged Yen. Below, the FT reports the news with just a hint of trouble ahead.

Japan export hits record on Asian demand

By David Pilling in Tokyo

Published: June 21 2007 04:28 | Last updated: June 21 2007 04:28

Japan’s exports rose 15.1 per cent to a record high for May, but brisk imports and sluggish shipments to the US meant the trade surplus rose a slower-than-expected 9.3 per cent from a year earlier.

Exports rose to Y6,565bn, the 42nd consecutive monthly increase, according to preliminary finance ministry figures released on Thursday. But imports rose an even faster 15.5 per cent, to reach a record Y6,176bn. Economists say the heftier import bill largely reflects higher prices resulting from a weaker yen rather than stronger demand.

Exports to the US rose by a meager 0.4 per cent, following a fall in April. Economists are watching the effect of the slowing US economy on demand for Japanese goods. Most say that Japan’s recovery would struggle to withstand an abrupt fall in US demand.

http://www.ft.com/cms/s/09505dea-1fa7-11dc-ac86-000b5df10621.html

If the US stumbles, this time it’s supposed to be different, and the global economy is supposed to shrug off any spillover effect. I have my doubts that it will, but in theory at least, the rest of the world has never been in better shape. But trouble is brewing in Europe , where yet another ill willed EU summit kicks off in Brussels today. The 28 Supremos who meet, each have their own agenda and plan. Ideally, the summit will do nothing, that way the meddlers can’t make anything worse. Traditionally, they reach a ill fitting compromise, and another bad tempered camel gets added to the EU stable of thoroughbreds.

With the world’s largest debtor about to spar again with it’s largest creditor, and ex Guru Greenspan publicly musing that China won’t dump its dollar holdings because there’s no one to buy them, China yesterday fired a truly frightening shot across America ’s fiat reserve currency bow. Below, how the FT buried the news. Someone in China read the old frauds musings.

China warns IMF over renminbi

By Richard McGregor in Beijing

Published: June 20 2007 19:41 | Last updated: June 21 2007 00:56

China on Wednesday issued a pointed warning to the International Monetary Fund not to back US pressure for a faster appreciation of the renminbi in a planned review of global exchange rates.

The People’s Bank of China, the central bank, said in a statement on its website that the IMF “should carry out its duties based on mutual understanding and respect”, especially for the views of developing countries.

Without directly naming the US, the PBoC said the IMF should step up supervision of member states issuing “major reserve currencies that play a pivotal role on the global systemic stability”.

The IMF announced this week a decision on a new framework. It will expand its coverage of currencies to “all major emerging market currencies”.

http://www.ft.com/cms/s/4f8c027e-1f5b-11dc-ac86-000b5df10621.html

Will Treasury Secretary Paulson soon be reporting to an IMF currency board, and implementing a Latin American style, IMF imposed restructuring plan. Not on your life, but time is getting called on the free lunch from the fiat dollar. Stay long precious metals. Each year about 60 billion of new gold is mined, (using current prices.) Each year the G-7 countries lead by the USA , issues many times that in fiat currency. The unreality gap gets ever wider. I doubt the fiat dollar in its present form reaches 2017. I doubt that the euro, whose member central banks are still selling of their gold, will last in its present form either. The great transition is already underway, just don’t tell the G-7 voters.

At the Comex silver depositories 631,230 ozs left Registered at HSBC. Another 1.4 Moz was added to Eligible at Scotia Mocatta. Final figures were Registered 71.32 Moz, Eligible 59.66 Moz, Total 130.98 Moz. Stay long precious metals.

The NYSE WIN system is short. The NASDAQ system is flat. Yesterday’s action produced a buy liquidation signal on the NYSE system and a signal to go long on the NASDAQ at tonight’s close.

Since playing a black box system in the current geo-pol/economic climate, isn’t the wisest thing to do, we will adjust long positions to carry an offsetting deep-out-of-the-money matching option position to provide an automatic fail safe stop in the event another 1987 like event occurs before the PPT can step in.

More details on the WIN system are available at link below.

http://website.lineone.net/~audluk/tocframe.htm

The monthly Coppock Indicators finished May:

DJIA: 175 up. NASDAQ: 108 up. SP500: 149 up.

All three have confirmed the long trend as up.

This week’s featured link: Longview Capital Partners. TSX-V: LV

Longview Capital Partners is a global resource group. The current portfolio of companies we have founded, developed and invested in now enjoys a combined market capitalization of over $900 million.
Our model is to selectively invest in private or undervalued assets, augment management teams with our expertise and assist in the going public process. Once public, Longview Capital Partners continues to invest and brings an awareness of the opportunity to our network of retail and institutional investors.

http://www.longviewcp.com/

A Personal Disclosure.

Over the last few months, many of the stocks we’ve linked to have made some interesting moves. Possibly because of the LIR link, more likely because of the underlying company and good management. Going forwards, I expect the commodities demand cycle to last another couple of decades due the economic rise of Asia . I expect the pace of interest in natural resource stocks to quicken. I also expect many junior resource stocks will become takeover or consolidation targets. I expect NAFTA based resource stocks to be especially prominent.

Where I hold a position prior to a company being featured as a link, this will be disclosed. Where I will be investing during the week of linking, this too will be disclosed.

In no event should my investing or not investing substitute for doing your own due diligence, if you are considering an investment in the stock.

My circumstances and resources are probably very different to other potential investors. All stocks linked in LIR, I consider to merit the link, whether or not I invest in the company. As before, neither LIR, Global Profiles nor myself get paid for featuring a link. Lastly, because I invest in a stock it does not necessarily turn it into a sure thing winner. Happily though, neither will my investing turn it into an automatic loser.

Below is the list of natural resource stocks I hold an interest in. In no particular order, they are:

Birch Mountain Resources Ltd. BMD. http://www.birchmountain.com/

Canadian Royalties Inc CZZ. http://www.canadianroyalties.com/en/

MacMillan Gold MMG. http://www.macmillangold.com/

Quaterra Resources Inc QTA. http://www.quaterraresources.com/

MBMI Resources Inc MBR. http://www.mbmiresources.com/

Candax Energy Inc CAX. http://www.candax.com/

Derek Oil & Gas Corp DRK. http://www.derekoilandgas.com/s/Home.asp

Consolidated Spire Ventures CZS. http://www.spireventures.com/pmt.php/index

Cornerstone Capital Resources Inc www.cornerstoneresources.com

Pacific Asia China Energy Inc.www.pace-energy.com

If you have a junior resource company you think has merit and don’t mind sharing it with others, feel free to send it along. If space permits and they have no objections, we’ll try to put up a link.

Junior resource companies are not suitable for everyone, but for those who are interested in that sector, we aim to provide companies of merit. As the new century unfolds and natural resource demand soars, I think, that there will be big money to be made from prudent investment in the sector. As always, it’s important to do one’s own due diligence if thinking about making an investment. No one has more at risk in an investment than you do yourself.

If you like this report, feel free to share it with others. It is not copyrighted but open sourced. If you have comments, witty remarks, or information to share, please send them along as well. If permission is granted, we may use them in this report.

Sometimes the daily LIR gets “bounced” out of the receiver’s server. When this happens it sometimes bounces you out of the LIR database as well. If you suddenly stop receiving the daily update but didn’t actually want a break from my daily insanity, just email me at the link below to get back onto the daily list.

Graeme Irvine

Global Profiles LLC

girvine@globalprofiles.net

http://www.globalprofiles.net

Cdn. Dollar/Euro Spot Rate 1.4312 0.6987

Gold AM PM
London Gold Fix (US) $659.60 $657.70

Spot Crude Oil Future(US) $68.19 -$1.92 or -1.32%

NEWS
The Toronto stock market tumbled more than 140 points on Wednesday as the gold and energy sectors were hit by weakening commodity prices, while New York markets took an afternoon slide in an otherwise volatile session.

Toronto’s S&P/TSX composite index ended down 141.33 points to 13,978.16, logging its greatest drop in nearly two weeks. On June 7 the market lost 237.71 points.

The loss stretched across almost all of the major sectors, with energy stocks leading the way, down 1.97%. The August crude oil contract on the New York Mercantile Exchange fell 68 cents to US$68.86 a barrel. The July contract expired at market close down 91 cents to $68.19 per barrel.

The decline came as the U.S. Energy Department said crude oil supplies increased by 6.9 million barrels to 349.3 million for the week ended June 15. Gasoline supplies were up 1.8 million barrels to 203.3 million.

The response from the market was considered “hypersensitive” by Julie Brough, assistant vice-president at Morgan, Meighen and Associates.

“You expect inventories to be higher coming into May and June, and depleting into July and August on the gasoline side,” she said. “We’re still inventory-building for the summer travel season that really won’t kick off for another week or so.”

The lower oil contract prices appeared to have little positive impact on the New York market, as rising bond yields countered the fuel price drop. The Dow Jones industrials ended the session down 146 points at 13,489.42.

The Canadian dollar dipped 0.34 of a cent to 93.72 cents US. Ontario Finance Minister Greg Sorbara expressed his concern with the strong dollar during a federal-provincial meeting of finance ministers at the Meech Lake government retreat outside the capital.

He told Bank of Canada governor David Dodge that he should be concerned with the impact the dollar is having on the country’s manufacturing sector. A higher dollar makes exports less profitable on world markets.

On the TSX, the gold sector was down 1.51% as the August bullion price closed $4.70 lower to US$660 an ounce on the New York Mercantile Exchange. The gold futures had been moving ahead for four consecutive sessions.

Consumer staples stocks led gains, up 0.36%, as Loblaw Cos. gained 97 cents, or 1.9%, to $51.89.
A report from Statistics Canada revealed sharply lower wholesale sales in April as declines in several major sectors erased the strong gains made over the previous two months.

The automotive sector declined after posting gains in four of the last five months. Sales were down 8.3% to $8 billion, led by a 10% decline in motor vehicles.

Cascades Inc. is aiming to boost its status as a global cardboard player with plans to merge its European recycled cartonboard business with Reno De Medici SPA of Italy in a stock-swap deal estimated at $115 million. Shares rose 12 cents to $11.33.

Bombardier Aerospace has sold six Learjet business jets to European Skytime of Gloucestershire, England, bringing its total sales of the jet to eight over the past month. The order is scheduled for delivery over the next two years, though financial terms were not disclosed. Company shares fell 22 cents to $6.58.

In U.S. corporate earnings news, Morgan Stanley said its second-quarter revenue rose 32% to US$11.5 billion amid a jump in investment-banking rule.

Electronics chain Circuit City Stores Inc. reported it’s largest-ever loss for its first quarter. Major electronics retailers have been struggling to turn a profit as they cut prices on big-ticket items like flat-screen TVs to attract customers.

On Tuesday, competitor Best Buy Co. said its earnings fell 18% as it scaled back its profit forecast for 2008.
Shipping company FedEx Corp. posted a 7% increase in fourth-quarter profit amid increased revenue and package volumes. Revenue rose 8% to $9.15 billion.

Toyota is reported to be considering a slowdown on building further plants in the U.S. after concluding that it already has too many factories in the country. A report from the Wall Street Journal says that despite climbing U.S. sales, the company wants to put the breaks on expansion as executives worry about an uncertain outlook. (Canadian Press).

TSX

Most Active By Trading Volume*

Symbol Price $ Change % Change Volume
UMN 8.440 +0.010 +0.12 14,441,730
BBD.B 6.590 -0.210 -3.09 11,651,221
ELR 2.460 -0.030 -1.20 10,381,508
COU.UN 9.590 +0.540 +5.97 10,178,014
EQN 3.380 -0.110 -3.15 6,544,230
TLM 21.350 -0.730 -3.31 6,097,280
BWR 2.770 -0.030 -1.07 5,630,026
LIM 27.200 +0.000 +0.00 4,719,603
PDN 8.050 +0.040 +0.50 4,622,649
SXR 14.850 -0.200 -1.33 4,485,685
SAG 0.045 +0.005 +12.50 4,433,900
FAN 0.740 -0.020 -2.63 4,387,958
S 15.180 -0.170 -1.11 3,750,960
URE 4.850 +0.010 +0.21 3,034,189
MFC 39.440 -0.080 -0.20 3,018,189

TSX VENTURE
Most Active By Trading Volume*

Symbol Price $ Change % Change Volume
MIP 0.050 +0.005 +11.11 6,235,900
NAI 0.410 +0.120 +41.38 6,166,811
R 0.335 +0.075 +28.85 5,415,178
DNI 0.160 +0.025 +18.52 3,912,500
CFZ 1.400 +0.000 +0.00 3,733,500
ACT 0.180 +0.025 +16.13 3,073,000
GCL 0.870 +0.060 +7.41 2,991,506
BBP 2.180 -0.220 -9.17 2,687,345
CD 0.105 +0.000 +0.00 2,667,500
VEI 0.110 +0.010 +10.00 2,618,750
UNO 0.410 +0.090 +28.13 2,575,512
SOR 1.670 +0.330 +24.63 2,218,578
NWT 1.250 +0.090 +7.76 2,162,500
RSG 0.180 +0.005 +2.86 2,142,411
DNR 0.890 +0.200 +28.99 2,068,900

TRADING HALTS/RESUMPTIONS
Trading Halt – Full Metal Minerals Ltd – FMM , Pending News
Trading Halt/ Trade Resumption – Yukon Gold Corp. – YK
Trading Halt – Exeter Resource Corp – XRC , Pending News
Trading Halt(s) – Artha Res Corp. – AHC.P ,Company request pending news
Trading Halt/Trade Resumption – Zaruma Resources Inc. – ZMR
Trade Resumption – Century Energy Ltd. – CEY
Trading Halt/ Trade Resumption – Cancor Inc. – KCR
Trading Halt/ Trade Resumption – Solana Resources Ltd. – SOR
Trading Halt – Theseus Capital Inc. – THE.P , Pending News
Trade Resumption – Western Canadian Coal Corp. – WTN
NEW LISTINGS
Coro Mining Corp. To Trade On Toronto Stock Exchange , COP ,40,129,439 common shares will be issued and outstanding, and 6,651,277 common shares will be reserved for issuance upon completion of an initial public offering (the “Offering”)., will be listed and posted for trading at the opening on Friday, June 22, 2007

Jiulian Resources Inc. To Trade On Toronto Venture Stock Exchange , JLR.P , CPC, 2,000,000 AT .10, at opening Thursday, June 21, 2007

Argent Mining Corp. (AMG). , change name Roll Back Shares, one-new-for-three-old basis, Avion Resources Corp AVR, 4,164,562 shares are issued and outstanding, effective Thursday, June 21, 2007 on the Toronto Venture Exchange.

Sources include Advisors.ca, TSX.com, Canadian Press, Yahoo Finance,
Stockhouse.com
If you wish to be taken off this distribution list, please reply with
“unsubscribe” in the subject line.

Blair Freedom Day -7.

Earth provides enough to satisfy every man’s need, but not every man’s greed.

Mahatma Gandhi

Things are getting ugly in US real estate. Even with the latest fall in housing starts, they’re still way above current demand, and now everyone’s talking higher interest rates, which can only depress housing demand further. Despite all the higher rate talk, I think US rates will soon be forced lower as all the toxic mortgage derivatives junk continues to implode over the summer, but for now the Street still pretends that can’t happen. But first this. One final, last, last, last-chance to salvage something from the stalled global trade talks is underway. Up till now, the EU and USA have basically stiffed the developing world. Though Potsdam is well worth the visit, and will massage their egos no end, so weak are western leaders now, I doubt they can force through any agreement that might matter.

Key WTO players meet in Potsdam to break Doha Round deadlock

POTSDAM, Germany, June 19 (Xinhua) — Top trade officials from the United States, the European Union, Brazil and India launched crucial talks in Potsdam on Tuesday to try to break the deadlock over the Doha Round global trade talks.

Meeting behind closed doors at the Cecilienh of palace in Potsdam outside Berlin, senior officials including U.S. Trade Representative Susan Schwab, EU Trade Commissioner Peter Mandelson, Indian Commerce Minister Kamal Nath and Brazilian Foreign Minister Celso Amorim, will try in next five days to resolve differences mainly on farm subsidies and tariffs that have plagued the Doha Round of multilateral trade talks since its launch five years ago in the capital of Qatar.

Developing countries and rich nations are mainly at odds over the degree of state support for agricultural sectors particularly in the EU and the United States.

http://news.xinhuanet.com/english/2007-06/20/content_6264994.htm

Below, MarketWatch covers yesterday’s episode of the slow motion US real estate crash.

Housing starts fall 2.1% to 1.47 million pace

May’s building permits up 3% on strength in multifamily dwellings

By Rex Nutting, MarketWatch

Last Update: 4:49 PM ET Jun 19, 2007

WASHINGTON (MarketWatch) — Starts of new homes in the United States dropped by 2.1% to a seasonally adjusted annual pace of 1.47 million in May, the softest pace of groundbreaking since January, the Commerce Department estimated Tuesday.

Meanwhile, building permits rose 3% to a 1.50 million pace as authorizations for new apartment buildings and condo projects surged.

Permits for single-family homes dropped to a 10-year low.

Economists said the mixed data showed that the nation’s housing market has a ways to go yet in wringing out its excesses.

——”The housing starts data are a sideshow to the main event, which is the demand side of the equation,” wrote Stephen Stanley, chief economist for RBS Greenwich Capital.

Larger declines in new construction are necessary amid high inventory levels, wrote Steven Wieting, an economist for Citigroup Global Markets.

Slower construction will continue to be a drag on growth, said Gary Schlossberg, an economist for Wells Capital Management.

—-”The housing starts data are a sideshow to the main event, which is the demand side of the equation,” wrote Stephen Stanley, chief economist for RBS Greenwich Capital.

Larger declines in new construction are necessary amid high inventory levels, wrote Steven Wieting, an economist for Citigroup Global Markets.

Slower construction will continue to be a drag on growth, said Gary Schlossberg, an economist for Wells Capital Management.

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B683B7D2E%2DE6B7%2D4AD3%2DAEE0%2D4D50F1D04B0E%7D&siteid=nwtpm

The highest profile “victim” of the toxin so far, has been the unfortunate Bear Sterns, or rather their hapless investors. With the sky falling, and creditors like Merrill seizing collateral, the Bear has started to blink. Below, BS offers a ray of hope. I suspect it will live up to its acronym. I suspect, we haven’t seen anything yet.

Bear Stearns to rescue ailing property fund

By Ambrose Evans-Pritchard Last Updated: 1:25am BST 20/06/2007

Bear Stearns has proposed a $1.5bn (£755m) rescue package for one of its asset management funds facing imminent collapse after betting heavily on US sub-prime mortgage debt.

The bank has been in emergency talks with creditors and the private equity group Blackstone in hope of saving the fund, which was forced to liquidate $4bn of mortgage securities last week

“They’re looking for a lock-down with creditors that would mean no more margin calls for 12 months,” said a banking source familiar with the deal.

“They had a lot of redemptions when things started going wrong, and that meant they had the rug pulled from underneath them,” he said.

The fund has a $600m base capital from clients but is understood to have taken on at least $6bn in debts to play the markets, including large loans from Barclays. It lost 23pc of its value in the first four months of the year, triggering the crisis.

Under the proposed deal, Bear Stearns will back the distressed fund provided Merrill Lynch, JP Morgan and other creditors put up $500m in fresh money.

Traders were watching closely to see whether the sudden downward spiral as margin calls hit over the past month is an isolated case or the beginning of a broader crisis among investors in the $2,000bn sub-prime sector.

—–The emergency talks came as the price of low-grade mortgage bonds issued in 2006 and listed on the closely watched ABX index crashed to all-time lows of 60.4 yesterday, down from near par at 97 in January.

The most vulnerable are so-called second lien loans, where creditors are last in line in cases of default.

Moody’s rating agency last week downgraded 131 bonds backing sub-prime mortgages, and placed 247 on negative watch, noting that the default rate had been higher than expected.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/20/cnbear120.xml

“They had a lot of redemptions when things started going wrong, and that meant they had the rug pulled from underneath them,” he said.

Well no. No one pulled the rug from underneath anyone. Greed made the managers over leverage, and complacency and greed made the investors over confident in BS. With ratings agencies slow to downgrade mortgage paper that they had implied was top drawer, the $6 billion dollar bailout looks like being just the start and probably off by a factor of 100. The race for cash is just starting. According to the latest BIS figures, global derivatives gambling stood at 533 trillion dollars as at March 31. Now the latest from the WSJ suggests the race is turning into a panic.

Two Big Funds
At Bear Stearns
Face Shutdown

As Rescue Plan Falters
Amid Subprime Woes,
Merrill Asserts Claims

By KATE KELLY, SERENA NG and DAVID REILLY
June 20, 2007; Page A1

Two big hedge funds at Bear Stearns Cos. were close to being shut down last night as a rescue plan developed over several days fell apart in a drama that could have wide-ranging consequences for Wall Street and investors.

Merrill Lynch & Co., one of the hedge funds’ lenders, said it would move to seize collateral — much of it mortgage-backed debt — from the two funds and sell it, according to documents reviewed by The Wall Street Journal. At the same time, the funds’ managers worked with a handful of other key lenders, including Goldman Sachs Group Inc. and Bank of America Corp., to pay off the funds’ $9 billion in loans, according to a person familiar with the matter.

As of a few weeks ago, the two Bear Stearns hedge funds held more than $20 billion of investments, mostly in complex securities made up of bonds backed by subprime mortgages — the relatively risky home loans made to borrowers with troubled credit histories.

The Bear Stearns hedge funds’ problems are emblematic of the widening fallout from the nation’s housing downturn, which just a few weeks ago seemed to be stabilizing. During the housing boom in the first half of the decade, lenders issued record volumes of mortgages, often on very generous terms, then packaged those mortgages into bonds and sold them off, reducing their exposure to any loans that went bad.

Since 2000, Wall Street has created more than $1.8 trillion of securities backed by subprime mortgages, according to industry newsletter Inside Mortgage Finance.

—-Last month, Enhanced Leverage reported that its value fell 6.75% in April after the fund’s bets on the mortgage market went wrong. Two weeks later, it put the loss at 18%, spooking already-nervous investors and creditors and sending many of them running for the exits.

The huge revision at least in part reflected conversations Bear Stearns hedge-fund managers had with bond dealers, three of which told them in late April that some of the funds’ assets were worth less than the values stated on the funds’ books, according to a person familiar with the matter.

So far the turmoil doesn’t seem to be significantly hurting the broader bond markets. But as the Bear Stearns funds unwind positions, investors and traders could reassess the value of other debt securities. As a result, investors far beyond the reach of the funds could find their holdings of similar debt worth less than they thought.

http://online.wsj.com/article/SB118230204193441422.html?mod=home_whats_news_us

In UK news, signs that the UK is following the US in suffering consumer burn-out. Below, the UK’s largest retailer unexpectedly misses the target.

Tesco slowdown sparks warning over rate rises

By Richard Fletcher and Edmund Conway Last Updated: 1:25am BST 20/06/2007

Tesco, the UK’s largest retailer, reported a slowdown in sales growth and gave warning that four interest rate rises in less than a year have hit consumer confidence.

“It appears that higher UK interest rates might finally be starting to bite,” said Sam Hart, retail analyst at Charles Stanley.

The slowdown comes amid growing evidence that households are creaking under the weight of a record debt burden, a rising tax imposition and major increases in the cost of living.

Group sales at Tesco increased 10pc in the 13 weeks to May 26 – boosted by a strong performance in Asia – but in the UK like-for-like sales growth slowed to 4.7pc, down from 5.8pc in the previous quarter.

City analysts had expected Tesco to report a 5.2pc increase in UK like-for-like sales.
—-Earlier this month, the British Retail Consortium, urged the Bank of England to refrain from further interest rate rises after reporting a 1.8pc increase in like-for-like sales – the lowest rate since November 2006. The Office for National Statistics has also reported a slow down in retail growth in recent months.

The Bank of England’s Monetary Policy Committee has raised interest rates from 4.5pc to 5.5pc since last August in an effort to wrestle control of inflation and cool the housing market.

Currency traders expect a further two increases in borrowing costs, suggesting that even leaner times could be ahead for Britain’s retailers.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/20/cntesco120.xml

In more UK news, “only the little people pay taxes” here too. With apologies to the Queen of Mean, Leona Helmsley. I suspect that at today’s televised select committee grilling, Mamon’s high priests of private equity, are likely to make poor old Leona look generous. With seven days to go until the UK gets the “psychologically flawed” scots “Stalin” taking up duties as new Prime Minister, with apologies to the leakers on the departing Prime Minister’s team, the high priests of greed couldn’t have picked a less appropriate time to come to the public’s attention. Will any have the sense to take off their Rolex.

Extra tax break for buy-out partners

By Martin Arnold, Private Equity Correspondent

Published: June 19 2007 23:16 | Last updated: June 19 2007 23:16

Private equity partners pay almost no tax on the large share of profits they receive from investments, thanks to a little-known law that has applied to buy-out firms for 20 years, say legal and accounting experts.

By offsetting part of the cost of funds’ investments against profits from the sale of those assets, buy-out partners can reduce the tax they pay on carried interest – a share of their funds’ profits – to well below 10 per cent.

News of this extra tax break for some of Britain’s wealthiest businessmen is likely to outrage trades unions and members of the Treasury select committee who will grill five buy-out executives in a televised session on Wednesday June 20.

Critics were already calling for a change in the capital gains tax rules that allow private equity partners to “pay less tax than a cleaning lady”, as revealed this month by Nicholas Ferguson, chairman of SVG Capital.

—-Private equity partners pay income tax on their salary and bonuses but not on carried interest, often the lion’s share of their income. Taper relief cuts the tax on carried interest from 40 to 10 per cent on investments held for two years. Further relief comes via a “base cost shift” law that has been applied to carried interest since a 1987 Revenue memorandum on private equity. The law allows fund partners to offset 20 per cent of the initial price paid for the assets they buy.

Many buy-out partners are “non-domiciled”, so pay no UK tax on carried interest. But the fact that even UK-domiciled partners pay almost no tax on carried interest is likely to “put the cat among the pigeons”, one tax lawyer said on Tuesday.

buy-out executives stressed that they were breaking no law by using a rule available to all partnerships. “This allows any partnership to pay less tax – and private equity is particularly well placed to take advantage of it,” said one buy-out firm chief.

http://www.ft.com/cms/s/b249df2c-1ea1-11dc-bc22-000b5df10621.html

In China news, China moved yesterday to try to head off US and EU tariffs. Below, the FT reports on what’s probably too little, too late, if adjusting or dropping tariffs on 2,831 products qualifies as too little.

China cuts tax rebates to curb exports

By Richard McGregor in Beijing, Andy Bounds in Strasbourg and Eoin Callan in Washington

Published: June 19 2007 19:01

China has cut and in some cases abolished export tax rebates for some of its largest export categories in the latest attempt by Beijing to rein in its bulging trade surplus and ease trade friction with the US and Europe.

The new measures announced on Tuesday appeared to be the most sweeping changes announced so far to the tax rebate system, which has already been trimmed for a number of products over the past year.

The rebate, which can be as high as 17.5 per cent, the level of China’s value-added tax, has been abolished for some leather products, fertiliser and some wood exports.

The finance ministry said the cuts were aimed at energy-intensive industries.

“The aim is to curb excessive growth of exports, rationalise export structure, ease trade friction and slow down sales of products that consume a lot of energy,” the ministry said.

The current account surplus is on track to reach about $400bn this year, more than 10 per cent of gross domestic product.

Mark Williams of Capital Economics said in a research note that the changes would have “little immediate impact” on the surplus.

“Chinese producers are continuing to enjoy bumper profit growth, which suggests they can absorb higher costs into their margins,” he said. “And in sectors where Chinese producers do not face much foreign competition, higher prices may simply be passed on to consumers.”

http://www.ft.com/cms/s/e0d89ac2-1e8d-11dc-bc22-000b5df10621.html

In other China news, China has the real estate market the US can only dream about. Below, Xinhua reports on the latest bubble. But a bubble in China can be like any other. 1.3 billion people have a 100 years of development to catch up on.

China’s property investment grows 27.5% in 1st 5 months

BEIJING, June 19 (Xinhua) — A report by China’s National Bureau of Statistics (NBS) shows investment in the country’s property sector reached 721.4 billion yuan in the first five months, an increase of 27.5 percent from the same period last year.

Of the total, 504.2 billion yuan was poured into residential property, up 29.5 percent, of which 20.8 billion yuan was injected into low-cost home construction, up 39.4 percent.

In the first five months, China’s developers registered 1.21 trillion yuan of investment capital, up 26.2 percent from the same period last year, of which foreign investment reached 22.2 billion yuan, up 89.9 percent, the NBS said without elaborating.

The area of land under development reached 97.75 million squaremeters, up 11.2 percent, while the floor space of buildings under construction reached 1.56 billion square meters, up 21.9 percent.

By the end of May, the floor space of commercial property unsold or unused totaled 127 million square meters, up 4.7 percent,of which 68.25 million square meters was residential, up 1.4 percent.

http://news.xinhuanet.com/english/2007-06/19/content_6263643.htm

At the Comex silver depositories a net 5.09 Moz left Registered at HSBC and Brinks. Another net 2.6 Moz was added to Eligible mostly at Scotia Mocatta. Final figures were Registered 71.95 Moz, Eligible 58.24 Moz, Total 130.19 Moz. Stay long precious metals.

Ted Butler’s excellent latest silver update is available at the link below.

http://www.investmentrarities.com/

The NYSE WIN system is short. The NASDAQ system is flat.

Since playing a black box system in the current geo-pol/economic climate, isn’t the wisest thing to do, we will adjust long positions to carry an offsetting deep-out-of-the-money matching option position to provide an automatic fail safe stop in the event another 1987 like event occurs before the PPT can step in.

More details on the WIN system are available at link below.

http://website.lineone.net/~audluk/tocframe.htm

The monthly Coppock Indicators finished May:

DJIA: 175 up. NASDAQ: 108 up. SP500: 149 up.

All three have confirmed the long trend as up.

This week’s featured link:
Longview Capital Partners. TSX-V: LV

Longview Capital Partners is a global resource group. The current portfolio of companies we have founded, developed and invested in now enjoys a combined market capitalization of over $900 million.

Our model is to selectively invest in private or undervalued assets, augment management teams with our expertise and assist in the going public process. Once public, Longview Capital Partners continues to invest and brings an awareness of the opportunity to our network of retail and institutional investors.

http://www.longviewcp.com/

A Personal Disclosure.

Over the last few months, many of the stocks we’ve linked to have made some interesting moves. Possibly because of the LIR link, more likely because of the underlying company and good management. Going forwards, I expect the commodities demand cycle to last another couple of decades due the economic rise of Asia. I expect the pace of interest in natural resource stocks to quicken. I also expect many junior resource stocks will become takeover or consolidation targets. I expect NAFTA based resource stocks to be especially prominent.

Where I hold a position prior to a company being featured as a link, this will be disclosed. Where I will be investing during the week of linking, this too will be disclosed.

In no event should my investing or not investing substitute for doing your own due diligence, if you are considering an investment in the stock.

My circumstances and resources are probably very different to other potential investors. All stocks linked in LIR, I consider to merit the link, whether or not I invest in the company. As before, neither LIR, Global Profiles nor myself get paid for featuring a link. Lastly, because I invest in a stock it does not necessarily turn it into a sure thing winner. Happily though, neither will my investing turn it into an automatic loser.

Below is the list of natural resource stocks I hold an interest in. In no particular order, they are:

Birch Mountain Resources Ltd. BMD. http://www.birchmountain.com/

Canadian Royalties Inc CZZ. http://www.canadianroyalties.com/en/

MacMillan Gold MMG. http://www.macmillangold.com/

Quaterra Resources Inc QTA. http://www.quaterraresources.com/

MBMI Resources Inc MBR. http://www.mbmiresources.com/

Candax Energy Inc CAX. http://www.candax.com/

Derek Oil & Gas Corp DRK. http://www.derekoilandgas.com/s/Home.asp

Consolidated Spire Ventures CZS. http://www.spireventures.com/pmt.php/index

Cornerstone Capital Resources Inc www.cornerstoneresources.com

Pacific Asia China Energy Inc.www.pace-energy.com

If you have a junior resource company you think has merit and don’t mind sharing it with others, feel free to send it along. If space permits and they have no objections, we’ll try to put up a link.

Junior resource companies are not suitable for everyone, but for those who are interested in that sector, we aim to provide companies of merit. As the new century unfolds and natural resource demand soars, I think, that there will be big money to be made from prudent investment in the sector. As always, it’s important to do one’s own due diligence if thinking about making an investment. No one has more at risk in an investment than you do yourself.

If you like this report, feel free to share it with others. It is not copyrighted but open sourced. If you have comments, witty remarks, or information to share, please send them along as well. If permission is granted, we may use them in this report.

Sometimes the daily LIR gets “bounced” out of the receiver’s server. When this happens it sometimes bounces you out of the LIR database as well. If you suddenly stop receiving the daily update but didn’t actually want a break from my daily insanity, just email me at the link below to get back onto the daily list.

Graeme Irvine

Global Profiles LLC

girvine@globalprofiles.net

http://www.globalprofiles.net

Dow Jones 13,635.42 +22.44 or +0.16% +9.41%
S&P 500 1,533.70 +2.65 or +0.17% +8.14%
NASDAQ 2,626.76 +0.16 or +0.01% +8.76%
TSX COMP 14,119.49 -56.93 or -0.40% +9.38%
TSX VENT 3237.08 + 0.20
Canadian dollar $Cdn. $U.S.
BoC Closing rate 1.0631 0.9406
Previous BoC closing rate 1.0716 0.9332

Cdn. Dollar/Euro
Spot Rate 1.4269 0.7008

Gold AM PM
London Gold Fix (USD) $655.10 $656.30

Spot Crude
Oil Future (USD) $69.10 +$0.01 or +0.01%

NEWS
The Toronto stock market remained in negative territory Tuesday afternoon after a morning decline in the mining sector and a benign inflation report for Canada.

Toronto’s S&P/TSX composite index was down 47.6 points to 14,126.8 at mid-afternoon as mining stocks fell 1.01%. Energy stocks were down 0.4% even as the July crude oil contract in New York increased 19 cents to US$69.28 a barrel.

The Canadian dollar rose 0.84 of a cent to 94.16 cents US, nearing the June 6 close of 94.52 cents US, which was its highest close since early July 1977.

Statistics Canada reported the annual inflation rate was at 2.2% in May, unchanged from April. Higher homeowners’ costs and gasoline prices were partly offset by lower prices for natural gas.

A U.S. Commerce Department report showed that construction of new homes slipped 2.1% in May, the weakest performance since a 13.9% plunge in January. The housing slump has been worsened by rising problems with mortgage defaults, but was in line with expectations that showed that weakness in the South and West offset construction gains in the Northeast and Midwest.

Shares in Petrominerales Ltd. rose sharply after the junior oil and gas company said its Corcel-1 exploration well in Colombia is being cased as a potential oil well. Petrominerales shares rose $1.55 or 33% to $6.25 in afternoon trading on the TSX.

The Home Depot Inc. will sell its wholesale distribution business to a group of private equity firms in deal valued at more than US$10 billion, the New York Times reported. Bain Capital and Clayton Dubilier & Rice and Carlyle Group are said to be the buyers, according to unidentified sources close to the deal.

Nuvo Research Inc. said it’s aiming to get U.S. marketing approval of its Pennsaid arthritis cream by the second half of 2009. The developer said the Food and Drug Administration wants additional studies proving the drug’s skin safety

Cadbury Schweppes PLC said Tuesday it plans to close 15% of its confectionery factories by 2011, cutting about 7,500 jobs, and will likely sell the U.S. unit that makes 7-Up, Dr Pepper and Snapple as it focuses on its candy and gum businesses. Last Friday was the deadline for expressions of interest. Private equity groups and the Canadian bottler Cott Corp. are thought to be among the possible bidders.

(Canadian Press).

TSX

Most Active By Trading Volume*

Symbol Price $ Change % Change Volume
BBD.B 6.800 +0.270 +4.13 15,437,728
LGY.UN 12.450 +0.160 +1.30 11,042,079
LIM 27.200 -0.010 -0.04 8,326,995
IMG 8.340 +0.200 +2.46 6,585,489
TLM 22.080 -0.420 -1.87 6,396,065
BWR 2.800 -0.050 -1.75 5,784,681
K 14.050 -0.060 -0.43 5,777,112
NRI 0.230 -0.090 -28.13 5,164,399
ELD 6.410 +0.200 +3.22 4,917,551
UMN 8.430 -0.200 -2.32 4,496,572
RY 56.250 -0.600 -1.06 4,253,405
BNS 52.440 -0.500 -0.94 3,894,178
ECA 70.370 -0.150 -0.21 3,556,792
MFC 39.520 +0.120 +0.30 3,534,929
PDN 8.010 +0.390 +5.12 3,521,640

TSX VENTURE
Most Active By Trading Volume*

Symbol Price $ Change % Change Volume
DXE 0.150 -0.010 -6.25 5,945,000
SGX 0.165 +0.005 +3.13 4,403,310
GCL 0.810 -0.160 -16.49 4,254,300
BBP 2.400 +0.130 +5.73 4,187,470
SXN 0.350 +0.000 +0.00 3,535,557
GXL 0.290 +0.020 +7.41 2,027,556
TMG 0.520 +0.080 +18.18 2,010,546
DIB 1.380 +0.130 +10.40 1,985,170
FO 2.840 +0.040 +1.43 1,984,732
TOO 0.185 +0.020 +12.12 1,780,670
NWT 1.160 +0.090 +8.41 1,502,223
ATV 0.105 +0.015 +16.67 1,476,500
IBI 0.045 -0.005 -10.00 1,372,000
GCR 3.030 +0.030 +1.00 1,324,850
WWF 0.250 -0.020 -7.41 1,198,150

TRADING HALTS/RESUMPTIONS
Trade Resumption – Milner Consolidated Silver Mines Ltd. – MCA
Trading Halt – Western Canadian Coal Corp. – WTN, WTN.DB , Pending News
Trading Halt/ Trade Resumption – Connacher Oil and Gas Limited – CLL, CLL.DB.A
Trading Halt/ Trade Resumption – Goldcrest Resources Inc. – GCL
Trading Halt/ Trade Resumption – United Reef Ltd. – URP , URPL
Trading Halt/ Trade Resumption – Orca Expl Group Inc. – ORC.A, ORC.B
Trade Resumption – EGX Group Inc. – GFG
Trade Resumption – Nextron Corp. – NXT
Trade Resumption – Western Areas NL – WSA

NEW LISTINGS
Claymore Global Balanced Income ETF To Trade On Toronto Stock Exchange , CBD , 200,000 common units (the “Common Units”) and 100,000 advisor class units (the “Advisor Class Units”) of the Claymore ETF (collectively, the “Units”), all of which will be issued and outstanding, upon the completion of an initial public offering.The Units will be posted for trading at the opening on Thursday, June 21, 2007.

Claymore Global Balanced Growth ETF To Trade On Toronto Stock Exchange , CBN , 200,000 common units (the “Common Units”) and 100,000 advisor class units (the “Advisor Class Units”) of the Claymore ETF (collectively, the “Units”), all of which will be issued and outstanding, upon the completion of an initial public offering The Units will be posted for trading at the opening on Thursday, June 21, 2007.

RuggedCom Inc. To Trade On Toronto Stock Exchange , RCM , 10,890,959 common shares will be issued and outstanding and 2,218,937 common shares will be reserved for issuance pursuant to an initial public offering, will be posted for trading at opening on Thursday, June 21, 2007

Sources include Advisors.ca, TSX.com, Canadian Press, Yahoo Finance,
Stockhouse.com
If you wish to be taken off this distribution list, please reply with
“unsubscribe” in the subject line..

Never, never, never believe any war will be smooth and easy, or that anyone who embarks on the strange voyage can measure the tides and hurricanes he will encounter. The statesman who yields to war fever must realize that once the signal is given, he is no longer the master of policy but the slave of unforeseeable and uncontrollable events.

Sir Winston Churchill.

On June 18, 1815 , Napoleon lost the Battle of Waterloo, and Europe brought perpetual discretionary war to a close for the better part of two generations. We seem to have reached a similar turning point in history. The final act seems to be about to commence in the Middle East . Time will tell if it carries the spark to set alight regional war or even World War 3, or will finally create the conditions for a regional peace. We open with history repeating. Below, the 21st century version of Masada . With truly ironic casting, Israel gets to play the role of Rome’s ruthless tenth legion, while Hamas and the trapped Gaza Palestinians, get the role of the first century hapless Jews. Stay long gold and silver, and keep the car fully fuelled at all times. There is little sign that any in the region or in Washington , want to avert a military solution. Where this ends nobody knows. Hope for the best but prepare for the worst. A humanitarian disaster might only be days away.

June 17, 2007

Israel plans attack on Gaza

Uzi Mahnaimi

ISRAEL’s new defence minister Ehud Barak is planning an attack on Gaza within weeks to crush the Hamas militants who have seized power there.

According to senior Israeli military sources, the plan calls for 20,000 troops to destroy much of Hamas’s military capability in days.

The raid would be triggered by Hamas rocket attacks against Israel or a resumption of suicide bombings.

Barak, who is expected to become defence minister tomorrow, has already demanded detailed plans to deploy two armoured divisions and an infantry division, accompanied by assault drones and F-16 jets, against Hamas.

The Israeli forces would expect to be confronted by about 12,000 Hamas fighters with arms confiscated from the Fatah faction that they defeated in last week’s three-day civil war in Gaza.

—- A source close to Barak said that Israel could not tolerate an aggressive “Hamastan” on its border and an attack seemed unavoidable.

“The question is not if but how and when,” he said.

http://www.timesonline.co.uk/tol/news/world/middle_east/article1942918.ece

Rockets from Lebanon hit Israel

Katyusha rockets have been fired into northern Israel from Lebanon in the first cross-border attack since last year’s war between Israel and Hezbollah.

Hezbollah denied responsibility and both Lebanon and Israel blamed Palestinians based in Lebanon .

There were no casualties reported after the attack on the town of Kiryat Shmona on Sunday.

Israel responded with five artillery shells into southern Lebanon , Lebanese security forces said, but an Israeli army spokesman denied the shelling was aimed at Lebanese territory, calling the exercise “artillery calibration fire” using empty shells fired into Israeli territory.

The shells hit a mountainous area near the town of Shebaa in the eastern sector of the border with Israel , Lebanese sources said. There were no reports of casualties.

Fuad Siniora, Lebanon’s prime minister, said the attack had “political goals” and was aimed at destabilising Lebanon by casting doubts about the ability of the army and the UN peacekeeping force in South Lebanon to protect the border zone.

—- The Lebanese army said three rockets 107 millimetre Katyusha rockets were fired at Israel by “unknown elements” and that it had prevented another rocket being fired.

Troops had found a Katyusha equipped with a timer at the suspected launch area in the village of Taibeh.

The UN peacekeeping force in south Lebanon condemned the attack as a “serious breach” of a truce since last summer’s Hezbollah-Israel and called for restraint from all parties.

http://english.aljazeera.net/NR/exeres/C8FFB0DF-AD5A-4495-B29B-717C99DDAB4E.htm

In oil news, Nigeria is drifting closer to active insurrection and anarchy in the main oil production region. Below, the weekend’s latest developments. If regional war does descend on the wider Middle East, access to 100% of Nigeria ’s production potential will be critical for the rest of the world.

Armed men overrun Nigeria oilfield

At least 24 Nigerian oil workers are being held hostage after armed men attacked the Ogbainbiri facility in southern Bayelsa state.

The oilfield station operated Italy’s Eni was overrun on Sunday after a gunfight between the attackers and the soldiers guarding it.

It was unclear if there were any casualties in the attack.

“Eni is already collaborating with the authorities of Bayelsa to find a solution as quickly as possible,” a company spokeswoman said.

The Ogbainbiri facility normally produces 40,000 barrels of oil a day.

The spokeswoman did not say whether oil production had stopped, but it is routine practice to shut down a facility when it is attacked.

The attack was apparently in response to the killing of eight people by troops guarding Ogbainbiri last week, security sources said.
The military said the dead were fighters who had tried to attack the oilfield, but a local group said they were mostly unarmed civilians.

http://english.aljazeera.net/NR/exeres/CBB6CA54-D6C9-4517-A22C-58FA33C46820.htm

In the less belligerent world of interest rates, major change is underway. Up first, China paves the way for renminbi bonds. For now no threat to the west, but eventually convertibility is coming to the Chinese currency. Within the decade ahead, serious competition for the US Treasury market. Potentially, US paper now needs and will eventually get, a built in risk premium. Perhaps it needs to be stamped with a risk warning too.

RMB bonds good for mainland, Hong Kong
BEIJING , June 18 — Earlier this month, the People’s Bank of China and the State Development and Reform Commission promulgated provisions involving issuing renminbi bonds in the Hong Kong Special Administrative Region.

Ready to make this major move toward financial reform, China Construction Bank, Bank of China and Import-Export Bank of China published their plans to float renminbi bonds in Hong Kong.

Back in 2003, the Chiangmai ( Thailand ) Declaration, in the wake of the Asian financial crisis in the late 1990s, urged that regional financial cooperation be reinforced to stave off possible future financial catastrophes. The declaration placed development of the Asian bond market at the core of regional financial integration.

China holds a particularly important place in regional monetary cooperation. But its backward bond market brings uncertainties for the Asian bond market and financial cooperation.

—– Issuing renminbi bonds in Hong Kong is equally important to the mainland because the undertaking helps quicken the pace of the renminbi’s internationalization and convertibility.

In Hong Kong , a free capital market, the price of renminbi bonds will fully mirror international investors’ expectations of the renminbi’s revaluation. This is of reference value for the foreign-exchange reform of the Chinese currency.

In addition, the floating of renminbi bonds will give China more say in pricing renminbi derivatives.

Monetary products such as renminbi bonds are expected to strengthen Hong Kong ‘s status as the center of renminbi offshore derivatives.

http://news.xinhuanet.com/english/2007-06/18/content_6256591.htm

Below, the Telegraph carries a warning on interest rates from one of the City’s highly respected economic advisor’s. The era of very low interest rates is coming to an end.
Business comment: The latest bond adventure is essential viewing

By Roger Bootle Last Updated: 2:17am BST 18/06/2007

At the end of last week the world’s major bond markets stabilised after what had been a torrid time. Over the past three months, UK 10-year bond yields have risen from 4.8pc to 5.5pc. And US 10-year bonds have jumped from 4.6pc to 5.2pc in only six weeks. But the game is not over. Bond yields have further to rise.

The really big bond market moves of the past have been about perceived changes in the inflation environment. Of all financial market professionals, bond market operators are supposedly the canny, cynical, all-seeing ones. Compared to other parts of the financial world perhaps they deserve that reputation. But boy, have they changed their minds at times.

They were initially very slow to see the emergence of high inflation in the 1970s, with the result that realised real yields on bonds were negative. In the 1980s they were slow to see the move to a low inflation environment and consequently real yields turned out to be very high indeed.

Much more recently, they were slow to see the deflation danger, but once they did perceive it, they drove yields down to levels unseen for a generation.

Given this background, when bonds fell last week, the knee-jerk reaction was to say that the markets were now expecting higher inflation. But this idea can easily be dismissed. The market’s expected inflation rate can be deduced from the difference in yields on those bonds that offer no protection against inflation (conventionals) and those that do (index-linked). In this case, the yields on conventional and index-linked bonds rose pretty much together. So this was no inflation scare.

In which case, what was it? It was a real interest rate scare. The markets were coming to terms with the idea that real interest rates and real bond yields needed to be higher.

—– In sum, I suspect that the era of very low real rates is coming to an end. Indeed, if the world can successfully negotiate the rocks and shoals created by trade imbalances and financial bubbles and thereby sustain high rates of economic growth, then we may be about to enter a period of high real rates, short and long.

This would have profound consequences for asset valuations everywhere. It may seem esoteric to you, but the yield on government bonds is the foundation on which all asset values rest. Over the months to come, you need to watch those government bond markets like a hawk.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/18/ccom118.xml

Below, the bank that advised Britain’s next Prime Minister to sell off half Britain’s gold at a 20 year low, is getting itself all worked up over falling lending standards to the private equity gang, who leverage up debt to devour, asset strip, and fire. Grossly over paid and under taxed, what care they for yet another bubble waiting its pin. With the BOE only willing for now to talk, and the free of tax loophole set to close, a summer of continued excess is likely.
BoE warns on lending standards to private equity

By Edmund Conway Economics Editor Last Updated: 8:25am BST 18/06/2007

The Bank of England will today sound the alarm over a dramatic fall in lending standards to private equity, and warn that the collapse of a major deal is one of the most likely triggers for a major global financial slump.

In its quarterly review of market conditions, published today, the Bank reports a sudden rise in the use of controversial “covenant-lite” loans that strip out many of the conditions usually associated with such advances, and warns that many investors could be overly optimistic, lining themselves up for a fall.

It comes ahead of tomorrow’s Treasury Select Committee hearing at which five of the leading figures in UK private equity are expected to defend their industry, while conceding that some tax breaks on big deals have been too generous.

The Bank’s report warns that with banks desperate to get involved in the sector, lending conditions have become increasingly lax in recent months. Earlier this month, its own statistics showed that banks were for the first time on record lending to the sector at beneath the base rate.

The report warns that the cuts in loan conditions “mean that the underlying value of a firm could be allowed to deteriorate for longer before its creditors can intervene”. It says that banks may have become more willing to cut their terms because they can package away loans and sell them on to other investors.

It says that while some of its market sources remain sanguine about the fall in lending standards, “lower levels of risk compensation may reflect an overly optimistic assessment of the likely level of asset market volatility going forward, a view accentuated by continuing high levels of liquidity in financial markets.

“In this scenario, a large and pervasive enough shock might cause asset markets to adjust quite sharply as required-risk premia increased.”

It says one of the likely triggers for this crunch could be the “failure of a large leveraged loan deal that left the lead intermediaries with unexpectedly large commitments”.

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=10JHKVGGAKDB1QFIQMGCFF4AVCBQUIV0?xml=/money/2007/06/18/cnbank118.xml

Back in the real world, the mortgage derivatives disaster switched up a gear at the weekend. Below, Merrill seizes Bear Stearns collateral. With Merrill covered, what’s left for the hapless trapped investors? As important, what made MER bolt? What do they think they know that we don’t? How many more to come? Is this really the right time to start raising interest rates? In the choice between saving the dollar or saving real estate, isn’t it already too late for both?

A ‘Subprime’ Fund Is on the Brink
By KATE KELLY
June 16, 2007 ; Page B1

Concerned that an internal hedge fund at Bear Stearns Cos. wouldn’t be able to meet a margin call, Merrill Lynch & Co., one of the fund’s biggest lenders, seized $400 million of its assets and is preparing to auction them off.

The auction, in the coming week, could trigger the fund’s dissolution — the second blowup in recent months of a hedge fund that made dicey bets on the market for risky home loans, known as subprime mortgages.

The surprise move involving the two Wall Street firms came as the Bear fund’s managers, led by bond-sales veteran Ralph Cioffi, scrambled Thursday and Friday to sell hundreds of millions of dollars in bonds to satisfy demands for cash and assets from creditors and stave off liquidation. Mr. Cioffi’s group had successfully auctioned off almost $4 billion in high-quality mortgage bonds Thursday morning. Later that afternoon at Bear’s New York offices, the fund managers presented lenders with a 30-day plan for selling more assets, a blueprint for meeting new margin calls that appeared to have been well-received.

Merrill opted not to wait. Friday afternoon, the firm’s bond traders began circulating a list of securities that had served as collateral, or security, for the credit it had extended to the Bear fund, High-Grade Structured Credit Strategies Enhanced Leverage Fund.

http://online.wsj.com/article/SB118195157416137321.html?mod=hps_us_at_glance_most_pop

At the Comex silver depositories 3.7 Moz was added to Eligible at Scotia Mocatta. Final figures were Registered 78.35 Moz, Eligible 53.79 Moz, Total 132.13 Moz. Stay long precious metals, funny money is coming under the guns.

The NYSE WIN system is now short from Friday’s close. The NASDAQ system is flat.

Since playing a black box system in the current geo-pol/economic climate, isn’t the wisest thing to do, we will adjust long positions to carry an offsetting deep-out-of-the-money matching option position to provide an automatic fail safe stop in the event another 1987 like event occurs before the PPT can step in.

More details on the WIN system are available at link below.

http://website.lineone.net/~audluk/tocframe.htm

The monthly Coppock Indicators finished May:

DJIA: 175 up. NASDAQ: 108 up. SP500: 149 up.

All three have confirmed the long trend as up.

This week’s featured link:

Longview Capital Partners. TSX-V: LV
Longview Capital Partners is a global resource group. The current portfolio of companies we have founded, developed and invested in now enjoys a combined market capitalization of over $900 million.

Our model is to selectively invest in private or undervalued assets, augment management teams with our expertise and assist in the going public process. Once public, Longview Capital Partners continues to invest and brings an awareness of the opportunity to our network of retail and institutional investors.

http://www.longviewcp.com/

A Personal Disclosure.

Over the last few months, many of the stocks we’ve linked to have made some interesting moves. Possibly because of the LIR link, more likely because of the underlying company and good management. Going forwards, I expect the commodities demand cycle to last another couple of decades due the economic rise of Asia . I expect the pace of interest in natural resource stocks to quicken. I also expect many junior resource stocks will become takeover or consolidation targets. I expect NAFTA based resource stocks to be especially prominent.

Where I hold a position prior to a company being featured as a link, this will be disclosed. Where I will be investing during the week of linking, this too will be disclosed.

In no event should my investing or not investing substitute for doing your own due diligence, if you are considering an investment in the stock.

My circumstances and resources are probably very different to other potential investors. All stocks linked in LIR, I consider to merit the link, whether or not I invest in the company. As before, neither LIR, Global Profiles nor myself get paid for featuring a link. Lastly, because I invest in a stock it does not necessarily turn it into a sure thing winner. Happily though, neither will my investing turn it into an automatic loser.

Below is the list of natural resource stocks I hold an interest in. In no particular order, they are:

Birch Mountain Resources Ltd. BMD. http://www.birchmountain.com/

Canadian Royalties Inc CZZ. http://www.canadianroyalties.com/en/

MacMillan Gold MMG. http://www.macmillangold.com/

Quaterra Resources Inc QTA. http://www.quaterraresources.com/

MBMI Resources Inc MBR. http://www.mbmiresources.com/

Candax Energy Inc CAX. http://www.candax.com/

Derek Oil & Gas Corp DRK. http://www.derekoilandgas.com/s/Home.asp

Consolidated Spire Ventures CZS. http://www.spireventures.com/pmt.php/index

Cornerstone Capital Resources Inc www.cornerstoneresources.com

Pacific Asia China Energy Inc.www.pace-energy.com

If you have a junior resource company you think has merit and don’t mind sharing it with others, feel free to send it along. If space permits and they have no objections, we’ll try to put up a link.

Junior resource companies are not suitable for everyone, but for those who are interested in that sector, we aim to provide companies of merit. As the new century unfolds and natural resource demand soars, I think, that there will be big money to be made from prudent investment in the sector. As always, it’s important to do one’s own due diligence if thinking about making an investment. No one has more at risk in an investment than you do yourself.

If you like this report, feel free to share it with others. It is not copyrighted but open sourced. If you have comments, witty remarks, or information to share, please send them along as well. If permission is granted, we may use them in this report.

Sometimes the daily LIR gets “bounced” out of the receiver’s server. When this happens it sometimes bounces you out of the LIR database as well. If you suddenly stop receiving the daily update but didn’t actually want a break from my daily insanity, just email me at the link below to get back onto the daily list.

Graeme Irvine

Global Profiles LLC

girvine@globalprofiles.net

http://www.globalprofiles.net

Dow Jones 13,639.48 +85.76 or +0.63% YTD: +9.44%
S&P 500 1,532.91 +9.94 or +0.65% YTD: +8.08%
NASDAQ 2,626.71 +27.30 or +1.05% YTD: +8.75%
TSX COMP 14,137.41 +135.42 or +0.97% YTD: +9.52%
TSX VENT 3202.87 +39.92

Canadian dollar $Cdn. $U.S.
BoC Closing rate 1.0683 0.9361
Previous BoC closing rate 1.0687 0.9357

Cdn. Dollar/Euro Spot Rate 1.4293 0.6996
Gold AM PM
London Gold Fix (US) $650.60 $653.10

Spot Crude Oil Future(US) $68.00 +$0.35 or +0.52

NEWS
Stock markets further mended from last week’s selloff Friday as pleasing U.S. inflation data and lower bond yields pushed Toronto and New York indexes to strong gains for a third session.

Toronto’s S&P/TSX composite index closed up 135.42 points to 14,137.41, just a handful of points away from the most recent record high reached June 4, the day before the selloff began on worries about interest rates.

The Toronto market gained 338.91 points or 2.5% this week, sending the TSX up 9.5% year to date.
In New York, the Dow Jones industrial average finished up 85.76 points to 13,639.48 for a gain of 215.48 points or 1.6% this week. The blue chip index is up 9.4% year to date.

Stocks got off to a strong start after the U.S. Labour Department said headline consumer prices increased 0.7% in May because of surging gasoline prices, but core inflation excluding energy and food came in at 0.1%, less than the 0.2% reading economists were expecting.

The data’s indication that rising energy costs have not infected other parts of the economy makes it less likely that the U.S. Federal Reserve will hike interest rates.

Rate worries and higher bond yields had provoked a week of stock-market losses, but shares have been on the mend since the yield on the benchmark 10-year U.S. Treasury bond started easing from early Wednesday’s five-year high of over 5.3%. The 10-year Treasury’s yield was 5.17% Friday afternoon.

The Nasdaq composite index moved ahead 27.3 points to 2,626.71 after earlier touching 2,630, a level unseen since February 2001, for a gain of 2% this week. The S&P 500 index rose 9.94 to 1,532.91.

On the TSX, late day strength came from the financials, which was down for a good chunk of the session. It edged up 0.5%.

The energy sector rose 1.1% as the July crude contract on the New York Mercantile Exchange was up 35 cents to $68 a barrel.

The telecom sector advanced 1.25%.
The mining sector advanced 1%.
On the TSX, advances beat declines 1,003 to 593 with 215 unchanged as 485 million shares traded worth $10.5 billion. (Canadian Press) .

TSX

Most Active By Trading Volume*

Symbol Price $ Change % Change Volume
UMN 8.850 +0.910 +11.46 28,310,324
BBD.B 6.370 -0.130 -2.00 16,885,910
ELR 2.430 +0.000 +0.00 9,032,148
TLM 22.170 +0.270 +1.23 8,402,940
K 14.030 +0.360 +2.63 8,296,596
MFC 39.170 +0.070 +0.18 7,903,151
LIM 27.180 +0.000 +0.00 7,865,926
EQN 3.590 +0.170 +4.97 6,450,436
RY 57.090 -0.010 -0.02 6,264,751
BCE 39.190 +0.340 +0.88 6,117,675
WTO 37.910 +2.410 +6.79 5,985,559
NXY 33.480 +1.010 +3.11 5,474,927
ECA 70.210 +0.930 +1.34 5,348,967
G 26.460 +0.260 +0.99 5,020,876
SXR 14.800 +0.120 +0.82 4,785,145

TSX VENTURE
Most Active By Trading Volume*

Symbol Price $ Change % Change Volume
SGX 0.145 -0.020 -12.12 7,401,450
GRW 0.215 +0.025 +13.16 7,260,050
NWT 1.080 +0.230 +27.06 6,808,725
PCM 0.125 -0.010 -7.41 2,755,600
GXL 0.255 -0.025 -8.93 2,726,940
GCR 2.820 -0.320 -10.19 2,646,650
NAI 0.310 -0.025 -7.46 2,486,874
RPT 0.670 -0.040 -5.63 2,471,784
LWC 0.510 +0.030 +6.25 2,026,500
ITE 0.095 -0.005 -5.00 2,013,000
SE 1.100 -0.010 -0.90 1,948,492
MCR 1.100 -0.150 -12.00 1,822,700
DXE 0.180 +0.000 +0.00 1,514,000
IZN 1.480 +0.060 +4.23 1,419,922
WWF 0.250 -0.005 -1.96 1,401,421

TRADING HALTS/RESUMPTIONS
Trade Resumption – Surge Resources Inc. – SRH.H
Trading Halt – Benchmark Energy Corp – BEE , Pending News
Trading Halt – EGX Group Inc – GFG , Pending News
Trading Halt /Trade Resumption – UraMin Inc. – UMN
Trade Resumption – Globel Direct Inc – GBD
Trading Halt – Chrysalis Capital IV Corp – CIV.P , Pending News
Trade Resumption – Euromax Res Ltd. – EOX
NEW LISTINGS
Vistior Capital Limited To Trade On TSX Venture Exchange ,VCL.P , CPC, 2,000,000 common shares at $0.20 per share . At the opening Friday June 15, 2007

First Asset Global Infrastructure Fund To Trade On Toronto Stock Exchange , FAI.UN , up to 10,000,000 units will be issued and outstanding, and up to 1,700,000 will be reserved for issuance upon completion of a public offering (the “Offering , will be posted for trading at the opening on Tuesday, June 19, 2007.

Horizons BetaPro S&P/TSX Capped Energy Bull Plus ETF To Trade On Toronto Stock Exchange , HEU , 1,002,500 redeemable, transferable Class A units (the “Units”) of the ETF, all of which will be issued and outstanding and none will be reserved for issuance upon completion of an initial public offering., will be posted for trading at the opening on Tuesday, June 19, 2007.

Horizons BetaPro S&P/TSX Capped Energy Bear Plus ETF To Trade On Toronto Stock Exchange , HED , 1,002,500 redeemable, transferable Class A units (the “Units”) of the ETF, all of which will be issued and outstanding and none will be reserved for issuance upon completion of an initial public offering., will be posted for trading at the opening on Tuesday, June 19, 2007.

CIX Split Corp. To Trade On Toronto Stock Exchange , CXC CXC.PR.A , up to 4,000,000 Priority Equity Shares and up to 4,000,000 Class A Shares will be issued and outstanding, and up to 600,000 Priority Equity Shares and 600,000 Class A Shares will be reserved for issuance upon completion of an initial public offering (the “Offering”).will be posted for trading at the opening on Tuesday, June 19, 2007.

Sources include Advisors.ca, TSX.com, Canadian Press, Yahoo Finance,
Stockhouse.com
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