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London Irvine Report June 25, 2007

No Buyers.

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.

Market News June 22, 2007

Market closes for Friday, June 22, 2007
Dow Jones 13,360.26 -185.58 or-1.37% +7.20%
S&P 500 1,502.56 -19.63 or -1.29% +5.94%
NASDAQ 2,588.96 -28.00 or -1.07% +7.19%
TSX COMP 13,986.03 -109.70 or -0.78% +8.35%
TSX VENT 3235.09 -16.27
Canadian dollar $Cdn. $U.S.
BoC Closing rate 1.0696 0.9349
Previous BoC closing rate 1.0747 0.9304

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.

London Irvine Report June 22, 2007

Contagion, Denial, Desperation.
Blair Freedom Day: -5.
“I cannot imagine any condition which would cause a ship to founder. I cannot conceive of any vital disaster happening to this vessel. Modern ship building has gone beyond that.”

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

London Irvine Report June 21, 2007

Abandon Ship.

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.

Market News June 20, 2007

Market closes for Wednesday, June 20, 2007:
Dow Jones 13,489.34 -146.08 or -1.07% +8.23%
S&P 500 1,512.84 -20.86 or -1.36% +6.67%
NASDAQ 2,599.96 -26.80 or -1.02% +7.65%
TSX COMP 13,978.16 -141.33 or -1.00% +8.29%
TSX VENT 3234.39 -2.69
Canadian dollar $Cdn. $U.S.
BoC Closing rate 1.0670 0.9372
Previous BoC closing rate 1.0631 0.9406

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.

London Irvine Report June 20, 2007

Rescue or Crash?

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.

Market News June 18, 2007

Market closes for Monday, June 18, 2007

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.

London Irvine Report June 18, 2007

The Final Act.

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.

Market News June 15, 2007

Market closes for Friday, June 15, 2007:

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.