London Irvine Report May 2, 2007

A Widening Gulf.

The illegal we do immediately. The unconstitutional takes a little longer.

Henry Kissinger.

We open with more disturbing news of the continuing troubles in the US auto and real estate industries. The US looks ever more likely to slide into recession later in the year. Normally that would drag the rest of the world’s economies down too, as the missing US consumer demand simply couldn’t be made up by the collective demand of the others. This time, the big hope is
that if the US only suffers a mild recession, strong growth in Asia and a recovery in Euroland will be enough to offset the US weakness. A great experiment is underway, with the outcome iffy at best.

Up first, the sky is still falling in America.

Ford, GM posts steep declines in U.S. sales
Japanese car makers falter as Jeep pushes Chrysler to an improvement
By Shawn Langlois, MarketWatch
Last Update: 4:25 PM ET May 1, 2007
SAN FRANCISCO (MarketWatch) – April proved to be a difficult month for Ford Motor Co. as the struggling automaker posted on Tuesday a 13% decline in U.S. vehicle sales amid a slowing housing market, lofty gas prices and slumping consumer confidence.

Wall Street, however, had girded for an even steeper drop.

The same was true for General Motors which saw its sales endure a similar retreat that wasn’t quite as bad as analysts had expected. Chrysler in talks with potential suitors, was the only major automaker to post a sales gain.

Toyota Motor Corp initially pegged to outperform the competition yet again in April, posted a 4.3% retreat.

Ford was the first to report, handing in a sales drop of 228,623 vehicles from 262,722 a year ago. Analysts had been looking for a slide of up to 20% due mainly to two fewer selling days in the recent month, a decline in production, and reduced fleet sales.

—-Chrysler said its sales rose to 193,104 cars and trucks from 190,095 a year ago.

Car sales fell 20% to 46,665 while the truck side jumped 11% thanks to strong results from the Jeep brand. Minivan sales also bolstered results, with the Chrysler Town & Country gaining 24% from a year earlier.

The luxury Mercedes-Benz division posted a 1.8% slip.

Elsewhere, General Motors, which handed the title of world’s biggest carmaker over to Toyota in the first quarter, reported a 9.5% decline in light vehicle sales to 307,554 cars and trucks from 339,796 a year ago.

The car side saw sales drop 10% while light truck sales shed 9.1%.

Home sales plunge in March
Latest forward look at existing home sales show sharp drop in sellers finding buyers for home, according to Realtors.
By Chris Isidore, senior writer
May 1 2007: 10:47 AM EDT
NEW YORK ( — Problems in subprime mortgages caused a sharp drop in home sellers being able to find buyers for their homes in March, according to a trade group report Tuesday that showed the battered real estate market was much weaker than expected.

The National Association of Realtors’ Pending Home Sales Index fell 4.9 percent in March, following a 1.1 percent increase in February. The index was down 10.5 percent from the March 2006 reading.

Economists surveyed by had been looking for a 0.4 percent rise in the index, which tracks the number of existing homes for which a sales contract has been signed but a closing has not yet taken place.

—–The Pending Home Sales Index, which started in 2001, is considered a more forward-looking indicator of market strength than the traditional existing home sales report, which records sales at the time of closing.

The Realtors’ existing home sales report and the government’s new home sales reading have both shown tremendous weakness in the pace of sales in recent months, along with a glut of both types of homes on the market, which has depressed prices. The Pending Home Sales Index does not contain any home price measure.

A reading of 100 in the index is equal to the average level of contract activity during 2001, the first year of the index, which coincidentally was the start of the home sale and home building boom in the country that extended into 2006. But the market softened significantly in the later part of last year and has been battered by the subprime mortgage problems so far this year.

In Euroland’s largest economy, the recovery is still proceeding apace.
Below, the good news from the German economy.

European Manufacturing Growth Maintains Pace in April
By Simone Meier
May 2 (Bloomberg) — European manufacturing expanded for a 22nd month in April as companies invested in equipment and hired more workers to meet export orders.

Royal Bank of Scotland Group Plc said its index of manufacturing in the 13 nations using the euro remained at 55.4 from March. A reading above 50 indicates growth. Economists expected the gauge, compiled by NTC Economics Ltd. from a survey of 3,000 purchasing managers, to increase to 55.7, the median of 38 estimates in a Bloomberg News survey showed.

European business and consumer confidence remained near a six-year high in April as unemployment dropped to the lowest since records began in 1993. Faster economic growth in Asia is helping European companies overcome the effects of a stronger euro, higher interest rates and a U.S. slowdown.

German unemployment falls below 4m
By Hugh Williamson in Berlin
Published: May 1 2007 12:54 | Last updated: May 1 2007 17:27
German unemployment fell to its lowest level in over four years in April, in a further sign that the recovery of Europe’s largest economy is having a positive impact on the labour market.

Headline unemployment fell to 3.97m from 4.11m in March, dipping below the 4m mark for the first time since November last year. Seasonally adjusted unemployment figures for April, due to be announced on Wednesday, are also expected to show a drop in the number of jobless.

Franz Müntefering, labour minister, who announced the figures as part of Tuesday’s Labour Day celebrations, said the jobless total would “continue to fall this year”.

He noted that only two years ago, unemployment had stood at over 5m, and argued that both Germany’s economic upturn and recent labour market reforms were responsible.

Europe’s biggest economy is expected to grow by 2.3 per cent this year, the German government predicted last week, adding that unemployment could fall below 3.5m next year.

Unfortunately the bad news in Germany is that the unions now want a bigger cut of the pie. IG Metal has commenced “warning strikes” to increase their leverage in the current negotiations, with trade unions across the rest of Europe closely following the result. A win in Germany is likely to encourage unions in the UK and France to follow suit.

On Sunday France gets to pick a new President with neither option very attractive. If the socialists win, France and the EU will lurch left, almost certainly weakening any help to the global economy from Euroland. If the rightist candidate wins, a period of divisive politics looks likely with the unions likely to fight his reforms tooth and nail. Again, little help for the global economy there.

In China, there’s better news than from Europe, the unstoppable boom rolls along. Below, today’s latest impressive instalment.

China’s CLSA PMI Index Rises to Almost a 2-Year High
By Nipa Piboontanasawat
May 2 (Bloomberg) — China’s manufacturing activity rose to the highest in almost two years as new orders from overseas and at home increase.

The Purchasing Managers’ Index, a measure designed to give a snapshot of manufacturing activity, climbed to 53.3 from 52.3 in March, Hong Kong-based CLSA Asia Pacific Markets said today in an e-mailed statement. That is the highest since May 2005.

The pace of China’s economic growth accelerated to 11.1 percent in the first quarter from 10.4 percent in the previous three months. The central bank on April 29 ordered banks to set aside more money as reserves for a fourth time this year and raised interest rates to an eight-year high on March 18. Robust production growth “is clearly not what the authorities want to see
given their repeated commitments to a more sustainable pace of growth,” said Eric Fishwick, CLSA’s deputy chief economist. “The China PMI therefore suggests that monetary tightening will be renewed.”

A separate index of purchasing managers published yesterday by the National Bureau of Statistics and the China Federation of Logistics and Purchasing rose to 58.6 in April, the highest reading since the index started in January 2005.

For now, it’s simply too early to know if the rest of the world can keep the global economy out of a stall if the US economy goes into recession. Though this time the odds are better than ever before, without help from a sharply lower oil price, I can’t see it happening myself.

Below, we turn to commodities, where the markets are getting a break from China taking a holiday. Up first, Chinese auto demand now largely drives the Platinum Group Metals price. Below that, more of the same in the other metals.

Platinum Little Changed, Palladium Gains on Catalyst Demand
By Dave McCombs
May 2 (Bloomberg) — Platinum was little changed and palladium rose in Asian trading amid expectations demand from car and truck makers for emission-control devices will stoke buying of the metals.

Expectations for vehicle demand in China, where auto sales jumped 25 percent last year, have contributed to a 14 percent rise in the platinum price so far this year.

“Platinum’s looking pretty good,” David Thurtell, a metals analyst at BNP Paribas in London, said in an interview April 30. He recommended buying the metal, along with gold and aluminum, as demand from China will likely increase.

—-The metal has climbed 14 percent this year, compared with gold’s 6 percent gain, in part because of purchases by automakers. Passenger vehicle sales in China surged 22.4 percent to 1.53 million units in the three months ended March 31, helping fuel demand for platinum and palladium for use in catalysts.

Copper May Gain in London on Increasing China Use; Nickel Gains
By Chanyaporn Chanjaroen
May 2 (Bloomberg) — Copper may rise in London for a fourth consecutive session, driven by expanding demand from China, the world’s largest user of the metal, and declining stockpiles. Nickel gained after inventory fell.

China’s copper use will rise to 6.5 million metric tons by 2020, the nation’s state-owned Xinhua News Agency reported today, citing estimates from a conference. Inventories monitored by the London Metal Exchange had their 12th straight daily drop.

“Markets will remain buoyant in 2007 and beyond,” Owen Hegarty, managing director of Oxiana Ltd., the fastest-growing of Australia’s five-largest mining companies, said today in a presentation lodged with the Australian Stock Exchange. The company mines copper, zinc and gold. Supply will remain constrained, he said.

—- China’s consumption will rise 11 percent this year to 4.45 million tons, according to an estimate by London-based research company Bloomsbury Minerals Economics Ltd. Use has expanded in line with the nation’s economy, which grew 11.1 percent in the first quarter.

Speculation that supplies in Latin America and African may be disrupted has also supported prices. Mine workers in Peru, the world’s third-largest copper-mining nation, are on strike this week at Southern Copper Corp. and Doe Run Resources Corp. Glencore International AG’s Mufulira mine in Zambia has been closed since April 15 due to flooding.

In good news on the price inflation front, it looks like we’re getting a break in the grains, pardon the pun. The great Easter winter wheat winter-kill, might not be so great after all.

Wheat Falls as U.S. Winter Crop Yields May Be Similar to 2006
By Jae Hur
May 2 (Bloomberg) — Chicago wheat futures fell on speculation hard-red winter wheat yields in the U.S. Great Plains may be similar to last year even after an Easter-weekend freeze hurt crops. Soybeans also declined, while corn gained.

Yields will average about 40 bushels an acre when the crop is harvested in June and July compared with 40.6 bushels an acre last year, according to participants in a crop tour through Kansas and into parts of Colorado, Oklahoma and Nebraska.

“U.S. wheat prices are under pressure as U.S. winter wheat crops shows less than expected freeze damage and rain in Australia eases concern about drought there,” said Kenji Kobayashi, an analyst at Kanetsu Asset Management in Tokyo.

—About 60 agronomists, grain-elevator employees and industry- group officials are traveling through the southern Plains through May 3 on the crop tour, sponsored by the Wheat Quality Council in Pierre, South Dakota.

The highest yield estimate was in northwest Kansas, where tour participants expected 55 bushels an acre, and the lowest yield estimate was in central Kansas, where they expected 31 bushels an acre.

Below, the UK’s “Met Office” warns of a hot European summer ahead. With drought already in Italy and parts of France, and a heat wave underway across much of northern Europe, this year two continents get to play a weather market in foodstuffs. A great once in a generation, classic grain market is at hand.

European Summer Will Be Hotter Than Normal, U.K. Says.
By Renee Lawrence
May 1 (Bloomberg) — Summer temperatures will be higher than average in Europe, potentially increasing demand for energy to cool homes and offices, the U.K. government’s weather-forecasting bureau said.

“There is a high probability that summer temperature will exceed the 1971-2000 long-term average of 14.1 degrees Celsius,” or 57.4 degrees Fahrenheit, the Met Office said on its Web site today. The probability is “at least 70 percent,” it said.

The three months through August in the U.K. probably won’t be as hot as they were in 2003 and 2006, the Met Office said. The chance of a summer similar to those years is only about 1 in 8, according to the weather service.

—–Last summer was one of the warmest on record for the U.K., with an average temperature of 15.7 degrees and a record-high July temperature of 6.5 degrees, posted in Wisley, Surrey, according to the Met Office’s Web site. For England and Wales, where temperatures averaged 16.9 degrees last summer, it was the hottest summer since records began in 1914.

Hot weather may increase demand for natural gas, which fuels about 40 percent of the power plants in Europe, as more people turn on their fans and air-conditioners.

We end this morning with scandal. No not Britain’s “Sun King” falling to ground, except for the shareholders it doesn’t much matter to the rest of us which lord of the Universe gets to run BP. But the scandal at the World Bank seems to be deepening, and Latin America is getting ready to follow Venezuela’s lead. Two of the implements that help provide the west’s free lunch are in retreat, the age of competing reserve currencies is almost here.

IMF, World Bank suffer crisis of credibility
By Jean-Louis Doublet
The World Bank and IMF grappled with internal upheaval Tuesday, rocked by a scandal that threatens the job of bank president Paul Wolfowitz and Venezuela’s surprise decision to withdraw from both powerful financial institutions.

The World Bank and the IMF were founded at the end of World War II as a way to help stabilize world finances and fight poverty. Today, however, critics see them as tools of the United States used to impose free-market ideology.

“We are going to withdraw before they go and rob us,” Venezuelan President Hugo Chavez said Monday, announcing his decision.

“Why? Because (those institutions) are in crisis. I read in the press somewhere that the IMF does not have enough money to meet its payroll.”

Relations between the Fund and Chavez have been especially testy since the IMF offered support to a military regime that toppled Chavez in an April 2002 coup. The regime lasted all of 47 hours before Chavez returned to power.

“A few hours after the coup they put out a press release saying that they would support the new government,” said Mark Weisbrot of the Center for Economic and Policy Research, a Washington-based think-tank.

“It was unprecedented. The IMF doesn’t act that fast even for newly-elected governments,” he said.

The IMF stressed Tuesday that there was no such press release at the time. But a Fund spokesman, at a regular briefing, did say then “we stand ready to assist the new administration in whatever manner they find suitable.”

Several other Latin American presidents, including Nestor Kirchner of Argentina and Rafael Correa of Ecuador, do not hide their disdain for the institutions.

Correa even kicked out the World Bank representative from Ecuador for allegedly refusing to disburse an already approved 100 million dollar loan in 2005, allegedly to punish the country for oil sector reforms.

World Bank Ex-Board Member
Disputes Wolfowitz
Ethics Panel’s Role
On Pay Package
Is Source of Discord
May 2, 2007; Page A8
WASHINGTON — Turning up the heat on World Bank President Paul Wolfowitz, a former bank board member disputed Mr. Wolfowitz’s account of the role he had played in securing a compensation package for his girlfriend.

Ad Melkert had represented the Netherlands on the bank’s 24-member board until late last year. He headed the board’s ethics committee when Mr. Wolfowitz took over the poverty-fighting institution in June 2005.

Mr. Melkert was involved in efforts to resolve a potential conflict of interest arising from Mr. Wolfowitz’s personal relationship with a longtime bank employee, Shaha Riza. But he said the ethics panel “was not consulted, nor did it approve,” the compensation package given to Ms. Riza, according to a copy of remarks Mr. Melkert made yesterday to a bank investigative panel.

Mr. Melkert questioned Mr. Wolfowitz’s initial proposal to recuse himself, which was limited and would have still allowed him to maintain “professional contact” with Ms. Riza. That was “contrary to what staff rules allowed for,” said Mr. Melkert, who instead pushed for Ms. Riza to be relocated to a new position outside Mr. Wolfowitz’s influence.

The ultimate result of that decision was Ms. Riza’s transfer to the State Department. Mr. Melkert said he favored compensating Ms. Riza, because of the “career interruption.” But he said the Ethics Committee never approved her pay package, and
stressed Mr. Wolfowitz should have left details of her transfer to others. “It should have been self-evident that he should not” gotten so directly involved, Mr. Melkert said.

At the Comex silver depositories yesterday 44,534 ozs was withdrawn from Eligible at Brinks. Final figures were Registered 80.68 Moz, Eligible 50.66 Moz, Total 131.34 Moz.

The NYSE WIN system is flat. NASDAQ system went long at 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.

The monthly Coppock Indicators finished April:
DJIA: 156 up. NASDAQ: 91 up. SP500: 131 up.
The NASDAQ turned down in February and has now turned back up. The DJIA is now moving higher again from sideways. The S&P continues to move higher. Technically, the PPT and their helpers have managed to turn the indicators bullish.

This week’s featured link: Galway Resources. TSX-V: GWY
Tungsten and Molybdenum.

Management is focused on developing three U.S. based exploration projects that are favorably located and have over 300,000 feet of historical drilling. We have established a solid technical team that is compiling all the historical data and are now advancing these projects in an aggressive but cost effective manner. Management believes that its strategic portfolio
of properties offers investors an interesting exposure to a unique basket of commodities.

I have to thank Dr. Michael Berry for sending along the stock for consideration. More information is also available by contacting him.

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 companies and good management. Going forwards, I expect the commodities demand cycle to last another couple of decades. 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.
Canadian Royalties Inc CZZ.
MacMillan Gold MMG.
Quaterra Resources Inc QTA.
MBMI Resources Inc MBR.
Candax Energy Inc CAX.
Derek Oil & Gas Corp DRK.
Consolidated Spire Ventures CZS.
Cornerstone Capital Resources Inc
Pacific Asia China Energy Inc.

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


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