London Irvine Report May 4, 2007

And the Wheels Came Flying Off.

They wrote in the old days that it is sweet and fitting to die for one’s country. But in modern war, there is nothing sweet nor fitting in your dying. You will die like a dog for no good reason.

Ernest Hemmingway

It is grey skied and chilly this morning, for the first time in 6 weeks, rain is expected across our bank holiday extended weekend. Forced long ago by the EU to standardise and add in extra holidays, the UK agreed provided only that May Day would not be celebrated on May 1 in common with the rest of Europe and the world, but would be moved to cause the maximum disruption
to the smooth functioning of business in the EU. Britain will be closed for May Day on Monday May 7th, by fortuitous coincidence the anniversary of the day in 1945 Germany’s Jodl signed the unconditional surrender. Few now remember that war.

We open this morning with reports of 100,000 votes spoilt in Scotland and uncounted from the introduction of a new computerised counting system. Unsurprisingly, the devolved New Labour government there is doing better at the polls than expected, where have I heard of this story before? Bilderbergers everywhere will be proud. It will give them something else to
talk about at their May 31-June 3 meeting in Istanbul before they decide who will be the next US president. Lesser mortals need not attend.

Below, the Telegraph reports on Florida in Scotland event. Imagine asking modern dumbed down voters to use numbers!

Scotland in the balance as chaos reigns
By George Jones, Political Editor Last Updated: 9:00am BST 04/05/2007
The Scottish National Party and Labour were battling for control of Holyrood Parliament this morning as a series of glitches delayed results and led to as many as 100,000 votes being discounted.

With 66 of 129 seats declared, the SNP had gained 10 while Labour losses had mounted to seven.

But problems with a new electronic voting system means that SNP leader Alex Salmond won’t know until this afternoon whether he has secured overall control.

In addition, the complexities of multiple ballot papers, one requiring voters to place a cross next to their candidate of choice and the other using numbers to indicate preference, meant up to ten per cent of papers may be incorrectly filled in.

In some areas the number of spoiled papers exceeds the majority of the victorious candidate.;jsessionid=F0QZQIXWNQPC3QFIQMGCFFOAVCBQUIV0?xml=/news/2007/05/04/nelections304.xml

This morning we have the sense that a tipping point has been reached, and that the rosy spin in too many areas has worn off. Later today we get the US employment figures it will be interesting to see if the massaged figures can still make a silk purse out of a sow’s ear. Below, in an extraordinary outburst of realism, the UK ex military is tired of keeping up the rosy pretence. Coming on the heels of a similar assessment in America and the publication of the ex head of the CIA’s memoirs, have the wheels just flown off discretionary war?

‘Invaders’ must leave Iraq, says SAS general
By Thomas Harding, Defence Correspondent Last Updated: 3:12am BST 04/05/2007
A former commander of the SAS has been accused of endangering the lives of British troops by agreeing that Iraqis should resist the “invaders” of their country.

Gen Sir Michael Rose also said it was time for America and Britain to “admit defeat” in Iraq and to bring the troops home to avoid further casualties.

In a debate on BBC 2’s Newsnight the officer, who commanded the international force in Bosnia, was asked if he thought the insurgents were “right” to remove American forces from Iraq. He said: “Yes I do”.

The general compared the Iraqi insurgency to that of George Washington’s forces in the American War of Independence. Sir Michael has written a book called Washington’s War on the similarities between the two conflicts.

He said: “As Lord Chatham said, when he was speaking on the British presence in North America, ‘If I was an American, as I am an Englishman, as long as one Englishman remained on American native soil, I would never, never, never lay down my arms’.

“The Iraqi insurgents feel exactly the same way. I understand them. I don’t excuse them for some of the terrible things they do, but I do understand why they are resisting the Americans.”

Jeremy Paxman, the interviewer, suggested that people would be “very distressed to hear a senior, distinguished British military officer arguing like that and knowing that the consequence may well be the deaths of British and American personnel”.

But Gen Rose, 67, who commanded 22 SAS Regiment during the Iranian embassy siege, said that his reply was based on what he had heard from soldiers on the front line: “That the war they have been fighting is a hopeless war, that they cannot possibly win it and the sooner we start talking politics and not military solutions, the sooner they will come home and their lives will be preserved.”

Asked if that meant admitting defeat, he said: “Of course we have to admit defeat.

“The British admitted defeat in North America and the catastrophes that were predicted at the time never happened. The catastrophes that were predicted after Vietnam never happened.

“The same thing will occur after we leave Iraq.”

More wheels are flying off in America too, where “containment” has morphed into “spillover” in the economy, as the troubles of the bust in real estate continue to multiply and spread.

Mortgage crisis puts brakes on GM profits
By David Litterick in New York Last Updated: 8:02am BST 04/05/2007
The fledgling recovery at General Motors hit a major hurdle in the first quarter after the company fell victim to the sub-prime lending crisis, which led to a 90pc drop in profits.

At a time when the company seemed to be making headway in its struggle to return its core North American car-making operations to profitability, it has been laid low by the US housing market.

The company’s GMAC financing arm was set up to help customers to buy cars but has long been growing in other lending areas.

The “sharp downturn” in the mortgage market pushed GMAC’s Residential Capital unit to a $905m (£452m) loss, compared to year-earlier earnings of $201m, the company said.

GM itself has injected $1bn in equity into ResCap this year to shore up the unit’s cash position.

—-Overall, GM posted earnings of $94m, against $350m a year earlier, missing Wall Street estimates by a wide margin.

UBS closes hedge fund in wake of sub-prime collapse
By James Quinn, Business Correspondent Last Updated: 8:08am BST 04/05/2007
Investment bank UBS is shutting down its hedge fund arm less than two years after setting it up as a result of losses stemming from the collapse of the troubled US sub-prime mortgage market.

Dillon Read Captial Management is to be closed with immediate effect following losses of SFr120m (£62m) of the bank’s own money in three months.

It came as the Swiss bank reported first-quarter profits tumbled to SFr3.28bn from SFr3.5bn in the same three months last year.

It follows a root-and-branch review of Dillon Read, run by former investment banking chief John Costas, by UBS’s management board led by chief executive Peter Wuffli.

—–It is understood that in addition to the sub-prime-related losses, there were considerable organisational complexities involved in managing both the bank’s own funds and external money alongside each other.

The two-track process was also preventing Dillon Read from exposing both tranches of money to the full breadth and scope of investment types and risks. In spite of this, external funds managed by Dillon Read were running at a satisfactory level of return, at 11pc after costs.

It is not known what will happen to the £1.5bn of new client money raised, with suggestions it could yet be returned to investors.

In better US news, US productivity is rising. But there again in today’s scripted world of spin, is it safe to rely on the numbers produced?

U.S. Productivity Up, Labor Costs Eased Last Quarter
By Courtney Schlisserman
May 3 (Bloomberg) — U.S. worker productivity last quarter grew faster than forecast and labor costs moderated, raising speculation the labor market won’t fuel inflation.

Productivity, a measure of how much an employee produces for each hour of work, rose at an annual rate of 1.7 percent, compared with a 2.1 percent increase in the fourth quarter, the Labor Department reported today in Washington. Labor costs, adjusted for productivity, rose at a lower-than-forecast 0.6 percent pace after jumping 6.2 percent in the fourth quarter.

Employers responded to a slowdown in economic growth by shortening the workweek, squeezing out a gain in productivity. The slowdown in labor costs may ease concern companies would have to boost prices and bears out the Federal Reserve’s forecast that inflation will moderate.

—- In the 12 months ended in March, productivity rose 1.1 percent, down from a 1.6 percent year-over-year gain the previous quarter. Labor costs rose 1.3 percent from March 2006, compared with a 3.4 percent increase in the 12 months through December.

In European news, is the services slowdown a blip or a new trend? Much will probably depend on how France votes on Sunday. Will the EU lurch left or remain in the bureaucratic middle?

European Services Growth Unexpectedly Slowed in April
By Fergal O’Brien
May 4 (Bloomberg) — Expansion in European service industries, the biggest part of the economy, unexpectedly slowed for a third month in April, led by France and Italy.
Royal Bank of Scotland Group Plc’s services index fell to 57 from 57.4 in March. The index is based on a survey of purchasing managers by NTC Economics Ltd. and has held above 50, indicating expansion, for 46 straight months.

Economists expected the gauge to rise to 57.6, according to the median of 33 estimates in a Bloomberg survey.

Europe’s economic growth may moderate from the fastest expansion in six years in 2006 as a value-added tax increase in Germany and higher interest rates crimp household spending and global demand for European exports wanes.

—- The European Commission said yesterday that economic prospects for the euro region this year are “more favorable” than they have been for many years, as investment and consumer spending join exports to bolster growth.

“We are in a clear cyclical recovery, a robust recovery,” European Union Monetary Affairs Commissioner Joaquin Almunia said. The commission predicts 2.4 percent growth this year after last year’s 2.7 percent expansion, which was the most since the start of the decade. It will publish a new 2007 forecast on May 7.

In Indian news this morning, the 50 year rat plague is due. As goes the Indian harvest tends to go India’s prosperity and gold and silver demand. We will watch this development with great interest. I had never heard of it before.

Indian farmers braced for rat plague
By Peter Foster in New Delhi Last Updated: 3:02am BST 04/05/2007
Nearly 500,000 Indian farmers are facing the prospect of famine as a plague of rats that strikes once every 50 years threatens to destroy their crops, rice paddies and village granaries.

Efforts to control the rodent plague in the north east Indian state of Mizoram have led the local government to offer a reward of one rupee (1.2 pence) for every rat tail delivered to the authorities.

More than 400,000 rats have already been killed, creating piles of tails, which have to be counted by officials before reward money can be disbursed to the catchers.

The rat plague occurs once every 50 years in Mizoram – a tiny state of 900,000 people squeezed between India’s borders with Bangladesh and Burma – and is linked to the flowering of a rare species of bamboo, the Mautam or melocanna baccifera. It flowers all together, dropping millions of protein-rich seeds that are devoured by the rats, causing a population explosion. When the seed supply is exhausted the rats move to crops and granaries.

The last plague, in 1958-59, provoked a rural uprising that saw the indigenous Mizo people launch a violent 20-year rebellion against the federal government that was only finally resolved in 1986.

The current chief minister of Mizoram, a leading figure of the rebellion called Zoramthanga, is well aware of the potential impact of the famine and is determined that the problems of 50 years ago will not be repeated.

“We are taking all measures to fight the impending Mautam. We are encouraging people to kill rats, we are telling farmers what to do and we are asking Delhi to rush huge additional supplies of food grains to feed our people when the crop shortfalls happens,” he said.

A study by the ministry of forests has predicted that 80 per cent of Mizoram’s forested area will be affected by the phenomenon which was first observed scientifically by the British.

A year before the 1911 flowering, Sir Robert Reid, the then governor of Assam, reported that crop failures occurred as “an indirect result” of the flowering of the bamboo, noting similar famines in 1815 and 1863.

This year the prospects of famine have been worsened by the fact that many farmers have decided not to plant rice and grains because they are resigned to their crops being destroyed by the hordes of rats.

—-However, stories of the rats still abound in the tribes’ oral traditions. “The rats would wipe out three to four hectares of paddy cropland in one night,” an elder, T Chaltanga, told the BBC. “We would see our crop standing the night before but next day it would all be gone, eaten away by the rats.”

LIR reader Rod sent in the following timely warning on Canada:

“Canadian trusts, most paying fat double-digit dividends, and often associated with energy and real estate companies, have attracted a loyal American following among income-oriented investors.

If you’re one of them, watch out: Legislation has been introduced in both the U.S. House and Senate that would end their preferential tax treatment, warns Washington Analysis, Prudential Equity Group’s eyes and ears in the nation’s capital. Tax rates for such trust income could increase to up to 35% from 15%, depending on the legislation. A WA senior policy analyst, Tim VandenBerg, cautions that there could be an exodus of American investors from these shares because of the enactment — or
even the consideration — of such a tax proposal. This would put additional pressure on stocks that have already suffered from
adverse changes, both pending and proposed, in Canadian taxation.

Among the stocks thought to be at risk are the following names traded on the New York and American Stock Exchanges: Advantage Energy Income; Baytex Energy Trust; Canetic Resources Trust; Enerplus Resources Fund; Harvest Energy; Pengrowth Energy Trust; Penn West Energy Trust; PrimeWest Energy Trust, and Provident Energy Trust.”

Thanks Rod, I wasn’t aware of the pending legislation.

In China news, the Journal reports on China gearing up for a battle with their largest debtor later this month. The early signs are poor for a constructive meeting in Washington. Below the Journal covers the meeting ahead.

May 4, 2007, 12:01 am
China to Send 14 Delegates to Economic Talks in U.S.
Mary Lu Carnevale reports from The Wall Street Journal’s Capital bureau.
CHINA FLOODS ZONE for next round of strategic economic talks.
Beijing expects to send 14 cabinet-level officials to Washington May 23-24.
Bush administration dispatched just seven top officials along with U.S.
Federal Reserve Chairman Bernanke to Beijing in December to launch the dialogue. “We are going to do everything possible to make this dialogue a success,” says Chinese Embassy spokesman Chu Maoming.

Treasury Secretary Paulson believes the talks will lay groundwork for stable relations lasting decades. But he knows he better deliver measurable progress this month — on financial services, currency or other issues — to stave off radical action by China-bashers on Capitol Hill. Paulson arranges for visiting Chinese to make their case directly to U.S. lawmakers.

“Many people are beginning to question the benefits of trade,” Paulson says in a speech this week.

Meanwhile China continues on a roll. Below China updates the size of its largest offshore oilfield. Below that, the State Council Development and Research Center see’s the economy slowing but growing sustainably. Will their crystal ball be better than those in the west? Will more oil mean less cooperation ahead?

China’s newly found oilfield boasts reserve of 7.35 bln barrels BEIJING, May 3 (Xinhua) — China’s newly found oilfield in Bohai Bay has a reserve of one billion tons, or about 7.35 billion barrels, the largest discovery in the country over four decades, announced the China National Petroleum Corporation (CNPC) Thursday.

The oilfield lies in the Nanpu block of the CNPC’s Jidong Oilfield in Caofeidian in Tangshan City, north China’s Hebei Province, said the company.

The Nanpu block, partly offshore, covers an area of 1,300-1,500square kilometers and is expected to produce light crude. By 2004, the CNPC had discovered five onshore oil fields in the Jidong area with a total reserve of 735 million barrels and an annual output of 7.35 million barrels.

The company previously estimated that the reserve of the new oilfield was 2.2 billion barrels and the daily output would be 200,800 barrels in three years.

—-China’s oil dependency, or net oil imports against oil consumption, went up 4.1 percentage points year on year to 47 percent in 2006, according to the Ministry of Commerce.

Last year, the nation produced 183.68 million tons of crude oil, up 1.7 percent, and imported 138.84 million tons, up 16.9 percent. Its oil consumption (crude plus oil products) amounted to 346.55 million tons, up 9.3 percent.

Industry observers forecast that in 2007, China’s crude oil output will grow less than two percent, while demand for both crude and oil products will rise six percent or so. It is predicted that China’s crude oil imports will reach 160 million tons.

Economist: China’s economy to grow steadily
BEIJING, May 3 (Xinhua) — China’s economy will grow steadily and will not soar above the first quarter level, said Zhang Liqun, an economist with the State Council Development and Research Center here on Thursday.

Zhang made the statement after the China Federation of Logistics and Procurement (CFLP) released the April Purchasing Management Index (PMI) — 58.6 percent, up 2.5 percentage points over the previous month.

The PMI is an indicator of the economic health of the manufacturing sector. A PMI of more than 50 percent represents expansion of the manufacturing sector, compared to the previous month.

China’s PMI has been more than 50 percent since January 2005.

Zhang said export drove up industrial growth in the first quarter while most exports came from energy-consuming, heavy-polluting and resource-processing industries.

The economist said the current situation shows such exports have been cooled down and will not continue to expand because the government has adjusted relevant policies.

In the meantime, consumption plays a more important role in driving economic growth, said Zhang, adding that investment has maintained stable growth.

China’s gross domestic product, or GDP, totaled 5.03 trillion yuan (653 billion U.S. dollars) in the first quarter of this year.

We end for the week with our favourite Latin American president, off wrecking Venezuela’s future prosperity one industry at a time. Having nationalised oil, it’s time for the banks and the steel industry. Russians must stare in disbelief.

Chavez threatens to nationalize
steel firm, banks
AFP CARACAS 05 04 07
Venezuelan President Hugo Chavez threatened Thursday to nationalize the country’s largest steel company and private banks unless they make national interests a priority.

In a nationally televised speech, the leftist president said he would nationalize steel maker Sidor if it continued to sell its products abroad instead of selling them to domestic industries, particularly in the oil sector.

He also announced plans for a law to force the private banking sector to give top priority to the financing of domestic companies.

If the banks flout the law, he warned, “they should leave.”

The outspoken champion of “21st century socialism” and leader of the world’s fifth-largest oil exporter holds the power to rule by decree for 18 months, granted in January by parliament.

Chavez said that Sidor — a multinational steel maker that makes 60,000 tons of tubes for the oil industry — “had created a monopoly through its relationships with other companies and they only supply the raw material to these companies, leaving us to import these tubes from China.”

“That is unacceptable. If Sidor, which was privatized, does not accept from now on to change this way of operating, then they will force me to nationalize it the same way we did with CANTV,” the state telecommunications firm.

Sidor was privatized in 1997 and acquired by the Latin American consortium Orinoquia, which groups Siderar of Argentina, Mexican firms Tenaris Tamsa and Hylsamex, Usiminas of Brazil and Venezuelan firm Sivensa. The Venezuelan state owns 10 percent of its shares.

The leftist governments of Venezuela, Argentina and Brazil are driving an integration process in South America, guided by their shared principles.

Another weekend and an important one for France and the EU. The polls suggest that France will reject socialism and that the EU won’t be pushed sharply over to the left. We can only hope the polls are correct. Have a good weekend everyone. Time to dig up my umbrella.

At the Comex silver depositories there was no meaningful change yesterday. Final figures were Registered 80.68 Moz, Eligible 50.66 Moz, Total 131.34 Moz.

The NYSE WIN system went short at last night’s close. NASDAQ system is now 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.

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.

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


3 Responses to “London Irvine Report May 4, 2007”

  1. Interesting weeK Says:


  2. Zaid Bethanie Says:

    oh i can’t believe what i’m seeing with my eye. Zaid Bethanie.

  3. Joey Hadassah Says:

    when they say it’s ove. Joey Hadassah.

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