London Irvine Report May 17, 2007

Will Buy, Buy, Buy become Bye, Bye, Bye in the Summer?.

“True genius resides in the capacity for evaluation of uncertain, hazardous, and conflicting information.”

Sir Winston S. Churchill.

What to do? Everywhere we have a surfeit of conflicting economic information, statistics and opinion. The US stock market roars to new highs, fuelled by a broad money supply that’s expanding at close to 12%. Though the real estate and auto sectors of the US economy look to me like they have entered a death spiral, easy money has just allowed Cerberus to try their luck at making Chrysler profitable. I suspect, asset stripping and turning Chrysler Chinese is probably the plan, although how that helps the US economy isn’t apparent to me.

Below, MarketWatch reports on the possible break-up of Citigroup. What do they know that we don’t and is this another sign of an impending top?

U.S. stocks rally after economic data
Dow ends at record, led by Citigroup; Bausch & Lamb goes private
By Nick Godt, MarketWatch
Last Update: 4:27 PM ET May 16, 2007
NEW YORK (MarketWatch) — U.S. stocks rallied Wednesday, sending the Dow Jones Industrial Average to a new record high, as investors cheered stronger-than-expected industrial production data, Bausch & Lomb’s buyout by a private equity firm and speculation about a break-up of Citigroup Inc.

The industrial data helped ease concerns about a slowing economy, amid sustained weakness in the housing market, as seen in the latest housing starts report. Market momentum also helped investors overcome a cautious outlook at chip-equipment maker Applied Materials Inc.

——The market also cheered news that the output of the nation’s factories, mines and utilities rebounded in April, with gains across all major categories. The Federal Reserve said production rose 0.7% last month, better than the 0.4% expected by Wall Street economists. See full story.

“This is a clear turnaround,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

—-Meanwhile, the market showed little reaction to news that U.S. home builders pulled back on filing for permits to build homes in April, but started construction on more houses than they did in March.

Building permits fell 8.9% to 1.429 million in April, the lowest since June 1997, and the largest percentage decline in 17 years. The number was much lower than the 1.51 million pace expected by economists surveyed by MarketWatch.

The stocks of homebuilders rose, with investors shrugging off the data as they did after Tuesday’s news that confidence among homebuilders fell to a 16-year low.
http://www.marketwatch.com/news/story/us-stocks-rally-dow-record/story.aspx?guid=%7BFD54BE4E%2DF232%2D4EBB%2DB67A%2D8671A90F75C1%7D&dist=MostReadHome

Back in rainy, coo,l May UK, one of the leading successful stock pickers thinks he sees trouble ahead. While no one knows the future better that any other, he has a pretty good track record at calling major turning points.

Bolton warns of dangers ahead
By Robert Budden and Gillian Tett
Published: May 15 2007 20:47 | Last updated: May 15 2007 20:47
Anthony Bolton, Britain’s most feted fund manager, has fired a message of doom and gloom as his parting shot to the industry as his sparkling career spanning more than quarter of a century draws to a close.

Speaking at a dinner marking the appointment of Sanjeev Shah as his successor to manage Fidelity’s flagship Special Situations fund, Mr Bolton warned that he was fearful of a stock market slump.

“We’ve got a bull market that is four years old now,” he said. “I find it difficult to find cheap shares. The low risk and high risk [shares] have gone up together. That spells danger. You are seeing mergers and acquisitions tittle tattle that makes me concerned.”

His views will be closely watched by financial advisers and rival investment professionals, not least because Mr Bolton has displayed a canny ability in the past for predicting stock market corrections.
http://www.ft.com/cms/s/751c0f76-0312-11dc-a023-000b5df10621.html

Bubble, bubble, toil, and trouble. Below two different views of the same Japanese data, by the 2 leading financial newspapers in the world. The hacks of the FT and WSJ go head to head. The dismal science at its best, both articles spin to a different constituency. In the modern day practise of economics, black is black unless it’s white.

Japan’s Q1 growth weaker than expected
By Michiyo Nakamoto in Tokyo
Published: May 17 2007 02:33 | Last updated: May 17 2007 06:33
Bank of Japan on Thursday decided to keep interest rates unchanged after data showed the world’s second largest economy grew less than expected in the first quarter due to a slowdown in capital spending.

Japan’s GDP grew 0.6 per cent in real terms in the first quarter. This translates to an annualised 2.4 per cent increase, against a market forecast of 2.7 per cent.

The GDP figures mark the ninth straight quarter of growth in the country’s longest economic expansion in the postwar period.

However, the January to March figures highlight weakness in corporate capital spending, which has been one of the main engines of growth. Capital spending fell 0.9 per cent from the previous quarter in the first decline in five quarters.
http://www.ft.com/cms/s/0c88bb12-0416-11dc-a931-000b5df10621.html

Japan’s Economy
Continues to Grow
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
May 18, 2007
TOKYO — Japan’s economy continued to expand at a robust pace in the first quarter, fueled by strong exports and domestic consumer demand.

Real gross domestic product, or GDP — the total value of goods and services produced and the widest measure of economic activity — rose 0.6% from January through March from the fourth quarter, an annualized rate of 2.4%.
Private consumption increased 0.9% from the previous quarter.
Economists say the warm winter weather kept Japanese consumers more active than usual. Exports rose 3.3%.

Later Thursday, Bank of Japan board members voted unanimously to leave monetary policy steady following soft inflation and investment data. The decision was in line with expectations that the central bank would hold rates steady but might tighten policy after Upper House elections this summer to normalize Japan’s ultra-low interest rates.
http://online.wsj.com/article/SB117937760921006004.html?mod=home_whats_news_us

Across the China Sea from weaker/stronger Japan, the unstoppable great China boom rolls on. Pilling up too many dodgy dollars almost faster than America can export them, China is about to go off on a global shopping spree. Not for them ritzy Pebble Beach Golf Course or the Rockefeller Centre, overseas resources heads up the list. Soon there won’t be a NAFTA natural resource
promoter left this side of the Pacific, “the Chinese are coming, the Chinese are coming” and loaded with up to $400 billion of cash.

China knows what it wants to invest in
BEIJING, May 16 (Xinhua) — The Chinese government will look kindly on outbound investment in four sectors — overseas resources, infrastructure, research and development (R&D) and service industries, said Zhang Xiaoqiang, vice minister of the nation’s top economic planning body on Wednesday.

“The government will offer preferential diplomatic, forex, tax, customs, credit and insurance policies for companies investing in these sectors,” said the vice minister of the National Development and Reform Commission (NDRC).

He said investing in the four recommended sectors would help China solve economic bottlenecks, upgrade industrial structures, promote exports, train human resources and sharpen the country’s competitive edge in international trade.

China’s outward investment topped 16 billion U.S. dollars last year, up 32 percent on the previous year to rank 13th in the world, up from 17th in 2005.
http://news.xinhuanet.com/english/2007-05/16/content_6110293.htm

Elsewhere the news from China is less rosy, a period of turbulence appears at hand. Below, Bloomberg reports on what might just be the first of our summer season of market storms. While one swallow doesn’t make a summer, the Chinese markets in stocks and commodities both look to me highly vulnerable to a bear raid or a correction, and I suspect the Chinese authorities have action in mind to reign in stock speculation.

If they do, will it be February over again.

Copper Slumps in Shanghai on China Data Amid Oversupply Concern
By Xiao Yu and Glenys Sim
May 17 (Bloomberg) — Copper futures slumped in Shanghai to a six-week low on concern that China, the world’s biggest consumer of the metal, may be oversupplied following a surge in imports this year and rising domestic output.

China’s copper imports reached a record 307,740 metric tons in March, and almost matched that level in April, according to customs data issued May 15. Production of the metal, used in wires and pipes, rose 17 percent in April to a record 274,000 tons, the National Bureau of Statistics said today.

“The big increase in production will definitely put more pressure on the market,” Wang Xiaodan, an analyst at Minmetals Star Futures Co. in Shenzhen, said by phone. “I still think demand is good, except it can’t be felt right now because there is simply too much supply in the market.”

Shanghai Futures Exchange copper closed at the lowest since April 3 for the most-active contract, after the biggest six-day loss in 11 months. The contract for August delivery fell 3,290 yuan, or 4.9 percent, to 64,290 yuan ($8,375) a ton. This was down the 4 percent daily limit from the previous settlement.

—–Shanghai copper has dropped 15 percent from this year’s high of 75,810 yuan a ton on April 18, as China’s imports jumped 61 percent year-on-year to 1.1 million tons in the first four months. Stockpiles of the metal monitored by the Shanghai exchange rose 26 percent in the two weeks to May 11 to a three-year high.

“The import figures for April definitely took the market by surprise and I think there is still room for prices to fall further,” said Minmetals’ Wang.

—–Zinc for delivery in July on the Shanghai Futures Exchange fell for a third day, by as much as the 4 percent daily limit to close at 30,520 yuan a ton. Shanghai aluminum for July delivery fell 1.2 percent to close at 19,990 yuan a ton.
http://www.bloomberg.com/apps/news?pid=20601012&sid=ad0QEs2slXUk&refer=commodities

Below, why I fully expect a summer of trouble ahead. Below, the LA Times reports on continuing real estate distress in the “Inland Empire”. Can the Middle Kingdom really rescue the Inland Empire and make the world ready for $100 oil? Will China really buy up Kern County, CA?
Home sales hint at longer slump ahead

Volume falls throughout the Southland, with the steepest drop in the Inland Empire. There are some bright spots.
By Annette Haddad, Times Staff Writer
May 16, 2007
Southern California home sales plunged to a 12-year low in April, suggesting that the region’s real estate slump is far from over.

Prices were up overall, rising 6.1% from a year earlier to a median of $505,000, according to data released Tuesday. But that increase was largely driven by an uptick in Los Angeles County, masking declines in Riverside, San Diego and Ventura counties.

Moreover, sales fell throughout the six Southland counties as inventories rose — and that could push values lower, analysts said.

“Demand is not there and supply is greater; prices are bound to go down,” said Esmael Adibi, an economist at Chapman University in Orange. “No question that the bottom of the market hasn’t hit yet.”

Southern California home sales sank to 19,269 in April, a 28.9% drop from the same month last year and a 12% fall from March. The steepest decline was in the Inland Empire. Sales volume dived 45.1% in Riverside County and 46.7% in San Bernardino County.
http://www.latimes.com/business/la-fi-homes16may16,1,3674550.story?coll=la-headlines-business&track=crosspromo

After a lull of a few weeks, the hawks for Iran war are back conditioning the public again. Below, banging on the drums for war. Stay long precious metals in case they get their wish.

N Korea ‘tests new missile in Iran’
By Richard Spencer in Beijing Last Updated: 1:59am BST 17/05/2007
North Korea may have used a launch-pad in Iran to test a new missile capable of hitting American bases in the Pacific island of Guam, according to reports from Japan and South Korea.

The missile, named after the Musudan testing range in North Korea, was recently shown off to the public at a vast military parade in the capital, Pyongyang, according to the reports. South Korean and American intelligence reports suggest that the weapon may then have been tested in Iran, with which North Korea is known to have military links.

The Musudan missile had not been previously recorded. North Korea has a known capacity to build short and medium-range missiles, including the Taepodong-1 which it fired over Japan in 1998 to the alarm of Tokyo and its allies in Washington.

However, it has had less success with developing long-range missiles. It has been working for several years on a Taepodong-2, which would be targeted at the United States’ western seaboard.

But a test launch carried out last July ended in failure, with the missile landing in the sea not far from the border between North Korean and Russia.

The new missile is said have been identified by American military satellite pictures of the rally held in April to commemorate the 75th anniversary of the founding of the North Korean army. The weapon is thought to have been based on Soviet technology.

The Japanese defence ministry confirmed yesterday that the new missile might be able to travel 3,000 miles at middle altitude. “We acknowledge that such a new type of missile is being developed by North Korea in addition to the existing missiles,” an official said.

Yonhap, the South Korean news agency, quoted a source in Washington as saying: “We did obtain intelligence tips that the missile was test-fired in Iran. I understand that the intelligence communities of relevant countries are tracking down the information.”

If the test did take place in Iran, it could have been a quid pro quo for North Korea’s alleged agreement to share with Teheran the results of the nuclear test it carried out last October.
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/05/17/wnkorea17.xml

‘Iran could be year from nuke’
Ambassador Dore Gold: Tehran not far from obtaining enough fissionable material to produce nuclear bomb
Yaakov Lappin
One year from now, Iran could possess the means of producing a nuclear bomb – that was the chilling message delivered by Ambassador Dore Gold during an interview with Ynetnews Tuesday.

Gold, who has written numerous books on the Middle East, is President of the Jerusalem Center for Public Affairs (JCPA), and has served as Israel’s ambassador to the United Nations. He was responding to a statement released Tuesday morning by the
International Atomic Energy’s Director (IAEA), Mohamed El-Baradei, who said Iran had made massive progress in creating uranium enrichment centrifuges, so much so the world should consider it a ‘fact that Iran can enrich uranium independently.

Gold said the information revealed by El-Baradei undercut previous estimates of when Iran could weaponize its nuclear process.
http://www.ynetnews.com/articles/0,7340,L-3401091,00.html

We must attack Iran before it gets the bomb
By Toby Harnden in Washington Last Updated: 1:56am BST 17/05/2007
A nuclear Iran would be as dangerous as “Hitler marching into the Rhineland” in 1936 and should be prevented by Western military strikes if necessary, according to a leading hawk who recently left the Bush administration.

John Bolton, who still has close links to the Bush administration, told The Daily Telegraph that the European Union had to “get more serious” about Iran and recognise that its diplomatic attempts to halt Iran’s enrichment programme had failed.

Iran has “clearly mastered the enrichment technology now…they’re not stopping, they’re making progress and our time is limited”, he said. Economic sanctions “with pain” had to be the next step, followed by attempting to overthrow the theocratic regime and, ultimately, military action to destroy nuclear sites.

Mr Bolton’s stark warning appeared to be borne out yesterday by leaks about an inspection by the UN’s International Atomic Energy Agency (IAEA) of Iran’s main nuclear installation at Natanz on Sunday.

The experts found that Iran’s scientists were operating 1,312 centrifuges, the machines used to enrich uranium. If Iran can install 3,000, it will need about one year to produce enough weapons grade uranium for one nuclear bomb.
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/05/16/wbolton16.xml

We close for the weekend taking a brief look at gold. Struggling for the last few weeks possibly in part by Spain selling 80 tonnes with the PPT using the opportunity to mount a bear raid to keep on a cap at $700, two items this week seemed worth including.

Up first, Murray Pollitt, one of Toronto’s leading experts, in his latest excellent update, has some interesting comments on Barrick Gold. Forward hedging is still over hanging their future. In fact, barring a miracle, do they have much of a long term future at all?

“While on the subject of Barrick, we blinked at the recent quarterly headline: “Corporate Gold Sales Contracts Fully Eliminated.” Turning to page 22 we see 9.5 million ounces of forward contracts ascribed to “development”
projects (you can bet they are guaranteed by Barrick) which have not been eliminated. And the term on these hedges has been pushed farther away, to 2019 in some cases, a time when most of Barrick’s current mines won’t even be in production. Barrick has a good record of finding new mines, but…
Meanwhile the reported mark to market loss on the positions is about $3.4 billion, or about $355 per ounce. But wait. That suggests Barrick could repurchase the future obligations at spot, whereas, using the current Comex contango, a 2019 contract would be worth about $1300 an ounce.

That infers a loss on some Barrick hedges of as much as $900 an ounce. We don’t know what the real liability is, but it’s well over $3.4 billion, and new accounting rules, FAS 157, FAS 159 (which may or may not come into effect), may provide some clarity next year.”
http://www.pollitt.com/

Adding to Barrick’s long term problems, the high platinum price is forcing some industrial uses over to gold. According to the experts at the World Gold Council, new uses for gold are also being found in many others sectors. With global gold production declining, demand rising, and at some point a fiat dollar crisis ahead, some time in the decade ahead the central banks
will stop selling off their gold before its all gone. The Comex contango price for 2019 might be off by a multiple of 10.

Gold glows on back of clean-air movement
By Ambrose Evans-Pritchard Last Updated: 2:30am BST 17/05/2007
Gold is coming of age as an industrial metal in a host of uses from car catalysts to air conditioning and health care, adding 451 tonnes to global demand last year – roughly offsetting sales by central banks.

The World Gold Council is counting on a future surge in demand for use in diesel catalysts following the invention of a new technology by the US firm Nanostellar that is more efficient and cheaper than platinum.

Gold costs $663 an ounce, while platinum has soared to $1,320 as car companies scramble to meet stricter clean-air rules.

James Burton, the WGC’s chief executive, said the design could cut noxious emissions by 40pc more than existing platinum catalysts. “With the diesel automobile market continuing to grow strongly across the globe, this is very exciting,” he said.

—-The WGC said consumer demand in India and China was the key impetus for growth of the gold market in the first quarter of 2007. India’s thriving middle class drove up sales by 50pc year-on-year, snapping up jewellery in advance of the Akshaya Thritiya festival.

In China, the Year of the Golden Pig has boosted Chinese demand by 31pc, with affluent city buyers opting for 24-carat bars of pure gold.

The red-hot flow of funds into Exchange Traded Funds has slowed to 36 tonnes, suggesting that western investors are becoming sated with holdings after accumulating nearly 700 tonnes in ETFs since 2003.

One of the properties of gold is that it can serve as a catalyst at low temperatures. Japanese toilets now use gold filters to break down smelly nitrogen compounds, purifying the air. Gold particles can clear smoke in air conditioning systems in buildings, or in gas mask respirators to prevent CO2 poisoning down mine shafts or in airplanes.

The pharmaceutical company CytImmune has developed a new cancer treatment using gold nanoparticles to target tumours, a treatment that appears to reduce toxic side effects.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/05/17/cngold17.xml

There was no movement yesterday at the Comex silver depositories.. Final figures were Registered 81.87 Moz, Eligible 50.19 Moz, Total 132.08 Moz.

The NYSE WIN system is now flat. The NASDAQ system is also 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

Another weekend and I must prepare to swing the LIR over to operate on a new mailing system. Microsoft are closing their small business mailing system on June 1. During next week I will be transferring over the database. If you don’t want to be transferred and want to take the opportunity to unsubscribe, please let me know. I will not take offence and would like to thank you for reading up to now . Not being much of a computer geek, it’s highly likely that some of you may experience being “bounced”. Your existing servers may think this is some new unsolicited email. If that happens, please go to the website for the daily update, where you can either re-subscribe or just send me an email asking to get back on to the LIR list. As always I greatly appreciate, your helpful comments, tips, and thoughts. If you know of anyone you think might like the LIR, on the new system you’ll
be able to forward a copy for them to try.

Have a great weekend everyone and keep us over here in your thoughts. We are only 40 days away from Blair Freedom Day, but 40 days away from getting Stalin. No wonder the Scots want to revolt.

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 links:
Tungsten, molybdenum and uranium.

Oriental Minerals TSX.V: OTL
The Company’s current projects include the Sangdong tungsten-molybdenum mine, historically, one of the largest tungsten mines in the world; the Muguk gold-silver mine, formerly South Korea’s largest gold producing mine, as well as a number of other properties with significant known mineralization and excellent regional potential.
http://www.orientalminerals.com/s/Home.asp

Trigon Uranium Corp. TSX.V: TEL
Trigon Uranium Corp. is an aggressive Uranium exploration and development company. We focus on advanced exploration properties and development properties. This provides for faster time lines to production compared to grass roots exploration. The properties are located in jurisdictions which are mining friendly, politically stable, and have predictable legal systems.
Our two major Uranium properties, the Marysvale and Henry Mountains properties are located in the US South West, a region which has produced over one billion pounds of Uranium. Trigon has a highly qualified team of uranium exploration experts with uranium experience in the US South West, Canada, and internationally
http://www.trigonuraniumcorp.com/

My thanks to readers Vance and Dale for suggesting the links.

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. 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
http://www.cornerstoneresources.com
Pacific Asia China Energy Inc.
http://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

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