London Irvine Report June 5, 2007

G-8. Nastier by the day.
“Even a paranoid has some real enemies.”

Henry Kissinger.

The big story this week is likely to be a failed G-8 summit in Rostock on the chilly Baltic. The west’s lame duck leaders are about to pitch up with Russia and China ’s leaders at the top of their game. In the western camp, the strongest leaders hail from France and Germany , they are unlikely to set much of the agenda. Unless someone adds something to the water, the violence outside the G-8 prison is likely to be matched on the inside. But first this item which if all goes wrong, might just take the focus away.

We have a most unusual super cyclone heading for the Strait of Hormuz . Currently the equivalent of a category 4 hurricane, the modellers expect it to weaken and turn north and head into eastern Iran . Other than delaying some oil tanker journey’s, at present this storm is largely expected to be a non event in oil. However, the modellers sometimes get it wrong, and something like a quarter of the world’s oil shipments pass through the Strait of Hormuz . We will be watching this storm closely for the next two days.

An Amazing Tropical Cyclone!

Updated: Monday, June 04, 2007 2:47 PM

A rare event is taking place in the Arabian Sea . Powerful tropical Cyclone Gonu with sustained winds of 160 mph as of Monday afternoon was taking dead aim toward the north coast of Oman . A landfalling tropical cyclone is almost unprecedented for Oman , which barely gets any rain to speak of, even from thunderstorms during this time of year. Gonu is expected to weaken as it approaches the coast early Wednesday, but strong winds and heavy rain are still likely.
http://www.accuweather.com/news-story.asp?partner=accuweather&traveler=0&article=5

Tropical Strom Risk. Super cyclone Gonu.

http://tsr.mssl.ucl.ac.uk/tracker/dynamic/main.html

Now back to the unfriendly skies. America ’s missiles and radars for the Czech Republic and Poland , have altered the balance in Europe . Europe is getting closer to the day it must chose between East or West. Up first, the US pokes Russia in the eye.

Bush Opens Europe Trip on Jarring Note

Jun 4, 6:20 PM (ET)
By TERENCE HUNT

PRAGUE, Czech Republic (AP) – President Bush’s European trip was jarred as it began Monday by deteriorating relations with Russia and threatening words from President Vladimir Putin.

Bush and Putin will see each other at the annual summit of industrialized nations, beginning Wednesday at the Baltic Sea resort city of Heiligendamm , Germany . In a diplomatic poke in the eye at Putin, Bush bracketed the summit with stops in the Czech Republic and Poland – the two countries where the United States wants to build a missile defense system for Europe .

Already complaining of being encircled by NATO’s expansion, Putin said putting missile defenses on Russia ‘s doorstep would ignite a new arms race. He threatened to retarget Russia ‘s missiles toward Europe .

Bush says the anti-missile program is intended to protect Europe from states like Iran and North Korea , but Putin said neither country possesses the rockets the American system is intended to shoot down.

“It’s a defense against something which does not exist,” the Russian president said. “It would be funny if it was not so sad.”

—-“This isn’t the Soviet Union and we need to drop the rhetoric that sounds like what the United States and the Soviet Union used to say about each other and realize it is the United States and Russia in a very different period,” Rice said on the way to an Organization of American States meeting in Panama City, Panama.

“It doesn’t really help anybody to start threatening the Europeans,” she said. “You cannot launch a threat at Europe that is separable from the United States .”

——Putin’s sharp words at Washington – and Britain , as well – set an unusually chilly tone for the three-day summit in Heiligendamm. Leaders of the eight participating countries – the United States, Britain, Russia, France, Germany, Italy, Canada and Japan – typically mask their differences in statements that have been watered down to find consensus.

“The most interesting issue on the agenda, to me, is Russia and how the other seven will handle Mr. Putin, who is really the elephant in the room,” said Simon Serfaty, a senior adviser to the Europe program at the Center for Strategic and International Studies.

Aside from his sharp words at Washington , Putin also took a slap at Britain for seeking the extradition of a Russian businessman who is a suspect in the killing of former KGB agent Alexander Litvinenko. Putin called London ‘s move “stupidity.” German Chancellor Angela Merkel also had a run-in with Putin last month, criticizing Russia ‘s crackdown on political opponents.

In interviews before the trip, Bush called Putin “my friend” but said the U.S.-Russian relationship was complicated.

“Vladimir Putin will tell me that Russia is a democracy and that he’s advancing democracy,” Bush said. “We have got some questions about that, of course.”

http://apnews.myway.com/article/20070604/D8PI91300.html

Below, NATO reacts to the Russian response of renewed targeting of Europe .

Putin’s statement not facilitate RF-NATO partnership – diplomat

BRUSSELS , June 4 (Itar-Tass) – Russian President Vladimir Putin’s statement on aiming Russian missiles at Europe does not facilitate partnership with NATO, spokesman Robert Pszczel said.

He told Itar-Tass on Monday now it is Russia that was discussing measures to aim its missiles at Europe . Such statement “can hardly ease tension in Russia-West relations ahead of the G-8 summit”, the spokesman added.

In an interview with reporters from G-8 states, Putin said Russia shrugs off responsibility for steps it can make in response to the deployment of U.S. missile defence systems in Europe .

“We want to be heard, to make our position clear, and we don’t rule out that our American partners can reconsider their decision,” President Putin said. “If this does not happen, we shrug off responsibility for our retaliatory steps, because it is not us who are initiators of an obviously imminent new arms race in Europe ,” he stressed.

“In case of the deployment of anti-missile defence systems in Europe we warn that there will be retaliatory steps. We have to ensure our security. And this process was not initiated by us,” the president added.

“What are these steps? Of course, we must have new targets in Europe ,” he states. “What will be the means to hit these facilities, which according to our military pose potential threat for Russia – ballistic or winged missiles, or absolutely new systems – it is a matter of technique,” he added.

—–He drew attention once again to the fact that it was not just an anti-missile defence system that was involved. “For the first time in the history elements of U.S. nuclear potential appear on the European continent: this is simply changing the whole configuration of international security,” Putin stressed.

“The system of anti-missile defence on one side and the lack of such on the other side creates an illusion of safety and enhances the possibility of a nuclear conflict,” he noted.

Putin criticised the U.S. for not discussing anti-missile defence plans either with Russia or inside the EU. “We often hear discussions on European solidarity and so on. What solidarity? Two countries just made a decision to deploy elements of anti-missile defence and that is all. Did anyone ask Europe ?” he stressed. “Was there any common European decision?” Putin asked.

There could have been at least a NATO decision “just for a cover”. “However, even if NATO had participated, it would not have changed things for us in essence, as we know very well how decisions are made in NATO,” he added.

http://www.itar-tass.com/eng/level2.html?NewsID=11595791&PageNum=0

Eric Kraus writes a monthly newsletter for clients of the Russian focused “Nikitsky Russia/CIS Opportunities Fund”, the full 20 page report makes for most interesting reading for it presents us with the view from the other side, i.e. President Putin’s Russia. We quote a little from the opening below, and recommend a visit to the website for the full report. The world is changing fast. A failure at the G-8 summit ahead, likely sets the pattern for months to come. Stay long gold and silver. The uni-polar world has come and gone.

The Breaking Point

T&B has long sought to explain to our readers the complexities of the Russian reality, countering the unbalanced, misleading coverage in much of the Western press and warning that, if the West continued to gratuitously antagonize the Bear, they might well succeed in inflecting Russian behaviour – but certainly not in a direction they would like!

Predictably, the constant carping from the EU and the US has exacerbated the distrust felt by ordinary Russians as regards the Atlantic powers, thus strengthening the hardline factions in Russia . Despite some measure of historical distrust for the “Yellow Peril”, Russia is being driven into an ever-deeper diplomatic and economic alliance with China , as the gradual deterioration in political relations with the West becomes irreversible.

Of course, one needs not be too alarmist – there is no ideology to subtend a new Cold War, and with the Middle East a desperately unstable place, a business understanding with Russia is vital to global energy security. As any lingering illusions are relinquished, what we are seeing is the outbreak of a cold peace – a jockeying for position in the context of a balance of economic power. In other words, the West shall be compelled to deal with Russia very much as it deals with China – which equally scorns foreign lessons in democracy and rejects all meddling in Chinese internal affairs.

Although at the beginning of the 1990s America (and the West in general) was indeed seen as a shining city on the hill for the traumatized and disoriented post-Soviet Russians, this gloss has been irretrievably lost – it matters little by whose fault – it is a matter of history. Further cooperation will be built, if at all, purely on the basis of objective interests – economic, strategic, geopolitical.

Let the reader disagree with our view, let him console himself with the thought of Russia’s military weakness and limited reach – but do not be deluded; Russia is a vital piece of the global picture, and were push to come to shove, Russia would have no need to shower the West with nuclear missiles to create Armageddon; a simple announcement that the Transneft export pipeline would be shut down for “emergency repairs” but would be working again soon… sometime…hopefully – would send oil prices spiralling above $200, creating financial chaos…

Yes, this is politique fiction – but it is meant to underscore the simple fact that the West shall be forced to seek an accommodation with Russia , based not upon love but upon vital reciprocal interests.

http://nikitskyfund.com/content/blogsection/4/37/

Though the west will have to accommodate to the rapid rise of resource rich Russia , loosely allied with behemoth China and their market of over a billion, for the moment I think investing in Russia is only for the brave with true risk capital to spare. For the present, I would rather focus on the resource riches of NAFTA companies and the resources of Latin America ’s Andean spine.

While Russia is ready to insist at the G-8, on getting the respect its newly revived position as natural resource provider to the west, deserves, China is taking the low key approach to demanding appropriate respect. Below, China takes pre-emptive action. But do any of the Western “Gods” read the Xinhua English language edition? I suspect China ’s leaders are ready to go ballistic too.

China says G8 not platform for exerting pressure

BEIJING , June 4 (Xinhua) — The outreach session of the G-8 Summit is not a platform for putting pressure on any country, Chinese Assistant Foreign Minister Cui Tiankai said on Monday.

Cui made the remarks at a press conference in Beijing when asked to comment whether the G-8 nations would exert pressure on China on the issues of intellectual property rights protection, climate change and China ‘s policy in Africa .

The G-8 summit is a mechanism of developed countries and China welcomes the G-8 nations to hold talks with developing countries, Cui said, adding that results would be achieved if they conduct these dialogues based on the spirit of equality.

“I don’t think this outreach dialogue will be a platform for pressing any country and they should not do it at all. I don’t believe this is the consensus of the G-8 nations,” he said.

The world economy is unbalanced but this is not China ‘s fault and China alone cannot redress it, Cui said.

China is willing to make its due contribution in maintaining the balanced development of the global economy in order to benefit other countries and achieve common development, he added.

http://news.xinhuanet.com/english/2007-06/04/content_6197535.htm

Meanwhile the dollar lurches from low to low against the yuan and another albeit tiny country is forced to abandon its dollar peg.

Yuan hits new high against U.S. dollar

BEIJING, June 5 (Xinhua) — China’s currency, the yuan, hit a new high on Tuesday against the U.S. dollar, according to the Chinese Foreign Exchange Trading System.

The central parity rate of the yuan, also known as Renminbi (RMB), stood at 7.6427 yuan to one U.S. dollar on Tuesday, gaining 95 basis points from Monday’s reference rate of 7.6525 to the dollar.

It is the second time the yuan’s value exceed 7.65. On May 30, it challenged the 7.65 mark to reach 7.6488. The Chinese currency has climbed 1,660 basis points from 7.8087 yuan to one U.S. dollar posted on the last trading day of 2006.

The accumulative appreciation since July 21, 2005 , when China discontinued yuan’s peg to the greenback, has exceeded 7.5 percent.

The People’s Bank of China, or the central bank, announced on May 18 that it would widen the floating band of yuan against U.S. dollar for daily spot trading on the interbank market from 0.3 percent to 0.5 percent as of May 21.

http://news.xinhuanet.com/english/2007-06/05/content_6199702.htm

Syria to End Dollar Peg, 2nd Arab Country in 2 Weeks

By Zainab Fattah and Matthew Brown
June 4 (Bloomberg) — Syria became the second Middle Eastern nation in two weeks to say it will dump its currency’s peg to the dollar to curb rising import costs and inflation.

The country will link the Syrian pound to a broader range of currencies starting in the middle of July, central bank Governor Adib Mayaleh said.

“The decision is final,” he said in a phone interview from Abu Dhabi . “This will help stabilize the Syrian pound and bring down inflation.”

The shift away from the dollar among Middle East countries is a sign of the waning attraction of the currency for central banks around the world. The dollar made up 64.7 percent of global foreign-exchange reserves in the fourth quarter, down from 65.8 percent in the prior three months, International Monetary Fund data show. The euro’s share was 25.8 percent, the highest since its 1999 debut.

Syria is broadening its peg after the country’s currency was dragged lower against the euro by a 10 percent slide in the dollar last year, pushing up the cost of imports from Europe . Kuwait switched to a basket of currencies on May 20 because of gains in consumer prices, which are also accelerating in the United Arab Emirates and Qatar .

http://www.bloomberg.com/apps/news?pid=20601087&sid=ahGpyu4D9xBk&refer=worldwide

Meanwhile back in Mammon’s embassy in Frankfurt another Franco-Prussian war is gearing up. At this week’s ECB meeting, the attendee’s might actually be called on to think. Profligate France and Italy are tired of the Germanic strong euro policy. The Japanese are eating their lunch. Europeans better stay long gold and silver, in case the Club Med team win.

Trichet, Noyer Split Over Money Clouds ECB Outlook

By Sandrine Rastello and Simon Kennedy

June 5 (Bloomberg) — European Central Bank chief Jean- Claude Trichet has parried criticism from Nicolas Sarkozy, the new president of his native France . Fresh doubts from Trichet’s protege at the French central bank may be harder to ignore.

As the ECB prepares to raise its key interest rate to a six-year high of 4 percent tomorrow, Trichet’s faith in the importance of money supply is being questioned by Christian Noyer, 56, who succeeded him as governor of the Bank of France and sits with him on the ECB’s governing council.

With Mario Draghi’s Bank of Italy lining up with Noyer against Trichet and Bundesbank President Axel Weber, the Frankfurt-based ECB is debating how to interpret money-supply data for the first time since its 1999 birth. The split may make it tougher for Trichet, 64, to forge a consensus over how much further to increase rates.

—Money supply, as measured by M3, has expanded more than the 4.5 percent rate viewed by the ECB as non-inflationary in every month since May 2001. It increased 10.4 percent in April from a year earlier, close to the fastest pace in 24 years. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings.

The French and Italian central banks are questioning how inflationary all that cash has been, given that prices haven’t risen much more than the ECB’s limit of “close to but below” 2 percent. They are coming into conflict with those who believe the expansion in money supply must be checked with even higher rates before it spurs inflation.

—-The International Monetary Fund today joined the debate, noting in its annual report on the euro-area that while liquidity is “growing at a brisk pace, its relationship with prices is uncertain.” It is also “uncertain” how much more the central bank needs to raise rates, the fund said.

Germany ‘s history of hyperinflation after World War I makes its policy makers particularly apprehensive about rising prices. In France , by contrast, Sarkozy won the election last month after a campaign featuring attacks against the ECB’s focus on inflation instead of economic growth.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a.JaL_23jXV0&refer=worldwide

In commodities news, Xstrata thinks the commodities boom is here to stay. I suspect that they might just be right. Possibly seeking to get in before the Chinese really come calling later in the year? Is the TSX ready to fly?

Xstrata Ready to Spend Billions on Acquisitions

By Luzi Ann Javier and Tan Hwee Ann

June 5 (Bloomberg) — Xstrata Plc, which paid $17 billion for Falconbridge Ltd. last year, said it’s prepared to spend several billion dollars on acquisitions to expand copper production.

The company is studying projects with the capacity to produce between 150,000 to 300,000 metric tons of copper a year, Charlie Sartain, the chief executive officer of Xstrata’s copper unit, said in an interview in Manila .

A five-year rally in metal prices has spurred more than $79 billion of takeovers offers this year in the mining and metals industry, following $182 billion of bids last year. Mick Davis, the chief executive officer of Zug, Switzerland-based Xstrata, is trying to create a mining company on five continents to rival BHP Billiton Ltd., Rio Tinto Group and Anglo American Plc.

“Higher copper and nickel prices are driving Xstrata’s cash flow, and they’re willing to gear up more than other companies in the belief the cycle is longer,” Tony Robson, an analyst at Global Mining Research, said in Sydney. “This means Xstrata can handle a $20 billion to $25 billion acquisition.”

http://www.bloomberg.com/apps/news?pid=20601087&sid=aakz87BVkPJI&refer=worldwide

We end for the day with the G-8 again and Der Spiegel raising an issue from the past. Are the Lords of the Universe acting very un-PC? Can Germany ever get over its past?

THE SPIEGEL G-8 ROUND-UP

Did the Nazis Steal Heiligendamm from its Jewish Owner?

The Jewish Claims Conference is investigating whether the Heiligendamm resort that will be the site of this week’s G-8 conference was stolen from its rightful owners during the Third Reich. Plus, German police complain about excessive security measures to protect George W. Bush.

Was the Heiligendamm resort stolen from its rightful owners during Germany ‘s Nazi era? According to an article in the paper Welt am Sonntag on Sunday, it may have been. And with just days to go before world leaders from the G-8 gather in the Baltic Sea destination for this year’s summit, the Jewish Claims Conference this week is looking into whether the family of the previous owner has a right to compensation.

According to the report, the resort was owned by the banker Adolf Baron von Rosenberg prior to World War II. Just how he lost ownership of Heiligendamm is not entirely clear, but there are, the paper writes, numerous indications that he was stripped of much of his wealth by the Nazis during the late 1930s. He committed suicide in 1939.

Soon after his suicide, the German navy seized Heiligendamm and it was eventually sold to the Nazi government by Dresdner Bank. Following Germany ‘s reunification, the German government took over ownership of the resort before selling it to real estate mogul Anno August Jagdfeld, the paper writes.

http://www.spiegel.de/international/germany/0,1518,486339,00.html

“Russians don’t go around with Kalashnikovs but with money in their pockets and I would advise you to welcome them.”

President Vladimir Putin.

At the Comex silver depositories 128,543 ozs was withdrawn from Eligible at Brinks. Final figures were Registered 80.23 Moz, Eligible 50.13 Moz, Total 130.36 Moz.

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:

Cornerstone Capital Resources Inc. TSX.V CGP
Cornerstone Capital Resources Inc. has a strong and dedicated technical team who are focused on generating new projects that have great potential for discovery. Cornerstone leverages its own exploration funding through joint venture and strategic partnerships, providing shareholders with potential for success at lower risk. Cornerstone has a diversified portfolio of gold, silver, copper, nickel, VMS, and uranium properties in Canada and Ecuador .

Cornerstone Capital Resources Inc. has a strong and dedicated technical team who are focused on generating new projects that have great potential for discovery. Cornerstone leverages its own exploration funding through joint venture and strategic partnerships, providing shareholders with potential for success at lower risk. Cornerstone has a diversified portfolio of gold, silver, copper, nickel, VMS, and uranium properties in Canada and Ecuador.
http://www.cornerstoneresources.com/s/Home.asp

http://www.cornerstoneresources.com/s/NewsReleases.asp

Note: I hold a position in CGP.

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 http://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

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