Naw, it's not a recession
Naw, it's not a recession. It's a depression for sure. Those who have been reading me for the last year or listening to my radio interviews have been forewarned. The rest of the market is just now waking up.
Last Friday, July 11, 2008 after a 99% decline in the price of IndyMac from $36 a year ago to $.28, the FDIC announced seizure of the bank. It's the second largest bank failure in US history. But it won't be for long.
Fannie Mae and Freddie Mac have their heads on the chopping block and they are next. Along with Lehman Brothers, Bank of America, UBS and loads of others. They are all underwater and have been for a year.
I'm 61 and the single most important day economically in my entire life was August 15, 1971. That's the day Nixon broke the last tie between the US Dollar and gold. It was the kiss of death for the dollar because it allowed both governments and consumers to go on a wild spending spree: all believing they could write checks that would never be cashed. Well, it's time to balance the books and the books have been cooked.
Soon, maybe this week, the US government is going to announce nationalization of Fannie Mae and Freddie Mac. They are leveraged 65-1. That will be the most important financial day in your lifetime. It will be the end of the US dollar and our Republic.
Here's what it means. The US Government is going to take over $5.3 trillion dollars worth of mortgages, most of which are underwater and will never be paid. The theory is that the US will make Fannie and Freddie paper good by making it as good as US Treasuries. Actually the opposite will happen.
Imagine that you have a giant 100-gallon punch bowl filled to the brim with delicious tasting Rum Punch. And someone drops in a tiny turd. What does the next glass of Rum Punch taste like? Right.
The US government is on the verge of turning their nearly worthless paper into used toilet paper. Nationalization is a vote for hyperinflation.
But a total collapse of the financial system is not the biggest problem we face. In 1995 Israel decided they weren't able to steal enough land from the Palestinians via the peace process so they made a "Clean Break from the Peace Process." In effect, they would destroy anyone within a thousand miles who might ever be a threat to them.
The Mossad (Motto: By Way of Deception) began circulating rumors of an impending Iranian nuclear weapons program as early as 1987. So when our US Sock Puppet George Bush starts talking about the Iranians coming up with a nuclear weapon any day now, he is doing nothing more than acting as an unpaid agent for the Mossad.
The Persians have a better sense of history than George Bush. But then, a rock has a better sense of history than George Bush.
A short search on the Internet brings up an interesting analogy to what is going on today.
The President of Iran and most of the world understand what Clueless George and Israel do not. If the US attacks Iran or allows Israel to attack Iran, a great empire will be destroyed. Maybe one and a half, counting Israel.
On that joyful note, may I suggest that you seek safe haven while you still can? In all of history, when evil was about, gold and silver in physical form served as a good insurance policy. If you do not have some physical gold and silver in your possession, you don't get it. Times are about to get as bad as they have ever been in history. Seek shelter from the storm.
But you can't put all your money in physical gold and silver and I wouldn't advise it anyway. So you need to be looking for another safe haven and in my view, the only alternatives are resource shares. I'm convinced we are going into a depression, the plunge in nickel, lead, zinc all point to the same. Oil is about to crash for similar a reason. The only thing keeping it elevated at these prices is an impending war on Iran. If that takes place, $147 oil is going to look pretty cheap.
The very best and safest resource stocks to be in are actual producers or those with a production story. The pure exploration stories are not going to be as safe even if they do share in the rush to safety movement I see ahead. Ounces in the ground are going to start looking like the only sane real estate investment around.
So I'm going to briefly discuss a semi-production story. I spent a good amount of time on the phone with them 10 days ago and I encouraged them to become a production story.
I covered Golden Tag (GOG) eight months ago. They have released a 43-101 since then and it shows about 42.5 million ounces of silver. Their 50% interest in the San Diego silver property in Durango Mexico is worth about half an ounce of silver per share. Silver in the ground should be worth a minimum of $1 an ounce. That should give them a floor of about $.50 a share and the stock is selling for $.39 so I don't see much of a downside under any circumstances.
Golden Tag has completed a Phase 3 6,500 meter drill program and released 16 holes, [pdf] 8 remain to be announced. The drill results already released will add silver to the known resource and I'm presuming the remaining 8 holes will show similar values. In short, GOG is advancing the San Diego project. Since their 50% partner is ECU Silver with an existing mill 12 kilometers away, GOG is a potential takeover. ECU is in an expansion mode from 300 tpd to 5000-tpd production.
Golden Tag has a wild card that I am convinced would add sizzle to the company. In late June they announced results [pdf] from a tiny 1074 meter drill program testing a near surface quartz formation. The results were outstanding, varying from 11.54 g/t over 2 meters to an incredible 12,906 g/t (376.4 ounces per ton.)
You really need to go to the Golden Tag website to see the Aquilon Project. It's a extremely high grade property, near power and having gravel road access already. This could be mined with a bulldozer right now. GOG has 40% of the project now and an option on another 20%.
There is an interesting company in Australia that builds modular systems. The company is Gekko Systems. The modules ["Meccano for Miners"] can be as small as 2 tons per hour, [pdf] up to 50 to 100 tons per hours and are shipped to the mine site in 40-foot containers.
The Aquilon Project could be put into production in short order at a low cost. With grades that high, a feasibility study done on the back of a postage stamp would show nice cash flow. GOG has a market cap of under $14 million while showing a resource of 21 million ounces. Since the market isn't giving them any respect for what they already have, they should change direction slightly.
I am well aware that exploration companies want to prove ounces and eventually get bought out but when that doesn't work, they should consider production. If I had 12,000 gram gold at surface, I'd be out there with a pick and wheelbarrow. Other better alternatives are available.
GOG is an excellent buy at these prices. I like management and I expect their silver resources to increase but I can hear the faint sound in the wind of a high-grade gold system screaming, "Mine me. Mine me."
GOG is an advertiser. We don't own shares but if they announced a production model, I'd be a buyer at these prices in a New York second. We are biased. You make the profit, you need to do your own due diligence.
Golden Tag Resources
Jul 13, 2008