Japan Should Scrap U.S. Debt; Dollar May Plummet, Mikuni Says

What a sad state of affairs to see the US being thought of as a third world country incapable of paying off it's debt.

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Japan Should Scrap U.S. Debt; Dollar May Plummet, Mikuni Says

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By Stanley White and Shigeki Nozawa

Dec. 24 (Bloomberg) -- Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession, said Akio Mikuni, president of credit ratings agency Mikuni & Co.

The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy, Mikuni said. Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere, Mikuni said.

“It’s difficult for the U.S. to borrow its way out of this problem,” Mikuni, 69, said in an interview with Bloomberg Television broadcast today. “Japan can help by extending debt cancellations.”

The U.S. budget deficit may swell to at least $1 trillion this fiscal year as policy makers flood the country with $8.5 trillion through 23 different programs to combat the worst recession since the Great Depression. Japan is the world’s second-biggest foreign holder of Treasuries after China.

The U.S. government needs to spend on infrastructure to maintain job creation as it will take a long time for banks to recover from $1 trillion in credit-market losses worldwide, Mikuni said. The U.S. also needs to launch public works projects as the Federal Reserve’s interest rate cut to a range of zero to 0.25 percent on Dec. 16. won’t stimulate consumer spending because households are paying down debt, he said.

U.S. President-elect Barack Obama wants to create 3 million jobs over the next two years, more than the 2.5 million jobs originally planned, an aide said on Dec. 20. Obama takes office on Jan. 20.

Marshall Plan

Japan should also invest in U.S. roads and bridges to support personal spending and secure demand for its goods as a global recession crimps trade, Mikuni said.

Japan’s exports fell 26.7 percent in November from a year earlier, the Finance Ministry said on Dec. 22. That was the biggest decline on record as shipments of cars and electronics collapsed.

Combining debt waivers with infrastructure spending would be similar to the Marshall Plan that helped Europe rebuild after the destruction of World War II, Mikuni said.

“U.S. households simply won’t have the same access to credit that they’ve enjoyed in the past,” he said. “Their demand for all products, including imports, will suffer unless something is done.”

The plan was named after George Marshall, the U.S. secretary of state at the time, and provided more than $13 billion in grants and loans to European countries to support their import of U.S. goods and the rebuilding of their industries

Currency Reserves

The Japanese government could use a new Marshall Plan as a chance to shrink its $976.9 billion in foreign-exchange reserves, the world’s second-largest after China’s, and help reduce global economic imbalances, Mikuni said.

The amount of foreign assets held by the Japanese government and the private sector total around $7 trillion, Mikuni said.

Japan will also have to accept that a stronger yen is good for the country in order to reduce excessive trade surpluses and deficits, he said. The yen has appreciated 23 percent versus the dollar this year, the most since 1987, as the credit crisis prompted investors to flee riskier assets and repay loans in the Japanese currency.

“Japan’s economic model has been dependent on external demand since the Meiji Period” that began in 1868, Mikuni said. “The model where the U.S. relies on overseas borrowing to fuel its property market is over. A strong yen will spur Japanese domestic spending and reduce import prices, thereby increasing purchasing power.”

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net

Last Updated: December 23, 2008 22:22 EST

Canadian Quantum to graduate

Canadian Quantum Energy CorporationNEX BOARD: CQM.H
Dec 22, 2008 09:21 ET

Canadian Quantum Announces Conditional Approval of Graduation From NEX to TSX Venture Exchange Tier 2

CALGARY, ALBERTA--(Marketwire - Dec. 22, 2008) - Canadian Quantum Energy Corporation ("Canadian Quantum" or the "Corporation") (NEX BOARD:CQM.H) listed for trading on the NEX board of the TSX Venture Exchange ("NEX") is pleased to announce that the TSX Venture Exchange ("TSX-V"), by letter dated December 11, 2008, has granted conditional approval regarding the NEX reactivation to the TSX-V. The shares of Canadian Quantum will commence trading on the TSX-V, Tier 2 on December 23, 2008 under the trading symbol CQM.

Summary of Properties

The Corporation owns various working and royalty interests in four permits encompassing over 169,300 gross acres in the St. Lawrence Lowlands Basin situated primarily on the south shore of the St. Lawrence River between Montreal and Quebec City that were recently valued by Martin & Brusset Associates.Canadian Quantum also has minor oil and gas production interests in Ontario.Recent ActivityIn 2007, the Corporation participated in the drilling of the Gentilly #1 Well ("the Gentilly Well") on Quebec Permit #2006PG907 (35,600 gross acres). The Gentilly Well was cored within the shales and then drilled through the Ordovician section testing gas from the Trenton at significant rates. Additional testing of the Gentilly Well bore in 2008 has yielded promising results in the Utica Shale section (800 mcf/d on an 18 day test post-frac).

Testing is continuing in the upper Lorraine section.Utica ShalesThe Utica shale deposits are relatively thick and regionally present in this basin, however, the primary area of prospectively is a narrow fairway paralleling the south shore of the St. Lawrence River (the "Fairway"). The Fairway is bounded to the south-east by a line of thrust faults known as Logans Line and to the north-west by the Yamaska Growth fault. The Fairway shales are largely undisturbed and the thermal maturity and average depth of approximately 1,220 meters are considered conducive for the generation of natural gas.Permits

The Corporation has an interest in 3 contiguous permits along the south shore of the St Lawrence, just east of the town of Becancour, totalling approximately 115,000 gross acres. These lands are prospective for the Utica Shale with part of the lands lying north of the Yamaska Growth fault. The Corporation's Gentilly Well was drilled on the western most permit. Canadian Quantum owns a 3.75% working interest and a 0.75% gross overriding royalty interest in these permits.The Corporation's fourth permit, # 2002RS056, referred to as the Nicholet Permit, is subject to two agreements. The first agreement requires Junex Inc. to drill and complete two earning wells plus pay $250,000 to the Corporation to earn a 50% working interest in the Nicholet Permit to the base of the Utica Shales. The second agreement that the Corporation has entered into provides for a major oil and gas company to make a cash payment to the Corporation of $300,000 and shoot a 6 km seismic program in order to earn 100% of the Corporation's deep rights below the Utica Shales and a 20% working interest from surface to the base of the Utica Shales subject to the payment of a 5% gross overriding royalty to the Corporation based on their earned interest. The Nicholet Permit, consisting of approximately 54,600 gross acres, is ideally located straddling the Fairway and sitting reasonably central in the St. Lawrence Lowlands Basin play.

Future Development

The Corporation plans to participate with its partners on the Gentilly permits, although no specific plans have been announced at this time for the 2009 calendar year.With respect to the Nicholet Permit, the Corporation does not foresee any significant capital expenditures for 2008 as the two Junex earning wells will have to be drilled and analyzed prior to making any further capital related decisions.

Current Financial Position and Planned Expenditures

As at December 1, 2008, the Corporation had net working capital of $344,633 and total assets of $248,411 as compared to total assets of $227,117 as at April 30, 2008. Management believes this working capital along with the consideration committed to be paid to the Corporation by its industry partners will be sufficient to fund all of its currently budgeted costs. Throughout the next 6 to 12 month period, the Corporation anticipates spending an estimated $150,000 on further developing its properties.

Corporate Strategy and Objectives

Management is committed to the Corporation being active in the Quebec Shale Play. Participation with quality partners in the various permits will allow the sharing of operational expertise in this new and developing play. Management remains open to evaluating additional opportunities as they arise, with the goal to building value for the Corporation's shareholders.

More gold missives for under the Christmas Tree

From - LeMetropole Cafe

A friend of mine just asked me about the TOCOM short positions, so I searched through the MIDAS archive to find the last time the chart was published showing the trend in the gold short positions of the “seven big gold shorts” in Japan.

And I found it (below), last published in MIDAS on October 22nd. That was the time that Goldman Sachs briefly went long for the first time (for just a few days), and coincided with one of the largest commercial short-covering days ever. That day, Goldman went from net short 200 gold contracts to net long 543 contracts, their first ever day long, while the “seven big gold shorts” slashed their net short position by 7,520 contracts to 12,359 contracts, the “smallest net short position they have held since (Scott) began recording this data in February 2006.”
And what did Gold do on the next day? Yep, it BOTTOMED at roughly $713/oz.!

So let’s see. Back in late October, at the peak of the market crisis, the big “commercials” were massively buying back shorts right around the bottom of the gold market. At that time, the Dow was 9,025, gold was $713, silver was $10.10, and the COMEX open interest positions were 319,000 for gold and 95,000 for silver.

Now fast forward to today. The Dow is LOWER, at 8,579, gold is $838, silver is $10.90, and the COMEX open interest positions are 294,000 for gold and 86,000 for silver.

As we know, the Cartel ALWAYS increases its shorts as the prices of gold and silver rise. However, in this case, for the first time EVER, they have not. Gold and silver have risen by 17% and 8%, respectively, over the past two months (while the Dow has fallen by 5%), however the TOCOM shorts have reduced their gold short position by 91% to its lowest level ever (essentially neutral at short 1,164 contracts) and are now long silver. Meanwhile, Goldman on Friday went long gold again in major fashion, yielding its largest long position EVER. And, simultaneously, the COMEX gold and silver open interest positions have fallen by 8% and 10%, respectively, back to their lowest positions in 3-4 years (last seen when gold and silver were nearly half the prices they are today).

Not to mention, since that time nearly HALF of the physical gold and silver COMEX inventories have been claimed (if the gold and silver are even there), and each day it’s looking like either February or March will represent D-Day for the COMEX short squeeze (barring any further dirty tricks by the Cartel).

In other words, taking out the market noise of the past few weeks, the themes of the gold and silver markets have been a) MASSIVE, UNPRECEDENTED SHORT COVERING by the bad guys during a period of rising gold and silver prices, b) MASSIVE, UNPRECEDENTED ABANDONMENT OF THE GOLD AND SILVER FUTURES MARKETS by traditional long speculators as they likely leave the COMEX forever, and c) MASSIVE, UNPRECEDENTED PHYSICAL DELIVERY REQUESTS on the COMEX.

Combine these themes with the MASSIVE PHYSICAL GOLD AND SILVER SHORTAGES, including closing mints, rising premiums (no more eBay cash back offers, for instance), and the topping of the dollar, sprinkle in the new Zero Interest Rate Policy, MASSIVE planned fiscal stimulus ($586 billion in China and $850 billion in the U.S.), heightened bailouts, and an incoming president designing himself to put FDR to shame, and you have the ingredients for a very near-term earthquake in the Precious Metals markets.

Nothing is guaranteed, but if I were a Vulcan like Mr. Spock, I’d say that you can’t argue with logic!

Andrew Hoffman

A powerful reinforcement of the gold trade

http://news.goldseek.com/GoldSeek/1228935840.php

Antal E. Fekete
Gold Standard University Live

Here is an update on the backwardation in gold that started on December 2 at an annualized discount rate of 1.98% and 0.14% to spot in the December and February contracts. It continued and worsened on December 8, 9, and 10 as shown by the corresponding rates widening to 3.5% and 0.65%. It is nothing short of awesome. This is a premonition of a coming gold fever of unprecedented dimensions that will overwhelm the world as soon as its significance is fully digested by the doubting Thomases. The worsening of backwardation must be viewed in the context of the gold price bouncing back from the lows of last week. It shows that the ‘gold bashing’ on Friday was done in the December contract. It is quite revealing that the spot price bounced back more than the futures price. The bulls are on the warpath. They have unearthed the hatchet. They have stopped eating from the hands of the clearing members.

Mish Shedlock published a disdainful criticism of my theory on the worsening backwardation in gold, calling it “nonsense” (see References below). A friend of his owns a seat on Nymex (a branch of Comex) who had this to say:

I have seen countless commodities go into backwardation for numerous reasons, the most frequent being a radical temporary divergence between immediate and overall demand. I have seen backwardations that have lasted years. The article is based on the assumption that a backwardation will necessarily lead to a breakdown of the delivery mechanism. But for every breakdown of the delivery mechanism there have been thousands of backwardations without a breakdown. Only if and when an actual breakdown occurred would the conclusions that the author drew make sense.

Well, well, one can buy himself a seat on the Nymex for sure, and the price is hefty these days, but Nymex does not deliver the understanding of monetary science along with the seat. Nor does any university anywhere in the world. To fill this obvious gap, I founded Gold Standard University Live. It is defunct today, but not because my theories are “nonsensical”.

It is defunct because Mr. Eric Sprott of Sprott Asset Management withdrew his funding after only three sessions, saying that “results do not justify the expense”. Under these circumstances I do what I can to teach all those who want to learn, and pick the “forbidden fruits” of monetary science that have been blotted out from the curriculum ― and from the gold and silver pits of Nymex.

Mish says that “there is nothing special about backwardation, period. OK, they are rare in gold. So what?” Here is what. There is a difference between “rare” and “non-existent”. Backwardation in gold has been non-existent, and for a very good reason, too, as I have explained in my articles. (I also pointed out that there have been ‘hiccups’, or short-lived instances of backwardation. They were temporary ‘logistical’ bumps, always resolved within a day at most, and they never ever spilled over to the next actively traded delivery month.)

Mish needs to educate himself on the fundamental difference between a monetary and a non-monetary commodity, before he can grasp the idea that lasting backwardation in gold is tantamount to the realization that ‘gold is no longer for sale at any price’.

The bottom line is that there is no fever like gold fever. It is akin to St. Vitus’ dance that swept through the Christian world just before the year 1000 A.D. affecting all the people who expected the end of the world to happen at the turn of the millennium. It was far worse than the mania that swept through the world affecting all the people who expected the 2K disaster to happen a thousand years later. The coming gold fever must be distinguished from tulipomania in February 1637, when one single tulip fetched the equivalent of 20 times the annual income of a skilled worker. Gold fever is as different from a bubble as real gold is from fools’ gold. It is visceral. It has to do with one’s instinct for survival. It has no patience with logical arguments. It is highly contagious, ultimately affecting everybody. A bubble that never pops.

You may ridicule the idea that, during a prolonged backwardation, all offers to sell gold will be withdrawn. But a serious analyst must answer the question why hundreds of millions of people having gold coins under the mattress and in the cookie jar refuse to take the bait of ‘risk-free’ profits offered by backwardation. Such a thing would never ever happen to a non-monetary commodity.

The only successful corners in history were gold corners, a.k.a. hyperinflation. Keynesian and Friedmaite economists in the pay of the government thought that gold futures trading will permanently short-circuit the forces of gold backwardation thus preventing hyper-inflation from ever happening. They were wrong.

In an article The Manipulation of Gold Prices (see References below), Professor Emeritus of Economics and former Dean of the School of Business Administration at the University of Indianapolis, James Conrad argues that Bernanke is different. He understands that he needs a much higher gold price in order to increase the efficiency of his airdrops. There is no better way to distribute new money among prospective spenders than putting it into the pockets of the gold bugs. (Conrad admits that he is one.) This will induce a large spending spree, holding deflationary pressures back.

According to Conrad, Bernanke is well aware that the new money he is feverishly airdropping has not stopped and will probably not stop the bloodbath in the stock market. Further devastation of share prices will render pension funds insolvent. To prevent this, the dollar needs a massive devaluation, on the pattern of Roosevelt’s tinkering with the value of gold. I quote:

Anyone who reads the written works of our Fed Chairman will know that Bernanke’s long term plan involves devaluing the dollar against gold. This is the exact opposite of the position of most prior chairmen. He has overtly stated his intentions toward gold, many times, in various articles, speeches and treatises written before he became Fed Chairman. He often extols the virtues of F. D. Roosevelt’s gold revaluation/dollar devaluation back in 1934, and credits it with saving the nation from the Great Depression. According to Bernanke, devaluation of the dollar against gold was so effective in stimulating economic activity that the stock market rose sharply in 1934, immediately thereafter. That is something that the Fed wants to see happen again.

It is only a matter of time before gold is allowed to rise to its natural level. Assuming that about one half of the recent increase in Federal Reserve credit is neutralized, the monetized value of gold should be allowed to rise to between $7,500 and $9,000 per ounce as the world goes back to some type of a gold standard. In the nearer term, gold will rise to about $2,000 per ounce as the Fed abandons its hopeless campaign to support Comex short sellers in favor of saving the other, more productive, functions of various banks and insurers.

Revaluation of gold, and a return to a gold standard, is the only way that hyperinflation can be avoided while large numbers of paper currency units are released into the economy. This is because most of the rise in prices can be filtered into gold. As the asset value of gold rises, it will soak up excess dollars, euros, pounds, etc., while the appearance of an increased number of currency units will stimulate investor psychology; and lending and economic output will increase all over the world. Ben Bernanke and the other members of the FOMC Committee must know this, because it is basic economics.

It is to be regretted that more of Professor Conrad’s admirable paper cannot be quoted here because of lack of space. To summarize: Bernanke is prepared to throw the issuers of paper gold at the Comex to the wolves, as they have become useless, even a nuisance, by now. Besides, the wolves must be appeased lest they devour whatever remains of the U.S. banking and insurance system.

My own position is somewhat different from Professor Conrad’s. In my view we are facing a world-wide elemental grass-root movement: the flight into physical gold ― witness the backwardation in gold. It is irresistible, and will ultimately overtake all other market forces. It will overwhelm official resistance.

An intriguing case can be made, as is attempted by Conrad, that Bernanke is intelligent enough to realize all this thinking that he can harness, if not hijack, the grass-root movement for his own purposes. This is a wee-bit more intelligence than I can give credit for to the Chairman, who is a former academic himself. I find the thought surrealistic that Bernanke wants to use gold as the safety-valve through which he can release steam from an overheating deflation one day, and from an overheating inflation the next.

Be that as it may, the Brave New World of irredeemable currency sans the paper gold factory at Comex will be an entirely different world from what we have been used to for the past thirty-six years. I highlight the differences as I see them. This should be helpful in the long run, even if this backwardation is temporary and gold futures trading will return to normal, since permanent backwardation is ultimately unavoidable.

Item 1: Barrick and other gold producers that still have an open hedge book will go bankrupt.
Item 2: Other gold miners will, one after another, stop selling gold altogether, and go into hibernation.
Item 3: Junior gold mines will put off starting production indefinitely. They will consider their gold ore reserves in the ground a safer store of value than paper money in an insolvent bank.
Item 4: The closing of the gold window at the Comex will furnish an excuse for other issuers of paper gold including the bullion banks to declare bankruptcy fraudulently.
Item 5: GLD and other joint depositories of gold will be under enormous pressure to default and let the owners of the ETF shares hold the bag. Let them sue for the gold. They won’t get it: their contracts give them no right to physical gold. They will get small change, in paper. The principals will cut up the gold pie among themselves. No crumbs will trickle down to shareholders.
Item 6: Even allocated and segregated metal account gold is not safe. The temptation on the account providers to default will be irresistible. They are not going to release the gold until expressly ordered by the courts, and will make sure that no gold will be left by then.
Item 7: Central banks forfeit their gold under leases due to backwardation, causing an uproar of citizens whose patrimony was sequestered and dissipated in such an ignominious manner.
Item 8: The only market for gold will be the fragmented black markets in various countries each charging a price whatever the traffic can bear. All legal protection of the ownership of and trade in gold will be suspended. The Dark Age will descend on the trading world, just as it did when the Roman Empire collapsed.

Our present experiment with irredeemable currency can last only as long as it is able to support futures markets in gold. The declining gold basis is the hour glass: when it runs out and the last grain of sand drops, gold fever will bleed the futures markets of cash gold, and the days of the regime of irredeemable currency are numbered.

Previous episodes of experimentation lasted no more than 18 years, or half as long as the present one which has taken 36 years so far, a world record. Of course, none of the earlier episodes were supported by futures markets. Forewarned, forearmed. Get ready and move closer to the doors. When the curtain falls on the last contango in Washington, there will be panic and some people may get trampled to death at the exit.

Dear Mish, lower your gun. The topic of gold backwardation is not for you.
References

Monetary versus Non-monetary Commodities, April 25, 2006

The Last Contango in Washington, June 30, 2006

Red Alert: Gold Backwardation!!! December 4, 2008

Has the Curtain Fallen on the Last Contango in Washington? December 8, 2008

These and other articles of the author can be accessed at the website
www.professorfekete.com

The Nonsense about Gold Backwardation, etc., by Mike (Mish) Shedwick, December 7, 2008, www.globaleconomicanalysis.blogspot.com

The Manipulation of Gold Prices, by James Conrad, December 4, 2008, www.seekingalpha.com

Gold in Backwardation? Not so fast…, by ‘Hard Asset Investor’, December 2, 2008, ibid.

The Battle against Contango, by Brad Zigler, November 20, 2008,
www.hardassetsinvestor.com

New Altai Report Now on Website

Hi,

For those stateside, I hope you all had an enjoyable Thanksgiving. I was in Pittsburgh visiting family and now after arriving back home, have the traditional task of decorating the outside of my house for the upcoming Christmas holidays. Luckily the weather will be cooperating today. For those who weren't emailed the Altai report, I have posted a link to it at the upper right section of the web page. If you still want to be kept updated on Altai happenings but have not yet emailed me your email address, please do so and I will set you up as an "Altai Addict" and put you on the contact list for periodic updates. Have a great weekend.

Initial Altai Report Available Tonight

Thanks to all of you who have requested the initial report on Altai Resources. Hopefully by now those of you who sent me an email requesting the report have received your PDF tonight. If anyone is interested in receiving the report, please send me an email and I'll send it out as soon as I can. I'll be posting a link to the report on the website this upcoming weekend.

Initial report on Altai to be released this week

Just in time for the holiday season, the Stateside Report will be issuing it's initial report on Altai Resources. Altai Resources has had little coverage compared to the other three horsemen so this report will offer some insight on Altai's management and recent activities not found anywhere else. The report will eventually be posted on this site but for those who want to receive it via email before it is posted, please send a note to stateside@statesidereport.com this weekend with your email address and I'll send out an email blast before the US Thanksgiving holiday. Your email address will not be shared with anyone.

By the way, if anyone is attending the Quebec Exploration Conference this week, keep an eye out for Niyazi and Maria who will be in attendance.

Forest states early horizontals "encouraging"

On Friday, Forest presented at a Bank of America conference and the webcast is posted on their site here. After the prepared presentation, an analyst asked what risks remain with their Utica Shale play? Forest stated that the main risk was that the horizontals wouldn't produce at expected rates but that the early testing results are "encouraging". This most likely accounts for the increased volume and price gains the juniors saw on Friday afternoon and bodes well for the weeks ahead leading up to the Forest announcement sometime over the next 45 days.

Welcome Altai Resources - New Sponsor

As of today, November 1st, Altai Resources is a new sponsor of the Stateside Report. Within the next 30 days, I will be posting an initial write-up on the investment merits of Altai's exciting Utica Shale play in Quebec. In addition, I'll be updating the blog to highlight events impacting Altai as well as the other players in the Utica Shale. I'll also post quarterly updates and more frequent write-ups as conditions warrant.

Those following the Utica Shale play should listen to both the Forest Oil and Talisman webcasts on Tuesday, November 4th to hear any discussions on the recent drilling done by both Forest Oil and Talisman. Forest Oil has been especially tight-lipped about their drilling due to "competitive reasons". With Altai holding the largest, non-jved land package in the heart of the Utica play, they represent the primary "competitor" of any future dealings.

Interested parties should also keep an ear out for any developments discussed during the afternoon of November 26th at the Quebec Exploration Conference. There will be a full afternoon of Utica Shale sessions including presentations by Talisman, Junex and others.

The Dow-Gold 1-to-1 ratio is a given during this cycle

As most acknowledge, we are entering a period not unlike the recession of the late 70's and potentially more severe. Going back 40 years further, you had the great depression and then a similar recession occurred in the late 1890's. Notice how these unsettling periods occur every 40 years (1890's, 1930's, 1970's, 2010) During these periods, the Dow-Gold ratio made it's way to 1-to-1 before the Dow recovered. It doesn't take a rocket scientist to see that gold needs to move up dramatically in the not too distant future. If the Dow drops 50% from here to 5,000, gold will move up over 500%. If the Dow maintains its present level, gold will move up over 1,000%. Hard to believe? If the past is any indication of the future, it's time to prepare.

Must listen/reads from the past week...................

As the paper money world begins to crumble before our eyes, there is mounting evidence that physical gold and silver are becoming almost impossible to find for the retail investor. The divergence between the strong physical demand of gold and silver and the drop in the price of these metals is unprecedented. Strong demand and falling supplies for a product while at the same time the price drops precipitously can only last temporarily. Whether one believes in government intervention in the precious metals market can be debated endlessly. One thing is certain however, gold and silver prices and the related stocks cannot remain this low for much longer.

Listen to the last 2 weeks of Jim Puplava's show (6 hours). He has been predicting this financial calamity. Listen here.

silver summit news - price manipulation

Royal Canadian Mint under strain to meet demand for gold

Gold Chart - with comments

Richard Russel again turns bullish on gold

http://www.gold-eagle.com/gold_digest_08/russell092508.html

Richard The Gold Bull Russell

GLD (a proxy for gold) is looking better. Following the low at the 73 box, GLD rallied to the 90 box, backed off to 84, the headed up to the 89 box. A rally to the 91 box would be bullish and would leave the low at 73 behind.

GDX, gold shares, is looking even better. At the 37 box, GDX has risen above its preceding column of Xs and thereby given a minor bullish signal, but any bullish signal is better than none. The next upside target for GDX is the 51 box.

Note -- the upside P&F projection for GLD is 125. The upside P&F projection for GDX is 51.

Below is a chart of actual gold. The green column of Xs has recouped almost all of the preceding down-column of Os, and that's bullish action. A rise in spot gold to the 930 box would represent a massive bullish breakout with the P&F projection to $1300. All three charts are now constructive or outright bullish. The decline to the 740 box is what I call a bullish "tail," when they are reversed with the action reflected by the tail taking out a large number of hopefuls. Typically, when the tail is reversed, the item can move up strongly without a lot of previous holders. There's no doubt that the decline in gold to 740 knocked a lot of Johnnie-come-latelies and even believers out of gold. Thus, the air is cleared for higher prices.

Richard Russell
Editor-in-chief - DOW THEORY LETTERS
http://ww2.dowtheoryletters.com

September 25, 2008

The inimitable and venerable Mr. Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron's during the late-'50s through the '90s. Through Barron's and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-'66 bull market. And almost to the day he called the bottom of the great 1972-'74 bear market, and the beginning of the great bull market which started in December 1974.

Precious Metals must be owned right now

I apologize for the lapse in posts over the last month or so. I have struggled to explain the beating that commodities and the commodity stocks have taken since mid-July and did not want to post anything until I was able to work through this situation. I have drastically altered my investments over the last few weeks. I still own the Utica plays but have moved 75% of my funds into several precious metal stocks and one copper stock. For those interested, I am now in:

USA.V (US Silver) - my largest holding
GG (Goldcorp)
RBY (Rubicon)
SSRI (Silver Standard)
CN.V (Condor Resources) - my only and best copper play
AUY (Yamana Gold)
SLV (the silver ETF)

I plan to purchase shares in San Gold (SGR.V) tomorrow. They announced a $20 million PP today with no warrants (for exploration of a new high grade gold-Hinge deposit) that no other junior has been able to do in this credit-constrained period.

All of these companies do not need to raise cash (San Gold didn't need to but the banks were pounding on their door) and are primed to participate in any and all rallies (and I expect many) in the next few months.

Until November, the Utica plays will probably tread water so I hope to capitalize on the Gold/Silver rush right now.

Transcript of Forest call related to the Utica

Prepared remarks:

J. C. Ridens - Executive Vice President and Chief Operating Officer

Now, for the New Frontier and exploration program. First off in the Utica shale, we are right on our timeline that we showed at our analyst conference. Due to competitive reasons, we won't discuss anything further about this until probably the fourth quarter, but we are executing just as predicted so far.



Q & A:

Dan Mcspirit - BMO Capital Markets

Gentleman, for the three to four horizontal tests, in the shale, by how much will you vary the lateral links and the completions across those wells?

J. C. Ridens - Executive Vice President and Chief Operating Officer

Our target is starting out for about a 2000 foot horizontal. And frankly, what we will do is we'll see how the drilling is proceeding. And, if we are making really good haul and not seeing any haul problems we'll probably push that little bit, in order to gain some more data on how far you can actually drill the horizontals in the shallow environment. That will also of course determine how many stages back we are going to go with. Initially we're only going to go with about four stages and the reason for that is just simply to gather more data on the rock properties that we see during the simulation, see how effective that is, and typically what we've done is we start off with fewer stages in the initial batches and then as we refine our completions we increase the number of stages. Obviously with a 2,500 foot lateral, we could probably do up to 8 or 9 stages.

Dan Mcspirit - BMO Capital Markets

Right.

H. Craig Clark - President and Chief Executive Officer

Then, the... what we shallow on average depth of the analyst conference of 4000 to 7000 feet measured, the fluctuations not the lateral, it's actually the true vertical depths that range from 2500 to 6000 or 5000 feet. It's not the lateral, it's the true vertical depth because that falls off deeper pretty quickly from North to South.

Dan Mcspirit - BMO Capital Markets

Right, right got it. And these are slick water correct?

H. Craig Clark - President and Chief Executive Officer

Probably couldn't comment at this time since we haven't gotten all the wells down and proprietary reasons but the first frac were some where to Barnett Shale.

Dan Mcspirit - BMO Capital Markets

Got it Okay well assuming there is water involved here, much has been then discussed to play with regard to what are procurement in disposal issues in the Appalachian basins, specifically the drilling of Marcellus wells any issues like that on the horizon?

H. Craig Clark - President and Chief Executive Officer

That one's easy. The St Laurence River was a clinical source and that's where we got our frac water and treated it.

Dan Mcspirit - BMO Capital Markets

Perfect. That's all I got thank you.

H. Craig Clark - President and Chief Executive Officer

Okay thank you

Current Drilling Status of the Utica Players

The current drilling is as follows:

(1) Junex is drilling a vertical on the Altai-focussed shallow Utica side for Forest to see if they want to earn a 60% interest in the Contrecoeur area. Forest selected this location after an in depth analysis of a seismically defined zone of collapse or sag atthe Trenton-Black River level at an estimated depth of 770 metres. Drilling should be complete. Interestingly at least 5 years ago, Altai also identified this feature as it extends onto Altai's property as stated on Altai's website:

One major deep exploration target (at depth of about 800 meters) hasbeen delineated. The target is a NE trending fault zone 34 kmlong averaging 1 km in width, all on land. The zone appears as adepression (a graben) at the top of Trentonformation of Ordovician age. The depression is interpreted by Paul Laroche,Consultant Geologist - Geophysicist, to have been caused by hydrothermaldolomitization of fractured limestones (hydrothermal dolomite reservoirfacies). His report points out that targets in similar geological setting alongformer shoreline of Cambro-Ordovician craton have produced large quantities ofgas and oil in the States of Ohio, Michigan, New York and West Virginiaand elsewhere in the Appalachian region of North America.Such targets are long and narrow.

Based on assumptions of 10% porosity and 30meters of thickness of pay zone (assumption based on analogy with knowndeposits of similar type), the Consultant estimates this target capable ofhosting 7.2 billion cubic feet (BCF) of gas per square km of closure in theprimary target. Only future drilling, however, will confirm the presence oftraps and the amount of gas in them. The secondary deep targets (beneath theprimary target zone) are Beekmantown dolomites and Potsdamsandstones which carry gas and oil elsewhere in the Appalachians.
Altai’s deep gas target zonemay extend for another 20 kmto the SW, all in Altai’s permits.


The vertical that Junex is drilling for Forest is southwest of Altai's property as stated above and is targeting the same feature. Below is the Junex release on this target.

Junex St-Antoine-sur-Richelieu No. 1 well in the Contrecoeur area

Junex is currently drilling the Junex St-Antoine-sur-Richelieu No. 1well in the Contrecoeur area located about 55 kilometres from Montreal.This well is targeting a seismically defined zone of collapse or sag atthe Trenton-Black River level at an estimated depth of 770 metres.Moreover, this well will drill through the overlying Utica formationshales. The well logs as well as all the geological data collected byJunex from this section of this well will be provided to its partner,Forest Oil Corp., who, after having analyzed these data, will decidewhether or not it will exercise its option to perform additionaloperations totalling $4-million (U.S.) in order to earn a workinginterest of 60 per cent in the shale section above the Trenton-BlackRiver on this 55,240-acre-sized property (see Stockwatch news datedApril 1, 2008). Upon Forest earning this working interest, Junex willthen hold 40-per-cent working interest in the shale section above theTrenton-Black River and 100-per-cent working interest in theTrenton-Black River and other geologic intervals on the property. TheJunex St-Antoine-sur-Richelieu No. 1 well is currently drilling at adepth of 471 metres and the anticipated total depth of the well is1,200 metres.

(2) Junex is drilling a vertical on their 100% owned St-Augustin-de-Desmaures property which is also on the Altai-focussed shallow side of the utica play as their pr states:

Junex St-Augustin-de-Desmaures No. 1 well

Junex is also drilling the Junex St-Augustin-de-Desmaures No. 1 wellthat is situated about 20 kilometres from Quebec City. The primeobjective of this well is to cut cores in the Lorraine and Utica shalesthen to analyze these cores for specific geological characteristics.The well is currently drilling at a depth of 637 metres and Junex hasalready cut four different cores over parts of the interval between 342and 514 metres. These cores have been sent to CBM Solutions for labanalysis such as thermal-maturation analysis and analysis of mechanicalproperties of the shales. The company anticipates completion of theseanalyses over the next three- to six-month period. While the companyhas completed the coring operations of the shale section, it iscontinuing to drill to an anticipated total depth of 850 metres throughthe Trenton-Black River and possibly other formations to obtain moreinformation about the geology in the region.

(3) Forest started drilling their first horizontal on 7/17 on the Yamsaka property (deep Utica) as stated by Questerre on their recent PR. This is only a few kilometers from Altai's deep Utica play area. Forest will also be doing a horizontal on the other Yamaska well (also deep) which is only a few kilometers from the Altai/Talisman JV as well as a horizontal on their Becancour well which is on the Altai-focussed shallow Utica play north of the Yamaska fault.

QUESTERRE ENERGY CORPORATION: SHALE GAS WELL SPUDS ON YAMASKA PERMITS

QuesterreEnergy Corp.'s operator has commenced work on the first horizontal wellon the Yamaska permits in the St. Lawrence Lowlands in Quebec.

Theoperations involve re-entering the existing St. Louis de Richelieu welland drilling a horizontal leg. This well was drilled last summer withGastem Inc. as operator targeting the Utica shale horizon. Subject tothe final drilling results, the well will be fracture stimulated andtested.

(4) Talisman is in the final stages of re-entering the Gentilly #1 well on the Questerre/Talisman/CQM.H property which is a deep Utica play that is just southeast of the Junex/Forest Oil Becancour horizontal well but is on the south side of the Yamaska fault (deep side) as the pr states:

QUESTERRE ENERGY CORPORATION: GENTILLY WELL TO BE RECOMPLETED FOR SHALE GAS

QuesterreEnergy Corp.'s operator, Talisman Energy Canada, has confirmed thatfieldwork is under way on a recompletion of the Gentilly No. 1 well.

TheGentilly No. 1 well will be fracture stimulated in several intervalsprospective for shale gas. Following the stimulations, an extensivetesting program will be conducted. The object of the program is toassess the potential commerciality of vertical well completions in thisthick shale package. The original discovery in the Trenton-Black Riverzone in this well has been suspended on a temporary basis during thisoperation.

The operator also confirmed it is mobilizing a rig tothe Lowlands area and the next well on Questerre's acreage is scheduledto spud by mid-August.

Michael Binnion, president and chiefexecutive officer of Questerre, commented: "We are very pleased to beparticipating on a joint venture basis with Talisman on this operation.This re-entry operation has allowed us to accelerate the pilot programto evaluate the shale gas potential in the Lowlands."

I would expect to hear the results of all of these drill programs in the September/October time frame. Then the fireworks begin.

A situation similar to CQM.H , but not a given........

As we wait for the Forest Oil and Junex drilling results over the next few weeks that will provide the next leg up for the Utica plays, I've identified a situation that is similar in several respects to the Canadian Quantum (CQM.H) situation I uncovered in May. The one difference, and it is a big difference, is that this 10 bagger potential is not guaranteed like the CQM situation at $.30 was. The company is Lariat Energy (LE.V), a company that had no properties, no debt, and minimum working capital at the time I identified CQM on May 31st. Like CQM.H, their outstanding shares are microscopic, with the currently free trading shares standing at a tiny 3.3 million. They did a PP in early June that closed last week and are doing a 15 million PP now to get the approximately $10-$15 million needed for their share of the well costs. They have put themselves in a position to earn 25% of a potential 585 million recoverable barrels of oil in the North Sea.

The thing that really jumped out at me was that the other 25% of the farm-in is with BFW Capital Management, a private company headed by former Talisman CEO Dr. James Buckee. This brings instant credibility to the play and is what has led me to puchase 20,000 shares in the last week in the $1.20 range. The operator with 50% interest is Bridge Resources. A report by Blackmont in June put the risked (not the unrisked mind you) value of Bridge's 50% share at $220 million. Using their metrics, they would value Lariat at approximately $110 million risked value, or nearly $4/share after taking into account the recent PP financings. On an unrisked basis (meaning if this well is successful), the value could be over $15. Unlike CQM, success is not guaranteed so a 10 bagger is not "in the bag". However, a $4 price target is reasonable in the next few weeks considering the well will spud next week (around August 1st) and it will only take 20 days to drill the target.

ENG with only a 10% interest and less recoverable barrels reached a $160 million value pre-drilling results with over 30 million free trading shares. With LE having only 3.3 million free trading shares until the middle of November, the spike on a successful test will be extraordinary. Even before results are announced, an ENG pre-drill valuation would give Lariat a $5 share price.

The current market will probably not reward LE the same value ENG received pre-drill results but a $4 price is certainly within reach. Again, I own 20,000 shares so I have a vested interest in this play. A warning.....the microscopic 3.3 million outstanding shares through the middle of November will make it difficult to accumulate a large number of shares without moving the share price up appreciably. Investors with a speculative bent may want to dip their toes in this play as the risk-reward appears extremely favorable and the pay-off will be known in less than a month.

For those who want more information, including those geo's out there, a presentation can be viewed here.

Note: right click the link to open it in a separate window.

One more final word on gold from Uncle Jim

I don't want to use this blog to comment daily on gold since there are many more qualified than I but I'll leave you with this from Jim Sinclair tonight:

Posted On: Sunday, July 13, 2008, 5:41:00 PM EST Gold In The Coming Weeks Author: Jim Sinclair

Dear CIGAs,

Gold is headed to and through $1200. This is the Mantra and truth. All "smoke and mirror" reactions are buys. That is the entire review. I do not think this, I know this.

Why, you ask?

History was made last week but so few understand it and less understand how to protect themselves.

The events of last week are so serious that saving newspapers for generations to come will amaze people who read them in the future. Some of the questions you will hear are:

• How in the world did people see the great dollar-destructive inflation coming?
• How could they possibly stay in the dollar?
• How could people have not bought gold?
• You have to be kidding. Funds were short up to their eyeballs in junior gold shares. These juniors are the only means of getting new reserves. Why did investors in juniors fail to take definitive action to stop the lending of their shares to the shorts?
• Why didn't everyone keep their hard earned dollars in gold?
• Why were the OTC manufacturers not arrested for first degree financial murder?
• Why did so many educated people fail to see "This was it"?
• Why did so many educated people not understand the unwinding of the entire financial system was accelerating?

The facts of the debacle:

1. The largest bank failure in US Financial history occurred because of OTC derivative losses.
2. The two giant real estate financiers, Freddie and Fanny, are balance sheet insolvent. In English this means both companies are busted, all because of OTC derivatives.
3. The damage to the financial system’s estimated size is predicted to be $1.6 trillion dollars. This number shocks people, but it is still far below the real number. Once again we should all give thanks to the OTC derivative Geeks.

Freddie and Fanny are to be rescued by smoke and mirrors designed to look like private sector investments.

This weekend the US Treasury and The US Fed are calling all banks and financial institutions that have populated the Begging Bowl Fed Loan Window to stay solvent to buy the multi-billion dollar bond issue scheduled to be auctioned on Monday. That is a joke as these institutions will have to buy them for their own account if they don't have insane clients to stuff with this paper. The question is where are these busted financial entities getting the funds for the bail out? Are these funds coming from the various Federal government entities that can buy any US security or bond?

I am offering a special award for the CIGA able to name the most Federal Entities that are by law allowed to purchase US securities and US Bonds.

The award is an air blast ping pong ball gun you can fire at financial TV when some damn fool is telling the public when gold or energy reacts that they are both all washed up. Your family and/or office associate will be pleased if you stop yelling at the screen and simply took aim at the idiot talking head.

Please read this to understand the current situation

This is from a poster on the CWEI Investor Village board today. I read this after my earlier post but reinforces my comments:

http://www.investorvillage.com/smbd.asp?mb=2234&mn=120269&pt=msg&mid=5170879


Recs: 82 The Fed, The Treasury, Debt Creation, Money Creation, & FNM/FREPlease pay attention. This might be the most important post you read for a while (even though it does not involve energy directly).

The level of understanding about how our capital markets work in this country (including these talking heads on CNBC and in the media) is pathetically inadequate. For those here, I'm going to try and correct that. The basis of my understanding of this subject did not come from a book. It came from working at Salomon Brothers during the 1970's (a firm - now part of Citibank - that dominated the taxable fixed income markets during that period). I started out as a money market and government securities salesman. My next to last job there (before I left to start my own firm) was as their global money market and government securities sales manager. As a result, I think I know what I'm talking about.

Following the concept of KISS (keep it simple, stupid), I'm going to try and walk you thru what exactly is going on right now as it pertains to Freddie Mac and Fannie Mae. I'm going to go slowly and keep it as simple as I can (at the possible cost of exact technical correctness). Hopefully I will be able to tie everything together at the end in a way that makes this complicated financial situation understandable.

(1) What role does the Treasury Department play? - It is the role of the Treasury to make sure that the U.S. government has enough money to fund the obligations of the U.S. government. Whether the government is running a fiscal surplus or deficit, it is their responsibility to determine how much money should be raised and when. It is also their responsibility to determine what the maturities of this debt should be. The amount of each offering is set by the amount of debt maturing (thus requiring refinancing) as well as any additional debt that may be needed above and beyond that (i.e. to fund that year's deficit). If you check, this is done thru weekly Treasury Bill auctions, quarterly refundings and other periodic treasury auctions such as the monthly two year note. These auctions are not conducted by Treasury. They are conducted by the Federal Reserve Bank of New York thru their network of recognized government securities dealers. The important thing to note here - these Treasury financings have absolutely no impact on the money supply. They simply determine how much Treasury debt is outstanding (i.e. the national debt).

(2) What role does the Federal Reserve play - Besides facilitating the Treasury's effort to fund the operations of the government, the FED is charged (along with many other things) with determining how much money is in the system. So how does the FED expand or contract the money stock? SIT DOWN AND PAY ATTENTION. All they have to do to create more money is to buy a Treasury bill, note, or bond from one of the recognized government securities dealers (i.e. $1MM treasury security goes to FED, $1MM is released into the system as payment). IT IS JUST THAT SIMPLE. It is from this money stock creation/contraction (that can be raised or lowered at will by the FED simply by buying or selling treasury or GSE agency securities), that then gets circulated throughout the financial system, that is the starting block for determining such things as M1, M2, and M3. POINT TO REMEMBER - only the FED can monetize debt and THIS IS HOW THEY DO IT.

(3) With (2) above in mind, The FED right now has a portfolio of around $800B (my numbers are probably off, but the magnitude isn't). That means that they have created $800B of "money" (which gets multiplied many times over as it winds its way thru the banking system thru the mechanism of bank deposits and bank loans (less reserve requirements)). Up until the Bear Stearns bailout, all of this $800B of "money" was backed by a portfolio of U.S. Treasury and Agency securities. With all of these "clever" new financing vehicles that were created by the FED to bailout Bear Stearns and to keep the IB's and money center banks afloat, roughly have of this $800B AAA+ portfolio has been loaned out thru the Discount Window in exchange for toxic waste garbage (sub prime MBS, etc.). [It should be noted here that the FED does not own this garbage. It is simply financing it for the street since no one else will. The hope is that they will be able to get their original securities back (and get the garbage off their books) when the credit markets normalize.]

What role does FNM and FRE play? - These two GSE's are the only reason that we have a functioning 30 year fixed rate mortgage market. Reason? As government sponsored enterprises, they have long enjoyed a competitive advantage in terms of how they can fund themselves. They have historically paid only a slight premium over the level of treasury (i.e. risk free) interest rates (for any given maturity) for their money. As a result, they have been in a much better position than any private sector mortgage provider to be able to "lend long" and "borrow short". It should also be noted that FRE/FNM are the bedrock of the secondary mortgage market in the country (since they own roughly half the residential mortgages in the country and process many others in one way or another). I haven't looked in a long time, but it is my guess that the average duration of FRE and FNM's 5T of debt is under 3 years (REMEMBER THIS POINT).

So let me cut to the chase and try to tie all of the above together as it pertains to the current crisis that FNM and FRE and the FED and the Treasury now face and what options the government really has at its disposal to attempt to solve this problem.

So as we sit back this weekend and try to figure out what the government's options are in regards to Fannie Mae and Freddie Mac, let's look at some of the options being proposed by some of these financial, talking head bozos on CNBC and elsewhere:

(1) Open the Discount Window - This ranks as the dumbest idea ever. Why? Simple. The FED's balance sheet is only $800B. Half of that has already been exchanged for toxic waste to keep Wall Street afloat. They are probably going to need the other half when Lehman Brothers or someone else starts to seriously sink (which will most certainly happen). In addition, how is opening the discount window going to solve the GSE's problem of rolling over their $5+ TRILLION in debt when it matures? Keep in mind that this massive debt also has a very short duration. The ONLY way the FED could do this would be to MONETIZE whatever the $ amount the GSE's came to the discount window for by going into the market and buying massive amounts of treasury securities. We're talking potentially TRILLIONS here since this action (i.e. the GSE's going to the discount window) would in all probability shut them out from issuing any additional debt into the debt markets at anything close to a reasonable spread to treasuries.
LESSON LEARNED - No way is the FED going to open the discount window to the GSE's.

(2) Nothing changes - business as usual. According to Paulson, the government has no current plans to "takeover" the GSE's. They're just going to monitor the situation closely. This might work. It might not. HERE'S THE TEST the GSE's have to pass. As long as they can continue to issue debt on a timely basis and in the amount that is required to fund their business at a REASONABLE INTEREST RATE SPREAD over treasuries, then things will be okay (no matter what the financial media says). If they can't, then the sh#t will truly hit the fan. Here's an example of what I'm talking about. Let's say that 5 year FNMA paper historically has traded at 50 basis points over 5 year treasuries. If that spread blows out to 150 -200+ basis points because the bond market vigilantes no longer trust the implied government guarantee that historically has supported it, then the game is over. The government will then have to step in.

(3) The government steps in - The options here are numerous.

(A) The government puts an explicit government guarantee on all of the GSE's outstanding debt. The benefit to this is that it will insure that the GSE's can continue to fund themselves in the debt market (which is ABSOLUTELY crucial). The downside is that it will officially add this debt to our national debt.

(B) Congress authorizes the Treasury to raise $100B (for example) in additional debt and to invest those funds into the GSE's (in some form or fashion, you're guess is as good as mine). The good news is that this will preclude all of the GSE's debt from landing on the national debt. The bad news is how big are the real losses that the GSE's will face going forward? Will this $ amount (whatever it is) be enough? Will they still be able to fund themselves at a reasonable spread over treasuries?

(C) Some sort of convoluted public/private bailout scheme that might be attempted by the government in order to save face. This could come in many forms, and I'm not smart enough to figure out which ones (if any) might make sense.

The bottom line to all of this is that whatever happens in regards to FRE/FNM, it won't be a quick easy fix. The problems the government now faces in this regard makes the Bear Stearns bailout look like a walk in the park.

In conclusion, I saw something like this coming. That is why I'm so heavily overweight in gold stocks (38% of my portfolio). Having said that, I never dreamed that the GSE's fall from grace would either be as swift or as stunningly complete as it has turned out to be. We could very easily be looking at a "Black Monday" market situation if the government doesn't get its act together quickly.

JMO. I hope this helps others here understand exactly what is going on in terms of the GSE's.

Time to buy insurance to protect your shale investments

I had planned a report on a Montney shale play I recently researched and took a position in (Canadian Spirit SPI.V) but I believe there is a more pressing issue. If you don't have downside protection for your portfolio, I would strongly consider doing so next week. I am not recommending selling any shale plays as they will do just fine over the next 6 months. As I mentioned, I recently took a position in Canadian Spirit. I am recommending that investors look into DGP which is traded on the NYSE. DGP is a double-leveraged Electronically-Traded Note tied to the price of gold (so you get twice the move, both up and down when gold moves). It's like GLD on steroids. I believe the US FED will need to take over both Freddie and Fannie very soon which will put tremendous pressure on the USD. This will also pressure stocks but will ignite the gold price which is finally behaving in it's traditional role as a hedge against troubling times. The shale gas plays may feel some of the pain of the overall market but a 5-10% position in DGP may offset any losses until such time that the Forest Oil news arrives.

I have been following the gold market daily since July 2005 and feel now is the time to enter a position to protect one's investments. There will be a battle at $1,000 but the battle will be won by gold longs and I can see $1,250 by year end. This will mean a 60% return on the DGP. Consider it an insurance policy on your shale gas investments. With this policy in hand, you may be less likely to get out of your shale gas position if the market takes a major turn for the worse.

Contact/Triangle - From Canaccord Today

Contact Exploration* (CEX : TSX-V : $0.52), Net Change: -0.02, % Change: -3.70%, Volume: 109,300
Triangle Petroleum* (TPLM : NASDAQ : US$1.35), Net Change: -0.03, % Change: -2.17%, Volume: 28,400

On board and ready to go. Led by the Utica in Quebec, Bakken in Saskatchewan and the Montney in northeast B.C., Canadian shale plays have caught fire in 2008 thanks to an increased natural gas price, better technology and the huge success of the Barnett shale play in Texas. Relatively unknown to most investors, and definitely not caught up in the excitement yet, is the
shale gas plays developing in the Canadian Maritimes that some industry players believe is more prospective and potentially larger than a couple of the other Canadian shale plays mentioned above. Of course, until proven, predictions are just that, predictions. While all the junior Canadian shale gas players have seen there stocks come off substantially in the last couple
weeks, as drilling and news picks up the excitement for the sector should gain traction again. There will be an extremely large amount of drilling on all the big Canadian shale plays this summer and by the end of the year the market should have a much better grasp on who the winners are. On Thursday, Contact Exploration, which holds highly prospective land in New Brunswick near Corridor Resources (CDH), announced Thursday that it has elected to participate on a working interest basis in the Windsor Shale prospect in Nova Scotia. Contact originally identified and acquired the Windsor Shale block in 2002 and subsequently farmed out a 70% working interest to Triangle Petroleum. Contact retained the right to participate with a 30% working interest or to convert its working interest to a 5% Gross Overriding Royalty. On Thursday, Contact said it has notified Triangle, the operator of the property, that it will continue as a 30% working interest partner. The junior oil and gas company will participate retroactively on the already drilled Kennetcook #2 well and the 3D seismic data that was procured by Triangle last fall. Expenditures for the retroactive participation in the Kennetcook #2 well and seismic will be approximately $3 million.

The Kennetcook #1 well was carried at no cost to Contact by Triangle as part of the earning process on the block. The next well on the prospect is expected to spud in late July and is a 3,000-meter (10,000-foot) vertical test that targets the deeper and considerably thicker shale package, in an undrilled fault block north of Triangle’s first two vertical test wells. This next well is one of six new delineation wells that comprise the second phase of Triangle’s three-phase strategy for developing natural gas from shale in Eastern Canada. At least one horizontal well is expected to be drilled as part of the second phase. On May 19, independent resource evaluator Ryder Scott estimated 69 Tcf of original gas-in-place for the Horton Bluff Shale on the Windsor
Block.

Working on a report on a Montney shale junior

I am starting to put together a short report on a Montney shale junior that was first suggested to me by another research analyst. After performing quite a bit of research myself, I think this company's share price is undervalued at the present time. Drilling results are expected in 5-6 weeks that will either explode the price upward or knock it down a notch or two. Such is the life of a junior explorer. However, this risk-reward looks extremely attractive at the moment. I have nibbled a bit buying a few shares today but the daily volume is fairly low and the price moves up on any buying pressure. I'll probably have the short report finished this weekend if I can find the time.

A blurb I posted on stockhouse

I last picked up shares of ATI a few weeks back in the $2.80 range (which increased my avg cost basis) prior to the recent sell-off. One point that I think investors are still missing since Questerre has not been shy in touting it's wonderful "fairway" position is that one of the two discovery holes drilled by Forest Oil (Becanour #8) was drilled north of the Yamaska fault. Questerre likes to claim that land north of the fault isn't as prospective (so would I if I didn't have any LOL) yet one of the two Forest Oil discovery holes was just north of this fault. Although Altai has land both north and south of this fault most of the land is north of it. What is also lost is that most of the Forest Oil land they jv'd with Junex is also north of the Yamaska fault. Why would Forest Oil take in the majority of it's land that Questerre says isn't as prospective? Good question. Maybe Forest Oil knows a bit more than Questerre in this regard? The Utica structure north of the Yamaska fault is closer to the surface which Questerre claims isn't as prospective. Yet one of the main reasons Forest Oil mentions in their presentation as to why the Utica play may be better than the Barnett play is the relatively shallow depth of the Utica shale. The Utica shale is much shallower north of the Yamaska fault than south.

Maybe investors are starting to figure this out evidenced by Altai's share price out-performance compared to the other three horsemen over the past few weeks. Forest Oil certainly thinks the land north of the Yamaska fault is prospective and they certainly qualify as a "Major Oil Company" as mentioned by Altai in their new presentation on their website.

Riding the waves at Myrtle Beach....................

Not following the market action that closely this week as I'm hanging 10 with the kids at Myrtle Beach. Got the typical first day sunburn and just trying to go non-stop 24 hours day and survive the trip. Altai putting in a relatively good performance vs it's peers so far this week. Maybe a little short covering.

Saw the short interest on Canadian Quantum is near 100,000 shares which accounts for the nearly 50% hair cut. At the present trading volume, these shorts may have a hard time covering in a few months before the Forest announcement.

Triangle's just announced partner is a private company headed by an individual with plenty of experience in the shale plays. I would have thought a major would want to play with them but I guess they want to see the play develop a bit more.

Got to go.

New to drilling....watch the video

For those who want to learn about drilling for oil/gas, Petroworth has a good beginning video at:

http://www.petroworth.com/drilling_demo/index.html (note - right click to open in a new window)

Petroworth commercial frac next to Contact

Petroworth's E-08 horizontal frac has produced commercial quantities of gas. The area is adjacent to Contact's Stoney Creek field.

Jun 18, 2008 09:00 ET

PetroWorth: Interim Report on Frac Results at E-08 Well in New Brunswick

CALGARY, ALBERTA--(Marketwire - June 18, 2008) - PetroWorth Resources Inc. (CNQ:PTWR) (FRANKFURT:T3F) today provided the following interim report on the frac results to date at the company's E-08 discovery well in New Brunswick.

The first of the two completed fracs at E-08 flowed back 42 cubic metres out of a total of 103 cubic metres of frac fluid prior to initiating burnable gas flow. The interval flowed gas at a rate building to 260 mcf/day at a wellhead pressure of 87 pounds per square inch over a flow period of 76 hours. A sand plug was then placed over the interval in preparation for the next frac interval.

The frac in the next interval flowed back 68 cubic metres out of a total of 216 cubic metres of frac fluid prior to initiating burnable gas flow. The interval flowed gas at a rate building to 976 mcf/day at a wellhead pressure of 474 pounds per square inch over a flow period of 62 hours.

The fracs of the remaining two intervals at E-08 will be conducted within the next few weeks. Once these fracs are completed, PetroWorth plans to provide final flow results on the basis of each individual interval and as a commingled total of the four intervals.

PetroWorth is currently investigating various alternatives to both short and long term marketing of the potential natural gas production from the E-08 well.

PetroWorth Resources Inc. is a junior oil and gas exploration company with extensive onshore properties in Eastern Canada. The Company has acquired 100% working interests in almost one million acres in nine separate exploration permits on Prince Edward Island, Nova Scotia and New Brunswick. The strategy of the company is to conduct aggressive exploration programs on these permits, both internally generated and through advantageous farm-in arrangements.

FINALLY !!!!!!!!!!!!!!!!!!!!!!!!

There is life after all on planet Altai. This transaction took much longer than it should have to complete but it is done and the next phase of Altai's move to equal status with the other 3 Horsemen can begin. I would expect an announcement in short order on a farm-in JV with either Forest Oil or one of the other Majors with horizontal shale gas experience. In the current corrective phase of the shale gas players, even a Forest Oil announcement would probably not move the share price up to the $5 range but we will get there before the end of August.

Anyone game for a potash play?

The Utica shale and potash plays are running neck and neck for the speculators attention. Many potash juniors have already made spectacular runs yet there is one play that hasn't yet gone parabolic. They are Ringbolt Ventures (RBV.V). They have just uncovered past drilling data on their huge potash claims in Utah and this should give them a re-rating as this play is better understood. Casey just sent out an alert on them and they have the lowest number of outstanding shares of any serious potash player (under 18 million out). Everyone knows I like the tight share structures as they provide the greatest leverage in these bull runs. The service below provides a good starting point to get familiar with them and their website also is worth looking at. I bought 20,000 shares last week and my cost basis is around $1.88. Happy Hunting.

http://miningmarketwatch.net/rbv.htm (note: right click the link to open in a new window)

How to paint a pig and take in almost $10 million

How to paint a pig and take in almost $10 million:

1) Start with a low outstanding share company
2) Stake claims in an area close to a significant gas discovery
3) However, since all of the prospective land was spoken for, bend the truth a bit and announce:

"The land staked is in close proximity to Junex Resources and Intragaz Exploration near Shawinigan city, and Squatex Resources in the Rimouski area in the heart of the Quebec Utica-Barnett-like shale natural gas play."

4) Don't put a map on your website so that no one really knows where your claims are located.
5) Get all the Stockhouse day traders in a frenzy so they bid up your share price well over $2
6) Convince a company to take part in your private placement
7) Announce the completion of the private placement and tone down your claim of where your land really is:

"X-Terra Resources Corp. has received approval from the Quebec Ministry of Natural Resources for permits on approximately 150,000 hectares (1,500 square kilometres) of land prospective for shale gas in the Quebec Lowlands, Utica-Barnett-like shale natural gas play. The staked land is in close proximity to Junex Inc. and Intragaz Exploration near Shawinigan, Que., and Squatex Resources and Gastem in the Rimouski, Que., area. See the location map on the company's website."

8) Leave the map off of your website even though your morning press release announcing the PP states it is there.

I wonder who told them to remove the language "in the heart of the Quebec Utica-Barnett-like shale natural gas play" which they proudly proclaimed in order to raise their share price and then suspiciously leave out once the PP is announced. Company lawyers? The Venture Exchange? or maybe the typist accidentally left it off of the press release?

So there you have it. The path to riches have been laid out for the next Utica Shale wannabe. Are you listening Stelmine?

A case for a further 100% gain in CQM.H

In the Wellington West research report, they have given separate valuations for each of the Junex properties and the Nicollette property is given the highest valuation of all of their properties with an assigned value of $3.50/share out of the $9.50 target price. This $3.50 works out to a current projected value (already discounted for a 70% prospectivity ratio and a 50% capital dilution factor) of $175 million for 50% of the Nicollette property. Using logic, the other 50% owned by Canadian Quantum would be assigned the same $175 million current target. This equates to a $38/share target price that would have been assigned to CQM.H if Wellington would have picked up coverage. Since Junex is today trading at 2/3 of the $9.50 target price, it is reasonable to assume that Canadian Quantum should be trading today at 2/3 of it's assumed $38 share price or $25.

At the present time, Canadian Quantum would have to rise 100% from current levels to equal the same value the market is currently giving Junex for their 50% of the Nicollette property. I would argue that CQM will base in the $25 range assuming Junex stays at these levels and is certainly still a buy today.

Of course, I am giving no value to the 3.75% WI in the Gentilly play with Questerre and Talisman or their other WI in other permits with Questerre. The market is not giving them any value either even though this is being touted by Questerre as prime real estate in the fairway.

Sometimes the hardest thing about achieving great wealth is being right and sitting tight. Those holding shares now are being right. The hard part will be sitting tight.

stateside

X-Terra Resources and the Zero Utica Line

For those following the X-Terra Resources (XT.V) story and either holding shares or considering purchasing shares, please be aware that their property is north of the Zero Utica Line as shown in the map below. The Zero Utica Line means......you guessed it; no geological utica shale formation north of this line. Maybe instead they can apply for potash or coal permits on this property. That may move the price to $5-$10. Remember, it's not what you have, it's what you can convince the uneducated investor what you might have.

An update on Altai......some Sulphur tidbit

According to Altai management, they have not yet decided what to do with their sulphur property. They may spin it off, sell or option it. Mr Kacira has experience in this area as he has done a spin-off once before (Adonos Resources Inc.) on other properties of Altai.

Petroworth (adjacent to Contact) announces drilling plans

Petroworth announced their plans on their horizontal program today. Below is a summary of the play and a map (note Contact's Stoney Creek Field in green/blue):

The E-08 discovery well (Feenan #2) was drilled in November 2007 to a total depth of 1605 metres and tested only the Hirambrook sands. While drilling on air, gas was flared at surface at a rate of approximately 650,000 cubic feet per day. An independent petrophysical analysis of the well calculated a combined potential gas pay thickness of 40 metres within five sand zones with an average porosity of 10.1%. Recent perforation and testing of two of the sands zones yielded encouraging results, confirming that the well is an excellent candidate for the frac stimulation.

PetroWorth has acquired an additional 7,000 acres of land in the Rosevale region of New Brunswick, and 88,737 acres in Westmorland County, bringing its total land holding in this region to 129,583 acres. These properties are extremely attractive for two reasons:

1. To the immediate northeast of our lands is the Stony Creek field, which has produced 800,000 barrels of oil and 28 billion cubic feet of natural gas to date;

and

2. To the immediate southwest of our lands is the McCully field, which is estimated to have one trillion cubic feet of gas in place. It is worth noting that Corridor Resources Inc. recently received approval to construct pipelines and related facilities to connect the McCully field to the Maritimes & Northeast pipeline.

In November 2006, PetroWorth completed an extensive 2-D seismic program on its New Brunswick properties. This will be followed by a sophisticated 3-D seismic program and an aggressive exploration drilling program.

Contact goes for a $10 million PP

As shown below, it looks like Contact will be participating with Triangle on their 30% owned shale gas play in Nova Scotia:

Contact Exploration Inc. Announces $10 Million Bought Deal Financing

Another PP for a neighbor of Contact Exploration (CEX)

Petroworth announced today a $6 million PP to fund the drilling of horizontal shale gas wells adjacent to Contact's New Brunswick property. This is in addition to recent PP's by Triangle and Corridor. Now all three neighbors are cashed up for the Summer drilling program. If any one of the three hit a nice horizontal well, the frenzy seen in the Quebec Lowlands will move eastward to the Maritime shale play and the lowest market cap company in the play, Contact Exploration.

As expected, the Utica shale plays pulled back today after several days of running up. Look for one more down day tomorrow before a rebound to new highs.

Finally........a pull back

I was hoping for a pull back to get the froth out of some of the stocks that have no reason to be going up 100% a day, namely PAN and JML. The Four Horsemen sold off as well around 3:00 and finished well off their highs for the day. Watch out for the naked shorts on Altai tomorrow. I'm guessing they'll try a take down to the 3.00 range to cover their miserably underwater shorts so watch your stop losses as they'll steal your shares. Have done it twice in the last 2 weeks and will try again.

The first closeology land pump happened this afternoon with x-terra resources (XT.V). They claim they applied for claims in the heart of the utica shale play but they couldn't be further from the truth. None of the claims can even smell Utica shale gas. Didn't matter to the herd who buys before they think. This will surely deflate rather quickly but I wouldn't rule out another big run tomorrow.

Good news on the Maritime shale front. Corridor announced today they will accelerate their shale gas play in Elgin New Brunswick, which if successful, will light a fire under the all ready hot Contact Exploration (CEX.V).

Finally on Mundiregina, a fellow research hound has found out that the Mundiregina land was farmed out to Suncor last year by Anne and Jerry McCullough. Too bad as they blew the chance for a million dollar lottery prize.


That's all folks.

Mundiregina....Oh where art thou Mundiregina

As those who have studied the maps know, there is a property called Mundiregina that lies within Forest Oil's circle of prospectivity and is adjacent to their southern holdings. No one seems to know who has the rights to this property. I have located a newly formed public company selling at $.30 with less than 20 million shares outstanding that has a property named Mundiregina. I talked to the company on Friday and they acknowledged they have a property called Mundiregina but they weren't sure where it was located. I kid you not.....this property was thrown in on the deal they did on their recent public offering and they are not sure where it is. He was speculating it might be in Sudbury which is NOT where the Utica shale play is. I don't want to disclose this company because I have a feeling that it is not the Mundiregina I am looking for. The company rep was going to check it out and get back to me on Monday. I will let you know what I find out.

Have a great weekend all.

Utica and Maritime Shale Update

What a week for the Four Horsemen of the Utica Shale and all others involved in the play. Friday saw a speculative fever that hadn't been seen before now. Surprisingly, there are still many junior exploration investors in the gold/silver and base metals that are not even aware of what is going on. Several people I've corresponded with haven't even heard of the story. That tells me the legs are still strong and more gains are ahead. Canadian Quantum continues to impress with a major move up Friday after Thursday's day of rest. They should be announcing who their 20% partner is Monday or Tuesday (my guess is Talisman). There is not a hotter play right now IN THE WORLD than the Utica Shale plays.

During the week, it was discovered that an illegal naked short position existed on Altai's shares. As expected, these crooks dropped Altai's price from $2.20 to $1.75 in a matter of minutes earlier in the week to try and cover their shorts. Altai holders who had stop loss orders placed had their shares stolen from them. Please, please use mental stops, not stop loss orders. There is a still a large short position on Altai and these crooks will probably try another raid next week. They are cornered, way underwater and desperate.

On the Maritime front, Triangle Petroleum announced a major PP at $1.40 today which will give them over $30 million to drill their 70% Nova Scotia shale gas play. Contact Exploration, which owns the other 30%, jumped up 21% to $.68 on the news.

CQM.H - I bought shares today for posterity sake

Picked up about 4,000 shares at $4.50 today for posterity sake. It was tough to pull the trigger after missing out on Monday but what the heck. Their 3.75% WI in the land where Talisman drilled Gentilly #1 is apparently more acreage (according to my lady friend) than the 55,000 acre deal with Junex. Their announcement today about the 20% farm-in partner is what caused me to buy after re-evaluating my original $3 target (from $.30). I'm guessing it's Talisman but we'll find out in a few days.