rrman,
You may be right that it is a buyers market, that the selling has
stopped.
I find myself being extremely cautious.
A case could be made though, that smart money was already leaving the
sector, and the market on the whole, before the Bre-x meltdown. Bre-x
just acted as an accellerant. Further erosion could ensue, without
an influx of cash into the sector.
The Bre-x debacle was HUGE. We are talking about billions of
dollars in market capitalization.
As you know, money flows through the buying and selling of shares. The
net sum is zero, all the inflows equal the outflows. For the industry
on the whole the effect is a well oiled 'machine' that allows capital
to be obtained by attracting what is needed from this flow of money.
It is fundamental in the make-up of this system that profits from
one company will be used to fund other companies, and again. Of course
it is expected that a proper amount will be taken as a commission for the
handling of the flow. Thus investors can earn their gains by selecting
good places for the cash to go. Companies produce and sell, which is
where the value is realized.
I am stating these fundamentals to show the point that the industry
survives by the re-investment of gains minus the commission. Investors
are allowed to make money.
But how much is proper. Depends on the overall value produced.
Suppose that a fraud occurred where salted holes attracted money from
the overall flow. Insiders sell into the raising prices. Thus money
is temporarily taken out of the system. This is not a big problem for
the industry to handle. Misguided exploration happens all the time,
things do not pan out. Oh, well. The system is built to withstand
failure of some companies. As long as 51% success (above the commision
rate) is achieved there will be a net positive survival potential.
The industry is not so week that it cannot take a bit of a kicking.
But what if the insiders of the company did not re-invest back into
the sector and took an effectively 100% commission.
This is a bit bigger of a problem, but the industry could survive
this as well (depending on the size of the fraud of course.)
Now, what if the fraud was by a multi-billion dollar company (in cahoots
with another country (who were in cahoots with a power group (who let
the cat out of the bag and ended in cahoots with a new world order))).
This of course could never happen, but for illustration let us say
that it did happen. Suppose the money flowing in was in the hundreds
of millions, or even over a billion or more. The money taken out through
pumping and dumping and shorting cycles. Suppose very little of this
was re-invested, maybe enough to finance a new scam company, but not
much else.
You can be guaranteed that the mining industry would be knocked flat.
Once damages have been assessed, a re-building could occur, or if
damages were too great a further withdrawal may ensue.
I really have no idea what the dollar magnitude of the exodus from
the industry is resulting from Bre-x.
But I can tell you the industry was knocked flat, in my opinion.
Is this just an assessment period now, a viewing of the damage? Was
it bearable, that a re-building can occur? Or will a further exodus
occur?
Like I said I find myself being very cautious.
I truly do hope that you are right that this Bre-x thing is pass‚, that
this is the time to start buying.
Keith |
