₪ David Pescod's Late Edition October 3, 2008
We are in unprecedented times and I’m sure you are more than aware of that...you can’t pick up a paper or turn on the TV without hearing about the economic crisis, the looming recession or something along those lines. This “Made in America” problem with the real estate bubble and how they financed it, has now affected banks around the world and now already, it’s estimated a half dozen countries have economies in recession in places as diverse as Singapore, New Zealand and France. And we learn once again, that the one emotion stronger than greed is fear.
We’ve seen our commodity and natural resource sector absolutely smashed in no time and with all the talk in the press, we are obviously on our way to a recession. With all the bad news, people are screaming ‘sell my mutual funds’ which feeds on the market malaise, but they also aren’t going to buy that car they might have thought of buying, or buying that house they thought they might have, or that big TV. The trip from Toronto to Jamaica might now be a tour out to the wine country or that longawaited winter holiday from Calgary to Mexico might suddenly be two-star instead of five. It’s affecting the way people perceive and do things.
It looks like an ugly patch ahead, but what to do? The thoughts on Dan Chornous, who is the Chief Investment Officer at RBC Asset Management come to mind and his suggestions are:
1. A year into the crisis, credit losses and the potential for further writedowns have elevated risk premiums, gummedup lending and blunted the impact of monetary policy. Strains on the economy are evident but manageable, however firm growth won’t appear before confidence is restored and lending accelerates.
2. Intensification of crisis likely advances its conclusion: revamped banking system, TARP, bailouts of GSE’s/AIG, etc.
3. The U.S. economy will continue to lose momentum before it improves in 2H/09. Europe and Japan face a slightly deeper trough.
4. Falling energy prices will drag down headline CPI, and this extended period of economic, lethargy will cap whatever inflationary forces were brewing.
5. Early-summer fears of sharply higher short-term interest rates have calmed as headline CPI appears to have peaked and as expectations for a more rapid end to the credit crunch fade.
6. Bond yields have once again slipped below the lower boundary of their equilibrium ranges in every major region, and technical underpinnings recommend a cautious approach in fixed income markets. As the credit crunch ultimately clears and firmer growth emerges, bond yields should move considerably higher. Simply maintaining bond yields at current levels requires a relatively severe recession.
7. Earnings gains enter low single digits as global growth all but disappears. Valuations are attractive nonetheless. Simply moving stocks back to levels consistent with mild inflation, low interest rates and sustained economic recovery would produce double-digit gains in most major equity markets outside of Canada. Barring a return to high levels of inflation, investors in diversified portfolios appear well-protected against significant, sustained erosion in values.
8. Time to take a longer view. Recommend asset mix continues to overweight equities, taking advantage of their attractive valuations and the potential for superior returns as the credit crunch ultimately fades. Underweight bonds.
It doesn’t matter whether you’ve got some Bank of Commerce, some Connacher, some Oilexco, some Sherritt, you-name-it, your stocks and a bunch of your portfolio has been absolutely smashed with the sudden onset of the credit crisis and the massive press attention its received. There is a long list of analysts that feel Iteration Energy is a steal at this price, but until we start hearing positive news on the economy, one just wonders how much cheaper they can get...
Price* Target C$ 12-Month Return Change Recommendation
Company Ticker Analyst (C$) Previous New (%) (C$) (%) Previous New Risk Profile
Anatolia Minerals Development Ltd. ANO-T AK $1.75 $6.10 $4.30 146% ($1.80) (30%) SO SO Speculative
Andean Resources Ltd. AND-T AK $0.80 $2.40 $1.40 75% ($1.00) (42%) SO SO Speculative
Andina Minerals, Inc. ADM-V AK $1.33 $6.00 $3.00 126% ($3.00) (50%) SO SO Speculative
Aquiline Resources Inc. AQI-TY AK $4.01 $8.00 $6.30 57% ($1.70) (21%) SO SO Speculative
Australian Solomons Gold Ltd. SGA-T AK $0.22 $0.40 $0.25 14% ($0.15) (38%) SO SO Speculative
Axmin Inc. AXM-V AK $0.24 $0.90 $0.25 4% ($0.65) (72%) SO SO Speculative
Banro Corp. BAA-T AK $2.79 Under Review
Bear Creek Mining Corp. BCM-T AK $2.13 $7.00 $4.50 111% ($2.50) (36%) SO SO Speculative
CGA Mining Ltd. CGA-T AK $1.15 $2.95 $2.50 117% ($2.50) (36%) SO SO Speculative
Crystallex International Corp. KRY-T KS $0.85 $1.40 $1.40 65% $0.00 0% SO SO Speculative
Detour Gold Corporation DGC-T AK $11.42 $22.50 $17.50 53% ($5.00) (22%) SO SO Speculative
Genco Resources Ltd. GGC-T AK $1.12 $2.20 $2.20 96% $0.00 0% SO SO Speculative
Lake Shore Gold Corp. LSG-T AK $1.20 $2.30 $2.30 92% $0.00 0% SO SO Speculative
Linear Gold Corp. LRR-T KS $1.11 $3.50 $2.35 112% ($1.15) (33%) SO SO Speculative
Mag Silver Corp. MAG-T AK $5.95 Under Review
Moto Goldmines Ltd. MGL-T AK $2.01 $8.35 $5.80 189% (2.55) (31%) SO SO Speculative
*Prices as of September 29, 2008
Notes: Analysts: AK: Andrew Kaip, KS: Kerry Smith, Rating: SO: Sector Outperform, SP: Sector Perform, SU: Sector Underperform
It’s been a shock to many of the gold bugs to discover that in a time of crisis, gold is not what the world turns to in a time of insecurity. Instead, we rediscovered once again, it’s the good old American buck and American T-Bills in particular. It’s been impossible to escape the bad news in the markets over the last while and it’s just made a bad market even worse. You can’t turn on a TV without them talking about economic crisis, bear markets and the likes, which has scared so many people that redemptions of mutual funds and people just saying “sell everything” have hit the market in a big way.
Still, it is interesting to see the good work done by analysts Andrew Kaip and Kerry Smith at Haywood as they do a feature length article on the junior precious metal stocks and of most interest is their change on targets on some of their junior mining stock picks. Smith and Kaip write, “We have realigned valuations for junior precious metal companies within our coverage universe to focus on those companies that are well funded, with seasoned management teams, and attractive development stage projects that are sufficiently advanced to be in a first mover position when investor interest returns.”
They continue, “With valuations are compelling levels, the junior precious metal sector presents prime acquisition targets that we expect to materialize once a semblance of stability is restored within the broader markets.”
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