Thank God It's Freakin' Friday

Man, I'm so glad I recommended two energy stocks in Red Hot Resources yesterday. Zoom, zoom! Sure, RHR subs were stopped out of their bearish hedge, but the hedge was just insurance against a further slide in the market. With the White House throwing money at the credit markets, it will probably be a spell before we see a big slide again. It was also a good thing to exit the hedge positions in RGS and RGS this morning at the open. The Dow is up 180 points as I write this. Holy moly! The stocks in the RCS portfolio are rallying nicely, too. The Australian stocks in RGS rallied nicely overnight -- who knows what next week will bring?

Make no mistake, the White House isn't fixing the problem. The President's plan won't address the insolvency of marginal home buyers. The "system" is illiquid (and that "problem" was addressed by the central banks two weeks ago), but the "borrowers" are insolvent. That said, the market loves cash infusions. Whoo-hoo!

Speaking of money, I thought I'd point out a new book by two of the best currency traders I know, and I know a lot of them. I worked with Boris Schlossberg and Kathy Lien when I was the Sovereign Society. They have a new book coming out: "Millionaire Traders: The Book."

In the book, Kathy and Boris interview 12 people who started with as little as $1,000 and turned that into six- to seven-digit fortunes.

Boris tells me: "The official release is Sept 10th but its already Amazon top 50 in investing." You can find that link HERE.

Oh, and here is an interview with HoweStreet.com that I did yesterday: CLICK HERE.

Check out my new gold and energy blog at MoneyAndMarkets.com

A Market-Changing Event

OOPS! No sooner do I put hedge positions on in RHR and RGS earlier this week, to protect from a potential steeper market downturn, than President Bush decides to step in and bail out the subprime market.

Bush to Outline Aid to Mortgage Holders Offering federal help for strapped mortgage holders, President Bush is proposing to aid hundreds of thousands of borrowers hard hit by the housing slump.

Or as Bloomberg explains: Bush will let the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, guarantee loans for delinquent borrowers, allowing them to avoid foreclosure and refinance at more favorable rates.

This is a market changing event. We'll be stopped out of the hedge in RHR at the open, for sure. I'm tempted to take other hedges off today. On the one hand, Bush's fix won't solve the underlying problems that started this fiasco. On the other hand, the market probably won't care -- it's going up.

President Bush still opposes Sentator Dodd's plan to let Fannie Mae and Freddie Mac, the two largest U.S. mortgage finance companies, boost purchases of mortgages as a way to ease lending constraints. I guess he's against it because it's a Democratic plan. It's the one idea that made sense to me, but obviously, I'm not arguing with the guy who can make new laws as he sees fit.

Gold is up, too, because easy money is back. We'll see how uranium stocks do. It could be an interesting day.

Check out my new gold and energy blog at MoneyAndMarkets.com

Great Quote on The Credit Crisis

The following, which sums up the credit crisis rather succinctly, is a quote from James Petras:

Central Banks in the US, Japan and the European Union have poured (and keep pouring) over $250 billion to the private banks hoping to create liquidity but the banks won't lend — because, as one prominent banker in Palm Springs told me "Nobody knows who's got a turd (worthless investments) in his brief case."....

....So unless the fund directors come clean, empty their brief cases and open their balance sheets we won't know who are carrying the turds: The great unknowns include the unredeemable bonds, the worthless mortgages and the illiquid hedge funds. Without knowledge of the size and scope of the turds, the great uncertainty has frozen most investments and loans — it is paralyzing the financial system. Even Fannie Mae and Freddie Mac (the federally-funded mortgage companies) can't come in and buy up the 'turds' (otherwise known as 'bad debts'), no matter how many hundreds of billions of US taxpayers' money they are willing to spend.

Check out my new gold and energy blog at MoneyAndMarkets.com

Beware Wicked Wednesday

Yesterday's shellacking in the major indices didn't come in a vacuum. The Dow and S&P 500 hit those overhead resistance levels that I talked about in earlier posts, but there was a twist. I thought the overhead resistance of the S&P 500 would be the line in the sand. It turned out that the Dow hitting its downtrend was enough to send the market swooning lower ...

The futures are up this morning, but we're probably at the place where bounces should be shorted. I'm talking about the US market. Overseas, particularly in Asia, markets are much stronger. For example, Australia sold off hard today, then started its recovery at the end of the day (it still ended down for the day). Korea did even better, ending nearly flat.

In short, investors perceive that there is less risk in foreign markets. That is topsy-turvy of the way things used to be. The old saying went: "When the US catches cold, the rest of the world catches pneumonia." Maybe not so much anymore.

Here is some news of interest ...

China Sells $79 Billion of Bonds to Set Up State-Owned Investment Company China sold 600 billion yuan ($79 billion) of bonds, the most ever, to fund a company that will help invest the world's biggest foreign-exchange reserves.

Persian Gulf Oil-Tanker Rates May Extend Drop as Demand for Ships Stalls The cost of shipping Middle East crude oil to Asia, the biggest market for supertankers, may fall for a second consecutive day as demand stalls amid a glut of vessels.

Natural Gas Futures Jump 4% Natural-gas futures settled sharply higher on the emergence of another tropical weather disturbance in the Atlantic basin. Traders began bidding up prices after weather forecasters predicted that storms off the western coast of Africa might strengthen. Underlying these jitters is the potential for a strong storm or hurricane to enter the U.S. Gulf of Mexico, home to 13% of domestic natural-gas output, and damage energy equipment there. The U.S. is two weeks from the peak hurricane season, which starts around Sept. 10, according to the National Oceanic & Atmospheric Administration.
High sea-surface temperatures and low winds could cause the tropical disturbance to strengthen further.

COTs Like Silver A trading system based on the COTs data gives a renewed bullish signal for silver with last Friday’s report

Check out my new gold and energy blog at MoneyAndMarkets.com

My Latest Interview on Market Matters Radio

Tom Jeffries and I talk about the effect the credit crunch is having on small-cap mining and exploring stocks, a potential floor in the price of Yellowcake, and some much needed strength coming back into the sector.

Listen here: http://tinyurl.com/ytw7mj

Check out my new gold and energy blog at MoneyAndMarkets.com

News and Charts for Monday

Futures are pointing lower this morning, but they were pointing lower on Friday, too, and look what happened. Anyway, here are some charts ...The SPY tracks the S&P 500. You can see its V-shaped rebound is coming on falling volume. Some will argue that the low volume is due to summer and traders taking time off. Maybe so, but there was plenty of volume available the previous week when the market was sell-sell-sell!

In short, this is a classic set-up for a revisit of the lows or at least close to the lows. Does the market have anything going for it? Sure! On CNBC, they have one guest after another that is bearish, bearish, bearish. This bearish sentiment is actually a bullish indicator.

The upshot is we may see some churning without any real direction.

Now, let's look at the US dollar ... Man, that doesn't look good. How about Treasuries?

Again with the mixed signals! Really, the charts are a muddle. I'd look for more direction once the Existing home sales come out at 10 am today. On Tuesday, we see the consumer confidence numbers and the FOMC minutes. These could all drive the market.

Here is some news you might find useful today ...

Fed May Kill Rally in Long Bond as Focus on Inflation Fades in Debt Crisis The rally in 30-year Treasury bonds, the most profitable U.S. government securities the past 15 months, may become a casualty of the Federal Reserve's efforts to ease a widening credit crunch.

Insiders' Buying at Banks, Insurers Rises to 12-Year High as Shares Fall Not since 1995 have so many chief executive officers of so many financial firms and their insiders bought so many shares in their companies as in August, when the market swooned.

Kazakhstan Orders Eni to Halt Work on Oil Project, Seeks Greater Control Kazakhstan ordered Eni SpA to halt work at the world's biggest oil discovery in 30 years as the Central Asian country follows Russia's lead in seeking greater control over its natural resources. [XXKazakhstan is also a huge supplier of uranium -- keep your eye on this one]

Also, be sure to visit my friend Kevin Kerr's blog for updates and insights into the commodity markets. He has a story there (with an eye-popping photo) about the floods in farm country.

Check out my new gold and energy blog at MoneyAndMarkets.com

Sunday Morning Reading

Here are a couple pieces you might want to check out …

Story #1: THE HOUSING BUBBLE.

The New York Times reports that the median home price is going to fall this year for the first time since the end of World War II:

Economists say the decline, which could be foreshadowed in a widely followed government price index to be released this week, will probably be modest — from 1 percent to 2 percent — but could continue in 2008 and 2009.

....Unless the real estate downturn is much worse than economists are expecting, the declines will not come close to erasing the increases of the last decade.

Maybe it's living in South Florida (ground zero of the housing bubble) that makes me myopic, but I think the coming implosion is going to be worse than the New York Times believes. Still, a story worth reading.

Story #2: Biofuel boom in India

Jatropha Plant Gains Steam In Global Race for Biofuels

By some estimates, the per-barrel cost to produce biofuel using jatropha -- about $43 -- is about half that of corn and roughly one-third that of rapeseed, two other leading materials for alternative energy. At those prices, jatropha biodiesel would be competitive with fuel made from crude oil without significant government subsidies.

Again, I think this story is being too optimistic. The cost predictions may not hold up outside of the laboratory and the story flatly states:

But unlike other biodiesel crops, jatropha can be grown almost anywhere -- including deserts, trash dumps, and rock piles. It doesn't need much water or fertilizer, and it isn't edible. That means environmentalists and policy makers don't have to worry about whether jatropha diverts resources away from crops that could be used to feed people.

Sorry, but anytime you're "growing" your fuel, you make the choice between feeding your car or feeding people. Farmers who grow jatropha will be using land that could probably grow food. Still, it's an interesting plant. If the Energy Return on Energy Invested (EROEI) is actually as good or better than sugar cane, and you can grow it in all kinds of climates and environments, we could have a winner here.

Check out my new gold and energy blog at MoneyAndMarkets.com

Freaky Friday

Boy, did the markets stall badly yesterday. On Thursday, I showed two levels of overhead resistance on the Dow and the S&P 500. I expected them to push through one, but not the other. Turns out both stalled at the first resistance ...And now we've come to Friday, when traders are nervous about holding over the weekend. Now, to this simmering stew, let's add three pieces of economic data that come out today. All eyes are on durable goods orders (headline number predicted to be up 1.4%) and new home sales (good luck with that!). But I'd also keep an eye on Weekly Leading Economic Index, which comes out at 10:30. If that's bad, that indicates stormclouds of economic weakness. You'd think that would give the Fed more room to cut interest rates, and the market may interpret it that way. But the Fed shows no signs of cutting the benchmark interest rate.

On Wednesday, I said that some in the market were too optimistic about a Fed rate cut. The market acted as if a rate cut was already baked in. That's a recipe for disappointment. Still, in this volatile market, especially with economic news coming out, maybe we'll see a rally today. I'd be more comfortable putting on bearish hedges at the higher resistance levels on those charts. Then the market would be nice and over-extended, and a correction could go for quite a bit. This back-and-forth by dribs and drabs won't help bulls or bears.

And now's where I tell you that I'm still bullish on commodities longer-term, for all the reasons I've been saying all week. While oil is weak in the short term, grains are hotter than hades and metals are in rally mode, too. Look at the CCI, which we've been watching all week ...Interestingly, the stocks that make their money from grains have been sold off along with the rest of the market. Is that setting up an opportunity? I think so.

Check out my new gold and energy blog at MoneyAndMarkets.com

Charts and more for Thursday

Thursday is set up for some bullish action. In recent issues, I've said that I expect this rally to peter out and another leg down. I could be wrong, but I thought I'd share some of my thinking.

First, after such a steep correction, it's rare to get a "V-shaped" recovery. More likely we'll see a "W-shaped recovery," where there is a test of the lows or at least a pullback.

Second, as I told my Red-Hot Global Small-Caps subscribers yesterday, I find the fundamentals for commodities more bullish all the time. I expect many commodity stocks to rally and rally hard -- I just think we'll see a better buying opportunity before that happens.

Here are some charts that shape my thinking ...

First, everybody watches the Dow. I think Wall Street focuses on the Dow too much, but here you go ...
If the Dow was the real benchmark of the market, I'd be watching 13400 like a hawk. But I think the S&P 500 is more important ...
It would not be surprising to see the S&P 500 push higher through its recent downtrend today, and that should rev up the bulls. But real overhead resistance is right above the 1490 area. I expect profit-taking to come there. That profit taking, if it comes, could signal the start of the next leg down. Oil is the weakest of the commodities right now. Despite the fact that it's up 50 cents per barrel this morning, I expect further weakness. Longer-term, however, I'm extremely bullish on oil. I just think we have better buying opportunities coming.

How about Canada? Let's look at the broad measure of Canadian stocks, the S&P/TSX Composite ...
There is more room for the TSX to run, but then it should run into -- you guessed it -- profit taking.

So how about uranium stocks? Here is one my subscribers should be familiar with ...

Paladin looks like a low-risk entry now. Just be aware that if we see another leg down, as I'm expecting, it could head lower again, because a sinking tide drags down all boats.

Now for some news you can use ...

This is either a very good idea, or a very bad one ...
Bank of America Buys $2 Billion Stake in Countrywide, Boosting Bank Shares Bank of America Corp. bought $2 billion of preferred stock from Countrywide Financial Corp., erasing concern the nation's largest mortgage lender will go bankrupt and boosting investor confidence in stocks worldwide.

Speaking of shoes still to drop ...
Coventree Failed to Sell Any of Its $399 Million Notes Matured Yesterday Coventree Inc., Canada's biggest non-bank issuer of asset-backed commercial paper, said it couldn't sell any of the $399 million in debt that matured yesterday.

But metals are bullish ...
Lead Rises in London on Speculation Demand Won't Slow; Copper, Zinc Gain Lead had its biggest gain in three weeks in London as stockpiles fell and investors judged a global credit squeeze won't hurt demand for commodities. Nickel, copper, aluminum and zinc also increased.

... Really, really bullish ...
Chalco Says China May Become Net Aluminum Importer as Metal Demand Surges China, the world's largest producer of aluminum, is on course to become a net importer of the metal for the first time since 2001 because of surging demand from automakers and packaging producers.

Have a good Thursday

Check out my new gold and energy blog at MoneyAndMarkets.com

True Tales of Arctic Adventure

Here's my latest Money and Markets post, in which I reveal I was not eaten by a grizzly bear. I did eat whale blubber, though.

Diamonds are Forever (by Sean Brodrick) Sean Brodrick is back from the Arctic diamond mine. He tells you what he learned on the trip. To read it, CLICK HERE.

P.S. It's not a "mine," it's a "resource," but you win some, you lose some with editors, eh?

P.P.S. My lost luggage from my Arctic adventure finally turned up. Hooray!

Check out my new gold and energy blog at MoneyAndMarkets.com

Wednesday Roundup

Here is some news of interest and charts for Wednesday

BHP Says Credit Crunch Won't Have `Material Impact' on Commodity Demand BHP Billiton Ltd., the world's biggest mining company, said its customers don't expect a global credit crunch to have a ``material impact'' on demand for raw materials.


Eight-week low for crude oil prices Crude oil prices dropped below $70 a barrel to an eight-week low Tuesday. Hurricane Dean weakened, and it appeared the storm would have no lasting effect on Mexican oil production. Gasoline and natural gas prices also extended their sharp losses, with traders betting demand is falling and supplies are safe. Light, sweet crude for September delivery lost $1.65.

Takeover Talk Sends Futures Higher Stock futures bounded higher Wednesday on continued speculation that the Federal Reserve will move to mitigate a growing credit crunch by cutting interest rates.

U.S. Notes Slide as Fed's Lacker Dims Expectations for Emergency Rate Cut U.S. 10-year notes declined for the first day in five as global stocks gained and Federal Reserve policy maker Jeffrey Lacker suggested the central bank is seeking to avoid an emergency cut in interest rates.

[XX Obviously, someone is wrong on the outlook for the emergency rate cut. If some have priced it in, this sets the market up for disappointment no matter what happens. A rate cut right now would kneecap an already weak dollar, which is why the Fed is avoiding it] China Says Imported U.S. Soybeans Have `Substantial' Quality Problems China, the world's biggest buyer of soybeans, said it found ``substantial'' quality-related problems with imports of the U.S. oilseed and urged the U.S. to investigate and improve its export procedures.

[XX what a load of crap. The Chinese need to find something to complain about after we wise up to the fact that they’ve been poisoning us for years. Do they think they’re fooling anyone?]

Gold Falls in Asia as Oil Decline Reduces Investment Demand; Silver Drops Gold prices declined in Asia as a drop in oil prices reduced the appeal of the precious metal as a hedge against inflation. Silver also fell.

China Copper Imports More Than Double in Seven Months on Increasing Demand China's refined copper imports, the biggest in the world, more than doubled in the first seven months of this year and stayed high in July, a traditionally low demand period.

[XX That doesn't sound like a global slowdown to me]

Check out my new gold and energy blog at MoneyAndMarkets.com

Charts and News for Monday

Global Stocks Climb; UBS, BHP Billiton, Prudential, Macquarie Pace Advance European and Asian stocks rose, and U.S. stock-index futures gained, after analysts recommended buying shares of financial companies and investors speculated the worst may be over in a rout of global equity markets.

Bernanke's `Rookie Mistake' Forces Fed to Shift Focus to Market Stability Federal Reserve policy makers, who declared that inflation was their paramount challenge just two weeks ago, have been forced to make financial-market stability the trigger for changes in interest rates.

China's Key Stock Index Soars by Most in Two Years; Industrial Bank Leads China's key stock index jumped the most in more than two years. Industrial Bank Co. led gains among lenders after reporting profit doubled and disclosing plans to raise 50 billion yuan ($6.6 billion) in the nation's biggest bond sale to expand.

Australian Stocks Jump Most in a Decade After Surprise U.S. Rate Cut; BHP, Banks Gain Australia's S&P/ASX 200 Index jumped the most in almost a decade, led by banks after the U.S. Federal Reserve unexpectedly cut the rate it charges banks for loans.

Uranium Futures May Fall for Sixth Week on Declining Commodities Demand Uranium futures may fall for a sixth consecutive week after a credit crunch led to a rout in global stock markets and deterred commodity investors.

Subprime Infects $300 Billion of Money Market Funds, Raising Payment Risk Money market funds were invented 37 years ago to offer investors better returns than bank savings accounts while providing a high degree of safety. Most of the $2.5 trillion sitting in these funds is invested in such assets as U.S. Treasury bills, certificates of deposit and short-term commercial debt.

Crude Oil Falls as Hurricane Dean Is Forecast to Miss Most Gulf Platforms Crude oil fell after forecasters said Hurricane Dean would probably miss the largest oil-production regions on the U.S. coast of the Gulf of Mexico.

And with that, let's look at oil ...

Now, let’s look at the CCI, the broad commodities index. This is different from the Reuters-Jeffries CRB Index in that the CRB is heavily weighted toward oil, whereas the CCI weights commodities equally.

Check out my new gold and energy blog at MoneyAndMarkets.com

Wild Friday Chart Action

I think this is the most important chart you can take away from today's wild action, after the Fed cut its discount rate by 50 basis points ...Other charts are a mish-mash. The Dow and Nasdaq-100 both bounced higher off their 200-day moving averages this week, but they also recently broke down from head-and-shoulder patterns.Gold and silver seem to be recovering, but today's action was contained inside yesterday's action, forming a bearish harami.Still, that's not a nail in the coffin of gold by a long shot -- not with the chart of the US dollar looking this bad.

The trend is your friend until it ends. The downtrend in the US dollar was just tested and it held. The only bets I'd look to put on right now would be bearish US dollar bets.

Why did the US dollar slam its head on a downtrend? Well, traders probably figure that the Fed isn't through cutting rates, and the Fed Funds rate could be next. As I've said before, about the only thing holding up the US dollar now is the fact that we pay higher interest rates than investors can get in Japan. If you start chipping away at that, the dollar could be in for a serious tumble.

In any case, the way is now open for the US dollar Index to go revisit its lows around 80.

Check out my new gold and energy blog at MoneyAndMarkets.com

Distress, Doom, and the Discount Window

I spent 15 hours in planes yesterday, and arrived in Ft. Lauderdale late last night to find that United had sent my luggage to Denver. Maybe I’ll get it back, maybe I won’t. Anyway, here’s what the market has for us this morning.

The Federal Reserve lowered its discount rate. You can read about their reasoning here: http://tinyurl.com/34wd7r

This sent the markets on a tear. I recommended that subscribers to Red-Hot Resources close out our market hedge (QID) but I didn’t make the same recommendation to Red-Hot Canadian Small-Caps, which is in the Ultrashort Russell 2000 ProShares fund (TWM). Why one and not the other?

Simply, RHR has a shorter-term outlook than RCS. The market was oversold anyway, so I wouldn’t be surprised to see a pretty good rally (though as I write this, the market is off its highs). But we could see more trouble next week. A 50-basis point cut at the discount window probably isn’t going to solve the problems of the credit brain-freeze that is afflicting our global economic system.

That said, we can hope for the best. Watch how the market closes today – that could be very important.

I’m disappointed by how precious metals got creamed yesterday, and gold and silver mining stocks got slaughtered. As an old trader used to tell me: “When the paddy wagon comes along, the good girls get taken downtown along with the bad.”

The more important thing is what rebounds, and what rebounds hard. I think gold and silver should do very well, especially if the Fed is pumping liquidity into the system. That’s inflationary action, and gold and silver are natural hedges against inflation.

Meanwhile, oil is getting a boost as Hurricane Dean sets its eyes on Energy Ally in the Gulf of Mexico. The map I have linked below shows the official, current NHC path (the thick red line) and a few other models. The dark blue line with the squares is the U.K.’s leading model and the pinkish line with triangles is the GFDL, one of our leading U.S. models:

http://www.sfwmd.gov/org/omd/ops/weather/plots/storm_04.gif

Also, Bonddad looks at the markets. His opinion: “This is not financial Armageddon.” He’s not exactly handing out roses, though.

The World Clock that my friend Kevin sent me is very cool:

http://www.poodwaddle.com/worldclock.swf

And Jim Jubak has a good story on uranium: http://tinyurl.com/35823y

I’ll start posting some interesting photos from my trip soon.

Check out my new gold and energy blog at MoneyAndMarkets.com

Boy, the markets look ugly this morning. That is dampening my mood -- I see natural resource opportunities all around me, but they have to be taken in the context of a market correction that could continue for some time.

I have to go catch a plane. I leave Yellow Kery nife early this morning, and after a series of plane changes land in Ft. Lauderdale late tonight. I'll have a lot to think about on the plane, and I'll try to have some insight for my subscribers early next week.

Stay cool and keep your powder dry.

Check out my new gold and energy blog at MoneyAndMarkets.com

Starting Home

Today we went to see more kimberlite. We went back to the Kimberlite Cliffs, which is more extensive than I thought yesterday and maybe more than the diamond hunters thought, too. We went to check out a magnetic anomoly that did not have any visible kimberlite float that we could find. The area was over-run with lemmings, and huge piles of marine clay were carved by wind and weather into weird shapes. Then we went to a kimberlite eruption where the garnets were clustered thick on pieces of mantle that jutted up from the earth. Very interesting stuff.

Lunch was excellent, and included the whale blubber I talked about in an earlier post. The blubber comes from narwhales (odd-looking beasties that have a tooth that grows into a unicorn-like horn), and was pleasant enough when dipped in soy sauce. It's safe to say I got my fat content for the week.

Finally, we bid goodbye, and it was time to wing it back to Yellow Knife. The sunset just as we landed at 10 pm was beautiful ...

Check out my new gold and energy blog at MoneyAndMarkets.com

New Money and Markets column is up

You've probably read most of it on this blog, but here is my new MoneyandMarkets column ...

http://moneyandmarkets.com/press.asp?rls_id=894&cat_id=6&

Check out my new gold and energy blog at MoneyAndMarkets.com

Kimberlite Cliff

We spent the first part of yesterday looking at core samples – lots and lots of core samples. I’ll upload some photos as soon as I get back to civilization. The drillers circled garnets and other indicator minerals on the surface of the cores. These cores will be crushed and used in a “mini-bulk” sample, which will be tested for microdiamond content (after all that crushing, the only diamonds you’re likely to find are “micro.”

In the afternoon, we waited for a break in the rainy and foggy weather. Then it was back in the helicopters (cue the Ride of the Valkeries) for a ride out to an active drill rig. After that, we flew off for a longer flight, over a weird lunar landscape composed of clay deposits left by old rivers that I told you about yesterday, to finally land on a rocky cliff or bluff. The geologist led me down the adjoining slope to get a better look at the bluff.

“I wanted to show this to you,” he said. “It’s something special.”

The face of the bluff is all kimberlite. Now, it may or may not be diamondiferous – we don’t know that yet, and even if it is diamondiferous, we don’t know if it’s economically viable. But the geologist explained this is probably the only place in North America – and maybe South America as well – where you can see a cliff face like this.

Remember, diamonds are formed deep under the earth’s surface, in the mantle, about 90 miles or so down. There, they lie in wait for a volcanic eruption to bring them to the surface. Problem is, most volcanoes don’t form that deep. Hence, we have the first factor in what makes diamonds so rare.

When a volcano does form that deep under that kind of pressure, it’s usually pissed off enough to spike higher in a cone or “volcanic pipe”. A second factor making diamonds so rare is that diamond-bearing volcanic pipes are closely related to the oldest, coolest regions of continental crust (cratons). This is because cratons are very thick, and their mantle extends to great enough depth that you have stable conditions for diamond formation.

And here I can make another point – not all volcanic rocks contain a lot of diamonds, or are diamondiferous, in rock hound lingo.

So anyway, the magma carries this old rock upward. The kind of old rock we’re interested in is kimberlite, specifically kimberlite that is saturated with “indicator minerals” -- magnesium-bearing olivine, pyroxene, magnetite, garnet and others.

It’s important to know that indicator minerals form at the same depth as diamonds, so they indicate that the kimberlite MAY contain diamonds. But finding garnets does NOT necessarily mean you’ll find diamonds. Still, indicator minerals get geologists excited, because they’re figuring “where there’s smoke, there’s fire.”

So, there is this big ol’ bluff of kimberlite, a rare find in a weird landscape. Maybe it has diamonds, maybe it doesn’t. Maybe mining those diamonds would be economically viable, maybe not. There are a lot of unanswered questions out here in the Arctic. But it’s certainly interesting enough to be worth a second look.

While I was stumbling over the kimberlite, I found a baby caribou skull. The day before that, I found a caribou antler. I wonder what part of the beast I’m going to find today, eh?

We did see live caribou on our way back. We came back to a feast put on by the camp’s chef. Mining camps have the best food in the world, and our chef, Dominic, wasn’t going to be outdone. I ate a huge dinner of roast caribou with gravy, caribou stew, baked char (an Arctic fish), Greek salad, vegetables and a huge slice of strawberry shortcake AND two slices of bread. I ate the second slice of bread because I had a small fish bone lodged in my throat (ack). I need to get out of this camp for my waistline’s sake, lol.

The caribou stew was the absolute best. I’d ask for the recipe, but where am I going to find caribou again? It’s not like they carry it at the local supermarket.

For lunch today, we’re supposed to get a local delicacy, whale blubber, which I’m spelling phonetically as “Maktaa.” Mmm-mm good!

Then last night, as the rain drummed on the roof of the Weatherhaven, I watched “The Big Lebowski” on a notebook computer with a couple of friends. The movie was great. John Goodman chews up the scenery, Jeff Bridges* is marvelously mellow as the film’s star, the supporting cast is top-notch and the script takes more twists and turns than a Chinese puzzle box.

I don’t know what the schedule is today. Tonight we fly back to Yellowknife. Stay tuned.

* Hat-tip to reader Mike Chase for correcting me on which Jeff is in this movie.

Check out my new gold and energy blog at MoneyAndMarkets.com

Threading a Needle in a Haystack

I tried posting photos last night and I "broke the bandwidth" here at the mining camp. While they have internet access, it's not good enough for photos.

Last night, it rained like like Noah was building an ark, but our Weatherhaven hut kept us nice and dry, and the diesel heater was so hot I didn't even need to zip up my LL Bean sleeping bag. This morning, it's clearing and chilly. Lovely weather for what we're doing, flying around in a helicopter and looking at rocks.

I spent a lot of time flying around in a helicopter and looking at rocks yesterday. Mark, who is the head geologist and co-founder of the company (and a very nice guy), is taking us to things he thinks are interesting.

We're looking at diamondiferous kimberlite, i.e., the kind of rock you find diamonds in. The base rock surrounding it (and making up this corner of Canada) is some of the oldest rock in the world – three billion years old. The kimberlite is much younger – 500 million years old or so. The kimberlite formed much deeper in the Earth and erupted in carrot-shaped cones through the surrounding base rock.

So the team here is looking for a very small amount of rock in a much bigger area to start with. But we also have to take into account the glaciers. A little over 10,000 years ago, this part of Canada was covered in a kilometer-thick sheet of ice. It scraped off the top of the kimberlite eruptions and dragged the rock along, dumping it here and there as the ice retreated.

This scattered kimberlite is called “float” and this is the first stuff that the diamond hunters find. They then do surveys with magnetics and till (soil) samples to hunt down the main areas of interest, and then they drill to find out if they’re in the right spot.

As the glaciers melted, huge rivers formed. I told you in an earlier post how the Hay and Slave rivers formed and filled the glacier-carved basin we now call Great Slave Lake. Well, the same action was going on around here. Yesterday I stood on a bluff overlooking an old riverbed that would have rivaled the mouth of the mighty Mississippi in its day. 10,000 years ago, huge rivers merged and thrashed around, dropping huge amounts of clay silt that now lay in giant forms across the landscape. This clay obscures the results of the airborne surveys that the companies do in this area, hiding kimberlite that might be underneath.

Other kimberlite is probably hidden under lakes that have formed in the last 10,000 years. You can drill-sample it in the winter by parking a drill rig right on the ice and drilling down. But no way in heck are you going to drain a lake on a hunch.

As one geologist explained to me last night, it’s not like they’re just looking for a needle in a haystack. They’re trying to thread that needle in the haystack.

Time to get cracking. I'll write more later.

Check out my new gold and energy blog at MoneyAndMarkets.com

I've Arrived in Camp

We’ve arrived in camp. I’m bunking in a Weatherhaven hut (aka “Arctic palace”, lol) and getting ready for the next outing. On the way to the camp, we flew over tundra split by meandering streams and dotted with ice-cold lakes. Most of the caribou have moved on for the season. There are a few Canadian geese hanging around by the camp; apparently they can no longer fly. I would worry about them surviving the winter, but the wolves will likely get them first.

The company I’m visiting has plenty of local workers. One of them, “Cowboy,” showed me around. It’s a small but busy camp, and we’re about to go check out one of the three drills they have busy drilling for kimberlite samples. Kimberlite is the source rock you find diamonds in. If not a drill, we'll look at "float" -- Kimberlite on the surface for which the source rock has not been determined yet.

No photos because I can't upload them on this internet connection

Before I left, I recorded an interview for Market Matters radio. You can listen to that here:

http://tinyurl.com/2foroa

Check out my new gold and energy blog at MoneyAndMarkets.com

Charts and News for Monday

Here is some news I’m watching this morning …

European Central Bank Lends $65 Billion, Says Markets Returning to Normal The European Central Bank lent emergency money to banks for a third day, paring the amount and declaring that markets are returning to normal.

Asian Stocks Advance After Central Banks Pledge Cash; Kookmin, BHP Climb Asian stocks rose, following their biggest drop in five months, as the region's central banks moved to ease a credit crunch sparked by losses on higher risk mortgages.

China's July Inflation Jumps to 10-Year High, Adding Force to Raise Rates Inflation in China, the world's fastest-growing major economy, accelerated to the highest rate in more than 10 years, fueling speculation that the government may raise borrowing costs for a fourth time in 2007.

Toshiba, Seeking Uranium, Sells 10 Percent of Westinghouse to Kazakhstan Toshiba Corp., Japan's biggest maker of nuclear reactors, sold a 10 percent stake in its Westinghouse Electric Co. unit to Kazakhstan's state uranium-mining company, gaining access to the world's second-largest uranium reserves.

Uranium Price Falls to Lowest Since March on Oversupply, TradeTech Reports Uranium dropped to the lowest since March because of an oversupply of the metal used to make fuel for nuclear reactors, according to TradeTech LLC, an industry consulting company.

Check out my new gold and energy blog at MoneyAndMarkets.com

Flying Into Silence

On the shuttle from the airport in Edmonton, I met an lady who was a stewardess for MacKenzie Airlines, a long-defunct and nearly forgotten airline that served the northern oil fields. As part of that, she was once stewardess on a trip to the North Pole! The plane landed on skis, of course.

She told me the thing that really struck her about traveling to remote areas up north was the silence – a kind of silence you never find in our busy modern world. She said she hopes I get to experience it. I hope I do, too. This morning, I leave on a 3 hour, 40 minute flight north. It’s the farthest north I’ve ever gone.

Mind you, Yellowknife is already pretty far north by my reckoning. The sun was shining when I closed my window shades at 11:00 last night. The sun was shining when I opened my window shades at 5:30 am.

By the way, I highly recommend the Explorer Hotel in Yellowknife to anybody. It’s a great hotel, helpful staff, good internet access, excellent food, and very comfy beds.

And if you’re flying around Canada, First Air gets my vote for best airline food and friendliest staff. The breakfast they served yesterday was great. And the woman sitting behind me asked if she could move to the back seat because she had to feed her daughter through a tube. The stewardess said no, move to the front and I’ll help you. Now THAT’s service. Kudos to First Air.

Check out my new gold and energy blog at MoneyAndMarkets.com

Gold Rush in Yellowknife

I have arrived in Yellowknife – a town steeped in rich gold mining history. I had a lot of time to reflect on that history as I walked through town today.

I went for a long walk in Yellowknife’s brisk, sub-arctic August summer because my cab driver brought me to the wrong hotel from the airport. I did not discover this until after I had walked in to the hotel and he drove off.

I tipped him well, too. I hope he uses it to buy a sandwich, and chokes on the sandwich.

The good news is that Yellowknife is small enough that I could walk across town to the correct hotel. And after indulging in a brief revenge fantasy wherein I dumped the cabbie in the middle of Labrador with nothing but his bathrobe and a map (of Guam), I reflected on Yellowknife’s history.

The history of Yellowknife starts before man walked this forest primeval, in the time of the glaciers. The glaciers gouged an irregularly-shaped,11,000 square mile depression in the earth's surface. As the glaciers receded, the Hay River and the Slave River were formed. The Hay rises on the eastern slope of British Columbia's Rocky Mountains and flows generally north-northeast. The Slave River pours out of Alberta and Saskatchewan's Athabasca Lake, flowing north-northwest. These two rivers meet at that glacier-gouged depression, and their waters created the eleventh largest lake in the world, Great Slave Lake.

The lake was named by the Cree and Chipewyan tribes, who made prisoners of the locals so often they called them the “Slavey” band of Indians.

The white man’s history begins when Samuel Hearne , an explorer for the Hudson's Bay Company, reached the shores of Great Slave Lake in 1771. Accompanying Hearne on his travels were members of the Tatsanottine, a small Athabaskan-speaking North American Indian tribe. Hearne called them the “Copper Indians,” but everyone else called them the Yellowknife Indians because the tribe made knives and other tools from yellow copper. The town of Yellowknife was named after these intrepid native explorers.

In 1896, a prospector named E.A. Blakeney passing through Yellowknife Bay found some gold samples, but quickly moved on, because he was on his way to a much bigger gold rush – the Klondike.

For a long time, the real treasure for white men in this neck of the woods was the fur pelts they took from animals who sometimes clustered so thick it was like setting traps at a petting zoo.

So gold was forgotten at Yellowknife until prospectors Johnny Baker and Herb Dixon paddled down the Yellowknife River and made a gold discovery in 1933. This date is generally viewed as the birth of the gold camp.

But the boom didn’t arrive until government geologists discovered gold on the east side of Yellowknife Bay in 1934.

In 1935, the staking rush was on. This led to development of the Con Mine, which entered production in 1938 and produced over 5 million ounces of gold.

But even before the mine delivered its first ounce of gold, the boom town of Yellowknife sprung into being overnight. Its population swelled to 1,000 by 1940 and by 1942 five separate gold mines were frantic beehives of activity.

And in 1944, new exploration at the Giant Mine on the north side of town showed that there was a lot more gold in Yellowknife than anybody had imagined. The boom was ready to kick into higher gear.

But in 1945, gold mining slowed drastically as all the gold miners left for a bigger cause – World War II! Operating costs skyrocketed.

The miners came back in 1946, and the boom picked right up where it left off. The Con Mine expanded and new mines started up.

Yellowknife’s boom years went through 1952, when the Negus Mine closed. Most other mines closed in the 1970s as gold prices went into a depression.

But many other operations kept on until very recently. The Con Mine, after 65 years in operation, closed in November, 2003. The Giant Mine, a producer since 1948, was the last to go when it closed in 2005.

For most of this time, Yellowknife didn’t even have its own government. It finally got one in 1953. Then in 1967, it became the capital of the Northwest Territories. The inflow of government workers proved to be as big a boom as gold ever was.

Yellowknife is considered to be one of the best places in the world from which to view the Northern Lights. But the place where I’m going from here should be even better. Stay tuned! Right now, I’ve got to go buy a hat, scarf and some other supplies. It’s gettin’ darned cold!

Check out my new gold and energy blog at MoneyAndMarkets.com

Sunday in Edmonton

I can't recommend the Coast Terrace Inn in Edmonton. It does have good points: A nice, comfortable bed, a hot shower and they had a coffee maker in the room, the only three things that matter. Oh, and Internet access. So it ain't that bad. On the downside, it's in the middle of nowhere, it's a bit shabby, and the lady working at the front desk yesterday evening was a few sandwiches short of a picnic basket. She spent 15 minutes trying to check me in and then realized she was looking under the wrong name. She was no help in finding a place to buy a hat or gloves. The only mall she could recommend would close 15 minutes after I got there.

So, I went for a long, long walk. I tried one Wal-Mart type place with no success, then found a surplus store 10 minutes before it closed -- and found gloves for $3! Hooray! No hat, but gloves are what I really needed.

Bottom line: I could get a good bed, a hot shower, free coffee and internet access for much cheaper at the Travel Lodge next door.

On the upside, the air is crisp and clear this morning. I'll try to get an earlier flight to Yellowknife. Northward, ho!

P.S. I just got the earlier flight, but I have to hustle! It's always hurry up or wait, isn't it?

PPS Success! Waiting for the plane to board now.

Check out my new gold and energy blog at MoneyAndMarkets.com

Goin' North!

I started this morning in West Palm Beach, Florida, I'm now in Utah; still not even halfway to my final destination in the Arctic.

We flew in over the Rockies (breathtakingly beautiful) and then the Great Salt Lake, which has split into two lakes (or one lake and a pond) due to falling water levels. There is a gorgeous spike-like tower structure on the shores of the lake; I have to confess I'm ignorant as to what that is.

Here are some of the stories I've been reading while waiting for my connection in Salt Lake City ...

Get ready for food-price spike Dean Foods Co., the largest milk processor in the United States, says it is "being challenged by the most stubbornly inflationary dairy markets in history," a global phenomenon that "feels like a perfect storm, and it isn't over."


Banks Add More Funds To Stabilize MarketsBubble and Bust Tulips, anyone?

Goldman's Global Alpha Hedge Fund Declines 26 Percent in 2007, People Say (that's Goldman's largest hedge fund, by the way)

Crude Oil Falls to Near Five-Week Low on Indications U.S. Demand May Slow Crude oil fell to a five-week low in New York on concern demand may decline if the global economy slows.

Gold, Silver Gain as Investors Seek Haven From Subprime Mortgage Losses Gold and silver rose in New York as investors sought a haven from potential losses tied to the U.S. subprime-mortgage collapse.

And here's a profile in shame. It's like two shovelers at the fertilizer factory arguing over who did the best job of disguising manure as marmalade.

Finally, Arctic sea ice 'lowest in recorded history': scientist. I guess they heard the Florida boy was coming and decided to take it easy on me.

I'll write more when I get to Edmonton

Check out my new gold and energy blog at MoneyAndMarkets.com

Friday News Roundup

Here is a roundup of stories you might want to read this Friday …

US MORTGAGE MARKET

Here's a New York Times editorial with some pretty good ideas on what we should do to help the 1.7 million people facing foreclosure.

Ouch! Bob Ivry of Bloomberg takes the Fed to the Woodshed in: Bernanke, Paulson Were Wrong: Subprime Bust Is Contagious, Not `Contained' . Undeterred, Bernanke isn't blinking.

Speaking of the ongoing trainwreck in the mortgage market, Countrywide Says `Unprecedented' Disruptions May Hurt Profit; Stock Falls Countrywide Financial Corp., the biggest U.S. mortgage lender, said it faces ``unprecedented disruptions'' that may crimp profit, suggesting a credit crunch that started with the U.S. subprime market will spread. The shares fell in Europe.

Meanwhile, if you think banking stocks are cheap now, just wait, they're probably going to get a lot cheaper. But that's not stopping some early investors: Banking Stocks, Cheapest for Decade, Attract Investors Matrix, New Star

US MARKETS

When genius fails: Market Turmoil Is `Perfect Storm' for Quants, Citigroup Strategist Says The turmoil in the equity and credit markets has created a ``perfect storm'' that led to losses for hedge funds employing mathematical strategies, according to a Citigroup Inc. strategist.

Everybody loves cash!

AUSTRALIA

In Australia, Stocks Plunge Most Since September 2001 on Renewed U.S. Mortgage Concerns. And the Australian and New Zealand dollars fell off a cliff. Why is that happening? It's the unwinding of the Japanese carry trade -- credit market losses are forcing investors to sell high-yielding assets (like the Aussie and Kiwi dollars) bought with funds borrowed in Japan

I love this quote, in a rubbernecking at a car-wreck sort of way: "Subprime is a car that is out of control, it is only a matter of time before it crashes,'' said Alex Sinton, senior currency dealer at ANZ National Bank Ltd. in Auckland. "The New Zealand and Australian dollars are the possums in the headlights."

JAPAN

The carry trade is unwinding fast: Yen Climbs Against Euro, Korean Won, Australian Dollar on Credit Losses The yen climbed against the world's 16 most-active currencies as widening credit market losses prompted investors to cut holdings of higher-yielding assets funded by loans in Japan.

CHINA

China Trade Surplus Surges 67 Percent to $24.4 Billion, More Than Expected China's trade surplus surged 67 percent in July to the second-highest on record, bolstering U.S. Treasury Secretary Henry Paulson's case for a faster appreciation of the yuan.

Hong Kong not only had a bad Friday, it's setting up for a bad Monday, as it shut early to brace for a typhoon: Hong Kong Stocks Slide, Worst Week in Five Months, Exchange Shuts Early

CANADA

Canada is seeing its dollar decline as the carry trade unwinds. Meanwhile the Bank of Canada is the latest to say It Will `Provide Liquidity' to Aid Financial Markets

COMMODITIES

Gold Rises in Asian Trading Amid Demand From Jewelers; Silver Increases Gold rose in Asia underpinned by demand from jewelers after the precious metal tumbled the most in three months yesterday. Silver also gained.

Crude Oil Falls to Near Five-Week Low on Indications U.S. Demand May Slow Crude oil fell to near a five-week low in New York on signs U.S. demand has peaked and subprime loan defaults may weigh on the global economy.

IEA Trims Fourth-Quarter Demand Forecast on Signs U.S. Economy May Slow The International Energy Agency, an adviser to 26 nations, cut its forecast for fourth-quarter oil demand amid signs that the U.S. housing slump and crisis in debt markets may slow economic growth.

Check out my new gold and energy blog at MoneyAndMarkets.com

Who’s Your Favorite Candidate?

Follow this link and you'll be able to fill out a questionnaire to see which presidential candidate most closely matches your views: http://www.dehp.net/candidate/

I notice a dearth of questions about the economy, but the same goes for the debates. I'd ask the candidates:

Would you favor a subprime bailout?

Do you favor current bankruptcy rules, and if you would change the bankruptcy law, how would you change it?

Would you propose changes to the NAFTA/WTO treaties, and if so, what?

How would you tackle America's spiraling national debt?

If you're in favor of national health insurance, how would you pay for it?

Do you think America is too dependent on foreign oil? If so, list the top five things you would do to make America more energy independent

I haven't seen these questions asked at any of the debates, and I watch most of them, Democrat and Republican.

Check out my new gold and energy blog at MoneyAndMarkets.com

Cramer Explains Himself

The devastatingly funny Stephen Colbert gives Jim Cramer a chance to explain himself. Jim sounds calm and cool while still intense -- good for him. If I'd had that kind of meltdown on TV, I don't know if I could go back and face the public.



And it's funny, too.

Check out my new gold and energy blog at MoneyAndMarkets.com

America's Mortgage Meltdown Causes Shockwaves in Europe

Mike has the latest on how credit crisis is causing a crisis in European asset-backed securities funds. This is why US futures are swooning this morning. It should be a red-ink day, but who knows how the day will end.

Let me add my own view to Mike's take:

The skinny is that BNP Paribas announced that it is freezing redemptions in three asset backed securities funds due to inability to fairly value their holdings.

The ECB is so concerned it flooded the euro credit market with $130 billion in liquidity. Monetary authorities are clearly concerned that the recent practice by asset backed hedge funds of arbitrarily suspending all redemptions may cause a crisis of confidence in all capital markets as investors decide to seek liquidity first and ask questions later.

We keep hearing that the damage is "contained," only to hear of a new infection a few days later. The true danger to the markets comes if the losses in sub-prime assets cause serious price volatility in other less risky fixed income assets potentially creating staggering losses in mega-banks and broker dealers. This would be like a “seizure” in the financial markets. Andd that would probably be bad news for all asset classes.

Gold has not been bid up on this news -- in fact, it's down. This is probably the giant sucking sound of Japanese funds being sucked back to Tokyo, and US speculators liquidating their solid investments (gold) to cover bad investments (in the credit markets).

The yen, the Swiss franc, and the US dollar could all rise in the short term, as panicked investors liquidate investments and stuff it in cash.

Check out my new gold and energy blog at MoneyAndMarkets.com

Uranium Prices Move Lower

Depending on who you listen to, the spot price of uranium is now either $110 or $120 per pound.

Ux Consulting Co. has cut the spot price by $10 (U.S.) a pound to $110, while the spot price at the other industry bible, TradeTech, fell $3 to $120.

Perversely, most uranium stocks are up sharply today, some by quite a bit. This just goes to show that the market has detatched from fundamentals for the time being.

And remember, the spot price is not the long-term contract price -- the price at which utilities buy uranium from producers. That remains stubbornly at $95 per pound.

Check out my new gold and energy blog at MoneyAndMarkets.com

Pressure Should Mount on the US Dollar

In the US, the big discussion is will the Fed cut rates. Overseas, investors know what their central banks are doing. Raising rates. Australia's central bank raised its benchmark interest rate a quarter point to the highest in almost 11 years. Britain’s Central Bank raised interest rates last month and is signaling it is going to raise rates again. And not to be outdone, Europe’s Central Bank – which already has rates at a six-year-high – says it may raise them again as soon as next month. In Canada, economists are looking for the Bank of Canada to raise the target overnight bank rate by 25 basis points to 4.75 per cent on Sept. 5 or possibly in October, and analysts are also calling for the Bank of Japan to raise rates in the next few months.

This tends to make me believe that as much as the US would like to cut rates, it can’t. What else is supporting the US dollar? After all, now China is threatening the “nuclear option” of US dollar sales:

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion of foreign reserves as a political weapon to counter pressure from the US Congress.

Will the Chinese do it? I don’t know. But it doesn’t reinforce my faith in the greenback.

Meanwhile, U.S. Mortgage Applications Rose 8.1 Percent Last Week, Most Since January. This is leading some to call a bottom in housing, and if you’re looking for a reason why US futures are up this morning, I can’t think of a better reason. Still, with the volatility we’ve seen lately, there’s no guarantee that stocks will end up today.

My colleague Mike Larson just sent me a note about the rise in mortgage applications: "mortgage apps have been rising lately due to falling rates. BUT it hasn’t been correlating with a pickup in home orders/sales, near as I can tell. Why? Fewer APPROVALS. The MBA data doesn’t capture how many applicants are given loans, only how many apply. When lenders tighten standards (or go out of the business, as many are doing now), it will generally lead to more fallout – fewer applicants actually being able to buy."

Check out my new gold and energy blog at MoneyAndMarkets.com