| For those with difficulty with graphic access, the pdf version of this report can be accessed here: http://www.goldmau.com/weekly/Weekly_Update_Aug9_07.pdf "Plunge Protection Team is likely to guard equity and bond markets with fresh, newly minted liquidity. This will only further reduce the investor appetite towards US dollars." "Red Hill creates a temporary buying opportunity as 5.5 million shares from the 80 cent placement became free trading on Tuesday." – John Lee, CFA. | Dollar Set to Crumble from the Sub-prime Market fallout This article was published at Kitco.com on August 3rd: In our March GoldInsider newsletter I wrote the following piece: “The Subprime Market and Blatant Market Support: You must have heard about the subprime loan fallout by now. New Century Financials, America’s second largest sub-prime lender, was delisted so I could not grab the chart, but here is the company’s sister, Novastar, which is not far behind. The pace of the fall out is startling to say the least. These are $billion companies listed on NYSE. So what is the story all about?  | Updated Novastar Chart to July 2007 | |
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Non-bank companies like New Century and Novastar provide mortgages to lesser qualified home buyers, charging interest rates of around 10% instead of 6%. Then, they package those mortgages and sell them either to institutions or bigger mortgage houses such GM or Countrywide at 9%. Those non-bank mortgage lenders borrow money from banks at a lower rate and lend to consumers at higher rate to make a profit. They rely on credit from banks to operate. New Century’s mortgage production for 2006 was $60 billion. I would estimate the sub-prime mortgage market to be around 100 to 200 billion. This is nothing to sneeze at considering this is directly related to money creation. With America’s M3 growing at 1 to 2 trillion a year, 200 billion accounts for 10% of money creation and the hole, or the void must be filled. It is not a trivial issue. What is more, while those companies carry their own portfolio of mortgages, they sell most of the mortgages they create. Thus the problem doesn’t resolve itself upon the fallout of the subprime lenders, as many of those faulty mortgages have already passed onto the big lenders and institutions. This is a double whammy to the big lenders as they not only have lost a source of revenue/referral, but the quality of their existing portfolio of loans is in doubt. The extent of the problem is unknown and I don&r squo;t think we will ever know. GM or Countrywide, however, cannot fail and issues with bad debt can be fixed by the Fed. There is surprisingly little disclosure from the banks regarding derivatives or CMO (collateralized mortgage obligations), paving the way for an easy fix by Bernanke, who can simply replace questionable CMO “assets” on GM’s balance sheet with dollars issued by the Fed. Under the disguise of structured products, there is no telling or predicting damage by outsiders. | “The big lenders not only have lost a source of revenue/referral, but the quality of their existing portfolio of loans is in doubt.” |
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August 3rd Update: Since our last update, 3 mortgage related hedge funds from Bear Sterns totaling $16 billion have collapsed. American Home Mortgage Corp, the second largest non-bank mortgage lender, accounting for 2% of all newly issued mortgages tanked 80%+ in one week as banks refused to provide them with more credit. 
The Deutsche Industriebank AG German fund involving American mortgages and financial obligations for US$11.07 billion required a government bail out. Australian Macquarie Fortress Investments, worth $873 million, was forced to sell assets to avoid breaching its loan agreements, and Europe’s biggest bank, HSBC, is to write off $11 billion to cover mounting losses in its troubled American offshoot, HSBC Finance Corporation. Dow closed up 150 points on Wednesday, with American home mortgage issued warning on Tuesday afternoon. We find such market action incongruent and can only conclude that Plunge Protection Team was at work. The conclusion from this is three fold: - The Fed will not be able to raise interest rates. Doing so would cause a systemic collapse of all USD debt markets.
- The Fed will bail out any mortgage problems, amounting between $100 billion to perhaps over $200 billion, estimated by analysts at the Financial Times.
Plunge Protection Team is likely to gua rd equity and bond markets with fresh, newly minted liquidity. This will only further reduce the investor appetite towards US dollars. There is now disdainful taste in holding those hot dollar potatoes. | “Plunge Protection Team is likely to guard equity and bond markets with fresh, newly minted liquidity.”
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Technically, the dollar index is set to break down beneath 80 shortly. Gold is the antithesis to the dollar, and gold’s breakout over $700/oz is imminent. | “Gold’s breakout over $700/oz is imminent.”
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Stock Updates Red Hill Energy Inc.
Company Contact Info: http://www.goldmau.com/rh.php Red Hill is probably amongst my top 3 positions in terms of hard value per share (the other two being Tyler and Terrane Metals). Coal of the quality found at Red Hill’s Ulaan Ovoo property goes for $60 p er tonne excluding transportation (paid by the buyer). This means Ulaan has over $12 billion with 200 million tonnes. Extracting coal is no hard science as the coal is visible near surface and requires little processing. Here is a picture of the coal at surface.
http://www.redhillenergy.com/_resources/coal_seams.jpg 
I had a briefing with Red Hill this morning and lots of things are happening. 43-101 resource from its second coal property Chandgana Tal project is due in weeks as qualified geo is on site to go over data to sign off. Chandgana Tal has inferred resource (Russian standards) of 90-120 million tonnes. Chandgana Tal is sur rounded by CVRD claims and CVRD is spending tens of millions in the area. Red Hill also tied up huge area surrounding Ulaan Ovoo and believes Ulaan has potential to significantly expand existing resource. Mega Uranium is drilling on the Uranium targets and results are pending. On Tuesday, 5.5 million shares from the 80 cent placement became free trading. I like Red Hill at these prices and will likely acquire more shares to add to my position. http://stockcharts.com/h-sc/ui?s=%20rh.v | Symbol:
RH.v
Recent Price:
C$0.90
Shares O/S:
47.5 M
Market Cap.:
C$47 M
52 Week Range:
$0.67 - $1.40
“I think the market has overly discounted Apogee’s political risk.& rdquo; | |
Tyler Resources Inc. Company Contact Info: http://www.tylerresources.com/home.php I talked to CEO JP Jutras, the CEO of Tyler. He just got back from Mexico. It was a very pleasant 30 minute call and I got all my questions answered. JP went down to the property to check out the new zinc discovery where trench results returned over 14% zinc at 7 m.
http://www.tylerresources.com/pdf/News%20Release%20July%205%202007.pdf They are mobilizing the rig to drill on the zinc discovery. They are also doing definition drilling to upgrade the main zone resource, which already has 6 billion pounds of Copper and 7 billion pounds of Zinc. We should see additional drill results in September, with scoping studies outlining basic project economics coming up in that same month. By December we should get metallurgy on the zinc, and a revised resource estimate. Tyler still has $9 million which JP said should get them through to feasibility study in 2008. I asked about insiders selling at 75 cents last month and he said it was due to the expiration of warrants at 30 cents. I asked why Tyler’s price is so low but he has no concrete answer. My belief is that there is a sto ck price discount on the management’s background. JP is about 40 years old and there are no real recognizable names from the Vancouver circle on the management side. However with TENS of $billion in the ground and the recent addition of Jennings as its core shareholder, I believe the retail shares are being fed to bigger boys and when those small lots of shares dry up, I can see lots of potential for Tyler. I have been buying very aggressively in the low 60cent range and own well over 500,000 shares. | Symbol:
TYS.v
Recent Price:
C$0.58
Shares O/S:
112 M
Market Cap.:
C$64 M
52 Week Range:
$0.35 - $1.03
“There is discount on the management’s background. However with TENS of $billion in the ground and the recent addition of J ennings as its core shareholder, I can see lots of potential for Tyler.” | |
http://stockcharts.com/h-sc/ui?s=tys.v Gateway Gold Corp. Company Contact Info: http://www.goldmau.com/gtq.php I talked to Jim Robertson and Michael McInnis of Gateway last Thursday. Mr. Robertson is happy as his other venture, Primary Metals, has been taken over at 50% premium by Sojitz (a Japanese company) on Friday. http://stockcharts.com/h-sc/ui?s=pmi.v Things are going well at Gateway as they are set to drill lower Mac Ridge in Nevada, which yielded several good samples on surface and has never being drilled: Trench 1 2.04 g/t over 65 feet
Trench 2 1.78 g/t over 30 feet and 1.33 g/t over 10 feet
Trench 3 1.79 g/t over 25 feet including 2.71 g/t over 15 feet
Trench 4 0.98 g/t over 10 feet http://www.gatewaygold.com/s/NewsReleases.asp?ReportID=168918 At its current market cap and its Big Spring’s 1.2 million oz Au acting as fundamental support, 80 cent is likely as low as the stock would get, with good potential for much higher prices. | Symbol:
GTQ.TO
Recent Price:
C$0.80
Shares O/S:
32.7 M
Market Cap.:
C$27 M
52 Week Range:
$0.62 - $1.58 “At its current market cap and Big Spring’s 1.2 million oz Au acting as fundamental support, 80 cent is likely as low as the stock would get.”
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