Where should we be investing what is left of our hard earned money these days? As the table below reveals, having bought a basket of commodity related warrants with a minimum duration of at least 24 months at the beginning of 2009 would have been the right choice. Such warrants are up 111.9% YTD, up 12.8% in the past month and up 11.7% in just the last week. That is 14.7 times greater than the 7.6% YTD increase in gold, 13.3 times greater than the 8.4% increase in the S&P 500, 5.8 times greater than the 19.4% increase in the HUI and 4.8 times greater than the 23% YTD increase in silver.

• 6 are large-cap commodity based companies (2 gold mining companies; 2 royalty companies; 1 oil and gas company; and 1 molybdenum miner)
• 5 are small/mid-cap mining companies (2 gold, 1 coal, 1 uranium) and 1 oil and gas producer
• 24 are micro/nano cap companies of which 19 are in mining; 3 in merchant banking and 2 in oil and gas. They are primarily involved in the development of properties for mining/drilling and/or in the exploration phase of operations.

• major inflation is coming in the years ahead (I do),
• the USD is going to decline vis-à-vis other currencies in the years to come (I do),
• the bull run in gold, silver and other commodities has many more years to go (I do),
• the profitability of commodity-related companies are going to increase as a result (I do),
• the price of most commodity-related stocks are then going to increase dramatically (I do),
• many of the junior miners/explorers will be bought out by the majors in the future (I do),
• that the worst of the economic/fiscal/financial crisis is yet to engulf us (I do),

Most people think of warrants as being associated primarily with micro/nano cap i.e. junior gold and silver mining companies, but that is not entirely the case. Of the 35 companies offering warrants of 24 or more months duration (of which there are 47 in total) 6 are large-cap commodity based companies (2 gold mining companies; 2 royalty companies; 1 oil and gas company; and 1 molybdenum miner).

Below is a description of each of these companies and the performance of their stock and associated warrants week-ending July 10^th.

		Last Week's Performance*
	vs. Prev. Week	vs. Prev. Month	YTD**
Warrants (+24mo.)	-2.8	-13.1	71.5
Stocks with Warrants	-1.8	-9.1	40.9
CDNX***	-2.1	-8.6	44.4
HUI****	-2.9	-6.8	13.3
GDM*****	-2.3	-7.3	13.1
SPTGD******	-1.8	-6.1	7.4
TSX	-1.4	-7.5	20.5
S&P 500	-2.4	-4.6	-0.8
Silver	-4.9	-12.3	18.5
Gold	-1.1	-2.6	5.1

* All calculations are based on U.S. dollar equivalents

		Last Week's Performance*
	vs. Previous Week	vs. Previous Month	YTD**
Warrants (+24mo.)	-8.6	-4.3	72.1
Stocks with Warrants	-5.1	-1.2	44.4
CDNX***	-4.3	2.8	51.6
HUI****	-2.8	-10.4	12.4
GDM*****	-2.9	-8.7	13.3
SPTGD******	0.1	-5.8	7.9
TSX	-4.5	3.7	23.6
S&P 500	-2.6	2.7	2.1
Silver	-4.1	-3.1	25.8
Gold	-0.5	-2.4	5.7

* All calculations are based on U.S. dollar equivalents

Early June’s Canada Cup of Investment Management conference in Canada’s financial centre of Toronto, and co-sponsored by Seeking Alpha, Goldman Sachs, Standard and Poors, PIMCO and Thomson Reuters, among others, was a roaring success. Roaring, that is, if you can imagine a room filled with 200+ pension managers and trustees, multi-billion dollar portfolio financial/investment advisors, and other assorted asset management executives. They were all there to lick their wounds and search for how best to weather the global economic slowdown and continuing volatile financial markets and how better to manage their portfolios’ returns and investment risk. There’s that four-letter word called ‘risk’ and it dominated the agenda at every turn.

The appetite for risk that was exhibited by institutional pension funds and conservative retail portfolios in 2008 has waned and the need for better asset liability management disciplines and liability driven investing solutions to manage risk has clearly taken centre stage and for good reason.

Every investor has a wide array of asset classes and investment vehicles to consider – stocks; bonds; commodities; funds; options; LEAPS; etc. and the relatively unknown and misunderstood category called ‘warrants’. This article discusses the reasons behind the performance to date of commodity related company stocks (i.e. gold, silver and other metal miners and oil and gas operators) and their associated warrants vis-à-vis the aforementioned categories.

Week after week throughout 2009 the warrants of natural resource companies in North America have outperformed their associated common stock, the various stock market indices and gold bullion and silver even more. It begs the question: What’s going on here? There are three over-riding reasons as discussed below.

Every investor has a wide array of asset classes and investment vehicles to consider – stocks; bonds; commodities; funds; options; LEAPS; etc. and the relatively unknown and misunderstood category called ‘warrants’. This article discusses the reasons behind the performance to date of commodity-related company stocks (i.e. gold, silver and other metal miners and oil and gas operators) and their associated warrants vis-à-vis the aforementioned categories.

Week after week throughout 2009 the warrants of natural resource companies in North America have outperformed their associated common stock, the various stock market indices and gold bullion and silver even more. It begs the question: What’s going on here? There are three over-riding reasons as discussed below.

Co-authored by Simon Johnson

“The crash has laid bare many unpleasant truths about the United States. One of the most alarming is that the finance industry has effectively captured our government”, says Simon Johnson, a chief economist with the International Monetary Fund in 2007 and 2008. In an article entitled “The Quiet Coup” in the May, 2009 issue of the Atlantic magazine he (with James Kwak) goes on to say that “if the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform”.

Is what we are experiencing with the economy the beginning of the ‘Economic Armageddon’ that Stephen Roach forecasted for the U.S. in November 2004? This is what he said (and I paraphrase):

America’s record trade deficit means the dollar will keep falling, interest rates will rise further and U.S. consumers, in debt up to their eyeballs, will get pounded with no better than a 10% chance of avoiding economic Armageddon.

Trading without indicators is like running blind and it encourages emotional trading that is the bane of successful investors. Below are brief descriptions of 5 of the most popular gold mining company indices and how they should be used in conjunction with the price of gold to determine the future movement of gold bullion and gold mining stocks. (For a much more in depth understanding and analysis of these indices please refer to my recent article entitled “Gold Indexes: Comparing and Evaluating the HUI, XAU, GDX, XGD and CDNX”.)

The HUI Index

Most investors don’t take seriously warnings about the future of the economy and the financial marketplace, but those who did avoided the dreaded “Cs” of finance: the Credit Crisis and Crash of ’08. What warnings are we talking about you might ask? Well, it was the headlines of several years ago screaming that a ‘Category 6 Fiscal Storm’, ‘Debt-Driven Meltdown’, ‘Systemic Banking Crisis’, ‘Financial Train Wreck’, ‘Wild Ride’, ‘God-Awful Fiscal Storm’, ‘Major Upheaval’, ‘Rude Awakening’, ‘Great Disruption’, ‘Debt Bombshell’, ‘Major Upheaval’, ‘Unwelcome Economic Spiral’, ‘Perfect Financial Storm’, ‘Serious Collapse’, ‘Drastic Fall’, ‘Financial Disaster’, ‘Major Bear Market’ and/or an ‘Economic Earthquake’ was in store for the U.S. and, indeed, the global economy in the very near future. And the future is now!

Some Predictions do Come True

Market analysts, investment newsletter writers and financial planners are always commenting on how well, or poorly, the precious metals (read gold) mining sector is doing based on how a particular gold/silver mining index is trending but they are not telling you the whole story.

Why not? Because there are more than 40 precious metals mining indexes (indices) that dice and slice the components of the precious metals mining sector to arrive at a wide variety of insights and using any one of them as a basis on which to comment on the performance of the precious metals mining sector does not accurately reflect the true picture of the sector. Making investment decisions without first knowing how each index is structured; the eligibility criteria; the number of companies included; the specific market capitalization of the components; and the degree of concentration and average market capitalization of each index may lead to imprudent decisions. That’s the fundamental problem. Below are descriptions of four popular indices and a fifth one that has been largely overlooked by precious metals stock and warrant investors, analysts and investment newsletter writers alike: