The Vet

Thoughts About the Current Bear Market Among Junior Miners

Great insight, but of course this failure for the banks and the markets to commit to any risk is the same reason that commodities, metals, food and oil are in such demand right now. In the dot com days and before, paper projects and paper investments were short term, quick return and had a degree of certainty... until they failed!

Now commodities are high, costs are high and the time, expenditure and risk involved in getting a new mine off the ground is even higher than before, right at the time that the traditional risk taker, the small investor is feeling the pinch.

The need to get starter projects going so that the world will have adequate supply of commodities has never been greater, but investors time horizons have never been shorter, so where will it end.

IMO the solution lies with the few majors who are doing well with their high cash flows and diminishing reserves. They have to step up and start aquiring and investing in the junior sector. Only then will we get the investor interest returning. The majors are not doing themselves an favours with their current "just in time" mentality, as they well know that new projects always take longer and cost more the longer they delay commencement...

Once they start to lose production as mines become depleted, they will lose their income and the currency of their high stock price regardless of the current spot price of their production. Gold at $5000 an ounce is of no help if production has dropped to a pittance.

Four-Digit Gold Sets a New World Order

"Charlie the counterfeiter adds an extra demand for goods and services without making any contribution to the production of goods and services."

We don't need Charlie, to create that extra money, the banks do that quite easily and legally on their own through the mechanism of fractional reserve lending.

The theory is that that excess credit which is created by fractional reserve lending and circulated into the community is ultimately removed when the loan is repayed to the lending institution.

However where the asset backing that loan loses value and the borrower walks away, the loan isn't repaid and the "excess" credit previously created is still out there and it cannot be removed.

When the borrower walks away, he is in effect like Charlie the counterfeiter, he passed on the benefit of the "created cash" to the builder of the house but ultimately produces nothing of lasting value to add to the pool of goods. True the house he once owned may still exist but it is worth only a fraction of the outstanding loan until such times as housing prices recover. Until that loss is either repaid or written off then the effect is to increase the money supply by the diference between the current value and the original purchase price.