Some Good Advice About Investing In The Silver Miners

Silver Mining Companies: The Rise of Bootstrap Mining

by S.R. Nunnally, Editor, Commodities & Resources Report
For the past several months, I’ve been working on a special report that traces the Mexican mining industry back before Cortés set foot on Nueva España. In just a few days’ time, I’ll be releasing this report, but I’ve gotten special permission to publish a few pages of the research that lead to my exclusive report….
Modern mining techniques were late coming to Mexico. For 300 years, miners just dug the ore they found near the surface until digging became too hard. Then, Mexico was thrown into more than 100 years of wars (including a war for independence, a civil war, war with the U.S., and the Mexican Revolution) and the country was facing financial ruin.
It wasn’t until midway through the first half of the 20th century that mining picked up again.
For a while, under the law, any mining company had to have been majority owned by Mexican nationals. In many instances, the government owned large stakes in the companies. In some ways, it was like the Royal Three-Fifths: Giant corporations were allowed to rule the mining industry because of that law that forced companies to be owned by Mexican nationals.
But in 1992, a change in the laws allowed direct foreign investment in both mines and mining companies. In fact, the law allowed up to 100% ownership of the capital stock of a company. This immediately pumped investment dollars into Mexican mines, and by 1999, foreign investment in Mexico’s mining industry reached $800 million!
More than 440 foreign companies are currently investing in Mexico’s mines, and an estimated 360 of them are American or Canadian companies.
These foreign companies have it easy coming into Mexico. According to Trey Wassler of III-D Capital, “In 1994 the North American Free Trade Agreement (NAFTA) was implemented and the peso was devalued. Low metal prices and a devalued peso caused many mines to be shut down. Many already enriched families ‘threw in the towel’ and moved on to other businesses.”
What these mines left behind were existing reserves and infrastructure.
Much of the time and money a small company spends is on exploration and infrastructure. After that, the actual mining of minerals is a relatively cost-effective prospect. “Bootstrap mining” is when a company moves in and reopens an existing mine.
Let me give you an example…
On February 27, 2007, Endeavor Silver Corp. (EDR:Toronto) (EXK:AMEX) acquired exploitation contracts for Unidad Bolanitos, a group of 13 properties (totaling 2,071 hectares) with three currently operating silver and gold mines and several “past-producing” silver and gold mines.
By acquiring high-potential properties at a low price, Endeavor immediately boosts reserves, production and cash flow. It’s easy for a company to raise investment capital when it knows it’s already sitting on mineral reserves.
As always, junior mining companies have strong speculative overtones. With the draw of huge potential with these bootstrap mines, tiny companies are almost a dime a dozen. Due diligence is an absolute necessity. And though prospects for a profitable company are stronger now than 10 years ago, beware of the shell company.
Your best bet is to find a stock with mines already in production in addition to acquiring bootstrap mines.

Uranium Drops Back, Time To Buy

{Here at Sound Of Cannons, We advocate quality uranium stock investments as much as your speculative funds will allow. This will be like shooting fish in a barrel when yellowcake bounces back and beyond!~Ed.}

“In early August, uranium bulls were drawing up plans for a march on $200,” writes Dan Denning of Port Phillip Publishing in Australia. “Since then, the uranium price has fallen over 35%, which also happens to be a standard technical correction in a long-term bull market.” Hmmn…
“The correction in the market took all the wind out of the sails of uranium juniors. But we think that's a good thing. Apart from some speculative forecasts on increased production in Kazakhstan, the fundamentals for uranium supply and demand are still bullish.”

Joe Consumer Is In Trouble

Consumer credit rose at an annual rate of 6.5% in June, to a record $2.45 trillion. As they did in 2001-2002 when the stock market “wealth effect” dried up, consumers are turning to their credit cards to keep up appearances.
By no coincidence, at all, we’re sure… the rate of defaults on credit cards in the first half of 2007 rose 30% over the same time the year before. Late payments are on the rise, as well. Bank of America, Citigroup and Capital One have all raised fees and interest rates in response.

My Own House Is Now Worth Approximately $3.........

U.S. homeowners, buyers and sellers have officially endured an entire year of falling home prices. The median American home cost $228,900 in July, down 0.6% from the month before… the 12th consecutive month of tumbling home prices.
All told, home prices fell 3.2% across the country in second quarter -- the steepest rate since the S&P started its Home Price Index in 1987.
"The pullback in the U.S. residential real estate market is showing no signs of slowing down," writes Robert Schiller, one of the architects of the S&P Home Price Index.
"The year-over-year decline reported in the second quarter of 2007 for the National Home Price Index is the lowest point in its reported history. On a regional level, 17 of 20 metro areas are showing declines in their annual growth rate from what was reported in May."
We remember talking to radio hosts and listeners in 2005-2006 after our book Empire of Debt came out. We warned at the time that housing and real estate “don’t always go up.” At that time, even that subtle rebuke was met with utter disdain. What happens now, when it looks like we were right?

Wow! I Need To Sell And Start Renting

More homes are on the market now than at any other time in U.S. history.
4.5 million units are currently for sale, the most in sheer quantity ever. In more relative terms of current population, the current 9.6 month supply is the largest housing glut since 1991. Supply rose over 5% since June, yet another signal that the worst of the housing bust might still lie ahead.

Subprime, subprime, subprime..........It's Driving Me Nuts

The Fed’s Subprime Solution
By JAMES GRANTOp-Ed ContributorAugust 26, 2007
THE subprime mortgage crisis of 2007 is, in fact, a credit crisis — a worldwide disruption in lending and borrowing. It is only the latest in a long succession of such disturbances. Who’s to blame? The human race, first and foremost. Well-intended public policy, second. And Wall Street, third — if only for taking what generations of policy makers have so unwisely handed it.
Possibly, one lender and one borrower could do business together without harm to themselves or to the economy around them. But masses of lenders and borrowers invariably seem to come to grief, as they have today — not only in mortgages but also in a variety of other debt instruments. First, they overdo it until the signs of excess become too obvious to ignore. Then, with contrite and fearful hearts, they proceed to underdo it. Such is the “credit cycle,” the eternal migration of lenders and borrowers between the extreme points of accommodation and stringency.
Significantly, such cycles have occurred in every institutional, monetary and regulatory setting. No need for a central bank, or for newfangled mortgage securities, or for the proliferation of hedge funds to foment a panic — there have been plenty of dislocations without any of the modern-day improvements.
Late in the 1880s, long before the institution of the Federal Reserve, Eastern savers and Western borrowers teamed up to inflate the value of cropland in the Great Plains. Gimmicky mortgages — pay interest and only interest for the first two years! — and loose talk of a new era in rainfall beguiled the borrowers. High yields on Western mortgages enticed the lenders. But the climate of Kansas and Nebraska reverted to parched, and the drought-stricken debtors trudged back East or to the West Coast in wagons emblazoned, “In God we trusted, in Kansas we busted.” To the creditors went the farms.
Every crackup is the same, yet every one is different. Today’s troubles are unusual not because the losses have been felt so far from the corner of Broad and Wall, or because our lenders are unprecedentedly reckless. The panics of the second half of the 19th century were trans-Atlantic affairs, while the debt abuses of the 1920s anticipated the most dubious lending practices of 2006. Our crisis will go down in history for different reasons.
One is the sheer size of the debt in which people have belatedly lost faith. The issuance of one kind of mortgage-backed structure — collateralized debt obligations — alone runs to $1 trillion. The shocking fragility of recently issued debt is another singular feature of the 2007 downturn — alarming numbers of defaults despite high employment and reasonably strong economic growth. Hundreds of billions of dollars of mortgage-backed securities would, by now, have had to be recalled if Wall Street did business as Detroit does.
Benjamin Graham and David L. Dodd, in the 1940 edition of their seminal volume “Security Analysis,” held that the acid test of a bond or a mortgage issuer is its ability to discharge its financial obligations “under conditions of depression rather than prosperity.” Today’s mortgage market can’t seem to weather prosperity.
A third remarkable aspect of the summer’s troubles is the speed with which the world’s central banks have felt it necessary to intervene. Bear in mind that when the Federal Reserve cut its discount rate on Aug. 17 — a move intended to restore confidence and restart the machinery of lending and borrowing — the Dow Jones industrial average had fallen just 8.25 percent from its record high. The Fed has so far refused to reduce the federal funds rate, the main interest rate it fixes, but it has all but begged the banks to avail themselves of the dollars they need through the slightly unconventional means of borrowing at the discount window — that is, from the Fed itself.
What could account for the weakness of our credit markets? Why does the Fed feel the need to intervene at the drop of a market? The reasons have to do with an idea set firmly in place in the 1930s and expanded at every crisis up to the present. This is the notion that, while the risks inherent in the business of lending and borrowing should be finally borne by the public, the profits of that line of work should mainly accrue to the lenders and borrowers.
It has not been lost on our Wall Street titans that the government is the reliable first responder to scenes of financial distress, or that there will always be enough paper dollars to go around to assist the very largest financial institutions. In the aftermath of the failure of Long-Term Capital Management, the genius-directed hedge fund that came a cropper in 1998, the Fed — under Alan Greenspan — delivered three quick reductions in the federal funds rate. Thus fortified, lenders and borrowers, speculators and investors, resumed their manic buying of technology stocks. That bubble burst in March 2000.
Understandably, it’s only the selling kind of panic to which the government dispatches its rescue apparatus. Few object to riots on the upside. But bull markets, too, go to extremes. People get carried away, prices go too high and economic resources go where they shouldn’t. Bear markets are nature’s way of returning to the rule of reason.
But the regulatory history of the past decade is the story of governmental encroachment on the bears’ habitat. Under Mr. Greenspan, the Fed set its face against falling prices everywhere. As it intervened to save the financial markets in 1998, so it printed money in 2002 and 2003 to rescue the economy. From what? From the peril of everyday lower prices — “deflation,” the economists styled it. In this mission, at least, the Fed succeeded. Prices, especially housing prices, soared. Knowing that the Fed would do its best to engineer rising prices, people responded rationally. They borrowed lots of money at the Fed’s ultralow interest rates.
Now comes the bill for that binge and, with it, cries for even greater federal oversight and protection. Ben S. Bernanke, Mr. Greenspan’s successor at the Fed (and his loyal supporter during the antideflation hysteria), is said to be resisting the demand for broadly lower interest rates. Maybe he is seeing the light that capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich.
In any case, to all of us, rich and poor alike, the Fed owes a pledge that it will do what it can and not do what it can’t. High on the list of things that no human agency can, or should, attempt is manipulating prices to achieve a more stable and prosperous economy. Jiggling its interest rate, the Fed can impose the appearance of stability today, but only at the cost of instability tomorrow. By the looks of things, tomorrow is upon us already.
A century ago, on the eve of the Panic of 1907, the president of the National City Bank of New York, James Stillman, prepared for the troubles he saw coming. “If by able and judicious management,” he briefed his staff, “we have money to help our dealers when trust companies have [failed], we will have all the business we want for many years.” The panic came and his bank, today called Citigroup, emerged more profitable than ever.
Last month, Stillman’s corporate descendant, Chuck Prince, chief executive of Citigroup, dismissed fears about an early end to the postmillennial debt frolics. “When the music stops,” he told The Financial Times, “in terms of liquidity, things will get complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”
What a difference a century makes.
James Grant, the editor of Grant’s Interest Rate Observer, is the author of “Money of the Mind.”

The Truth About Tax Havens

You may not have noticed the few recent items about tax havens. But that's one of the many reasons the Sound Of Cannons exists - to keep you abreast of offshore developments and to explain how events may affect you, your wealth and your freedoms.
One interesting item was from Gibraltar's chief minister, Peter Caruana. Mr. Caruana predicted that tax havens will cease to exist within 10 years because of what he calls "international scrutiny and pressures." Of course, the Rock is both a semi-independent British overseas territory and a certified tax haven.
The busybody, left-leaning Organization for Economic Cooperation and Development (OECD) once listed Gibraltar as a harmful tax haven. But since then, Gibraltar has reformed its laws to become more "transparent" - a favorite word the anti-tax haven crowd uses to refer to tax information exchange about individuals among governments. Or in other words, "transparency" means the end of financial privacy.
Of course, Mr. Caruana sang praise for his own jurisdiction. But he might just as well have praised almost the entire offshore financial community, including all tax havens.
Tax Havens Already Cleaned Out Their Dirty Money
In the last decade, almost every offshore jurisdiction has adopted stringent new anti-money laundering and "know your customer" laws.
These offshore regions have also imposed obligations to report suspicious financial activity. These laws are aimed specifically at drug and terrorism money. In fact, most of them are far tougher and are better enforced than those in the major centers of dirty money - including the United States and the United Kingdom.
The real source behind all the pressure and manufactured media hullabaloo against tax havens has been the tax collectors of major welfare state nations. These collectors are a miserly group that is convinced everyone and anyone who does business offshore is automatically a tax evader.
The IRS and British Inland Revenue hate the fact that tax havens offer tax-free profits and statutory guarantees of bank and financial secrecy. They refuse to accept the fact that tax competition among nations helps the world economy because it keeps taxes lower, increases profits and creates jobs.
Proof that tax havens have improved comes from none other than the notorious OECD group, the Financial Action Task Force (FATF). The OECD sidekicks in the FATF are the self-appointed blacklisters of all tax havens, from Switzerland to the Cayman Islands. Earlier this month, the FATF announced that the Marshall Islands has been removed from the OECD's list of so-called "harmful tax havens." The announcement came after this tiny Pacific island jurisdiction committed to improving transparency and establishing exchange of tax information.
Interestingly, the only "uncooperative" tax havens still on the FATF hit list are Andorra, Liechtenstein and Monaco - all nations with strict financial secrecy laws that they refuse to waive in the face of FATF bullying. And God bless them!
Hypocrites Should Check Their Stories
What must be understood is that the decade old anti-tax haven campaign is really all about tax collectors using phony reasons (anti-drug, anti-money laundering, anti-terrorism) as public relations covers for curbing the right of individuals to bank, invest and do business anywhere in the world they wish.
These phony political attacks run counter to all modern economic trends of globalization, expanded world trade, international investment and free exchange of funds among nations.
For some of the major protagonists, such as the U.S. and the U.K., it is sheer hypocrisy, because these two haven bashers are also major tax havens for foreigners who invest there. For example, wealthy "non-domiciled" residents of London pay virtually no taxes on income earned elsewhere, and even those who are paid in the U.K. have a special tax break that greatly reduces their taxes compared to U.K. citizens.
But bashing tax havens has become an international sport among leftist politicians who have always preached "soak the rich" themes in trying to appeal to the poor, hard working masses. It's called demagoguery.
Not to be outdone, the Democrats who now control the U.S. Congress are already passing new restrictions and levying new taxes on offshore financial activity, and I'll have more to say about that stupidity shortly. (President Bush, get out your courage and your veto pen!)
Who Eggs Benedict?
It's reported that Pope Benedict XVI is working on an encyclical that strongly condemns wealthy individuals from using tax havens and offshore bank accounts. The Times of London reports that the Pope will argue that tax avoidance and evasion is morally unjust because it supposedly prevents governments from collecting revenues to help society's least fortunate people. ("Render unto Caesar the things that are Caesar's...")
This is one Catholic who wishes the Pope had better economic advisors so that he might understand the beneficial role tax havens play in the world economy. (According to the Council of Vienne [1311], a person who charged interest on a loan was to be punished as a heretic committing a mortal sin).
Notwithstanding the continuing leftist onslaught against tax havens, I predict they will survive and prosper, just as they have been doing since this battle began 10 years or more ago.