Breathe in (1..2..3..4) Hold it (1..2..3..4) Exhale (1..2..3..4) Repeat. Ah... that feels better.

Very interesting. Last weekend I tried to start a rumor about a Canadian banking holiday... a way to speed up an eventual market collapse. I didn't get the response I was looking for but the markets certainly sold off. Perhaps I shouldn't be so cavalier about these things.

Mining and oil juniors took a big hit overall this week, but now that I have the (in/de)flation(1) trade set up, things
went according to plan and even though gyrations were abound, it was a pretty relaxing week. I almost pulled
the trigger, so to speak, on some large cap dividend names for the margin account but decided to wait. This
caution was rewarded when S&P announced the US debt downgrade. While I don't think AA+ vs. AAA really
means anything besides higher borrowing costs, unintended consequences are lurking and I am awaiting the market open on Monday to see them.

What unintended consequences? For example, some money market funds cannot hold anything under AAA. Depending on how their investment policy is written (i.e. US Government holdings only vs. AAA only) treasuries may have to be sold off... where will this money go? This further increases upward pressure on short term rates if the amount sold is particularly large. Sure other buyers can step in, but when domestic buyers are getting shut out of the market on a technicality, these new buyers are more likely to be foreign... making the US a little bit more like Blanche DuBois from "A Streetcar Named Desire".

Anyhow, I would caution folks from getting in a bit too early. While you should never take investment advice from a squid (like me) without first consulting your financial advisor, I would like to point out that with the VIX above 30...

...fear is still out there. Personally, when it comes to large cap names, I'm keeping an eye on stocks like Suncor (T.SU) and Potash (T.POT). If you've shied away from them because they look expensive, they certainly appear to be getting cheaper by the day. Another favorite of mine which I hold as a part of the (in/de)flation trade is the Central Fund of Canada (T.CEF.A).

Physical bullion is best held as long term protection against the loss of purchasing power. Gold speculation is best done with paper. Paper gold has drawbacks for sure, but it can always be sold more easily and deftly than having to deal with good delivery regulations. One other point here is that CEF has traded at a discount to its book value at times. No matter how hard you look, this is about the only bullion on sale you can find besides the mining companies. 

While I have decided to stay away from talking about specific junior mining companies I will make a few points...

In uncertain times the thing that makes or breaks companies is access to financing. I wouldn't want to hold companies that need money in the next six months. Equity issues on average will likely be done at lower more dilutive prices and with more warrants. This is never a good sign.

I prefer companies that have either reserves or measured resources over those with indicated or inferred resources. If I really liked something with an I+I type of resource, I would make sure it has a year of cash minimum right now.

When looking at the BB's, I was hard pressed to find anyone who didn't think their "pump de jour" was the cheapest and best deal out there. Quite possibly I'm cynical, but it looked more like people trying to get out of illiquid trades. Doing your own research is really important.

Lastly, mining juniors are way out there on the risk curve. Their moves will exaggerate the manic tendencies of traders. In a mania they'll go stratospheric and in panics they'll drop like rocks. Between these extremes they appear to drift or move on news. It is unlikely, IMO, that we'll have a mania in the next little while thus I strongly suspect that investors have lots of time to patiently find the gems of the future.

It's a great day, the sun is shining on the ocean surface and I think I spot some krill... so go out and enjoy your day.


(1) Details on the (in/de)flation trade...

Note once again that this trade is a concept that works for me. I don't claim it will work for you!

Do your own DD from reliable third party sources. Don't trust my words as if they were Gospel... while I like to
think I am an honest Cephalopod, I am not a fiduciary (relative to you the dear reader) and thus you should not
act solely on my advice. Take anything I say 'with a grain of salt'.