“The total potential federal government support could reach up to $23.7 trillion,” said Neil Barofsky this week. He’s the special inspector general for the TARP — one of the government’s many bailout programs dumping billions upon billions. Say again… this whole mess could put U.S. taxpayers on the hook for just under $24 trillion.

Barosfky’s report was self-admittedly an overblown worst-case scenario… for example, it assumes that every mortgage loan on Fannie and Freddie’s books will go bad and that every government-aided bank will go bust. (Heh, we like this guy).

But we see why he bothered crunching all the numbers for a scenario that will never happen (or if it were to happen, no one would really care what the exact cost would be). This is what your government is willing to do in order to maintain the status quo. Votes for this year’s election are worth $24 trillion for tomorrow’s generation.

So when Congress asked, hey Neil, what’s your real guess? $3 trillion, he responded. Phew, what a relief!
“You cannot create prosperity through money printing and debt growth,” Dr. Marc Faber told us yesterday. Dr. Faber was the first speaker of our Investment Symposium and he preached an idea that is already becoming a theme of the event: Government fiscal and monetary intervention, “can postpone, but not prevent crisis…

“I believe next year’s economy will face even larger deficits. Their deficit is attempting to stimulate credit growth. Unless real credit growth returns, they will have to put more and more money into the system to maintain the status quo. All polices target consumption. That is a mistake.”

So what’s this mean for the market?

“The S&P 500 will not recover to 2007 highs. At the peak, 44% of the S&P was the financial sector. That is gone… not coming back.”
And since it’s our nature to cook things down and serve them in tasty little bits, here are some rapid-fire, take ’em or leave ’em themes to the first day of our Investment Symposium:

• Do not expect a V-shaped market recovery. The crisis aftermath will be long and volatile
• Short U.S. bonds
• Technology breakthroughs in DNA over the next few decades will be akin to the Internet and computing breakthroughs of the last 20 years
• Either invest like a contrarian or suffer like a victim (Rick Rule’s mantra)
• Buy alt energy, especially geothermal
• Buy commodities, particularly grains.

Of course, we can’t hope to accurately summarize six hours of yesterday’s presentations in our humble 5 Min. That’s why you should check out the Symposium CD/MP3 set. It’ll have every minute of every presentation, notes from the private breakout sessions and all the specific stocks and funds our speakers recommend (we’ve already heard at least half a dozen.) Get details here… since it’s still early in the game, the set is priced at a discount.
The market rallied yesterday, in spite of Dr. Faber’s warning.The Dow and S&P 500 inched up 0.8% and 0.4%, respectively, led mostly by more blue chip earnings beats. The one that really caught our eye was Caterpillar. The company jumped 8% after beating earnings by a mile and issuing a pretty rosy outlook.
“Caterpillar is the crown jewel of American industry,”notes Jim Nelson. “It represents the engine of the blue-collar world — at least in the U.S. CAT makes everything from bulldozers — needed for nearly every road and construction project in the country — to turbines — needed to keep the lights on in the U.S.

“The company’s customer base reaches from Canada to Indonesia…from China to Chile. There’s almost no developed or even developing country in the world that doesn’t show Caterpillar some business.

“So what does this quarter’s profits mean for CAT, the U.S. and the rest of the world? It means that either the stimulus plans worldwide are starting to work or we are turning a corner on this recession…or both.

“We’re not calling for the recovery to start now, and we certainly aren’t calling for the bottom of the market. But we are pointing out the No. 1 indicator. We’ll know when the economy is back on track when Caterpillar starts performing like years past.”

Jim is at the helm of one of our newest publications, Lifetime Income Report. If you seek steady, dividend-yielding companies with long-term upside potential, he’s your man. Learn more here.
Yesterday also marked a big win for the year-to-date stock market. The major indexes have recovered from the muddling about over the last six weeks and are now at or near YTD highs. The S&P is now at its highest level in eight months. The Dow is close behind, at a six-month high.

The Nasdaq has been particularly strong lately, as you can see above. Its 0.4% rise yesterday marked the 10th day in a row of gains. The Nasdaq didn’t have a winning streak like that even at the height of the tech boom. You’d have to go back to July 1997 to find a track record like that.

Now, we don’t have anything against tech. In fact, after Juan Enriquez’s presentation yesterday — which completely redefined what we think about biotechnology — we’re excited for the future of tech. But a streak like that in an economy like this? Hmm…
The two biggest state pension funds in the U.S. have lost $100 billion, and they’re about to lose more. Yesterday CalPERS and the California State Teachers’ Retirement System revealed annual fiscal year losses of $56.2 and $43.4 billion, respectively. That’s about a quarter of the value of both portfolios.

CalPERS and California state teachers have it especially bad… unemployment in that state is higher than most, which will limit money flowing into the funds. And just yesterday, Gov. Schwarzenegger announced all kinds of plans to bridge the budget gap that will be detrimental to the funds.

But what really bothers us… both funds, and most around the country, are still counting on La-La Land returns for the foreseeable future. CalPERS, for example, needs a 7.75% annual return for the next two years or it will have to ask the government and municipalities to hike contributions in order to pay for new retirees. That’s no problem, as the fund said in a statement yesterday that its “long-term 20-year investment return remained positive at 7.75%.” Heh… so of course, it’s reasonable to assume the next 20 will be just as pleasant.
BTW, CalPERS sued Moody’s and Standard & Poor’s last week for its role in grossly overrating toxic assets during the credit boom.

“I will make a prediction,” said Barry Ritholtz, who is spoke in today’s session, “that CalPERS is going to torment these guys until someone is in prison.”

Barry himself has an interesting history with rating agencies. His book, Bailout Nation, included a scathing (and deserving) attack at the ratings agencies. When his publisher, McGraw-Hill (which also owns Standard & Poor’s) found out about it, they squashed his deal.
“Job insecurity, together with declines in home values and tight credit, is likely to limit gains in consumer spending,” Ben Bernanke testified on the Hill yesterday. Should that continue, Mr. Bernanke so eloquently suggested that a recovery could “prove transient.” Wait… so if credit tightens, unemployment rises and consumer spending falls, the economy will get worse? Thanks, Ben.
After its recent fall, the dollar index has entered a tight range. It’s been bouncing between 78.6-79 all week.
“If the dollar goes back to where it was a year a go, gold will be $1,200 an ounce,” Frank Holmes forecast yesterday in his presentation. Mining Journal named Frank the best mining fund manger in the world… so when he talks gold, we tend to sit up and pay attention.

The dollar index’s low last year was around 72.3.
The dollar’s narrow trading band has given gold a small range too. Since rising to $955 Monday, the spot price has largely stayed put.
And if you’re on the hunt for a gold mining stock, check out this snippet from Frank’s presentation: “In all the research we’ve done, the key to success is finding miners with growth in production, growth in cash flow and growth in reserves. They are the three key value drivers. If the stock has positive momentum on top of it, even better.”
Oil’s holding steady too today, at $64 a barrel.
“Notwithstanding your expressed distaste,” writes a reader, “for some of the elements of California’s budget solution, I think at least part of you should be cheering the fact that the state did gore some sacred cows by reducing $15 billion in program funding and (because compromise is part of our government) having the taxpayers shoulder a smaller part of the burden in the form of $4 billion in new taxes. Is this not the sort of solution that we should all be encouraging our federal legislators to make to balance the national budget…. rather than this insane bailout strategy that they are following?

“My textbook learning on fiscal restraint indicates that when your revenues can’t cover all the legislated services and special interest programs so in vogue when times are good (and believe me, California leads the pack), you need to pare them back to what is affordable. Spread the pain. I’m sure you know already that our tax rates in California are quite a bit more than in most states, but it’s unrealistic to think program cuts will be the total answer given the diversity of interests out there… the ratio agreed to by the legislature and governor seems like a fair attempt to get the state back into operation.

“You were right to call out the accounting trick of pushing a payday forward — but if you really want to talk budget tricks, you could write a huge book on such things, as our national Congress has become expert in regarding unrealistic projections and other interesting devices to justify more spending. I’d like to see the other states in trouble work their own compromises and then all of us press our national government to show some intestinal fortitude to paring back programs until spending equals revenues.

“While taking issue with you on this one point — I’m extraordinarily thankful for your daily newsletter and your editorial courage… and our ability to disagree and still support each other in our larger goals for the nation!”

Source:  Total Cost of the Bailouts, Symposium Synopsis, How to Pick a Gold Miner and More!

In 2008, his fund returned 37%  – in a year where the typical hedge fund lost 19%.

Since last September, Paulson earned nearly $420 million shorting the stocks of some U.K.-based bank stocks – specifically Lloyds Banking Group PLC (ADR: LYG), and the former HBOS PLC (which Lloyds absorbed in January).

Paulson clearly does his homework, and now he’s turned his attention to gold.

In a recent move that garnered much industry attention, Paulson acquired an 11.3% stake in AngloGold Ashanti Ltd. (ADR: AU). At $32 per share, that acquisition set him back a cool $1.28 billion. British mining giant Anglo American PLC (ADR: AAUK) was the beneficiary of Paulson’s acquisitiveness, for it sold Paulson the AngloGold shares from its own stake in that company.

So let’s think about this for a moment. A single transaction shifted a significant portion of ownership, and more than $1 billion in cash, strictly between two parties:  No banks and no stock markets took part in the deal.

Besides his 11.3% stake in AngloGold (the world’s fifth-largest gold miner by market cap), Paulson also owns 4.1% of Kinross Gold Corp. (KGC), making him that gold company’s fourth-largest shareholder.

It seems this prescient investor is in good company, too.  David Einhorn, founder of Greenlight Capital Inc., with $5 billion in assets, also began buying gold earlier this year – for the very first time.

Noted value investor Jean-Marie Eveillard holds $1 billion in a vault near Times Square as “calamity insurance.” What’s more, as much as 8% of his First Eagle Global Fund is comprised of bullion and gold miners’ shares.

In the case of Paulson, the billionaire hedge-fund investor, his exceptional skill lies in his ability to foresee extreme financial episodes. From there, he decides how to position his funds to benefit from a likely outcome.

And that’s why we should all pay close attention to his most recent actions.

The very day after Paulson’s acquisition of AngloGold, the U.S. Federal Reserve announced that it would buy back a total $1.25 trillion of long-term Treasury bonds and Fannie Mae (FNM) and Freddie Mac (FRE) mortgage junk. That is essentially a monetization of the debt.  And that’s a red-carpet invitation for inflationary times (which is also the best time to play gold).

Pure coincidence? Maybe. But it’s a lot more likely that one of the savviest investors of our recent era is really onto something.

Source: If You Follow the (Smart) Money, Gold is Clearly the Smart Play

Floating out Fresnillo, the world’s largest primary silver producer, Penoles is valuing the subsidiary at a whopping $4bn.

The logic is that analysts prefer simple stories rather than trying to evaluate multiple-asset miners. Fresnillo contains just the group’s major precious metal operations. The Penoles structure, which survived 120 years of revolution and crises, is being dismantled to suit 21st century investors.

This IPO is deemed to be a success for London. Commentators are saying that Fresnillo’s launch in the City is part of a shift in corporate Latin America. Instead of using Madrid or New York for its capital raising, these guys are coming to London.

Of course, the London Stock Exchange (LSE) has worked hard to cultivate links with Central and South America. There’ve been loads of road shows extolling the virtues of a FTSE or Alternative Investment Market (AIM) listing. The LSE has met chief executives in Sao Paolo and Lima. Further road shows are planned in Chile and Argentina.

Hochschild, a Peruvian silver and gold miner, became the first Latin American company to float in London for a century when it listed in November 2006. Fortunately for the LSE’s marketing drive, its shares have since risen 20%. Andrew Wray, at bankers JP Morgan Cazenove, said: “New York used to be in the backyard for Latin American companies but they are increasingly turning to London, particularly resources companies, as so many others are listed here.”

The IPO is a success for its parent

The IPO seems to have been a success for Bailleres, too. Penoles’s shares jumped 8.14% on the Mexico City bourse to 346 pesos a share following news of the spin-off.

Fresnillo sold about 23% of its shares in London. It was hoping to raise around $1 bn in total. In the event, it brought in around
$900 m, but plans are to sell a further 2%.

Anyway, the company is large enough to move straight into the top London share index, the FTSE 100. The remaining shares will be held by Penoles.

Penoles’s precious metals division produced 34.4 m ounces of silver last year and a further 280,000 ounces of gold. It is Mexico’s second largest gold producer, with a turnover of $648 million.

The new company is named after its largest mine, in the Zacatecas region of central Mexico. Fresnillo also has a gold mine in the Sierra Madre mountain range of northern Mexico and another in central Mexico.

The money raised from the share placing will be used to pay off debt, finance the expansion of the Fresnillo mine and develop three other mines.

CEO Jaime Lomelin said at the IPO press conference that Fresnillo will ramp up annual production of gold to 400,000 ounces and silver output to 60 million ounces. “We have a lot of projects in the pipeline,” he told reporters.

Continues below

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Weaker metal markets took off some of the shine

Understandably, Fresnillo is forecasting that silver prices will stay high. Chief financial officer, Mario Arreguin does, however, expect “increasing volatility.”

His words might equally apply to the share price. The stock opened on the London Stock Exchange at 530p, touched an intraday high of 539.5p and hit an intraday low of 502p. The shares then closed at 520p, a decline of 6.3% from the IPO price.

Analysts said the fall reflected the recent retreat in precious metals prices. They also thought there was a lack of appetite for new issues after Czech coal miner New World Resourcesraised £1.1 billion pounds with an IPO in the same week.

But BlackRock fund manager Graham Birch, a big name in precious metal investing, hastened to defend Fresnillo’s virtue. He told journalists that he had bought shares in the IPO and was confident they would perform well over time.

“I think this is a really excellent company. We’re very pleased to have it in our precious metals portfolio,” he said.

Silver is certainly a way below its peak. It is around $17 an oz, having crossed the magical $20 line in March. Kitco, the precious metal commentators, share Fresnillo’s view that the price will remain volatile. They expect it to revisit $15.50 an ounce at some stage.

At the moment, however, chartists reckon the price movements are looking good. The 200 day moving average is on the up… an excellent sign!

The case for silver shouldn’t fade

Analysts GFMS believe that as long as gold prices remain strong, the case for silver investment will not fade.

They expect the rally to continue at least to the end of the year, and quite possibly into 2009. So, they see silver investment demand and price strength persisting.

More importantly perhaps, since investor sentiment can turn on a speck, industrial use of silver is still rising. Electrical and electronics fabrication accounted for the greatest increase.

So, keep mining.

Erin and Isabel

PS Make sure you don’t miss out on getting all the latest industry news in one daily hit with a brand new free eletter from Fleet Street Publications.

Source: The Case For Silver Investment Should Not Fade

For the tale of the tape, the TSX Exchange added 0.98%, while the TSX Gold Index rallied 0.4% and the TSX Venture Exchange, Canada’s largest junior exploration bourse, ended the session up 0.22% with declining issuers still out paced the advancing issues this time by a 529 to 472 margin with slowing volume of 168 million shares traded.

The world’s largest gold miner, Barrick Gold earned $514 million, or $0.59 a share in the quarter of 2008 a 29% jump over last year’s quarter. The previously well known gold hedger received a price of $925 an ounce of gold in the quarter. Sales in the quarter rang in at $1.96 billion as the company produced 1.7 million ounces of gold at total cash costs of $393 an ounce. All was not rosy however, as this figure is down from the 2 million ounces produced in the same period of 2007 when cash costs came in at $309 an ounce. Barrick ended the day down C$0.01 at C$39.40.

Meanwhile AngloGold Ashanti fared much better after reporting earnings of $105 million for the first quarter of 2008 and production of 1.2 million ounces of gold. Total cash costs for the South African company came in at $430 per ounce and importantly, Anglo finally announced that its La Colosa project in Colombia holds an inferred resource of 12.9 million ounces of gold within 468.8 million tonnes grading 0.86 gram gold per tonne. Anglo ended the session up $3.50 in New York at C$38.31.

Shares in VMS Ventures rallied on news that the junior cut 1.09% copper over 102.5 metres at its Reed Project Discovery Zone in Manitoba. VMS ended the day up C$0.09 at C$0.60.

It was a good day for Sprott Resource as the company inked a deal with Altius to explore for potash in the St. George’s basin in southwestern Newfoundland. Under the deal, Sprott can earn a 60% stake by spending C$2.5 million over 4 years. Sprott ended the session up C$0.52 at C$3.75.

Profit taking was the story of the day for Goldsource Mines. After running up from C$0.30 to nearly C$5 per share on speculation of a major coal find in Saskatchewan, Goldsource ended the day down C$0.26 at C$4.29.

All lights were green for the Canadian markets as investors start to become believers that commodity prices won’t be falling off a cliff anytime soon. We will see what Wednesday trading has in store.