Small cap resource stocks have been absolutely trashed over the last 12 months. Many companies are running out of cash as well as credit and some are closing their doors. It’s Darwinism at its’ finest. The strongest companies, those with world-class management, strong balance sheets, and access to capital will survive and prosper. Those with little cash on hand, shaky prospects, and inexperienced management will disappear.  And now is the time to take positions in the most promising leaders who are positioned to directly benefit from the ongoing financial chaos.

A merger and acquisition mania is now underway. Take a quick look at some recent announcements:

• Canadian Gold Hunter (CGH:Toronto) is taking over Sanu Gold (SNU:Toronto).
• ATW Gold (ATW:Toronto) is merging with Kinbauri Gold (KNB:Toronto).
• New Gold (NGD:US) is combining their business with Western Goldfields (WGW:AMEX).
• IMA Exploration (IMR:AMEX), Kobex Resources (KBX:Toronto) and International Barytex (IBX:Toronto) are working on a merger.
• Linear Gold (LRR:Toronto) recently acquired GLR Resources (GLR:Toronto) Goldfields Project.
• Geoinformatics Exploration (GXL:toronto) is acquiring Rimfire Minerals (RFM:Toronto).

This is just for starters. The primary point I’m making is that M & A activity is on a massive upswing. This is rapidly changing the complexion of the sector and creating fabulous opportunities for investors.

This environment is ideal for selecting and riding the best run companies as the precious metal bull market continues to unfold. The companies leading the charge in this consolidation will emerge from this process stronger than ever. There are numerous advantages for shareholders:

• A superior management team typically results.
• Synergies are created.
• Overhead costs are lowered.
• The portfolio of properties and projects are increased which improves company diversification.
• More dollars are allocated for the most promising exploration targets.
• Larger companies attract the buying power of heavyweight financial institutions.

“Super Juniors” are being created. Companies with cash are marrying companies with exceptional projects in need of funding for advancement. Producers are gaining access to more reserves. Key technologies are being shared. These are clearly win-win situations.

We have long been acquiring the companies acting as resource consolidators in my Resource Windfall Speculator advisory. They are snapping up distressed bargains across the globe. Cash and connections are tough to beat these days.

Yes, size does matter. So does staying power. Personal fortunes will be made by savvy investors who now hitch their wagons to the talented and aggressive management teams constructing companies that will grow and dominate in the coming years and decades.

There is nothing quite like owning an un-expiring lottery ticket!

Source:  M & A: Resource Style

Still there is much to be shared with you. Even more so as China has taken center stage with their Olympics.

My wife and I experienced the trip of a lifetime. It was nothing short of exhilarating from start to finish. If you ever have the opportunity to go, you simply must get there. It will change your life.

Is this a “financial” topic? You had better believe it. The China growth story is nothing short of phenomenal. They are experiencing a reawakening the likes of which the world has never before experienced. The Middle Kingdom is destined to be one of the 21st century’s major players. The “East” is back.

The China phenomenon…let’s peruse it. China’s growth story is much like that of London’s industrial revolution in the early 1800s. You simply have to experience it to grasp its magnitude. How about the resulting smog? It is absolutely horrible in cities like Beijing. Don’t expect to see the sun or the stars while there. The Great Wall of China is 78 kilometers outside Beijing and it was still covered with haze. You’ll need to buy a postcard if you want blue sky. Still, the wall is a must climb. Be prepared to negotiate with assertive vendors. Prices are exceedingly negotiable.

You’ll likely be tired of hearing about the pollution problems in China by the time you read this missive. American cities are too polluted for my taste. Jimmy Rogers, the famous investor and author, recently scanned Asia for an ideal location to raise their family. Beijing was ruled out as “unlivable” for health reasons. Unfortunately, most people don’t have the luxury of such a choice. The Rogers reside in Singapore.

You may also be ready to hear from someone who doesn’t have a blatant China bashing agenda. Pity the folks who subject themselves to the nightly brain washings (evening news). Some would love to see China get a black eye.

What else is bad about China? If I lived in China, I would be deported for my regular government exposes. They don’t tolerate people who are critical of the government. Hopefully, those freedoms will remain in the US. Stay tuned.

The original intended title for this series of articles was “Checking Out the Commies”. It turns out it’s not that simple. Only 25 percent of the Chinese people actually belong to the communist party. You must be invited to be a member. It helps enormously if you are an ethnic Han (92 percent of the population). The greatest deals and connections thus come to fellow communists who just happen to be Han. That is part of the issue in Tibet.

The China political scenario is in some ways similar to that of the US. You may be a liberal, libertarian or true conservative. Your ruling party is presently “neo-con” or whatever you want to call our present goofballs (I blast them all on a non-partisan basis and they regularly fall below my negative expectations). The current powers rule but do not reflect 100 percent of the populace. The difference in China is that new elections don’t come around every two to four years. The communists are in power until overthrown. They are the present emperors in the Chinese tradition of such.

I sensed that the Chinese are, in general, very amenable to being ruled with an iron fist. It is what they have experienced for thousands of years. Few understand or appreciate total freedom. No comments about present day America.

Expecting all Chinese to be communists party members is like expecting all US citizens to be neo-cons. Scary thought. It may just be that I never once had discourse with a true “communist” (party member) while in China. The citizens we did encounter were like people most everywhere. They were unique and delightful. Governments are another story altogether.

My US passport lists my occupation as a dentist. No problem. On the other hand, I was advised, it would have been a different scenario if “journalist” was the category listed. That would have required a higher degree of official supervision from the state. I assume we would have had an extra helper along the tour. The dialog would have been severely curtailed.Good thing I’m not a journalist.

The people we encountered were open and honest. All questions were happily answered, regardless of sensitivity. Believe me, I asked a bunch. I also realize our tour was “directed” as to where we could go and what we could see. We saw a lot of state sponsored facilities.

Few countries have experienced the enormous changes experienced by the Chinese in the last 100 years. Their last emperor ruled up to 1912. Chiang Kai-shek and the Nationalists fought with the communists for control of China from 1927 until 1949. Some mark the start of World War II with the Japanese invasion of mainland China in 1937. The US, via General Joseph Stillwell and his Flying Tigers, held off the Japanese at Chongqing. We visited the Stillwell Museum and read all about how WWII was fought against fascism (link “Is Fascism in fashion?”). No comments about present day America.

The communists took over China in 1949. You realize the different perspectives around the globe when you hear a Chinese citizen talk of being “liberated” by the communists.

The infamous Chairman Mao brought forth the Cultural Revolution and the expulsion of western influence in 1966. Millions were slaughtered.

Since the mid 1990’s we have seen “liberalization” of the Chinese political and economic scene. Presently, they are the fastest growing economy in the world utilizing a large degree of western capitalistic methodology. It is a weird mix for sure.

Wow! Talk about future shock. The last century has brought enormous changes to all across the globe, much more so in China. Some of them live like current residents of high end Los Angeles. Others live as their ancestors did some 3000 years ago. The complexity of it all is mind-boggling. “Upwardly mobile” defines this populace.

In some ways it’s really not that much different from present day US. We have little connection with our true rulers. We are a President, Senate, House and various other puppets removed from those who actually pull the strings. Most refuse to see this.

Everyday people live out their lives. Power mongers live out their schemes. Nothing new under the sun.

How about a few special moments from this tour? The T.S.A. (Travel Suppression Agency), once again left me a cute little note that they’d rummaged through my luggage.

We saw western attire most everywhere we went. Lots of high fashion.

Cranes and construction were everywhere. Downtown Atlanta looks like a roadside farmhouse in comparison to the scope of what they are building. They will put up 50 high rises in a project area. A floor can be assembled in three days.

We listened to three lovely Filipino ladies singing Patsy Cline songs in a hotel lounge. Patsy rightfully rules the globe.

It was fairly common knowledge amongst the locals that the US is in an economic decline. If our politicians could get out a little more, they’d know we’re in something much worse than just a “soft spot”.

Their 3 Snake Wine was a culinary delight. Three dead snakes in a bottle of liquid makes quite the liquor. Good for rheumatism and possibly an aphrodisiac (don’t ask). A Chinese Bud Ultra on standby as a chaser. Didn’t need it.

Many Chinese people don’t see Americans on a regular basis. There were several requests for photo ops in Tiananmen Square and other locales. The men in our group were the desired targets, much to the dismay of our spouses. Nothing like having three young and fashionably attired Chinese ladies smiling for the camera to make you feel a tad younger (those emperors had a tough life).

All in all, China was a sensory feast. Hopefully, they’ll get the pollution under control some decade. Hold your breath. The food was superb. The people were gracious and friendly. The hotels were the nicest we’ve ever stayed in. A short glimpse of their thousands of years of history and culture was simply spectacular. It was nothing short of a trip of a lifetime.

Don’t pass up the opportunity to experience it yourself should the occasion ever arise. China is busting loose and the only direction from here is forward. They are a global player.

Travel Resourcefully,

Rusty

Source: China: Good, Bad and Ugly

Russel argues that junior gold mining firms are most likely to discover new reserves of gold. And when they do, the big companies will come knocking with a generous offer…

Are You Going to the Junior (Gold) Prom?

By Russel McDougal

Nobody likes the junior mining companies these days. Gold, silver and commodity prices in general are all soaring. Yet the tiny explorers can hardly catch a bid. How long can this persist?

Truth be told, the juniors are set up to throw quite a party. Think back to your most memorable high school “extra curricular activity” and let’s get ready for a replay. Toss in financial rewards as a bonus.

Junior explorers are tiny, efficient and mobile. They do the heavy lifting in global resource discoveries. Especially the Canadian companies. If you’re Canadian and have a geological background you likely also have wanderlust. Have drill- will travel!

On the other hand, the larger “senior” gold mining companies have a long standing and clear cut problem. They produce gold each and every year and thereby chew through their quantified reserves.  These reserves must be replaced or the company’s reason for existence goes away.

The seniors are not the ones who find the largest percentage of gold deposits. They have been maintaining or growing reserves through mergers and acquisitions for several years now. When Newmont Mining (NEM) acquired Franco Nevada in 2002 there were zero new ounces of gold reserves created. One company simply went away and a larger company was created. The same thing happened when Barrick Gold (ABX) took out Placer Dome in 2006.

The larger gold companies do most everything through committee. They have a level of bureaucracy that isn’t present in the small companies. The juniors can act quicker in staking a property or deal making. Qualified geological personnel are in short supply due to the decades-long resource bear market of yesteryear. When a Barrick Gold geologist makes a discovery he gets a big thank you and maybe a pretty plaque. When a geologist with a tiny micro-cap explorer makes one he’s found the mother lode. He has tremendous financial incentive to succeed through company stock, options or warrants.

High quality geological talent has moved to the juniors.

I’ve been aware of this game of “reserve replacement” problems for over 10 years. The seniors need gold and they will inevitably have to come looking in the direction of smaller companies with proven goods.

The seniors don’t like to pay up, but they inevitably do. Goldcorp (GG) bought out junior Virginia Gold’s Eleonor gold discovery in a deal valued at $475 million. Those of us who bought shares early saw returns of $50 to $100 for every initial dollar invested. If you find it, they will pay. So, how are the companies doing that are designated the most significant gold finders?

You wouldn’t know it by looking at this chart that gold, silver, oil and most commodities are up significantly in the last year and a half. The shares usually show a high degree of correlation to gold prices but they are actually down at the present time. This CDNX index is the best overall representative of the Canadian junior explorers. There is a total disconnect between commodity prices and explorer prices.

Junior stocks have hit the skids over the last 12 months. When the relative strength index (RSI on the above chart) has gone near or below 50 this decade a rally has ensued. We’re there again. The juniors are oversold.

Stocks like the old Virginia Gold are best bought during such times of overall sector weakness. They are on sale.  If Buffet advocates buying “straw hats in winter” we can correspondingly buy Canadian parkas in summer.

Yes, the biggest mining companies must replace their reserves. They will be looking to quality junior projects with proven ounces in the ground. The juniors are set to throw a monster ball.

Source: Are You Going to the Junior (Gold) Prom?

Jim thinks illegal short selling is distorting the market and wants to stamp it out. In particular, he says junior exploration stocks have been long abused by illegal shorting. And he’s offering $50,000 (in gold, naturally) to anyone who can help him out…

The Biggest Stock Market Scandal You’ve Never Heard Of

By Russell McDougal

Can you make your life’s fortune swimming upstream? Yea, I think you can. Stay within the school and you’ll receive what the masses historically receive… a portion of bread and a ton of circus. Make that bread and CNBC if you will.

You are wise not to get caught up in the day to day and minute to minute pabulum thrown your way by the NY/DC axis of weasels. The knee jerk reactions they illicit are best left to the orthopedic surgeons.

Let’s look at some big picture stuff. The most gullible people on the planet, overall, have U.S. zip codes. It is nothing short of astounding how many citizens buy into the official stats our government regularly dispenses. Distraction may just play a part in that problem. Life is complex and I confess to being easily distracted. We must insist on focus.

Today we’re going to look into a criminal enterprise that would make Al Capone blush. He’s turning over in his syphilitic grave and kicking himself for not being the first to think of it. Lacking imagination, that guy.

Here’s the deal. I’ll start with a poem… “he that takes what isn’t hizzen, pays it back or goes to prison”.

Talk about an outmoded ditty. These days you can take what’s not yours, sell it, and not go to prison. White collar folk seldom do hard time in case you wondered. They just pay back 10 to 20% of their ill gotten gains.

Would you like unlimited access to trade a market in your desired direction?

Most of us simply buy stocks and go long that position. We are convinced it’s going higher. You can also short a stock. Say, for example, you believe IBM is going lower. You can sell IBM even though you don’t personally own it. You can call your broker tomorrow and sell IBM and the money from this sell will then appear in your account.

This type of transaction is legal because the intermediary (your broker) can borrow IBM stock from a different client and sell this stock into the market. “Shorting” is a completely normal market function. You can go long or you can go short. It’s all good.

Where’s the problem? You are not supposed to be able to short a stock unless you can actually access that stock. Do you think you could hold sway over a market if you were given unlimited access to that particular position? You don’t have to own it personally and you don’t even have to borrow it.

It’s called a naked sale. You sell something you don’t own and have no access to. You can influence and actually dominate any market you choose with this mechanism. This is completely illegal if the intent is to force share prices lower. Unfortunately, the security laws regarding this type of fraud are not enforced.

Naked short sells are commonplace. U.S. hedge funds appear to be the primary abusers. Small cap stocks are the frequent targets. Some companies have more shares sold short than they have issued! This is an obvious fraud. Dishonesty has been institutionalized.

The junior exploration stocks have long been abused by these activities. Recent events suggest this is about to cease. A gentleman named Jim Sinclair has just pledged his full attention and personal fortune to the cause of ending this fraud. Sinclair has been an absolute giant in the world of gold for decades. He knows his stuff. He is also completely fearless.

His recent proposals put illegal short sale offenders on notice that they stand to be criminally prosecuted. A $50,000 gold reward is part of this picture. So is organizational activity. Expect more perp walks in the coming months and years.

I strongly believe that the entire junior exploration and mining share sector has been under the influence of both legal and illegal shorting activity. This is a partial explanation for their recent failure to keep pace with various commodity prices. Their historic leverage to mineral prices has been M.I.A. for an extended period of time.

We’ve definitely been swimming upstream, but the currents are now changing. It will just take a few exposures to put an end to illegal naked short selling. No one wants to spend their days alongside the deposed Elliot Spitzer.

When, not if, the naked short-selling drag is removed from these small stocks, they will begin a price appreciation process. Those who are shorting them legally will have to close out their positions. The only way this can be done is to buy the shares back. The shorted companies will turn upward. Possibly with a vengeance.

All small stocks are particularly vulnerable to targeted shorting. It’s not just those in the resource sector. The Enron debacle is more representative of our markets than most care to believe. We demand and deserve better.

Invest Resourcefully,

Rusty

P.S. Jim Sinclair’s considered opinion is that gold is next heading above $1600. I don’t doubt him. Being short anything gold related when we head in that direction will be financial suicide.

P.P.S. To let me know what you thought of today’s article, send an e-mail to: feedback@investorsdailyedge.com.

Source: Are You Being Yanked by the Shorts?

Want to see Jim Sinclair’s gold tips? Click here to read more about which way Jim thinks gold prices are headed.