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China’s Inflation Problem Looms Large

By Peter Schiff, January 19

The global economy has become so unbalanced that even government ministers who would normally have trouble explaining supply or demand clearly recognize that something has to give. To a very large extent the distortions are caused by China’s long-standing policy of pegging its currency, the yuan, to the U.S. dollar. But as China’s economy gains strength, and the American economy weakens, the cost and difficulty of maintaining the peg become ever greater, and eventually outweigh the benefits that the policy supposedly delivers to China. In the first few weeks of 2011 fresh evidence has arisen that shows just how difficult it has become for Beijing.

Twenty years ago, China’s leaders decided to ditch the disaster of economic communism in favor of privatized, export-focused, industry. The plan largely worked. Over that time, China has arguably moved more people out of poverty in the shortest amount of time in the history of the planet. But somewhere along the way, China’s leaders became addicted to a game plan that outlived its usefulness.

In order to maintain the peg, China must continually buy dollars on the open market. But the weaker the dollar gets, the more dollars China must buy. And with the U.S. Federal Reserve pulling out all the stops to create inflation and push down the dollar, Beijing’s task becomes nearly impossible. Last week, it was announced that China’s foreign exchange reserves, the amount of foreign currency held at its central bank (mostly in U.S. dollars), increased by a record $199 billion in 4th quarter 2010, to reach $2.85 trillion. These reserves currently account for a staggering 49% of China’s annual GDP (if the same proportional amount were held by the U.S., our measly $46 billion in reserves would have to increase 163 times to $7.5 trillion).

In order to buy these dollars, the Chinese central bank must print its own currency. In essence, China is adopting the Fed’s expansionary monetary policy. In the U.S. the inflationary impact of such a strategy is mitigated by our ability to export paper dollars in exchange for inexpensive Chinese imports. Although prices are rising here, they are not rising nearly as much as they would if we had to spend all this newly printed money on domestically produced goods. The big problem for China is that, unlike the U.S., the newly printed yuan are not exported, but remain in China bidding up consumer prices. As a result, inflation is becoming China’s dominant political issue.

It was recently announced that in November China’s consumer price index rose 5.1% from the same time a year earlier, with food prices rising more than 10%. As unrest builds, the Chinese government has unleashed a series of policies to address the symptoms of the disease while ignoring its root cause.

This article is written by Peter Schiff of Europac and with their kind permission, O B Research has been privileged to publish their work on our website. To find out more about Europac, please visit:

NEWS: Orvana Reports Drill Results From Copperwood S6, Michigan, USA

Orvana Minerals Corp., through its wholly-owned subsidiary, Orvana Resources US Corp, announced today assays from 15 infill drill holes on Copperwood S6 (“S6”) mineralization located east of and adjacent to the Copperwood copper deposit, Michigan, USA. These holes were part of a 4,930-metre drill program that was completed on January 8 (see January 6, 2011 press release available on the Company website www.orvana.com and SEDAR www.sedar.com). Based on the sampling of 23 1950s drill-hole core and reject samples, an Indicated resource of 8.41 million tonnes of 1.42 % copper was estimated for S6 (see December 14, 2010 press release available on the Company website www.orvana.com and SEDAR www.sedar.com). Results are summarized in the table below.

Hole   From, m   To, m Thickness, m   Cu, %   Ag, ppm
CW-10-125   86.8   89.2 2.4   1.49   5.0
CW-10-128   96.4   98.3 2.0   1.46   1.6
CW-10-129   104.4   106.7 2.3   1.47   1.2
CW-10-130   87.8   90.0 2.2   1.52   4.1
CW-10-131   95.4   97.5 2.1   1.51   1.5
CW-10-132   141.3   143.4 2.1   1.42   2.3
CW-10-133   136.7   138.7 2.0   1.43   1.9
CW-10-136   223.6   225.6 2.0   1.47   1.4
CW-10-137   151.3   153.7 2.4   1.33   1.3
CW-10-138   145.5   147.2 1.8   1.04   1.1
CW-10-139   161.8   163.8 2.0   1.27   0.6
CW-11-140   169.2   170.9 1.7   1.38   1.3
CW-11-141   190.9   192.7 1.8   1.53   1.5
CW-11-142   211.4   213.0 1.7   1.13   0.9
CW-11-143   190.0   191.8 1.8   1.29   1.8
Note: Total depths and total thicknesses are reported. The mineralized units strike approximately 090 and dip approximately 7-12 degrees north. Multi-shot surveys from these vertical holes showed that the deviation is typically <1 degree. True thicknesses are between 96% and 99% of the total thicknesses reported herein.

“With these data in hand, we can now proceed to update the resource estimates in Copperwood and S6, which will lead to a revised mine plan that will include resources from both areas” said Dr. Bill Williams, President of Orvana USA.

Marston and Marston of St. Louis, Missouri was retained to evaluate the combined resource estimates in Copperwood and S6 with the purpose of including the latter in the mine plan for the pre-feasibility study and mine-permit application.

Copperwood and S6 are sedimentary stratiform copper deposits hosted by the Precambrian Nonesuch Formation. The mineralized unit, or the copper-bearing sequence (“CBS”), lies at depths between about 30 metres (100 feet) and 265 metres (870 feet). The CBS is amenable to underground, room-and-pillar mining. The mineralization is analogous to the White Pine mine, located 30 kilometres (18 miles) to the east, where nearly 2 million tonnes of copper was produced between 1953 and 1996.

Mineral resources that are not mineral reserves do not have a demonstrated economic viability.

Theodore Bornhorst, Ph.D., who is an independent qualified person for the purposes of NI 43-101, reviewed the assay results and verified the QA/QC. Copper and silver were analyzed by accredited Activation Laboratories Ltd, (ACTLAB) in Ancaster, Ontario Canada. Analytical procedures are the same as described in the Copperwood Project NI 43-101-compliant Technical Report “Copperwood Project, Michigan, USA”, whose effective date is April 30, 2010.

A map showing the location of the drill holes is available on the Company’s website, www.orvana.com.

Full release

NEWS: Orvana Provides EVBC Development Update and Reports Drill Results From Carles Deposit, Northern Spain

Orvana Minerals Corp. today announced a development update for the El Valle-Boinás/Carlés (“EVBC”) gold-copper mine in northern Spain as well as results from the underground drilling program at Carlés, the satellite deposit.

Development update

The development in the El Valle/Boinás and the Carles mines is progressing well. The development has focused on preparing the mine infrastructure, main ramps and stope accesses. During December 2010, an important ventilation raise was finalized in El Valle-Boinás mine between the 200m and 100m levels and has significantly improved the working conditions in the deeper levels of the mine. All of the important production equipment has been delivered, and subsidiary equipment will be delivered during early 2011. Approximately 15,000 tonnes of ore from the development work has been stockpiled. Mining of the ore from both mines is scheduled to progressively increase over the next few months. All of the important equipment in the processing plant has been refurbished, tested, and proven to be operational. First production is scheduled during the spring of 2011.

Drilling Results

The drilling is a part of a planned 12-month, 20,000-metre program that commenced in September, 2010. The results reported herein are from the Capa Z zone, which zone lies between the Carlés North and Carlés East orebodies and consists of over 80% inferred resources. Mineralization is hosted by a subvertical, tabular skarn that wraps around an intrusive. These holes are the first that the Company has drilled in the Capa Z zone and were both infill and stepout holes. Results are summarized in the table below.

Hole   From, metres   To, metres   True Thickness, metres   Au, gpt   Ag, gpt   Cu, %   Recovery, %   Zone   Comments
10CE1001   94.35   103.20   5.58   4.21   25.8   2.32   99.8   Capa Z   Infill
10CE1002   72.30   74.50   1.39   3.44   0.6   0.00   99.4   Capa Z   Infill
10CE1003   25.10   28.00   1.91   2.13   1.6   0.17   100.0   Capa Z   Infill
10CE1003   49.40   50.85   0.96   2.89   7.3   0.47   96.0   Capa Z   Infill
10CE1003   58.85   59.60   0.50   59.60   13.7   0.05   93.0   Capa Z   Infill
10CE1004   122.20   128.25   1.63   2.69   2.1   0.02   89.8   Capa Z   Stepout
10CE1005   79.95   81.65   0.92   4.25   0.5   0.01   99.0   Capa Z   Infill
10CE1006   86.90   91.75   2.57   1.76   10.3   0.86   99.0   Capa Z   Infill
10CE1007           no intercepts               Capa Z   Infill
10CE1008   64.60   66.60   1.64   3.38   8.2   0.01   100.0   Capa Z   Infill
10CE1009   68.55   69.45   0.77   2.74   1.3   0.05   100.0   Capa Z   Infill
10CE1010   105.75   107.30   0.60   2.69   7.5   0.45   100.0   Capa Z   Infill
10CE1011   82.45   84.55   1.01   5.33   41.9   1.31   100.0   Capa Z   Stepout
10CE1011   87.10   93.30   2.98   4.67   13.7   1.44   98.9   Capa Z   Stepout
 
Note: True thicknesses were determined graphically by measuring the distance approximately perpendicular to the contacts. No values were capped.

“These results verify the continuity of, and in some cases extend, the mineralization in areas where inferred resources were estimated at Capa Z,” said Agne Ahlenius, General Manager of Kinbauri Espana S.L., a wholly-owned subsidiary of Orvana Minerals Corp. “Drilling will continue in Carlés and we currently have 2 rigs underground that will drill on the A107, San Martín and the Boinas East orebodies at El Valle-Boinás.”

More information related to the EVBC geology and mineralization can be found on the Company’s website www.orvana.com

QA/QC

Security measures were taken to ensure the integrity and validity of the mineralization and proximal rocks in the new drill core under the supervision of Santiago Gonzalez-Nistal, Chief Geologist, Kinbauri Espana S.L.U., a qualified person for the purposes of NI 43-101. The core was sampled based on lithologic and alteration considerations. Assays were completed by ALS Chemex. The QA/QC protocol included internal and laboratory certified reference materials, blanks, duplicates and check assays. A 30-gram sample was analyzed by fire assay methods for gold and a conventional ICP-AES analysis was used for the analysis of 35 elements. Copper values exceeding 10,000 ppm and silver values exceeding 100 ppm were re-analyzed by atomic absorption using a 4-acid digestion. 

Qualified Person

The technical information contained in this document was prepared under the supervision of Bill Williams, Ph.D., VP Corporate Development, a qualified person for the purposes of NI 43-101.

Full release

NEWS: OceanaGold Corporate Update

OceanaGold Corporation wishes to provide a corporate update relating to various media reports in recent days regarding community issues associated with the Didipio Project in Northern Luzon, Philippines.

The Company has been made aware that the Commission on Human Rights of the Philippines (“CHR”) has released a resolution in response to certain allegations made against the Company in 2008/2009. The Company is concerned that it has not been formally notified by the CHR office, yet it would however appear that this report has been made available to certain interest groups and media outlets in the Philippines.

OceanaGold is fully committed to the development of the Didipio Project. The Company continues to maintain its obligations under the leasehold agreement (Financial and Technical Assistance Agreement) and is operating in accordance with the Philippine Mining Act in partnership with the Philippine Government and with local community stakeholders. The Company is compliant with all the laws and regulations associated with operating as a foreign company in the Philippines and is committed to ethical, responsible and sustainable mineral development.

The Company is actively involved in a number of community and humanitarian programs in the local communities situated near the Didipio Project with particular efforts in health and medicine, clean water provision, education, reforestation and environment, community development and infrastructure. The company insists it has met, and is committed to continuing to meet, the human rights of the local community.

OceanaGold CEO, Mick Wilkes stated “The Company is firmly committed to building strong and enduring relationships with our community in the development and ongoing operations of the Didipio Project for the benefit of all stakeholders.”

OceanaGold has commenced pre-construction activities on the Didipio Project, with detailed engineering design of infrastructure and the process plant now underway. Additionally, key members of the project management and construction team are now in place. The Didipio Project is fully financed, has the necessary permits and is on schedule to achieve commercial production in Q1 2013.

Full release (pdf)

J.P. Morgan’s 47% Profit Jump: It’s Your Money!

By Tony Richardson, January 18

A look at how easy money inflates bank earnings

Historically speaking, the roots of J. P. Morgan Chase & Co. make it arguably the most influential financial institution since the turn of the 19th century. JPM enjoys a prominent position as the second largest bank in the U.S. with roughly $2.12 trillion in total assets, and acts as the ‘go-to’ firm for the Federal Reserve in times of economic turbulence.

On January 14, 2011, The Wall Street Journal reported, “J.P. Morgan Chase & Co.’s (JPM) fourth-quarter profit jumped 47%, as the banking giant’s asset quality improved and it said consumers and businesses were looking for more loans.” Full-year 2010 net income totaled $17.4 billion. However, according to this chart from a Bloomberg report on JPM’s 2010 loan history, even though consumers and businesses are looking for more loans, fewer loans are being extended:

How is it that JPM, along with its brothers Bank of America, Citigroup and Wells Fargo – all of which make up the “Big Four” – are able to post such stellar profits in the face of a flagging economy, rising food & energy prices, record foreclosures, high unemployment, and tight credit? The following are three ways easy money pumps up their earnings:

1) Banks earn 0.25% interest on excess reserves held at the Federal Reserve.

Consider the $2.5 billion in free money banks ‘earn’ each year on the $1 trillion in excess reserves held by banks at the Fed – free money the Fed just snaps into existence;

2) A ‘money drop’ from excess reserves is considered earned income. In JPM’s case,

it released $7 billion in pretax reserves which was counted as net profit. And while on deposit at the Fed, that $7 billion ‘earned’ JPM $17.5 million in interest payments; and

3) The most creative “gift” to the banking industry is what I call their “Fed/Treasury-engineered taxpayer-backed guaranteed stream of income.”

How does this work? First, the Fed artificially holds the fed-funds rate down at 0.25%. Then, primary dealers, like the Big Four, borrow from the Fed’s Discount Window at a preferred rate of 0.75%. They borrow billions as they please without even having to give a reason for taking the loan. They put up collateral for loan, and it’s done.

What collateral does the Fed accept? Commercial, industrial, or agricultural loans; consumer loans; residential and commercial real-estate loans; corporate bonds and money-market instruments; obligations of U.S. government agency and government sponsored enterprises; asset-backed securities; collateralized mortgage obligations; U.S. Treasury obligations; and state or political subdivision obligations. Oh, I’m sorry, are you trembling in shock as I did when I realized this? The Fed actually accepts this… stuff as collateral for billions in ultra-low-rate loans to banks.

But here’s the interesting part: Banks take out loans at 0.75% and can buy Treasuries that yield on average about 1.65%. Borrow at 0.75% and buy at 1.65%, which gives banks a 0.9% spread. This may not sound like much, but if JPM puts up 20% of its assets, such as listed above ($424-billion worth), they would “earn” $3.82 billion a year, which, after stripping out the $7-billion money drop from excess reserves, would account for over a third of JPM’s full-year 2010 net income. Imagine how juicy earnings reports will be for the other banks over the coming quarters, thanks to Fed/Treasury free money!

All this is great information, but the real kicker is this: The earnings I just described is your money. It derives from taxpayer dollars transferred to banks. And from the money the Fed puts into play through reverse repos and security substitutions on banks’ behalf to the interest the Treasury pays banks, you and I are on the hook for every penny of it.

But there is another problem on the consumer side of the equation. Can you feel the inflationary effects of this Fed/Treasury dollar-proliferation program? The more dollars created, 1) the further each greenback devalues; 2) the more of them international suppliers demand; and 3) the higher producer & consumer prices rise. Certainly you’ve noticed how high gasoline prices have become over these quiet winter-driving months? Oil suppliers are requiring more dollars for the same amount of product. And have you observed how metals (gold, silver, copper) and various other commodities (coffee, cocoa, sugar, corn, wheat, cotton) are moving higher in price? Producers want more dollars for their goods, and those costs are being passed on to the American consumer.

Back to the chart, why aren’t banks as generous in lending to consumers & businesses as the Fed is in lending to banks? Bottom line, it’s not profitable for them. The U.S. went from being a 19th-century producer to a 20th-century consumer. And now that we have passed the production baton to 21st-century emerging nations, and depleted our savings, banks recognize we are crippled with debt and have limited means by which to pay it off.

To add insult to injury – and evidence of how the U.S. no longer where the profits are – Goldman Sachs just announced that the bank holding company is excluding its U.S. clients from the private offering of as much as $1.5 billion in shares of social-media company Facebook, citing “intense media attention.” Say what it wants, but allow me to cut to the chase: If Goldman – a top-in-class laser-focused profit-producing predator – thought the money to be made was in the U.S., it would fight to the finish. But its decision to bar Americans from the private offering, along with JPM’s retreat from U.S. lending, signals that the banking sector has determined the grass is greener outside U.S. borders. To think: An American bank underwriting shares of an American company is shutting out American investors! I guess I will just have to get used to my backseat economic status.

As banks fare well on the back of taxpayer dollars, all I want in return from banks at this point are these: free checking, free debit-card use, and a lollipop on each branch visit.

This article is written by Tony Richardson of Richardson Heritage Group and with his kind permission, O B Research has been privileged to publish his work on our website. To find out more about RHG, please visit: