marketsgoingforward

      For months now we have been stating that the mortgage market can go lower and lower as many
people thought that the problem could be over in a matter of months. It is a situation we find very
interesting as well as quite frightening at the same time. Recently we could not help but to chuckle at the
predicament some of the smartest men in the world find themselves stuck in. Not only have they had to
bail themselves out by selling large chunks of new equity in their companies to foreigners, face mounting
lawsuits, but to top it off they now must bailout the leading bond insurers! It seems that everyone
involved in the mortgage securities business has fallen out of favor, and rightfully so, with investors.

      When you look at the cycle of how these securities came to life, you get a picture which follows
these steps:




      At this point, everyone seems to be upset (to put it kindly) with the banks, and we now see a flow
where the banks are having to go backwards through this web and support the securitization market…for
themselves as well as their partners in crime. If supporting the market here by stepping in and giving
money to the bond insurers keeps their credit ratings at AAA level or equivalent, then that will solve one
of their problems, but many more loom on the horizon. What will be very interesting going forward will be
our first chance to look into the books of these companies and see how they are accounting for their
securities. More important will be how the accountants view the assets on their books. The accountants
should state the truth, which is that these securities are not worth very much, but most likely they will not
and will be but another party sucked into the subprime mortgage debacle.

      This is something that we will be looking at more in-depth at later on, but shall be very important for
the market going forward. Many of the financials are up over at least 20% since the Federal Reserve
cuts at the end of January, but we see more storms over the horizon.

      Getting back to mining, we are beginning to do our forensic research on many uranium companies
to see where the real value is. We have found a few companies which are quite intriguing, however we
are taking note that should the market continue to fall rather than bounce then putting new capital in at
this time might be out of the question (We are not a Wall Street bank mind you!).

      We also like the potash companies at this time with Potash of Saskatchewan Corp. being our
favorite, as it has been for years. What is of interest to us is that should BHP Billiton be unsuccessful in
its bid for Rio Tinto, then it very well could make a go at POT. This would give it a controlling stake in the
world potash production market and give it control of much of the world’s available reserves for
development.

      The Mosaic Company is another potash producer we like, although it does have exposure to other
fertilizer components and less exposure to potash than POT. One thing we would caution investors
about is that as Agriculture ETFs rise, MOS rises quickly with a standard deviation greater than others in
the space such as POT, AGU and the like. The downside to this is as the ETFs sell off, MOS falls harder
than its siblings and thus the losses can be far greater than the industry. This is simply a case of the tail
wagging the dog, because as the ETF money rolls in and out it creates an imbalance in buyers and
sellers in the market for MOS shares.