I am still holding my PM juniors, even though the value of my PF has been virtually wiped out in just a year. Perhaps the prudent thing to do would be to just sell out all of the stocks that I own which are now trading below a dime, of which I have many hundreds of thousands of shares, and move to the sidelines. And then what?

My original investment parameters have always revolved around identifying individual companies that presented high potential yet traded below the peer group. And that strategy worked very well for the first half of this bull market. Now, not so much...

I think the problem is that the markets themselves are now broken. Systemic corruption and reckless greed have destroyed the structure of our markets. Sure there is deleveraging going on, on a massive scale. Yes, wounded investors are taking money out and fleeing to treasury notes. But I now believe it is the entire system that has come undone. If it was just a cycle of redemptions, that would be a healthy correction to set the foundation of the next bull market. But if indeed it is corruption that has fouled the system, then we have lost a generation of investors who will never trust the market again, and the money flow will not return.

I think the entire mining sector has been damaged by the above. More than any other business, mining is capital intensive. If you cut off the access to capital, then very few of the miners can survive. We are seeing the early stages of that right now. The problem is more than just an investment issue. Without the juniors, the senior miners cannot replace the depleted ore bodies that are generating their revenues.

The mining sector already is weak from a lost decade in the 90s, when so many projects went on the shelf, and so many industry professionals retired or moved on to other carreers. It now looks like we are facing another sustained period of inactivity. During the first episode the world was fortunate that large metal inventories and stockpiles had built up, that could be drawn down while the sector recovered. This time, the situation is far more accute. As more mines are shut down due to low prices, or depleted and closed forever, where will the metals come from?

Unless people believe that our planet will renounce all metals consumption, that we are going back to the stone age, then what is going on now is the early stages of a crisis. I believe an energy crisis is also in the cards, which will only make the challenges ahead for the mining industry even more severe.

So the game has changed. On the one hand, as investors, we face a long time when there may be limited upside for our stock choices (if they can survive at all). And on the other hand, the bullish fundamentals for the industry may never be stronger, for those companies that do survive.

If we accept that corruption and market intervention have combined to create much of the stock market weakness, then the first solution would be to remove those toxic inputs. Stop propping up the criminals that robbed the entire system, and throw them all in jail. Let broken institutions fail. Direct stimulus packages back to the majority so that its not just a handfull of people to benefit. Declare a tax holiday on all new investments, or even create tax incentives and rebates on stock purchases.

And the government is going to have to stop lying to the people, and stop the manipulation in the metals pits. Enforce existing regulations and prevent concentration of short futures to drive metals prices lower than the cost of production. Restrain paper trading so that it represents less than the total amount of deliverable metal. These suggestions are not rocket science. Some balance of sustainability and trust must be restored to allow a healthy market to function.

I am not confident that any change is coming. I think the crooks in charge will bleed the system until it collapses. The leaders in this market will not make the changes or admit the mistakes that were causing the problems. They will continue to administer the same medicine that has been killing the patient. I think the miners are going to be driven to the brink of extinction, and the few surviving mines in the world may be nationalised as strategic resources in the worst case scenario, with supply rationed until several years of development can restore production levels. I think I may be holding my juniors like ECU and EDR for 3-5 years before I regain breakeven prices, if they survive and continue to achieve success in their biz plans.

Dick Cheney was influencing government policy such that companies he owned were beneficiaries. Paulson was handing out billions to shore up a company that he had hundreds of millions of dollars in personal exposure to. Rating agencies were being paid hundreds of millions of dollars to abuse the public trust by putting secure ratings on junk paper. Insurance companies booked billions in revenues to write policies for which they did not have the assets to cover. Brokerage houses and investment banks profited by peddling garbage to their clients while they were shorting the hell out of the same securities. From top to bottom, the system is corrupt, driven by lies and conflicts. The word is getting out. Maybe not in time to save the system, but perhaps a few of the ringleaders may be led out at pitchfork by the people that have been screwed, and that is the last thing I have left to hope for.

Call me crazy, but I will continue to hold. Some of my juniors will be bankrupt by this time next year. Those that survive will probably trade at low multiples while the entire market is in doubt. But the juniors that survive this will be the go-to stocks for a decade if the idiots that run the system can keep their hands off long enough to let it recover. So that is the last best option for me to stay invested in this den of thieves we call the stock market.

cheers!

mike