RF: I am sorry but this post hoc assumption of rationality in the market place that you profess is just not flying with me. Using this form of rationality one can explain anything and everything, how bees cannot fly upside down, whatever... Hindsight is always 20/20 and is completely useless for predicting the future or for developing remedies for a broken market place.

Reading the Kaiser Report was a revelation to me, and explains what is happening I think very well by pulling together pieces of information that we have encountered before but did not have enough knowledge or experience to interpret. As I proposed earlier, optimists think the market is broken for Tyhee, pessimists think there is manipulation. The Kaiser Report explains that the market is broken because of rampant manipulation aided by the maldistribution of information and technology between the ordinary shareholders like us and the big guys with the bucks to spend on the big instant trading machines. What is comforting for me is first that it is not personal - i.e. Tyhee is not necessarily the main or only target; and second, that it suggests fixes are possible and may be worked on even as we write. The small caps who are getting killed need to collectively confront the TSX/TSXV with the problem and devise a fix.

Living as I do in the Great White North, I also believe the government needs to whack some people around to relieve them of their ability to sabotage the market like this. Please see the hypertext and quote below.

Ike

http://www.kaiserbottomfish.com/s/KaiserBlog.asp?ReportID=559842

In that event much of the blame for handing the future of high risk high reward resource exploration and development to the Australian Stock Exchange can be laid at the feet of the TMX Group which in pursuit of short-sighted greed and possibly bankster inspired stupidity has strangled the resource sector as a risk capital allocation arena where investors speculate on fundamental outcomes rather than manufactured volatility. The decision to allow short-selling on a down-tick and the hookup of algorithmic trading systems to the electronic order book in a regulatory environment where juniors are severely handicapped in helping investors visualize the value of potential outcomes as a project travels from grassroots concept to a production decision, has created a one-sided playing field where trading predators systematically harvest capital in-flows from investors placing bets on fundamental outcomes.

Thanks to high speed connections that feed market depth data to powerful computers on a real time basis a new reality has been created whereby the TSX/TSXV market for resource listings can be likened to a vast information web on which lurk spiders monitoring for the slightest quiver that signals anomalous inflow of capital not emanating from fellow spiders. Like spiders sensing an ensnarled fly these traders race toward that stock's electronic order book and start feeding sell orders to match the incoming buy orders, displacing long shareholders by inserting their orders ahead of manually placed orders, or at the same price in the multitude of order execution platforms whose existence is touted as some sort of ode to competition and liquidity but which in reality fragments the market, violates the first come first serve principle that retail investors assume, and creates a two-tiered transparency where the professionals see the order book consolidated while the rest see only the TSX/TSXV order book unless they pay extra. The "spiders" see it all, and they intercept incoming real money orders by selling paper they intend to borrow, paper they never need to borrow, because before the day is over, after they have sucked up all the new capital possibly generated by a positive research report, a newsletter tout, a favorable mention by a video or audio media talking head or web article, or even by a direct pitch made by management to a fund manager or investor group, they lean on the bid side of the order book pounding out stock on a down-tick, triggering instant buyer's regret among the new shareholders placing bets on fundamental outcomes, and unleashing capitulation among the existing longs, who add their real sell orders into the downtrend, enabling the spiders to close out their short positions before the market close and eliminating the need to deliver on their intent to borrow the stock.

To what extent this happens today is hard to tell, because fundamentals oriented investors have withdrawn from the market, with the result that liquidity has dissipated, and the spiders find themselves cannibalizing each other, a practice that lacks sustainability because there is not a potential open-ended inflow of spiders with trading capital. Even if this equivalent of a vampire squid sucking the life blood out of the junior resource sector is muted today, the TMX Group has created the physical and regulatory infrastructure to facilitate this sort of activity on a massive scale should there ever again be a reason for fundamentals oriented risk capital to flood into the junior resource sector.

The tragedy is that during the past decade the Canadian junior resource sector matured, moving beyond the drill target generation and testing stages of the exploration and development cycle that characterized the eighties and nineties. The technical infrastructure to take a project from grassroots concept to a production decision is now available to the juniors, thanks to a strategic decision by producers to restrict their exploration to brownfields sites, namely next door to existing mines, and relying on takeover bids to bring mine development candidates into the fold. While the last decade proved very lucrative for geologists and mining engineers who migrated to the juniors where high salaries and stock options vastly exceeded the pitiful income they received while toiling as salaried company men for the majors, they tend to be over 60 years old, and not so keen to spend the next five years toiling in a bear market where extinction rather than a return to the glory days may be the outcome. Because the TMX Group has erected infrastructure that will snuff out the junior resource sector if and when it attempts a revival, we may see a situation where the Canadian resource sector not only sees the administrative institutions that support the junior sector vanish, but it may also witness the early retirement of the technical infrastructure. The latter is a problem because during the eighties and nineties when the environmental movement forced the mining industry to mend its ways, not a lot of young people felt compelled to study geology and mine engineering, and so there is a significant experience demographic hole in the mining sector.

Allowing short selling on a down tick and algo trading in a fragile market such as resource venture capital is worsened by the regulatory environment that has been erected to "protect investors". In this context it is wrong to use the word "investors", because anybody who puts money into a resource junior is speculating on an uncertain outcome. Let's be blunt: he or she is gambling. But unlike conventional gambling forums which are a zero-sum game minus the operator's cut where all that is accomplished is the redistribution of existing wealth, the flow of capital into the treasuries of resource juniors who spend most of the money (hopefully) on testing their geological hypotheses has the potential to create new wealth in the form of raw material resources that can support global economic growth. The mining sector is not engaged in creating new methods to waste time such as social networks and iPhone apps; it creates the means to make physical differences in the lives of people. Gambling on the fundamental outcome of exploration plays is the mechanism by which risk capital gets allocated to the prospects with the best probability of generating this new wealth. And for this mechanism to be effective, the gamblers need to have a way to visualize the payout, assess the odds of its delivery, and decide when a bet is good, fair or poor.

Visualizing a target or an emerging discovery is a difficult and complex process, though not one that is impossible to master. The task of painting a potential outcome is now officially done with reams of 43-101 compliant data and graphics provided by qualified professionals to the juniors, which can enable investors to construct resource estimates using rectangular blocks, drill intersections and orebody arithmetic (length x width x thickness - in metres - times specific gravity) that come surprisingly close to the formal 43-101 estimates. But when it comes to turning that potential orebody into an economic number, the company's lips are sealed until it produces a preliminary economic assessment which is done after the initial inferred resource estimate is published, typically 2-3 years after the junior started drilling a promising target.

The problem is that industry professionals know how to quantify the economic value range potential well before the initial resource estimate is published, but they are restricted from publishing such "educated guesses" in the case of brokerage firm analysts, and inclined to keep such quantifications to themselves for competitive reasons in the case of mining company employees. Both groups share a common agenda of conspiring against the interests of the resource junior and its shareholders. In the case of the brokerage industry whose goal is to finance a junior as cheaply as possible with the position accruing primarily to its client base, it has at its disposal an intimidating arsenal in the form of trading accounts, related hedge funds, and offshore entities that can manipulate the price downwards. However, through its encouragement of a predatory trading culture involving "independents" with direct human access to the electronic order book, or even algorithmic access, the dirty work of hammering down a junior's stock price, and shattering the expectations and confidence of the fundamental investors to whom the company has privately pitched the potential outcome, has been shifted into a parallel universe whose complicity with the corporate finance departments of Canadian brokerage firms cannot be proven.

The visualization gap between the industry professionals and retail investors is a key reason why the Canadian junior resource sector will have a difficult time adapting to the shift from the resource feasibility demonstration cycle that characterized the last decade, to the discovery exploration cycle that must characterize the mining sector during the next five years while we wait for global economies to recover from the 2008 financial crisis, and to see to what extent the mobilization of new supply from all those failures of past exploration cycles matches demand once the global raw materials super cycle is back on track.