A Whole New World

Don’t feel bad that summer is over. Don’t feel bad that our economy is still a little shaky. Don’t let the word “double-dip” scare you. Things are looking up…

The summer holidays are officially over. The kids are going back to school. And it’s time we all get back to work.

But what a wonderful way to kick off and revive the working spirit. The markets are looking strong and confidence among U.S. consumers are continuing to beat expectations. Despite the rise in unemployment last month, this month clearly showed better numbers.

Heck, there’s even positive signs from the US real estate market, regardless of the continued foreclosures. The number of contracts to purchase previously owned houses unexpectedly rose in July, a sign the market may be starting to stabilize. U.S. mortgage rates dropped to yet another record low with the average rate for a 30-year fixed mortgage falling to 4.32 percent. That’s the 11th straight week of matching or setting a new low for mortgage rates. Imagine that. 4.32 percent for 30 years!

Those mortgage rates are eventually going to catch the consumers’ attention. They caught ours – and we live north of the border.

So while we enjoyed the much needed rest over the last few quiet summer months, the rest of the year may not be so quiet.

Mergers and acquisitions are continuing to run rampant (see A Clear and Present Danger), with Goldcorp (TSX: G) ending the week with a huge purchase of Andean Resources (TSX: AND) for C$3.6 billion (see news release).

We have also been keeping tabs on our featured silver companies. They`re not only doing well, but their management teams have told us a lot of great things are lined up. You can be sure that over the next few weeks, we’re going to keep you apprised of what`s in store.

With the positive progress we`re making on our investments and the way the markets are behaving, nothing could give us more reason to be excited.

But that doesn’t mean our economy is safe.

At some point in the near future, governments around the world will eventually be stifled by the cost of all the borrowing they have done in the last few years.

In 2009, 10% of the U.S. Federal Budget was spent paying interest on debt. The CBO (Congressional Budget Office) says that number will reach 20%, or $917 billion, by 2020. These are just estimates and don`t completely factor in any new major loans.

Remember what Bernanke said last week? He reassured Wall Street that the central bank will act if “unexpected developments” cause the recovery to falter. That means there is a possibility that more borrowing, a lot more, could be in the works.

Now combine that with soaring debt servicing costs, underfunded pensions, social security issues, and US states that are flat broke, and we have a recipe for a very tough recovery.

Luckily for us, it doesn’t mean the markets will tumble – although it could. But it does means that we need to be much more diligent when investing. It`s a whole new world out there and we need to change our mentality. However, there is a bright side.

At the rate interest accrues on the government’s debt, gold and silver prices should grow even higher. Other commodities, such as fertilizer stocks should also do well despite any negative economic implications. The world is still growing at a faster pace than ever. That won’t change.

So when the dust settles, and regardless of our economic outlook, there will be a place for precious metals and other commodities.

If the economic outlook turns negative, gold and silver prices should soar – and along with it, gold and silver stocks. If the economic outlook turns positive, we will more than likely see institutions open their wallets and once again get back into the junior markets. This will undoubtedly cause a new bull run in the junior sector and we may once again see some new highs. Either way, there’s strong potential.

Don’t feel bad that summer is over. Don’t feel bad that our economy is still a little shaky. Don’t let the word “double-dip” scare you. Things are looking up…

Until next time,

Ivan Lo
Managing Director, Equedia Weekly
Equedia Network Corporation

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