Abbie Hoffman invented quantitative easing

Greetings folks.

I’ve discovered that the Fed’s concept of ‘quantitative easing’ is not new, or even particularly innovative.

Sometime in 1968, renowned Yippie Abby Hoffman visited the New York Stock Exchange, and began throwing armloads of cash from the public viewing area, causing quite a stir on the trading floor below . When confronted by security guards, he said he was merely doing the same as everyone else.

I think that’s about the best way to describe contemporary central bank monetary policy: Moreover, I think it’s been going on a lot longer than anyone suspects. I can also quote an Eddie Murphy line from a Saturday Night Live sketch from years ago in which he pretends to be white and visits various banks, discovering along the way that ‘white people give each other money’. Apart from the obvious racist overtones, I think that is fairly accurate as well.

But let’s talk of something more jolly shall we…?¬†Well, it’s finally on. Wa hoo! The most anticipated, expected, written about bull market for precious metals shares in history is finally coming round the turnpike. Interpretation: We’re all going to make a lot of money in the next 18 months.

And here’s one to start with: VMS Ventures Inc., trading as VMS on Canada’s TSX Venture exchange (Recent cls: $0.77 Cdn, Market cap. $88 million Cdn., Book value $0.25).¬† They’re a Canadian junior with a nice polymetallic play (mostly copper) that is actually not far as the crow flies from the nickel producing region of Canada’s Manitoba province. And ya know — I’ve always wondered if there was more to Manitoba than nickel. Apparently there is.

The most prospective project there is Reed Lake, where recent infill drilling on a joint venture with HudBay Minerals (HBM.NYSE) intersected 37 meters of 5.60% copper. Nice … considering 2% is widely regarded as worth getting excited over.

I was initially attracted to VMS because of HudBay’s recent purchase of more than six million shares at a price of $0.50 each, and constituting a 14% direct interest in the company. HudBay was one of a handful of mining basket cases from 2009, along with debt-laden Teck, that I was really beginning to wonder about, as in, “…will they make it?” They have, and my prognosis for the similarly-sized mineral survivors of ’09 in this market is good to spectacular.

Key intercepts from the discovery zone at Reed Lake include better than 4% copper, 0.80% gold, 13 g/tn silver, and 1.5% zinc over 43 meters. The company is already infilling the first of five zones there, so there’s lots of news to come. They plan to have an official resource tally by the end of the month, so I believe there are some near term gains to be had.

Of course one always wonders whether this is merely a case of a larger company taking an equity stake in a junior with a view towards raising some quick money on the stock market. But I don’t think HudBay will be one of the early sellers on the Reed Lake drilling play. For one thing, VMS is staked throughout that region of Manitoba and also has three sister companies, which suggests they’re the flagship for several mining interests other than HudBay who are believers in Manitoba. And btw, I’ve noticed a tendency these days for Canadian mining juniors to act more strategically, and with greater inter-reliance, in these prospective or emerging mineral belts. This is a good thing because it spreads the risk and the capital costs around; nobody wants to invest in a lonely junior with a good project that may have to stop the drills due to lack of money.

The potential returns are spread around more as well. Good companies get bought out a lot earlier in this market, so the early shareholders aren’t getting the quadruple digit gains they used to. There are fewer high fliers. But I think it’s a better way to operate in the long run, for everybody.

Careful out there.


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