Maedel’s Equit y M arket Analyst

March 2010
The Forgotten Bull Markets
In the last issue we described how the developed world’s leaders
walked a razor’s edge: on one side a demographic implosion and
deflationary collapse looms. On the the other an inflationary spiral,
exploding debt service costs and sovereign default threatens. In this
issue we focus on what has gone hand in hand with every crisis in the
past century: opportunity.
Editor: Neil Maedel
Uncompromising analysis
exclusive advice beginning 1987.

Crude calculations
2010 upside
target
•Gold’s correction is nearly complete
and is setting up for a major move in its
multi-year bull market.

•US equities should begin moving higher but

will under perform emerging markets
Biotech stocks are the clear leaders.

•Dollar rally is nearly complete expect a

resumption of its down trend.

•OECD economic growth to slow by Q3

necessiting further government and
Biotech stocks are America’s next major growth story- central bank support

This Month’s Star

Houston American Energy
major support & fibonacci 3.82
Houston Energy came explosive growth poten-
to Maedel’s via an tial. Its principal area of
associate who was operation is Columbia’s
The gold bull market is very much intact Lianos basin where it
among the InterOil
Corp. team which I has over 895,000 gross
had written research acres with more than
(recommending a buy) 100 drilling prospects
previously. Last year and produces a net of
82.50 upside
IOC drilled the highest 1300 barrels per day.
target prior flowing gas well in his- Royalties vary from 8%
to resuming
downtrend tory. While HUSA may to 20% depending on
not be about to drill the size of the field
any record wells it has and corporate taxes are
even more compelling 33%.
Continued on page 1
Maedel’s March 2010,

This Month’s Star 4 billion barrels (25% appears to

Houston American Energy to HUSA). The Petrom- extend onto
HUSA $12
inerales discovery has HUSA’s acre- InterOil
Last January 4th revealed a major new age according Corp
we added Houston exploration trend most to 2D. The
IOC: NYSE

American Energy to of which is on HUSA’s trend’s fields

our portfolio at $6.50 a gross 345,000 acres consist of a
share. We had followed (25% net to Houston). series of reser-
the company for more A follow up 3D seismic voirs trapped
than a year after hav- program by HUSA is by a series of
ing met its founder and currently underway and faults and vary
chief executive officer, at least 40 locations are in size from 1 -
John F. Terwilliger and expected. 10 wells. Map-
one of its directors Lee The flow ping by HUSA
Tawes. rates reported at Petro- indicates its
What interested minerales Candelilla block is updip
us was the company’s 1 and -2 wells at its re- from Corcel
strategic position in cently discovered Can- field which is
Columbia. Specifically delilla structure were currently 18,000 Bbl/d trary to the S&P 500’s
its 25% interest (South 12,400 b/d and 15,800 from 8 wells. correction. (The soon
Korean SK Energy Co. barrels per day of light It was only early to be named Pan Amer-
owns the balance) in an 43 gravity oil with a less January that the tone of ican Goldfields (Mex-
exploration block called than 1% water cut. This its trading, technical oro Minerals: MXOM
CPO4, which is adjacent gives them a pay back break out made buy- $0.51) also fulfills the
to a recently announced of a few weeks. ing its shares compel- Marcus rule of funda-
major discovery by Co- Houston has ling. We are of the mentals, technicals and
lumbia-based Petrom- 31 million shares out- same school as uber- tone as its shares rose
inerales. standing thus a single trader Michael Marcus from the low $0.40s to
The block is well of Candelilla 1’s and thus HUSA clearly a high of $0.58 during
only 2.4 miles away size would produce fulfilled the best trade the S&P 500 correction
from Petrominerales cash flow of around $2 criteria: in that it had and similar to HUSA we
Candelilla discovery per share. the fundamentals, tech- think its only a matter
and a 2D seismic pro- The discovery is nicals and market tone of time before its shares
gram is understood to along the same fault clearly going for it - its trade higher - more on
have identified over system which goes bullish tone was dem- it later.) In HUSA’s case
100 leads on CPO4 through HUSA’s acre- onstrated when the we are holding our posi-
generating a recover- age and potentially company’s shares trad- tion as Houston shares
able potential of 1 to Candelilla’s structure ed up to sideways con- look set to move even
higher.

Houston American Energy Petromineralis TSX - PMG
NASDAQ GM: HUSA

page 1
 Maedel’s March 2010

The Forgotten Bull Markets

metals + biotechnology
In our inaugural quar- In the short term there
terly, The bubble that continues to be a lot off
broke the world, we opportunity as Hous-
outlined how in the de- ton American Energy
veloped world demo- and BNK Petroleum il-
graphic trends, com- lustrate (see page 1 and
bined with an explosive 7).
rise in debt had reached Notably, though
a tipping point where in terms of growth, the
western governments developed world may
and central banks were be stagnating, the out-
likely to gravitate to- look for many commod-
the question for inves- are booming. There is
wards solutions (gov- ities remains very posi-
tors is, what would the no de leveraging need-
ernment rescue pack- tive as countries like
impact be on our origi- ed in these countries
ages and quantitative Brazil, China, and India
nal investment theme: and built up savings are
experience
a continued gold bull massive and retail sales
exception-
market? growth exceeding 15%
ally strong
is considered normal.
growth.
Its all about the East The chart from a Gold-
Bill Gross
We expect the metals man Sachs research pa-
of PIMCO
and energy bull mar- per shows their take on
the world’s
kets to continue in spite the BRIC’s likely growth
l a r g e s t
of sluggish developed in per capita income.
bond fund
world growth. Princi- According to GS by
recently
pally because countries this year, “the BRICs will
described
like China and India contribute almost half
America’s
(and Thailand where the of global consumption
likely slug-
Maedel’s editor lives) growth. In particular,
gish out-
look
in a

easing) which risked thought provok-

provoking stagflation, ing essay called
similar to what occurred The New Nor-
during the 1970s. mal. If the em-
Critically, be- minent Mr. Gross
cause of the time lag is correct and
between QE and ex- Japanese-like
plosive government economic stag-
spending, accelerating nation is what
inflation is unlikely to the West expe-
occur until 2011- 2012. riences rather
If inflation does acceler- than a period of
ate then the profitabil- stagflation while
ity of our metals and its population
energy investments is ages and econo-
likely to be spectacular. my de-leverages
page 2
Maedel’s MARCH 2010

China will contribute al- no copper producer or scenarios: gold bullion Nath Srinivas of In-
most 30% of global con- mine has been forced or gold stocks are an dia’s Economic Times
sumption growth, more out of business as a con- answer.” reports:
than the G3 and almost sequence of insupport- In China it is gov-   “Since 2003, Beijing
double that of the US.” ably low metal prices.” ernment policy to en- has been buying most
Consider that courage the purchase of the gold excavated
China and India have And this is the crux of of gold by its citizens. and refined locally. It
37% of the world’s the matter. The finan- Gold has been a store was a perfect strategy.
population compared cial crisis has merely of value there for 5,000 No one in the interna-
to America’s and that delayed the growing years and buying gold tional market became
its per capita remains shortage of metals and remains among the first the wiser and the bill
a fraction compared to the next energy cri- impulses of its emerg- was paid in yuans.
developed countries. sis. How bad could it ing middle class. Ac- Today, China has
Consider that most of get? BHP Billiton the cording to GFMS, gold more than 1,000 tonnes
its families already have world’s largest mining consumption has risen in its official vaults, up
paid for their homes. company warns that six fold in US-Dollar 75% in six years. Its
That’s correct: because there could be a short- terms over the past de- gold reserves are now
they inherited them. fall of 10 Mt of copper cade making China the the fifth-largest among
The houses they lived by 2020. Consider that worlds largest consum- national central banks
in prior to the advent of world production is cur- er and over 31% (GFMS) after the US, Germany,
free markets they were rently only 15 Mt. com- of the global jewelry France and Italy. This
allowed to keep. This pared to the mining gi- market. insurance helped man-
real estate has been ant’s prediction of a 10 Reflecting in- darins in Beijing sleep
upgraded and reno- Mt shortage. creased spending pow- easier at night.
vated but it represents er, Chinese private gold But the public
decades of defacto sav- Gold’s correction looks purchases of jewelry still had no such hedge.
ings. Now add in an av- nearly complete. Our have increased from So, Beijing has begun
erage household where instinct is that it is a just over 1% to more actively encouraging
the only child with two natural substitute for than 1.8% of annual people to invest up to 5%
doting grandparents an appalling series of household savings in of their income in gold
and two parents en- currency choices (most the past decade. If and silver. The biddable
suring they get every- with their own looming Chinese personal gold Chinese have diligently
thing they need to be default and inflation consumption growth followed this advice.
successful productive potential) and that gold continues to at least Full-year 2009 private
adults. This is the real- is also a consumer driv- match GDP growth (in- demand in mainland
ity on a giant scale. en growth story. The stead of exceeding it as China could outstrip In-
The impact of yellow metal Rupert it has over the past de- dia by a fifth.”
continued growth in Robinson, chief execu- cade), then the predic-
the developing world tive of Schroders Pri- tion by gold giant Bar- In December Ji Xia-
will underpin energy vate Bank, agrees and rick’s Chairman Aaron onan Chairman of the
and metals prices for recently advised: Regent that “There is a Supervisory Committee
years to come. Fortis strong case to be made overseeing large state
Metals recently noted “As the global economy that we are already at -owned enterprises was
in a research report wrestles with the threat ‘peak gold” becomes quoted in the China
that: of deflation on the one even more bullish. Youth Daily newspaper
hand and the prospect But China’s gov- advised that:
“It is astonishing that, of higher inflation on ernment also has a
in what is generally the other, investors strategy regarding gold “China should increase
agreed to be the worst need an investment accumulation as Nidhi the amount of gold it
post-1945 recession, that will work in both
continued on page 4
page 3

holds in reserves to re- gold’s historic bull mar-
duce potential losses ket remains in force.
from a depreciating dol-
lar. Adding that China BioTechnology, the
should increase its gold next great bull mar-
reserves to 6,000 met- ket?
ric tons within three-to- By 2015 45% of all
five years and possibly Americans will be over
to 10,000 tons in eight 50 years old. And that
to 10 years.” tsunami of aging baby
boomers in Europe and
While the Chi- America is at the root
nese continue to add to of much of the Western
their gold holdings the world’s fiscal mess be-
metal’s mini-correction cause as these boom-
has caused a healthy ers retire the savings
negativity to descend pool available becomes
on the gold market. The smaller and tax rev-
Mark Hulbert index of enues shrink just has
bullish short term gold housing prices, a princi-
timer newsletters has pal store of savings for
plunged from 60% to too many, fall. Making
18% in the past month matters worse the cost
while Jake Bernstein’s of medical care and pen-
DSI bullish percent fell sions mushrooms. Ac-
to 13%. cording to the Social Se-
We are encour- curity Administration’s
aged by gold’s relatively Office of the Chief Ac-
minor price correction tuary America’s social
which has occurred in security as measured
the face of a major dol- by the combined OASDI
lar rally and an increas- (Old-Age Survivors and
ingly negative investing Disability Insurance)
public and calculate “Trust” Funds posted a
that on a technical basis $5.858 billion primary
it is at or near its lows. (cash, non-“interest”)
Critically both funda- deficit for November,
mantally and technically
continued on page 5
Maedel’s MARCH 2010
Points to Ponder
Bill Gross who runs Pimco, the world’s largest bond
fund commenting on the winding down of the US
multi-trillion dollar stimulus programs:
“We definitely need another stimulus program be-
cause the effects of the first will be wearing off in the
next 3 to 6 months and we’ll be back to 2% growth
which isn’t enough to generate jobs.”
According to Bloomberg the US Fed and Government
agencies have “lent spent or guaranteed $8.2 trillion
to lift the economy from the worst recession since the
great depression”.
Peter Warburton, the author of Debt & Delusion,
which predicted the global collapse, comments on the
last decade and what is likely to happen during the
next:
“Sadly, most of it was illusion, based on increased eco-
nomic leverage and an accompanying erosion of the
national saving rate. The surprise was the length of
time it took for the reckless over-expansion of credit
to blow up economic performance and the breathtak-
ing audacity of the leading central banks in prolong-
ing the flight from economic reason. In the coming
decade, the key surprise will be the return of a high
single-digits global inflation rate and the sickening
realization that we have to fight this dragon all over
again.”
Comparing recent real estate derived financial instu-
ments to those which were created prior to the Great
Depression, a study by William Goetzmann and
Frank Newman for the Bureau of Economic research
concludes:
By nearly every measure real estate securities were
as toxic in the 1930s as they are now... The study de-
tails how a real estate securitization boom preceeded
the bubble and bust in the 1925 - 1935 era and con-
cludes: “The breakdown in the value of real estate
securities as collateral assets preceeded the crash of
1929”.
Edward Chancellor the author of Devil Take the Hind-
most: A History of Financial Speculation, and who is a
member of asset management giant GMO LLC’s asset
allocation team cautions:
“Keynesian economists do not focus on inflationary
expectations or on the money supply. Instead, they
point to the dramatic collapse of demand in the glob-
continued on page 5
page 4
Maedel’s March 2010
the worst monthly per- During the 1990s
formance since month- when I authored Mae-
ly records began in del’s MiniCap Analyst
1987”. we were at the forefront
This is just the begin- of the mining boom
ning and it is an ap- and bubble, and thus
proaching tidal wave. fortunate to have rec-
Of America’s 72 mil- ommended, when they
lion families, 34 million were pennies a share,
are baby boomers. But stocks such as the late
while they play havoc great Adolph Lundin’s
with government bud- Argentina Gold or Da-
gets and pension plans, vid Lowell’s Arequipa
this avalanche of boom- Resources both which
ers is creating a major rose a thousands of
opportunity in the form percent. In that min-
of a growth industry ing boom and during
that deals with age re- the subsequent bubble,
lated diseases and oth- tripling our money in
er challenges associat- a few months seemed,
ed with growing old. well, ordinary.
It is occurring One company
just as Ray Kurzweil’s I recommended, Ken
Singularity: the loga- Shannon’s Corriente
rithmic growth of scien- Resources (it was just
tific knowledge, is be- bought by Tongling
coming a reality. Mr. Nonferrous Metals
Kurtzweil who is best Group Holdings Co.
known for predicting and China Railway Con-
the internet revolution, struction Corporation
theorizes that a combi- for $8.60 per share) had
nation of three impor- not even drilled, even
tant technologies, ge- so Corriente’s shares
netics, nanotechnology, rocketed from $0.80 to
and robotics (including $20. No wonder I get
artificial intelligence) nostalgic.
will underpin this ongo- Part of the reason
ing human revolution. the bubble developed
This next great was that in response to
technological wave will geoscientific advances,
create many fortunes commodity pricing and
for a corresponding the opening of new ar-
flood of investors. But eas to explore a series
we must always keep of fantastic discoveries
in mind, the more great had been made. They
advances and the more included Voisey’s Bay
money that is made, the (Nickel) Eskay Creek
larger the subsequent (gold) Ekati (diamonds)
bubble will be. It’s hu- Arequipa (gold) Escon-
man nature. dida (copper).
continued on page 6
page 5
Points to Ponder
al economy as a sign that deflationary forces will be
around for a long while. Goldman Sachs estimates the
current “output gap” to be about 8 per cent of global
GDP. Inflation will not pick up until this spare capacity
has shrunk, according to Goldman.
This argument should be viewed sceptically. There
are times when inflation and economic activity move
in the opposite direction. For instance, periods of ris-
ing inflation and unemployment are relatively com-
mon during emerging market crises. The US wit-
nessed something similar during the stagflation of the
1970s. Leading indicators suggest the US economy is
set to decline sharply in the first quarter. The last
time these indicators were so dire occurred in 1974.
Yet there was no deflation in that year. Rather the
inflation rate climbed to 12 per cent.”
Societe Generale analyst Dylan Grice writes in Popu-
lar Delusions about the potential for a Japanese debt
crisis:
“Japan’s government borrows from Japanese house-
holds and has done for decades. But Japanese house-
holds are retiring, and traditionally retirees run down
their savings. So who will fund Japan’s future deficits,
which are already within the range identified by infla-
tionc historian Peter Bernholz as hyperinflation ‘red
flags’? Twenty years ago, who could predict long-term
JGB yields below 1%? Who sees uncontrolled inflation
as the primary risk facing Japan today?”
Lord Maynard Keynes on avoiding recessions (bubble
creation?) with low interest rates:
“The right remedy for the trade cycle is not to be found
in abolishing booms and thus keep us permanently
in a semi-slump; but in abolishing slumps and thus
keeping us permanently in a quasi-boom.”
UK Inflation
CPI inflation 3.5% RPI Inflation 3.7%
UK Unemployment
2008 09 10
2007 08 09 10
Source: Office for National Statistics Source: Thomson Reuters Datastream

Among the lead- ing industry. And it has
ers of the boom was never been the same
David Lowell who au- since. In the biotech
thored with Dr. John space events are devel-
Guilbert a seminal re- oping just as mining
port outlining the Low- success stories did in
ell-Guilbert model for the early ‘90s. A wave
copper porphyry ore of small companies are
deposits. They went on becoming giant success
to discover the Escon- stories and an increas-
dida mine, the world’s ing number of specula-
largest copper deposit. tors are being cashed
David was also credited out and looking for the
with the discovery of the next biotech winner.
giant Kalamazoo cop- The numbers in reality
per deposit and the Di- dwarf what occurred in
zon in the Philippines. the Canadian mining
So when he showed me industry. For example,
his first public compa- three years ago Astra-
ny Arequipa Resources, Zeneca bought MedIm-
I was quickly a believ- mune for $15.2 billion
er. Arequipa rose from and last year Johnson
$0.60 to $32 where Bar- and Johnson bought
rick bought it. Cougar Biotechnol-
The sales of ogy for $1 billion cash.
these former pen- Mederex quadrupled in
nie stocks meant that a matter of months just
thousands of inves- prior to its takeover by
tors were soon awash Bristol Meyers Squibb
with speculative money last summer and a year
looking to do it again. ago Roche paid $43.7
The point was that as billion for Genetech.
new technology com- In 2006 Merk & Co put
bined with the opening RNAi on the map with
of new areas there were its purchase of Sirna
many other discoveries Therapeutics in a $1.1
which in turn produced billion deal.
a subsequent wave of Viewed over the
optimistic and cash-rich past decade major suc-
investors. cess stories are even
The ingredients more common. Take In-
for a bubble were in tuitive Surgical it trad-
place and it was finally ed as low as $6 in 2001
pricked with the revela- last week it closed at an
tion that Bre-X Minerals all time high of $346.
at $286 a share, was a Celgene which traded
massive fraud. Truly a as low as $2.80 in 2002
Bernie Madoff moment is at $60 now. Not bad
for the Canadian min- considering most in-
Maedel’s March 2010
Intuative Surgical
ISRG
vestors refer to the last Today the Bio-
10 years as the lost de- tech sector has the
cade. Too many consid- same tone, and the
er themselves lucky if same technical and fun-
they managed to avoid damental characteris-
going broke. What will tics as energy stocks in
happen when they con- 2003.
tinue to see fortunes Take the Amex
made in biotechs? Biotech index. It has
moved from new high
The point is the biotech to new high even while
sector has all the funda- the major markets have
mental ingredients re- been correcting and
quired for a major bull even though Greece
market and like all his- and the rest of the PIGS
toric bull markets. Its looked to be imploding
story and momentum is and taking the Euro with
building. them. How many oth-
In 2003 I penned er market sectors are
together with analyst that strong? Certainly
Conrad Weiss, The I am impressed with
Forgotten Bull Market gold’s resilience but re-
series which first pre- ally, biotechs were the
dicted a major gas, and stars.
later, oil bull market A quiet revolu-
and energy crisis. Al- tion has been underway
most every energy com- for some time and as it
pany we recommended becomes increasingly
at least doubled and apparent to the public
some rose as much as this bull market will ac-
1000% - carried by a celerate. Stay tuned we
wave of increasingly ro- will be adding biotech
bust economics and en- stocks to our portfolio
amoured investors. at www.maedels.co.uk.
crude in the near fu-
ture.
page 6
Maedel’s March 2010
Gold Rush after an extensive de-
cline, are of outstand-
Mexican gold producer ing importance, for they
Mexoro Minerals (OTC nearly always denote
MXOM $0.51) marches a change in Primary
to its own drummer as trend and an extensive
it‘s shares traded at new advance yet to come”.
highs despite the gold
and gold sector correc- Maedel’s previ-
tion, marking a bull- ously have outilined
ish divergance which is the bullish fundamen-
confirmed by its rising tal case for Mexoro
On Balance Volume and Minerals. We are quite
RSI (see below). The familiar with it as we ad-
chart pattern Mexoro vised them in their reor-
has been developed is ganization last year and
known as a “scalloping” continue to consult for
or “rounding” bottom the company which is in
and it appears to be the midst of changing
in the midst of break- its name to Pan Ameri-
ing out to the upside. can Goldfields
Rounding bottoms are Simply put Mex-
generally very reliable oro is growing its gold
and thus great invest- production dramatically
ment opportunities at its Cieneguita Mine
when you can find them. while it advances two
The 1948 classic Tech- other “high impact proj-
nical Analysis of Stock ects.
Trends by Edwards The company is
and Magee notes: in the midst of a drilling
program at its Sahyu-
“Rounding bottoms occur acan project better
most often in low-priced known for containing
stocks in an extended, the Santa Teresa mine
flat bottom form which workings, formerly one
usually takes months to of the highest grade
complete... these pat- producers in Mexico’s
terns, when they occur Chihuahua state.
Pan American Gold Fields
(Mexoro Minerals: OTC MXOM)
“rounding bottom”
page 7
Like most mines
in the state, its opera-
tions ceased at the start
of the Mexican revolu-
tion around 1910. The
original miners simply
followed high grade
gold veins that were vis-
able to the naked eye
to develop underground
workings and they pro-
duced millions of ounc-
es doing it. The
Critically in those
days if you could not
see it, you did not mine
it, meaning a breathtak-
ing amount of gold re-
mains around many of
these historic producers
at grades that are wildly
economic using the lat-
est technology and gold
price.
The Sahyuacan’s
high grade mine work-
ings have lain fallow
since the revolution,
that is until Mexoro ac-
quired the property.
Because the
gold grades required
to make an economic
discovery in Chihuahua
are a very small fraction
of the grades mined
previously, a gold rush
was triggered when the
government opened the
area up for foreign in-
vestment.
Since the area
was opened up roughly
10 years ago, gold pro-
duction has leapt from
zero to more than 2 mil-
lion ounces in 2010
Mexoro is a very
good example of what
is happening. Its first
stab at drilling next
to an old producer
was at the company’s
Cieneguita which is now
the company’s princi-
pal growth story. So far
they are mining a 1.2
million ounce resource
an amount which is ex-
pected to be increased
substantially.
initial-
growth is anticipated
from ramping up their
gold production from
this year’s 1000 tpd at
3 grams gold per ton
(roughly 30,000 ounc-
es at a cash cost of
around US$350) to over
100,000 ounces.
It does not seem
too much of a stretch to
expect the Sahyuacan
to be come their sec-
ond mine, an event that
should dramatically add
to the company’s share
price as it evolves.
Mexoro’s chairman Ma-
rio Ayub was the presi-
dent of the Mexican
Miners Association and
has discovered and put
into production 8 mines
in the area. Importantly
he says he has several
additional Cieneguita-
Sahyuacan-like plums in
mind for the company.
Analyst Victor Gonçalves
who pens the Equities
and Economics Report
recently described Mex-
oro as “very very under-
valued” we agree and
note that it is one story
that just keeps getting
better.

BNK Petroleum potential for shale plays
TSX: BKX $2.00 is considered to exist in
Insider buying is what Europe. Tim Cejka,
originally alerted us Exxon’s head of glob-
to BNK Petroleum at al exploration, said in
$1.30, specifically con- the WSJ that “the com-
tinued purchases of the pany has been bullish
company’s shares by its on shale-gas explora-
Chairman Ford Nich- tion since 2003”. XOM
olson and President is already very much
& CEO Wolf Regener involved in Eastern Eu-
throughout November rope notably Poland,
and December 2009. Hungary and Germany’s
Upon our analysis it lower Saxony.
quickly became evident Beginning 2008
that the company had BNK evaluated more
a compelling story that than 18 basins in Eu-
was confirmed by its rope and chose to focus
technical picture and on Poland where a very
trading tone. BNK is a low cost per acre, a 1%
spin off of the US assets royalty , 18% corporate
from tax rate and a $9 per
Albania-based mcf price of gas added
Bankers Petroleum and up to very compelling
it has the same very economic potential. The
high level of operating company has since ac-
expertise. Its main US quired 2.1 million acres
asset is its average 50% in the Baltic Basin.
interests in acreage cov- Three of its con-
ering the Tishomingo cessions, the Slawno,
gas field in Oklahoma. Slupsk and Starogard
Considerable upside covering 720,000 acres
exists from a proposed has been farmed out
increase in drilling den- to its neighbor Conoco
sity and development of Phillips and the first
other shale plays within well is expected to be
the acreage. drilled later this year.
The company’s In a WSJ article Larry Ar-
European activities are chibald, Conoco’s vice
what however, has got president of explora-
investors’ attention. tion, was questioned
Shale gas has become about its first farm in
a major source of pro- into the area with Lane
duction in the US that Energy BNK’s neighbor.
used to be dominated He described the
by scrappy indepen- area as flat, easy to
dents but is increasing- reach and any natural
ly being taken over by gas produced can go
super-majors such as into the European Union
ExxonMobil. The same market, which has good
Maedel’s March 2010
d e m a n d .
“What’s not to BNK Petroleum
like about this BKX-T
type of play?”
BNK’s
real upside
comes from
its Polish high
risk explora-
tion while we
view its un-
derpinning
production and growth viruses by interfering
in the US as a founda- with the normal pro-
tion it is not the story. cess by which a virus
Given the inherent risks attaches to the outside
it faces we are hedg- of a health cell and
ing our bets and selling then infects the cell. Its
50% at $2.00 thus low- strategy is to create a
ering our cost per share molecule with bespoke
to $0.30. proteins which can be
designed to target a
The Next Penicillin? specific or broad range
Nanoviricides OTC BB of viruses. The target-
NNVC $1.30 ed viruses mistake the
To infect a human cell molecule/protein com-
viruses attach them- bination for a healthy
selves to healthy cells cell which they then
via an outer membrane fuse to. Once fused
which recognizes the the normal infection
target human cell. process is stopped as
Nanoviricides is devel- the viruses outer mem-
oping a broad spectrum brane breaks down and
antiviral drug whose ba- nucleaocapsid exits the
sic design is to render cell. The applications
inert various targeted are enormous basically
Nanoviricides
OTC BB: NNVC
page 8
Maedel’s March 2010

everything from ebola Because the mol- most authority in Den- the antibodies produced
to swine flu (its initial ecule is small enough gue fever and received by the immune system
focus is herpes, HIV and delivery introduction the McArthur “Genius” can lead to increased
influenza). Like what of the drug can be via Award in 1997. In 2001, severity of the second
penicillin was to bacte- nasal sprays, bronchial Dr. Harris was named a dengue infection
rial infections inhalers, intramuscular Pew Scholar for her work In the news re-
Nanoviricides and intravenous injec- on dengue pathogen- lease the company stat-
drug promises to be to tions. Its application as esis and was selected ed
be to viruses such as an antidote in biologi- as a Global Leader for
influenza, aids and her- cal warfare is also being Tomorrow by the World “Using computer model-
pes. Because it acts be- tested by the US mili- Economic Forum. As ing, the Company has
fore the virus gets into tary. The core molecule the company states developed a library of
a health cell patients called a nano-micelle small chemical ligands
treated won’t get sick remains constant while “There are no approved that bind to dengue vi-
and animal trials show the proteins on its sur- vaccines for the pre- rus envelope proteins.
no toxicity or resistance face are changed to tar- vention of dengue, nor Using these ligands, a
developing. get specific viruses. drugs for treatment of number of candidate
Last August, in Nanoviricides’ dengue virus infection”. nanoviricides that are
vitro showed a 99.99% most recent develop- capable of attacking
reduction in herpes viral ment was the signing a And the market size for the dengue virus have
loads in vitro. Animal R&D agreement with Dr. an effective treatment been developed. The
trials on the compa- Eva Harris a Professor of is expected to compare Company believes that
ny’s HIVcide in Israel in Infectious Diseases at to Hepatitis C virus these nanoviricide drug
2008 “have shown that UC Berkeley, to evaluate treatment which Roche candidates mimic the
animals treated with its (en vivo and vitro) the and Schering-Plough natural, common at-
lead anti-HIV drug can- effectiveness of nano- expects to exceed $7 tachment function by
didate, HIVCide-I, dem- viricides against the vi- billion annually in the which the four different
onstrated a substantial- ruses which cause den- next 3 years. Dengue dengue virus serotypes
ly greater reduction in gue fever. is particularly danger- bind to the body’s host
viral load -- number of Dr. Harris is con- ous because rather that cells”.
infectious virus particles sidered the worlds fore- developing an immunity
per milliliter of blood --
when compared to the
animals given the anti-
HIV “combo cocktail”
in a preliminary animal
study. An important ob-
jective of anti-HIV treat-
ment is to minimize the
viral load. According to
Viricides’ president Anil
R. Diwan, PhD.

“We now know that HIV-

Cide-I was clearly supe-
rior to the triple drug
combo cocktail in all pa-
rameters we observed,”

Page 9

That’s it. Nanoviricides The eye of the
appears to be on its way
to developing a block hurricane
buster drug platform An avalanche of sub prime
of biblical proportions. mortgage defaults pre-
The risk is that some cipitated the last world fi-
how a, to date unknown, nancial crisis. Since then
competing technology the developed world’s
is developed sooner and economies have staged
works better. Or that a tepid recovery, mostly
while animal testing has as a result of stimulus
been highly positive the programs, central bank
subsequent human tri- quantitative easing (cre-
als for Nanoviricides ating money and using it
turn out to be a flop. to buy government debt)
To give readers a and the ending of the first
picture of where Nano- wave of the residential
viricides is in terms of real estate collapse. As
the chart below shows an-
development see the
chart from the com- other wave is about to hit
just as QE and stimulus
pany’s web site (www.
nanoviricides.com), on programs are ending and
the FED is talking tough
the previous page. We
are adding it to our port- about deficit spending.
The million dollar
folio.
•••• question is how will de-
veloped countries’ central
banks and governments
Maedel’s March 2010
react when the next wave long as emerging mar-
hits? Their choice is sim- ket countries (China,
ple but hard. The first Brazil etc.) finally stop
is to allow an Austrian buying their debt. The
style deflationary col- chart above shows how
lapse so that unsound in- EM countries’ FX reserves
vestments are liquidated. have reversed from their
The second is to continue miniscule holdings at the
their Keynesian demand time of the Asian collapse
management strategy as in the late 1990s, to
where it is the advanced
countries with miniscule
FX reserves and giant
borrowing needs.
The first choice,
an Austrian style un-
winding, would be politi-
cal suicide for the Obama
administration. But more
Keynesian spending risks
extreme currency volatil-
ity as investors react to
deteriorating government
balance sheets, central
bank quantitative easing
and potentially accelerat-
ing inflation.
As bad, the White
House may do nothing,
and thus allow America’s
structural deficits to con-
tinue growing dramatical-
ly, interest rates to rise,
Page 10
Maedel’s March 2010

along with inflation and

possibly their dollar col-
lapse. The country’s eco-
nomic imbalances would US Long T UK Long T
then be solved by 1970s Bond Yield Bond Yield
style stagflation: a dollar
decline which allows it to
slowly export its way out
of the crisis, just as accel-
erating inflation reduces
the impact of its record
public and private debt.
Economist Paul Krug-
man recently warned that
doing nothing is exactly
what is happening:
Montreal based growth as of late has been Work by Ed Yar-
“Instead of fraying under
Bank Credit Analyst says in home foreclosures and dini on of the America’s
the strain of imperial over-
that ending the Bush tax unemployment. most respected research-
stretch, we’re paralyzed
by procedure. Instead of cuts, temporary tax re- The rest of the ers sums up the US ver-
re-enacting the decline ductions and stimulus as developed world is strug- sion of the crisis suc-
and fall of Rome, we’re re- Obama currently plans gling with varying ver- cinctly: between 1999
enacting the dissolution of (and Bernanke is cam- sions of the same crisis. and 2009 federal outlays
18th-century Poland... The paigning for) would “rep- Too much private and for social security and
truth is that given the state resent a fiscal drag of public debt, mushroom- medicare rose 78% the
of American politics, the about 2.5% of GDP” – po- ing social costs and GDP rose 48%, the work-
way the Senate works is litical suicide for law mak- shrinking populations ing age population rose
no longer consistent with a
ers in Washington given which in turn reduce tax 29 million or 22%, new
functioning government.”
that the tepid economic revenues, while further jobs rose by 0%, but the
recovery is decelerating increasing deficits and number of new retirees
Talking tough and the only significant borrowing needs. rose by 38.4 million or
The short term strength
in the US economy has
allowed both President
Obama and Fed Chairman 18%
Broad Unemployment in the US
Bernanke to talk about 16% Includes marginally attached and
ending their respective discouraged workers
stimulus and quantitative 14%

easing policies. But as

12%
the next wave of US home
foreclosures hit this sum-
10%
mer and America’s econo-
my swoons, their focus is 8%
likely to switch to imple-
menting another round of 6%
rescue packages, quanti-
tative easing and selling 4%

treasury bonds. The re- 2%

sult will be a plunging US
Jan 99 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09
dollar.

Page 11

17.9%. In short: swelling
unemployment benefits,
welfare, medicare and
pension costs, shrinking
government income.
The Organization
for Economic Coopera-
tion and Development
estimates government
deficit-prompted borrow-
ing by developed coun-
tries will total a record
$16 trillion in 2010, a
25% or $4 trillion increase
from 2008. Not only does
this borrowing threaten
to crowd out private in-
vestment and borrowing
but it also translates to
more money being spent
by governments on inter-
est – a big risk consid-
ering that interest rates
have nowhere to go but
up from their historically
low levels.
Currently Japan
spends the most of its fis-
cal budget on interest: an
eye-popping 22.4% ,mak-
ing it particularly vulner-
able to any interest cost
increases. In comparison
America’s interest costs
totalled 5.4% of its feder-
al budget, but worringly
40% of its borrowing has
maturities of one year or
less and nearly a third
is foreign held. Recall
what happened in the
late 1990s. Asian cur-
rencies collapsed when
short term borrowing and
low FX reserves left those
economies vulnerable
to capital flight which is
exactly what happened.
This time the opposite is
true. Consider the defi-
cit increasing effect of ris-
ing interest rates. Short
term US Treasuries cur-
rently yield 1.2%. If they
yielded a more historically
normal 4% with a corre-
sponding increase in long
dated securities, Ameri-
ca’s interest costs would
double: a perfect storm
of contagion would result
as its debt is downgraded
thus increasing their in-
terest costs even more.
Against the tide: rising
interest rates to threat-
en the recovery
Critically there is strong
evidence that without QE
interest rates could be-
gin rising immediately.
Demographic bond mod-
els employed by Barclays
Capital have tracked the
interest rate cycle in the
UK and US with uncanny
accuracy over the past
century and they now in-
dicate a major upswing in
interest costs is at hand
(see chart). As would be
expected many investors
have little interest in gov-
ernment debt at current
interest rates.
Last month’s
aborted bond auction by
Greece is only the latest
of bond market failures.
Economic powerhouse
Germany, suffered two
failed bond auctions last
year when not enough in-
vestor interest material-
ized. A UK auction also
flopped following which
The Bank of England be-
gan quantitative easing.
Adding to costs is
the increase in sovereign
risks. Japan whose reli-
ance on domestic inves-
tors is looking increasing-
ly tenuous recently had
its debt outlook down-
graded to negative by
Standard & Poors as its
government increased its
deficit spending plans.
Standard & Poor’s also
downgraded the United
Maedel’s March 2010
Kingdom’s outlook from
stable to “negative” – the
first time since it started
analyzing its public fi-
nances in 1978. And
early February Moody’s
Investor Service warned
that America’s Triple AAA
credit rating could be at
risk “should its economic
revival not develop into a
full-blown recovery”.
Last week Fed
Chairman Bernanke
warned Congress that
the US could soon face a
debt crisis like the one in
Greece and declared that
the central Bank would
not help legislators by
printing money to pay for
ballooning federal debt.
How Congress and
the Fed will react when
faced with the prospect
of renewed deflation is
the poignant question.
New York based
Economic Cycle Re-
search Institute, one of
the industry’s most ac-
page 12
Maedel’s March 2010
curate economic forecast-
ers says its yearly growth
gauge has continued to
slide, bolstering expec-
tations that economic
growth will ease by mid-
year. Approaching like a
freight train is a second
wave of commercial and
residential foreclosures
set to arrive this summer
(see chart page 10). The
housing sector accounted
for roughly half of US eco-
nomic growth and more
than half of the private
sector jobs created in the
five years preceding the
crash. Consequently a
resumption of America’s
real estate crash will not
help their economy.
David A. Rosen-
berg the Chief Economist
& Strategist at Gluskin
Sheff says that is exactly
what is about to happen:
“With over 9 million hous-
ing units either vacant
for sale, in foreclosed in-
ventory or occupied and
listed actively, together
with a competing record
11% nationwide rental
vacancy rate, it’s only a
matter of time when home
Page 13
prices succumb to what is
still a glaring excess sup-
ply backdrop. New house-
hold formation is down
just over 800,000 at an
annual rate so what we
are talking about here is
5 year’s worth of underly-
ing demand just to cut the
total inventory backlog by
half”.
And while Mr.
Rosenberg worries about
the future the present
doesn’t look so good ei-
ther. In January US build-
ers sold 1,000 houses
per day compared to
foreclosures of 4300 per
day and notices of de-
fault totalling 5100 per
day, just as the number
of securitized prime jum-
bo mortgages at least 60
days late reached 9.6% in
January up from 9.2% the
previous month and the
32nd straight increase for
serious delinquencies ac-
cording to Fitch Ratings.
Meanwhile 702 US
banks are on the FDIC’s
watch list - Triple the
number in 2008, and
bank lending has fallen
the most since 1943.
In a move that
does not immediately ef-
fect government deficit
spending but whose im-
plications are dramatic,
the Obama administra-
tion announced support
for the real estate market
on Christmas eve. They
did this by establishing
an unlimited credit line
to Fannie Mae and Fred-
die Mac that would exist
until 2012 the year of the
next presidential elec-
tion.
Freddie Mac Chief
Executive Charles Halde-
man warns that a “po-
tential large wave of fore-
closures” may sweep the
nation. The government
is getting increasingly
panicky by the pros-
pect of a renewed down-
turn. Last week the White
House was reported to
be considering a law that
would prevent banks from
foreclosing on defaulted
homeowners unless they
had been screened and
rejected by the Federal
Home Affordable Modifi-
cation Program (HAMP). ment costs?
But the slowdown
is not limited to America.
Spain, Greece, France, the
UK, Germany and almost
all of the G20 save Can-
ada and Australia all face
the same debt crisis – too
much private and public
debt, mushrooming so-
cial costs and a shrinking
population which in turn
reduces revenues.
The result is that
government borrowing
needs continue to rocket.
Sovereign borrowing to
reach $16 Trillion
The Organization
for Economic Coopera-
tion and Development
estimates that in 2010
$16 trillion will need to
be raised mostly by de-
veloped countries– up $4
trillion from 2008. That
is more than the GDP of
America the world’s larg-
est economy and its prin-
cipally the world’s devel-
oping countries that are
in the incredible position
of lending money to the
developed.
An International
Monetary Fund study of
the expansionary plans of
the leading G20 countries
calculates that govern-
ment debt will rise from
around 80 per cent of GDP
in 2008 to 118 per cent of
GDP in 2014. Incredibly
it assumes discretionary
tightening will occur next
year, otherwise the debt
will be much higher.
But how will all
this borrowing be pos-
sible without causing in-
terest rates to rise and in
turn reduce growth and
add further to govern-
It seems logical that the
choices for the near term
are quantitative easing or
higher interest rates.
Race to the Bottom
Riverfront Investment
Group forecast a major
spike in defaults last-
ing many years just prior
to the advent of the sub-
prime collapse. As the
crisis was beginning they
memorably warned that
“the calming reassurances
from the CEO’s are not con-

sistant with the actions of
their organizations”. More
recently they concluded:
“America’s only exit from
the current crisis is a lower
dollar”.
It is evident that America’s
real estate sector remains
in critical condition, con-
sumer confidence is in
a death spiral and bank
lending for mortgages,
consumer credit and busi-
ness lending is imploding
as demonstrated by the
latest 14 per cent (annu-
alized) decline. trend: Foreign deposits
Under these circumstanc-
es the Obama administra-
tion is unlikely to make
reducing the deficit a
priority and will welcome
a lower dollar. At the
same time by this sum-
mer Congress will likely
be faced with a worsening
economy just as mid-term
Senate elections approach
consequently they too will
be happy to approve an-
other stimulus program.
The other devel-
oped economies will not
be helped by US dollar
declines and increased
export competitiveness.
Their balance sheets will
also deteriorate creating
an environment of ex-
treme currency volatil-
ity.
A recent decla-
ration by George Papa-
constantinou Greece’s
finance minister is an indi-
cation of a new anti-trade
held by Greek residents
must be repatriated and
will be taxed at a 5% rate
and if not repatriated
they would be taxed at an
8% rate every six months.
Cooperation between
governments to catch tax
cheaters no matter how
unfair taxes may be are
increasing to include even
Switzerland and Liechten-
Maedel’s March 2010
stein. America taxes its
citizens even when they
A ndean Invest
live abroad. Levying ex- Acts as advisor in regards
tra taxes on savings held to debt restructuring, cor-
in foreign accounts will be porate reorganizations and
easy to rationalize by an financings for publicly listed
increasing desperate de- companies. Andean Invesy
veloped world. acted as an advisor regard-
The US dollar looks ing the Mexoro/Pan Ameri-
to be the next to decline can GoldFields restructuring
but that does not mean it and is currently retained by
will be the last as a race to the company as an advisor.
the bottom between the Please assume that Andean
developed world’s cur- Invest buys and sells the se-
rencies is well under way. curities mentioned herein
Critically as demonstrated and that any such purchases
in the 1930s and 1970s or sales will be posted on the
(and by bullion’s recent Maedel’s website. Andean In-
strength despite the vest is a Bahamas-based hold-
Euro’s weak- ing company and Corporate
ness see stock- Advisory firm which is whol-
charts.com ly owned by Neil Maedel. As
analysis bot- an editorial policy any chang-
tom left) gold es in strategy or positions
and gold min- will be published on the day
ers constitute changes occur (see http://
the one sector maedels.co.uk/). Maedel’s
which stands Equity Market Analyst is for
to benefit from information purposes only it
extreme cur- is neither a solicitation to buy
rency volatility or sell securities. For further
and both accel- information please contact
erating infla- Andean Invest at POB N 3937
tion or defla- Four George Street, Nassau,
tion. Bahamas Tel:+44 207 193
••••• 6467