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Precious Metals Outlook: Potential Short Squeeze Brewing
We own a number of precious metals mining companies in our flagship Fortune’s Favor I and Fortune’s Favor Precious Metals Funds. Due to regulations and common sense we choose not to write about specific companies on this blog. I intend to continue this moratorium; however, I will direct your attention to the site of a highly respected colleague and friend.
Evidence is mounting that a rather large short seller in a mining company with a market capitalization of roughly $650 million is having difficulty maintaining a large short position.
After reading the post below, we called our execution and clearing broker this morning to gather information. We found the following:
1) The shares are currently “not available to borrow” so a new short position cannot be initiated
2) Cash owners of the stock are currently being offered a 70% annual interest rate to lend their shares
3) Recently the interest rate to borrow the shares stood at 11-12%/yr
4) According to our sources this dramatic jump is highly unusual
Apparently the supply of shares previously available for shorting this stock have declined sufficiently to make it difficult for the large short to maintain his position. His response was to have his broker go after shares held in non-marginable(cash) accounts which cannot be legally borrowed without the owner’s permission. If this strategy fails the short seller will be required to cover or buy-in all or a portion of his short position. We are, of course, not sure a squeeze will occur. The details of today could change dramatically overnight. We simply feel the situation is worthy of attention to readers who may be industrious enough to sleuth this situation.
Please read the post below and click on the title if you wish to gather more knowledge.
http://jsmineset.com/2011/02/15/dont-help-your-enemies/">Don’t Help Your Enemies
My Dear Friends,
A major well known US brokerage firm has sent out packages to investors in a precious metals company. This is unusual, and one of the few times I have witnessed an attempt to borrow shares from cash investors.
In the stock loan system there are few if any shares available to borrow.
This initiative is an attempt to borrow shares to accommodate a major legal short seller in this company to satisfy delivery to the buyer.
Although it will always be your choice, facilitating an enemy of a company is counterproductive to your interest.
Personally, I will not lend one share.
Respectfully,
Jim
