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A Buy Signal for Hecla

August 16, 2011

By David Bond, Editor

A Buy Signal for Hecla

Wallace, Idaho -- “I've been wanting to say this since I started the show: to heck with Hecla Mining. . .I don't like the silver miners. I have a hard enough time buying the gold stocks. . .and I gotta tell you, if you want exposure, you buy the ETFs.”

That G2 is from financial commenter Jim Cramer, the notoriously obnoxious and verbally bellicose talking head on the financial network CNBC who famously screeched that Bear Sterns is “(F)ine. Bear Sterns is not in trouble. Don't be silly. . . don't move your money” -- two days before Bear Sterns went belly-up back in March 2008.

Cramer's mea culpa a year later on comedian Jon Stewart's news-spoof The Daily Show (he'd also assured investors they had nothing to worry about concerning Wachovia's mortgage debt exposure) was riveting in its vacuity. He is, he fessed up, just there for entertainment. And just this week, he confessed to having made a bad call on Bank of America.

So Cramer's diss of Hecla, on the heels of HL's announcement last week that it expects to boost silver production by 50 percent over the next five years, is the strongest signal we could imagine that it's time to bail out of the questionably backed silver ETFs Cramer touts and load up on Hecla shares.

And why wouldn't you? Far greater brains than this writer's, from Gary Noth to Paul Craig Roberts, have advised over the years, repeatedly correctly, that if you want to trade the markets smartly, tune into CNBC and do exactly the opposite of what they advise.

We don't trade the markets. We're no match for computers that can perform 5 quadrillion trades per second. But that same computer is not so good at grilling a chicken on a barbecue without setting it afire, nor does it get angry at the latest hike in the price of gasoline, eggs, milk and beer. Apparently, neither does the egregiously overpaid Cramer.

What scares us more than Cramer's diss of Hecla is his love of the ETFs, which may be the next leveraged credit-default-swap mess Wall Street will need the working stiff to clean up after, via inflation or higher taxes, according to some recent and sober financial reporting.

In other words, the ETFs in silver and gold may be exposed to the same counter-party risks as the mortgage bond markets were in the 1990s and the 2000s. They are not regulated. Your silver and gold held in their accounts does not exist. This is not a place to play, unless you are a serious day-trader. The first guys out will do fine; the remaining 90 percent will be stuck with only enough paper to start the fire in a wood-stove one cold morning and will be screaming to a bankrupt Federal Government for a bail-out. Ain't gonna happen. The last batch of thieves got it all in 2009.

Cramer's beloved ETFs have sucked the blood out of the capital markets for junior mining exploration start-ups, which he also doesn't like. Sure, most of the small-caps are moose pastures. But in our experience conducting the Silver Summit over the past 9 years, we have learned that there are more good guys than bad guys in this wanderlust sector. For every Bre-X there will be 100 First Majestics, Endeavour Silvers, Silvermexes and Silvercorps. To borrow Cramer's insulting parlance, only a fool would not be investing in a junior explorer or senior producer right now. With the caveat that these are paper instruments, too, at least they are backed by something real.

Be careful. It's dangerous out there. Cramer is yesterday. Hecla is for tomorrow.