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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Warrants – The Fed and the U.S. Government

InvestorEducation / Options & Warrants Sep 30, 2008 - 08:50 AM GMT

By: Dudley_Baker

InvestorEducation Warrants have been frequently mentioned in the main stream news the last couple of weeks. Most recently warrants were being mentioned as a component in the failed $700 billion bailout plan. It is unlikely that most investors even know what warrants are, much less understand the financial implications and the benefits associated with warrants. So give us a few minutes and let us bring you up to speed.


Warrants are not new to government bailouts as there is precedent for the government receiving warrants which previously worked out great for U.S. taxpayers.

Some readers may remember back in 1980 when one of the Big Three auto companies received government backed loans in the amount of $1.2 billion. Warrants were issued by the company as a sweetener for the loan guarantees and the warrants entitled the government to buy 14.4 million shares of the company at $13.00 per share. With company's shares then selling at $5.50, few believed the warrants would ever be exercised.

As business improved at this auto company in the next couple of years, the common shares were trading close to $30 per share and the warrants were worth a fortune. Eventually, the government received approximately $311 million and the loan guarantees were repaid 7 years early.

Simply put from the above example and use of warrants, readers can understand that warrants give investors the right, but not the obligation, to purchase the underlying common shares at a specific price ($13.00) and expiring on a specific date in the future.

Fast forward to today's news. Warrants have been mentioned in connection with the government's $85 billion bailout of one of the largest insurance companies. In the initial press reports, warrants were to be received by the government that would in effect, give the taxpayers an 80% ownership in the company. Other news reports indicate warrants may not be received by the company. The jury is still out on this transaction.

In another case, last week, warrants were received by one of the largest and most respective individual investors of our lifetime. The warrants were received in connection with a $5 billion purchase of preferred shares in one of the large and failing investment firms.

To read this article in it's entirety with all of the company and individual names and details specified, please click here .

Bringing the news back home …

Think about all of the dollars being printed by the Fed. It's been a rough month of September with probably a trillion or two being printed. It's only paper so who cares, right? If you ever doubted the reason to purchase gold you had better think again! The dollar was hanging by a thread even before this month and I believe the world's investors now understand the necessity of owning gold, silver, mining shares and long-term warrants on selected mining shares. We have advocated this position for some time now and our reasons are validated by the news of the day.

Many of you may have no knowledge about warrants even though they have been around since the 1920's. For those readers, interested in warrants which you can purchase, I encourage you to visit my website . You will find a wealth of information on warrants in our learning center which will assist in your understanding of the current use of warrants by the government.

or subscribers, we also provide a database for all companies with call options and leaps trading on the natural resource shares in addition to the warrants. A valuable tool for all investors.

Dudley Pierce Baker
Guadalajara/Ajijic, México
Email: info@preciousmetalswarrants.com
Website: PreciousMetalsWarrants

Dudley Baker is the owner/editor of Precious Metals Warrants, a market data service which provides you with the details on all mining & energy companies with warrants trading on the U. S. and Canadian Exchanges. As new warrants are listed for trading we alert you via an e-mail blast. You are provided with links to the companies' websites, links to quotes and charts, tips for placing orders and much, much more. We do not make any specific recommendations in our service. We do the work for you and provide you with the knowledge, trading tips and the confidence in placing your orders.

Disclaimer/Disclosure Statement:PreciousMetalsWarrants.com is not an investment advisor and any reference to specific securities does not constitute a recommendation thereof. The opinions expressed herein are the express personal opinions of Dudley Baker. Neither the information, nor the opinions expressed should be construed as a solicitation to buy any securities mentioned in this Service. Examples given are only intended to make investors aware of the potential rewards of investing in Warrants. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions involving stocks or Warrants.

Dudley Pierce Baker Archive

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