--Come on ARU HOLD-OUTS ,

Rather than get caught up in breathless reporting the latest casualties on our precious ARU Board , and in the collapse of the Wall Street's Ponzi economy, we pause to take a deep breath. Inhale. Exhale.

Yes, Fearless & Bit nick might be related

Try it for yourself ...Inhale...exhale...inhale.....exhale.

Leave our Safe harbour alone.

--Did you know if you breathe deeply three times you will slow down the physiology of panic?

We're not sure exactly how it works. It's something to do with your heart rate and the amount of oxygen in your blood. But it's a useful tool. Remember to breathe... & .. ARU breathes.

--Now. Where do we stand?

Who has fallen for the last time? Who will get up? And where should you stand to avoid friendly fire so you can step in to take advantage of the opportunities when the smoke clears?

--It's no use shouting "medic!"

Lehman we read is probably dead. It's gone to court seeking bankruptcy protection. But that will only give it time (triage) to find buyers of its choicest assets. It has US$53 billion in commercial and residential real estate. That will be tough to unload.

Amputate as Antoninus would say..

--AIG, the large American insurer, fell nearly 50% in U.S. trading on Monday. The firm is looking for a US$40 billion life line of credit. The ratings agencies (paragons of financial virtue) say if AIG doesn't get new capital, it will be downgraded. The supply lines of credit, though, have been cut.

--Not surprisingly, the most shocking weekend on Wall Street since the Great Depression sent the Dow down over 500 points by the close. Here in Australia, the futures suggest a decline to 4,692 on the ASX/200 at the open. That would be a decline of 135 points from yesterday's close, and a 3% loss to start the day.

--Through the fog of the financial war, you can take some solace that what's going on is necessary and, in a painful way, good. That is, the financial stocks have been sitting on losses for a year, hoping to find a magic escape. This dead weight and uncertainty in the system has been bad for all stocks.

--Now, though, the financials have nowhere to run. Cut off from capital, harried by short sellers, and looking desperately to the sky for a cash air left from Helicopter Ben and Bazooka Hank, they realise now the game is up. Those that can make deals to save their own skin (like Merrill) have done so.

--The rest? Well, markets don't take prisoners.

--The action in the commodity markets is more encouraging for resource investors. Gold was up $22.50, or nearly three percent, to $787. With risk-aversion back in fashion, it should be an interesting contest between U.S. Treasury bonds and gold ETFs.

--Who will be first to occupy the ground vacated by Financials? well .. MAYBE .. GOLD & AEM .

Should our money be on gold, given that the supply of gold is not growing as fast as the supply of U.S. Treasury bonds?

There may be a flurry of new money marching off to war from the Fed's balance sheet.

But Gold is battle scared, steadier, and just plain heavier than paper.

Cameron Alexander of GFMS Limited, speaking yesterday here in Sydney Australia, at the Excellence in Mining show, gold production is in the midst of what he calls a "secular decline."

Not only are cash costs of production rising for gold miners (up 27% in the first half of 2008, according to GFMS), but mine production is in decline globally. Why?

--Well, gold is not like paper money or digital money. You can't just create it out of thin air. You have to find it. You have to hire people to mine it. You have to refine it.

--The costs (labour, energy, and infrastructure) are rising...and for some producers are already higher than the gold price itself. Not many businesses can stay in business for long when the cost of production exceeds the market value of the commodity. You can't make it up on volume.

--What about demand for gold? Gold's run to US$1,000 dampened demand for gold jewellery, and according to Alexander. But ,the recent dip to $700 is already showing signs of sparking that demand. It's just too good a buying opportunity to pass up.

--Alexander also noted that the investment demand for gold is driven largely by the gold exchange traded funds. Then there is gold's role as a monetary reserve. The U.S. claims to have 79% of its official reserves in gold. Japan's central bank, by comparison, holds just 2% of its reserves in gold, and China just 1%.

--Do you think China would like to convert some of its $2 trillion in for ex reserves into gold?

Or, would China, through its various state intermediaries, prefer equity in resource shares listed abroad, so that is actual ownership of key strategic resources? Why not both?

--"Both" appears to be the answer suggested by Paul Glasson from KPMG, who has lived and worked in China for years. He helps Aussie firms do business with Chinese firms. His presentation yesterday was fascinating. He explained in detail how Chinese investment decisions wind their way from the Communist Party in Beijing to the stock market in Sydney.

--Sure some mention China and Gold because they think they both have huge roles to play in the coming months.

It's clear by now that the American model of asset-based wealth generation through leverage, debt, securitisation, and trading is failing badly.

But there is still a lot of wealth denominated in U.S. dollars to be put to the sword.

--Parties who are not interested in having their dollar-based wealth evaporate will be looking for ways to trade dollars for other assets. We're betting equity in resource companies-which again are absurdly cheap-is one way they'll do that.

--Of course, there are plenty of people content to crowd into the lifeboat that is the U.S. Treasury bond market. That seems to us like a strategic error of the first order, akin to sending your 6Th Army down to Stalingrad for the weekend, only to find that it never returns. Or crowding into a medieval castle just before a long siege.

Believe it or not, after a few deep breaths, a few weeks talking to small mining companies with their feet firmly planted on the ground of the real economy, we think there are some fantastic opportunities now in play for individual investors like you. You just have to pick your battles carefully.

PEE ON IT.. IT FEELS GOOD! WE ARE NOT WHIMPS!

HOLD ON TO YOUR ARU SHARES & MAKE EM PAY FOR THEM!

Thanks to..Australian Resources for the back-up material for this report.