Posted at 8:52 PM (CST) by & filed under General Editorial.

Dear CIGAs,

Why would an organized short seller not cover in the marketplace even after having accomplished extremely low prices in Gold juniors?

The main purpose of this new multi-year attack of the entire investment group of junior exploration, development and even producing shares has as its goal “To prevent the field from obtaining financing.”

The plan of the organized shorts is not to re-buy their short positions back in the marketplace but rather to by preventing the companies from normal financing do the following:

1.  Force by necessity the company to do participation financing on predatory terms on extremely exciting properties.

2. Force the company by necessity to do private placements with warrants and options that favored the private placee to the degree of dilution to the present stockholder that is egregious.

3. Force by necessity the company to accept loans terms based on their property sure to result because of short timeline in the failure on the note and title on the property to pass to the hands of the private loan note placement party.

This explains the enigma of no cover.

The strategy of defense has been to determine any and all other means of financing rather than the normal chain of broker dealer networks now making more money from the perpetrators than the operating companies.

The Resolution of the $1,000,000 wager on the Gold Price at or above $1650 by January 14th 2011:

1. The primary purpose of offering this wager was to identify the central hedge fund or funds short of the gold juniors.

2. The only offer that appeared to have been real came from a TORONTO Hedge Fund, but required that I become a counter party to an Over The Counter derivative called a one touch option. Clearly I am the last person on this planet that would be involved in an Over the Counter Derivative, having argued against them since the late 90s.

3. The offer of the wager, after a few months, lapsed with time.

Posted at 2:53 PM (CST) by & filed under In The News.

Dear CIGAs,

It is much easier to just announce that you have successfully re-inflated the world economy to the cheers and applause of all the G20 media, participants and their media.

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Jim Sinclair’s Commentary

No comment.

Fed Said to Order Banks to Stay Mum on ‘Stress Test’ Results
By Bradley Keoun and Scott Lanman

April 10 (Bloomberg) — The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc.and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter said.

The Fed wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government’s plan to release the results in an orderly fashion later this month.

“If you allow banks to talk about it, people are just going to assume that the ones that don’t comment about it failed,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia.

Regulators are using the tests to determine whether the 19 biggest banks have enough capital to cover loan losses during the next two years if the economy shrinks, unemployment surges and housing prices keep declining. The tests are a linchpin of the plan Treasury Secretary Timothy Geithner announced in February to bolster confidence in the nation’s banks and restore financial-market stability.

Geithner has likened the stress tests to those used by doctors to evaluate a patient’s health. They’re designed to mesh with the administration’s effort to remove distressed mortgage assets from banks’ balance sheets. The Fed is overseeing the administration of the tests, people briefed on the matter say.

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Jim Sinclair’s Commentary

Physical demand increases sharply while physical supply falls, yet the COMEX Fake Paper Gold market runs the price as it pleases.

South Africa Mining Output Falls by Most in a Decade
By Carli Lourens

April 9 (Bloomberg) — Mining production in South Africa, the world’s biggest producer of platinum, fell by the most in more than a decade in February after metal and diamond prices declined.

Output dropped 12.8 percent in February from the same month a year ago, Statistics South Africa said on its Web site today.

Metal prices tumbled from records last year as the recession curbed demand and discouraged production. Platinum, mainly produced in South Africa, declined 40 percent in the past year, prompting producers including Lonmin Plc to suspend mines.

Gold output advanced 2.7 percent, the Pretoria-based agency said. The price of the metal climbed to $993 an ounce in February, close to its $1,032.70 record last year.

The value of total mineral sales slid 2.2 percent to 17.1 billion rand ($1.9 billion) in January.

More…

Posted at 2:50 PM (CST) by & filed under Jim's Mailbox.

Jim,

"The bottom line of the comparison is that the trend is now forcing the US Treasury in on the internal US credit markets to finance the present needs for the 12.7 trillion bailouts as well as the shortfall on the US budget deficit." As you have said Jim, this is the one and major criteria of this entire disaster that cannot be bailed out.”

It is important to put into historical context the rate of deterioration in the following trends:

TIC relative Trade & Budget Deficits:
http://www.facebook.com/photo.php?pid=1492806&l=45c3fa682c&id=557304509

TIC relative Trade Deficit:
http://www.facebook.com/photo.php?pid=1492805&l=f7afaa915e&id=557304509

TIC relative Budget Deficit:
http://www.facebook.com/photo.php?pid=1492804&l=e8e64b417e&id=557304509

Regards,
CIGA Eric

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Dear Jim,

I think the Irish police are onto something! Good on them. This is how our police have to start to handle things.

Best,
CIGA BT

Dear BT,

The higher probability is that this will set the groundwork for demotion, defrocking and pension cancellations along with reputational smear of a noted police officer. Nice idea, but impractical when he is calling for the breaking of a limb of the tree that runs the world.

Jim

Gardai want bankers prosecuted
Finance elite must be held accountable for ‘fraud and greed’
By Tom Brady Security Editor
Tuesday April 07 2009

THE man who leads middle-ranking gardai last night called for prosecutions against the banking elite.

The Association of Garda Sergeants and Inspectors (AGSI) believes some banking behaviour in the past few years amounted to fraud, and brought the country "almost to its knees".

And if there legal loopholes in the current legislation, the law should be overhauled, they say.

The charge was led last night by AGSI president Paschal Feeney, who said there was an apparent weakness in dealing with white collar crime.

He told his association’s annual conference in Athlone that he wanted the Government to take all possible steps to hold those responsible for the demolition of the country’s financial reputation to account.

More…

Posted at 7:30 PM (CST) by & filed under In The News.

Dear CIGAs,

To properly understand what this means, there are various items for you to consider:

The prime implications of the Trade Balance deals with a comparison to the Treasury International Capital Flows as both are measures of capital inflow or outflow. That balance deals with the willingness of non US entities to finance the demands of the USA. The Trade Balance deals with the mechanics of international trade as a positive inflow of capital in terms of export earnings or out flow as a product of import dependency.

The Trade Balance is heavily dependent on the level of economic activity of the country it represents.

Therefore presentation of the Trade Balance without comparison to the Treasury International Capital Flows renders the statistic immaterial. Both are immaterial when expressed independently of each other.

The bottom line of the comparison is that the trend is now forcing the US Treasury in on the internal US credit markets to finance the present needs for the 12.7 trillion bailouts as well as the shortfall on the US budget deficit.

The above is a lesson in "how to" that you might consider noting for future reference or bookmarking on the compendium.

U.S. Trade Deficit Plunges to Nine-Year Low as Imports Slump
By Timothy R. Homan

April 9 (Bloomberg) — The U.S. trade deficit tumbled in February to the lowest level in nine years as collapsing demand from consumers and companies reverberated around the globe.

The gap shrank to $26 billion, less than anticipated, from a revised $36.2 billion in January, the Commerce Department said today in Washington. Imports plunged for a seventh consecutive month, leading to declines in the deficits with Japan and China, while exports climbed from a two-year low.

The report showed some U.S. trading partners may not bypass the recession unscathed as American demand for Asian cars, toys and electronics plunged. The improvement in exports, the first since July, is likely to be short-lived as economies shrink worldwide.

“It’s an indication of the extent to which we’ve been passing on some of our demand decline to the rest of the world,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “That is why we’ve seen such disastrous declines in growth numbers in Asia. They have been relying on U.S. spending, and U.S. spending just isn’t there any more.”

Separate figures from the Labor Department today showed the cost of goods imported into the U.S. in March rose less than forecast as companies in China and Japan cut prices to stem the slump in overseas sales. Other figures from Labor showed the number of Americans filing first-time claims for unemployment insurance exceeded 600,000 for a 10th consecutive week.

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Jim Sinclair’s Commentary

From Stratfor. Pakistan is a bloody mess. It is the most critical and dangerous area in the world right now.

Pakistan: Islamabad Denies ISI Chief Snub
April 7, 2009 | 2154 GMT

U.S. special envoy for Afghanistan and Pakistan Richard Holbrooke (L) and Pakistani Foreign Minister Shah Mehmood Qureshi in Islamabad on April 7 Pakistani military spokesman Maj. Gen. Athar Abbas on April 7 denied reports that Lt. Gen. Ahmed Shuja Pasha, head of Pakistan’s Inter-Services Intelligence (ISI) spy agency, declined to meet U.S. special envoy to Afghanistan and Pakistan Richard Holbrooke and Joint Chiefs of Staff Chairman Adm. Mike Mullen, who were visiting Islamabad. Abbas, who is director-general of the Inter-Services Public Relations directorate, said the ISI chief was in fact present in the meetings Mullen and Holbrooke had with Pakistani military chief Gen. Ashfaq Kayani. The denial came about half an hour after Pakistani news channels broadcast reports that the ISI chief had snubbed the two senior U.S. officials.

The two reports may appear contradictory, but STRATFOR has learned that the top U.S. military commander and Washington’s point man on the Afghanistan/Pakistan region had requested a separate meeting with the ISI chief, which was not granted. The ISI likely released this story to the media in such a way that it created the impression (and sensation) that the ISI chief refused to meet with senior U.S. officials. Since the rise of a democratically elected government in Islamabad in March 2008, U.S. officials representing the State Department and the Pentagon frequently travel to Pakistan and meet with a wide range of civilian and military officials, including the ISI chief, as authority is now divided between the government and the security establishment. Thus, Holbrooke and Mullen’s request was not out of the ordinary.

Pakistan, which faces a raging jihadist insurgency, is upset over growing U.S. criticism of its army-intelligence complex and increasing unilateral American airstrikes in the country’s northwest. Islamabad is trying to craft a unified national security and foreign policy that takes into account all the stakeholders (legislature, executive, judiciary and military/intelligence establishment) as a means of enhancing its bargaining power with Washington. As a result, it is trying to limit one-on-one contact between Washington and the various Pakistani institutions, especially the ISI — which in this case meant having a group meeting with both the army and intelligence chiefs instead of separate meetings. That said, Islamabad did want to relay its anger to Washington over U.S. criticism of the ISI. This would explain why Kayani demanded April 7 that negative propaganda against his country’s foreign intelligence service end, and it is a reason for preventing a separate meeting between Pasha and the Mullen-Holbrooke team.

 

Jim Sinclair’s Commentary

This place can blow any day, any time. No one other than our gang has any idea of what this means and the start of the most disruptive market event ever when consider over time.

Pakistan: Possible Militant Strikes on Karachi
April 8, 2009 | 2156 GMT

Militants of Tehreek-e-Taliban Pakistan in the Pakistani tribal district of Mohmand Agency on July 21, 2008 TARIQ MAHMOOD/AFP/Getty Images Militants of Tehrik-i-Taliban Pakistan in Mohmand Agency in July 2008 Summary

Karachi police chief Waseem Ahmed said April 8 that police had arrested 5 militants belonging to Lashkar-e-Jhangvi (LJ) who reportedly were planning attacks on seven government buildings in Karachi, British newspaper the Telegraph reported. The targets included the home of the interior minister, police headquarters, Shiite religious centers and suppliers cooperating with NATO forces. LJ is a jihadist group based in Punjab province allied with Tehrik-i-Taliban Pakistan. Jihadists have struck in Karachi before, but a campaign against Karachi by the Tehrik-i-Taliban Pakistan (TTP) would create a serious confrontation for the city’s ruling party, the Muttahida Qaumi Movement, a group that is itself known to engage in significant violence.

Analysis

On April 8, Karachi police chief Waseem Ahmed said police had arrested five militants who were part of militant group Lashkar-e-Jhangvi (LJ) and were planning to attack government offices (including the police station), intelligence agencies, mosques, suppliers who ship goods to Western forces in Afghanistan and counterterrorism personnel. These arrests are only the latest sign that Karachi’s ruling party, the Muttahida Qaumi Movement (MQM), is nervous about the jihadist threat to its city. LJ is a jihadist group based in Punjab province and allied with Tehrik-i-Taliban Pakistan (TTP), which is led by Baitullah Mehsud.

The TTP has shown an ability to strike beyond its traditional territory in the North-West Frontier Province (NWFP) and Federally Administered Tribal Area (FATA) by expanding to virtually all of Pakistan’s major metropolitan areas with attacks in Islamabad, Lahore, Rawalpindi and Peshawar in recent months. Most recently, a group of 10 militants under Mehsud raided a police training facility just east of Lahore in Manawan in Punjab province. The TTP also has shown an interest in attacking Karachi, such as when Mehsud threatened in August 2008 to launch attack on MQM offices and other targets in Karachi if the party leader, Altaf Hussain, did not forfeit his rule there. Mehsud’s spokesman added that the time “was ripe for the Taliban to gain control of the city.”

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Riots in Pakistan After Dissidents Found Dead
Thursday, April 09, 2009

QUETTA, Pakistan —  Rioting has broken out in southwestern Pakistan after police said they found the bodies of three missing political dissidents.

Police say one officer has been shot dead in southwestern Pakistan during the rioting.

Ghulam Ali Lashari, a senior police official, said the officer was fatally wounded when protesters opened fire in Khuzdar, a town in Pakistan’s restive Baluchistan province.

Television footage showed police swinging batons to disperse protesters who set fire to a bus in the city of Quetta, the capital of Baluchistan province.

Police official Khalid Masood says the mutilated bodies of three ethnic Baluch nationalist leaders were found before dawn on Thursday in another part of the province.

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Jim Sinclair’s Commentary

You see why slowly but surely some of the maverick strongholds are becoming establishment types.

Moody’s Downgrades Berkshire
By MICHAEL J. de la MERCED
April 9, 2009

In these economic times, even Warren E. Buffett can’t qualify for the best credit rating.

Moody’s Investors Service on Wednesday stripped away the triple-A rating of Berkshire Hathaway, the conglomerate and investment vehicle run by Mr. Buffett, citing the economic pressures on the firm.

The news is yet another sign that, despite all of Mr. Buffett’s investing prowess and business savvy, even the man that investors regard as the Oracle of Omaha cannot avoid the tremors coursing through the markets.

The ratings downgrades affect Berkshire as a whole as well as a wide swath of its insurance subsidiaries, including its flagship National Indemnity, as well as other units like the auto insurer Geico and the municipal bond insurer Berkshire Hathaway Assurance.

“Today’s rating actions reflect the impact on Berkshire’s key businesses of the severe decline in equity markets over the past year as well as the protracted economic recession,” Bruce Ballentine, Moody’s lead analyst for Berkshire, said in a statement.

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Posted at 7:30 PM (CST) by & filed under General Editorial.

Extremely Important

Be Prepared

The end is close for the effectiveness of Naked, Pool and No Up-tick Short Selling

There are still extremely large (legal and otherwise) short positions in junior gold & silvers plus junior producers of both remaining uncovered as the ability TO POUND LOWER is coming to an end.

The short of gold on the COMEX, the short of gold in everything gold and silver is incestuous.

We have differences from time to time in market views, but I believe you respect my understanding of the technical characteristics and mind of the opposition in precious metals.

With a maximum of 60 days for comment on the reinstatement of a form, but an effective form, of the Up Tick Rule, cover needs to be accomplished in the next 90 days for the extremely large short position in the modest or low-volume trading silver and gold issues.

The short sellers, having DONE THEIR BEST TO POUND DOWN THE PUBLIC

COMPANIES TO COVER, now have only one option left.

 

DIRTY TRICKS

You will recognize the dirty trick when it occurs.

You witnessed it in Royal Gold (RGLD) when it occurred. You have seen it in multiple silver

issues. The South African shares have not been immune.

No precious metal share is immune for the next 90 days, none, no exceptions

Upward Surge From Uptick Rule’s Return?
By RANDALL W. FORSYTH Barron’s Weekly

Market’s bottoming is a process that can’t be hastened by government interference. WILL THE UPTICK RULE SAVE the stock market again?

Back in 1938, the original establishment of the uptick rule helped to reverse the 49% drop in the stock market over the 1937-38 period, according to Louise Yamada, the highly regarded head of Louise Yamada Technical Research Advisors.

The Securities and Exchange Commission is scheduled to take up a number of proposals Wednesday that would curtail short-selling, including a reinstatement of the uptick rule. (To review, that regulation required that a short sale — the sale of borrowed shares in anticipation of lower prices — could only take place after a trade that took place at a higher price, that is, an uptick. The idea is to prevent piling on by the bears.)

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How do you prepare?

1. You must eliminate ALL margin. Margin is the tool of dirty tricks, which still exists under $5 as maintenance margin. It is the killer. If you have any form of margin in anything gold between now and mid-June you have made yourself a sitting duck for the last try to cover, the DIRTY TRICK.

2. Be prepared mentally to go through what the shareholders of Royal Gold had to endure around $10 before it rose to over $40.

3. Recognize that the strategy of DIRTY TRICK is now a LAST DITCH, Hail Mary play by the bad guys (people who cannot profit if the game is played according to the rules) to make cover as they are about to lose.

4. If you know that emotions have a nasty habit of driving your market or investment decisions, please reduce the size of your position to the point of comfort, but stay prepared to reenter if your issue becomes the target of the DIRTY TRICK.

Please remember that Royal Gold (RGLD) earned its position as a target because it was a leader

in the field and had a large frustrated short position made up of the same suspects as today.

The Mitchell Report
Email Exposes Short Seller Plot to Destroy a Public Company
February 17th, 2009 by Mark Mitchell

This is Part 3 of an ongoing series.

A few years ago, a clique of influential journalists went to extraordinary lengths to cover up the problem of illegal short selling. In the face of indisputable data and evidence, the journalists insisted, over and over, that “naked” short selling (hedge funds manipulating stock prices by flooding the market with phantom stock) rarely occurred. And they said short sellers (who profit from falling stock prices) don’t set out to destroy public companies.

Moreover, if a person were to criticize illegal short selling, the reporters would smear that person’s reputation with a savagery that was almost without parallel in contemporary journalism.

More…

1. Silicon Investor — Royal Gold fights back after Barron’s sledging 12/08/2005 10:53:58 PM.
Dear Diana Olick, we just saw your piece on the … Royal Gold Inc … http://siliconinvestor.advfn.com/profile.aspx?userid=3061762:3105siliconinvestor.advfn.com/profile.aspx?userid=3061762 – 40k – Cached – Similar pages

2. Original Sixteen to One Mine, Inc. – Forum Topic: "Gold Enters … Then came the assault against the leader, Royal Gold. …. relating to gold and a future role that it may play in supporting the Dollar in the year 2005 …http://www.origsix.com/forum2.asp?topicid=67&p=24:5471457www.origsix.com/forum2.asp?topicid=67&p=24 – 65k – Cached – Similar pages

Posted at 1:23 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

See the last sentence which implies that the Government /Treasury will make asset sales compulsory – at bid. This is more corporate welfare. Money from sales will go to the insiders at low prices and some banks may even swap paper (eg: I will sell mine to you cheap while you sell yours to me cheap). Another sign that the financial services lobby has a strangle hold on both the Democratic and Republican parties.

They win, taxpayers lose.

Monty Guild and Tony Danaher
www.GuildInvestment.com

Banks Holding Up in Tests, but May Still Need Aid
By ERIC DASH

For the last eight weeks, nearly 200 federal examiners have labored inside some of the nation’s biggest banks to determine how those institutions would hold up if the recession deepened.

What they are discovering may come as a relief to both the financial industry and the public: the banking industry, broadly speaking, seems to be in better shape than many people think, officials involved in the examinations say.

That is the good news. The bad news is that many of the largest American lenders, despite all those bailouts, probably need to be bailed out again, either by private investors or, more likely, the federal government. After receiving many millions, and in some cases, many billions of taxpayer dollars, banks still need more capital, these officials say.

The federal “stress tests” that the examiners are administering are the subject of fierce debate within the banking industry.

Regulators say all 19 banks undergoing the exams will pass them. Indeed, they say this is a test that a bank simply will not fail: if the examiners determine that a bank needs “exceptional assistance,” the government, that is, taxpayers, will provide it.

But the tests, which are expected to be completed by the end of this month, are being conducted out of public view. Federal law prohibits the unauthorized disclosure of the results of any bank examination, including the stress tests. Some investors wonder if the new tests are rigorous enough, given the potential problems lurking inside the banking industry.

Regulators recognize that for the tests to be credible, not all of the banks can be winners. And it is becoming increasingly clear, industry insiders say, that the government will use its findings to press certain banks to sell troubled assets. The hope is that by cleansing their balance sheets, banks will be able to lure private capital, stabilizing the entire industry.

In some cases, however, the investments of existing shareholders could be severely diluted by large sales of new stock.

Some of the banks could also face more stringent restrictions on employee compensation or be ordered to change their boards or management. In extreme instances, the government could wind up taking larger, perhaps even controlling, stakes.

The state of the industry will come into sharper focus next week, when big banks like Citigroup and JPMorgan Chase start reporting first-quarter results. Many analysts predict the reports will show banks are on the mend, with help from low interest rates, fat lending margins, dwindling competition and profits from trading in the financial markets in January and February. In the last six weeks, financial shares have soared on hopes that the worst for the industry is over.

But some analysts say investors’ hopes are misplaced. With the recession, banks are likely to record further large losses on credit cards, corporate loans and real estate.

“Nothing has changed with the fundamentals,” said Meredith A. Whitney, a prominent banking analyst who has been bearish on most financial institutions.

The stress tests are playing a pivotal role in the Obama administration’s sweeping plan to shore up the financial industry. Forcing many banks to raise capital might undermine the still-fragile confidence in the industry. But if only a few banks raise more money, the test might lose credibility with investors.

“Clearly there is a desire to put a seal of good bookkeeping on these banks,” said Lou Crandall, the chief economist at Wrightson ICAP. “Whether they will use this to select a couple of sacrificial lambs is unclear. It’s a big uncertainty hanging over the system right now.”

The tests, led by the Federal Reserve, rely on a series of computer-generated “what-if” projections in the event the economy deteriorates. Those include unemployment rising to 10.3 percent by next year, home prices falling an additional 22 percent this year, and the economy contracting by 3.3 percent this year and staying flat in 2010.

Top regulators say the effort could signal a new approach to supervising the risks that banks take. While federal regulators routinely monitor the financial condition of banks, one goal of the tests is to devise a common set of standards for judging losses across all 19 institutions. Examiners are also considering instruments that are not carried on banks’ balance sheets. They long escaped tough scrutiny.

As part of the tests, the banks analyzed each category of loans they held and compared their results with the “high” and “low” range of government loss estimates. If a bank expected fewer losses than the government, the regulators asked the institution to explain why.

The banks were also asked to project their earnings over the next two years to give the regulators a better sense of how much capital they would have to absorb the coming losses.

Several people involved in the process say there is a wide range of results among the institutions. Those that fall short will have six months to raise capital from private investors; if they are unable to do so, the Treasury Department has said taxpayer money will be available.

Some federal and industry officials say regulators may use the results to prod reluctant banks to sell assets under that program.

Michael Poulos, a director at Oliver Wyman, the consulting firm, said many big investors were burned after investing in financial companies last year and are averse to doing so again. The stress test findings, he said, could “make private capital more eager to come in because they will get a view of the bottom.”

At a recent breakfast with a dozen or so corporate and banking executives in New York, Treasury Secretary Timothy F. Geithner warned he would take a tough stance. Many banks, he suggested, believe the investments and loans on their books are worth far more than they really are, according to a person who attended the meeting.

Mr. Geithner said that was unacceptable. The banks, he said, will have to sell these assets at prices investors are willing to pay, and so must be prepared to take further write-downs.

Hi Jim,

Wells Fargo’s profit is obviously created through the easing of accounting principles. My question is do the bank officers realize it is BS or do they actually think they made a profit?

As always… thanks for all you do.

Regards,
CIGA Ron

My Dear Ron,

We live in a world of finance where ethics is considered criminal and should be punished and where absolute demonic criminality is considered desirable as long as the criminal is stealing on your behalf as a stockholder.

I would imagine that all banks will show a good first quarter as they begin to mark up some of their inventory. It is not clear that they have as much of a free hand as the spin says they do.

The financial; industry welcomes the change which would indicate they will accept the lies as positive when the earning statements are issued.

Respectfully,
Jim

Jim,

I’ll drink to that!

Derivative Markets…an explanation

Heidi is the proprietor of a bar in Detroit. In order to increase sales, she decides to allow her loyal customers – most of whom are unemployed alcoholics – to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Heidi’s drink now pay later marketing strategy and as a result, increasing numbers of customers flood into Heidi’s bar and soon she has the largest sale volume for any bar in Detroit.

By providing her customers freedom from immediate payment demands, Heidi gets no resistance when she substantially increases her prices for wine and beer, the most consumed beverages. Her sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes these customer debts as valuable future assets and increases Heidi’s borrowing limit. He sees no reason for undue concern since he has the debts of the alcoholics as collateral.

At the banks corporate headquarters, expert traders transform these customer loans into DRINKBONDS, ALKIBONDS, and PUKEBONDS.

These securities are then traded on securities markets worldwide. Naive investors don’t really understand the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics.

Nevertheless, their prices continuously climb, and the securities become the top-selling items for some of the nations leading brokerage houses.

One day, although the bond prices are still climbing, a risk manager at the bank (subsequently fired due his negativity), decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi’s bar.

Heidi demands payment from her alcoholic patrons, but being unemployed they cannot pay back their drinking debts. Therefore, Heidi cannot fulfill her loan obligations and claims bankruptcy.

DRINKBOND and ALKIBOND drop in price by 90 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %. The decreased bond asset value destroys the banks liquidity and prevents it from issuing new loans.

The suppliers of Heidi’s bar, having granted her generous payment extensions and having invested in the securities are faced with writing off her debt and losing over 80% on her bonds.. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 50 workers.

The bank and brokerage houses are saved by the Government following dramatic round-the-clock negotiations by leaders from both political parties.

The funds required for this bailout are obtained by a tax levied on employed middle-class non-drinkers.

Posted at 5:44 PM (CST) by & filed under Guild Investment.

Dear CIGAs,

THE WORLD ECONOMY IS WEAK AND GETTING WEAKER, BUT LET US FOCUS ON THE POSITIVE IN THIS MEMO.  IN SOME AREAS, IMPROVEMENTS ARE TAKING PLACE.

LAST WEEK WAS THE G-20 MEETING

The primary new event was the creation of 250 billion dollars from nothing via Special Drawing Rights (SDR’s), 250 billion dollars in all.  These SDR’s can be used as reserves by the countries that are granted this fantasy money.  Over 30 percent, about 85 billion dollars, of this fantasy money is meant for the emerging world.  This is enough to keep optimism increasing in developing world.

OTHER MAIN POINTS FROM THE G-20

1. Even though protectionism was evident in the agendas of the many of the large developed countries, a one trillion dollars package of financing and loans was enough to get commodity producers like Brazil and others to agree to the total package.

2. Smaller, weaker economies will benefit from more trade finance, and spurring international trade should help to thaw the world financial freeze.  Altogether, this is a positive event for the global markets.  The event was filled with bogus PR to be sure, but it did produce some consequential liquidity improvements for the small countries of the world and their banking systems.  This should benefit share prices in emerging markets.

EMERGING MARKETS STOCKS WILL DO VERY WELL AS A RESULT OF THE G-20 LOANS AND HANDOUTS

Mexico was the first to take an interest in the new IMF loans, and more countries will follow.  This can help backstop weaker emerging countries like South Korea, and is good for demand from China and India.  We like China very much here, and we will continue to buy Chinese stocks during periods of price weakness.

MONETARY AUTHORITIES OF MANY COUNTRIES HAVE CAVED IN TO QUANTITATIVE EASING (PRINTING MONEY)

We believe it is just a matter of time until the Western Europe’s European Central Bank goes for quantitative easing (QE). 

Thus far, Japan, the U.S., Britain, Switzerland, and many small countries, such as in Eastern Europe have opted for some form of QE.  The rest of Western Europe has been more responsible and has not done so.  When the European Central Bank joins the party, we expect gold will take off. 

It appears that the IMF is being groomed to be the world’s central bank, taking this responsibility from the other major central banks, which have failed miserably in their role.

Poor management coming from the central banks of Europe, Britain, the U.S., and Japan cannot be excused.  It is good that the IMF is being groomed.  The world is searching for an alternative to the U.S. dollar.  For example, currency swap arrangements organized by China and Russia with some of their trading partners (allowing the countries to bypass the dollar as the settlement currency for their international trade), argue for regional currency blocks to facilitate trade.

While it is clear that the world has no current substitute for the U.S. dollar as the world’s reserve currency, the day the dollar loses that status inches closer.  As the U.S. continues to bumble the banking system recovery, and continues to enrich the failed bankers at the expense of the taxpayers, the rest of the world will press for an alternative to the dollar.  Even if a few sacrificial bank CEOs are fired, the institutions which provide so much money to politicians’ re-election campaigns will continue to grow richer.

A CALL TO ACTION

A group of experts assembled by the Wall Street Journal came up with twenty very thoughtful principles for rebuilding the financial system.  The piece titled A Call To Action helps explain what went wrong and why it behooves us to make sure that the principles are implemented.  In our cynical moments, we imagine that many of these principles will receive no more than lip service as they will be perceived to decrease the profits of those who have been successfully manipulating the system to their own advantage.

Here is the link to the top twenty principles as developed by participants in The Wall Street Journal:  A CALL TO ACTION

LONGER TERM, WE HAVE A BIG PROBLEM IN THE U.S…BANKS, INSURANCE COMPANIES, AND THE REST OF FINANCIAL SERVICE INDUSTRY THAT WIELD TOO MUCH POWER

Just as President Eisenhower warned about the military industrial complex, many wise writers (often financial, academic and non big bank types) believe that the banking system has too much power, and the current bailouts are being done in a way that emphasizes the big banks’ power.

We will paraphrase a major article on this subject in our next email.  In this letter, we want to focus on the positives, and explain why the current market environment will result in a continued stock market rally.

China’s Shanghai Composite Index

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India’s Bombay Sensitive Index

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SUMMARY

Emerging economies, especially China and India have been benefited by the recent IMF meeting. 

After the recent rally, many world markets are overbought.  We expect the rally to continue after a short rest.  We are buying Chinese and Indian stocks on weakness to add to our existing positions.  We continue to believe that technology in the developed world will rally in the short term, and that oil and gold will rally in the long term.  We plan to use price declines to add to our oil and gold positions.

PORTFOLIO REVIEWS

We have been happy to review readers’ portfolios free of charge, and will continue with this offer for any portfolios submitted before April 30, 2009.  After that, we will be unable to offer the courtesy.

Thanks for listening.

Monty Guild and Tony Danaher
www.GuildInvestment.com