Posted at 7:10 PM (CST) by & filed under In The News.

Dear CIGAs,

"Buy em Bull Bond Trader Ben." He better be there in Europe and Asia tonight or all hell will have broken loose before the US wakes up to find another Blacker Friday

Today’s obliterated long bond futures market is a challenge to the US Fed to "put up" or "shut up."

The US Fed has publicly threatened to buy one trillion US dollars worth of bonds.

Well, they better start cranking the electronic quantitative printing press and throw a few hundred billion at it here and now.

Markets have a nasty way of diving for zero if they conclude the Fed is bluffing. It sure looked like it today.

Jim Sinclair’s Commentary

Payback is a b***h.

He’s back. Eliot Spitzer and his article are hard hitting. Click the following links to view Part 1 and Part 2 of the video.

The New York Fed is the most powerful financial institution you’ve never heard of. Look who’s running it.
By Eliot Spitzer
Posted Wednesday, May 6, 2009, at 12:29 PM ET

The kerfuffle about current New York Federal Reserve Bank Chairman Stephen Friedman’s purchase of some Goldman stock while the Fed was involved in reviewing major decisions about Goldman’s future-well-covered by the Wall Street Journal here and here-raises a fundamental question about Wall Street’s corruption. Just as the millions in AIG bonuses obscured the much more significant issue of the $70 billion-plus in conduit payments authorized by the N.Y. Fed to AIG’s counterparties, the small issue of Friedman’s stock purchase raises very serious issues about the competence and composition of the Federal Reserve of New York, which is the most powerful financial institution most Americans know nothing about.

A quasi-independent, public-private body, the New York Fed is the first among equals of the 12 regional Fed branches. Unlike the Washington Federal Reserve Board of Governors, or the other regional fed branches, the N.Y. Fed is active in the markets virtually every day, changing the critical interest rates that determine the liquidity of the markets and the profitability of banks. And, like the other regional branches, it has boundless power to examine, at will, the books of virtually any banking institution and require that wide-ranging actions be taken-from raising capital to stopping lending-to ensure the stability and soundness of the bank. Over the past year, the New York Fed has been responsible for committing trillions of dollars of taxpayer money to resuscitate the coffers of the banks it oversees.

Given the power of the N.Y. Fed, it is time to ask some very hard questions about its recent performance. The first question to ask is: Who is the New York Fed? Who exactly has been running the show? Yes, we all know that Tim Geithner was the president and CEO of the N.Y. Fed from 2003 until his ascension as treasury secretary. But who chose him for that position, and to whom did he report? The N.Y. Fed president reports to, and is chosen by, the Fed board of directors.

So who selected Geithner back in 2003? Well, the Fed board created a select committee to pick the CEO. This committee included none other than Hank Greenberg, then the chairman of AIG; John Whitehead, a former chairman of Goldman Sachs; Walter Shipley, a former chairman of Chase Manhattan Bank, now JPMorgan Chase; and Pete Peterson, a former chairman of Lehman Bros. It was not a group of typical depositors worried about the security of their savings accounts but rather one whose interest was in preserving a capital structure and way of doing business that cried out for-but did not receive-harsh examination from the N.Y. Fed.

The composition of the New York Fed’s board, which supervises the organization and current Chairman Friedman, is equally troubling. The board consists of nine individuals, three chosen by the N.Y. Fed member banks as their own representatives, three chosen by the member banks to represent the public, and three chosen by the national Fed Board of Governors to represent the public. In theory this sounds great: Six board members are "public" representatives.

So whom have the banks chosen to be the public representatives on the board during the past decade, as the crisis developed and unfolded? Dick Fuld, the former chairman of Lehman; Jeff Immelt, the chairman of GE; Gene McGrath, the chairman of Con Edison; Ronay Menschel, the chairwoman of Phipps Houses and also, not insignificantly, the wife of Richard Menschel, a former senior partner at Goldman. Whom did the Board of Governors choose as its public representatives? Steve Friedman, the former chairman of Goldman; Pete Peterson; Jerry Speyer, CEO of real estate giant Tishman Speyer; and Jerry Levin, the former chairman of Time Warner. These were the people who were supposedly representing our interests!

Of course, there have been the occasional nonfinance representatives from academia and labor. But they have been so outnumbered that their presence has done little to alter the direction of the board.


NY Fed chair resigns amid stock purchase questions
By Kristina Cooke Kristina Cooke – Thu May 7, 8:30 pm ET

NEW YORK (Reuters) – Stephen Friedman, chairman of the New York Federal Reserve Bank’s board of directors, resigned on Thursday amid questions about his purchases of stock in his former firm, Goldman Sachs.

Friedman, a retired chairman of Goldman Sachs who has led the New York Fed’s board since January 2008, said he quit to prevent criticism about his stock buying from becoming a distraction as the Fed battles a severe U.S. recession.

"Although I have been in compliance with the rules, my public service motivated continuation on the Reserve Bank Board is being mischaracterized as improper," he said in a letter of resignation to New York Fed President William Dudley.

"The Federal Reserve System has important work to do and does not need this distraction," Friedman said.

The U.S. central bank is comprised of a seven-member Board of Governors in Washington, and 12 regional Fed banks.

Some of the regional directors are appointed by the Washington-based board. Those directors are not allowed to own shares of bank holding companies, a status that Goldman Sachs won in September to secure access to Fed lending facilities.


Jim Sinclair’s Commentary

There will come a time when the disposed seek those who have caused their pain and suffering. CIGAs are now losing their jobs and it is heartbreaking to know they are suffering. They worked hard for companies that have been broken by the OTC derivative market. It is so wrong.


Jim Sinclair’s Commentary

Just a drop in the phony money paper bucket. It is hardly worth writing about if you judge it by today’s standards.

All inside financial institutions will be provided with as much money as is required and when required.

To infinity it will be.

Remember that hyperinflation is a currency event and not an economic event. The barn will be burned to save all insider institutions. The Barn is the US dollar.

Gold is going to Alf’s price objectives on Armstrong’s schedule.

U.S. Says Ailing Banks Need $75 Billion
Published: May 7, 2009

Federal regulators told the country’s 19 largest banks that they must raise $75 billion in extra capital by November, a more upbeat verdict on the health of the financial system than the industry had feared just two months ago.

Ten of the 19 bank holding companies deemed “too big to fail” by the Obama administration will be required to raise additional capital, according to the results of the government’s stress tests, released late Thursday afternoon. But the 10 banks will have to raise much less capital than some analysts had expected as recently as a few days ago.

“With the clarity today’s announcement will bring, we hope banks are going to get back to the business of banking,” Treasury Secretary Timothy F. Geithner said during a news briefing on Thursday afternoon.

Mr. Geithner noted that banks had a long way to go to restore the nation’s confidence in the financial industry, and that they could get a start in generating good will by lending more.


Jim Sinclair’s Commentary

Gerald Celente of the Trend Research Institute, a by subscription service, said today:

"’Green shoots’ may sprout," said Celente, "but they will not flower.  The economy cannot be coerced back into growth with tons of money manure."  As the ancient parable puts it:

"A sower went out to sow his seed: and as he sowed, some fell by the way side; and it was trodden down, and the fowls of the air devoured it. And some fell upon a rock; and as soon as it was sprung up, it withered away, because it lacked moisture. And some fell among thorns; and the thorns sprang up with it, and choked it. And other fell on good ground, and sprang up, and bare fruit an hundredfold. And when he had said these things, he cried, He that hath ears to hear, let him hear." — Luke 8:4-8

Jim Sinclair’s Commentary

Remember when public bank company management worked for their Board, which in turn was legally bound to protect the stockholders?

It would seem that the bank Boards are now window dressing and the boss of the boss is the Treasury Secretary.

When Washington give $1 it takes $1000.

Now please name the new system.

Regulators put bank CEOs on notice
Banks that need capital after stress tests will have a month to give regulators a plan and to review management to make sure they have "sufficient expertise."
By Colin Barr, senior writer
Last Updated: May 7, 2009: 3:55 AM ET

NEW YORK (Fortune) — Banks that need more capital under the stress tests will have a month to present regulators with a fundraising plan, federal officials said Wednesday.

The banks will have six months to raise the funds, according to a statement from the Treasury Department, the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.

The banks will also have to review their management and board within a month, "to assure that the leadership of the firm has sufficient expertise and ability to manage the risks presented by the current economic environment," the bank regulators said in a statement Wednesday afternoon.

The announcement comes just a day before the results of regulators’ Supervisory Capital Assessment Program, which covers the 19 biggest bank holding companies in the U.S., are due to be released to the public.

Wall Street has been eagerly awaiting the results since the government unveiled the stress test plan in February. The results of the tests were initially scheduled for release earlier this week, but the announcement was rescheduled for Thursday afternoon to allow banks a chance to review the findings.


Jim Sinclair’s Commentary

The various predictions made by Alphaville FT assuming the worst case scenario has elucidated comments of being "too negative."

Read what is below and understand that if we return to a psychology of contraction what is outlined below will expand. Those 9 points are the story of an Empire that down spirals into a Banana Republic.

If this occurs, all of that essay will unfortunately be CORRECT.

Please protect yourselves!

Click here to review the 12 points Worst Case Scenario article from

Ex-Owners Turning Aggressive in Efforts to Resist Leaving
By Derek Kravitz
Sunday, May 3, 2009

One former homeowner rigged his front door with coffeepots filled with boiling water. Another left piles of ferret feces. Hidden compartments have been used as living spaces, with people hiding in attics, tool sheds and garages to elude police.

In the D.C. suburbs, a new class of squatter has emerged, as people illegally remain in homes after they have lost them to the bank. Some have become aggressive in their efforts to stay, setting booby traps to ward off police.

"People got in over their heads, and they don’t want to leave," said Loudoun County sheriff’s Capt. Chuck Wyant, who oversees the department’s five-person eviction unit.

The problem seems especially acute outside the Capital Beltway. Initially viewed as an unusual symptom of the economic downturn, squatting has grown into something closer to an epidemic in Loudoun. Court-ordered evictions in the county have more than doubled over the past three years, and a six-month backlog of cases at the Loudoun courthouse is a dire reminder that things might only get worse, Wyant said. A docket at the courthouse has been created for the approximately 2,300 in the county facing evictions.

"It’s hit us hard, worse than other counties, because we grew so quickly," he said.


Jim Sinclair’s Commentary

The Crimex makes a phony paper gold price while the physical market is tight.

A shift from the physical market by mints and other consumers of physical gold to making their purchases on the COMEX will transmute the COMEX to a cash exchange. This will extinguish the gold bank’s ability to make the gold price.

It is so easy to see that the Commercial Dealers are not yet prepared to run gold higher as their short position still needs more balancing between options, physical and reduction.

When that occurs gold will be off to a penetration of the $1000 level and a visit at $1224.

It is only time, and the time is short.

U.K.’s Royal Mint Uses 75% More Gold as Investor Demand Expands
By Thomas Biesheuvel and Nicholas Larkin

May 7 (Bloomberg) — The Royal Mint, established in the 13th century, used 75 percent more gold in the first quarter amid a surge in demand for bullion to diversify investments.

The U.K. mint made 28,496 ounces of gold coins in the quarter, compared with 16,317 ounces a year earlier, according to data obtained by Bloomberg News under a Freedom of Information Act request. Production last year rose 30 percent to 53,089 ounces, the data show.

Demand for gold and exchange-traded funds linked to the metal accelerated as equities collapsed and governments spent trillions of dollars to combat recessions. The Austrian mint, Muenze Oesterreich AG, sold a record 1.5 million ounces of gold last year, while the U.S. Mint’s sales of 1-ounce American Eagle gold coins more than quadrupled in January to 92,000.

“People are worried about their savings and banks, and a lot of people realize it’s a safe-haven asset,” said Mark O’Byrne, managing director of brokerage Gold and Silver Investments Ltd. in Dublin. “Very few people are selling.”

Investment in the SPDR Gold Trust, the biggest ETF backed by bullion, has expanded to 1,104.45 metric tons, overtaking Switzerland as the world’s sixth-largest gold holding. Gold has advanced for eight consecutive years, the longest winning streak since at least 1948, according to data compiled by Bloomberg.

The Royal Mint is now based in Llantrisant, Wales. Its 2009 Gold Proof Sovereign coin, made from 22-carat gold and weighing 7.99 grams (0.26 ounce) sells for 299 pounds ($450), according to the government agency’s Web site. Gold for immediate delivery averaged $904.18 an ounce this year, compared with $872.25 an ounce last year.


Jim Sinclair’s Commentary

Expectations of a Fortress Europe are not farfetched as blame for the financial disaster sticks to Washington and the US Banksters. This has negative implications for the US dollar.

Sarkozy plans a fortress Europe à la française

Nicolas Sarkozy has just done a favour to British Conservatives and other sceptics who like to see the European Union as a plot for putting a French face on Europe.

Super Sarko used his second anniversary in office to sketch a vision for the Union which fell somewhere between that of the late Charles de Gaulle and the pro-European French leaders of the 1970s and 80s. If Europe follows his recipe, it will be able to pull out of the "deep intellectual and moral crisis" from which it is suffering, he said.

Sarkozy wants a Union with a new "economic government" — run by the member states not the supranational Brussels Commission. He wants a centralised industrial policy, new tight financial regulations, a closed door to "predators from the world at large". He wants a curb on the free market laws that are policed by Brussels.  He also reaffirmed his pledge to stop Turkey ever joining the Union.

Sarko was speaking in Nîmes to kick off the campaign for next month’s European Parliament elections but the assembly — the other supranational pillar of the Union — got barely a mention in his manifesto for a continent run by the Council of member governments.  He shares ground with the British sceptics on that front, but not on much else.


Posted at 6:55 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

Interesting fact for you:

-For the April/June Qtr 2008, Treasury issuance was $13billion
-For the April/June Qtr 2009, Treasury issuance is expected to be $361 billion
-For the July/September Qtr 2009, Treasury issuance is expected to be $515 billion

I just can’t see how this gets funded without significant $USD weakness which should be supportive of gold and hard assets

Also it appears the long bond has topped and LT rates are going to shoot higher

CIGA Mike K.

Dear Mike,

You are 100% correct regarding the dollar and support for gold.

Look at the Pillars chart:




I was watching CNBC this morning while waiting for my internet service to be repaired and I had no idea the ‘recession’ was over!! Rah-rah! Kudlow absolutely declared the recession is now over. Wow was that fast. Not 6 weeks ago we were spiralling down out of control without any light seen at the end of the tunnel and now it’s all over and done with.

The traders they paraded in front of the camera’s are now declaring Dow 10,000 is right upon us and here we are, back in action just like the old days. I had no idea that major downturns the likes of nothing seen since the 1930’s could be turned like an F-16 doing mountain fury training… You got to love the Fed; man are they good. The new bull market has started and they are telling everyone to get back into the stock market, and now, or you’ll miss the move.

CIGA Bruce

Dear Bruce,

Please see my posting today concerning the deadly spider that has been found with a happy face on its tail. Consider Mr. Kudlow the spider. He looks good but be careful. Rallies in bear markets can be awe inspiring but not trend changing.


Posted at 2:32 PM (CST) by & filed under Guild Investment.

Dear CIGAs,

Today, we would like to talk about India, but first we would like to summarize our views on investment management strategy and tactics.

A. In order to maximize stock price appreciation, invest where corporate profits are growing fast.  In our opinion, and in the opinion of many investment professionals, corporate profits determine stock price appreciation.  Many academic studies corroborate this point of view.

B. Since corporate profits grow most rapidly in countries where GDP is growing most rapidly, we prefer to focus investments in those countries.  Which countries among the large countries will grow GDP and corporate profits fastest?  In our opinion, #1 will be China, #2 will be India, #3 will be Brazil, #4 will be the U.S., Canada, and Australia.  Europe and Japan will bring up the rear.

C. How we judge stock valuation.  There are many measures of stock valuation.  Based on traditional valuation measures, the world markets were very highly valued in October 2007.  As of today, valuations have plummeted, especially for those countries where stock prices have fallen while corporate profits have grown.  As a result of a major bear market, some world markets have become very inexpensive, in our opinion.

D. Last, but certainly not least, is RISK MANAGEMENT.  The standard "buy and hold" strategy employed by many investment managers may make their lives easier, but this strategy does not protect investors from violent financial declines, such as the world experienced since October 2007.  Guild Investment Management pursues active management by cutting losses.

Now that the damage to portfolios has been done, people are recognizing that many of the popular mathematical asset allocation models used by investors and financial mangers incorrectly managed for major risk by underestimating the frequency of such risks. 

These financial planning and asset allocation models’ evaluation of the frequency of violent declines is something that I argued about with my professors forty years ago, so I can assure you that when Guild Investment Management originated, it was organized with a plan to control big risk.  Our motto has been to always cut losses quickly.  In our opinion, even if you re-enter the markets and lose again, stick to the policy and in the long run above average returns will result. 

Here is an article on the subject from this past weekend’s Wall Street Journal.

Odds-On Imperfection: Monte Carlo Simulation
Financial Planning Tool Fails to Gauge Extreme Events
By Eleanor Laise, May 2, 2009.

If one had asked a financial adviser 18 months ago for retirement-planning guidance, there is a good chance he would have run a "Monte Carlo" simulation. This calculation method, as it is commonly used in financial planning, estimates the odds of reaching retirement financial goals.

But there is little chance your Monte Carlo simulation, named for the gambling mecca, would have highlighted a scenario like the market slide just seen. Though these tools typically run a portfolio through hundreds or thousands of potential market scenarios, they often assign minuscule odds to extreme market events. Yet these extreme events seem to be happening more often.

Some industry participants and academics are pushing to improve the Monte Carlo tools’ ability to highlight the risk of major market slides.

There is no standard Monte Carlo approach, but the method is nothing new. It was used during World War II to help develop the atomic bomb. By the late 1990s some financial-services firms, like T. Rowe Price Group Inc., had introduced Monte Carlo tools aimed at individuals.

Monte Carlo simulation has wide appeal, and is used in online tools offered by firms like Fidelity Investments and by independent retirement planners. The financial-services industry provides retirement planning, in part, because it attracts clients and boosts fee income.

Here is how a typical Monte Carlo retirement-planning tool might work: The user enters information about his age, earnings, assets, retirement-plan contributions, investment mix and other details. The calculator crunches the numbers on hundreds or thousands of potential market scenarios, guided by assumptions about inflation, volatility and other parameters.

It then spits out a "success rate," which shows the percentage of market scenarios in which the investor had money remaining at the end of his estimated life span. In many cases, the consequences of failure — say, running out of money at age 80 — aren’t laid out.

Many providers of the tools argue that it is a significant improvement over the traditional retirement-planning approach, which typically involves assuming some set market return, say 8% for U.S. stocks, year after year, an assumption considered unrealistic by academics and financial pros.

The questions about Monte Carlo tools reflect broader concerns about mathematical models for gauging portfolio risks.

These models were supposed to help quantify and manage the risks of mortgage-backed securities, credit-default swaps and other complex instruments. But given the events of the past couple of years, it appears that the models often gave big institutions, as well as small investors, a false sense of security.

Now, some investors have decided that if risk can’t be accurately measured, they will just have to play it safe. Jeff McComas, a chemical engineer in Woodbury, Minn., has used six or seven Monte Carlo calculators and found that none highlighted the possibility of a scenario like the recent market downturn. The lesson: "The future is so unknown that your prudent choice is to save as much as you can now and live below your means," said Mr. McComas, 39 years old.

Some financial advisers are equally skeptical. "I take whatever probability of failure that comes out of your Monte Carlo simulation and add 20 percentage points," said William J. Bernstein, author of "The Four Pillars of Investing."

Critics emphasize that the problem isn’t Monte Carlo itself, but the assumptions that go into it. Since no standard approach exists, one user might plug in a range of assumptions on interest rates, inflation or volatility that is different from another user.

Also controversial is that many Monte Carlo simulations assume that market returns fall along a bell-curve-shaped distribution. That means a high probability may be assigned to, say, a stock-market return of 5%, which would fall toward the middle of the bell, and negligible odds assigned to a 54% decline, which would fall near the extreme edge, or "tail."


"In a bell-shaped curve the probability of getting one of these extreme outcomes we’re seeing is basically zero," said Paul Kaplan, vice president of quantitative research at Morningstar Inc.

While a bell-curve model indicates there is almost no chance of a greater than 13% monthly decline in the Standard & Poor’s 500-stock index, such declines have happened at least 10 times since 1926, according to a report by Mr. Kaplan.

Some Monte Carlo models, like the one used by Financial Engines, assign higher odds to extreme market events than the bell-curve distributions. Even so, "I would not claim we have the magical ability to accurately predict very infrequent events," said Christopher Jones, the firm’s chief investment officer.

Some firms are considering revising Monte Carlo models to reflect a world where big market swings happen more often. Morningstar last year tweaked its asset-allocation software offered to institutional investors, allowing users to choose a bell-curve-shaped distribution or a "fat-tailed" distribution, which assigns higher probabilities to extreme market events. The company is exploring using this model in more products, Mr. Kaplan said.

Laurence Kotlikoff, a Boston University economics professor who developed the ESPlanner financial-planning software, and Richard Fullmer, senior portfolio strategist at Russell Investments, said they also are considering offering clients Monte Carlo scenarios that incorporate fatter-tailed distributions.
The choice could make a difference in an investor’s retirement plans. While a bell-curve model shows a negligible risk of a greater than 50% decline in the S&P 500 over extended time periods, a fatter-tailed model assigns it a probability of 4% or 5%, odds high enough to grab the attention of risk-adverse investors, according to Mr. Kaplan’s report.

Some industry participants and academics are pushing for Monte Carlo tools to more clearly illustrate the scarier scenarios. In a recent paper, Moshe Milevsky, associate finance professor at York University’s Schulich School of Business in Toronto, proposed a calculation that Monte Carlo tools could use to show a retirement plan’s vulnerability to extreme market events.

Some industry participants also are trying to set standards that could help Monte Carlo tools more accurately capture extreme market events. The Retirement Income Industry Association in 2007 issued a set of principles noting that the calculators should run a large number of scenarios.

The ideal models run tens of thousands or hundreds of thousands of scenarios, which help gauge extreme events at the tail end of the distribution, observers said. Yet some tools run only 1,000 scenarios or just several hundred.

-Neal Templin contributed to this article.


India is currently in the midst of a long national election process. The final results from all of India’s polling places will be announced on May 16, 2009.

Corruption will become more obvious as the election results are announced.  In India, some thieves (many politicians look at politics as a license to steal) will attain political office.  At the same time, many good people, who are selfless public servants, will also rise to high positions.  Still, India has managed to grow in spite of all of its myriad problems.

Most observers of the Indian scene agree that India is a land of large and numerous contrasts.  The election will point out many of these contrasts, and is likely to confuse us and other westerners.  It is easy to misunderstand India.

India has great intellects, a remarkable ancient culture.  India has some of the wisest and most foolish people I have ever met.  India has some of the most forward thinking, and backward thinking people I have ever met.  India may have the most educated and most uneducated people I have ever met, the most honest, and the most corrupt people that I have ever met, the most humble high achievers, and the most egotistic and arrogant failures…that I have ever met.

In short, I love India and remain baffled and enthralled by the place.  It has been forty four years since my first visit, and I have made forty or so more visits over the decades.


India is home to over 1.1 billion people.  It has numerous languages, cultures and many formerly independent countries operating as one nation.  Contrary to many countries, like the former Yugoslavia that have been broken into many parts, India has for the most part held together.  The current collapse of Pakistan makes India even more important to the entire world.

We look at India and see the potential for a huge positive force in world affairs, a country which is generally tolerant of difference, and which has been able to coexist with China and Pakistan on its borders.  Its military has had ongoing disputes with both, but have been able to avoid major wars with China.  Several very limited wars with Pakistan have developed in the decades since Pakistan and Bangladesh were carved out of India.

India is growing.  The key to their success has been education and wide spread spoken English.  They have developed a bigger domestic consumer market than China, but remain hampered by very poor infrastructure, a byzantine political system, and the remnants of a Fabian socialist economic system established by Oxford and Cambridge-educated Indians in the early and mid 20th century.    

Many uniquely Indian developments, such as the dreaded license Raj, (a system where a license is needed for many things that those of us in the west would never dream of needing permission to undertake) creates bureaucracy.  The further problem is that underpaid civil servants make the granting of a license an opportunity to collect a gratuity. This often slows activity to a standstill.

On the positive side, the Indians are generally rational in foreign affairs and very skilled engineers, scientists, technologists, and businesspeople. Education is respected and sought after, and the intense competition within the Indian university system causes many highly intelligent Indians to seek education abroad. Historically many have remained abroad and many countries have benefited from the talents of Indian entrepreneurs and scientists.

Today, in the United States and other parts of the world, Indians sit as CEO’s of some of the largest companies.  Indian professors populate many universities and are widely found in the professions.

As a result of all these facts, and in spite of its problems, we expect India to grow rapidly. China has grown at a very rapid rate.  India will grow slightly slower but still at a rate far in excess of growth in the developed world.


The investment world has once again embraced India, Brazil, China, and emerging Asia as good areas to invest.  We are focusing on these areas, and certain sectors in the U.S.  We hold energy and precious metals related investments in Canada and Australia.  We see Europe as an underperforming region, and have only a few investments in Europe.

We had a hard time understanding, the rally in the U.S. dollar earlier this year.  Now, it has once again begun to decline, which has given a boost to gold and to Asian stock markets.  Gold has also benefited from the turmoil that has resulted from the melt down of Pakistan.  We believe that Pakistan is already lost, and when the world comes to realize this, gold will appreciate further.  The ongoing decline of the U.S. dollar and the fiscal irresponsibility at work in the world today will also benefit precious metals.

Thanks for listening.

Monty Guild and Tony Danaher

Posted at 2:17 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

The big news today was the price action in the bond market. They were OBLITERATED at noon, CDT, as demand for the auction was much weaker than expected. Bonds were mercilessly murdered once news about the poor demand hit the market wires.

With commodity prices across most markets moving higher today and the CCI again strong,  I think it is safe to say that fears of deflation have now given way to fears of inflation. Quite simply – bond traders are terrified that the plague of locusts loosed upon the nation by the Administrations’ insanely reckless spending orgy, are now going to devour the sustenance of the land. Investors are positioning themselves accordingly.

Today, the worst of all possible worlds hit the monetary authorities – the equity markets dropped, the bond market collapsed, the dollar was weaker continuing its recent slide and commodities were all higher. I am not sure what trick they intend to pull out of their hat but whatever it is, it had better be good because the market is speaking in no uncertain terms that the jig is up and no one is swallowing the line that we can borrow our way into prosperity. Heaven help us especially the mortgage industry which must be spinning in their rooms at what they are witnessing in the interest rate markets.

I am still short pressed for time so I am going to include just a few charts but these charts paint a pretty decent picture of what is taking place.

Look first at the CCI – The Continuous Commodity Index. We have been watching this index slowing grinding higher now for most of this year. This week’s price action showed a gap higher than was above the recent highs. Clearly, there is very strong buying in this sector as investors who can read the trends are now positioning themselves in advance of the coming wave of inflation.

Click chart to enlarge in PDF formatclip_image001

Next is a chart of the long bond… look at the technical breakdown on the weekly chart…

Click chart to enlarge in PDF formatclip_image002

Gold closed above the downsloping trendline but not in a convincingly enough fashion to constitute a bona fide breakout. It must still take out $920 on a pit closing basis to start an uptrend. The price action however is friendly and gold is slowly grinding higher even in the face of obvious official sector opposition to the price rise.

Click chart to enlarge in PDF formatclip_image001[4]

Posted at 11:19 AM (CST) by & filed under In The News.

Mr Dear Friends,

Please do not let your guard down. The market conditions are text book.

Now please consider the following along with the articles on Credit Default Derivatives and

the published Alphaville FT article predictions going into 2012.


Global Crisis ‘Vastly Worse’ Than 1930s, Taleb Says
By Shiyin Chen and Liza Lin

May 7 (Bloomberg) — The current global crisis is “vastly worse” than the 1930s because financial systems and economies worldwide have become more interdependent, “Black Swan” author Nassim Nicholas Taleb said.

“This is the most difficult period of humanity that we’re going through today because governments have no control,” Taleb, 49, told a conference in Singapore today. “Navigating the world is much harder than in the 1930s.”

The International Monetary Fund last month slashed its world economic growth forecasts and said the global recession will be deeper than previously predicted as financial markets take longer to stabilize. Nouriel Roubini, 51, the New York University professor who predicted the crisis, told Bloomberg News yesterday that analysts expecting the U.S. economy to rebound in the third and fourth quarter were “too optimistic.”

“Certainly the rate of economic contraction is slowing down from the freefall of the last two quarters,” Roubini said. “We are going to have negative growth to the end of the year and next year the recovery is going to be weak.”

Federal Reserve Chairman Ben S. Bernanke told lawmakers May 5 that the central bank expects U.S. economic activity “to bottom out, then to turn up later this year.” Another shock to the financial system would undercut that forecast, he added.


Jim Sinclair’s Commentary

Protect Yourself.

Green-shoots, the newest Wall Street Bankster’s term, are like the Happy Face Spider. Use extreme caution when approaching.


Posted at 9:28 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

Here is a clear, clean and simple chart of gold sending a strong and very bullish message.

As long as the confluence of support area around 850 is holding, from a purely technical perspective gold is a strong buy.

All the best from Germany,
CIGA Olivier


Posted at 2:18 PM (CST) by & filed under In The News.

Dear CIGAs,

Here is a very good lesson in Credit Default Swaps and how to use them to kill massive amounts of people. When I say kill, I mean it literally as loss of jobs, homes, and families is worse than death and is a form thereof. When this comes as a product of fancy paperwork, the sin is egregious. No story of degradation in history can equal the horror of today’s financial world.

Financial predators are people eaters guilty of crimes more serious then murder, slow death and fear. Financial predators are criminals with victims suffering terribly. There is real blood on their hands.

If you are not now interested in this priceless knowledge please print out and file the following article as you will be there before the end of 2009.

Credit Default Swaps: Financial Weapons of Mass Destruction

"The credit world has become a hall of mirrors, where nothing is necessarily as it seems. At best, this makes it very difficult to tell how corporate defaults will affect banks; at worst, it creates the risk of needless value destruction as creditors tip companies into default."

"Financial companies have used their agents, U.S. lawmakers, to pressure the FASB to relax fair-value accounting rules. The result has been the official endorsement of fair-value lying. The other hand tax evader and Treasury Secretary Timothy Geithner has constructed a framework whereby politically privileged banks with worse than worthless toxic assets sell them for cash at an inflated fair value lying price to a self-funded Special Investment Vehicle (SIV), a similar entity as Enron used, that receives a non-collateralized loanfrom their government puppets."

"Company M is completely evaporated and thousands of workers lose their jobs.

Total profit for Banks G and J: $2.85M-$1M-$30k-60k=$1.76M. Nice pay for a day’s work slaughtering and cremating a slight hobbling but otherwise generally healthy going concern."

At a Cambridge House Investment Conference I received a question about Bear Stearns. In my answer I alluded to the possible financial benefit of some from its implosion. When pressed I had to explain how credit default swapsworked and then we were out of time. Because the owners of the majority of the financial press have too much money to make from bankruptcies this topic is sparingly covered. But the Financial Times editor let an article wiggle through.

On 6 February 2009 the Kazakhstan Tenge went poof and was devalued by 18% in a single day. The currency has continued falling from 110 to the current 150.60241:FRN$1. The free-flowing credit to Eastern Europe stopped gushing months ago. Although BTA, Kazakhstan’s largest bank, was taken over by the government, it still serviced its loans. BTA currently has total liabilities to credit institutions (.pdf) of 863,688,000,000 Kazakhstani tenge or about $5.7B. As the Financial Times reported:

But last week Morgan Stanley (MS) and another bank suddenly demanded repayment. BTA was unable to comply, and thus tipped intopartial default. That sparked fury among some other creditors and shocked some Kazakhs, who wondered why Morgan Stanley would havetaken an action that seemed likely to create losses. One clue to the US bank’s motives, though, can be seen on the official website of theInternational Swaps and Derivatives Association. One page reveals that just after calling in the loan Morgan Stanley also asked ISDA to start formal proceedings to settle credit default swaps contracts written on BTA.


A credit default swap (CDS) is a credit derivative contract between two counterparties. The buyer makes periodic payments to the seller, and in return receives a payoff if an underlying financial instrument defaults. In effect, the owner of a credit default swap is short the underlying going concern.

Many of the largest Wall Street banks are heavily involved in the derivative markets with reported (.pdf) notional amounts outstanding as of 31 December 2008 for JP Morgan (JPM) at $87.4T, Goldman Sachs (GS) at $30.2T and the single digit midgets of Bank of America (BAC) and Citigroup (C) at $38.3T and $31.9T, respectively.

The Financial Times reported,

As a result, speculation is rife that Morgan might have deliberately provoked the default of BTA to profit on its CDS, since a default makes the US bank a net winner, not a loser as logic might suggest. Morgan Stanley, for its part, refuses to comment on this speculation (although its officials note that the bank does not generally take active “short” positions in its clients). And I personally have no way of knowing whether Morgan is short or long, since Morgan refuses to disclose details of its CDS holding. Right now more than $700 million BTA CDS contracts are registered with the Depositary Trust & Clearing Corp. in New York.

This represents about 12.3% of the total liabilities to credit institutions. But later in the article the key point is hit upon:

But the rub for regulators and investors is that BTA credit risk has not entirely disappeared: Somebody right now is holding the other side of Morgan Stanley’s contracts, and unfortunately there is little way for outsiders to know exactly who. Worse, the presence of those CDS contracts makes it fiendishly hard to work out what the true incentives of any creditors are. In theory, lenders should have an interest inavoiding default. In practice, CDS players do not. The credit world has become a hall of mirrors, where nothing is necessarily as it seems. At best, this makes it very difficult to tell how corporate defaults will affect banks; at worst, it creates the risk of needless value destruction as creditors tip companies into default.


Financial companies have used their agents, U.S. lawmakers, to pressure the FASB to relax fair-value accounting rules. The result has been the official endorsement of fair-value lying. The other hand tax evader and Treasury Secretary Timothy Geithner has constructed a framework whereby politically privileged banks with worse than worthless toxic assets sell them for cash at an inflated fair value lying price to a self-funded Special Investment Vehicle (SIV), a similar entity as Enron used, that receives a non-collateralized loanfrom their government puppets.


For the sake of argument and simplicity assume that Bank G loans Company M $1M in either a leveraged buyout or some other type of deal that was common over the past few years when credit flowed freely. Then Bank G purchases a CDS on Company M’s loan for $30,000 from Bank B and the CDS is reinsured by Insurance Company A.

Company M deteriorates because its free cash flow and a little more all goes to service debt and Bank G sells 90% of its loan to Bank J. Because credit risk has increased Company M’s bond now trades in the market for $25,000 and Bank J purchases a CDS from Bank L for the current market price of $60,000 and reinsured by Insurance Company A. Banks B and L go bankrupt, the trader at Bank L who sold Bank J the CDS now either goes to work at Bank J or receives consulting fees and the privileged creditors of Banks B and L, such as subsidiaries of Bank J and G, receive government bailout payments through Insurance Company A.

Company B, while still able to service its debt, does violate some provision of its debt covenant.

First, being friendly competitors Bank G and J decide to both press for default proceedings and then initiate settlement of the CDS they own.

Second, they fund a SIV with $25,000 of cash which borrows another $825,000 from the Bank’s government puppets.

Third, the SIV pays Banks G and J $850,000 of cash for the Company M loan which, while trading for $25,000 in the market is being carried on their balance sheet for $600,000 and consequently results in a $250,000 gain on the income statement for the quarter after having written down a couple quarters ago.

Fourth, Banks G and J receive $2M in bailout funds for the failed CDS contracts.

Fifth, Company M is completely evaporated and thousands of workers lose their jobs.

Total profit for Banks G and J: $2.85M-$1M-$30k-60k=$1.76M. Nice pay for a day’s work slaughtering and cremating a slight hobbling but otherwise generally healthy going concern.


As the great credit expansion continued it culminated in hundreds of trillions of dollars worth of derivative instruments. Some of these are registered while many, if not most, are not. These instruments are at the evaporating top of the liquidity pyramid while gold and silver are at the bottom tip.

Just imagine what the GLD ETF Authorized Participants, including Bear Stearns & Co. Inc., Lehman Brothers Inc., Citigroup Global Markets Inc., Merrill Lynch, Goldman Sachs, J.P. Morgan Securities, and Morgan Stanley & Co., will use the language in the prospectus to do.

These derivatives, with their fiendish counter-party risk, infest the balance sheets of almost every publicly traded corporation along with many local, state and national governments. Financial terrorists are greatly incentivized to detonate these financial weapons of mass destruction.


When confronted with these type of financial terrorists society has often had to take powerful measures. For example, when John Law co-opted the French economy and tried to prevent its credit contraction by outlawing the use of gold and silver with the death penalty, the French Revolution was sparked.

In the United States of America Section 19 of the Coinage Act of 1792provided,

That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of fine gold or fine silver therein contained, or shall be of less weight or value than the same ought to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offences, shall be deemed guilty of felony, and shall suffer death.

Under Section 9 of that Act a Dollar is

to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.

While the USA has 303M people about 2.3M are incarcerated or more than 1 in 100 American adults and it officially executed 59. On the other hand, the police state China has about 1.5M incarcerated adults and officially executed 3,400.

While China has had its problems it has not appeared to have had any serious problems with their domestic banks and derivative instruments. Perhaps a reason is because of how they deal with financial crimes. For example, the New York Times reported that Zheng Xiaoyu, former head of the State Food and Drug Administration in China, admitted to taking bribes to approve untested medicine and he was swiftly executed.


Because the great credit contraction has begun, capital has started burrowing down the liquidity pyramid to safety and liquidity. Individuals, companies and governments have more leverage than they can sustain.

With the Federal Reserve refusing to comply with Bloomberg’s FOIA request for where trillions of dollars have gone and with JP Morgan, Goldman Sachs, Bank of America and Citigroup all acting like Morgan Stanely and ‘refuse to disclose’ it does beg the questions: What are the next companies to be destroyed? How many hundreds of thousands of jobs will be lost as a result? What will the American people do about it?


Disclosure: Long physical gold and silver with no position in GLD, SLV, GS, C, BAC, JPM and MS. No credit default swaps or other similar position in Bear Stearns or Lehman Brothers and neither a job with nor consulting income from JP Morgan or Goldman Sachs.

Jim Sinclair’s Commentary

Not simply risk. It is guaranteed by quantitative easing. That is monetary madness.

China Says Global Easing Policies Risk Devaluation (Update2)
By Sandy Hendry

May 6 (Bloomberg) — Global central banks risk inflation, currency devaluation and a “big consolidation” in bond markets by pumping cash into their economies, the People’s Bank of China said in its quarterly monetary policy report.

The Federal Reserve and the Bank of England this year started quantitative easing, or printing money to buy government bonds, a policy that the Bank of Japan pioneered to revive its economy at the start of the decade. The European Central Bank’s 22-member board, which meets tomorrow, is split on whether it should buy financial assets to tackle its recession.

“A policy mistake made by some major central bank may bring inflation risks to the whole world,” China’s central bank said in the report today. “As more and more economies are adopting unconventional monetary policies, such as quantitative easing, major currencies’ devaluation risks may rise.”

Chinese Premier Wen Jiabao expressed concern in March that the dollar will weaken, eroding the value of China’s holdings of Treasuries, as the U.S. borrows unprecedented amounts to spend its way out of recession. China’s Treasury holdings climbed 52 percent in 2008 and stood at about $744 billion as of the end of February, according to U.S. government data.

“In the medium and long term, as the financial markets stabilize and economies gradually recover, increasing inflation expectations, rising interest rates and central bank’s liquidity-absorbing operations may cause a ‘big’ consolidation in bond prices,” the central bank’s statement said.


Jim Sinclair’s Commentary

As Armstrong says, "It Is Only Time."

Gold is headed into multiple four figures. When that will happen is only a short time away.

This winter is going to be unbearable to many.

The Gold War: China and the U.S. Treasury Market
"Who will win the Gold War? The simplest answer also holds the most truth. Over the past five thousand years, the winners are those who are holding the gold at the war’s end."
May 06, 2009

NEW YORK CITY, FEBRUARY 11, 2009 – Luo Ping, director-general at the China Banking Regulatory Commission, gave what may be a landmark quote in the years to come ahead. Besides chastising the United States for its "laissez-faire capitalism" – at which point I distinctly remember choking on my breakfast of delicious jiaozi (I was in Shanghai eating Chinese dumplings) since Ping obviously understands that corporate cronyism is NOT laissez-faire capitalism as fellow columnist Steven McDuffie recently reminds – in retrospect another part of his speech may prove to be the most prophetic. From Reuters:

Except for US Treasuries, what can you hold? Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.

As I related in "China Nearly Doubles its Official Gold Reserves", China revised its official gold holding from 600 tons in 2003 to 1,054 tons last month. However, the very fact that China reported no increase for 6 years and then suddenly doubled should prove one thing – the Chinese are abiding by the IMF Articles of Agreement only as it pleases them. For instance, the state-owned banks can hold as much gold as they wish without reporting, although this gold is de facto the Chinese government’s. Please understand that subtlety, not brazen statements like Bush’s sad "Mission Accomplished" ceremony or Obama’s 100 Days congratulation party, is the Chinese way.

"US Treasuries are the safe haven… the only option."

Really? Although March and April data are not available, you could have fooled me! For perspective, the size of the US Treasury market was $10,700,000,000,000 in December 2008. Of this, $727 billion, or 6.8%, belongs to China, and close to one-third is foreign-owned. (Although some would argue that the $4.8 Trillion owned by the Federal Reserve is foreign-owned as well, in actuality this interest is mostly returned to the Treasury as described here "The Federal Reserve – A Good Company to Work For?.") See the chart below (source


Jim Sinclair’s Commentary

In case you missed this the first time it was posted, please do not miss it this time. What allowed me to call $900 in the early 1970s was pure math.

Here is another exercise of similar character.

Mises’ Equation = Gold Price $6,000 – $31,000?

"Thorsten Polleit, Honorary Professor at Frankfurt School of Finance and Management, did some calculations for this and found (as of March ’09):

- backing all of M1 with gold. M1 divided by gold oz. results in $6000 per oz.

- backing M2 with gold and you get $31,000 per oz.

- backing Euro M3 and gold is E26,000"

Does Mises’ Equation Give a Basis for Gold Price?
May 03, 2009

Assuming you agree to a strict Austrian approach to life and love, Mises advocated sound monetary policy by returning to a gold standard and developed this equation for a “regression” to a properly backed currency called the gold cover ratio:

GCR = (C+D+T+S+L) / G

Where C is cash, D is demand deposits, T time deposits, S savings, and L banks long term liabilities. And our favorite variable G is oz of gold at Fort Knox.

Thorsten Polleit, Honorary Professor at Frankfurt School of Finance and Management, did some calculations for this and found (as of March ’09):

backing all of M1 with gold. M1 divided by gold oz. results in $6000 per oz.

backing M2 with gold and you get $31,000 per oz.

backing Euro M3 and gold is E26,000

But the real impact of Mises’ work is not in what the price of gold should or could be but rather the conclusion that no matter what the government does (e.g. quantitative easing, free running printing presses, artificially low interest rates, stimulus packages, bank bailouts, TARP, TALF, etc, etc) we still get a serious erosion if not all out loss of the exchange value of fiat money.


Jim Sinclair’s Commentary

You think it is about time? I bet this has to do with the Chrysler bankruptcy, amongst other things.

I will believe it when I see it. That is the prevailing attitude amongst the naked short North American crowd.

SEC’s Schapiro aims at short selling rules. Hedge funds next?
By Alan Fein

(AXcess News) New York – SEC Chairwoman Mary Schapiro says new short-selling rules are a priority, though the plague of recent hedge fund scandals could make Long Island’s seedy crowd of penny stock swindlers face deeper scrutiny by regulators who say hedge funds are next.

Sources in the New York Attorney General’s office say informal inquiries into hedge fund players in Long Island’s crowd of penny stock promoters and hard money lenders are being conducted quietly over a rash of complaints by investors who say losses they’ve incurred are a result of deliberate shorting through unregulated hedge funds.

"Trading patterns are difficult to associate with intent," a source within New York’s Attorney General’s office said in a telephone interview late Monday.

But with the SEC’s openness on short selling activities, a formal investigation into criminal activity may be pursued in New York if enough evidence can be built to support charges.  Those inquiries were brought to light following a growing number of news articles on stock swindlers after the downfall and arrest of Bernie Madoff.

At an open hearing in New York Tuesday, the Securities and Exchange Commission expressed concern over short selling practices with an eye towards evaluating deeper regulation.


Jim Sinclair’s Commentary

Today in Pakistan.

Pakistan: Christians locking themselves in their homes for fear of Misunderstanders of Islam
May 6, 2009

Christian families in Karachi, Pakistan are locking themselves in their own homes following escalating violence against them in recent weeks, Catholic Mission Pakistan director, Fr Mario Rodrigues has said.

Last week, six families’ homes were burned to the ground, along with shops, and a number of churches in the locale of Taiser Town, Karachi, Catholic Mission Australia reports.

Describing the violence, Fr Rodrigues said the perpetrators had "misbehaved with the women and asked them to accept Islam otherwise they will kill them."

"They burnt the Holy Bibles and the worst, they have killed people (when) a group of 35 to 40 men armed with AK47, TT pistols, repeaters, and rifles and fired indiscriminately at the Christian community," Fr Rodrigues said.

Prior to the violence, vandals had left messages on the Church walls which included – "Long Live the Taliban" and "Long Live Al Qaeda".

Women were beaten on the streets and dragged by their hair, and many people were injured, Fr Rodrigues reported.


Jim Sinclair’s Commentary

Another article that speaks for itself.

Bank of America Needs $33.9 Billion, U.S. Determines
Published: May 5, 2009

The government has told Bank of America it needs $33.9 billion in capital to withstand any worsening of the economic downturn, according to an executive at the bank.

If the bank is unable to raise the capital cushion by selling assets or stock, it would have to rely on the government, which has provided $45 billion in capital through the Troubled Asset Relief Program.

It could satisfy regulators’ demands simply by converting non-voting preferred shares it gave the government in return for the capital, into common stock.

But that would make the government one of the bank’s largest shareholders.

Executives at the bank, one of the largest being examined, sparred with the government over the amount, which is higher than executives believed the bank needed.


Jim Sinclair’s Commentary

As we move toward 2012 please understand there are no certainties even if the words of the agreement speak otherwise. You must protect yourself as no one else is going to do it for you.

As long as there is a financial agent between you and yours, you are in questionable safety.

True Custodian Accounts are the only way to go.

401(k)s Hit by Withdrawal Freezes
Investors Cry Foul as Some Funds Close Exits; Perils of Distressed Markets

Some investors in 401(k) retirement funds who are moving to grab their money are finding they can’t.

Even with recent gains in stocks such as Monday’s, the months of market turmoil have delivered a blow to some 401(k) participants: freezing their investments in certain plans. In some cases, individual investors can’t withdraw money from certain retirement-plan options. In other cases, employers are having trouble getting rid of risky investments in 401(k) plans.

When Ed Dursky was laid off from his job at a manufacturing company in March, he couldn’t withdraw $40,000 from his 401(k) retirement account invested in the Principal U.S. Property Separate Account.

That fund, which invests directly in office buildings and other properties, had stopped allowing most investors to make withdrawals last fall as many of its holdings became hard to sell.

Now Mr. Dursky, of Ottumwa, Iowa, is looking for work and losing patience. All he wants, he said, is his money.

"I hate to be whiny, but it is my money," Mr. Dursky said.


Jim Sinclair’s Commentary

The enormous domino Pakistan is in the marketplace is yet to be discounted.

Pakistan threat ‘worst since Cuban missile crisis’
By James Lamont in New Delhi
Published: May 5 2009 15:40 | Last updated: May 5 2009 15:40

Loss of control in nuclear-armed Pakistan threatened the world with the worst global crisis since the 1962 Cuban Missile Crisis, the closest the world has ever come to nuclear war, a senior former US diplomat warned on Tuesday.

The stark warning comes as US President Barack Obama meets the leaders of Pakistan and Afghanistan at the White House on Wednesday to discuss efforts to stabilise their countries in the face of Islamist insurgencies. It also comes as the international community fears a possible breakdown in the security surrounding Pakistan’s 100 warhead nuclear arsenal and their capture by religious extremists

The stark warning comes as US President Barack Obama meets the leaders of Pakistan and Afghanistan at the White House on Wednesday to discuss efforts to stabilise their countries in the face of Islamist insurgencies. It also comes as the international community fears a possible breakdown in the security surrounding Pakistan’s 100 warhead nuclear arsenal and their capture by religious extremists.

“For every good reason, the Obama Administration is devoting enormous thought to Pakistan, since it is the most dangerous foreign policy problem that Washington presently faces…The evolving situation in Pakistan is potentially the most dangerous international situation since the 1962 Cuban Missile Crisis,” Robert Blackwill, the former US ambassador to New Delhi, said.