Jim’s Mailbox

Posted at 2:17 PM (CST) by & filed under Jim's Mailbox.

Jim,

I go away on vacation for about 2 weeks and mayhem ensues. I knew my bank would go under, but not this fast (I work there, but no account). I just want to point out that YOU WERE RIGHT! If your readers who have not acted don’t listen now, that is all in their hands. I was prepared thanks to you, and want to thank you.

Best Regards,
CIGA OM

“One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It is simply too painful to acknowledge — even to ourselves — that we’ve been so credulous” -Carl Sagan

Dear Jim,

Good news! Ben Stein and the New York Times finally caught on to what you’ve been saying for 8 years.

In Financial Food Chains, Little Guys Can’t Win

IMAGINE, if you will, that a man who had much to do with creating the present credit crisis now says he is the man to fix this giant problem, and that his work is so important that he will need a trillion dollars or so of your money. Then add that this man thinks he is so indispensable that he wants Congress to forbid any judicial or administrative questioning of anything he does with your dollars.

You might think of a latter-day Lenin or Fidel Castro, but you would be far afield. Instead, you should be thinking of Treasury Secretary Henry M. Paulson Jr. and the rapidly disintegrating United States of America, right here and now.

More…

There is a problem, though. With specific reference to the potential for credit default swaps to cause an international financial collapse, he claims, “Almost no one (except Mr. Buffet) saw this coming, at least not on this scale.” Such ingratitude!

Respectfully yours,
CIGA Richard B.

Dear Jim,

1. RESCUES

Central banks and governments are now in a frantic state to save banks and financial entities that are falling like dominos on an hourly basis. It is almost impossible to keep up with all the businesses that have collapsed worldwide only in the last week. The authorities around the world have no choice. They will print any amount of money to save whoever needs to be saved. Also the whole world is waiting for the US rescue package of $ 700 billion to be passed. This might help for a few days or weeks but not much longer

Let us be very clear; NO RESCUE PACKAGE OR ACTION WILL BE SUFFICIENT.

The authorities are throwing pennies at a multi trillion or quadrillion dollar problem.

The amounts of money that needs to be printed to bail out the system is so large that it would dwarf what happened in the Weimar Republic in the 1920’s.

2. MAGNITUDE OF BUBBLE(S)

Let us put the latest US rescue package of $ 700 billion in proportion:

  • Only last week $ 1 trillion of liquidity was injected into the US financial system. Thus in one week more money was injected than the proposed rescue. US and other central banks are injecting at least hundreds of billions of dollars every week and the bank system is still totally paralyzed. LIBOR (inter-bank) rates are at record highs and banks refuse to lend to each other.
  • Banks have loan books in the dollar trillions against assets which are falling precipitously in value. The banks, with the help of central banks, have in the last decade flooded the market with easy credit that have inflated all asset values to totally unsustainable levels. This bubble is now bursting and the banks will over the next year or two sit on virtually worthless and unrealizable collateral with $ trillions in losses.
  • The crisis is currently focusing on the financial system but soon “Main-Street” (consumers) will be an additional massive problem. Personal loans, credit card loans, car loans etc are at levels which most consumers had problems repaying in good times. The increase in food and energy prices combined with higher mortgage rates and falling unemployment will lead to bank losses of $ hundreds of billions.
  • But all of the above is dwarfed by the derivatives outstanding of $ 1 quadrillion. This figure is so big that it is impossible to fathom. When a financial institution fails it is the gross amount that is due. A major part of these derivatives is worthless although only minimal write-downs have been made. Authorities have allowed the derivatives to be marked to model rather than to market. But at some point in the not too distant future the derivatives bubble is likely to burst. It is doubtful that the governments around the world will have time to print $ 1 quadrillion but even if they did it would obviously be worthless money.

3. ONLY TRUST YOURSELF

In the last few years no politicians, central bankers, bankers or other so called experts have warned the public of the disastrous consequences of the credit and asset bubbles that have been taking place. On the contrary everybody has embraced the Goldilocks scenario.
It is the same situation today. Virtually nobody will tell you the real problem and the real risks. We urge you not to trust anybody. Everybody you talk to has a vested interest. Therefore it is essential to make up your own mind (which is difficult with so much contradictory advice) and to decide based on all the facts how to protect yourself.

We advised our clients back in 2002 to put a major part of their capital into physical gold stored outside the banking system. Gold has doubled or tripled since then depending on your base currency. Our view is that the real move in precious metals is still to come and that it will start this autumn. For any cash above the government guaranteed levels we recommend short dated government securities preferably in Swiss Francs.

1 October 2008
Yours,
CIGA Egon
Switzerland

Jim,

In case you missed this!

‘Unseen’ and ‘unprecedented’ demand for bullion by rich
Wealthy Investors Hoard Bullion
By Javier Blas
Financial Times, London
Tuesday, September 30, 2008

KYOTO, Japan — Investors in gold are demanding “unprecedented” physical amounts of bullion bars and coins and moving them into their own vaults as fears about the health of the global financial system deepen.

Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unseen and driven by the very rich.

“There is an enormous pick-up in investment demand. I have never seen a market like this in my 33-year career,” said Jeremy Charles, chairman of the LBMA. “The gold refineries cannot produce enough bars.”

The move comes as fears grow among investors over the losses at investment vehicles previously considered almost risk-free, such as money funds.

Philip Clewes-Garner, associate director of precious metals at HSBC, added that investors were not flying into gold simply because they saw it as a haven amid Wall Street’s woes. “It is a flight into gold because it is a physical asset,” he said.

More…

Respectfully,
CIGA Babtkis