Jim’s Mailbox

Posted at 10:43 AM (CST) by & filed under Jim's Mailbox.

Dear Jim,

The Goldman characterization is not really news. As stated years ago in A Pocketbook of Gold:

"The Financial services and banking industry have been revealed as places where clients are fleeced for the benefit of bankers. The client "relationship" has been changed into one where the "client" is first transformed into a "counter-party" and then a victim."

1-2-3 Gold

How many investors accumulated the third count or "hook" in October 2008? The short answer is not many. The 2008 hook which started in mid October, bottomed in October 24th as panic soared and was completed on November 21st (see chart below). The price of gold at each stage was $800, $712, and $775, respectively.

Just like 2008, nothing has changed (or changing) today other than underlying control of the trend. The formation of the third count illustrates a reshuffling of paper control from weak to strong hands. This game is all about control. While history is repeating, it’s highly unlikely that anyone other than "invisible hand" is accumulating today’s “hook.

Chart: London PM Fixed Gold and GLD (ETF) Total Assets WA Stochastic



Jim Sinclair’s Commentary

Well at least for today BS floats. Any news that obscures reality is accepted openly by MSM.

Do not get hit by floating BS. Gold will trade in the $1700 to $2111 range and beyond.


CDS traders and risk managers are in total disarray as the rules on CDS triggering set by the ISDA are not clear.

“If the Committee starts making decisions on the basis of what it believes is good for the market (whatever that means), in disregard of the true contractual position, there will no longer be any certainty about the result of credit event determinations. The system only works if the market is confident the Committee will make decisions on the correct legal basis according to the documentation.”

Click here to read the article…

With CDS rendered useless you can expect:

  • Total stop of sovereign bonds by private hands.
  • Much higher bond rates as hedges don’t work anymore
  • Lower liquidity in the system (inter-banking system, secondary market of sovereign bonds…)
  • Growing uncertainty on the systemic risk
  • Lower profit for banks selling CDSs, a product with a huge margin

CIGA Christopher



Frédéric Oudéa, CEO of SocGen, admits bellow that liquidity in the banking system is rare and expensive … not to say dead.

Best regards,
CIGA Christopher

La liquidité devient "rare et chère", dit la Société Générale
Source : reuters.com – 14/03/2012 | 12:53 – 500 mots  |  clip_image001clip_image001[1]

PARIS (Reuters) – La liquidité est devenue pour les banques une ressource rare et chère et le marché interbancaire ne repartira pas massivement tant que les nouvelles normes bancaires du comité de Bâle ne seront pas modifiées, a déclaré mercredi Frédéric Oudéa, le PDG de la Société générale.

En raison des inquiétudes sur la solidité du système bancaire européen dans le contexte de crise de la dette dans la zone euro et de normes prudentielles plus contraignantes, les banques européennes éprouvent des difficultés à se refinancer.

Les tensions sur la liquidité bancaire ont été telles que la Banque centrale européenne (BCE) a dû intervenir à deux reprises, en décembre et fin février, pour injecter plus de 1.000 milliards d’euros de prêts à trois ans (LTRO) pour aider les banques européennes et éviter un tarissement du crédit.

"Le monde a considérablement changé et peut-être encore plus sur la liquidité que sur le capital (.) La grande leçon de la crise, c’est que la liquidité est désormais chère et beaucoup plus rare" , a expliqué Frédéric Oudéa lors d’une conférence à l’European American Press Club à Paris.

"Le marché interbancaire, les prêts directs se raréfient", a-t-il ajouté.

En Europe, d’autres dirigeants bancaires soulignent que le marché interbancaire n’a pas retrouvé un fonctionnement normal en dépit des interventions exceptionnelles de la BCE.

"La liquidité n’est toujours pas abondante malgré les fonds injectés par la BCE", a ainsi dit Federico Ghizzoni, le directeur général de la banque italienne Unicredit lors d’une conférence à Rome. "Il est difficile de trouver des financements à moyen et long terme."



“European banks’ net positions are contained,” said Oudea, who is also the head of the French Banking Federation. “CDSs, according to all circulating figures, do not represent a significant issue for any bank nor for the financial system.”

The words "according to all circulating figures" show how Frederic Oudea, who is also the CEO of SocGen, doesn’t want to bet personally on this. In fact, he doesn’t have a real clue on the size of the damage caused by CDS triggering concerning Greece!

Welcome to the world of financial uncertainty caused by CDSs!

The interbank lending system in Europe is dead. From now on, European banks rely solely on the ECB for liquidity.

Best regards,

SocGen Will Have ‘Zero Cost’ From Greek CDS, Oudea Says
By Fabio Benedetti-Valentini – Mar 14, 2012 9:05 AM GMT-0300

Societe Generale SA (GLE), France’s second-largest bank, will have no costs related to Greek credit- default swaps after the biggest sovereign restructuring in history, Chief Executive Officer Frederic Oudea said.

“For Societe Generale it will be zero cost,” Oudea said today at a press conference in Paris. Societe Generale has “no net exposure” on Greek credit-default swaps, he said.

Private investors, including Societe Generale, BNP Paribas SA (BNP) and Germany’s Deutsche Bank AG, last week forgave more than 100 billion euros ($131 billion) of debt, paving the way for a second bailout for Greece from euro-area authorities and the Washington-based International Monetary Fund.


Dear Jim,

The market is reacting as if all is well and no further liquidity is required. They should study the following table.

CIGA Luis Ahlborn Sequeira

Radical Greek and Portuguese Haircut Will Be Unavoidable

The data used by the debt barometer make it possible to calculate what size of haircut would be necessary to enable the countries hit by the crisis to shoulder their debt again on their own (Table 2). Greece is close to be being completely bankrupt. Portugal would need a haircut to the tune of one-third to one-half. Ireland, Italy, and Hungary can only avoid a haircut if they can achieve high growth rates, whereby the outlook is relatively good for Ireland

Size of Haircut Needed in Particular Countries versus potential growth rates. (as of January 2012)

Growth Rate