Posts Categorized: General Editorial

Posted by & filed under General Editorial.

Dear MineSet guys,

Came across your banking cartoon, and it made me smile, I had an opposite encounter.

I was in my bank of fifteen years this last Monday, happened to see a friend, we’ll call him “John”, who is their senior commercial loan officer. He’s a 38 year old young hot shot who they send all over the country to get the latest up to the minute training.

Well about 14 months ago he and I had a little chat in his office, where I officially became known as “Chicken Little.”  I had gone into the meeting to try and understand where the banking guys were going and doing.  I came out realizing that they, or at least John, had no idea of what was about to happen. Seems they were truly clueless, or doing one hell of an acting job.

Well, Monday’s chance meeting convinced me these guys are no actors.  I never tell people I told you so, it’s rude and a waste of breath, besides, they almost all have selective memories anyway. So when I saw John, I kept the exchange light and superficial.

He approached me and started in about what I thought about the near future of the market, more specifically his 401k’s chance of survival.  So here I am in the middle of a large banking branch, with maybe the number four guy of that branch talking financials. This guy was scared, and to his credit, he did accurately recall that I had tried to warn him months back.

He asked if he should bail out of his 401k or to weather the current financial storm?  On the spot, I told him I couldn’t advise him what he should do, cause I didn’t know exactly where this is going or when.  But I told him again the precautions “I” had undertaken in August `07.

So there is a snapshot of my local economy, my banker is in the dark with the rest of the 99% of the uninformed populace. To coin a phrase from the Mogambo Guru, “We’re freakin doomed.”

I went gold hunting here in Maui, pawn shops, jewelry shops, coin dealers, with no results, zippo!  I have also enlisted a pilot friend who flies Europe & Asia, to search the shops there for gold or silver, he so far has had no luck either.

According to him, there isn’t any gold of any volume to be had apparently anywhere in his scope of the world, shy of “possibly” the Comex. These dealers that ask for your money up front with months of delays for delivery is a shaky system at best, one that I don’t personally trust.

Can’t find any gold for sale, but magically the price is in decline?   So there you have it, my rant for the day.

I personally have total confidence in gold, no matter what, I believe it will shine.

Aloha,
CIGA Tony a.k.a “Chicken Little”

Posted by & filed under General Editorial.

Dear CIGAs,

You think this is only in China? Illegality is now the hallmark of almost every market on the planet. The effort has between 13 and 88 days to go. Other major Western national leaders always cooperate with the sitting party of the Administration for re-election.

Central bank warns of risks in illegal gold futures speculation
www.chinaview.cn
2008-10-23 17:30:59

BEIJING, Oct. 23 (Xinhua) — The People’s Bank of China said on Thursday that “underground gold futures speculation” was “typical illegal trading on gold futures” and was not protected by law.

The central bank warned Chinese investors of the extremely high risks in illegal futures trading.

Illegal gold futures trading is reported to have cost Chinese investors at least 100 billion yuan (14.6 billion U.S. dollars).

The illegal gold futures trading operates in two main ways: local companies working as agents for domestic institutions and individuals to help them invest in overseas gold futures; companies providing services in gold trading and demanding investors deposit money in designated accounts in a variant of margin trading.

The central bank said Chinese investors could conduct real gold trading through domestic commercial banks, or invest in gold futures through the Shanghai Gold Futures Exchange.

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THERE IS NO OTHER INSURANCE AGAINST THE CONSEQUENCES OF THE BAILOUTS TAKING PLACE AT AN UNPRECEDENTED SPIRITUAL LEVEL OTHER THAN GOLD.

INSURANCE ON SALE

Gold is the only viable insurance. The US dollar is not viable insurance because there is simply too much of it and that amount is growing every day. That makes the US dollar untrustworthy.

Gold is the only viable insurance. Clearly equities (with the exception of precious metals shares) are not.

Gold is the only viable insurance. US Treasury bills are not because the yelling at all the rating agencies in Washington today just might get US credit downgraded.

General commodities have been viable, but by nature they are too wild and from now on will be selective until Pakistan implodes and Weimar appears

Banks cannot offer insurance as they are in the main bankrupt.

Insurance companies cannot offer you sound insurance.

Money market funds are not insurance, making gold the only viable insurance.

Retirement programs are no longer insurance.

Jobs are no longer insurance as companies are run by lawyers and accountants.

Equity in your home is not insurance because it simply does not exist.

Your family is no longer insurance because they have the same problems you do.

The assumption your kids will take care of you in your old age is not viable insurance no matter what you think.

Gold has no liability attached to it and is therefore the only viable insurance.

Gold is universally exchangeable, making it the only viable insurance.

Gold has historically performed perfectly in maintaining buying power, making it the only viable insurance.

Gold is the only viable insurance because it is Honest Money.

Since gold is the only viable insurance and because everyone needs it, gold will trade at levels of at least $1200 and $1650.

I could go on but gold is all there is that will protect you from the White Wash being applied by the Fed and Treasury on a structure that is in fact in a free fall.

I am not the least concerned about gold and believe you should not be either as long as you have no margin and understand what gold really is: a currency and an insurance policy. There is no other viable insurance in this most unusual situation.

Please review the Formula as the US Federal Budget is going ballistic as the TIC report contracts like a turtle into its shell.

Respectfully yours,
Jim

Posted by & filed under General Editorial.

Room for rent – 60 “one ounce Silver Eagle coins” a month (san jose north)
Reply to: hous-889292171@craigslist.org [?]
Date: 2008-10-22, 11:42AM PDT

Furnished room for rent for 60 one ounce Silver Eagle coins a month.
Sorry, I do not accept cash nor checks. I only accept 60 of the “one ounce Silver Eagle” coins” or 6 of the “one ounce Canadian gold maple leaf” coins.

Deposit: Ten of the “one ounce Silver Eagle” coins.

DSL internet access, microwave, washer and dryer, close to shopping malls, San Jose airport, major freeways.

Looking for a non-smoker, non-alcoholic drinker, no pets, no drugs, working professional who is clean, neat and tidy.

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Jim Sinclair’s Commentary

It puts the CME group at outrageous risk. Valuation and margin maintenance is impossible on mark to any model. I recall a man by the name of Von Peterffy that was the in house rocket scientist at Mocatta Metals when there were none. It was in 1979 to be exact. I wonder if this is him.

He is right. If the CME group wants to lose all they have gained this is the formula.

Peterffy Says CME Group Credit Swap Plan Puts Billions at Risk
By Matthew Leising

Oct. 22 (Bloomberg) — Electronic trading pioneer Thomas Peterffy says a plan by CME Group Inc. to guarantee credit- default swaps could put his entire $4 billion company at risk.

CME Group’s proposal to use its existing clearinghouse to clear swaps would require exchange members such as Peterffy’s Interactive Brokers Group Inc. to bail out a failed trader. Those companies have put up $101 billion to guarantee the futures and options now cleared by CME.

“It would be a great mistake,” said Peterffy, 64, a Hungarian immigrant whose company executes 14 percent of the world’s equity options. “Mixing the two types of funds will jeopardize the entire financial system” set up to guarantee futures trades, he said.

Peterffy, whose concern is shared by CME Group members including Penson GHCO Chief Executive Officer Chris Hehmeyer, is balking at a plan that CME developed amid pressure from the Federal Reserve to create a safety net for risky credit-default trades, now traded on an over-the-counter basis. Failed investment bank Lehman Brothers Holdings Inc. was among the top 10 dealers in the $55 trillion CDS market.

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Jim Sinclair’s Commentary

I will keep my shares and bullion insurance thank you very much.

The majority of emails and messages today are throwing out their insurance and going long in that good old buck.

The following is a comment on the later strategy.

Very well done Karl!

Fiscal Cat 5 Hurricane Warning
The Market Ticker
Wednesday, October 22. 2008
Posted by Karl D at 07:11

You only think the Stock Market has been smashed.

Just wait until you see what will come next.

If you’re playing “Buffett”, following his claim (note: there is no penalty for lying on national television about what you’re doing in your personal account) that he’s buying here, there is a little ugly fact you need to be aware of.

That fact is treasury issuance.

See, to fund all this crap that Congress, Paulson and Bernanke have in the pipe (you know, the TARP, the newly-minted SIV that Ben announced this morning to buy commercial paper, etc) the treasury issue requirements will be north of three trillion dollars in this fiscal year.

Oh, and that’s before Obama wins (and he will) and promises another $1 trillion worth of new spending without a nickel’s worth of ability to fund it.

To put this in perspective the total amount of treasury securities owned by all foreigners at present is about $2.7 trillion.

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Jim Sinclair’s Commentary

First OTC derivative recognition of real value will kill the balance sheet.

Then comes lousy business to kill earnings.

After that comes the attorneys to feed on what is left, if anything.

After that nothing is left but somehow this “nothing” will be bailed out by creating ever more dollars.

Bank of America Credit-Card Unit Loses $373 Million (Update1)
By David Mildenberg

Oct. 21 (Bloomberg) — Bank of America Corp., the largest U.S. consumer bank, lost money in its credit-card unit for the first time since its January 2006 purchase of MBNA Corp. as more borrowers missed payments amid the slowing economy.

Card services, which includes unsecured loans, lost $373 million in the third quarter, compared with a profit of $1.04 billion in the same period last year, the Charlotte, North Carolina-based company said today in a regulatory filing. Defaults on cards, consumer loans and home mortgages contributed to a 47 percent decline in operating profit at the consumer and small-business division.

Bank of America provided more details on its third-quarter results today, two weeks after reporting a 68 percent decline in profit. Those earnings, released early as the bank announced plans to raise $10 billion by selling common shares, were worse than analysts expected. The world’s biggest financial companies have disclosed $661 billion in losses and raised $634 billion in fresh capital.

“Credit cards have typically been among the most profitable parts of Bank of America’s business,” said Jim Campen, executive director of Americans for Fairness in Lending, a Boston-based nonprofit that studies the credit card industry. “As we enter the biggest financial crisis since the Great Depression, more people aren’t going to be able to pay their credit cards.”

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Jim Sinclair’s Commentary

You know this thing is hopeless. It will be in Taliban hands within 18 months, if not a lot sooner. Oil will trade $100 higher from wherever it is trading within 60 days following the implosion. The world will never be the same when this place goes.

Pakistan seeks IMF help to avoid debt default

ISLAMABAD, Pakistan (AP) – Pakistan sought help from the International Monetary Fund on Wednesday to avoid defaulting on billions of dollars in debt racked up as the country struggled with fuel prices, dwindling foreign investment and soaring militant violence.

In a statement, the fund said Pakistan had requested IMF help “to meet the balance of payments difficulties the country is experiencing.”

Pakistani officials had previously said turning to the IMF would be a last resort.

Aid from the agency often comes with conditions such as cutting public spending that can affect programs for the poor, making it a politically tough choice for governments.

The IMF statement said the amount of money to be given had yet to be determined. Pakistani economists say up to $5 billion is needed to avoid defaulting on sovereign debt due for repayment next year.

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Posted by & filed under General Editorial.

Dear CIGAs,

A new Bretton Woods Agreement is the institutionalizing of the US Federal Reserve as the lender of last resort for NATO economies as well as a few others.

It is a very sick joke and the ABSOLUTE DEATH FOR PAPER MONEY, PRIMARILY THE US DOLLAR.

The lockup of credit is thawing according to Libor. Take a look at this article yesterday on what should be named “Lie”-bor.

“Fundamentally, the Europeans are not simply hoping to modernize Bretton Woods, but instead to Europeanize the American financial markets. This is ultimately not a financial question, but a political one. The French are trying to flip Bretton Woods from a system where the United States is the buttress of the international system to a situation where the United States remains the buttress but is more constrained by the broader international system. The European view is that this will help everybody. The American position is not yet framed and wonâ€TMt be until the new president is in office.”

The United States, Europe and Bretton Woods II
October 20, 2008 | 2200 GMT
By George Friedman and Peter Zeihan

French President Nicolas Sarkozy and U.S. President George W. Bush met Oct. 18 to discuss the possibility of a global financial summit. The meeting ended with an American offer to host a global summit in December modeled on the 1944 Bretton Woods system that founded the modern economic system.

The Bretton Woods framework is one of the more misunderstood developments in human history. The conventional wisdom is that Bretton Woods crafted the modern international economic architecture, lashing the trading and currency systems to the gold standard to achieve global stability. To a certain degree, that is true. But the form that Bretton Woods took in the public mind is only a veneer. The real implications and meaning of Bretton Woods are a different story altogether.

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Posted by & filed under General Editorial.

Dear CIGAs,

For every financial initiative there are CONSEQUENCES, all of which finally focus on the value of the US dollar, the common share of USA Inc.

The US Fed bails everything and everybody in the financial world out, but who then bails out the dollar?

Federal Reserve Press Release
Release Date: October 21, 2008
For release at 9:00 a.m. EDT

The Federal Reserve Board on Tuesday announced the creation of the Money Market Investor Funding Facility (MMIFF), which will support a private-sector initiative designed to provide liquidity to U.S. money market investors.

Under the MMIFF, authorized by the Board under Section 13(3) of the Federal Reserve Act, the Federal Reserve Bank of New York (FRBNY) will provide senior secured funding to a series of special purpose vehicles to facilitate an industry-supported private-sector initiative to finance the purchase of eligible assets from eligible investors.  Eligible assets will include U.S. dollar-denominated certificates of deposit and commercial paper issued by highly rated financial institutions and having remaining maturities of 90 days or less.  Eligible investors will include U.S. money market mutual funds and over time may include other U.S. money market investors.

The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests and meet portfolio rebalancing needs.  By facilitating the sales of money market instruments in the secondary market, the MMIFF should improve the liquidity position of money market investors, thus increasing their ability to meet any further redemption requests and their willingness to invest in money market instruments.  Improved money market conditions will enhance the ability of banks and other financial intermediaries to accommodate the credit needs of businesses and households.

The attached term sheet describes the basic terms and operational details of the facility.

The MMIFF complements the previously announced Commercial Paper Funding Facility (CPFF), which on October 27, 2008 will begin funding purchases of highly rated, U.S.-dollar denominated, three-month, unsecured and asset-backed commercial paper issued by U.S. issuers, as well as the Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), announced on September 19, 2008, which extends loans to banking organizations to purchase asset backed commercial paper from money market mutual funds. The AMLF, CPFF, and MMIFF are all intended to improve liquidity in short-term debt markets and thereby increase the availability of credit.

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Jim Sinclair’s Commentary

Do you really believe you can turn a bear market into a bull market rally in the dollar with these conditions? No you can’t.

U.S. Moves Toward Stimulus as Bernanke, Bush Shift (Update1)
By Ryan J. Donmoyer and Scott Lanman

Oct. 21 (Bloomberg) — Lawmakers and officials moved toward forging a second fiscal stimulus bill after Federal Reserve Chairman Ben S. Bernanke endorsed the idea and the Bush administration dropped its opposition.

Bernanke warned legislators yesterday the credit crunch is “hitting home,” with Americans unable to get auto loans and companies denied cash, and recommended measures to help borrowers. White House Press Secretary Dana Perino said President George W. Bush was “open to the idea” of a new stimulus.

Momentum for fresh measures built after an earlier stimulus package failed to prevent a jump in the unemployment rate to a six-year high and the longest slump in retail sales since at least 1992.

Bernanke “had to do what he did” in supporting a further federal stimulus measure, said Lyle Gramley, a former Fed governor who is now senior economic adviser at Stanford Group Co. in Washington. “If he went up there and said, `Well, I’m indifferent to a stimulus package, I’m opposed to it,’ he would be sending the wrong signal.”

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Posted by & filed under General Editorial.

Dear CIGAs,

Many people still do not get it. Gold is insurance against the consequences of the upcoming massive injection of liquidity into the global financial system.

This publication is not a tip sheet for the margin traders who each time gold goes into reaction mode love to send me emails, leave phone messages, screaming that gold is going lower.

My answer to these abusive callers is “so what.” Gold is going to trade at $1200 and $1650 regardless of the present reaction.

What is forgotten is that no one scalp trades gold and no strategy offers protection from the consequences of the Federal Reserve as the lender of last resort to the world.

Creation of all this money is not a wash and will much sooner than later pull the rug out from under the pre-election dollar rally.

Remember CONSEQUENCES CANNOT BE AVOIDED.

Consider the fact that the Comex warehouse’s total gold holdings are under $5 billion when you read the following headline:
Fed would grant up to $540B to money market funds
By JEANNINE AVERSA
Tue Oct 21, 11:52 am ET

WASHINGTON – The Federal Reserve announced Tuesday that it will provide up to $540 billion in financing to bolster the money market mutual fund industry, its latest effort to get credit flowing more freely again.

The Fed’s new program, called the Money Market Investor Funding Facility, will be used to support a private-sector initiative designed to provide liquidity, or cash, to money market investors. The Fed plans to back purchases of short-term debt including certificates of deposit and commercial paper that expire in three months or less from money market mutual funds.

The funds are large buyers of commercial paper and CDs, which historically are considered safe investments. However, the credit crisis, which took a turn for the worse last month, has put money market mutual funds under pressure as skittish investors demand withdrawals.

“The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests,” the Fed explained.

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Posted by & filed under General Editorial.

Dear CIGAs,

  1. When will Comex paper gold no longer be able to manipulate the price of gold as they did today and most every day for the last many years?
  2. Can the Comex paper gold exchange default?

I wrote the following Sunday to prepare you for the answers to what appears to be the two most pressing questions today.

It is being re-posted now so you can caste my answers against the mechanics of the process outlined below as number 1 through 14.

I prefer to respond to questions with background knowledge first and then answers second in crisp form, not boring professorial essay work.

The Comex will no longer be able to manipulate price as Asia recognizes the dangers inherent in financial institutions and are therefore channelling their business into the cash bullion market. The Asian demand in the cash market then will not be of the kind that runs away from paper supply, but rather one that stands still and takes it. Should there be a shortfall of gold in the bullion market, delivery will be taken out of the COMEX warehouse to make cash bullion deliveries.

You witnessed this to some degree when gold last came up from the high $740s to $933 in a practically straight line. The paper traders could not hedge long in the bullion market because it simply was not there in size.

The supply in the Comex warehouse appears to total 5,864,965 ounces. Multiply this by $800 gold and you have approximately $4.7 billion. In today’s 1.144 quadrillion USD plus derivative market, 4.7 billion is a trivial amount. Compare that to recent failure numbers of the Bailout Bill at $700 billion.

As a very conservative comparison, the US dollar market turnover is above one trillion dollars per day.

The Comex does its $20 thing but at that same instant bullion is down only $10 because the buyers are serious and want significant supply. Those that trade between exchanges for differential profit, as Guy Weiser Pratte’s Dad did in true arbitrage, will instantly bring the paper gold up to the bullion bid or thereabouts.

Once this starts the paper gang is out of aces in running the price of gold. It happened in the 70s and will happen again soon.

That soon can be defined as when the Asian professional public recognizes all these rescue attempts are nothing but white wash applied to the crumbling pile of credit crap.

Default is a definitive term dealing with the inability of one party to perform on a contract. The exchange provides a place for other to agree to contracts, not the exchange. Yes members may be both buyer and seller creating a contract, but the exchange never is.

It is certainly probable that large leveraged interests both long and short could fail on a massive position, as might Lehman when it took Chapter 11.

The guarantee on a contract is first through the clearinghouse that pays out to winners every afternoon and demands the loser then pay into the clearinghouse.

As such, a default or failure to pay in as required by the contract could happen at any time in any size.

The next guarantor of the position to the other capable side is the entire asset of the exchange. The final guarantee is all the assets of all the members. This is something like Lloyd’s of London used to be on insurance.

The loss that has to be guaranteed is the difference between yesterday and today as the position was good yesterday having no problem at the close of the exchange hours. If it were not so the problem would have exploded at the clearinghouse last night.

The only way the Comex can default is if they cannot deliver gold from their warehouse in the kind and means of the 100 oz. contract that fits the legal terms of default.

That would leave the exchange and its member short by default. The guarantee would be all the assets of the exchange and of the membership. I believe the clearinghouse is out of that situation yet that most likely would be determined by litigation as plaintiffs dive at deep pockets.

This was what blew silver through $30 to a $54 bid – none offered. It was universally believed that the Hunts were going to demand delivery on all of their silver, and that long position was supposed to be in excess of Comex warehouse supply. For your information, they had no such intention. Believe me, I know better than anyone on that subject.

In summary both questions are answered by watching the settlement months to determine if the delivery of warehouse gold is on the increase.

This definitively ends the paper gold rein of glory.

It might put a bunker and Herbert touch on the gold market. It would take Weimar to some degree to empty the Comex warehouse, but Weimar to some degree is going to happen.

For your information:

Gold will trade at $1200 and $1650. The USDX will trade at .72,  .62 and .52.

  1. It is axiomatic that the most leveraged gold market most often (95 percent of the time) sets the price of any cash market. First derivatives (listed futures) commands price.
  2. This remains true as long as the COMEX warehouse of gold is NOT meaningfully depleted by long gold contracts by taking delivery from the exchange warehouse.
  3. As long as an exchange maintains a warehouse that historically overwhelms historical demand for delivery the first derivative, The COMEX listed gold future, will be the primary cause of price.
  4. Taking delivery from the COMEX warehouse is not an easy process as the system is designed not to violate your contract but to be a world-class pain in the ass.
  5. The COMEX requires re-assays, assuming you wish to re-deliver. This then places another raving pain in the ass in your way.
  6. The COMEX market is effectively an international 24-hour market as there is no location where you cannot buy or sell a COMEX clone.
  7. Cash bullion gold as opposed to the semi cash markets that non-USA banks trade is the only totally private means of buying and selling gold.
  8. As currency problems increase, first the knowledgeable public such as you clean out the coin market.
  9. This is the first time that the international coin markets have been cleaned out everywhere. This did not happen globally in the 70s.
  10. Large gold bars are still available in major markets but the backup inventory is getting low.
  11. As long as the COMEX warehouse remains adequate and large bars still are available, the paper market, the leveraged COMEX market, will rule the price.
  12. Only with a decline in COMEX warehouse inventories and a run down in large bar supplies of the cash market will the cash bullion market command the price of the COMEX futures market.
  13. It was not the buying by the Hunts that caused silver to move above $30 into the $50 area, but rather the universal belief that they would take delivery, which would deplete or exceeded the COMEX warehouse supply.
  14. The War between paper gold and bullion gold is a war to determine which will take command of the price of gold, nothing more, and nothing less. There will be no two markets trading at different prices. All this battle is about is IF the bullion gold market is going to take the lead in making the singular price away from the traditional axiom that the most leveraged market makes the price. I believe the bullion, in these most unique conditions, will command the one gold price making it hard to impossible to manipulate the gold price via the paper gold market, as is the practice every day.