Posts Categorized: General Editorial

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.

Posted by & filed under General Editorial, In The News.

Jim Sinclair’s Commentary

A small warning: Libor was caught fabricating its data on April 16th 2008. Who knows what lies behind the Libor door when a big lie would be very appreciated by the honest population of Wall Street.

“This game of “smoke and mirrors” took a big blow today with an article that you probably didn’t hear about today. CNBC “bubble-land” TV wouldn’t dare bring this to your attention. The WSJ and Bloomberg reported today that the Libor rate is being misquoted by banks. The Libor is set on the marketplace based on what the banks tell them they paid to borrow. This rate is not set by regulators. The Libor rate is set on trust.

So the banks are lying and saying they are paying a lower rate when they really paid a higher lending rate.

The British Bankers’ Association will speed up the review of the process by which money-market rates are set daily amid concern that some contributors are providing misleading quotes.

The global credit squeeze has raised concern lenders have been manipulating the so-called fixing process to prevent their borrowing costs from escalating, the Bank for International Settlements said in March. Participants have complained about whether banks are submitting accurate information, said Angela Knight, chief executive of the London-based BBA.”
–April 16, 2008

The Libor Lies: Smoke and Mirror Games Continue
Bloomberg
Wednesday, April 16, 2008

Well it was rally time today as the market continues to try to convince itself that the worst is behind us.

I find Wall St. fascinating because so much of it is a game of psychology. Dr. Robert Shiller from Yale describes financial bubbles as mainly being a psychological event. Bubbles tend to start with excitement and profits, are fueled by manias, and then crash in a panic. In between the cycles you will see moments of denial as the people who got in too late refuse to accept that they were the last sucker at the top. Today’s housing market and tech are good examples of this.

I view the stock market right now as being more psychological in how it reacts to news versus your old school technical market. There was a time in the markets where earnings were what mattered and markets were much more predictable as a result.

Today we have a much different market. You have financial TV news networks influencing investment decisions with 100 talking heads that have 100 different opinions. Today’s market also has a much larger pool of short sellers which can make the market move more violently up or down. Finally and most importantly in today’s market you have the the “financial innovation” of Wall St.

This new environment makes things very confusing for the average investor because there is so much information to digest. Its gotten to the point where its almost impossible for any investor(including myself) to predict where we are heading on a short term basis. However, in the long term, fundamentals ALWAYS come back to the market and stocks are then priced appropriately to earnings. Nasdaq 5000 ring a bell?

IMO, Financial innovation’s have become the most dangerous change in the financial markets because it made the stock market more vague or “shady”. Wall St.’s existance is based on trust and confidence. Without trust you would have no financial system. Would you give your money to a bank that you didn’t trust would pay you back?

More…

Posted by & filed under General Editorial.

Jim,

Looks like you are right… it will never end.

CIGA Pedro

Bush, Bernanke say time is right for new stimulus
By JEANNINE AVERSA AP Economics Writer © 2008 The Associated Press
Oct. 20, 2008, 3:00PM

WASHINGTON – Momentum increased Monday for a new economic stimulus package to help cash-strapped Americans as President Bush and Federal Reserve Chairman Ben Bernanke threw their weight behind an idea they earlier opposed.

Press secretary Dana Perino told reporters on Air Force One as the president flew to Louisiana on Monday for an economic event that the White House will have to see what kind of package Congress crafts. Perino says the administration has concerns that what has been put forward so far by Democratic leaders in Congress would not actually stimulate the economy.

Earlier Monday, Bernanke told the House Budget Committee that country’s economic weakness could last for some time and it was the right time for Congress to consider a new package. Earlier this year, most individuals and couples received tax rebate checks of $600-$1,200 through the $168 billion stimulus package enacted in February

More…

Dear Jim,

Thanks man, I get it! Your commentary Sunday was superb. From my limited prospective I feel something big is in the making and it will not be good for most people, but you already know that all too well. I hope most of your readers get the warning you gave. As for me, I will not sell a single ounce of gold until after Jan/2011 that is for sure.

Your friend,
CIGA Greg

Dear Greg,

I am concerned when it comes to mentioning the names of any coin dealers as the majority are related directly to Black Beard.

Please note my Sunday review of the coin market versus the future market.

All the best,
Jim

Posted by & filed under General Editorial.

Dear Friends,

  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, 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.

Posted by & filed under General Editorial.

My Dear Friends,

I am absolutely sick to my stomach. I am grateful that I am 67 years old because I fear for my children and grand children.

How can they maintain the principles taught to them in a degraded, sinful and sociopathic world?

The world is crying out for relief from a financial world akin to Caligula’s rule of Rome

Not only was the case for corporate Federal governance not moved forward, it has collapsed on the FASB/SEC return to total value fabrication of the weapons of mass financial destruction, OTC derivatives.

Corporate governance takes back seat in bailouts
Treasury’s investments will do little to advance cause, experts say
By Alistair Barr, MarketWatch
Last update: 6:48 p.m. EDT Oct. 17, 2008

SAN FRANCISCO (MarketWatch) — The U.S. Treasury’s plan to invest $125 billion in nine of the country’s largest banks will do little to advance the corporate governance movement, experts said on Friday.

Some of the corporate governance and executive compensation rules in the original bailout legislation have since been softened by interim final rules drawn up by the Treasury as part of its plan to inject capital into banks, they added.

“The rock struck the water and it made a significant splash, but the ripples have been limited by the actual rules,” Patrick McGurn, special counsel at corporate governance specialist RiskMetrics Group, said in an interview. “From a corporate standpoint, the fine print has limited some of the impact of the bailout package.”

Earlier this month, Congress passed massive bailout legislation allowing the Treasury to spend $700 billion buying bad assets from struggling financial institutions.

But stock markets plunged further and credit markets froze, forcing the government to use $125 billion of that money to invest directly in nine of the largest U.S. banks, including Citigroup (C), J.P. Morgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC), Morgan Stanley (MS) and Goldman Sachs (GS).

To gain support for the bailout plans, the Treasury said financial institutions benefiting from government support would have to adhere to stricter corporate governance rules and executive compensation limits.

More…

Posted by & filed under General Editorial.

Jim Sinclair’s Commentary

When this goes off crude will trade $100 higher within 60 days.

Pakistani politicians divided over action on terror
Parliament session split as extremists denounce Nato
Soaring poverty feared to increase suicide attacks

A deep rift over anti-terror policy has opened up within Pakistan’s political class, as extremist violence and an economic crisis push the country to the verge of collapse. A special session of parliament called by the government to forge a political consensus on the “war on terror” has backfired spectacularly as parties, including some in the ruling coalition, denounced the alliance with Washington and Nato rather than backing the army to take on the Pakistani Taliban.

A party in the coalition government, the religious Jamiat-Ulama-I-Islam party, has even demanded that, as parliamentarians had received a presentation from the army, Pakistan’s Taliban movement should also be allowed to address them. It comes as the political and economic situation worsens, with intensified suicide bomb attacks and an alarming depletion in Pakistan’s foreign exchange reserves. The country is seeking an emergency $10bn bailout from the international community, while a severe shortage of electricity is crippling business and punishing households.

Critics of the government, which is led by controversial president Asif Ali Zardari, complain that there is a paralysis of decision-making and policy. A leaked US top secret National Intelligence Estimate on Pakistan concludes that the country is “on the edge”. A US official was quoted summing up the assessment as “no money, no energy, no government”.

Yesterday a US missile strike inside Pakistan’s tribal border area with Afghanistan killed up to six suspected militants, and a suicide attack on a police station in the north-west killed three officers and wounded 15.

More…

Jim Sinclair’s Commentary

Follow the USA, the non-existent and overruled FASB and the SEC and you just can make up any price you want.

EU calls for clear plan on valuing derivatives
The Associated Press
Published: October 17, 2008

BRUSSELS, Belgium: European Union regulators called Friday for a clear plan on valuing some of the shadowy high-risk credit derivative investments estimated at around US$600 trillion (444 trillion) that are now a key issue in easing the global financialcrisis.

Billions of euros (dollars) have been wiped off banks’ balance sheets in recent months on fears that some complex investments may be based on assets that are nearly worthless such as housing loans that may not be paid back when a recession puts people out ofwork.

The market for derivatives boomed over the last decade as investors sought new ways to parcel out risk, with many jumping on a gravy train that few really understood. Billionaire investor Warren Buffett has been vocal in avoiding them, dubbing them “financial weapons of massdestruction.”

EU financial services chief Charlie McCreevy called on national supervisors and the financial industry to agree on the real risks credit derivatives pose and how they can be limited to prevent further lossesunraveling.

“I would like to have, by the end of this year, concrete proposals as to how the risks from credit derivatives can be mitigated,” he said in astatement.

More…

Jim Sinclair’s Commentary

Maybe the FBI should just arrest all the OTC derivative manufacturers.

Lehman Is Focus of Three U.S. Grand Jury Probes; 12 Subpoenas
By Linda Sandler and Christopher Scinta

Oct. 17 (Bloomberg) — Lehman Brothers Holdings Inc., which last month filed the largest bankruptcy in history, is the subject of three federal criminal probes and at least 12 subpoenas, according to a lawyer for the failed bank.

“We are facing three grand jury investigations,” said lead Lehman bankruptcy lawyer Harvey Miller yesterday in Manhattan federal court. The probes, launched by the New York U.S. attorneys in Brooklyn and Manhattan as well as in Newark, New Jersey, are focusing in part on Lehman’s role in the $330 billion auction rate securities market and possible crimes associated with the New York-based bank’s $6 billion June stock issue, according to a person familiar with the case.

The New York Post reported today that Lehman Chief Executive Officer Richard Fuld is among the 12 subpoenaed, without saying where it got the information. Miller declined to immediately comment on whether Fuld was among those subpoenaed.

Investigators have subpoenaed Ernst & Young LLP, Lehman’s auditor; U.K.-based bank Barclays Plc, which bought Lehman’s North American brokerage; and the New Jersey Division of Investments, which runs a pension fund that lost $115.6 million on a $180 million investment in the June stock sale, according to people familiar with the case. It’s not clear whether these subpoenas are part of the 12 noted by Miller.

Yusill Scribner, a spokeswoman for U.S. Attorney Michael Garcia in Manhattan, declined to comment. Fuld’s lawyer, Patricia Hynes of London-based Allen & Overy, didn’t immediately return a call or e-mail seeking comment.

More…

Posted by & filed under General Editorial, JSMineset Editor.

Dear Friends,

Since Editor Dan and I have to ration our time, we will from today on only be able to return calls, faxes and emails to those people who have taken a positive step to show corporate confidence in me.

These people we owe our time to and these people will get it.

Thank you for understanding our situation,

Jim and Editor Dan

Posted by & filed under General Editorial.

Dear CIGAs,

The eloquent and highly perceptive Ambrose Evans Pritchard informs readers to the problem Jim has long stated. Derivatives were always going to be the big problem.

The world at large is slowly beginning to awaken to what Jim Sinclair has been saying for a long time.

Respectfully yours,
Monty Guild.
www.GuildInvestment.com

Fears of Lehman’s CDS derivatives haunt markets
It is a full week after bankers gathered in New York to start sorting out the derivatives mess left by the bankruptcy of Lehman Brothers. We still do not know who is on the hook for some $360bn of default insurance, or how much they will have to pay.
By Ambrose Evans-Pritchard
Last Updated: 12:18AM BST 17 Oct 2008

Lehman Brothers former chief executive Dick Fuld has faced heavy criticism

Ominous talk of big names and big sums continues to haunt global markets, thwarting efforts by the US and European authorities to unlock inter-bank lending. Traders have noted with acute interest that insurer AIG – now nationalised – says it will need another $38bn from the US government, on top of the $85bn bail-out it has already received. AIG is the world’s biggest underwriter of credit protection.

Those on the wrong side of these Lehman debt contracts – known as credit default swaps (CDS) – must come up with the money by Tuesday, the next D-Day in the ever-fraught calendar of the credit markets. There has been a deafening silence so far.

There is no easy way of finding out who they are, so every bank and insurer is suspect. The $55,000bn CDS market is “completely lacking in transparency and completely unregulated” in the words of Chris Cox, the chairman of the US Securities and Exchange Commission.

The settlement auction on Lehman CDS contracts last week was in itself a bombshell. Creditors retrieved just nine cents on the dollar from the Lehman wreckage. As Naked Capitalism put it, the bank had “vaporised”. The biggest players at the auction were Goldman Sachs and Deutsche Bank but they were almost certainly transacting for clients.

The insurers of the debt — a third are hedge funds — will have to pay 91pc of the $400bn in contracts.

More…

Monty,

What good is knowing all of this when our esteemed financial leaders pulled the plug on Lehman, a very major OTC Derivative creator.

I do not for a minute think I know more than Paulson and Bernanke.

The SEC overrules FASB, who in fact earlier this week allowed the gang to lie, allowing those cartoon values come back onto balance sheets. Now we are at square one. What just sold for .0875 cents by Lehman can be valued at whatever your in house demonic thief geek says is value to maturity, even though there is no way to know what market conditions will be at maturity. Why not say $90 or more on the .0875 OTC bag of crap just sold by Lehman?

Think about this!

Your friend,
Jim