Posts Categorized: General Editorial

Posted by & filed under General Editorial.

Dear Friends,

There is absolutely no question in my mind that gold will trade at $1650 on or before (probably much before) January 14th, 2011.

Regardless of what financial TV or popular analysts claiming never to have made an error say, we are correct.

Stay the course. Do not let your guard down. Protect yourself as the most significant dislocation economically in world history for major nations is at our doorstep. In fact it is one foot through your door already. Are you prepared?

You ask why? Then read on!

There seems to be some degree of assumption that each action by the Fed brings the credit lockup closer to being corrected.

There are many challenges to this assumption.

Will banks use funds to patch up their pillaged balance sheet or actually start loaning in a progressive manner? The answer is balance sheet as they really have no alternative.

As in the case of AIG below, is any cash bailout enough to bail out losers? We need to remember that what OTC derivatives do not do to financial or any other entity, the drop in earnings will. Whatever is left over litigation will pick the bone clean of.

Regulators went from 12 to 1 leverage to 40 to 1 leverage where a 2-½% change in total asset value would bust financial institutions. The losses taken are not bookkeeping, but are hard and real.

The only thing bookkeeping did was allow these losses to be maintained in full value because they were OTC derivatives, not listed derivatives with a clearinghouse guarantee. Clearinghouses demand losers pay in and winner are paid out daily while there is no such facility for OTC derivatives. Because of no clearinghouse function, banks and other entities carried the declining value in OTC derivatives at full value at 40 to 1 leverage.

The bailout funds are simply putting a thumb into the leak in the dyke as more holes open up from earnings declines, slow business and serious litigation.

The TIC report is looking quite bad, indicating that dependence on non-US entities to finance a budget deficit that is about to go ballistic cannot be depended on.

All that we have seen is emergency action without limits to hold financial zombies from being discovered by the general public.

The US Fed is in fact holding up the entire world that is near and dear to them. One of the methods is through swaps, which are a form of OTC derivatives and just like the disease, are off balance sheet items.

There is no limit to what the US Fed and Treasury will do in the next few months. It will be discovered in the not too distant future that the US dollar has moved into critical oversupply. At that point expect to the see the US dollar drop like a stone and gold trading at $1200 and $1650.

The US dollars will see.72 again prior to .62 and .52.

The limiting factor to the present terminal financial condition under the Fed and Treasury bandage bailout is the US dollar. There is no escaping the event of publicly recognized dollar oversupply, the ineffectual nature of bailouts and the appearance of hyper-inflation in the midst of non-recovering business conditions.

Keep firmly in mind that retired Chairman Volcker has described this situation as “We have a failed financial structure.” He went on to describe the condition of the financial situation as “Code Blue.”

What you see now is only the beginning of a great economic drama, out of control and nowhere nears its end.

This is it. It is now!

Gold is the only entity that has the capacity of insuring your future buying power, maybe even more.

Enough said.

Respectfully,
Jim

AIG Already Running Through Government Loans
By Mary Williams Walsh, | 30 Oct 2008 | 06:51 AM ET

The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analyst’s say at least part of the shortfall must have been there all along, hidden by irregular accounting.

“You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz.

Mr. Vickrey says he believes AIG [AIG  1.64    0.09  (+5.81%)   ] must have already accumulated tens of billions of dollars worth of losses by mid-September, when it came close to collapse and received an $85 billion emergency line of credit by the Fed. That loan was later supplemented by a $38 billion lending facility.

But losses on that scale do not show up in the company’s financial filings. Instead, AIG replenished its capital by issuing $20 billion in stock and debt in May and reassured investors that it had an ample cushion. It also said that it was making its accounting more precise.

Mr. Vickery and other analysts are examining the company’s disclosures for clues that the cushion was threadbare and that company officials knew they had major losses months before the bailout.

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Posted by & filed under General Editorial.

Dear CIGAs,

Gold is a currency.

Paper currency insures nothing.

Gold is insurance.

Gold is not a commodity.

Gold will trade at a minimum of $1650 MUCH SOONER THAN I HAVE ANTICIPATED.

The shorts in gold shares will get what they deserve – financial decimation.

Your friend,
Jim

Posted by & filed under General Editorial.

My Dear Friends,

There is nothing normal about this abnormal set of circumstances.

During the Weimar Experience the “Velocity of Money” went wild on the upside.

Think about this because I vigorously disagree with the normal economic crowd that is vocal today. Under present and upcoming circumstances, monetary inflation of this kind, size, speed of injection and constancy cannot be defeated by failure of the normal chains of economic production of increasing prices.

This is not like 1929 or any other previous US liquidity credit crisis. That is why Bernanke is signing the dollar’s final death sentence by following the 1929 experience in creating his reactions.

We shall see, but I warn against being emphatic that the norm is the norm now because it isn’t

Respectfully,
Jim

Posted by & filed under General Editorial.

My Dear Friends,

There is nothing normal about this abnormal set of circumstances.

During the Weimar Experience the “Velocity of Money” went wild on the upside.

Think about this because I vigorously disagree with the normal economic crowd that is vocal today. Under present and upcoming circumstances, monetary inflation of this kind, size, speed of injection and constancy cannot be defeated by failure of the normal chains of economic production of increasing prices.

This is not like 1929 or any other previous US liquidity credit crisis. That is why Bernanke is signing the dollar’s final death sentence by following the 1929 experience in creating his reactions.

We shall see, but I warn against being emphatic that the norm is the norm now because it isn’t

Respectfully,
Jim

Posted by & filed under General Editorial.

Dear Jim,

I believe what happens to the economy in Iceland will be a test-case for the US. Iceland is going for an inflationary depression since the banking system crashed and foreign investors stopped investing in the country. The same is starting to happen in Eastern Europe. I suppose it is only a matter of time when foreign investors stop investing in the US. Then you will soon have the Iceland experience. Shouldn’t we be looking for Weimar in Iceland, then Eastern Europe, then the US, and then the planet?

“Iceland’s economy may contract as much as 10 percent, according to Lars Christensen, chief analyst at Danske Bank A/S in Copenhagen. The central bank on Oct. 15 cut the benchmark interest rate by an unprecedented 3.5 percentage points to 12 percent, indicating policy makers have given up trying to control inflation. Prices may surge as much as 75 percent in coming months, Christensen estimates. “

Click here to view the full article…

Also important, Vladimir Putin warns his countrymen about buying dollars. He called it ‘dubious business’. I guess you are on his side now!

Click here to view the article…

Thank you for some great articles in the last week.

All the best!
CIGA Jeroen

Dear Jeroen,

The most difficult concept for the professional public to understand is that hyperinflation can exist along with a totally disastrous economic environment. Hyperinflation falls flat because it fails to take into account the infinite velocity of money that a Weimar creates during a depression economy as a product of throwing monetary discipline at the wall.

When you pay people three times a day to keep up with prices, consider the mammoth daily increases in all private and business transactions in terms of the total number of currency units. What happens to the velocity of money? The turnover increases with the rate of inflation until both are hyper creating an unstoppable spiral.

Few understand that monetary inflation proceeds and sustains price inflation. For this reason world business in a rat hole with credit still jammed up will lead to hyperinflation in 2009-2010.

If world business is perceived to have bottomed and credit flows are re-established, this will bring hyperinflation in 24 hours.

We have heard both Russia and China chime in today on their clear perception of the pre-election falsely valued US dollar and government interference in not only gold but energy and food.

The PPT is working overtime on those index spreads but they only have a short time (13 to 88 days) before they have to throw it into what is most likely inexperienced hands.

Yes, a planetary Weimar is on the menu. Russia, the Middle East and China may just be the top survivors. Africa might just come into its own in such a scenario due to the amount of raw material and gold resources they have.

Respectfully,
Jim

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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