Posts Categorized: Jim’s Mailbox

Posted by & filed under Guild Investment, Jim's Mailbox.

Dear Jim,

Please note this Reuters memo from yesterday. Norway has the safest bonds while Germany is also safe.

Your pal,

Norway safest govt debt investment, Ecuador riskiest -study
Tuesday, December 16, 2008 2:14:06 AM (GMT-08:00)
Provided by: Reuters News

LONDON: The country least likely to default on its sovereign debt in the next five years is Norway and the country most likely to is Ecuador, according to a study by data provider CMA Datavision.

Using an "industry standard" model and its own credit default swap (CDS) pricing data, CMA Datavision says the cumulative probability of default (CPD) for Norway over the period is three percent, and 93 percent for Ecuador.

The United States’ CPD is six percent, making it the sixth most financially stable sovereign behind Norway, Japan, Germany, France and Finland.

Argentina, Ukraine, Pakistan and Venezuela all have a CPD of 80 percent or higher, according to the study.

The cost of insuring against governments defaulting on their debt has ballooned in recent months as the global economic downturn has forced them to announce heavy borrowing plans to pay for large-scale fiscal packages of spending and tax cuts.

The CDS rates on US, UK and most euro zone sovereign debt have hit record highs recently. Looking at CDS pricing in isolation, investors are paying more to insure against the UK government defaulting than McDonald’s.


Posted by & filed under Jim's Mailbox.


I would like to congratulate you and Peter about your article on hyper inflation.

I lived in Brazil and this is exactly what happened.

A Dragon named Inflation

I lived in Brazil during the 1960s and 70s, so I have an idea of what rampant, uncontrolled inflation can do. At its worst, the currency was losing about 30 to 40% of its value each month. This explains how 1 = 1 came to be 1 = 0.00000000000000001, or whatever. This page is supposed to give the reader an idea of what happens when you live where inflation is out of control. Please understand that in the last eight years, things (I mean the annual inflation rate) have been fairly good by Brazilian standards, even if the real (as Brazil’s currency is now called) is under a lot of pressure from many different areas (exports, government spending, foreign debt, etc…). This page looks back at life and money in Brazil in the last forty years or so.

The president’s monetary policy vs the dragon. Brazil humorists have a lot of fun with inflation, and the public is always skeptical of their ability to control the dragon. For some reason, inflation is often symbolized as a dragon, just as the income tax is a lion. Anyway, in the cartoon, the dragon is not impressed with the new real currency.

A high inflation rate means you do to bed with $100 in the bank (or in your pocket) and wake up with $98 or 99, and on the next day you have $96, without spending a penny (well, acentavo). It also means when you get paid, you immediately go to the market for groceries and/or stores to purchase any basic goods you may need. This page is about Brazil’s battle with the evil dragon viewed though it’s paper money .

For most of the early part of then 20th century, Brazil’s money was called Reis, meaning "kings". By the 1930s the standard denomination was Mil Reis meaning a thousand kings — that is alot of blue blood flowing on the market.

By 1942 the currency that devalued so much that the Vargas government instituted a monetary reform, changing the currency to cruzeiros (crosses) at a value of 1000 to 1. Twenty thousand reaisbank notes were stamped as twenty cruzeiros, as seen in the example here. Over the next fifty years, the poor stamp overlay machines were to stay busy. As you will notice on this page I have tried to find paper notes "stamped" (carimbadas) with the new values. These notes remained in circulation a few months until the new "official" notes with the new denominations became available.


We don’t know when Hyperinflation will come to the US but it will come.

When you will start seeing prices of essential goods rising, this will be it. But people on the street shouldn’t trust the government inflation numbers! We just have to go regularly into the supermarket near us to find out as hyperinflation may well be worldwide.

By reading Peter’s Formula, I noticed that the vicious cycle is maintained by a weak government (see part 9 of the 10 steps) policy such as printing fiat money in unreasonable ways. In Brazil, in the 70’s, we had dumb government solutions such as price readjustment indexes.

In the US, Volcker with its strong monetary policy helped stop this vicious cycle in the 70’s by raising rates to unprecedented levels. Will Obama follow Volcker’s steps at one point of his presidential mandate? I don’t think so or maybe a long way down the road.

Thank you for all!
Best regards,
CIGA Christopher

Dear Christopher:

Thanks are to Peter, a man of rare perception, a true student of economic history and a man to be reckoned with. When introducing his economic committee, President Elect Obama said no less than six times that this group would disagree. The liberal economic policy will be followed with ever expanding Fiscal Stimulation along with both the Fed and Treasury continuing to bail out every major entity that falls.

Respectfully yours,

Posted by & filed under Guild Investment, Jim's Mailbox.

Dear Jim,

The president of Guild Investment Management, Inc. Tony Danaher, forwarded this to me today.

David Rosenberg is Merrill Lynch’s chief US economist.

David Rosenberg had some interesting comments: "Port activity in the United States is imploding — inbound cargo at the Port of L.A. slipped 9.7% YoY and was down 13.6% at Long Beach; outbound shipments were even weaker in a sign of ever-weakening domestic demand abroad with traffic down 12.8% Year on Year at the Port of LA and -23.6% at Long Beach. And get this — the only activity is in empty vessels — up 0.2% Year on Year in November. Global recessions beget global trade protectionism, which in turn begets global geopolitical strains, which finally begets investor buying of "safe havens" like gold (which looks on the precipice of breaking out to the upside again).

Respectfully yours,
Monty Guild

Posted by & filed under Jim's Mailbox.

Dear Monty and Dan,

I think this is very important. An ex-Fed bigwig sees the solution as revaluing the gold on the books. I have not seen this commented on and thought it would be of interest.

The Gold comment is about 8 minutes into the video.

Click here to view the video…

He says not to worry about the Fed’s balance sheet because they can just revalue their "gold certificates." This comment is at min. 11:20

This is very interesting coming from an ex-Fed big wig. Gold revaluation is beginning to be discussed…

CIGA Andrew S.

Dear Dan and Monty,

This video has good things in it and not only on gold. It should be reviewed by serious students and investors in gold and the US dollar from the moment it starts until the very end.

Think "Federal Reserve Gold Certificate Ratio, Revitalized and Modernized," and not tied to interest rates but rather to a measure of international liquidity. This would require gold be re-valued to market prices.

It seems to me we will draw closer and closer to a US dollar FRGCR backstop being called on as we near the .62 to .52 range on the USDX.

Respectfully yours,


For your information..

Global interest cuts:
Korea cuts rates 100bps to 3%, 50bps was expected;
Taiwan cuts rates 75bps to 2%, 50bps was expected;
South Africa cuts rates 50bps to 11.50%, expected;
Switzerland cut rates 50bps to 0.50%, expected;

Anthony R. Danaher


I own several warehouse receipts for numbered allocated silver bars but am concerned after reading Dr. Fekete’s recent warning:

"Item 6: Even allocated and segregated metal account gold is not safe. The temptation on the account providers to default will be irresistible. They are not going to release the gold until expressly ordered by the courts, and will make sure that no gold will be left by then."

Do you believe that this is correct and also true for silver? If so, what safe storage options are there for relatively bulky silver in the United States?

Your insights on storage options for precious metals and degrees of safety would be greatly appreciated.


Dear Ron,

This week on I gave you a total review of how to take delivery, how to transport precious metals, how to store precious metals safely and even provided a person to help you do it.

My reasons are different from Dr. Fekete’s take, but the remedy is the same.

All the best,

Click here to read the original article…

Posted by & filed under Jim's Mailbox.

Dear Jim,

People have been incredibly slow to look ahead but the announcement today of a budget deficit of over $180 billion for the month of November 2008 (one month), seems to have spurred them to action. They have been selling the dollar and buying gold and iron ore (which benefits the infrastructure spending in China and the US). By the way, 12 times $180 billion is $ 2.16 trillion. That amount sounds to me like a good guess for the next 12 month’s budget deficit.

Respectfully yours,
Monty Guild

Fed Weighs Debt Sales of Its Own
Move Presents Challenges: ‘Very Close Cousins to Existing Treasury Bills’

The Federal Reserve is considering issuing its own debt for the first time, a move that would give the central bank additional flexibility as it tries to stabilize rocky financial markets.

Government debt issuance is largely the province of the Treasury Department, and the Fed already can print as much money as it wants. But as the credit crisis drags on and the economy suffers from recession, Fed officials are looking broadly for new financial tools.

Fed officials have approached Congress about the concept, which could include issuing bills or some other form of debt, according to people familiar with the matter.

It isn’t known whether these preliminary discussions will result in a formal proposal or Fed action. One hurdle: The Federal Reserve Act doesn’t explicitly permit the Fed to issue notes beyond currency.


Posted by & filed under Jim's Mailbox.

Dear Jim,

Can you comment on the rumor published on reliable sites that the IMF is going to pummel the gold market down to the $455 levels tomorrow at 12:22 PM?

CIGA Arlen

Dear Arlen,

That rumor is nothing more than RAVING BULLSHIT!


Posted by & filed under Jim's Mailbox, Trader Dan Norcini.

Jimmy and Monty,

What do you say that we pack up and head down under to Aussie land?

I have to give them credit however – at least they are sending the money directly to the people instead of to the greed-infested bankers.

The problem is what happens after the cash runs out and those new TV’s and other assorted goodies are through being purchased. What next?

Best wishes from your pal,

Australia hands people cash to splurge for Christmas
By James Grubel

CANBERRA, Dec 8 (Reuters) – The Australian government delivered more than A$8 billion ($5.2 billion) in cash payments to families and pensioners from Monday to stop the economy from sliding into recession and urged people to spend the money ahead of Christmas.

The cash is part of a A$10.4 billion economic stimulus package announced on Oct. 14 and aimed at boosting consumer confidence and retail sales as Australia fights off slowing growth and rising unemployment due to the global downturn.

But rather than pay off debt, the government wants people to spend the money in the run up to Christmas, saying the spending will help protect jobs and save the economy from further slowing.

"I’ve urged pensioners and families to spend this money responsibly, to use this money to make ends meet, to help out their kids and help out their grandkids," Prime Minister Kevin Rudd said on Monday.

"If the government doesn’t empower consumers at a time like this, in the midst of global financial crisis, then in fact we will have even greater challenges ahead."


Posted by & filed under Jim's Mailbox.

Dear CIGAs,

Gold will wake up, and exceed $1650. Alf is right! In fact that is CIGA Alf standing on top of Gold.



I wondered if you’d seen the article linked below, "The Manipulation of Gold Prices" by James Conrad that was featured on the website on 12/4/08.

Click here to view article…

It’s one of the best pieces I’ve ever seen written by someone outside of JSMineset and brings together the subjects of Comex gold price manipulation, the Fed’s efforts to control the value of the U.S. dollar, quantitative easing and the Fed’s eventual need (and design) to devalue the dollar vs. gold. The article is too complex and wide-ranging to be quickly summarized, but some of the more interesting passages are as follows:

"The Federal Reserve must now make a tough choice. In the past, Federal Reserve Chairmen may have felt it necessary to support regular attacks on gold prices to dissuade conservative people from putting a majority of their capital into gold. Now, however, the world economy needs much higher gold prices in order to devalue paper money, not against other currencies in a "beggar thy neighbor" policy, but against itself. This can jump start the system. If the Fed continued to support gold price suppression, that would collapse the stock market far deeper than they can afford, most insurers will end up bankrupt, and there will be no hope of avoiding Great Depression II."

"Anyone who reads the written works of our Fed Chairman knows that Bernanke’s long term plan involves devaluing the dollar against gold. This is the exact opposite of most prior Fed Chairmen. He has overtly stated his intentions toward gold, many times, in various articles, speeches and treatises written before he became Fed Chairman. He often extols the virtues of former President Franklin Roosevelt’s gold revaluation/dollar devaluation, back in 1934, and credits it with saving the nation from the Great Depression."

Interestingly, the author suggests that some of the recent taking physical delivery of gold at the Comex may be attributable to "smart players at big firms" buying gold at the Comex to re-sell into the spot market for a profit in a process he calls, "backwardization." In support of this theory he makes an assertion I have only seen you make before, that:

"In spite of the ostensible existence of a so-called "London fix," 96% of all OTC transactions are secret and unreported. The transactions happen solely between two parties, and are done opaquely, in complete darkness." The current London fix may well be just as fake as the bank interest rate reports that comprised LIBOR proved to be, just a few months ago."

His predictions about the value of gold in the near future are very encouraging and may provide some needed solace to members of our community.

"The price of our pretty yellow metal is about to explode, and it is probably going to soar, eventually, to levels that not even most gold bugs imagine. COMEX gold shorts will be playing the price a bit longer, in an attempt to shake out some remaining independent leveraged longs. Once that is finished, however, and it will be finished soon, the price will start to rise very quickly."

Best regards,
CIGA Richard B.

Dear Richard,

Good work, but I think I have read a lot of this somewhere before. Maybe it was here!


Dear Jim,

It seems many are dependent on credit cards to survive. 2 trillion is a lot of credit to disappear!

Credit-card industry may cut $2 trillion lines: analyst
Mon Dec 1, 2008 4:06pm EST

(Reuters) – The U.S. credit-card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.

The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted.

"In other words, we expect available consumer liquidity in the form of credit-card lines to decline by 45 percent."



I can hardly believe people would pay for a dinner at McDonalds with a card!

Why Credit Cards Matter So Much

Yesterday put the nail in the coffin of a move from recession (small “r”) to Depression (capital “D).  Two pieces of news that were absolutely essential came out – and no, neither one was that we’ve been in a recession since last year, or that last week’s stock market rally was yet another sucker rally.  The first was the observation that McDonalds is now the second-largest merchant vendor on credit cards – that is,  people are now buying their Big Macs on plastic – in part because they don’t have the cash.  Credit card balances have risen enormously in the last few weeks, as people attempt to keep going through the holidays:

Commercial bank exposure via the total amount of credit card loans outstanding has risen more in the last 10 weeks than it did in the previous 10 months cobined. Moreover, the growth in the last 10 weeks — $32.3 billion, or roughly $600 million per shopping day — represents nominal growth of 9.3%, or 48.3% annualized over the last 10 weeks. According to American Express, delinquencies on credit payments rose to 4.1% of all credit outstanding in the third quarter, up from 2.5% in 2007, with Bank of America’s rate rising even more steeply – to 5.9% for the period. Moreover, the pool of loans deemed uncollectable rose to a high 6.7% in the third quarter, soaring from 3.6% last September. What consumer spending there is has been fueled in part by credit card: The second-largest merchant-vendor for credit card use is now McDonalds. This suggests that many consumers are in serious distress if they need to get their $4 Big Mac and fries with a credit card.



CIGA Big Tatanka