Posts Categorized: Jim’s Mailbox

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Perhaps Taiwan read “GEAB N28 Global systemic crisis Alert – Summer 2009: The US government defaults on its debt.

CIGA Bernie

Taiwan Dumps Fannie, Freddie. And Uncle Sam?

Despite bailout, GSE debt is eschewed by major foreign investor, and ally.

WHO LOST TAIWAN? After Mao drove the Nationalists off the Mainland in 1949, the cry went up among U.S. conservatives, “Who lost China?”

Now Washington might well worry about who lost Taiwan as a major investor in U.S. agency securities as the Republic of China has openly questioned their credit quality — even after the federal government has committed hundreds of billions of dollars to bail out mortgage giants Fannie Mae and Freddie Mac.

Beyond that, Washington might well worry that other nations also no longer view its agencies — and now, by extension, the very credit of the United States of America — beyond question.

Taiwan’s financial regulators reportedly have ordered that nation’s insurance companies to pare their holdings of the debt and mortgage-backed securities of Fannie Mae (ticker: FNM), Freddie Mac (FRE) and Ginnie Mae securities, according to a report on the Internet site of Asian Investor magazine.

Such an order would be a stunning rebuke to Washington, coming a little more than a month after the federal government effectively nationalized the mortgage giants. Fannie and Freddie last month were placed into conservatorships with the Treasury standing ready to inject up to $100 billion through purchases of preferred shares in the government sponsored enterprises.


Dear Jim,

I couldn’t help noticing the parallels in language between the following two items:

“Lower Federal tax revenues in the face of increased federal spending causes geometric, not arithmetic, rises in the US Federal Budget Deficit.”
–Jim’s Formula, September 1, 2006, Point 6.

“The financial rescue operation will force the federal government to borrow an unprecedented amount of money as the budget deficit climbs to record heights, a top Treasury Department official said Tuesday.” … “[Anthony Ryan, Treasury’s acting undersecretary for domestic finance] said the rising borrowing was occurring against the backdrop of a slowing economy.”
–Associated Press, M. Crutsinger, “Treasury Predicts Huge Government Borrowing Needs,” October 28, 2008.

Thanks for the heads up!
CIGA Richard B.

Dear Richard,

In one sense, an event like this is a compliment.

Can you imagine when the FRGCR appears out of some major meeting of the sages on international finance?


Dear Jim,

“World Will Struggle to Meet Oil Demand” is a front page headline in the Financial Times today.

The gist of the article is that the first authoritative public study on the biggest oil fields has been completed. It shows that production is falling much faster than had been thought. The International Energy Agency authored a report entitled “World Energy Output” which states that “the natural annual rate of output decline is 9.1%”. All I can say is WOW! This is much faster than anyone had thought. This means a lower long term supply of oil, and resulting higher long term prices for oil, coal and other energy sources.

Also today, soft commodities began a much overdue rally. We think food commodities and gold can continue to trend higher. Ending food stocks after the current harvest are at 34 year lows. The potential for food shortages and starvation in parts of the world remains high.

Respectfully yours,
Monty Guild

Dear Monty,

Add to this that not if but when Pakistan blows oil will rise $100 in 60 days from whatever price it is at that time.


Dear Jim,

This Bloomberg article explains why we have been harping on free trade for such a long time. Free trade is essential. Look at Iceland, when confidence in their banks evaporated, there was a currency collapse and inflation. Free trade became an impossibility due to a lack of trust in the currency. By the way, the Icelanders who owned gold, did great compared to everyone else, and they can now buy real estate companies and other assets cheaply in Iceland.

Best regards,
Monty Guild

Credit `Tsunami’ Swamps Trade as Banks Curtail Loans (Update2)
2008-10-29 10:49:09.610 GMT
By Michael Janofsky, Mark Drajem and Alaric Nightingale

Oct. 29 (Bloomberg) — Richard Burnett’s lumber company had started loading wood onto ships heading for China. More was en route to the docks. It was all part of an order that would fill 100 40-foot cargo containers.

Then Burnett got a call from his buyer at Shanghai VIVA Wood Products Co. The deal was dead. He told Burnett, president of Cross Creek Sales LLC in Augusta, Georgia, he couldn’t get a letter of credit to guarantee payment for at least six months.

“It was like a spigot got cut off,” Burnett said, recounting the transaction that fell apart in July. The inability of buyers in China and Vietnam to get letters of credit has cost his company as much as $4 million this year, a third of projected revenue, forcing him to lay off 15 of 35 employees, he said.

Suppliers of oil, coal, grains and consumer products from Chicago to Mumbai are losing sales as the credit crisis spreads beyond financial institutions, and banks refuse financing or increase the fees for buyers. Coupled with declining demand, the credit squeeze is threatening international trade, one of the lone bright spots in the global economy.


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Jim Sinclair’s Commentary

The following is a little monetary history from CIGA Rusty Bayonet:

“The painful experience of runaway inflation and the collapse of the Continental dollar prompted the delegates of the Constitutional Convention to include the gold and silver clause in the United States Constitution so that the individual states could not issue bills of credit.”

A few things to think about today:

  1. Where will the next Administration find themselves a Paulson? Regardless of your feelings concerning his actions you must give him credit for his brilliance. His mission is to hold things somewhat together until at least November 2nd and to a maximum of 89 days following that. His performance has been nothing short of a miracle in finagling.
  2. Paulson and Bernanke are not stupid men. Why did they let Lehman go bust when they knew full well of the consequences?
  3. Gold is not part of the problem. It is part of the solution.
  4. You do know that the rally in the US dollar is a product of the mechanics of unwinding massive spreads causing short covering. That makes it a game of musical chairs. When it ends no one knows, but when it ends everyone will hear the blast.
  5. If some major players gave notice to the Comex for delivery of 2000 contracts per month, in ten months the exchange would have to novate (unilaterally declare a contract null and void in all or in part) the gold contract and go to cash trading only. This would unseat the gold banks as the paper tigers of the bullion market pricing, giving the seat to the international cash market. That would only be a repeat in gold of the novation of the silver contract at the Comex in 1980 by “sellers only,” and margin at 100% in silver during the Hunt Crisis. What happened before, just like “The painful experience of the runaway inflation and collapse of the Continental dollar prompted the delegates to the Constitutional Convention to include the gold and silver clause into the United States Constitution.” would this time be the modernized and revitalized Federal Reserve Gold Certificate Ratio.

Dear Jim,

Clearly, “Bretton Woods II” is all about “The revitalized and modernized Federal Reserve gold certificate ratio”. As you said before: The revitalized and modernized Federal Reserve gold certificate ratio will be tied to a reintroduction of M3. It will not be tied as in the pre-Bretton Woods Agreement. The Treasury Department will have nothing whatsoever to do as the open market will do it for the department.

Jim, can you tell us anything more? Have you been contacted by world leaders? What are the chances that this will happen?  Do you still believe that it will be at a level of $1650 USD with 1 EUR = 2 USD?

Ciga Stefaan,

  • On September 26, 2008, French, and current European Union president, Nicolas Sarkozy, said, “we must rethink the financial system from scratch, as at Bretton Woods.”
  • On October 8, 2008, Argentine President Cristina Fernandez de Kirchner said “the financial world crisis will need a strong regulation in the matter of financial markets and capital movements throughout the world. A new Bretton Woods will be needed”.
  • On October 13, 2008, British Prime Minister Gordon Brown said world leaders must meet to agree to a new economic system. “We must have a new Bretton Woods, building a new international financial architecture for the years ahead.” However, Brown’s approach is quite different than the original Bretton Woods System, emphasizing the continuation of globalization and free trade as opposed to a return to fixed exchange rates.
  • Italian Economics Minister Giulio Tremonti has said that Italy will use its 2009 G7 chairmanship to push for a “New Bretton Woods.” He has been critical of the U.S.’s response to the September-October 2008 economic crisis, and has suggested that the dollar may be superseded as the base currency of the Bretton Woods system.
  • On 20 October 2008, Tremonti told the Italian daily Corriere della Sera that proposals for a new Bretton Woods had been spread for many years by Lyndon LaRouche.

Dear Stephan,

You make too much of the spin title of “Bretton Woods the Second.”

The present US Administration is a lame duck so that should give you a clue. The problem is a meltdown of OTC derivatives combined with the world’s love of phony assets and earnings that OTC derivatives provided.

The general feeling is that the EU would like to see the US Fed take an official position as the lender of last resort to the EU. It is already so what is the big deal?

The FRGCR, modernized and revitalized, is in the future and not now.



Thanks for all your hard work in these very interesting times. I hope all of you at JSMineset know there are many of us out here who are grateful that your forum exists. As gold is the uber currency, I thought you might be interested in this offering.

CIGA Butch

Europe on the brink of currency crisis meltdown
The crisis in Hungary recalls the heady days of the UK’s expulsion from the ERM.
By Ambrose Evans-Pritchard
Last Updated: 10:52AM GMT 26 Oct 2008

The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe, tipping the whole Continent into a fully-fledged economic slump.

Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.

“This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon.

Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May 1931 when Credit-Anstalt went down – and from a string of Club Med countries that rely on foreign funding to cover huge current account deficits.


Thanks Dan and Butch,

The numbers say that the developing world debt (4 trillion) is peanuts compared to the OTC (quadrillion plus) mess in the West.

The bottom line is that all paper money is going in the crapper, causing increased velocity of money a la Weimar through the unleashing of inflation of a lifetime during stinking business conditions.

Selecting a currency based on which is deeper in the hole is madness, but then so is the world of finance.

The problem of selection suggests gold will reach a  price a lot higher than my call.


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Dear CIGAs,

Are people of this ilk not now in the process of bailing out everything everywhere while saving the world financially?


In our family we decided to move straight to the top by substituting cat food for steak. Inflation? What inflation!

Up until the Boskin/Greenspan agendum surfaced, the CPI was measured using the costs of a fixed basket of goods, a fairly simple and straightforward concept. The identical basket of goods would be priced at prevailing market costs for each period, and the period-to-period change in the cost of that market basket represented the rate of inflation in terms of maintaining a constant standard of living.

The Boskin/Greenspan argument was that when steak got too expensive, the consumer would substitute hamburger for the steak, and that the inflation measure should reflect the costs tied to buying hamburger versus steak, instead of steak versus steak. Of course, replacing hamburger for steak in the calculations would reduce the inflation rate, but it represented the rate of inflation in terms of maintaining a declining standard of living. Cost of living was being replaced by the cost of survival. The old system told you how much you had to increase your income in order to keep buying steak. The new system promised you hamburger, and then dog food, perhaps, after that.

CIGA Marty

Dear Jim,

The question is who in the world is selling off all of this stuff? Is it the hedge funds/mutual funds? It seems that everyone is hitting the exit at the same time on a weekly basis and no matter what we all think/know to be the right place to be, it doesn’t get through to all of those who strive for US Dollars. I agree with you that the dollar is doomed with what is happening, but how long will it take for everyone to wake up, if they even do… Then the turn comes and we see the dollar collapse as fast as Gold has here and Gold moves up inversely. The idea being to ride it out for a period and then go back in at some level potentially much lower.

I take from your comments here that this thinking is nuts and to just stay with the plane even though it has crashed in the high mountains with a huge snow storm upon us. At least it is shelter as they have always taught us in survival training. Don’t try to work your way out, let them come to you.


Dear Bruce,

Your first lesson in staying alive in the wilderness in an emergency is not to panic, not to wander, but rather build or find shelter from the elements before anything else.

Gold is insurance and is shelter in this wilderness caused by demonic OTC derivative manufacturers. A storm is coming that is so serious Weimar now cannot be avoided and might just be duplicated. What do you think the reaction to a market losing 700 points on the Dow is going to be in DC? The Fed and Treasury will manufacture dollars in amounts never contemplated by anyone. The discount rate will drop to negative percentages. The Fed begging bowl window will be open to all and every of the old boys clubs in the US or any other country without limits on the amount of electronically created dollars. Bailouts will from this minute forward cover all and every. That dooms the US dollar and calls for gold over $1650 no matter what the black boxes and their algorithms do tomorrow.

Gold is a currency, always has been a currency and will be the only currency as a result of the madness in creating dollars to infinite levels.

The good days of the Weimar Republic came to an end in the late 1920s, especially as the depression began to take a hold on the German economy. As a result the political situation became uncertain and dangerous. The genuine believers in the republic began to lose the battle against the enemies of the Weimar Republic from the left and the right.

The hyperinflation in the Weimar Republic was accompanied by an economic depression.

Your alternative plan sounds to me as if you would sell you gold shares for zip, and throw your insurance away, hoping to re-enter your insurance at $600.

In the meantime you would hold 100% with cash. I assume it would be in US dollars.

The sellers are all in the paper market for gold. They are comprised of black boxes, 29 year old hedge fund managers and gold holders that were never really convinced. Short sellers in gold can pound and pound just like naked short sellers in equities.

I have made my bet. I am neither looking at it nor bitching about it.

I know without any shadow of doubt that I am right so let the margin traders and constant whiners go to hell.

I have bought insurance. I am not staring at the insurance policy.

You are not nuts, just emotional. That is quite human and normal.

Think about all I have written today, and if you agree, man up, and stop looking at it.

If you do not, then bail out immediately.



The bull market in gold is over! Tell JIM thanks.

Jonathan Cahur

Dear Jonathon,

You are quite welcome.

I suggest since you feel that way you buy a few financials, lots of US dollar T-bills and 30 year US Treasuries.

Best of luck!

Dear Mr. Sinclair,

In his article Passing Argentina… On Our Way to Weimar, Graham Summers included the following graph. He had the following to say about it: “To put that recent surge in context, consider that the little bump in March 2008 was the Fed pumping the system during the Bear Stearns deal. That slope in July 2008? The Fannie Mae/ Freddie Mac crisis. Compared to the horrific spike that is September 2008, both of these periods appear positively rosy”.

If I invert the graph, it looks eerily like my net worth over the same time frame. Still, I hold my positions and remain of good faith. Thank you for sharing your experience with us through this character-building time.


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You undoubtedly already know this but could you reword the COMEX warehouse article to state that the sum total of gold for delivery at the Comex is the registered number and not the eligible number? 4,135,714 ounces eligible gold can be gold held by customers that will not be tendered…

Your pal,

Dear Dan,

This makes the paper gold market foundation “SET IN SAND” if any of today’s super wealthy financial international Muktars decided to break the bank at the Comex.



I hope I didn’t sound too negative in that last e-mail about keeping short term thoughts close to the vest for fear of sending signals to those who want to hurt us.

I am just totally burnt out with all of this today.

I thought that after 30+ years at this game I would have been a lot smarter, but I have been proven wrong once again and I guess it hurts a bit (actually hurts a lot).

I’m hanging in there, but emotionally I’m a little bit strung out.

Keep the faith, even if I might not be doing so well at it.

Dear Buz,

Every market is under world class manipulation as we approach election day in the midst of possibly the worst financial crisis in world history. This situation is killing us all.

It also makes us ask ourselves does crime pay? It certainly seems so. However, what goes around comes around so I prefer to hack it out without karmic debt.

Look at it this way, pain is the experience between two pleasures.


Hi Jim,

I have been a faithful follower for over 3 years and appreciate your view on gold and the dollar.

I know you are busy but I have a question that I would appreciate you answering on your website.

Since the USDX is comprised of over 57% euros, how will the dollar reach .52 with the European economy so weak?

I know you have the answer, plus I wouldn’t know who else to ask.

Again thanks for all you do. I am in for the long haul.



The dollar, due to the creation of mountains of derivatives and now the bailing out the world, might just be in worse shape. The Weimar mark didn’t do so well.


Dear Mr. Sinclair,

I see the Paul Volcker (highly regarded by yourself) is becoming more closely involved with the Obama campaign. Could this affect the outcome of gold’s price rise if Volcker was to gain persuasive, policy changing sway with Obama?

Best Regards,
CIGA Marc Da

Volcker Makes a Comeback as Part of Obama Brain Trust
By Monica Langley
Tuesday, October 21, 2008

NEW YORK — At 81 years old, former Federal Reserve chairman Paul Volcker is getting a second chance to shape his legacy with a presidential hopeful more than 30 years his junior.

Mr. Volcker has emerged as a top economic adviser to Sen. Barack Obama during a presidential campaign dominated by a global financial crisis. Their growing bond is paying dividends for each man.

Mr. Volcker delivers gravitas and credibility to Sen. Obama, people in the Obama camp say, as well as ideas and approaches to the economic crisis. “Volcker whispering in Obama’s ear will make even Republicans comfortable, because he’s a hero of the right and a supporter of a strong dollar,” says John Tamny, a supply-side economist and Republican.

On Tuesday, Mr. Volcker is scheduled to appear on the campaign trail with Sen. Obama for the first time. At a round-table discussion with voters in Lake Worth, Fla., he’ll “give his view on the state of the economy and the credit markets, and what needs to be done to fix them,” says one campaign adviser.


Dear Marc,

The Mother of All Crisis (Volcker’s statement) cannot stand the previous Volcker approach without a total planetary implosion from which there would be no recovery for generations to come. A socially sensitive president would never support an old Volcker approach.

A Chairman of the Fed must have the full support of the sitting administration to put in place extreme policy reversals in the midst of a total financial meltdown. This is especially true when the meltdowns are barely held together by wide open electronic printing presses and prolific spin.



The following story illustrates that the US mint is having a hard time meeting coin demand. However in the years leading up to Y2K the mint cranked out many more bullion coins than this year by multiples of two or three. So, is physical gold hard to come by? What is the real reason that the US mint is not producing product? If this is unprecedented (the mints were not cleaned out in the 1970’s), maybe we are seeing the real big money going for the gold?

Like everything else that has happened so far, it looks like another sign that “This is it.”


Examining the “Unprecedented Demand” for Gold Eagle Coins
by: Michael Zielinski October 09, 2008

Earlier this week, the United States Mint took further actions to meet the increased demand for gold and silver bullion coins. This included production halts for certain bullion offerings and the continued allocation for one ounce Gold and Silver American Eagle coins.

Within the memorandum sent to authorized bullion purchasers, the US Mint specifically stated, “gold and silver demand is unprecedented.” Throughout the course of this year, the Mint has provided similar explanations each time a new suspension or allocation program went into effect. While sales of Silver Eagle coins are higher than any other year in history, the sales of Gold Eagle coins are far below their peak.


Dear Mr. Sinclair,

I found today’s missive coupled with yesterdays FYI bullet points truly fascinating. Your depth of knowledge is constantly surpassing itself.

From my interpretation I found myself hinged on one primary aspect of the missive. You note the “possibility” of default due to the amount of COMEX reserves vs. the perpetuation and sheer size of the US dollar markets, however you note that during silver’s meteoric rise default was not necessary, only the “theory” or “noise” that the Hunt’s were going to take delivery of more silver than was available. We know the coin markets are already being cleaned out. Is all we need merely the perception of a run on COMEX by Asia?

Best Regards,
CIGA Marc Da

Dear Marc,

You are quite correct from a price impact perspective.


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Click here to listen to a song on the current economic crisis.



Jim Rogers said the next to come is an “inflationary holocaust.” This was taped last week. The salient comment, past half way into his interview, dovetails what you often have written about. The agreement you have is that monetary inflation is the cause and precursor of price inflation regardless of the level of business activity. The greater the amount of money and the shorter the time in history to inject this infinite floods of dollars result in a “inflationary holocaust” quite soon.

Click here to see the video…

CIGA Christopher

Dear Christopher:

Today every political and financial interviewer pulled out a host of Nobel Laureates, Professors, Dean of Business Schools, former Secretaries of the Treasury and other well known equity professionals to high five and applaud the G7 accomplishment of flooding the world with dollars.

Speaker of the House Pilosi got into the act by rehashing the hash of the bailout. She was sure to emphasize the line “do more.”

The answer that governments apply to all situations is to throw cash in dollar swaps in the trillions as a off balance sheet injections.

How did Einstein define insanity? I believe he said it was doing the same thing repeatedly while anticipating different results. The government is doing the same thing that created this crisis and is apparently anticipating different results.

As Jim Rogers says, we are bailing out 29 year old brats driving Maserati’s who we know are the manufacturers of mountains of OTC derivatives. The actions of these brats will end (via what was done this weekend) the financial world as we know it.

The inflation that is heading towards us without regard to the level of business activity is WILD.

I am not concerned that gold will fail to trade at $1650 by January 11, 2011. My concern is that it might be much higher.


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Dear CIGAs,

Today is no different from yesterday. This thing remains “Out of Control”

Today’s so called new initiatives was not an intervention as it was proposed before as part of the 6 prior interventions.

Equity markets are saying, “We saw that one before.”

Gold is a paper play as part of trying to make today’s speaker look good.


”Life’s tough… it’s even tougher if you’re stupid.”
— John Wayne

Dear Jim,

South African gold output is down 23% on a strike
Respectfully yours,
Monty Guild

South African Aug. Gold Output Falls 23% on Strike

Oct. 9 (Bloomberg) — South Africa, the world’s biggest producer of precious metals, said gold production fell 23 percent in August from a year earlier because of an electricity shortage and a protest against power price increases. “There was the Aug. 6 strike by Cosatu that affected mines quite heavily,” Alex Conradie, an economist at the Department of Minerals and Energy, said by telephone from Pretoria today. “The power issues also weren’t there a year ago.” The Congress of South African Trade Unions, known as Cosatu, protested against a 27.5 percent tariff increase by state-owned Eskom Holdings Ltd. to help fund a $44 billion expansion. The utility, which supplies 95 percent of South Africa’s power, started rationing supplies to mines this year because of a shortage of capacity. South Africa’s total mining output declined 6.2 percent and non-gold production fell 3.5 percent, Pretoria-based Statistics South Africa said today on its Web site. Mineral sales jumped 58 percent to 27.52 billion rand ($3.04 billion) in July from a year earlier, it said. Mineral sales data lag production data by a month. South Africa produces more than three-quarters of the world’s platinum and also turns out diamonds, coal, chrome and iron ore. South Africa was the world’s biggest gold producer for more than a century until last year when it was overtaken by China. Ageing ore bodies and safety-related mine stoppages cut 2007 output by 7.4 percent from 2006.

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Hello Jim,

Have you ever heard the discussion about Comex defaulting on Gold? Would you be able to share your opinion on the topic? The questions are being brought up on CNBC. A video on the story is below


Click here to view the video

Dear JB,

There was a time that I would have dismissed that idea as manic. Now it is a different story.

The cash market in anything does not command the price. The leveraged market is most powerful where prices are concerned.

I see the tight gold bullion cash market as the one that causes the short side significant bankruptcy rather than the violent paper gold market as the “Out of Control” banking problem ignites unstoppable rockets that blast the price of gold to unexpected levels in a straight line. The price violence you see now is because of this cash market versus bullion market relationship.

Today, insolvency in the hundreds of billions can happen anywhere. There was a day when the guarantee of the clearing house, the exchange itself ,and the member’s personal wealth that stands behind the paper gold contracts was more than satisfactory for comfort. In today’s world of monumental insolvency nothing can be considered sacred in terms of financial guarantees by market participants or orderly prices.

The bottom line is never say never.



The $700 billion didn’t work (surprise!). Libor is heading up again. Game over!

CIGA Pedro

Libor for Overnight Dollar Loans Jumps as Credit Freeze Deepens
By Lukanyo Mnyanda and Andrew MacAskill

Oct. 7 (Bloomberg) — The cost of borrowing in dollars overnight in London jumped as U.K. lenders held talks with the government on emergency funding and Iceland nationalized its second-biggest bank amid an unprecedented credit squeeze.

The London interbank offered rate, or Libor, that banks charge each other for such loans rose 157 basis points to 3.94 percent today, the British Bankers’ Association said. The corresponding rate for euros climbed 22 basis points to 4.27 percent