Posts Categorized: Jim’s Mailbox

Posted by & filed under Jim's Mailbox.

Jim,

Your recent comment on Quantitative Easing cited an article "M3 where Art Thou" which used a 2008 graph of M3 from Capital Economics/Lombard Street Research which is so different from the figures estimated by both Shadowstats.com and Nowandfutures.com that clarification of who is right is essential for an understanding of what is happening to M3 and its related effects.

CIGA Ron M

Dear Ron,

Who do you think? The Establishment entity or those who have kept the calculations pristine from change and politically motivated adjustments. The answer to your question is that Shadowstats.com gives a more accurate M3.

Regards,
Jim

Jim,

I would really hate to see a VAT but agree it is probably coming.

Monty Guild
www.GuildInvestment.com

A European-style tax?
Like it or not, there’s only one way we’re going to be able to pay for our ballooning deficit: a value-added tax.
By Shawn Tully, editor at large
Last Updated: December 2, 2008: 9:27 AM ET

NEW YORK (Fortune) — It’s highly possible, if not inevitable, that Americans will soon live under a radically different tax system – one that the pundits and politicians aren’t talking about.

It’s called a value-added tax, or VAT, and it’s been used for decades to pay the bills and sustain the immense growth of governments around the world, from France to Mexico to Australia. Created in 1954 by a French economist, the VAT is the most potent, efficient machine for revenue generation yet invented.

And if there’s one thing the U.S. government needs as the federal budget balloons, it’s a ton of new revenue. "The bottom line is that the income tax cannot support the level of spending that’s projected, something other countries faced years ago," said Roberton Williams of the Tax Policy Center, a non-partisan research institute. Today the VAT raises almost half of the total government revenue in France, and a similar share in most of the developed world.

More…

Posted by & filed under Jim's Mailbox.

In response to CIGA Green Hornet’s comments on the dollar and its short term rally:

Dear Green Hornet,

You clearly understand. I hope that this understanding finds home amongst those so dejected today.

The dollar cannot rise in the face of the Fed wishing to construct a less deflationary perception in markets and business. It is simply not possible to sustain.

The dollar rising in the face of the creation of so many dollars simply is not possible to sustain.

The dollar rising in the face of imploding financial and general business entities, being immensely bigger than the Euroland problems, is impossible to sustain.

The dollar rising in the face of Quantitative Easing cannot be sustained.

As you clearly recognize, gold is a currency, has always been a currency and will continue to be a currency regardless of today’s effort to the contrary.

Therein lies the future of gold which will trade on or before January 14th, 2011 at $1650.

When Comex deliveries represent 21,000 100 oz. bars taken delivery and removed from the COMEX warehouse, the price of gold will no longer be a game for the well known names out there.

The price of gold will reflect the true state of the physical market because the Comex in a practical sense will be a cash market.

The Comex as an observation also becomes a cash market at 100% margin requirement.

The effort here is in no way a covert attempt to break the playing board known as the Comex. The actions suggested and practiced here will with certainty level the playing field which is now totally leaning towards the professionals who are picking your pockets regularly and without fail on every single move.

I should know as both my wife and I were members of the Comex when it was across the street from my offices at 90 Broad Street and famous only for trading copper. Now there is a blast from the past.

All the best,
Jim

Dear Jim,

It seems India is ready for war with Pakistan!

Best,
Ciga Big Tatanka

Mumbai attacks: India raises security footing to ‘war level’
India will increase security in the country and on its borders to a "war level" in the wake of the deadly attacks in Mumbai that have been blamed on militants linked to Pakistan, a government minister said.
Last Updated: 4:27AM GMT 01 Dec 2008

The only one of the gunmen captured alive is believed to be from Pakistan and India claims to have proof of a Pakistani link to the Mumbai attacks.

In response to a string of public accusations from Delhi, officials in Islamabad said troops could be moved to the Indian border if relations continue to deteriorate.

"Our intelligence will be increased to a war level, we are asking the state governments to increase security to a war level," Sriprakash Jaiswal, India’s minister for state for home affairs, told Reuters.

"They can say what they want, but we have no doubt that the terrorists had come from Pakistan," Mr Jaiswal said.

More…

Dear Big Tatanka,

You don’t think that India plans to do war with say the Ukraine? Pakistan is only coming into focus now. The Taliban is supported by the Pakistan Military and Intelligence. The so called Pakistan government is therefore captive, ineffectual and to a degree without blame.

You haven’t seen anything yet.

I tell you here and now that Pakistan/Taliban have the potential and substance to vault the world into a conflict so significant that it may well not have a precedent.

At the risk of getting a great deal of hate mail, I know this, I do not think this. What is coming is coming within three years.

Yes, things are that critical.

Here is another important fact sort of hidden in this answer to you. I have contacts with some of the most successful environmentalists and political scientists. Would you believe the safest place on the planet for living after January 14th, 2011 might well be East Africa? How is that a flip flop from accepted standard groups of so-called wisdom?

I wonder what my revered friend and Dean of Gold, Harry would say about that…

Respectfully yours,
Jim

Posted by & filed under Jim's Mailbox.

Jim,

"Mechanically, reverting back to a global gold standard would be straightforward. First, an intrinsic global value of gold would have to be defined in order to convert various paper currencies. If the original Bretton Woods agreement were to be used as a model, we first divide the respective sizes of each central bank balance sheet by its corresponding official gold holdings. For example;

The Fed reports official US gold holdings to be roughly 8,100 metric tons, or about 286 million ounces.

The US Federal Reserve’s balance sheet liabilities (private banking system reserves) are approximately $2 trillion.

Therefore, the US dollar would have to be pegged to gold at somewhere around $7,000/ounce.

Aggregating the gold holdings of the ECB and the legacy central banks that comprise the Eurozone would imply a $6,300 gold price. Again using the Bretton Woods system as a model, the US dollar and Euro might be designated as “global reserve currencies” because they could most easily be converted to gold. The remainder of participating global currencies could then be made exchangeable into US Dollars/Euros at fixed, but amendable rates (floating foreign exchange rates)."

CIGA Pedro

Dear Pedro,

Mark Faber has the re-entrance of gold into the system down, but I feel he is not wholly clear on how Volcker will recommend the FRGCR as a major dollar crisis below .72 and near .62 on the USDX.

Some readers might consider sending Mark Faber all my articles on the "Modernized and Revitalized Federal Reserve Gold Certificate Ratio (FRGCR)." tied to a measure of international dollar liquidity and the price of gold which floats. A balance sheet problem can only be fixed by a balance sheet fix. Gold floats and fits comfortably into today’s system.

I will not argue with Mr. Farber’s price objectives.

All the best,
Jim

Posted by & filed under Jim's Mailbox.

Gentlemen,

When I saw those infamous words “In essence it is creating new money” I thought of the big helicopter drop and had a good laugh. Inflation? This should be called counterfeiting.

CIGA Marty

Fed bets $800 billion on consumers
Central bank and Treasury announce a massive plan to jumpstart lending.
By Chris Isidore, CNNMoney.com senior writer
Last Updated: November 25, 2008: 2:33 PM ET

NEW YORK (CNNMoney.com) — The Federal Reserve and Treasury Department on Tuesday unveiled a plan to pump $800 billion into the struggling U.S. economy in an attempt to jumpstart lending by banks to consumers and small businesses.

The government hopes that these initiatives will enable more money to flow to consumers in the form of loans than has occurred so far in previous bailout plans.

One program will make $200 billion available from the Federal Reserve Bank of New York to holders of securities backed by consumer debt, such as credit cards, car loans and student loans.

In addition, the Federal Reserve, announced it will purchase up to $500 billion in mortgage backed securities that have been backed by Fannie Mae (FNM), Freddie Mac (FRE) and Ginnie Mae, the three government-sponsored mortgage finance firms set up to promote home ownership. It will also buy another $100 billion in direct debt issued by those firms.

Together, the programs from the Federal Reserve and the New York Fed are more than Congress approved in October for a bailout of the nation’s banks and Wall Street firms. The Fed said the money will come from an increase in its reserves — in essence, it is creating new money.

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Posted by & filed under Jim's Mailbox.

Dear Friends,

I have received close to 700 emails today. I will do my best to reply, yet at this number the task is quite overwhelming.

Truth be known, almost every question has already been answered here on JSMineset.com.

Respectfully yours,
Jim

Dear Jim,

The litany of disasters continues. The Fed has only one alternative to improve its balance sheet – get money from the Federal Government. The government can either borrow from the world through debt issuance, or they can print money. Either alternative exercised is very bad for the US dollar and very good for gold. As always you have called it again and again.

Respectfully yours,
Monty

Has the Fed Mortgaged Its Own Future?
By JACK WILLOUGHBY

The Fed’s highly leveraged balance sheet will make it hard to fight inflation.

IF THE FEDERAL RESERVE BANK WERE A COMMERCIAL LENDER, it would be a candidate for receivership, based on its capital ratios. Bank examiners generally view any lender with a ratio below 2% to be dangerously undercapitalized. The Fed’s current capital ratio, or capital as a percentage of assets, is 1.9%.

The Fed has provided so many loans and emergency credits — to banks, brokers, money funds and foreign countries — that its balance sheet, viewed one way, is as leveraged as any hedge fund’s: Its consolidated assets amount to 53 times capital. Only 11 months ago, its leverage on this basis was a more modest 25 times, and its capital ratio 4%. A caveat: Many of the loans are self-liquidating facilities that will disappear in a few months if the financial crisis eases.

Although the Fed’s role as a central bank is much different from the role of a private-sector operation, the drastic changes in the size and shape of its balance sheet worry even some long-time Fed officials. Its consolidated assets have swelled to $2.2 trillion from $915 billion in about 11 months, and contain at least a half-dozen items that weren’t there before. Some, like a loan to backstop the purchase of a brokerage, Bear Stearns, are unprecedented. (See table for highlights.)

Critics say this action could hinder the Fed in achieving its No. 1 priority: keeping inflation in check. To try to get in front of the crisis, many decisions have had to be made on the fly.

"If the Fed had been [a savings-and-loan] ballooning its balance sheet so fast, the supervisors would have been all over it," says Ed Kane, a Boston College finance professor.

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Dear Jim,

In the heart of this derivatives crisis insurance companies are still selling their junk to unsuspecting customers seeking yield. If sovereign bonds are having trouble you can just see these products will blow up in the future, leaving investors hi and dry again and needing more government money.

Keep up the great work,
Ciga Big Tatanka

Insurers cash in on deflation fears
Firms are using the volatility of the stock markets to push poor products
Jennifer Hill

Investors are being lured into discredited products by insurers keen to capitalise on tumbling interest rates and volatile stock markets.

Legal & General (L&G) has reported a 186% surge in sales of with-profits bonds in the first nine months of the year, while Prudential saw a 174% jump in business. Norwich Union has sold bonds worth £1 billion in the first nine months alone.

With-profits bonds, which had fallen out of favour after the mis-selling scandals of the 1980s and 1990s, are an easy sell in the current climate because they are pushed as a “halfway house” between equities and deposit accounts. They invest in a mix of shares, gilts and cash, so claim to be less volatile than the equity markets.

They are also attractive to income seekers because they allow you to take an income of up to 5% a year with no immediate tax to pay. This is particularly attractive following this month’s 1.5 percentage point cut in Bank rate.

More…

 

Dear Big Tatanka,

When these people depart the mortal coil the only way to keep them departed is to screw them into the ground.

As long as there is someone stupid enough to buy something, someone will manufacture and sell it.

Regards,
Jim

Posted by & filed under Jim's Mailbox.

Dear Jim,

First Iceland, then Ukraine, Romania, Lithuania and now Ireland! The UK, France and Italy are not far behind!

Best,
Ciga Big Tatanka

Bailout for Bank of Ireland
Aine Coffey
November 23, 2008

THE Irish government has agreed to take part in a €3 billion (£2 billion) bailout of Bank of Ireland that will be led by private equity. The deal would be the first state aid for an Irish bank.

This week a number of private-equity groups will make proposals to BoI. A condition of the government cash injection will be that new investors are locked in for a set time to ensure they don’t try to sell quickly and make a big profit.

Names already linked with a potential investment include Cardinal Asset Management, an Irish investment firm, Sandler O’Neill, Texas Pacific Group and JC Flowers.

Ireland was one of the first countries to respond to the credit crisis with a guarantee for bank liabilities worth some €440 billion, but until now it has not bailed out or nationalised any banks, and they have not raised equity themselves.

More…

 

Jim,

Gold has held up remarkably well despite the fear and pessimism. Humans tend to fear that which they don’t understand. The enemy of fear is knowledge. If the dollar is indeed headed to 0.52, the USDX to gold ratio has a technical target of at least 0.015. This suggests a gold price north of $1650. Something you have suggested as a possibility more than once.

The public really has no idea.

Regards,
Eric

Posted by & filed under Jim's Mailbox.

Dear Jim,

Regarding part of this post on hyperinflation it seems quite familiar:

Was Weimar’s Hyperinflation Triggered By An Increased Velocity Of Money Or A General Loss Of Confidence?
Posted: Nov 18 2008 By: Jim Sinclair

***snip***
2 “Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

– Outright lying in official statistics such as money supply, inflation or reserves.
– Suppression of publication of money supply statistics, or inflation indices.
– Price and wage controls.
– Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or something similar. 
– Adjusting the components of the Consumer price index, to remove those items whose prices are rising the fastest.

None of these actions address the root causes of inflation, and in fact, if discovered, tend to further undermine trust in the currency”
***end snip***

My Observations:

Bullet point one – Over the past years it is a given that the government massages the inflation numbers to suit their interests and pay less than they should on COLAS, etc. This fact is laughed about openly on CNBC. I have also seen numerous changes in how money supply is counted, calculated and presented on the Fed’s books, possibly Monty Guild or some other Fed watcher could document these changes and how they affect the market’s perception of the US dollar. There has been no audit of US gold as has been discussed by many gold people over the years and there have been distinctions made on the Fed’s books about "deep storage gold" and other strange classifications of the "reserve." Ben Bernanke also opined once that the Fed could buy gold mines if they so desired. So in my mind, bullet point one has been going on for some time now – massaging and fibbing over time, and hiding info.

Bullet point two – Well Dr. Greenspan took away the widely followed Money Supply report a few years ago, citing them as not needed anymore and to save the Fed money and time by not calculating the report. Well thanks to the private groups who continue to create these reports (as best as they can as mirrors to the originals) it seems like the money supply numbers are accelerating rapidly higher. Soon Inflation will be a dinner table topic again as it was in the late 70’s, so hiding it by eliminating reports or doctoring the reports will not make much of a difference in the near future.

Bullet point three – Price and Wage controls were tried by Carter and they failed. In an Obama administration I would tend to believe that they may be tried again. We can only wait and see if the same mistakes are made. We know that price controls lead to shortages on the goods that are capped, and artificial wage controls – usually making the employer pay more to his workers than what the market indicates, leading to less profits and in some cases business closures.

Bullet point four – Forced savings schemes–The trial balloon for that has already been released into the internet ether! Taking over 401k plans and IRA’s by the government, a Democrat sponsored idea, where you would receive a rate of return of 3% over the inflation rate (we know this number will be quite modest already) with other stipulations, restrictions, tax gimmicks and the like. Most average people, after they wake up from the market beatings they are now taking will probably go for it! Why not let the government manage the retirement money there is not much left anyway? And now we see that there is a cry for Obama Bonds!

We are well on our way towards dollar collapse and full blown runaway inflation. Looking at Trader Dan’s charts today regarding the fed balance sheet practically blows my mind – an ocean of dollars swamping the ship of State.

I noticed today that the 3 month bill is paying 0% interest! I also remember watching an exchange of viewpoints a long time back on a financial program about gold. One man said that gold is not a good investment since it pays no interest. The other man quickly replied that gold didn’t have to because it’s real money. Well paper money isn’t paying much these days and is going down in value since its supply is growing, the last thing you want is a drink of water when you are drowning. The lifeboats left are few, as some have already been lowered away.

CIGA Ken

Hello Jim,

Very good analysis in your article"30 Reasons For The 2nd Great Depression."

I might add this is the fourth long-term down cycle since 1860, and it’s not over yet.

CIGA Eric

Click chart to enlarge in PDF format

November2108-Eric

Posted by & filed under Jim's Mailbox.

Dear Jim,

Regarding gold, it just never ends. The gold banks take away our gains as if it was their sole reason for existence.

CIGA Tony

Dear Tony,

When did a bully stop bullying unless the victim finally beat the crap out of the bully? Nothing stops unless the victim takes action to stop it.

There is only one action that will bring this daily raping of the Gold Market to an end.

If you are tired of being had by paper gold the following is the only course of action if you wish to take a positive step to end the games being played at your expense.

Do the necessary to stop the daily rape.

Delivery Process for Gold or Silver:

Delivery – Prudential holds the receipt in PFG’s account for customer

1. Client buys the futures contract.
2. Client will take delivery between First Notice Day and the Last Trading Day.
3. On delivery day account is debited cost plus a $50.00 delivery fee.
4. Receipt is booked to customers account
5. Monthly storage charge passed on to customer’s account(about $50.00).

Physical Delivery – Customer wants bars in their procession

1. Client buys the futures contract.
2. Client will take delivery between First Notice Day and the Last Trading Day.
3. On delivery day account is debited cost plus a $50.00 delivery fee.
4. We will provide the customer with name and phone number of the individual at the depository to contact.
5. Customer makes arrangements for the physical delivery

CIGA JB Slear, who is in the commodity business, offers his services to assist anyone seeking physical delivery of metals. He will guide you through the entire process, including arrangements for delivery.

To be totally clear, I expect JB not to discuss any type of speculation with you but ONLY help you acquire 100 ounce gold bars.

Once 21,000 bars have been taken the paper gold’s reign over the price of gold is over.

Gold can easily be shipped anywhere on the globe you want it as long as there is a bank to accept it on your behalf, even if they then hand it to you. All major armoured car services also have protected shipment methods.

For those wishing to learn more about international shipment for deliveries taken out of the COMEX warehouse, you will find it here soon.

JB will help you in the process of taking that actual delivery.

If you do nothing you by omission permit the daily market rape.

CIGA JB Slear can be reached at the following:
Fort Wealth Trading Co. LLC
www.FortWealth.com
866-443-0868 ext 104