Posted at 3:25 PM (CST) by & filed under In The News.

Dear CIGAs,

Here is someone that understands when paper currency fails, the nationality of that currency increases their transactions in a flight to defend themselves. This can be seen recently in the runs on grocery stores in Iceland. That explodes the velocity of money upwards and delivers hyperinflation right in the middle of a recession and/or depression. It is happening right now, just look far North.

See the closing statement in my Formula that was first presented in its entirety in 2006. It addresses this predictable piece of nonsense that you cannot have hyperinflation in a full-fledged depression. This is total balderdash!

GEAB N28 is available! Global systemic crisis Alert – Summer 2009: The US government defaults on its debt
– Public announcement GEAB N28 (October 16, 2008) –

In this 28th edition of the GEAB, LEAP/E2020 has decided to launch a new global systemic crisis alert. Indeed our researchers anticipate that, before next summer 2009, the US government will default and be prevented to pay back its creditors (holders of US Treasury Bonds, of Fanny May and Freddy Mac shares, etc.). Of course such a bankruptcy will provoke some very negative outcome for all USD-denominated asset holders. According to our team, the period that will then begin should be conducive to the setting up of a « new Dollar » to remedy the problem of default and of induced massive capital drain from the US. The process will result from the following five factors studied in detail further in this GEAB:

  • The recent upward trend of the US Dollar is a direct and temporary consequence of the collapse of stock markets
  • Thanks to its recent « political baptism », the Euro becomes a credible « safe haven » value and therefore provides a « crisis » alternative to the US dollar
  • The US public debt is now swelling uncontrollably
  • The ongoing collapse of US real economy prevents from finding an alternative solution to the country’s defaulting
  • « Strong inflation or hyper-inflation in the US in 2009? », that is the only question.

Studying the case of Iceland can give an idea of the upcoming stages of the crisis. That is what our team has been doing ever since the beginning of 2006. This country indeed provides a good illustration of what the US and the UK should be expecting. It can be considered – and that is what most Icelandic people do today – that the collapse of Iceland’s financial system came from the fact that it was disproportionate to the size of the country’s economy.

Financially speaking, Iceland thought of itself as UK (1), in the same way as, financially speaking, UK thought of itself as the US and the US thought of themselves as the entire world. It is therefore quite useful to study the case of Iceland (2) in order to understand the course of events that London and Washington will follow in the next 12 months (3).

What we see today is a double historical phenomenon:

. on the one hand, since September 2008 (as anticipated in the February 2008 edition of the GEAB – N°22), the whole planet has become aware that a global systemic crisis is unfolding, characterised by the collapse of the US financial system and its contagion to the rest of the world.

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Jim Sinclair’s Commentary

Today it was the Federal Reserve providing funds to the US Treasury which in turn provided the funds to the Exchange Stabilization Fund. The ESF then used the funds to buy key Dow stocks when the US Equity Index open was limit down at minus 550 points. The Exchange Stabilization Fund is legally able to do that.

The article would better titled the “US Treasury Invests in Everything.” That is money into the system, just like buying bonds. The difference is the money goes to the many, not the few.

Treasury Investing in Regional Banks
By Zachary A. Goldfarb, David Cho and Binyamin Appelbaum
Washington Post Staff Writer
Friday, October 24, 2008; 1:15 PM

The Treasury Department plans to announce as early as this afternoon that as many as 22 regional banks — including Capital One of McLean and PNC bank of Pittsburgh — have accepted billions in capital injections from the government that are designed to spur lending and to drive consolidation in the banking industry, according to industry sources.

Separately, Treasury is working on ways to get some of the $700 billion in rescue money granted to it by Congress to insurance companies that are a critical backstop to a wide range of deals, bond issues and leasing arrangements, an industry source said. Treasury officials said that many insurance companies are eligible for government investment because they are regulated as thrift holding companies by the Office of Thrift Supervision.

Concerns about insurers grew this week when Metro and other transit agencies faced demands to pay billions of dollars to their banks as years-old financing deals unraveled. The deals were guaranteed by insurer American International Group, which was taken over by the government last month after it nearly collapsed, and now officials are concerned that other insurers, which report financial results next week, are facing similar problems.

Other banks receiving government money include Regions Bancorp, KeyBank of Cleveland and possibly BB&T, which has a major presence in the Washington area, sources said, speaking on condition of anonymity because the announcement has not been made public. PNC already announced this morning that it would use the Treasury funds to help it buy struggling Midwest bank National City.

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Posted at 3:10 PM (CST) 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 at 3:10 PM (CST) 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 at 7:04 PM (CST) 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 at 6:49 PM (CST) 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 at 9:50 AM (CST) 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.

More…

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 at 4:29 PM (CST) 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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Posted at 1:58 PM (CST) by & filed under Jim's Mailbox.

Dear CIGAs,

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

Jim,

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.

Bruce

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.

Respectfully,
Jim

Jim,

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!
Jim

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.

Sincerely,
CIGA Doug M