Posted at 5:56 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

The powerful know so little about so much, and nothing about OTC derivatives.

If you cannot accurately value them on a daily basis you cannot clear OTC derivatives. All the prior issued OTC derivatives are impossible to list and trade on any exchange.

The following is an excerpt from the Wall Street Journal:

"Senate Agriculture Committee Chairman Tom Harkin, D-Iowa, was expected to introduce a bill Thursday that would put trading of all over-the-counter derivatives, including credit default swaps, onto regulated futures exchanges. "With the value of swaps at a high of some $531 trillion for the middle of this year — 8 1/2 times the world GDP of $62 trillion — it is long past time for accountability in the markets,"

Jim Sinclair’s Commentary

Add to the trillions in donations to the wealthy with what is below and Quantitative Easing assures us that Weimar will not and can not be avoided.

You have only two alternatives. Protect yourself as I have advised or financially perish. What is your choice?

Tracking the $700 Billion Bailout
Friday, November 21, 2008

Dozens of banks and a handful of insurers have applied for funds from the Treasury Department as part of the $700 billion Troubled Asset Relief Program. The Treasury has transferred capital to 30 of these companies and to A.I.G. More are expected to announce their participation in the coming weeks.

Click chart for more…

Bailout

Jim Sinclair’s Commentary

Are deliveries of conversions from certificate to bullion suspended? I do not know.

Mint suspends orders amid rush to buy bullion
The Australian

FEARS of the unknown long-term effects from the global financial crisis have sparked a new gold rush.

With retail and wholesale clients around the world stocking up on the precious metal, the Perth Mint has been forced to suspend orders.

As the World Gold Council reported that the dollar demand for gold reached a quarterly record of $US32 billion ($50.73 billion) in the third quarter, industry insiders said the race to secure physical gold had reached an intensity that had never been witnessed before.

Perth Mint sales and marketing director Ron Currie said the unprecedented demand had forced the Mint to cease orders until January, with staff working seven days a week, 24-hour days, over three shifts to meet orders.

He said Europe was leading the demand, with Russia, Ukraine, Middle East and US all buying — making up 80 per cent of its sales. One European client purchased 30,000 ounces for $33 million.

More…

 

Jim Sinclair’s Commentary

What is the problem? It is done every day in the gold market by the paper players here in the US. It was done today on the Dow Jones. The dollar is supported by it only. So why is Poland bitching when no one in the USA seems to care?

Polish watchdog asks prosecutor to probe late share deal

WARSAW, Nov 21 (Reuters) – Poland’s financial and securities regulator KNF said on Friday it had filed a complaint with local prosecutors accusing a "person acting in the name of JP Morgan Securities" of possible market manipulation.  A spokesman in London for JP Morgan Securities, a unit of JPMorgan Chase, declined to comment.

The complaint is connected with transactions that took place on Nov. 12 when late transactions in what newspapers dubbed a "miracle" fixing session on the Warsaw bourse helped the main WIG20 index .WIG20 recover a good chunk of its losses.  The index had been on track that day towards its worst percentage drop this year, falling as much as 10 percent before ending the regular session 9.1 percent lower.  The regulator said a 130 million zloty ($42.8 million) order buying all members of the WIG20 pushed the index to close down just 4.9 percent. Warsaw stock exchange’s continuous session is followed by a fixing auction at which closing prices for most shares are set.

"In the opinion of KNF, the actions taken by a person acting in the name of JP Morgan Securities may be considered a manipulation of a financial instrument," the regulator said in a statement.  "That is why the matter was forwarded to the district prosecutor’s office in Warsaw."  The Polish regulator said the transaction was associated with an open position on the futures market. (Reporting by Chris Borowski; Editing by David Holmes)

More…

Posted at 5:45 PM (CST) by & filed under General Editorial.

Dear Friends,

What bank is broke, and what bank is solvent is an impossible question to answer. All we hear are lies, distortions and bailouts. There still has not been a definitive statement about all of this being a product of OTC derivatives.

The key to survival as we have already told you is that you keep your assets in a true custodial-ship anywhere.

Soon you will not be able to direct register or get paper shares for most public companies.

What are most you waiting for? You are at risk to your financial agents. For your sake, get off your butt and do the necessary.

INFALLIBLE INSURANCE ON SALE:

Gold is cheap at $800 per ounce.

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.

Gold is a currency that you will see perform as the currency of choice. There is no doubt we are headed into a planetary Weimar experience to some degree.

Dollars are being created faster now than in any other period in history. The Fed and treasury are guaranteeing everything from money market funds to large corporate entities in one way or another.

The first valuation of worthless OTC derivatives via a public sale of these at .0875 to .02 cents shocked anyone with a brain. Now the downturn in business is hitting financial entities and shortly litigation will smoke whatever is left.

The FDIC is already yelling for additional and significant funding from congress as their capital contracts on every Friday’s bailout.

People expect things to return to normal in 2010. That is a fairy tale.

The Fed has only started creating money for bailouts. You saw what happened when they stepped away from Lehman. If you say you didn’t look out the window.

Quantitative Easing by the Fed is the massive creation of funds with no sterilization.

All these bailouts and Federal guarantees on credit items constitute a white wash on a falling economic structure going out of control, and soon.

The out of control point for major planetary dislocation is NOW for the next two months.

Regards,
Jim

Posted at 3:52 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

There is one inviting conclusion out there. There is no way to know for sure which banks are broke, so it is better to consider they all are.

Jim Sinclair’s Commentary

You mean the Japanese question the strength of the US dollar just because trillions of new dollars are created regularly in non-transparent use?

Japan economists call for ‘Obama bonds’
By Kosuke Takahashi

TOKYO – Japanese economists, increasingly concerned that the United States might seek to pay its enormous and growing debt obligations in a weakened US dollar, are looking to the possibility of US Treasuries being issued in yen.

The US government needs to borrow at least US$1 trillion in the coming year, excluding the US Treasury’s $700 billion plan to bail out the financial and other industries, said Kazuo Mizuno, chief economist in Tokyo at Mitsubishi UFJ Securities Co, a unit of Japan’s largest publicly traded lender by assets. That amount is likely to grow as the US government continues to rescue failed parts of the economy and has to raise more debt – that is, issue government bonds, or Treasuries – to fund such rescues.

Since 2004, when the amount of the government bond issuance reached an annual average of $400 billion, 94% of new buyers of US government bonds have been foreigners, Mizuno told Asia Times Online.

One measure of the increased concern at the ability of the United States to finance its enormous deficits in the future is the rising cost of credit default swaps bought as protection of Treasury debt. These traded near a record high on Tuesday, with benchmark 10-year contracts on Treasuries increased to 42 basis points, or 0.42 percentage points, from around 20 in early September. The contracts have also risen from below two basis points at the start of the credit crisis in July 2007.

More…

Jim Sinclair’s Commentary

Gold at $1200 then $1650. The US dollar at .72, .62 and then .52.

It cannot be averted.

OTC derivative dealers have killed more people than most wars, and it is only starting.

The glaring disappointment is the Bank for International Settlement’s finagling with the derivative numbers by computer based netting and model risk analysis. In other words even they are now BS merchants.

America’s Mark-to-Model Banking System (revisited)
Posted on November 20th, 2008

Reflection time – earlier in the year I put together a chart for my own personal use showing all financial institutions Level 1, 2 and 3 assets vs their shareholder equity, tier capital etc. After not too long I realized it was a fairly good guide to troubled financial institutions.

I posted it on the blog on Oct for all of you guys and got emails about it for a month. I think its time to review the chart because it clearly shows why all this is happening and why TARP could not be used to buy distressed assets.

Everyone was focused on Level 3 and glossed right over Level 2, which could be equally as toxic and marked to some sort of internal proprietary modeling system that give these assets much more value than reality. For many of these firms at the top of the list a mere 5% haircut in their Level 2 book renders them insolvent. This is where a lot of that nasty commercial resides.

Citi said today that its balance sheet is not that much different that Chase – by the looks of Chase’s Level 2 assets to equity, they better hope not.

Remember, its not a liquidity problem, its a solvency problem, which this chart clearly shows. The institutions listed here were my top 25 short picks earlier in the year based upon this chart. Some still look good. Please note that I have not updated this chart completely because I have not had the time but since I have not heard of very many banks selling massive amount of bulk assets, I would assume that these numbers have not shrank, more likely grown. -Best Mr Mortgage

America’s Mark-to-Model Banking System

Oct 2nd 2008

Is $700bb really enough?  Buying distressed assets from banks balance sheets is a waste of money. How insolvent are the nation’s leading banks?

Level 1, 2, and 3 assets are ways of classifying a company’s assets based on the degree of certainty around the assets’ underlying value. For example, Level 1 assets can be valued with certainty because they are liquid and have clear market prices. At the other end of the spectrum, Level 3 assets are illiquid and estimating their value requires inputs that are unobservable and reflect management assumptions. Think of it like Prime, Alt-A and subprime mortgage loans for example.

Somehow we have skipped right over Level 2 and are judging bank risk by looking at Level 3. Maybe in a robust credit market full of securitizations and leverage like 2006 this would have been just fine, but not now.  Perhaps this is unfolding in a linear way just like the mortgage crisis beginning with subprime (level 3), now onto Alt-A (level 2), then to Prime (Level 1).  Walls Street did a similar thing last year when it went right to focusing on CDO’s and forgot about all of the toxic whole loans and MBS on the balance sheet.

In the past several months, banks have been very focused on ’selling assets and bringing down leverage’ with the primary focus being on their mostly toxic Level 3 ’assets’.  That would be fine and dandy if their Level 2 ‘assets, which in this market may be equally as hard to value as Level 3, were not up to 20 times greater in Bank of America’s case for example.

The chart below show total Level 1, 2 and 3 ‘assets’. I have been keeping this for many quarters but shown is only Q2. However, if you look at level 2 assets/equity percentages it has been a road map to troubled banks with the exception of a few…but are those really exceptions.

**PLEASE NOTE – Chart below may not reflect accurate shareholder equity – needless to say it is much lower now. (Click to enlarge)2

level-1-2-34

**Note: This chart is a couple of months old numbers may have changed. My Excel is a little rough sometimes at times as well so you can visually look at row amounts vs total assets/equity in order to run your own ratios.

Level 2 ‘assets’ are by definition “Assets that aren’t actively traded, but have quoted market prices for similar instruments – otherwise known as ‘mark to model.’”  Could this be more mortgage debt?  We all know that all ‘modeling’ systems are broken and have been for years so how accurate are these marks, especially if much of this is mortgage debt. Look at the Wachovia line above. They have $160 billion in Level 2 assets.  That number is eerily similar to the amount of toxic Pay Option ARMs they hold.

The Level 2 numbers are so staggering that even a 7.5% haircut across the small group banks below would equal the total write downs by all banks worldwide to date!

Back on May 2nd I posted a story on Merrill playing ‘hide the CDO’ for reference and have updated my chart on 25 of the top financials and their Level 1, 2 and 3 exposure. What I found was astoundinig.  Of the 25 companies I studied, their total assets were $14.6 Trillion, Level 1 assets were a total of $1.3 Trillion, Level 3 assets were only $802 Billion but Level 2 Assets were $7.3 TRILLION!

Are you kidding me! 50% of the group’s total assets were Level 2 “assets that aren’t actively traded, but have quoted market prices for similar instruments – otherwise known as ‘mark to model.”

Wouldn’t it be great if the banks let you mark your investment portfolio to what you believed the assets to be worth on those dreaded days on which you receive a margin call?

All joking aside, this is an absolute disaster in the making. The Treasury does not have enough to take care of many of the nation’s largest banks.  The Fed does not either. As you can see they are OVER their heads in Level 2 and Level 3 ‘assets’, of which much has not been able to be priced for months. Much of it never will. -Best, Mr Mortgage

Level I: Mark to Market – readily observable market prices.

Level II: Assets that aren’t actively traded, but have quoted market prices for similar instruments – otherwise known as ‘mark to model.’

Level III: Assets that have model derived valuations in which one or more significant inputs or significant value drivers are unobservable-otherwise known as ‘mark to myth’ or ‘mark to management’s best guess,’ ‘mark to a hope & a prayer,’ etc…

More…

Posted at 3:40 PM (CST) 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 at 9:35 PM (CST) by & filed under General Editorial.

Dear CIGAs,

On or before January 14th, 2011 Gold will trade at or above $1650. This is simply reporting on the symptoms created by my Formula originally posted in 2006 (Click here to review).

30 reasons for Great Depression 2 by 2011
New-New Deal, bailouts, trillions in debt, antitax mindset spell disaster
By Paul B. Farrell, MarketWatch
Last update: 11:53 a.m. EST Nov. 19, 2008

(Excerpted from larger article)

30 ‘leading edge’ indicators of the coming Great Depression 2

Every day there is more breaking news, proof Wall Street’s greed is already back to "business as usual" and in denial, grabbing more and more from the new "Bailouts-R-Us" bonanza of free taxpayer cash and credits, like two-year-olds in a toy store at Christmas — anything to boost earnings, profits and stock prices, and keep those bonuses and salaries flowing, anything to blow a new bubble.

Scan these 30 "leading indicators." Each problem has one or more possible solutions, but lacks unified political support. Time’s running out. We’re already at the edge. Add up the trillions in debt: Any collective solution will only compound our problems, because the cumulative debt will overwhelm us, make matters worse:

1. America’s credit rating may soon be downgraded below AAA

2. Fed refusal to disclose $2 trillion loans, now the new "shadow banking system"

3. Congress has no oversight of $700 billion, and Paulson’s Wall Street Trojan Horse

4. King Henry Paulson flip-flops on plan to buy toxic bank assets, confusing markets

5. Goldman, Morgan lost tens of billions, but planning over $13 billion in bonuses this yea

6. AIG bails big banks out of $150 billion in credit swaps, protects shareholders before taxpayers

7. American Express joins Goldman, Morgan as bank holding firms, looking for Fed money

8. Treasury sneaks corporate tax credits into bailout giveaway, shifts costs to states

9. State revenues down, taxes and debt up; hiring, spending, borrowing add even more debt

10. State, municipal, corporate pensions lost hundreds of billions on derivative swaps

11. Hedge funds: 610 in 1990, almost 10,000 now. Returns down 15%, liquidations up

12. Consumer debt way up, now at $2.5 trillion; next area for credit meltdowns

13. Fed also plans to provide billions to $3.6 trillion money-market fund industry

14. Freddie Mac and Fannie Mae are bleeding cash, want to tap taxpayer dollars

15. Washington manipulating data: War not $600 billion but estimates actually $3 trillion

16. Hidden costs of $700 billion bailout are likely $5 trillion; plus $1 trillion Street write-offs

17. Commodities down, resource exporters and currencies dropping, triggering a global meltdown

18. Big three automakers near bankruptcy; unions, workers, retirees will suffer

19. Corporate bond market, both junk and top-rated, slumps more than 25%

20. Retailers bankrupt: Circuit City, Sharper Image, Mervyns; mall sales in free fall

21. Unemployment heading toward 8% plus; more 1930’s photos of soup lines

22. Government policy is dictated by 42,000 myopic, highly paid, greedy lobbyists

23. China’s sees GDP growth drop, crates $586 billion stimulus; deflation is now global, hitting even Dubai

24. Despite global recession, U.S. trade deficit continues, now at $650 billion

25. The 800-pound gorillas: Social Security, Medicare with $60 trillion in unfunded liabilities

26. Now 46 million uninsured as medical, drug costs explode

27. New-New Deal: U.S. planning billions for infrastructure, adding to unsustainable debt

28. Outgoing leaders handicapping new administration with huge liabilities

29. The "antitaxes" message is a new bubble, a new version of the American dream offering a free lunch, no sacrifices, exposing us to more false promises

No. 30:
At a recent Reuters Global Finance Summit former Goldman Sachs chairman John Whitehead was interviewed. He was also Ronald Reagan’s Deputy Secretary of State and a former chairman of the N.Y. Fed. He says America’s problems will take years and will burn trillions.

He sees "nothing but large increases in the deficit … I think it would be worse than the depression. … Before I go to sleep at night, I wonder if tomorrow is the day Moody’s and S&P will announce a downgrade of U.S. government bonds." It’ll get worse because "the public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs, all very costly and all done by the government."

Reuters concludes: "Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes. ‘I just want to get people thinking about this, and to realize this is a road to disaster,’ said Whitehead. ‘I’ve always been a positive person and optimistic, but I don’t see a solution here.’"

We see the Great Depression 2. Why? Wall Street’s self-interested greed. They are their own worst enemy … and America’s too.

More…

 

Note to junior exploration, development and producers:

Unless the person or company is well known to you, already a large "registered" stockholder or a proven long, do not take private placements. The shorts are looking to cover.

Things may well be turning. Deal with well known friends only, not strangers and most certainly none of the bad guys.

When the HUI turns, the cover is on.

Regards,
Jim

Posted at 7:25 PM (CST) by & filed under General Editorial.

Dear CIGAs,

Did you enjoy today and yesterday in the paper gold market? You know the bullion banks are not even good traders in gold. They are only bullies. They could not compete with Trader Dan without their bully advantage.

To create an even playing field the transmutation of the COMEX to cash gold only means margins at 100%. This did occur late in the 1970s but was an entirely different situation.

When does a bully stop bullying? When the victim finally beats the crap out of the bully, that’s when. Nothing stops unless the victim takes action to stop it.

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

If you are tired of being had by paper gold and silver bullies the following is the only course of action as a positive step to end the games being played at your expense.

Ending the bully’s free ride levels the playing field between you and the gold banks.

Do the necessary to stop the daily raping.

Take delivery of your COMEX gold and silver which can be shipped to any bank anywhere in the world.

Do not leave any intermediary between you and any kind of gold or silver you own.

Definitely:

  • DO NOT HOLD GOLD IN CERTIFICATE FORM.
  • DO NOT HOLD GOLD COMMINGLED WITH THE GOLD OF OTHERS.
  • DO NOT TRUST YOUR HARD EARNED GOLD TO ANYONE OFFERING YOU A SHADY DEAL.
  • LEAVE NO COINS WITH ANY COIN DEALER.
  • GOLD OR SILVER BOUGHT AND TAKEN DELIVERY OF ON THE COMEX CARRIES ZERO PREMIUM.
  • THE MARK UP YOU ARE PAYING COIN DEALERS FOR GOLD IS MADNESS WHEN THERE IS NO SUCH NEED IF YOU CAN AFFORD A 100 OZ BAR.
  • NEVER BUY GOLD ROUNDS WHICH ARE NOT COINS OF THE REALM.
  • PRETTY ARTWORK ON A ROUND DOES NOT MAKE IT A COIN OF THE REALM EVEN IF PERMITTED IN WRITING BY A GOVERNMENT AGENCY. ALL THAT DOES IS REGISTER THE PRETTY ROUND.

Here is a question for you to think about. I do not require the answer.

What is the difference between the Franklin Mint, the National Mint, the US Treasury Mint and Down Under?