Posted at 1:33 AM (CST) by & filed under In The News.

Dear CIGAs,

Check out the following video of Fred Thompson commenting on the economy.


Jim Sinclair’s Commentary

Pakistan this weekend:

Dozens of NATO supply trucks torched in Pakistan
By RIAZ KHAN – 21 hours ago

PESHAWAR, Pakistan (AP) — Suspected militants attacked a Pakistan transport terminal used to supply NATO and U.S. troops in Afghanistan, killing a guard and burning 106 vehicles on Sunday.

The assault was the boldest yet on trucks carrying critical supplies to foreign troops in Afghanistan, feeding concern that Taliban militants could cut or seriously disrupt the route through the famed Khyber Pass.

Up to 75 percent of the supplies for Western forces in the landlocked country pass through Pakistan after being unloaded from ships at the Arabian sea port of Karachi.

About 30 assailants armed with guns and rockets attacked the Portward Logistic Terminal near the city of Peshawar before dawn Sunday, police official Kashif Alam said.


Report: ‘India Was Ready to Strike Pakistan’
Sunday, December 07, 2008

The Pakistani High Commissioner in London, Wajid Shamsul Hassan, says India was ready to launch a military strike on Pakistan in retaliation for the Mumbai terror attacks, Sky News reported.

Hassan said British and American officials had to intervene to prevent India from carrying out an attack.

"On the day of the Mumbai attacks, I got some information in London that India was going to act very drastically against Pakistan in retaliation to what happened," Hassan told Sky News.

The senior diplomat alerted the Pakistani government and President Asif Ali Zardari to the threat.


Villagers in Pakistan say captured Mumbai gunman lived in their town
12:51 AM CST on Sunday, December 7, 2008

FARIDKOT, Pakistan – The lone gunman captured alive by Indian police during the terrorist attack on Mumbai a week and a half ago comes from a dirt-poor village in Pakistan’s southern Punjab region where a banned Islamist group has been actively recruiting young men for jihad, according to residents of the village and official records seen by McClatchy Newspapers.

Ajmal Ameer Kasab, the 21-year-old man arrested by Indian authorities in the first hours of the assault, left the village four years ago, several residents said. He would return once a year to his small family home, and one villager recalled him talking about freeing the Muslim-dominated region of Kashmir from India.

His origins are a key to the investigation of the attack and could have a profound impact on relations between nuclear-armed India and Pakistan, already at the brink of confrontation. Until now, the Pakistani government has repeatedly said that there was no solid evidence to back Indian accusations that the gunmen came from Pakistan.

A reporter obtained official electoral records, which showed that Mr. Kasab’s parents, as named by the Indian authorities, indeed reside in the village.


27 killed, dozens injured in Pakistan blast

ISLAMABAD, Pakistan (CNN) — A car exploded in front of a Shiite mosque in northern Pakistan on Friday, killing 27 people, police said.

Authorities said the car exploded in front of the Alam Dar Karbala mosque in Peshawar, in North West Frontier Province. Eighty-five people were injured from the blast.

After the explosion, video from the scene showed people crowding the streets. The video also showed some people carrying others who appeared to be injured.


Posted at 3:31 PM (CST) by & filed under General Editorial.

Dear Friends,

Let’s put on our practical thinking hats. I am inviting opinions from both our academic reader as well as those that believe answers are more accurate when derived by the “follow the money” concept.

The Fed says and statistics support that the majority of the $8.5 trillion in funds injected into the economy in many ways was to protect the US financial community. This has given comfort to the establishment intellectuals that there is no inflationary implication as a result of this massage and unprecedented liquidity injections.

Follow the money approach

The US Federal Reserve made $8.5 trillion available to Wall Street and other entities with OTC derivatives in their inventory. These “assets” have the potential for causing bankruptcy.

It is claimed that the majority of these funds will not have an inflationary impact because of the huge amount of T bills, bonds and note sales that will offset the inherent liquidity injections.

The main buyer of the Treasury instrument issued was China.

China sold US Agencies and as a courtesy bought US treasuries, claiming no negative impact on US financial plans.

The inviting question is who got sterilized? Sterilization impacts the entity that buys the T-bills.

The conclusion then is that it is China, not the USA that received the sterilization process tool. The Chinese, being no fools, offset this process by selling US Agency instruments.

It follows that the USA got the liquidity but not the sterilization, leaving all those funds locked and loaded to fulfill Dr. Milton Friedman’s accurate statement that inflation is monetary, not demand-pull or cost- push motivated.

The Fed figures say sterilized, but it is totally false when the “follow the money process” is utilized to understand the action.

China however did remain relatively dollar neutral as the product of selling agencies to buy T-bills.

Therefore the final answer is that $8.5 trillion that is unspecialized has been injected into the US monetary system.

Where is the Beef?

When the Fed buys OTC derivatives say from AIG, Fanny and Freddie and guarantees them against loss or keeps them on their balance sheet, the Fed becomes the principal counterparty as the loser to each OTC held or guaranteed.

It is reasonable then to assume that a non-performing OTC derivative instrument becomes a performing asset as long as it is held or guaranteed by the US Federal Reserve. The Fed would need to be responsible for the obligations of the losing counterparty to the special performance obligation.

If these defunct instruments are now functional it is reasonable to assume that bailout entities were losers in the specific performance contracts known as OTC derivatives. There has to be one or a daisy chain of winners out there of $8.5 trillion, either paid out or held as a full value position

Who are they?

Now let’s look at the assumption that the $8.5 trillion is not a factor because the intellectuals state that all it does is fill a black hole of losses.

You own a junior gold that has been under attack by naked and pool short sellers. Mr. Oliver has done the work of god to make cold calls to major stockholders (discovered in required filings) informing them of his opinion that the entity is overpriced at zero.

I now come to your house informing you that I feel sorry for you and hold the naked and pool short seller in contempt, therefore here is a check for the difference between your cost and the present market value.

Does that fill a black hole of losses or put you back in business? It puts you back in business with your wealth factor reestablished.

What intervention factor will start the flow of the absolutely unsterilized $8.5 trillion dollars of liquidly into the business section?

The answer is significant FISCAL STIMULATION through Quantitative Easing (aka wild-ass money printing) will trigger the dollar’s death by inflation of the currency unit. When road, schools, special education, music, athletic, teacher’s salaries, the no child left back, road building and local infrastructure building providers are granted Federal contracts with Federal guarantees of borrowing, they go to the bank. What bank against a Federal fiscal stimulus contract or guarantee will fail to lend up to 90% of the required funds?

That will open the barn door of liquidity.

This is followed by inflation then hyperinflation (a currency event not an economic event) in the midst of a recession so deep it threatens to be the second Great Depression.

The dollar declines below .72 and gold moves above $1024 on its way to $1650. What would make Alf Field’s technical projection of the price of gold at $3000, $5000 or even $10,000 correct?

The answer to that question is also easy: $8.5 trillion in government bailouts and direct cash injections as fiscal stimulus while quantitative easing throws money in the street for people to pick up (Bernanke and the famous Electronic Helicopter Money Drop Defalcation fighting speech will do the trick).

Obama will be cheered as saving the US economy for at least one year while the equity markets gets its 1930 rally for a year.

Keep in mind that the grease of the wheels of the equity market has been and always will be LIQUIDITY for a short to medium term rally.

Weekend Events

Republic Windows and Door Corporation got a surprise on Friday when it furloughed all its workers as a result of Bank of America calling their cash flow, plant and equipment based loan.

This morning and all weekend the employees are marching around the facility demanding their severance pay and reimbursement for vacation days earned after only a 3-day notice.

The Federal Warrant Act demands employees get 60 day notices or get paid for 60 days pay when furloughed.

The workers are after Bank of America and the assets of the firm to meet their legal demand.

As a side note the company does not have the funds for severance payment or its contribution to employee’s health insurance.

Most employees’ health insurance was up for renewal now.

The Bank of America was asked to extend the company loans for severance and health insurance. Their reply was “you have to be kidding.”

Christmas Shoppers Publicly Warned

The warning was given not to rob Christmas presents for their children in this difficult business condition.

To assume that present day workers will quietly go to soup kitchens or live as hobos is madness.

Soon stealing a loaf of bread for your family will be a capital crime.

Respectfully yours,

41 US States Face Bankruptcy In 2009

A recent study by The Center on Budget and Policy Priorities revealed that 41 states are facing severe budget shortfalls for 2009. Some states are worse off than others, with California ($31.7 billion) and Florida ($5.1 billion) leading the deficit pack. In all, the 41 states are currently facing a $71.9 billion budget shortfall. The key word here is “currently,” since a similar study was conducted by the same group only three months earlier, at which time “only” 29 states were predicted to face shortfalls of a “mere” $48 billion. As the recession deepens, so will the state’s budget problems, turning this “budget crisis” into a humanitarian disaster. Projections have already been made for a $200 billion shortfall by 2010.

These deficits have already transcended the computer screen of the statistician into real suffering of the most vulnerable sections of society. In dozens of states across the country, vital services are being cut to the elderly, disabled, the poor, and recently unemployed. Teachers are being cut from schools and tuitions are rising. Workers from state construction sites are being laid off, while social service employees suffer a similar fate. Non profits are closing their doors.

Most likely, these pains only mark the beginning. Many states have a “rainy day fund” of some kind that they use to plan for such crises. These funds are already depleted, or certain to dry up quickly, with “hard decisions” now having to be made. This is especially troubling when one considers that, in many cases, state cutbacks made from the 2001 recession remained in place. Not to mention that successive presidents have successfully plundered federal social programs. The new, extraordinary state budgets that are being drawn up to address the current deficit crisis will essentially destroy the social safety net for millions of people, including access to daycare, food stamps, welfare, and basic medical services.  The fact that the federal budget is in even worse shape, and will likely choose to follow a similar route of massive cuts, makes future predictions of social calamity all but certain.

The options available to states to respond to budget crises are limited since states are not allowed to run deficits; they must solve their budget problems immediately. Nearly every state government is reacting to the crisis in essentially the same way: by cutting essential services and raising “secondary” taxes (alcohol, cigarettes, gas, etc). In reality, after spending their reserve funds, states have only two viable options: cutting spending and raising taxes.



Standoff continues as workers protest layoffs

Sunday, December 07, 2008 | 12:50 AM

CHICAGO (WLS) — Workers are refusing to leave a Chicago factory they have occupied since Friday.They started a sit-in after getting three days notice that the plant was being shutdown.

"We’ve been here since yesterday and last night, and we’re not going anywhere. We are committed to this," worker Melvin Maclin said.

The protestors are calling their demonstration a peaceful occupation. Some 200 workers at Republic Windows and Doors are staying inside their plant, in shifts, even though the company has told them that – as of yesterday – their jobs no longer exist.

"I do whatever I have to do to support my family," said Armando Robles, who also was laid off.


Posted at 3:06 PM (CST) by & filed under General Editorial.

Dear CIGAs,

I recently completed the same mathematics that helped me so much in 1980 to determine the price that would be required to balance the international balance sheet of the US.

Balancing the international balance sheet is gold’s mission in times of crisis.

I recently did the math again and was sadly shocked to see what the price of gold would have to be to balance the international balance sheet of the USA today. That price for gold is more than twice Alf’s projected maximum gold price.

My compliments go to Alf for his work that has been spot on for a good deal of time.

All our tools are a crystal ball of sorts; a kind not having 100% input from the adopted discipline. Certainly Alf’s involves more than simple technical analysis talent. It is quite rare for two Gann guys ever to see the same thing in an axiom of TA. What Alf speaks about lately makes me feel God is long gold even if Oliver is short. You might recall it was Alf who correctly called the Uranium market.

None of us get it right all the time. For the speculator, you are only as good as your last call.

I think Alf has it nailed. Bravo to him.

Respectfully yours,


Elliott Wave Gold Update 23
By Alf Field

As this is going to be the last of these Updates, it is appropriate to review the reasons for writing this series of articles on Elliott Wave and the gold price. This will involve revealing a lot of personal detail and also unveiling an extremely high forecast for future gold prices.

The first article titled “Elliott Wave and the Gold Price” was published on 25 August, 2003. This article can be reviewed at the following site:

In August 2003 the gold price was in the region of $350 and there were a number of conflicting views about the future direction of the gold price. Robert Prechter, for example, was predicting a move to below $253 and possibly below $200. For a number of reasons I was of the opinion that gold was in the very early stages of a major bull market. My views were thus the opposite of Prechter’s and I eventually plucked up the courage to say so.

I count Robert Prechter as a friend, so my purpose was not to disparage his views. I was more interested in setting up some parameters or guidelines that would help determine the likely outcome if the gold price exceeded those levels. I concluded that if the gold price dropped below $309, the odds would favor Prechter’s view. If it pushed above $382, then my bullish view would probably be favored.

This was more than just an academic exercise because in 2002 I had made a major change to our family investments, moving some 40% of the capital into gold and silver bullion plus a selection of gold and silver mining shares. If Prechter’s view prevailed, our family finances would have taken a serious drubbing.

Another reason for publishing the Updates was to illustrate a major advantage of the EWP, which is the ability to prepare a template forecast (or “road map”) of how the market is likely to unfold in both the long and short term, including the possible terminal prices. The original article produced a template based on the rhythms that had been observed in the early stages of the bull market, based naturally on the assumption that my bullish views would prevail.

The early stages of the bull market revealed corrections of 4%, 8% and 16% at increasing orders of wave magnitude. Those numbers were used in the original template published in that 2003 article, a template that forecast that the first major move upwards could reach $630 after which a correction of the order of 25% to 33% would probably follow. In fact, if the sequence had been extended logically, the larger correction should be double 16%, or 32%, but this was shaved to 25-33%.

I thought that the $630 forecast was conservative and that this number would probably have to be adjusted upwards later once the minor waves unfolded. In 2003, with gold in the mid $300’s, a forecast of $630 was both courageous and extremely daring. There was no purpose served in taking the exercise beyond that point until after the $630 target had been achieved.

In addition, the 2003 article concluded that if $382 was surpassed, then the gold price would move rapidly to $424 without a serious correction. That did indeed happen, with gold reaching $425 before the anticipated correction occurred. That success encouraged me to write an article updating the original forecast. I did not anticipate that the consequence of that first update would be the production of this Update 23 some five years later.

There was a further undisclosed reason for writing these articles and that was to eventually highlight the massive potential of the gold bull market. I was reluctant to reveal what I really believed in 2003 as it was so bullish that it would have invited the arrival of the guys with straight jackets and padded cells.

As this will be the last of these Updates, I will reveal my previously unpublished “back of the envelope” calculations in 2003. They were as follows.

Major ONE up from $256 to approximately $750 (a Fibonacci 3 times the $255 low);

Major TWO down from $750 to $500 (a serious decline of 33%);

Major THREE up from $500 to $2,500 (a Fibonacci 5 times the $500 low);

Major FOUR down from $2,500 to $2,000 (another serious decline);

Major FIVE up from $2,000 to $6,000 (also a 3 fold increase, same as ONE)

A case can be made for an 8 fold increase in Major FIVE, which would continue the Fibonacci sequence 3, 5, 8. You can do the maths if you like, but the fact is you can pick your own number for the gain in Major FIVE. Three times the low of $2,000 was actually the conservative expectation, producing a bull market peak target of $6,000.

I would not have invested 40% of the family capital into gold, silver and the corresponding mining shares based solely on my bullish EWP expectations. The following is a quote extracted from “Elliott Wave and the Gold Price” written in 2003 and referenced above:

“I am not a gung ho advocate of the EWP. I discovered not only its strengths but also its weaknesses. I prefer to have fundamentals, technicals and the EWP all in place (if possible) before committing myself to an investment.”

As mentioned in this quotation, I prefer to have fundamental and technical analyses in line with the EWP before committing to a position. Obviously I was satisfied with the fundamental and technical out look for gold when I made the dramatic change in our investment portfolio in 2002.

The technical analysis included the following:

The 21 year bear market in precious metals had ended with the multi-decade down trend line being broken on the upside.

The precious metal markets were oversold with sentiment and emotional indicators sporting extreme negative readings with bullish connotations.

In the 1970’s bull market, gold increased from a low of $35 to a peak of $850, a massive 24.3 times the low price. If the current bull market was to be of the same order, then one could project an ultimate peak of over $6,221 ($256 x 24.3). This matched the $6,000 target determined under the EWP.

The fundamental analysis was the real clincher. I had become convinced that the world, and especially the USA, was heading for a major financial crisis that would be so powerful that it would overwhelm all other factors. It would become the single most important criteria impacting on investment decisions. Privately I referred to this as the “Big Kahuna” crisis.

I anticipated that the Big Kahuna would give rise to the risk of a systemic meltdown, which would result in the authorities “throwing money at problems”, bailing out all the banks and large corporations that got into trouble. This would lead to the destruction of the currency. I wrote about this in more detail in “Seven D’s of the developing Disaster” in April, 2005, an article that can be found at:

The consequence of the systemic meltdown would be a vast increase in newly created money which would result in a massive rise in the gold price of the order that I was anticipating. A further consequence would be the introduction of new national and international monetary systems. Several articles followed in the next few years, culminating in “Crisis Cogitations” which was published just 2 weeks ago at:

If you haven’t read “Crisis Cogitations”, I would urge you to do so in order to better understand the current crisis. Obviously the current financial crisis is the Big Kahuna that I had been anticipating, although I didn’t expect it to take five years to emerge.

Reverting back to the situation in 2003, both the technical and fundamental underpinnings for gold seemed to be pretty solid. Consequently I felt confident that the bullish EWP forecasts, both the shorter term and the undisclosed longer term expectation, would work out. There was no purpose served in revealing the potential for the market to reach $6,000. To get there, gold had to get to the $630 target first, which was a sufficiently daring forecast in 2003.

The current situation:

The chart below depicts the Comex Gold price on a weekly basis. In February 2006, in Update IV, the $630 target was increased to $768 as a result of intervening market action. A couple of months later the gold price exceeded $630 and moved to $733 in May 2006. From that point a 23% correction to $563 occurred.

Confusion reigned because a relatively minor correction had been anticipated, to be followed by a rise to $768. Thereafter the long awaited 25% to 33% correction was scheduled to occur. Instead, the decline measured 23% and the obvious conclusion was that this was the long awaited 25% to 33% correction, albeit slightly stunted. Quite possibly I was overly influenced by my previously unpublished rough target of $750 followed by a decline to $500. The actual outcome of a peak of $733 and a correction to $563 was remarkably close to my rough estimate and seemed to adequately fit the requirement for the end of Major ONE and the corrective wave Major TWO. In coming to this conclusion I glossed over the fact that the correction to $563 was an obvious triangle, and triangles are almost always 4th waves, yet I was calling it a 2nd wave, Major TWO. I also glossed over the fact that the correction was below the 25% to 33% magnitude required.

I mentioned previously that the early corrections were 4%, 8% and 16% at increasing orders of magnitude. If one were to be pedantic, one would say that the next level of correction should be 32%. Looking at the chart below, the correction from $1015 to $699 is 31%! It sticks out like a sore thumb. Surely this is exactly the 32% correction that we should have been anticipating for Major TWO?

Assuming that the $699 low on 23 October 2008 turns out to be the actual low point of the correction, and that remains to be proven, then we can conclude that we have seen the low point for Major TWO. That will allow us to update my original “back of the envelope” template to much higher levels, as follows:

Major ONE up from $256 to $1,015 (actually 4 times the $255 low);

Major TWO down from $1015 to $699, say $700 (a decline of 31%);

Major THREE up from $700 to $3,500 (a Fibonacci 5 times the $500 low);

Major FOUR down from $3,500 to $2,500 (a 29% decline);

Major FIVE up from $2,500 to $10,000 (also a 4 fold increase, same as ONE)

Once again, you can pick your number for the gain in FIVE and multiply it by $2,500. The numbers become astronomical and can really only be possible in a runaway inflationary environment, something which many thinking people are suggesting has become a possibility as a result of the actions taken during the current crisis.

Concentrating on the $3,500 target for Major THREE, which is a five fold increase from the low point of about $700, there is a case advanced in “Crisis Cogitations” for a five fold increase in money and prices in order to arrive at a “Less Hard” economic landing. In the USA, total debt recently exceeded $50 trillion and this is unsustainable given an economy with a GDP of only $14 trillion. The suggestion is that the debt level will reduce through bankruptcies to say $35 trillion while the new money created to save the situation will push up the nominal GDP to $70 trillion. A $35 trillion debt level is manageable with a GDP of $70 trillion.

It requires a five fold increase in prices to achieve the above result. Gold has retained its purchasing power over the centuries and will no doubt continue to do so in the current environment. Consequently gold will almost certainly increase five fold (or more) if the level of prices in the USA increases five fold.

In “Crisis Cogitations” it is acknowledged that the current credit/debt deflation could get out of hand and result in a serious deflationary depression. There is debate as to how gold will react in a deflationary environment, but the fact is that in a serious depression bankruptcies will be rife and price levels will decline. This may result in cash and Government bonds performing better than gold, but this is not certain. Gold cannot go bankrupt and is thus an asset that people can hold with confidence in a deflationary depression. It is possible that demand for a “safe haven” investment may be large enough to cause the metal to perform better than cash or Government Bonds.

The odds, however, strongly favour an inflationary outcome. Given a strong will and the ability to create any amount of new money via the electronic money machine, it seems a foregone conclusion that runaway inflation will be the end result. If Mugabe could do it in Zimbabwe, there seems little doubt that Ben Bernanke and his associates in other countries will have no trouble in doing it too.

Why quit writing these reports? I have noticed from the emails that I receive that many people are using these reports to guide their trading activities in gold. I have had no objection to this in the past, but feel that it would be foolish to trade gold in the circumstances of the Big Kahuna crisis that we are living though at the moment. It has become a question of individual financial survival in an environment where things are happening more rapidly and with increasing violence. I feel very strongly that it is time to quietly hold onto one’s gold insurance and not attempt to trade it. I do not wish to provide interim levels that may cause people to be encouraged to trade their gold to skim a few extra fiat dollars or other currencies, but lose their gold as a result.

So it is Good Bye, Good Luck and God Bless,

Alf Field
25 November 2008.
Comments to:

Disclosure and Disclaimer Statement: The author advises that he has personal investments in cash, gold and silver bullion, gold and silver mining shares as well as in base metal and uranium mining companies. The author’s objective in writing this article is to interest potential investors in this subject to the point where they are encouraged to conduct their own further diligent research. Neither the information nor the opinions expressed should be construed as a solicitation to buy or sell any stock, currency or commodity. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions. The author has neither been paid nor received any other inducement to write this article.

Posted at 9:50 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

There is only one kind of HONEST MONEY and that is GOLD.

Gold has no liability attached to it.

Gold has no hidden agenda.

Gold is universally accepted.

Gold is a time tested and proven storehouse of value.

Gold by being a proven storehouse of value is a reliable measure of value.

Paper currencies have never survived the test of time.

Paper currencies have always had a hidden agenda inherent in central banks.

Paper currency has a poor record as always acceptable, as a storehouse of value, and as a measure of value.

Good Money always forces out Bad. This is "Gresham’s Law."

So it has always been, so it will always be.

Why Can’t We Have Honest Money?
By Greg Hunter 12/07/08

Back in the late 60’s and early 70’s prime interest rates averaged 6 or 7 percent. Back before 1971 it was possible to save money at a reasonable guaranteed rate of return and easily keep ahead of what little inflation there was in the U.S. economy. That was the beauty of honest money that held its value and paid a real rate of return. In 1971 all that changed when President Richard Nixon took the country off the gold standard and went to a total fiat currency. A few years later the Employee Retirement Income Security Act (ERISA) was sign into law and that made possible the 401K plan. It allowed people to save in a brand new way largely through the stock market. The stock market is an invaluable tool of capitalism. It is how many companies raise capital and create jobs and prosperity. But what most people do not realize is a 401K is not a savings plan but an investing plan. When you save money, you put it away and get a guaranteed return. In an investment plan the money is put away but not guaranteed. Most people I know do not really understand their 401K plan. Folks are repeatedly told “invest for the long term.” They are also told there is really no other way to save for the future because if you simply save your money inflation will eat up your returns. By and large, working people are pushed into 401K’s. In the right business cycle with the right demographics (as in lots of baby boomers investing in stocks at the same time such as the 80’s and 90’s when business and inflation was stable) the 401K is a not a bad deal especially when you consider that companies often match or contribute funds to make the investment plan advantageous to participants. But in the wrong part of the business cycle (aging baby boomer population and big government bail outs of every big bank) the 401K can provide some gut wrenching lessons about “investing.” People are painfully finding out with every statement that these plans have not been such a good “long term” investment deal. The S&P 500 is back at levels not seen since 1998. And that doesn’t really account for companies whose share prices have been wiped out or bankrupted. A few examples spring to mind such as AIG, WaMu, Wachovia, Bear Stearns, GM, Ford, Fannie, Freddie, Lehman, Enron and World Com. Also, factor in a nearly 30 percent drop in the U.S. Dollar Index and how are people in 401K’s making money for retirement? The short answer: They are not!!! If you would have simply invested in money markets (and taken the company match) back in 1998 with your 401K you would have been hit with inflation but at least you would have a positive nominal return. Most people did take that route. Now, to help fund the multi trillion dollar bailout of Wall Street, the Fed has announced a new policy of “Quantitative Easing.” That means “printing money” to us simple folk. So getting any kind of return on cash will be impossible to do because the government will be printing it faster that you or anyone else can save it. Nobel Peace Prize winner Milton Friedman said it best, “inflation is always and everywhere a monetary phenomenon.” Printing lots of fiat currency is going to produce an ugly phenomenon for most people. I see a continuing freak show of bailout and default. If you are an investor then the stock market and all its risks and rewards are for you but if you are a saver then maybe you should have other options. Wouldn’t it be easier for most people to save if we just had honest money? Someday honest money will be necessary for the county and our citizens to survive.

Jim Sinclair’s Commentary

There is a TV advertisement that says "Don’t wait to buy gold, buy gold and wait."

Malaysia wants OIC countries to reconsider gold Dinar for trade
KUALA LUMPUR, SAT: Malaysia wants Organisation of the Islamic Conference (OIC) member countries to reconsider the use of the gold dinar for trade, especially with uncertainties in the international currency market.

In stating this today, Second Finance Minister Tan Sri Nor Mohamed Yakcop said Malaysia would attempt to hold discussions with the OIC countries so that the issue of using the gold dinar could be studied indepth.

“At this time when the currency market is uncertain and challenging, maybe it will be good for the OIC countries to look again at the role of the gold dinnar in increasing trade among members,” he told reporters here today.

Earlier he officiated the opening of Wisma Yayasan Ekonomi Sejagat here.
Former prime minister Tun Dr Mahathir Mohamad proposed the use of the gold dinar in global trade in 2002.

Nor Mohamed said with the challenging economic conditions and weaknesses in the financial system, the use of the gold dinar could be reconsidered.


Posted at 10:38 PM (CST) by & filed under Jim's Mailbox.

Dear CIGAs,

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



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

Click here to view article…

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

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

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

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

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

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

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

Best regards,
CIGA Richard B.

Dear Richard,

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


Dear Jim,

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

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

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

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

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



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

Why Credit Cards Matter So Much

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

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



CIGA Big Tatanka

Posted at 10:09 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Here is our Friday surprise – a busted bank.

Georgia bank closed in 23rd failure of year
By John Letzing, MarketWatch
Last update: 5:36 p.m. EST Dec. 5, 2008

SAN FRANCISCO (MarketWatch) — First Georgia Community Bank was closed by regulators Friday, marking the 23rd bank failure of the year amid the ongoing financial crisis.

The closure also represents the fourth so far this year in the Atlanta area.

The four branches of Jackson, Ga.-based First Georgia will re-open Saturday as United Bank, which has assumed First Georgia’s deposits, the Federal Deposit Insurance Corp. said in a statement.

United Bank agreed to assume the deposits for a 0.811 premium, the FDIC said, and it will purchase roughly $60.6 million of First Georgia’s assets.

As of Nov. 7, First Georgia had $237.5 million in assets and $197.4 million in deposits, the FDIC said.


Jim Sinclair’s Commentary

Every major employer everywhere will be bailed out as the Obama Fiscal Stimulation Package provides the fuse to light Quantitative Easing.

Leaders in Congress Agree on Auto Bailout Plan
The New York Times
Friday, December 5, 2008 — 8:33 PM ET

Details were not immediately available but senior aides said that the bailout would include billions in short-term loans.


Jim Sinclair’s Commentary

Note the recreation facilities for our paper tigers, the Hedge Fund Managers.

They should have arrested the Hedge Fund Managers.

Manhattan madam gets probation
The Associated Press
11:30 AM EST, December 5, 2008

A Manhattan madam who ran three escort services that employed $900-an-hour hookers has been sentenced after pleading guilty to promoting prostitution.

Kristin Davis was sentenced Thursday to the three months in jail she has already served, plus five years’ probation.

Davis was arrested in March at her apartment. Police said her client book contained the names of lawyers, actors, sports stars and hedge-fund managers.


Jim Sinclair’s Commentary

This is an excellent development for the entire African Continent.

Removal of Mugabe would establish for the first time that a league of nations taking action to remove a cancer from the continent can be successful. This action would transmit a strong new message to those living in the past history of Africa.

Leaders like President Jakaya Kikwete are on the ascendancy.

Africa is on the move.

Go Mugabe or face arrest – Tutu

Zimbabwe’s President Robert Mugabe must resign or be sent to The Hague for the "gross violations" he has committed, Archbishop Desmond Tutu has said.

The Nobel Prize winner also told Dutch television that Mr Mugabe should be removed by force if he refuses to go.

On Thursday, Kenya’s Prime Minister Raila Odinga said African governments should oust Zimbabwe’s leader.

Archbishop Tutu said Mr Mugabe had ruined "a wonderful country", turning a "bread-basket" into a "basket case".

US Secretary of State Condoleezza Rice has also repeated US calls for Mr Mugabe to go, saying a "sham election" has been followed by a "sham process of power-sharing talks".

Zimbabwe has declared a national emergency over the cholera outbreak, which has killed at least 565 people – the most deadly in the country’s history.


Jim Sinclair’s Commentary

If you want to see the real numbers consider a subscription to

November Jobs Plummet 732,000 Net of Revisions, Down 873,000 Net of Concurrent Seasonal Factor Bias

– Official Recession Start Is Late, As Usual Required Reserves Surge Anew

Jim Sinclair’s Commentary

As Trader Dan said, good riddance to this rotten garbage.

D.E. Shaw, Farallon Restrict Withdrawals as Fund Freeze Deepens
By Saijel Kishan and Katherine Burton

Dec. 4 (Bloomberg) — D.E. Shaw & Co. LP, the investment firm run by David Shaw, and Farallon Capital Management LLC limited withdrawals by clients, joining more than 80 hedge-fund managers to impose restrictions in the past two months.

D.E. Shaw, which oversees $36 billion, capped redemptions from its Composite and Oculus funds, said two people familiar with the New York-based company. Farallon, a $30 billion firm based in San Francisco, did the same with its biggest fund after investors asked to get back more than 25 percent of their money.

The firms are two of the biggest to block withdrawals, known as putting up gates, so they aren’t forced to liquidate investments at distressed prices to raise cash. New York-based Fortress Investment Group LLC said yesterday it froze an $8 billion fund after getting redemption requests for 40 percent of its assets. Tudor Investment Corp., the Greenwich, Connecticut, firm run by Paul Tudor Jones, locked the $10 billion BVI Global fund last week ahead of plans to split the fund into two.

“There’s no longer the stigma associated with putting up gates or suspending redemptions as it was before this crisis,” said Jaeson Dubrovay, head of the $19 billion hedge-fund group at consulting firm NEPC LLC in Cambridge, Massachusetts. “It’s actually being encouraged by some large institutions as a way to protect longer-term investors from those who panic and redeem.”

Darcy Bradbury, a spokeswoman for D.E. Shaw, and Steve Bruce, a Farallon spokesman, declined to comment.

Industry assets peaked at $1.9 trillion in June, data compiled by Chicago-based Hedge Fund Research Inc. show. Investment losses and withdrawals may shrink that amount by 45 percent by the end of this month, according to estimates by analysts at Morgan Stanley.



Jim Sinclair’s Commentary

What goes around comes around.

Fortress suspends redemptions as investors seek to pull $3.5 billion
Miles Costello
December 4, 2008

Fortress, the New York-listed hedge fund, became the latest victim of the market crunch last night as it suspended redemptions on four of its flagship Drawbridge funds after investors moved to pull $3.5 billion (£2.4 billion) – almost half the funds’ assets.

Shares in Fortress, one of the few listed hedge funds, lost more than 25 per cent as it said that redemptions meant the assets managed by the four funds would fall to $3.65 billion by January.

Wes Edens, Fortress’s co-founder and chief executive, has already told shareholders that investors were preparing to redeem capital as they seek safer-haven assets to escape the hedge fund rout. Despite this, yesterday’s alert sent shares as low as $1.71 in early trading before they closed at $1.87.

At the end of September, Fortress was one of the world’s biggest hedge fund managers, with assets under management of $34.3 billion. Its latest decision underscores how wide-reaching the hit on the industry has become. Fortress said that its move was temporary but gave no date for unfreezing the funds.


Jim Sinclair’s Commentary

The deluge of printed money and massive fiscal stimulation in the trillions by the incoming US Administration is unavoidable.

Record number of Americans using food stamps: report
Wed Dec 3, 2008 6:22pm EST
By Roberta Rampton

WASHINGTON (Reuters) – Food stamps, the main U.S. antihunger program which helps the needy buy food, set a record in September as more than 31.5 million Americans used the program — up 17 percent from a year ago, according to government data.

The number of people using food stamps in September surpassed the previous peak of 29.85 million seen in November 2005 when victims of hurricanes Katrina, Rita and Wilma received emergency benefits, said Jean Daniel of the USDA’s Food and Nutrition Service.

September’s tally — the latest month available — was also boosted by hurricane and flood aid, Daniel said on Wednesday.

But anti-hunger groups said the economic downturn is the main reason behind the higher figures.

"It’s a disturbing trend," said Ellen Vollinger, legal director with the Food Research and Action Center. She said she expects more people will turn to food stamps as unemployment figures rise and the economy remains weak.


Jim Sinclair’s Commentary

We live in a dangerous world with major social and economic consequences.

Report: Israel Preparing to Strike Iran Without U.S. Consent
Thursday, December 04, 2008

Israel is drawing up plans to attack Iran’s nuclear facilities and is prepared to launch a strike without backing from the U.S., an Israeli newspaper reported Thursday.

Officials in the Israeli Defense Ministry told The Jerusalem Postthat while they prefer to act in consultation with the U.S., they are preparing plans that would allow them to act alone.

"It is always better to coordinate," a senior Defense Ministry official told the newspaper. "But we are also preparing options that do not include coordination."

It would be difficult, but not impossible, to launch a strike againstIran without permission from the U.S., as the American Air Force controls the Iraqi airspace Israel’s jets would have to enter on a bombing mission.

"There are a wide range of risks one takes when embarking on such an operation," a senior Israeli official told the Post.


Posted at 9:52 PM (CST) by & filed under Trader Dan Norcini.

Dear Friends,

Many of you have been sending me links to a recent essay from a man whom I greatly respect and consider a friend, Professor Antal Fekete. His piece was dealing with the gold basis. In it he mentioned that backwardation had occurred for a 48 hour period in which spot gold was trading at a premium to the Comex gold futures market, something which we refer to as backwardation.

I want to offer a few comments on his article as a way to answer the many emails I am receiving on this. It will allow me to post one reply instead of vainly attempting to answer so many individual emails that are rapidly threatening to overwhelm me.

First of all, I prefer to use the term backwardation to refer not so much to a negative basis as Antal defines it, but rather to the structure of the particular futures market that is concerned. I do agree with Antal’s use of the terms, “negative and positive basis”. This is really not an attempt to split hairs for me but simply a use of the terms in such a manner that I have learned to use them as a trader.

The normal structure of the majority of futures markets, a few are excepted, is one in which the nearer contracts trade at a discount to the distant month contracts. The reason for the higher price in the distant months is that those prices include the cost of storing the commodity or warehousing it, plus the insurance needed to cover the stored commodity in the event of theft, fire, etc and interest costs. Under normal conditions, the price of those distant commodities converges with the cash price as the time for delivery draws near. That makes sense since if you are no longer storing the stuff, you no longer need to pay for the warehousing nor do you need to insure it, etc.

In backwardation, the front or “nearer” contracts trade at a premium to the distant month contracts. Markets that go into backwardation are markets that are marked by exceptionally strong demand for that particular commodity or exceptionally low supply at current prices. What the market is attempting to do is as Antal states in his piece – that is, to draw out sufficient supply from potential sellers to meet the current levels of demand. If I cannot get you to sell me your scarce apples at $0.25 each, I raise my bid to $0.30. I might be able to make you a bit more willing. If that still did not do the trick, I would have to raise my bid even higher to perhaps $0.35 each in order to entice you to sell that same apple. If you look at the board for “Apple Futures” and see that apples for delivery in June of next year are going for $0.30 but you can sell them now for $0.35, chances are that you will sell those apples to me instead of waiting 6 months, during which anything might happen in the world of apples!

An example of a market that went into backwardation occurred back in the Minneapolis wheat market not all that long ago in which traders bid the price of the front month contract to a never-before-seen price of nearly $25 bushel for wheat! To give you an idea how extreme that was, wheat generally sells for anywhere from $3.50 – $5.50 or so. The market was telling sellers that it wanted hard spring wheat at any price and was willing to pay that price as long as the wheat was delivered RIGHT NOW.

Now as far as backwardation as I define it goes (a structure in the futures market in which the front month gold contract trades at a premium to the distant months), gold is not there yet.

I am linking below a few spread charts that compare the December gold contract to both the April 09 and the June 09 contracts to show you that December is still trading at a discount to both April and June with the notable point that its spread has indeed narrowed. While technically this is not backwardation as I understand the concept, it is a narrowing or a move in that direction and that is something definitely worth paying attention to.

Now let’s go to the term “basis”. That is the difference between the futures market price of a commodity and the spot market or cash price of that same commodity. Antal mentions that gold has exhibited a negative basis, one in which the futures market price is lower than the cash or spot market price. That is, as he points out, very unusual as it would seem to indicate a tightness in the physical market brought about by would-be sellers not willing to part with their gold. Again, Antal is absolutely correct – if spot gold is trading at $750 and the futures market is trading at $745, that is a $5.00 per ounce risk free profit just sitting there waiting for a type of arbitrage. One could immediately sell his physical gold at the $750 price and immediately buy it at $745 in the futures market with the intent of taking delivery to meet his contractual obligations and pocket $5.00 ounce for however many ounces one wished. Buy 5 million ounces of gold at $745 and sell that same amount of gold for $750 and you have gotten yourself a cool $25 million profit less the delivery expenses, etc. Not bad. That is why such a thing does not occur very often nor does it last for long. Too many would jump on the chance for a no-risk trade of such nature. Why then are they not doing so? Antal has answered that question – they are not willing to part with their gold for paper profits! That is what makes this development so noteworthy.

The key is whether or not this sort of thing continues for long so we will definitely have to monitor it.

One thing I wish to add however – trying to construct a gold basis chart is a bit difficult to do. One of the reasons is because the basis, which as Antal correctly defines as the difference between the front month futures contract and the cash or spot price, must be defined at the exact same moment in time due to the wicked volatility of the futures market. The gold futures market generally is moving much faster than the spot price of gold. To get an accurate reading of the gold basis then is very difficult at times due to the lag. Some of you might have noticed this when you have been recently making purchases of gold and are getting a spot price off of a web site such as Kitco and looking at the futures market price. You can see the difference. Sometimes, by the time you get to making that phone call to place your order thinking you have gotten a deal, you are informed that the spot market price of gold has “caught up” to where it was trading on the futures.

In the grain markets we can generally use the price being quoted at one of the elevators and compare that to the futures market price to determine the basis. Same goes for the livestock, etc. In gold however, we have to use the spot market price at any given moment so for a basis chart to be accurate, in my opinion, it must give the spot market price of gold and the futures market price of gold at the exact same hour of the day. For example, one could take the London PM fix done at 9:00 CST, and take the hourly price of gold on the Comex front month contract and compare the two prices. That would give you an accurate basis chart.

If anyone out there actually has some basis charts for gold, I would be interested in knowing how they were constructed. What time did they use to make the comparison?

I can give you a brief basis chart using the last week and the December futures contract at 9:00 AM CST and comparing that to the London PM Fix so that you can see the basis. It is indeed negative in some instances as Antal has mentioned.

In closing let me just state how grateful I am for Antal’s excellent essay and for his innumerable talents which he brings to bear for the benefit of those who love honest money! I was not fortunate enough to have been able to sit in on his classroom series but I have no doubt whatsoever that those that did came away with a wealth of knowledge.

Trader Dan

Click here to view today’s Gold Basis and Spread charts with commentary from Trader Dan Norcini

Posted at 3:37 PM (CST) by & filed under General Editorial.

Barrick Denies Report It Will Quit Tanzania Amid High Costs
By Stewart Bailey

Dec. 5 (Bloomberg) — Barrick Gold Corp., the world’s biggest gold producer, denied a news report that it is considering withdrawing from Tanzania because of high operating costs.

The company has invested $1.5 billion in the African country, is in the final phases of building its Buzwagi mine and “has no intention of pulling out of Tanzania,” Vince Borg, a Barrick spokesman, said today in a telephone interview from Toronto, where the company is based.

Earlier today, Dar es Salaam-based IPP Media cited Gareth Taylor, Barrick’s vice president for Africa, as saying that poor infrastructure in Tanzania made operations in the country unprofitable and could force the company to cease doing business there.

“Barrick has been and will remain committed to Tanzania,” Borg said. The company will work with the government to ensure the country’s legislation remains “competitive with other jurisdictions so that Tanzanians can continue to benefit from mining.”

Barrick fell C$2.51, or 7.6 percent, to C$30.59 as of 10:07 a.m. in Toronto Stock Exchange trading. The shares dropped 21 percent this year through yesterday.