Posted at 4:27 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

It is ok to naked short anything against anyone until it costs the Treasury money. This is the financial equivalent of “Let Them eat Cake.” Somebody is going to the guillotine for these “Fails to Deliver.” 

U.S. Treasury Opens Probe Seeking Improper Trading 
By Rebecca Christie and Vincent Del Giudice

Nov. 7 (Bloomberg) — The U.S. Treasury opened a probe to identify any improper trading in U.S. government securities by bond investors and dealers, following increases in trades that fail to settle.

The announcement today came after repeated warnings by the Treasury to bond dealers to fix settlement problems in the government securities market or face tougher regulation.

Treasury officials use such reviews, known as “large position reports,” to monitor trading and guard against market manipulation. The Treasury has conducted at least nine such reviews since 1997. 

Today’s Treasury statement asks for information on the 2 percent two-year-note maturing Sept. 30, 2010, and the 3 1/8 percent five-year note maturing Sept. 30, 2013.


Jim Sinclair’s Commentary

Somehow I doubt this would be good for the new Administration because it speaks towards Social Fascism. Who says the government would do any better than the individual?

The Carolina Journal Exclusive does! Hmm!

Dems Target Private Retirement Accounts
Democratic leaders in the U.S. House discuss confiscating 401(k)s, IRAs
By Karen McMahan
November 04, 2008

RALEIGH – Democrats in the U.S. House have been conducting hearings on proposals to confiscate workers’ personal retirement accounts – including 401(k)s and IRAs – and convert them to accounts managed by the Social Security Administration.

Triggered by the financial crisis the past two months, the hearings reportedly were meant to stem losses incurred by many workers and retirees whose 401(k) and IRA balances have been shrinking rapidly.

The testimony of Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, in hearings Oct. 7 drew the most attention and criticism. Testifying for the House Committee on Education and Labor, Ghilarducci proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers’ retirement plan accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration.

Rep. George Miller, D-Calif., chairman of the House Committee on Education and Labor, in prepared remarks for the hearing on “The Impact of the Financial Crisis on Workers’ Retirement Security,” blamed Wall Street for the financial crisis and said his committee will “strengthen and protect Americans’ 401(k)s, pensions, and other retirement plans” and the “Democratic Congress will continue to conduct this much-needed oversight on behalf of the American people.”



Jim Sinclair’s Commentary

I am surprised that after President Elect Obama met with the CIA and heard about Pakistan, he did not resign ahead of time. He could beat the January 2011 rush.

U.S. Missile Kills 10 in Pakistan
November 8, 2008

ISLAMABAD, Pakistan – Missiles fired from a remotely-piloted United States aircraft slammed into a village in the North Waziristan region of Pakistan along the Afghan border on Friday and killed between 10 and 13 people, according to a local intelligence official, a Pakistani reporter and two Pakistani television channels.

State television put the death toll at 10 and other news reports said the dead included eight local people and five foreigners. . The deaths were the latest fatalities in a series of American missile attacks that have drawn increasingly irate protests from Pakistan to senior American officials, including the head of the United States Central Command, Gen. David H. Petraeus, and the American ambassador here, Anne Patterson.

The Pakistani president, Asif Ali Zardari, and the prime minister, Yousaf Raza Gilani, both condemned Friday’s attack.

Since an American commando raid on Pakistani soil in early September, there have been reports of more than 15 American strikes directed at militants hiding out in the tribally-ruled Waziristan region.



Jim Sinclair’s Commentary

Sure this was an accident, however a bunch of Kurds were seen laughing as they ran away.

Blast hits Iraq-Turkey oil pipeline in southeast, causes large spill

An explosion ripped through a pipeline carrying oil from Iraq to southern Turkey late on Wednesday, causing a large spill, the Anatolian Agency (A.A.) reported. Officials said sabotage was not the cause of the explosion.

The blast occurred in a section of the pipeline in the southeastern province of Sanliurfa in Turkey, the Anatolian Agency said, adding initial findings blamed the incident on an abrupt change of pressure in the network.

“We can not talk about sabotage. Our examinations revealed that the pipeline was broken from the inside because of pressure,” Yusuf Yavascan, governor of the southeastern province of Sanliurfa, told the A.A.

The twin pipeline, which runs from the northern Iraqi city of Kirkuk to Turkey’s Mediterranean port of Ceyhan and has a capacity to carry some 70 million tons of crude a year, was also bombed previously by the terrorist PKK organization. It carried about 40 million barrels of Iraqi oil to Ceyhan last year, according to Turkey’s state-run oil and gas company, BOTAS.



Jim Sinclair’s Commentary

Sure the US financial system is founded in obscuration.

Credit Swap Disclosure Obscures True Financial Risk (Update3)
By Shannon D. Harrington and Abigail Moses

Nov. 6 (Bloomberg) — The most comprehensive report on unregulated credit-default swaps didn’t disclose bets in the section of the more than $47 trillion market that helped destroy American International Group Inc., once the world’s biggest insurer.

A report by the Depository Trust and Clearing Corp. doesn’t include privately negotiated credit-default swaps that insurers such as AIG, MBIA Inc. and Ambac Financial Group Inc. sold to guarantee securities known as collateralized debt obligations. It includes only a “small fraction” of contracts linked to mortgage securities, according to Andrea Cicione at BNP Paribas SA in London.

New York-based DTCC’s data, released on its Web site Nov. 4, showed a total $33.6 trillion of transactions on governments, companies and asset-backed securities worldwide, based on gross numbers. While designed to ease concerns about the amount of risk banks and investors amassed on borrowers from companies to homeowners, the report may have missed as much as 40 percent of the trades outstanding in the market, Cicione said.

The data are “likely to underestimate the amount of net CDS exposure,” Cicione, who correctly forecast in January that the cost of protecting European companies from default would rise, said in an interview. “A broadening of the coverage to the entire market is what investors really need.”



Jim Sinclair’s Commentary

I believe that Mr. Hollan is being much too conservative.

Gold to reach $1,000 next year – and stay there: Gold Fields CEO
Gold Fields CEO, Nick Holland, reckons the gold price will hit $1,000 next year and stay there, but doesn’t look for significant appreciation above that level.
Author: Lawrence Williams
Posted: Thursday , 30 Oct 2008  

Interviewed on SAfm Radio in Johannesburg yesterday by Mineweb Editor in Chief, Alec Hogg, Gold Fields CEO, Nick Holland, gave some interesting views into his take on the gold price.  “I believe gold will go through $1000 and stay there during the course of 2009”, said Holland.

While to an extent this may be wishful thinking from someone whose company depends on gold for its income and on the gold price for its profitability, Holland’s reasons for his views are compelling.  He feels gold underperformed during the run-up in the oil price at the mid-year and that then, when oil came down in price, gold was dragged down with it without making earlier commensurate gains.  Thus gold hasn’t really performed in line with the overall situation – yet!

However Holland feels that with negative real interest rates around the world, contracting supplies and physical demand at almost record levels, the time is ripe for a re-evaluation of gold by the market.

When asked whether he felt the price would rise much beyond the $1,000 level, Holland wasn’t prepared to fuel speculative flames in this respect: “I wouldn’t say beyond $1,000” said Holland.  “Some people will say it should be much higher. I’d be very grateful with $1000 because right now the industry at $800 – or at $764 today, I think – doesn’t make any money after you take the all-in costs into account. So just to actually restore the margin and keep this industry going, we need something close to $1,000.”



Jim Sinclair’s Commentary

The resources and reserves are in the hands of the juniors. As soon as some competition, say from Russia or China, make deals with a junior the majors cannot sit on the sidelines licking their lips.

To Anglo American, struggling rivals are acquisitions�
November 7, 2008
By Ron Derby and Antony Sguazzin

Johannesburg – Anglo American was considering acquisitions after seeing the share prices of rivals fall, chief executive Cynthia Carroll said yesterday.

Acquisitions might be preferable to developing new mines or expanding existing ones, she said in a speech at Sishen, the iron ore mine owned by the diversified mining company’s Kumba Iron Ore unit.

“We have an impressive project pipeline but the current economic environment challenges the pipeline’s viability,” Carroll said. 

“We are, therefore, in the process of actively reviewing the timing of our projects against the background of the difficulties of assessing capital and the prospect of attractive acquisition opportunities that could generate cash from day one,” she said.



Jim Sinclair’s Commentary

The Federal Reserve AS LENDER OF LAST RESORT TO THE WORLD will bail out every country headed towards a Weimar Experience until the dollar flops. When that happens who will bail out the Fed’s Balance Sheet?

IMF approves USD 15.7 bn loan to Hungary

Washington, Nov 7 (PTI) The International Monetary Fund has approved a 15.7 billion-dollar loan for Hungary to shore up the country’s economy ravaged by financial turmoil.

Hungary becomes the second country after Ukraine to receive financial assistance from the IMF.

The multilateral lending agency would disburse 6.3 billion dollar immediately and the rest of the amount would be made available to Hungary in five installments, subject to quarterly reviews, IMF said in a statement on Thursday.

IMF said the stand-by arrangement would support the country’s longer-run economic goals by creating conditions necessary to facilitate appropriate reforms in government finances and banking sector.



Jim Sinclair’s Commentary

The latest from Sprott Asset Management.

Cash Or Gold?

Allow us to preface this article by saying that we’ll be making no mention of the ‘manipulation’ of the price of gold. Let’s put that issue aside for now because, in the long run, it just won’t matter. We are in the midst of a financial crisis – not just any financial crisis mind you, but arguably the worst and most pervasive the world has seen in almost a century (second only to the Great Depression… thus far). In the sea of financial assets and currencies that are being decimated the world over, the one true safe haven continues to be gold.

During these times, it is understandable that the prevailing investor sentiment is fear. People are fearful of their savings, fearful of their jobs, and especially fearful of risk, having just witnessed how quickly a bear market can decimate portfolios. The other major factor currently affecting markets is deleveraging. As we all know by now, the 2002-2007 credit bubble was all about leverage. Leverage in housing and real estate. Leverage in the banking system. Leveraged hedge funds. As long as all asset classes continued to go up, then leverage was the winning formula. Although such a myopic strategy paid handsomely in the short run, the premise of the preceding sentence is, of course, false over the longer term. Thus, the winning strategy of yesteryear is now a ruinous one, leading to a vicious circle of deleveraging that is gutting the value of almost all assets. In this respect, gold is proving to be no exception. On the flip side of deleveraging is the frenetic buying of what was on the short side of the leveraged trade, namely, US dollars and Japanese yen. As currencies with low interest rates, they were borrowed to effect the leverage and are now benefiting from what is essentially short covering as leverage is unwound. This is another reason that the price of gold, in US dollar terms, is down over the past month – albeit, not nearly as much as other assets that were on the long side of the leveraged trade.



Jim Sinclair’s Commentary

Too big to go broke? As goes GM so goes the US. The US is speeding towards technical insolvency and downgrades of US Treasury instruments.

GM Says It May Not Have Enough Cash to Operate This Year
By Jeff Green and Mike Ramsey

Nov. 7 (Bloomberg) — General Motors Corp., seeking federal aid to avoid collapse, said it used $6.9 billion in cash in the third quarter and may fall below the minimum it needs to operate before the end of this year.

GM said it will be near its minimum threshold for operating cash for the remainder of 2008 and will be “significantly short” of that level by the end of June without an improvement in market conditions, a major asset sale or access to new loans or cash support. GM has said it needs at least $11 billion in cash to pay its bills each month.

“GM is making a pretty direct plea for help,” said Pete Hastings, a fixed-income analyst at Morgan Keegan Inc. in Memphis, Tennessee. “The message is, `we’ve done all the things we can do, and we need help.’ And if we don’t get help, fill in the blank.”

Merger talks are being suspended, GM said. The company had been in discussions about a tie-up with Chrysler LLC, people familiar with the plans had said.



Jim Sinclair’s Commentary

As goes GM so goes Ford and all other US car makers.

Ford: Massive loss, job cuts
Detroit under siege: Ford auto unit burns through $6.3 billion and cuts 2,600 hourly workers. GM to announce its results soon.
By Chris Isidore, senior writer
Last Updated: November 7, 2008: 10:26 AM ET

NEW YORK ( — Ford Motor reported a $3 billion quarterly operating loss on Friday and said it would reduce staff and capital spending in order to preserve its dwindling cash.

Ford said it would cut salaried employment costs by 10% – reducing compensation of its white collar workers by eliminating merit pay, bonuses and the company’s matching contributions to their retirement accounts.

But even with those savings, the company said it’s likely to lay off more salaried staffers. It also said hourly staff – mostly factory workers covered by union contracts – would be reduced by an additional 2,600 through a voluntary buyout package.

The company, which earlier this year sold brands such as Jaguar and Land Rover, said it would continue to look to sell assets.


Posted at 3:23 PM (CST) by & filed under In The News.

Dear CIGAs,

 The final word is that gold is a currency which moves in the inverse to the US dollar.

 The inflation/deflation/recession/depression argument fell on it ass in the 70s and will do so again.

The present dollar strength is geek and kneejerk reaction demand devoid of fundamental strength and is therefore not a long term bull market. A decline in the dollar will turn the spotlight on the credit worthiness of US Treasuries, impacting the growing demand for T-bills as the equity market, now without a PPT, is in trouble.

Blame the bust now spun on the advent of the new Administration.

The World Tires of Dollar Hegemony
by Craig Roberts
Nov 6

“The dollar’s rise is temporary, and its prospects are bleak. The U.S. trade deficit will lessen due to less consumer spending during recession, but it will remain the largest in the world and one that the United States cannot close by exporting more. The way the U.S. trade deficit is financed is by foreigners acquiring more dollar assets, with which their portfolios are already heavily weighted. 

“The toxic American derivatives were marketed worldwide by Wall Street. They have endangered the balance sheets and solvency of financial institutions throughout the world, including national governments, such as Iceland and Hungary. Banks and governments that invested in the troubled American financial instruments found their own debt instruments in jeopardy. The financial crisis has reversed this process. The toxic American derivatives were marketed worldwide by Wall Street. They have endangered the balance sheets and solvency of financial institutions throughout the world, including national governments, such as Iceland and Hungary. Banks and governments that invested in the troubled American financial instruments found their own debt instruments in jeopardy.”



Jim Sinclair’s Commentary 

Let the games begin. How will President Obama handle the Russian threat?

President Dmitri Medvedev orders missiles deployed in Europe as world hails Obama
November 6, 2008

President Medvedev ordered missiles to be stationed up against Nato’s borders yesterday to counter American plans to build a missile defence shield.

Speaking within hours of Barack Obama’s election, Mr Medvedev announced that Russia would base Iskander missiles in its Baltic exclave of Kaliningrad – the former German city – next to the border with Poland.

He did not say whether the short-range missiles would carry nuclear warheads.

Taking advantage of the world’s attention on the US elections, Mr Medvedev also cancelled plans to withdraw three intercontinental ballistic missile regiments from western Russia by 2010. In his first state-of-the-nation address, Mr Medvedev said the missiles would be deployed “to neutralise if necessary the antiballistic missile system in Europe”. He added that Russia was also ready to deploy its Navy off Kaliningrad and to install electronic jamming devices to interfere with the US shield, which relies on a radar station in the Czech Republic and ten interceptor missiles in Poland.

Nato’s eastern members greeted the Russian move with dismay.

A Czech Foreign Ministry spokesman described the Kremlin’s move as unfortunate. Lithuania’s President Adamkus accused his Russian counterpart of going back on his word.



Jim Sinclair’s Commentary

Obscuration, lies and misstatements continue rampantly. The impact now is momentary, however the consequences may span a decade or more.

Do not abandon ship. Obscuration is a pilot’s term for when you can’t see a damn thing.

Credit Swap Disclosure Obscures True Financial Risk (Update2)
By Shannon D. Harrington and Abigail Moses

Nov. 6 (Bloomberg) — The most comprehensive report on unregulated credit-default swaps didn’t disclose bets in the section of the more than $47 trillion market that helped destroy American International Group Inc., once the world’s biggest insurer.

A report by the Depository Trust and Clearing Corp. doesn’t include privately negotiated credit-default swaps that insurers such as AIG, MBIA Inc. and Ambac Financial Group Inc. sold to guarantee securities known as collateralized debt obligations. It includes only a “small fraction” of contracts linked to mortgage securities, according to Andrea Cicione at BNP Paribas SA in London.

New York-based DTCC’s data, released on its Web site Nov. 4, showed a total $33.6 trillion of transactions on governments, companies and asset-backed securities worldwide, based on gross numbers. While designed to ease concerns about the amount of risk banks and investors amassed on borrowers from companies to homeowners, the report may have missed as much as 40 percent of the trades outstanding in the market, Cicione said.

The data are “likely to underestimate the amount of net CDS exposure,” Cicione, who correctly forecast in January that the cost of protecting European companies from default would rise, said in an interview. “A broadening of the coverage to the entire market is what investors really need.”



Jim Sinclair’s Commentary

Nothing has changed. Libor is being used to paint a bright picture yet there is no bright picture to be seen.

Note the insurance article on gold as it tells the truth of what is.

Your $3 trillion bailout
Washington is waging war on the financial crisis. Mr. Obama: You have to see it through.
By David Goldman, staff writer
November 5, 2008: 11:54 AM ET

NEW YORK ( — Congratulations Mr. President-elect. Now get to work. It’s a little more than 10 weeks until Jan. 20, and there’s an economy in dire need of fixing.

Here’s the executive summary: The economy’s cracks started showing a year ago. Home prices plummeted and foreclosures soared. Financial institutions carrying mortgage-backed securities on their books took an enormous hit. Banks wanted to take fewer risks, so lending to businesses and consumers froze up.

Then things really broke down in September. The government took over mortgage giants Fannie Mae and Freddie Mac. The collapse of Lehman Brothers sent investors worldwide into a cold sweat.

To combat the crisis, Congress and the current administration have taken a number of steps aimed at boosting the housing market – providing critical liquidity to financial institutions and saving businesses from collapse.

Thus far, the government has pledged as much as $3 trillion for the crisis, although the ultimate cost to the federal budget won’t be known for years to come since much of that money is effectively investment.

“You’d have to go back to the New Deal to find something similar to what the government has done to stop the credit crisis,” said Jay Bryson, economist for Wachovia. “It’s because the alternative was unthinkable: If it failed, there was potential for another Great Depression.”



Jim Sinclair’s Commentary

Sympathy for this? You have to be kidding. If you knew why these funds are hitting the walls you would be surprised. I suggest “Income Smoothing Derivatives.”

London Hedge Funds Halt Redemptions
November 5, 2008

The rash of hedge funds halting redemptions continues as global markets spiral down with two more freezing their assets.

GILD Arbitrage, the first registered Baltic hedge fund, will halt redemptions and subscriptions until May 5, citing “market turbulence.'”

The fund, managed by the Tallinn, Estonia-based investment bank GILD Bankers, took the step because of “the risk of treating some investors unfairly” and because it didn’t want “to act too hastily in realizing the potential of our fund investments,” Bloomberg News reports, citing Tonno Vaehk, who oversees the fund, in an e- mailed statement.

The fund, which focuses on arbitrage, has 300 investors and total assets of about US$127 million.



Jim Sinclair’s Commentary

Today is a good day to review John’s excellent thoughts,  

John Embry: Gold’s Game-Changing Moment Could be Fast Approaching
Tuesday, October 28, 2008

In a recent Business News Network interview, Amanda Lang talks with John Embry, Chief Investment Strategist at Sprott Asset Management, about his position on precious metals (bullish) and base metals (bearish). While hesitating to make a definitive prediction in the midst of such widespread asset destruction, Embry nonetheless looks beyond the carnage to what he suggests could be the seminal event for gold-the possibility of default on physical delivery for the December futures contract. He also explains why gold has failed to rise to the occasion of the worst-case financial scenario in history. Below are some excerpts from the interview, edited for length and clarity.

Amanda Long: People say gold really should be doing better than it is now and that actually becomes a justification for not buying it. It’s not doing what it should be doing in a crisis and, therefore, I don’t want to own it.

John Embry: That is a wonderful analysis because that is exactly the mindset the guys who are driving the price down are trying to create. Gold doesn’t work so keep away from it. They’re able to control the price quite easily in the paper markets because the paper markets are so huge in comparison. “The guys” – the central banks and their bullion bank accomplices-have a lot of power and a lot of money, so they can overwhelm the other side. But what’s happening is that the physical supply is diminishing dramatically. It’s getting harder and harder to purchase gold and silver through traditional avenues. You can’t get it in coin shops to any extent. You can’t get it through your banks. The physical side is really constricted by supply. That, to me, is the reality. The paper stuff is just the illusion.

AL: Now the problem, of course, for investors is that the paper market is the one you’ve got to play and, for the most part, it affects the price. How will that be resolved?



Jim Sinclair’s Commentary

It is not the gold part of this article as much as “MUMBAI: With the credit crisis having a direct impact on funding costs and drying up of inter-bank credit lines, a few foreign banks have altogether stopped supplies of gold to Indian banks in a bid to reduce their exposure to Asian markets.”

This statement concerning inter-bank credit lines is a fib or Libor is a world class whopper.

Foreign banks cut down gold supply to India
5 Nov, 2008, 0326 hrs IST,
Ram Narsinghdev Sahgal, ET Bureau

This comes at a time when global liquidity pressures have eased considerably and local demand for the yellow metal has picked up as prices have come off the highs witnessed in the early part of October. Dealers from many banks told ET that supplies have been squeezed with banks, such as Standard Bank of South Africa, one of the main suppliers, Commerzbank and UBS, stopping supplies altogether or reducing them on a consignment basis.

“Both Commerzbank and Standard Bank have stopped supplies on a consignment basis to Indian banks since October, while UBS has reduced its exposure,” said a bullion dealer from a public sector bank.

“Apart from the cost of funds having played a part in their decision to stop or go slow on supplies, the main reason is reluctance on part of these banks to take exposure to Asian banks for fear of defaults.”

While Standard Bank refused to comment, email queries to UBS and Commerzbank failed to elicit an immediate response.

The stoppage of supplies from these banks come even as gold lease rates – the difference between Libor and gold forward offered rates fixed by six banks – have come off their highs witnessed in October and even as the London offered interbank rate (Libor) eased considerably as part of pump priming efforts in western economies.


Posted at 1:07 PM (CST) by & filed under General Editorial.

Dear Friends,

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.

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 of major planetary dislocation is between 14 and 89 days from now.


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.

Jim’s Formula:
September 1, 2006

  1. First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.
  2. This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella – Goldilocks situations.
  3. We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.
  4. The formula economically is inherent in #2 which is lower economic activity equals lower profits.
  5. Lower profits leads to lower Federal Tax revenues.
  6. Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.
  7. The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.
  8. The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).
  9. It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.
  10. If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.
  11. Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.
  12. This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.
    Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.
    I heard all this “slow business” as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now.

Respectfully yours,
Jim< ><-->

Posted at 4:52 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

  1. If today does not get you wild about the Gold Bank’s unending desire to pick your pocket then you are simply numbed to the experience.
  2. The Gold Banks are losing their rich uncle so today was an act of bravado to show us. It was not oil.
  3. If you have had enough of the gold banks then push back as per yesterday’s second review of taking delivery either of the kilo or 100oz. bars.
  4. Gold is a currency that moves inverse to the US dollar, and will in the main remain so. A change in percentage moves with gold ahead of the dollar in the inverse is possible in 2009.
  5. The dollar rally has been totally technical in terms of international flows of currency that absolutely has no legs to hold it up. Harry Schultz’s call on the USDX topping at or near .88 looks quite good
  6. As far as the depth of the problems goes, it is still bottomless. The following article speaks to this.
  7. The Golden Age of the Financial Criminal, marked by flagrant violations of law and regulations, may be reined in with some spectacular trials.

A credit crater too big to fill?
As the movement of money across borders comes to a grinding halt, governments can only manage the decline. Don’t be surprised to see markets roll back to 1995 levels — or lower.
By Jon Markman

Despite a weeklong surge in stocks, it’s becoming increasingly clear that credit has suffered a catastrophic setback.

It’s as if a set of asteroids hit Manhattan, London and Tokyo, carving a massive hole in the architecture of finance. The initial buildings in the impact crater, Lehman Bros. (LEHMQ), Bear Stearns and Northern Rock, were quickly incinerated. But now the toxic rain and tsunamis that were kicked up are rolling onto the survivors in waves and cutting off their air supply.

New data from world money centers suggest the movement of money around the globe has simply ground to a halt, as institutions in the United States, Europe and Asia that are receiving taxpayer dollars from governments are socking it away to shore up their balance sheets, reserve against liabilities expected in the near future and sustain their unprofitable operations.

“Governments are not really trying to save the system anymore,” said Satyajit Das, a banking expert in Sydney, Australia. “They now realize that’s impossible. They are just trying to manage the decline.”



Jim Sinclair’s Commentary 

Are you sure your Treasury instrument money market fund is in US Treasury instruments, or are they in OTC derivative based on Treasury instruments? I wager you the latter. The problems out there have no cure without consequences more dangerous than the problems themselves. 

“She said that scrutiny by the SEC and the Fed, and widespread investigations into short-selling practices, are driving the industry to rein in questionable practices with Treasuries.” 

Delivery failures plague Treasury market
Total hit a record $2.29 trillion as of Oct. 1
By Dan Jamieson
October 19, 2008, 6:01 AM EST

The credit crisis is causing a growing number of delivery failures with Treasury securities.

The latest data from the Federal Reserve Bank of New York showed that cumulative failures hit a record $2.29 trillion as of Oct. 1. The federal settlement period is T+1 (trade date plus one day).

The outstanding U.S. public debt is $10.3 trillion.

“Current [fail] levels are at historic levels,” said Rob Toomey, managing director of the Securities Industry and Financial Markets Association’s funding and government and agency securities divisions. “There’s been significant flight to quality” with the market turmoil, he said.

With the strong demand for Treasury securities, “some of the entities that bought Treasuries are not making them available in the [repurchase] market, which is the traditional way to get them,” Mr. Toomey said.  

Unlike some past bouts with high failure rates that involved particular bond issues, the current high fails involve all types of maturities, he said.




Jim Sinclair’s Commentary

Someone with ethics and understanding would take exception to flushing FASB 157 down the toilet. Doing so would allow Wall Street to go back to good old lying their asses off with regards to the valuation of OTC derivatives. Schiller can look back with 20/20 vision but it is a loser looking forward. Nobody and no formula has a clue what 2011 will look like. Trashing FASB 157 will not simply set back reform, it will kill it stone cold before arrival. Nothing to the Wall Street creeps is temporary. Crime is permanent.

Mark-to-market manipulation
Commentary: Efforts to change accounting rules would set back reform
By David Weidner, MarketWatch
Last update: 12:01 a.m. EST Nov. 4, 2008

NEW YORK (MarketWatch) — Mark-to-market — or fair-value — accounting has one big problem: Some very powerful people are trying to change it.

A movement spurred by bankers including Aubrey Patterson, chief executive of Bancorpsouth Inc. (BXS) and Wall Street power brokers including Blackstone Group (BX) Chief Stephen Schwarzman are arguing for at least a temporary suspension of Financial Accounting Standards Rule 157.

Patterson and other supporters argued for the rule’s suspension in a Securities and Exchange Commission roundtable Oct. 29. Other critics of FAS 157 included Damon Silvers, AFL-CIO general counsel, and Bradley Hunkler, an insurance executive from Western & Southern Life.

Simply put, these guys want the government to stop requiring mark-to-market accounting so the financial industry can put blinders on to the deep trouble that lies on its balance sheets. Not surprisingly, the proponents of a suspension would also apparently benefit from it.

For guys like Patterson, it would mean his bank wouldn’t have to take big charges each quarter to build reserves. Bancorpsouth increased its reserves by 50% to $16.3 million to gird against loan losses at the end of the third quarter.



Jim Sinclair’s Commentary

Recall what I told you about GE being a major entity in credit default derivatives?

In reading this article, keep firmly in mind no matter how loud the Geeks scream there is no question that bankruptcy takes nominal value to full value. The Geek BS does not work when one party to the special performance contract fails and cannot perform.

Credit Swaps Top $33 Trillion, Depository Trust Says
By Shannon D. Harrington 

Nov. 4 (Bloomberg) — Credit-default swaps totaling $33.6 trillion are outstanding on government debt, corporate bonds and asset-backed securities worldwide, the Depository Trust & Clearing Corp. said in a report that gives the broadest data yet on the unregulated market.

After canceling out overlapping trades, Italy’s government debt tops the list with $22.7 billion in contracts, the report on DTCC’sWeb site today shows. A net amount of $16.6 billion of contracts are outstanding on Spain; $12.4 billion on Deutsche Bank AG, Germany’s largest bank; and $12.1 billion on General Electric Co.’s finance arm, GE Capital Corp., the report shows.

“Publishing this data will provide greater transparency in a critical market,” Tim Ryan, the head of the Securities Industry and Financial Markets Association in Washington said in a statement today. “This is an important initiative upon which the industry will continue to build.”

Before netting, Turkey topped the list with $188.6 billion in contracts, and dropped to $7.6 billion after redundant trades were subtracted. On a gross basis, $15.4 trillion of transactions were linked to individual corporate, sovereign and asset-backed bonds, and about $14.8 trillion was tied to indexes. The New York-based DTCC estimates it sees about 90 percent of all trades.



Jim Sinclair’s Commentary

This has to be a joke of some kind. In 2006 the cancer of OTC derivatives was growing like a locust storm at Bear Stearns.

NY Fed hires former Bear Stearns chief risk officer
Tue Nov 4, 2008 9:29am EST

NEW YORK, Nov 4 (Reuters) – The Federal Reserve Bank of New York has hired the former chief risk officer of Bear Stearns Cos, Michael Alix, to advise on bank supervision, according to a release in the Fed’s Web site.

Alix will serve as a senior advisor to William Rutledge in the Bank Supervision Group and his appointment is effective Nov. 3, according to the release dated Oct. 31

At Bear Stearns, an investment bank that collapsed in March and has become hallmark of the global credit crisis, Alix served as chief risk officer from 2006 to 2008 and global head of credit risk management from 1996 to 2006.



 Jim Sinclair’s Commentary

The financial saviour of the planet, the US Federal Reserve, may need to be saved itself much sooner than you or they imagine. A planetary Weimar – it is possible going towards probable.

What Happens when Countries Go Bankrupt?

First it was mortgage lenders. Then large banks began to wobble. Now, entire countries, including Ukraine and Pakistan, are facing financial ruin. The International Monetary Fund is there to help, but its pockets are only so deep.

No, Alexander Lukyanchenko told reporters at a hastily convened press conference last Tuesday, there is “no reason whatsoever to spread panic.” Anyone who was caught trying to throw people out into the street, he warned, would have the authorities to deal with.

Lukyanchenko is the mayor of Donetsk, a city in eastern Ukraine with a population of a little more than one million. For generations, the residents of Donetsk have earned a living in the surrounding coalmines and steel mills, a rather profitable industry in the recent past. Donetsksta, a local steel producer, earned €1.3 billion ($1.65 billion) in revenues last year.

But last Tuesday the mayor, returning from a meeting with business leaders, had bad news: two-thousand metalworkers would have to be furloughed. Lukyanchenko doesn’t use the word furlough, instead noting that the workers will be doing “other, similar work.” But every other blast furnace has already been shut down, and one of the city’s largest holding companies is apparently gearing up for mass layoffs.



Jim Sinclair’s Commentary

Now the fun really starts because the statute of limitations hasn’t stopped. I am bullish on public companies that specialize in building Federal prisons and bearish of Greenwich, CT mansions valued over $20,000,000.

Now That Election Is Over, Its Back To The Crisis
Danny Schechter
Posted November 4, 2008 | 06:55 PM (EST)

The election is all but over, but the debate over who is responsible for the financial crisis is just beginning to become more intense.

We know that the FBI has opened a criminal investigation of 26 companies, indicted 400 mortgage scammers and started 1400 criminal white collar cases There are 40 task forces allegedly looking into the fraud at the heart of the subrprime pyramid scheme.

But now we also know that the Bush Administration has made a the prosecution of white collar crime a lesser priority with more agents tasked to chase terror suspects than the men and women who brought our economy down.

Reported Newser:

“A short-staffed FBI is laboring to keep up with white collar crime linked to the nation’s financial crisis, the New York Times reports. FBI officials predicted millions of dollars’ in mortgage fraud years ago, but the Justice Department wanted agents focused on counter-terror. When the FBI warned of a fraud “epidemic” in 2004, only 15 of its 13,000 agents were on the case.”



Posted at 1:28 PM (CST) by & filed under General Editorial.

Dear Friends,

There will be many forecasting market results of the election of President Obama. I suggest we wait to see his cabinet in order to look to the future with any degree of accuracy.

What we do know is:

  1. Many of the evil money ruler geniuses are out of the lime light.
  2. Even if Wall Street is still pulling strings, this Administration will not have Paulson who jiggled every market on the planet fairly well.
  3. The PTT team, if it exists, will be made up of lesser lights because the past Administration ruled that.
  4. All the problems are still out there as virulent cancers that have spread out of control in the financial market and are not operable. Thank you all you OTC derivatives that up to now have not been singled out to accept blame. This could change but do not count on it.
  5. You can count on fiscal stimulation as it is a tenet of how the Democratic mind moves.
  6. You can count on higher taxes for Daddy Warbucks and reductions for the ordinary man who carries the Federal Budget money-wise.
  7. You can count on an interesting period in terms of geopolitical challenges to the USA from their many enemies in order to size up the new leadership.
  8. You can count on meaningless dialog with all those about to test the new Administration geopolitically.
  9. You can count on gold at $1200 and then $1650.
  10. You can count on the US dollar trading at USDX .72, .62, and.52.
  11. You can count on the reestablishment of social and economic safety nets.
  12. You can count on the now shredded Constitution remaining shredded. Once power comes into an Administration it stays their permanently.

Respectfully yours,

Posted at 12:48 AM (CST) by & filed under Guild Investment, Jim's Mailbox.

Dear Jim,

One need only read the following article to see the absurdity of the proposition that the US dollar can stay strong. The interest on this $2.1 Trillion [so far] or excess debt alone will eventually swamp the budget. It is absurd and highly correlated with US money coming back to the US from overseas investing and foreign money coming to the US for a safe haven during a crisis. These are short term events, the dollar’s day in the sun is drawing to a close and soon it will reverse. By the way, after 9/11 the dollar rallied for 4 months and then fell for 7 years. Thus far the dollar rally is about 3 1/2 months old.

Respectfully yours,
Monty Guild

RPT-PREVIEW-US Treasury to expand debt arsenal as deficit rises
Tuesday, November 04, 2008 5:00:06 AM (GMT-08:00)
By David Lawder

WASHINGTON, Nov 4 (Reuters) – Facing the need to borrow up to a staggering $2.1 trillion in the current fiscal year to fund economic rescue programs, the U.S. Treasury is expected to significantly expand its debt securities arsenal.

Analysts anticipate that the Treasury on Wednesday will announce the return of the 3-year note and adopt more frequent offerings of 10-year notes and 30-year bonds. It may also consider more reopenings of shorter maturities.

“They are going to pull out all the stops. There’s a good chance they’ll come back to a quarterly 3-year note, monthly 5-year (note) auctions and increase issuance pretty subtantially across the board,” said Kim Rupert, head of global fixed-income analysis at Action Economics in San Francisco.

The Treasury Department said on Monday it would need to borrow a record $550 billion in the October-December quarter, including a likely $300 billion in financing for Federal Reserve liquidity operations.

The total was $408 billion higher than previous estimates announced in July 2008 due to outlays for economic assistance programs, lower tax receipts and lower issuance of non-marketable debt securities to state and local governments.