Posted at 9:43 PM (CST) by & filed under General Editorial.

Dear CIGAs,

A new Bretton Woods Agreement is the institutionalizing of the US Federal Reserve as the lender of last resort for NATO economies as well as a few others.

It is a very sick joke and the ABSOLUTE DEATH FOR PAPER MONEY, PRIMARILY THE US DOLLAR.

The lockup of credit is thawing according to Libor. Take a look at this article yesterday on what should be named “Lie”-bor.

“Fundamentally, the Europeans are not simply hoping to modernize Bretton Woods, but instead to Europeanize the American financial markets. This is ultimately not a financial question, but a political one. The French are trying to flip Bretton Woods from a system where the United States is the buttress of the international system to a situation where the United States remains the buttress but is more constrained by the broader international system. The European view is that this will help everybody. The American position is not yet framed and wonâ€TMt be until the new president is in office.”

The United States, Europe and Bretton Woods II
October 20, 2008 | 2200 GMT
By George Friedman and Peter Zeihan

French President Nicolas Sarkozy and U.S. President George W. Bush met Oct. 18 to discuss the possibility of a global financial summit. The meeting ended with an American offer to host a global summit in December modeled on the 1944 Bretton Woods system that founded the modern economic system.

The Bretton Woods framework is one of the more misunderstood developments in human history. The conventional wisdom is that Bretton Woods crafted the modern international economic architecture, lashing the trading and currency systems to the gold standard to achieve global stability. To a certain degree, that is true. But the form that Bretton Woods took in the public mind is only a veneer. The real implications and meaning of Bretton Woods are a different story altogether.

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

Dear CIGAs,

For every financial initiative there are CONSEQUENCES, all of which finally focus on the value of the US dollar, the common share of USA Inc.

The US Fed bails everything and everybody in the financial world out, but who then bails out the dollar?

Federal Reserve Press Release
Release Date: October 21, 2008
For release at 9:00 a.m. EDT

The Federal Reserve Board on Tuesday announced the creation of the Money Market Investor Funding Facility (MMIFF), which will support a private-sector initiative designed to provide liquidity to U.S. money market investors.

Under the MMIFF, authorized by the Board under Section 13(3) of the Federal Reserve Act, the Federal Reserve Bank of New York (FRBNY) will provide senior secured funding to a series of special purpose vehicles to facilitate an industry-supported private-sector initiative to finance the purchase of eligible assets from eligible investors.  Eligible assets will include U.S. dollar-denominated certificates of deposit and commercial paper issued by highly rated financial institutions and having remaining maturities of 90 days or less.  Eligible investors will include U.S. money market mutual funds and over time may include other U.S. money market investors.

The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests and meet portfolio rebalancing needs.  By facilitating the sales of money market instruments in the secondary market, the MMIFF should improve the liquidity position of money market investors, thus increasing their ability to meet any further redemption requests and their willingness to invest in money market instruments.  Improved money market conditions will enhance the ability of banks and other financial intermediaries to accommodate the credit needs of businesses and households.

The attached term sheet describes the basic terms and operational details of the facility.

The MMIFF complements the previously announced Commercial Paper Funding Facility (CPFF), which on October 27, 2008 will begin funding purchases of highly rated, U.S.-dollar denominated, three-month, unsecured and asset-backed commercial paper issued by U.S. issuers, as well as the Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), announced on September 19, 2008, which extends loans to banking organizations to purchase asset backed commercial paper from money market mutual funds. The AMLF, CPFF, and MMIFF are all intended to improve liquidity in short-term debt markets and thereby increase the availability of credit.

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Jim Sinclair’s Commentary

Do you really believe you can turn a bear market into a bull market rally in the dollar with these conditions? No you can’t.

U.S. Moves Toward Stimulus as Bernanke, Bush Shift (Update1)
By Ryan J. Donmoyer and Scott Lanman

Oct. 21 (Bloomberg) — Lawmakers and officials moved toward forging a second fiscal stimulus bill after Federal Reserve Chairman Ben S. Bernanke endorsed the idea and the Bush administration dropped its opposition.

Bernanke warned legislators yesterday the credit crunch is “hitting home,” with Americans unable to get auto loans and companies denied cash, and recommended measures to help borrowers. White House Press Secretary Dana Perino said President George W. Bush was “open to the idea” of a new stimulus.

Momentum for fresh measures built after an earlier stimulus package failed to prevent a jump in the unemployment rate to a six-year high and the longest slump in retail sales since at least 1992.

Bernanke “had to do what he did” in supporting a further federal stimulus measure, said Lyle Gramley, a former Fed governor who is now senior economic adviser at Stanford Group Co. in Washington. “If he went up there and said, `Well, I’m indifferent to a stimulus package, I’m opposed to it,’ he would be sending the wrong signal.”

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Posted at 9:32 PM (CST) by & filed under Jim's Mailbox.

Jimmy,

You undoubtedly already know this but could you reword the COMEX warehouse article to state that the sum total of gold for delivery at the Comex is the registered number and not the eligible number? 4,135,714 ounces eligible gold can be gold held by customers that will not be tendered…

Your pal,
Dan

Dear Dan,

This makes the paper gold market foundation “SET IN SAND” if any of today’s super wealthy financial international Muktars decided to break the bank at the Comex.

Regards,
Jim

Jim,

I hope I didn’t sound too negative in that last e-mail about keeping short term thoughts close to the vest for fear of sending signals to those who want to hurt us.

I am just totally burnt out with all of this today.

I thought that after 30+ years at this game I would have been a lot smarter, but I have been proven wrong once again and I guess it hurts a bit (actually hurts a lot).

I’m hanging in there, but emotionally I’m a little bit strung out.

Keep the faith, even if I might not be doing so well at it.
CIGA Buz

Dear Buz,

Every market is under world class manipulation as we approach election day in the midst of possibly the worst financial crisis in world history. This situation is killing us all.

It also makes us ask ourselves does crime pay? It certainly seems so. However, what goes around comes around so I prefer to hack it out without karmic debt.

Look at it this way, pain is the experience between two pleasures.

Regards,
Jim

Hi Jim,

I have been a faithful follower for over 3 years and appreciate your view on gold and the dollar.

I know you are busy but I have a question that I would appreciate you answering on your website.

Since the USDX is comprised of over 57% euros, how will the dollar reach .52 with the European economy so weak?

I know you have the answer, plus I wouldn’t know who else to ask.

Again thanks for all you do. I am in for the long haul.

Regards,
CIGA Ron

Ron,

The dollar, due to the creation of mountains of derivatives and now the bailing out the world, might just be in worse shape. The Weimar mark didn’t do so well.

Jim

Dear Mr. Sinclair,

I see the Paul Volcker (highly regarded by yourself) is becoming more closely involved with the Obama campaign. Could this affect the outcome of gold’s price rise if Volcker was to gain persuasive, policy changing sway with Obama?

Best Regards,
CIGA Marc Da

Volcker Makes a Comeback as Part of Obama Brain Trust
By Monica Langley
Tuesday, October 21, 2008

NEW YORK — At 81 years old, former Federal Reserve chairman Paul Volcker is getting a second chance to shape his legacy with a presidential hopeful more than 30 years his junior.

Mr. Volcker has emerged as a top economic adviser to Sen. Barack Obama during a presidential campaign dominated by a global financial crisis. Their growing bond is paying dividends for each man.

Mr. Volcker delivers gravitas and credibility to Sen. Obama, people in the Obama camp say, as well as ideas and approaches to the economic crisis. “Volcker whispering in Obama’s ear will make even Republicans comfortable, because he’s a hero of the right and a supporter of a strong dollar,” says John Tamny, a supply-side economist and Republican.

On Tuesday, Mr. Volcker is scheduled to appear on the campaign trail with Sen. Obama for the first time. At a round-table discussion with voters in Lake Worth, Fla., he’ll “give his view on the state of the economy and the credit markets, and what needs to be done to fix them,” says one campaign adviser.

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Dear Marc,

The Mother of All Crisis (Volcker’s statement) cannot stand the previous Volcker approach without a total planetary implosion from which there would be no recovery for generations to come. A socially sensitive president would never support an old Volcker approach.

A Chairman of the Fed must have the full support of the sitting administration to put in place extreme policy reversals in the midst of a total financial meltdown. This is especially true when the meltdowns are barely held together by wide open electronic printing presses and prolific spin.

Jim

Jim,

The following story illustrates that the US mint is having a hard time meeting coin demand. However in the years leading up to Y2K the mint cranked out many more bullion coins than this year by multiples of two or three. So, is physical gold hard to come by? What is the real reason that the US mint is not producing product? If this is unprecedented (the mints were not cleaned out in the 1970’s), maybe we are seeing the real big money going for the gold?

Like everything else that has happened so far, it looks like another sign that “This is it.”

CIGA Ken

Examining the “Unprecedented Demand” for Gold Eagle Coins
by: Michael Zielinski October 09, 2008

Earlier this week, the United States Mint took further actions to meet the increased demand for gold and silver bullion coins. This included production halts for certain bullion offerings and the continued allocation for one ounce Gold and Silver American Eagle coins.

Within the memorandum sent to authorized bullion purchasers, the US Mint specifically stated, “gold and silver demand is unprecedented.” Throughout the course of this year, the Mint has provided similar explanations each time a new suspension or allocation program went into effect. While sales of Silver Eagle coins are higher than any other year in history, the sales of Gold Eagle coins are far below their peak.

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Dear Mr. Sinclair,

I found today’s missive coupled with yesterdays FYI bullet points truly fascinating. Your depth of knowledge is constantly surpassing itself.

From my interpretation I found myself hinged on one primary aspect of the missive. You note the “possibility” of default due to the amount of COMEX reserves vs. the perpetuation and sheer size of the US dollar markets, however you note that during silver’s meteoric rise default was not necessary, only the “theory” or “noise” that the Hunt’s were going to take delivery of more silver than was available. We know the coin markets are already being cleaned out. Is all we need merely the perception of a run on COMEX by Asia?

Best Regards,
CIGA Marc Da

Dear Marc,

You are quite correct from a price impact perspective.

Regards,
Jim

Posted at 5:09 PM (CST) by & filed under David Duval.

Dear CIGAs,
Welcome to the introductory issue of MineSearch.net. This is a complimentary news digest and accompaniment to JsMineset.com, an online publication that is presently ranked among the leaders in its market segment. For the moment, Minesearch.net will only be available in PDF format. In the near future, it will be accessible as a fully-searchable web page with an active menu bar.

The mandate of Minesearch.net is to educate readers about the minerals industry, along with the market and economic factors that drive metal prices and the search for new production sources. We are not here to promote anything or anyone – especially listed entities. However, we will attempt to provide insights into metal-specific market trends and extraneous factors that impact commodity prices and your investment in a sector that will play a leading role in the industrialization of the developing world.

We invite questions from readers and will address ones of general interest in this column. However, we can not respond to individual questions by e-mail or any other means. Please e-mail your questions to: minesearcheditor@gmail.com

David K. Duval
Publisher/Editor

From Minesearch.net

Metal prices have a reputation for being volatile but the speed of the recent downturn for key industrial commodities such as copper, nickel, zinc and lead is simply unprecedented. Nonetheless, so has the downturn in global equities markets where trillions of dollars have been shaved off the market caps of some of the world’s biggest companies.

In the current maelstrom, gold has held up relatively well in the face of a stronger U.S. dollar. In fact, gold has risen to its highest level in years in Aussie and Canadian dollar terms along with the Euro. In the case of gold, however, the broader market sell-off has impacted share prices of producers and explorers alike, with the latter coming under increasing pressure as financing opportunities dry up and fixed project and related commitments deplete their corporate treasuries. For major companies and others with cash in the bank (or access to it) opportunities to acquire assets at fire sale prices have never been better.

In this particular market environment, emotion appears to be driving prices rather than fundamentals. And I would argue that this statement applies more to metal prices (which are usually driven by supply/demand fundamentals) than the equities market where the valuation methods that have driven stocks to such lofty levels make about as much sense as the complex structured products (derivatives) that got us into the current financial mess.

……Continued in Minesearch.net.

Posted at 3:55 PM (CST) by & filed under General Editorial.

Dear CIGAs,

Many people still do not get it. Gold is insurance against the consequences of the upcoming massive injection of liquidity into the global financial system.

This publication is not a tip sheet for the margin traders who each time gold goes into reaction mode love to send me emails, leave phone messages, screaming that gold is going lower.

My answer to these abusive callers is “so what.” Gold is going to trade at $1200 and $1650 regardless of the present reaction.

What is forgotten is that no one scalp trades gold and no strategy offers protection from the consequences of the Federal Reserve as the lender of last resort to the world.

Creation of all this money is not a wash and will much sooner than later pull the rug out from under the pre-election dollar rally.

Remember CONSEQUENCES CANNOT BE AVOIDED.

Consider the fact that the Comex warehouse’s total gold holdings are under $5 billion when you read the following headline:
Fed would grant up to $540B to money market funds
By JEANNINE AVERSA
Tue Oct 21, 11:52 am ET

WASHINGTON – The Federal Reserve announced Tuesday that it will provide up to $540 billion in financing to bolster the money market mutual fund industry, its latest effort to get credit flowing more freely again.

The Fed’s new program, called the Money Market Investor Funding Facility, will be used to support a private-sector initiative designed to provide liquidity, or cash, to money market investors. The Fed plans to back purchases of short-term debt including certificates of deposit and commercial paper that expire in three months or less from money market mutual funds.

The funds are large buyers of commercial paper and CDs, which historically are considered safe investments. However, the credit crisis, which took a turn for the worse last month, has put money market mutual funds under pressure as skittish investors demand withdrawals.

“The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests,” the Fed explained.

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Posted at 7:07 PM (CST) by & filed under General Editorial.

Dear CIGAs,

  1. When will Comex paper gold no longer be able to manipulate the price of gold as they did today and most every day for the last many years?
  2. Can the Comex paper gold exchange default?

I wrote the following Sunday to prepare you for the answers to what appears to be the two most pressing questions today.

It is being re-posted now so you can caste my answers against the mechanics of the process outlined below as number 1 through 14.

I prefer to respond to questions with background knowledge first and then answers second in crisp form, not boring professorial essay work.

The Comex will no longer be able to manipulate price as Asia recognizes the dangers inherent in financial institutions and are therefore channelling their business into the cash bullion market. The Asian demand in the cash market then will not be of the kind that runs away from paper supply, but rather one that stands still and takes it. Should there be a shortfall of gold in the bullion market, delivery will be taken out of the COMEX warehouse to make cash bullion deliveries.

You witnessed this to some degree when gold last came up from the high $740s to $933 in a practically straight line. The paper traders could not hedge long in the bullion market because it simply was not there in size.

The supply in the Comex warehouse appears to total 5,864,965 ounces. Multiply this by $800 gold and you have approximately $4.7 billion. In today’s 1.144 quadrillion USD plus derivative market, 4.7 billion is a trivial amount. Compare that to recent failure numbers of the Bailout Bill at $700 billion.

As a very conservative comparison, the US dollar market turnover is above one trillion dollars per day.

The Comex does its $20 thing but at that same instant bullion is down only $10 because the buyers are serious and want significant supply. Those that trade between exchanges for differential profit, as Guy Weiser Pratte’s Dad did in true arbitrage, will instantly bring the paper gold up to the bullion bid or thereabouts.

Once this starts the paper gang is out of aces in running the price of gold. It happened in the 70s and will happen again soon.

That soon can be defined as when the Asian professional public recognizes all these rescue attempts are nothing but white wash applied to the crumbling pile of credit crap.

Default is a definitive term dealing with the inability of one party to perform on a contract. The exchange provides a place for other to agree to contracts, not the exchange. Yes members may be both buyer and seller creating a contract, but the exchange never is.

It is certainly probable that large leveraged interests both long and short could fail on a massive position, as might Lehman when it took Chapter 11.

The guarantee on a contract is first through the clearinghouse that pays out to winners every afternoon and demands the loser then pay into the clearinghouse.

As such, a default or failure to pay in as required by the contract could happen at any time in any size.

The next guarantor of the position to the other capable side is the entire asset of the exchange. The final guarantee is all the assets of all the members. This is something like Lloyd’s of London used to be on insurance.

The loss that has to be guaranteed is the difference between yesterday and today as the position was good yesterday having no problem at the close of the exchange hours. If it were not so the problem would have exploded at the clearinghouse last night.

The only way the Comex can default is if they cannot deliver gold from their warehouse in the kind and means of the 100 oz. contract that fits the legal terms of default.

That would leave the exchange and its member short by default. The guarantee would be all the assets of the exchange and of the membership. I believe the clearinghouse is out of that situation yet that most likely would be determined by litigation as plaintiffs dive at deep pockets.

This was what blew silver through $30 to a $54 bid – none offered. It was universally believed that the Hunts were going to demand delivery on all of their silver, and that long position was supposed to be in excess of Comex warehouse supply. For your information, they had no such intention. Believe me, I know better than anyone on that subject.

In summary both questions are answered by watching the settlement months to determine if the delivery of warehouse gold is on the increase.

This definitively ends the paper gold rein of glory.

It might put a bunker and Herbert touch on the gold market. It would take Weimar to some degree to empty the Comex warehouse, but Weimar to some degree is going to happen.

For your information:

Gold will trade at $1200 and $1650. The USDX will trade at .72,  .62 and .52.

  1. It is axiomatic that the most leveraged gold market most often (95 percent of the time) sets the price of any cash market. First derivatives (listed futures) commands price.
  2. This remains true as long as the COMEX warehouse of gold is NOT meaningfully depleted by long gold contracts by taking delivery from the exchange warehouse.
  3. As long as an exchange maintains a warehouse that historically overwhelms historical demand for delivery the first derivative, The COMEX listed gold future, will be the primary cause of price.
  4. Taking delivery from the COMEX warehouse is not an easy process as the system is designed not to violate your contract but to be a world-class pain in the ass.
  5. The COMEX requires re-assays, assuming you wish to re-deliver. This then places another raving pain in the ass in your way.
  6. The COMEX market is effectively an international 24-hour market as there is no location where you cannot buy or sell a COMEX clone.
  7. Cash bullion gold as opposed to the semi cash markets that non-USA banks trade is the only totally private means of buying and selling gold.
  8. As currency problems increase, first the knowledgeable public such as you clean out the coin market.
  9. This is the first time that the international coin markets have been cleaned out everywhere. This did not happen globally in the 70s.
  10. Large gold bars are still available in major markets but the backup inventory is getting low.
  11. As long as the COMEX warehouse remains adequate and large bars still are available, the paper market, the leveraged COMEX market, will rule the price.
  12. Only with a decline in COMEX warehouse inventories and a run down in large bar supplies of the cash market will the cash bullion market command the price of the COMEX futures market.
  13. It was not the buying by the Hunts that caused silver to move above $30 into the $50 area, but rather the universal belief that they would take delivery, which would deplete or exceeded the COMEX warehouse supply.
  14. The War between paper gold and bullion gold is a war to determine which will take command of the price of gold, nothing more, and nothing less. There will be no two markets trading at different prices. All this battle is about is IF the bullion gold market is going to take the lead in making the singular price away from the traditional axiom that the most leveraged market makes the price. I believe the bullion, in these most unique conditions, will command the one gold price making it hard to impossible to manipulate the gold price via the paper gold market, as is the practice every day.

Posted at 7:05 PM (CST) by & filed under General Editorial, In The News.

Jim Sinclair’s Commentary

A small warning: Libor was caught fabricating its data on April 16th 2008. Who knows what lies behind the Libor door when a big lie would be very appreciated by the honest population of Wall Street.

“This game of “smoke and mirrors” took a big blow today with an article that you probably didn’t hear about today. CNBC “bubble-land” TV wouldn’t dare bring this to your attention. The WSJ and Bloomberg reported today that the Libor rate is being misquoted by banks. The Libor is set on the marketplace based on what the banks tell them they paid to borrow. This rate is not set by regulators. The Libor rate is set on trust.

So the banks are lying and saying they are paying a lower rate when they really paid a higher lending rate.

The British Bankers’ Association will speed up the review of the process by which money-market rates are set daily amid concern that some contributors are providing misleading quotes.

The global credit squeeze has raised concern lenders have been manipulating the so-called fixing process to prevent their borrowing costs from escalating, the Bank for International Settlements said in March. Participants have complained about whether banks are submitting accurate information, said Angela Knight, chief executive of the London-based BBA.”
–April 16, 2008

The Libor Lies: Smoke and Mirror Games Continue
Bloomberg
Wednesday, April 16, 2008

Well it was rally time today as the market continues to try to convince itself that the worst is behind us.

I find Wall St. fascinating because so much of it is a game of psychology. Dr. Robert Shiller from Yale describes financial bubbles as mainly being a psychological event. Bubbles tend to start with excitement and profits, are fueled by manias, and then crash in a panic. In between the cycles you will see moments of denial as the people who got in too late refuse to accept that they were the last sucker at the top. Today’s housing market and tech are good examples of this.

I view the stock market right now as being more psychological in how it reacts to news versus your old school technical market. There was a time in the markets where earnings were what mattered and markets were much more predictable as a result.

Today we have a much different market. You have financial TV news networks influencing investment decisions with 100 talking heads that have 100 different opinions. Today’s market also has a much larger pool of short sellers which can make the market move more violently up or down. Finally and most importantly in today’s market you have the the “financial innovation” of Wall St.

This new environment makes things very confusing for the average investor because there is so much information to digest. Its gotten to the point where its almost impossible for any investor(including myself) to predict where we are heading on a short term basis. However, in the long term, fundamentals ALWAYS come back to the market and stocks are then priced appropriately to earnings. Nasdaq 5000 ring a bell?

IMO, Financial innovation’s have become the most dangerous change in the financial markets because it made the stock market more vague or “shady”. Wall St.’s existance is based on trust and confidence. Without trust you would have no financial system. Would you give your money to a bank that you didn’t trust would pay you back?

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