Posted at 12:56 PM (CST) by & filed under General Editorial.

Dear CIGAs,

The eloquent and highly perceptive Ambrose Evans Pritchard informs readers to the problem Jim has long stated. Derivatives were always going to be the big problem.

The world at large is slowly beginning to awaken to what Jim Sinclair has been saying for a long time.

Respectfully yours,
Monty Guild.

Fears of Lehman’s CDS derivatives haunt markets
It is a full week after bankers gathered in New York to start sorting out the derivatives mess left by the bankruptcy of Lehman Brothers. We still do not know who is on the hook for some $360bn of default insurance, or how much they will have to pay.
By Ambrose Evans-Pritchard
Last Updated: 12:18AM BST 17 Oct 2008

Lehman Brothers former chief executive Dick Fuld has faced heavy criticism

Ominous talk of big names and big sums continues to haunt global markets, thwarting efforts by the US and European authorities to unlock inter-bank lending. Traders have noted with acute interest that insurer AIG – now nationalised – says it will need another $38bn from the US government, on top of the $85bn bail-out it has already received. AIG is the world’s biggest underwriter of credit protection.

Those on the wrong side of these Lehman debt contracts – known as credit default swaps (CDS) – must come up with the money by Tuesday, the next D-Day in the ever-fraught calendar of the credit markets. There has been a deafening silence so far.

There is no easy way of finding out who they are, so every bank and insurer is suspect. The $55,000bn CDS market is “completely lacking in transparency and completely unregulated” in the words of Chris Cox, the chairman of the US Securities and Exchange Commission.

The settlement auction on Lehman CDS contracts last week was in itself a bombshell. Creditors retrieved just nine cents on the dollar from the Lehman wreckage. As Naked Capitalism put it, the bank had “vaporised”. The biggest players at the auction were Goldman Sachs and Deutsche Bank but they were almost certainly transacting for clients.

The insurers of the debt — a third are hedge funds — will have to pay 91pc of the $400bn in contracts.



What good is knowing all of this when our esteemed financial leaders pulled the plug on Lehman, a very major OTC Derivative creator.

I do not for a minute think I know more than Paulson and Bernanke.

The SEC overrules FASB, who in fact earlier this week allowed the gang to lie, allowing those cartoon values come back onto balance sheets. Now we are at square one. What just sold for .0875 cents by Lehman can be valued at whatever your in house demonic thief geek says is value to maturity, even though there is no way to know what market conditions will be at maturity. Why not say $90 or more on the .0875 OTC bag of crap just sold by Lehman?

Think about this!

Your friend,

Posted at 12:15 PM (CST) by & filed under General Editorial.

Dear CIGAs,

Why is there even an FASB?

They are a bunch of bean counters that like two plus twp to be four. The earth cries out to its maker as the evil is too much to bear.

The common man is a slave.

The middle class is regulated.

The super rich have no regulation, law or feeling of responsibility except to themselves.

The damage they do will be vented on their children, but they do not give a damn.

Financial Sodom and Gomorrah:

“And the Lord said, Because the cry of Sodom and Gomorrah is great, and because their sin is very grievous;

I will go down now, and see whether they have done altogether according to the cry of it, which is come unto me; and if not, I will know.

— Genesis 18: 20-21 (KJV)”

Sometimes men just push too far.

That time the evildoers are the denizens of Sodom, a city on the plains of Jordan near the Dead Sea.

This time the evil doers are OTC derivative manufacturers and the false/misleading valuation of worthless asset-less so called assets.

Somehow I do not believe the cocky evil doers will walk away with their winnings, their health and live happily ever after in Greenwich CT and Toronto.

SEC allows change that may delay bank write-downs
Thu Oct 16, 2008 3:54pm EDT

NEW YORK/WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission has agreed to a request from banks that could allow them to delay writedowns on certain securities that have dropped in value due to thecredit crisis.

In a letter late on Tuesday, the chief accountant of the SEC told Financial Accounting Standards Board (FASB) Chairman Robert Herz, that banks, at least temporarily, could treat so-called perpetual preferred securities more like debt securities when assessing them for impairments.

In explaining the decision, SEC Chief Accountant Conrad Hewitt said such securities were “hybrid” securities with equity and debt-like characteristics that presented a particular challenge to banks.

In the letter, Hewitt said the SEC “would not object” to banks treating perpetual preferred securities as debt until FASB provides clearer guidance on how to address impairment charges for these securities.

A FASB spokesman was not immediately available to comment.


Jim Sinclair’s Commentary

When one party in a special performance contract fails financially the OTC derivative moves from notional value to full value. I don’t believe there are 200 experts that know their ass from their elbow on how to settle this mess.

Lehman Looks to Unwind Derivatives Trades
LEHMAN bankruptcy attorneys sorting thru 1.5 mil derivatives trades involving 8,000 counter-parties.

Lehman Brothers Holdings Inc.’s legal and financial advisers said Thursday they plan to hire about 200 professionals to help settle the more than 1 million derivatives trades the investment bank entered into before it collapsed last month.

Lehman attorney Harvey Miller said at a court hearing that advisers are working around the clock to understand Lehman’s transactions in the wake of the “chaos” that resulted from its Sept. 15 bankruptcy filing, the largest ever in U.S. history.

Much of their work will focus on wading through about 1.5 million derivatives trades involving 8,000 counterparties. Lehman’s chief restructuring officer Bryan Marsal of turnaround firm Alvarez & Marsal said about 210 financial professionals will be hired to unwind those trades.

Mr. Miller credited Mr. Marsal for his work so far, saying he has “brought order to thi s chaos.” Alvarez & Marsal has 144 employees working on the Lehman matter along with 165 Lehman employees still working at the bank.


Will Bailouts Risk Hyperinflation?
By | 13 Oct 2008 | 06:07 AM ET

Government bailouts of the financial system will destroy the dollar, euro and sterling because of hyperinflation, Martin Hennecke, senior manager of private clients at Tyche told CNBC. But Todd Everts, president & CEO of Wall Street Global, disagreed.

“The privatization of the banks is the first step down the road to hyperinflation,” Hennecke said Monday. “Maybe we are not seeing the Zimbabwe-style (hyperinflation), but inflation is a major major risk and investors should look at this very carefully.”

Standard and Poor’s projected in 2005, well before the current crisis hit, that all the major Western governments would be heading towards default on their sovereign bonds, Hennecke said.

But the dollar’s value is set to decrease over time, argued Everts, after hearing Hennecke’s case.


Posted at 9:58 PM (CST) by & filed under General Editorial.

Dear Jim,

I was reading your latest article and was very alarmed – I have been up most of the night in regards to these 3 comments and would greatly appreciate your thoughts.

I am currently totally invested in bullion 65 % gold and 35% silver.

Can you please help with these 3 ideas …

  • Silver will demonstrate the fact that it is more an industrial metal than a precious
  • Silver is not a currency because it is simply too HEAVY to settle debts or to be universally fungible.
  • Silver performs best when there is reasonable industrial demand and distrust of currency. When this happens rounding up the gang and their money will have a lot to do with which party is elected.

Also are saying that silver is unlikely to recover from this point in time and not likely to track gold at at least 90-100 to 1 ratio? THIS WOULD BE A MAJOR CONCERN FOR MANY INVESTORS AND I THINK IT WOULD BE VERY HELPFUL FOR US ALL

Thank you so much – I do realize your time is valuable.

Many kind Regards

Dear Brad,

Silver will perform with gold.

My concern is that after $1200 in gold, silver may not keep pace with gold due to its industrial demand component.

That is 100% consistent with what I have said for years.

What I said is absolutely true, but you give it too much of a bearish interpretation.

I never in any way made a bearish prediction for silver.

I said be realistic as markets move up as what I told you, in my opinion, is correct.

All the best,


It just keeps getting worse…

…averaged a record $437.53 billion per day in the week ended October 15, topping the previous week’s $420.16 billion per day

God Save Us,
CIGA Rick in Missouri

Banks borrow record $437.5 billion per day from Fed
Thu Oct 16, 5:14 PM ET

NEW YORK (Reuters) – Financial institutions ran to their lender of last resort for record amounts of cash in the latest week, under extreme pressure from the worst global financial crisis in a generation, Federal Reserve data showed on Thursday.

Banks and dealers’ overall direct borrowings from the Fed averaged a record $437.53 billion per day in the week ended October 15, topping the previous week’s $420.16 billion per day.

Some analysts are concerned that banks’ dependence on Fed lending might become long term and difficult to change.

“The banking system is going to become addicted to this very cheap money. Unwinding it will be very difficult,” said Howard Simons, strategist with Bianco Research in Chicago.


Dear Rick,

See you in Weimar.


Posted at 6:02 PM (CST) by & filed under General Editorial.

Dear Friends,

1. As we approach elections everything possible is being done to keep equities from total implosion.

2. As we approach elections everything possible is being done to keep the hollow US dollar firm

3. As we approach elections everything possible is being done to keep gold under control to assist in keeping the dollar firm.

4. Gold is NOT a commodity. It is a currency.

5. There is an appearance of involuntary liquidation in gold as hedge and gold funds are pressed by redemptions and needs for capital to pay off investors.

6. Gold never changes. Things change in price comparison to gold, so therefore you can jump up and down on the barometer but that will not change the circumstances it is reading.

7. The means of keeping all things in check is to demoralize those whose positions oppose the goal while showing some sunshine to those who wish to keep their positions.

8. Nobody on earth can prevent the CONSEQUENCES of Chairman Bernanke and Secretary of the Treasury Paulson’s attempt to offset the unavoidable CONSEQUENCES of the same actions taken by the central bank and treasury of the 1930s.

9. The different monetary action now in the degree applied will have their own and different CONSEQUENCES in the degree of economic impact.

10. The dichotomy between the bullion supply/demand picture and the easy to manipulate paper gold market continues. Pedro says: “A “friend” of mine was in Zurich yesterday. Aside from the fact that there were no gold coins available in one of the major centers of the world gold trade, it was also noted that there are no longer any large safe deposit boxes available at Credit Suisse Banhofstrasse.”

11. Here is where we are headed to some degree, regardless of the manipulation of markets to paint charts at an unprecedented level.

A Tale from Weimar Germany
by Roland Watson

Most readers will be familiar with the great hyperinflation of Weimar Germany. Indeed, it is often held up as the icon of what can go drastically wrong when government throws off all restraint in regards to the production of fiat money. I do not need to labour the point much as to how billions and then trillions of marks were literally not worth the paper they were printed on and how workers had to be paid by the hour lest their wages rapidly lost purchasing power in the brief time between being paid and spending that same money.

As ever, gold and silver proved to be safe havens from the ravages of inflation. Indeed, anything other than the mark seemed to a good place to park one’s wealth. In those days, that could be anything from bedpans to US dollars to precious metals. However, depending on one’s accumulated wealth, gold and silver were amongst the top assets in terms of holding and transporting wealth. Despite this, one set of figures and one notable week in the life of Weimar Germany demonstrated that one particular form of wealth proved to be in particularly heavy demand

Comments are invited by emailing the author at

12. Don’t let the unprecedented bullying of all markets to meet political expediency draw your attention off the ball.

There are defined CONSEQUENCES to the new approach taken by the top expert of the 1929 to 1940 depression. The error is that these actions will have CONSEQUENCES different from 1930 and they will be more devastating than one can ever imagine.

Monetary inflation, “the unlimited creation of fiat money,” will cause massive price inflation regards of the level of business activity


Posted at 9:28 PM (CST) by & filed under General Editorial.

Dear Friends,

There is one simple but extremely dangerous error being made by the man who is the world’s greatest expert on the time period and economics of the Great Depression, Dr. Bernanke, Chairman of the Federal Reserve.

The Chairman is an expert on the history and consequences of that period. He is being guided by this deep knowledge, yet is totally oblivious to the consequences of the alternative actions he is taking to not make the same errors as the 30s. This is all in his attempt to prevent his president from going down in history along with other failed economic leaders.

The unprecedented creation of infinite dollars for the purpose of flooding the world’s entire financial system is causing the birth an inflation of types unknown in a modern economy.

The test case for the CONSEQUENCES of present united central bank actions is the history of the Weimar Republic, but this time it is on a planetary basis.

CONSEQUENCES cannot be avoided by any means. They are economic equal and opposing forces. That is simple fact.

In an attempt to avoid what the Chairman see as consequences of incorrect central bank action in the 1929 – 1933 period, he is creating new and infinitely more dangerous, longer lasting, society changing, politically provocative new sets of unexpected economic CONSEQUENCES.

The only number that might compare to the nominal value of all OTC derivatives is a count of all the individual plankton in all the oceans of the world and then only maybe.

The world will never be the same because of the greed of these 29 year olds and the old goat bosses who sat at the long desk of the board of directors while looking the other way.

Upcoming events:

As a result of “This is it and It is NOW”:

  1. US exchanges will be closed. There is a chance all world exchanges will close down. Only gold and currencies which are planetary markets will continue to trade.
  2. Retirement programs will not pay off.
  3. Medicare and Medicaid will at best buy you a bandage or pay for 1/4 of a visit to a free clinic.
  4. Social security, due to the massive upcoming inflation, will provide no security for any society.
  5. Money Market Funds will not pay off.
  6. A CD is a gift, but not to you.
  7. Unified central bank action has a short life.
  8. Central banks will soon revert to the strategy of everyone for themselves.
  9. 401Ks not self directed are headed for the toilet forever.
  10. Exchange Traded Funds will not return the assets upon which it is based to you.
  11. Sliver will demonstrate the fact that it is more industrial a metal than precious.
  12. Silver is not a currency because it is simply too HEAVY to settle debts or to be universally fungible.
  13. Silver performs best when there is reasonable industrial demand and distrust of currency. When this happens rounding up the gang and their money will have a lot to do with which party is elected.
  14. Credit card companies are going to have to be bailed out.
  15. GE Capital is a nuclear capable entity that has the capacity to take down the good old toaster and refrigerator manufacturer – SIGMA ZERO.
  16. GE Capital is a huge OTC derivative dealer but somehow I do not recall that fact being discussed.
  17. Gold is the only Honest Money because it has no liability attached to it.
  18. Gold coins are the best way to own gold for the average investor.
  19. When you select a junior gold, I would look for the highest quality, most bashed, highest short positioned, with real assets and real people devoid of pussy management. The situation is best if it is based in another country than the country you live in while doing business in a third and trading in multiple areas. The benefit is obvious.
  20. Nobody ever did or will ever trade items as insurance. That is a form of madness.
  21. At $1650 I will take my leave, having been with you to the point I promised.
  22. The only place you will find me then is at my place of business on the ground or the web.

There is no question that gold will trade at or above $1650 by January 14th, 2011.

Posted at 9:08 PM (CST) by & filed under General Editorial.

Thomas Jefferson, the author of America’s Declaration of Independence, understood the threat posed by central banks:

“The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution… Bankers are more dangerous than standing armies… [and] If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.”

Jim Sinclair’s Commentary

I am willing to bet you will never hear a word about the base crime, OTC derivatives. Maybe Washington Mutual will get a coat of white wash like all the “Brothers of the Dark Side.”

Feds investigate failure of Washington Mutual
The Associated Press
Wednesday, October 15, 2008

SEATTLE: Federal authorities said Wednesday they have opened an investigation into the failure of Washington Mutual Inc., the largest U.S. bank failure.

U.S. Attorney Jeff Sullivan said in a statement that the FBI, the Federal Deposit Insurance Corp., the IRS and the Securities and Exchange Commission have created a task force to look into the thrift’s failure. He asked anyone with information to contact authorities through a tip line, or to email the FBI’s Seattle office.

Sullivan said that “given the significant losses to investors, employees and our community, it is fully appropriate that we scrutinize the activities of the bank, its leaders and others to determine if any federal laws were violated.”

Seattle-based WaMu ran into trouble giving loans to people with poor credit repayment histories during the housing boom. As talk of the 119-year-old thrift’s instability spread and its credit was downgraded, people began pulling their money out – leaving WaMu without enough cash to meet its obligations.

It filed for bankruptcy protection and was sold last month in a $1.9 billion fire sale to JPMorgan Chase & Co., one of the biggest banking companies in the U.S.


Jim Sinclair’s Commentary

Still comfortable in your money market accounts, retirement accounts and bank CDs? If you are then you are brain dead.

Globex Puts Freeze on Term Deposits
16 October 2008
By Jessica Bachman / Staff Writer

In a sign that the liquidity crisis is becoming more acute for Russian lenders, Bank Globex, one of the industry’s medium-sized players, has blocked early withdrawals from fixed-term deposit accounts for five days.

The announcement raised immediate concerns about whether the bank’s move was even legal.

Emil Aliyev, vice president of Globex, said the measure was introduced after a spike in demand for early withdrawals of term deposits, “with many depositors explaining that they urgently wanted to transfer their money to VTB and Sberbank,” Interfax reported. Both VTB and Sberbank are state controlled.

Garegin Tosunyan, president of the Association of Russian Banks, said the Globex decision, while severe, was “the correct action to take.”

“When panic strikes, the banks need to take measures,” Tosunyan said. “You need to pour cold water over people’s head and say, ‘Look, enough; let’s stop panicking now.'”


Jim Sinclair’s Commentary

Not every Nobel Laureate in Economics is an impractical academic egg head.

Some (maybe only two) really know what is going on and have no problems expressing themselves.

Dr. Brenner understands the Federal Reserve Gold Certificate Ratio modernized and revitalized. I am proud to say that he and I speak on such matters.

Canada has many resources that even it does not realize.

Hi, Jim and Dear Friends,

“Legally, the devaluation of the dollar is not called a “default.” But that’s what it is.” — Reuven Brenner

Reuven Brenner has written a wonderful article called, “How we got here”. He speaks on the whole sordid OTC mess, the decoupling of fiat money from gold, the history of international monetary policy, currencies, treasuries, interest rates, the great depression and the inevitable return of some form of the gold standard.

You may read the entire article attached below and at the link provided here:

All the best,

How we got here
The current financial crisis stems from the decision to divorce our currencies from a reliable standard of value
Reuven Brenner ,  Financial Post
Published: Wednesday, October 01, 2008

Gold is hovering again around $900, commodity prices are on the rise, and the U. S. dollar is back to its downward trend of the last few years. This isn’t a surprise.

The $700-billion bail-out plan is mum about the dollar — a big mistake (reflected in the immediate currency/gold price movements), since the Fed’s mismanagement of the dollar as a reserve currency contributed to the present mess. The signals were all there for the Fed to see. Yet academic fads blinded it. How did we get here? More important: how to get out? Take a deep breath.

Abruptly, in 1971, the world moved from fixed to floating exchange rates without in-depth debate. Under a fixed exchange rate anchored in gold, 5% interest in London or 5% in NY reflects the same returns. Money, whether the dollar or the pound, anchors pricing. Coca Cola knows that in pricing its beverages and selling them around the world, or in issuing U. S. dollar denominated debt, it faces no exchange rate risk. The company is neither inadvertently drawn in the exchange rate business nor does it need to hedge and pay fees to avoid being in that business.

This is not the case with floating exchange rates. Every global business -no matter what it sells or buys and how it finances itself — is in the currency business. Unless companies buy complex derivatives to insure that they stay in their own lines of business, currency fluctuations cause volatility in their costs and revenues. Financing companies becomes more expensive, resulting in a contraction of the non-financial sector and a large expansion of the financial one compared to a world adhering to anchored fixed exchange rates. The fact that national aggregates count the financial sector’s expansion as increased well-being just shows how meaningless such measures are. The expansion measures the cost of adapting to bad monetary policy, which could have been avoided.

It has been a mistake to say that floating means “laissez-faire” for currencies. The main role of money is to be a trusted anchor for pricing. People’s holding of cash as a “store of value” has always been insignificant. As to a medium of exchange: it fulfills this function properly only when people trust its stability. When the dollar plunges in terms of other currencies by 40% to 60% within few years, and when street vendors in emerging countries refuse dollar bills or accept it at deep discounts, as now happens, it becomes less of a medium of exchange. True, the dollar remains the reserve currency of choice because other countries mismanage their currency too. But relying on the mistakes of strangers is not a good policy. People want to understand that a promise to be paid 5% on U. S. Treasury represents 5% in their own currency too– rather than, suddenly, minus 10%. When this happens, everyone speaks the same standard monetary language. When this is not the case, then it is gobbledygook to discuss what’s “real” and what’s not; what’s floating and what not; and what clauses one must add to contracts to be reasonably protected.


Posted at 4:00 PM (CST) by & filed under General Editorial.


This was published on the McClathy website. Their motto is ‘Truth to Power’. They tell it like it is and I found this article on the Yahoo news today.

CIGA Marty

New intelligence report says Pakistan is ‘on the edge’
By Jonathan S. Landay and John Walcott | McClatchy Newspapers

WASHINGTON – A growing al Qaida -backed insurgency, combined with the Pakistani army’s reluctance to launch an all-out crackdown, political infighting and energy and food shortages are plunging America’s key ally in the war on terror deeper into turmoil and violence, says a soon-to-be completed U.S. intelligence assessment.

A U.S. official who participated in drafting the top secret National Intelligence Estimate said it portrays the situation in Pakistan as “very bad.” Another official called the draft “very bleak,” and said it describesPakistan as being “on the edge.”

The first official summarized the estimate’s conclusions about the state of Pakistan as: “no money, no energy, no government.”


Dear Jim,

Here are a few SFR (single family residence) statistics from a mortgage banker friend of mine. This information is focused on California, but you can probably get the general US message.

  • Foreclosures made up 47% of all CA SFR sales in August 08, up from 9% in August 07
  • Median CA SFR price was $350,000 in 8/08 down 40% from $590,000 in 8/07
  • 2008 SFR unit sales are on pace for 490,000 units, up from 313,000 in 2007
  • Current unsold inventory sits at 6.7 months VS 10.6 months in 8/07
  • New SFR permits are down 53% so far this year
  • Single family construction loans are now 12.5% delinquent, and condos 16.5%

Respectfully yours,
Monty Guild

Dear Jim,

I have had many people ask me about how ETF’s work. They often ask detailed questions about what happens to their ETF in scenario A, or scenario B. The answer is that all ETF’s work differently, and how they work is laid out in the legal language in the individual prospectus for each ETF.

Therefore, if JSMineset readers are interested in investing in ETF’s, they should read the prospectus closely and think about the implications of the legal structure. If they do not understand the consequences of the legal structure, they should hire a good securities lawyer to read and analyze the documents for them. We are not lawyers, and we do not want to get into the business of dispensing free legal advice to people. In our opinion, if you buy an ETF instrument you should know what you are buying.

Respectfully yours,
Monty Guild


Did you know that Trichet is a mining engineer by training, and presumably has some knowledge of gold?

Could we be heading back to a gold standard or a reasonable facsimile in the near future?

Even Trichet is getting in the act.

It will not be long now, Jim. It is all happening as you said it would. I will profit from this, but I’m pretty sad about it.

David Duval

Trichet Calls for Return to the `Discipline’ of Bretton Woods
By John Fraher and Gabi Thesing

Oct. 15 (Bloomberg) — European Central Bank President Jean- Claude Trichet said officials reshaping the world’s financial system should try to return to the “discipline” that governed markets in the decades after World War II.

“Perhaps what we need is to go back to the first Bretton Woods, to go back to discipline,” Trichet said after giving a speech at the Economic Club of New York yesterday. “It’s absolutely clear that financial markets need discipline: macroeconomic discipline, monetary discipline, market discipline.’


Dear David,

I have written many notes on the Federal Reserve Gold Certificate Ratio, modernized and revitalized, which will serve to meet the needs of discipline in a floating system. It is going to happen but not yet.