Posted at 1:53 AM (CST) by & filed under In The News.

A note to our Russian Readers:

You have an exceptional opportunity to stop the decline in the value of the Ruble and elevate it to a reserve currency through the following conversion opportunities:

1.Partial convertibility in gold at $1035.
2.Partial convertibility in crude oil at $147 per barrel.
3.Partial convertibility into a basket of crude and gold.
4.A full convertibility of the above.
5.A form of the Federal Reserve Gold Certificate Ratio that I have written about many times.
6.Same as above with all new sovereign bond issues.

All of this is much more effective than the failed attempts to stabilize.

When a currency has a convertibility aspect to it, conversion almost never occurs.

Jim Sinclair’s Commentary

This scholarly missive written by a fellow who truly understands speaking the language of the initiated presents the non conversion of Monetary Base into M2.

That may be another reason that the US Treasury and the Fed have moved to QS. If QS in fact does pump money directly to those most apt to spend it, converting Monetary Base into M2 and accelerating it, then watch inflation roar as business decelerates to the downside to some degree. Of course there will be things like putting GE’s financing under a FDIC guarantee. Does anyone put their funds into the GE Bank & Trust? There isn’t one so what is the FDIC doing guaranteeing debt with its quickly deteriorating balance sheet and for how much is the guarantee per $1000 bond? I suspect they are 100% guaranteed.

Don’t forget one of the tools of attempted repair inthe1930s was an increase in the price of gold to offset the deflationary thinking and create more money for stimulation methods that unfortunately failed.

QS might work to some degree and that may be why US equities did a key reversal today.

Technical Factors

Perhaps the most important driver of the US dollars recent appreciation is not a fundamental but a technical factor. The meltdown of prices in the commodity complex, particularly energy, has generated a very strong impulse for US dollar strength. Whilst many commodity end-users were outright cash buyers, other buyers that were investing or speculating in commodities as a newfound asset class over the past five years would typically fund their position with US dollar-denominated credit, in effect, creating a US dollar short position. Now that these commodity carry trades are being unwound, it exacerbates commodity weakness and contributes to US dollar strength. In addition, US investments in foreign markets, particularly equities, were primarily un-hedged and large amounts of those monies are now being repatriated which holds similar bullish US dollar effects.

Dollar Strength Sustainability
How sustainable are these four fundamental and technical factors in underpinning US dollar strength?

The trade and current account deficits should continue to narrow for several more months or perhaps quarters. As the US economy falls deeper into recession, imports should begin to decline more precipitously due to declining volume. This collapse along with rising export receipts will narrow the trade deficit and continue to lend support to the US dollar.

Despite the US dollar supportive narrowing of the trade and current account deficit, the pace of improvement may begin to slow for several reasons. First, once the prices of energy and other commodities stabilize, trends in import prices will no longer help lower overall import expenditures. Furthermore, stabilized import prices will also stop contributing to improved terms-of-trade. Second, it seems that a synchronized global recession is on the horizon. If so, then exports will once again decelerate despite US dollar competitiveness. As the growth of economies representing our important export markets slows or even falls into recession, weaker export growth will result. The combined effect of these counter-veiling trends is that the incipient narrowing of the US trade deficit may be short lived.

Perhaps the key factor will be the length of the time it takes for global de-leveraging to run its course. No one knows precisely how long it will take for investors and speculators to unwind US dollar-denominated commodity and other carry trades. It could be one month or half a year. However, once complete, the strongest driver for recent US dollar strength de-leveraging — will dissipate. At that juncture, FX traders and investors will once again re-focus their attention on the supply of US dollars being pumped into the US economy and on the global system and investors willingness to hold additional Greenbacks in their portfolio.

The weight of US dollar supply
It is beyond the scope of this paper to itemize the growing cumulative costs of the various aspects of the bailout. Suffice to say that the supply of US dollars is dramatically growing and measured in the trillions. To best measure this aggregate growth, lets look at the growth of the Feds balance sheet and the monetary base.

After remaining relatively stable for more than a year through August 2008 at around $825 billion, the monetary base has exponentially exploded. BCA has recently highlighted that in the past eight weeks, the monetary base has grown 38% to $1.142 trillion, and shows no signs of slowing down.1 Yet these reserves injected onto the balance sheets of the banks have not been disseminated into the broader economy. This is apparent by the ratio of M2 to base money, which over the same time period since end August, has plummeted from 9.1 to 7.8 (see Charts 1 & 2). This is not surprising since most of the capital injected into banks has been used to repair and shrink the balance sheet (i.e., write-off bad assets) rather than expand it. So fractional bankings normal stimulatory impact through the money multiplier has by-in-large not been activated.

More…

Jim Sinclair’s Commentary

The paper market for gold will NOT be able to hold back this type of demand, but will try as long as their warehouse remains capable of supporting their devious destructive machinations to pick your pocket in order to fill theirs. For your information, my wife and I were members of the Comex.

I respectfully ask you to take delivery of your positions as you can afford to. Why pay wild premiums to buy gold when you can buy a nearby gold future at no premium and take delivery?

Gold rush
Benjamin Scent
Friday, November 14, 2008

The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.

Beijing is considering changing its asset allocations during the financial tsunami in order to build up gold reserves "in a big way," the source said.

China’s fears about the long-term viability of parking most of its reserves in US government bonds were triggered by Treasury Secretary Henry Paulson’s US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget deficit balloon to well over US$1 trillion this fiscal year.

The US government will fund the bailout by printing new money or issuing huge amounts of new debt, either of which will put severe pressure on the value of the greenback and on government bond yields.

The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23 billion. China holds gold reserves of just 600 tonnes, worth only US$13.89 billion.

More…

 

Jim Sinclair’s Commentary

This alone creates at least a very strange situation that the legislative now wants to see. Can you imagine what the Obama Administration will do to get both the Fed and the USA Treasury to come clean?

I would suggest that both the Fed and the Treasury have no hope of hiding the facts in a short period of time.

A word of advice to those presently concerned by the lack of oversight:

The matter might be good to face up to while the Bush Administration can still issue Presidential pardons.

Bailout Lacks Oversight Despite Billions Pledged
Watchdog Panel Is Empty; Report Is Unfinished
By Amit R. Paley
Washington Post Staff Writer
Thursday, November 13, 2008; A01

In the six weeks since lawmakers approved the Treasury’s massive bailout of financial firms, the government has poured money into the country’s largest banks, recruited smaller banks into the program and repeatedly widened its scope to cover yet other types of businesses, from insurers to consumer lenders.

Along the way, the Bush administration has committed $290 billion of the $700 billion rescue package.

Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.

"It’s a mess," said Eric M. Thorson, the Treasury Department’s inspector general, who has been working to oversee the bailout program until the newly created position of special inspector general is filled. "I don’t think anyone understands right now how we’re going to do proper oversight of this thing."

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Jim Sinclair’s Commentary

The French just figured this out. No, it is a statement to the USA to stop trying to run things at this type of gather.

Sarkozy-US dollar no longer only currency in world

11.13.08, 06:49 AM EST

PARIS, Nov 13 (Reuters) – The U.S. dollar can no longer claim to be the only currency in the world, French President Nicolas Sarkozy said on Thursday ahead of a Washington meeting of G20 leaders to discuss the international financial system.

‘I am leaving tomorrow for Washington to explain that the dollar cannot claim to be the only currency in the world…, that what was true in 1945 can no longer be true today,’ he said at a prizegiving ceremony.

More…

 

Jim Sinclair’s Commentary

Beggars never stop begging. This is all about OTC derivatives and most certainly not the false flag of mortgages. The OTC derivatives broke them and caused this total disaster rather than a simple recession.

Freddie seeks gov’t aid after $25.3B loss
Friday November 14, 2:38 pm ET
By Alan Zibel, AP Real Estate Writer

Freddie Mac seeking $13.8B in government aid after posting 3rd-quarter loss of $25.3 billion

WASHINGTON – Freddie Mac is asking for an initial injection of $13.8 billion in government aid after posting a massive quarterly loss Friday.

The mortgage finance company is making the first request to tap the $200 billion promised by the Treasury Department to keep it and sibling company Fannie Mae afloat after the two were seized by federal regulators in September. Freddie Mac said it expects to receive the money by Nov. 29.

The McLean, Va.-based company posted a loss of $25.3 billion, or $19.44 per share, for the third quarter. The results compare with a loss of $1.2 billion, or $2.07 a share, in the year-ago period.

Analysts were divided about whether Fannie and Freddie’s losses would ultimately exceed the government’s $200 billion pledge. And that may partly depend on the extent to which Fannie and Freddie are used by the government as a tool to ease the foreclosure crisis.

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Posted at 1:31 AM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Linked below is a PDF of the foreign custodial accounts at the New York Fed.

It is difficult to envision a graph which shows a line going more vertical than that of the US Treasury holdings chart. I look at this chart and see my children and grandchildren’s future going up in smoke. If you want to know how the chart of US monetary aggregates has turned exponential since August of this year, look no further than the custodial holdings of Treasuries at the Fed. So far (emphasis on “so far”), they have found buyers for this debt from abroad. How long that will last is anyone’s guess. When I think of the enormity of the bailouts coming our way, I find it difficult to believe that there is going to be sufficient demand from abroad for the massive issuance of debt that will be associated with it. If, or should I say, “when”, the supply of new debt overwhelms foreign demand, heaven help the US Dollar.

Notice that while that particular chart has gone vertical, the agency debt chart (Fannie and Freddie are in this category) has seen foreign central banks dump almost $90 billion of this paper since July of this year. Clearly they want nothing to do with it and are unloading agency debt almost as fast as they are loading up on Treasuries.

Trader Dan

 

Click here for today’s Custodial Accounts charts from Trader Dan Norcini

Posted at 2:51 PM (CST) by & filed under General Editorial.

Dear International Friends of Gold,

If you are tired of being had by paper gold DOING WHAT IT DID TO YOU THIS US MORNING, the following is the only course of action to end the games being played at your expense. Gold you take delivery of can be insured and shipped anywhere on the globe by Brinks and other recognized express services.

Delivery Process for Gold or Silver:

Delivery – Prudential holds the receipt in PFG’s account for customer
1. Client buys the futures contract.
2. Client will take delivery between First Notice Day and the Last 
Trading Day.
3. On delivery day account is debited cost plus a $50.00 delivery fee.
4. Receipt is booked to customers account
5. Monthly storage charge passed on to customer’s account(about $50.00).

Physical Delivery – Customer wants bars in their procession
1. Client buys the futures contract.
2. Client will take delivery between First Notice Day and the Last 
Trading Day.
3. On delivery day account is debited cost plus a $50.00 delivery fee.
4. We will provide the customer with name and phone number of the 
individual at the depository to contact.
5. Customer makes arrangements for the physical delivery

CIGA JB Slear, who is in the commodity business, offers his services to assist anyone seeking physical delivery of metals. He will guide you through the entire process, including arrangements for delivery.

To be totally clear, I expect JB not to discuss any type of speculation with you but ONLY help you acquire 100 ounce gold bars. Once 21,000 bars have been taken the paper gold’s reign over the price of gold is over.

CIGA JB Slear can be reached at the following:

Fort Wealth Trading Co. LLC
www.FortWealth.com
866-443-0868 ext 104

Posted at 11:01 AM (CST) by & filed under In The News.

Dear Friends,

Pressure is picking up in the demand for the Fed to outline what they have done with the trillions put into play and to disclose what their inventory of "assets" is. It is very bad for the Fed to refuse. Cooperation might actually cause a major embarrassment to the US dollar, and soon.

Respectfully,
Jim

 

Jim Sinclair’s Commentary

If I was anyone involved in these distributions that might have even the smallest possibility of being a crime, I would fess up, get sentenced, and be pardoned by the outgoing Administration. That should be basic logic on the subject of “saving your ass.” “The Democrats are coming, the Democrats are coming – run for your money.” Sorry, I mean life.

Washington’s $5 Trillion Tab
Elizabeth Moyer, 11.12.08, 05:15 PM EST

Fighting the financial crisis has put the U.S. on the hook for some $5 trillion a report says. So far.

For all the fury over Treasury Secretary Henry Paulson’s $700 billion emergency economic relief fund, it seems downright puny when compared to the running total of the government’s response to the credit crisis.

According to CreditSights, a research firm in New York and London, the U.S. government has put itself on the hook for some $5 trillion, so far, in an attempt to arrest a collapse of the financial system.

The estimate includes many of the various solutions cooked up by Paulson and his counterparts Ben Bernanke at the Federal Reserve and Sheila Bair at the Federal Deposit Insurance Corp., as the credit crisis continues to plague banks and the broader markets.

The Fed has taken on much of that total, including lending a cumulative $1 trillion in overnight or short-term loans since March to primary dealers through its emergency discount window and making a cumulative $1.8 trillion available through its term auction facility, a series of short-term transactions it began making available twice a month in January. It should be noted that a portion of the funds lent in these programs has been repaid and that the totals represent what has been made available.

More…

Posted at 3:27 AM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Here comes the "Everybody for Themselves" syndrome while China tells Washington to stuff it. Absolutely nothing is coming out of the New Bretton Woods farce but a spin statement while all the boys duke it out.

Europe and U.S. Clash on Financial Reform

When world leaders come together in Washington this weekend to discuss reforming the global financial system, there may be little consensus

The faucets dripped, the windows couldn’t be opened and rain and snow came in through the roof and dripped down the walls. The Mount Washington Hotel in the small New Hampshire town of Bretton Woods was not in great shape when it served as the site of a conference on a new world economic order for 700 international financial experts shortly before the end of World War II. The 1944 meeting went on for three weeks in what one guest dubbed the "madhouse." Still, despite the sub-optimal conditions, by the time it had ended, the conference had agreed on the rules and institutions that would shape the international financial system for decades to come.

Now, more than six decades later, another world financial summit is set to take place this weekend. The world’s 20 most important government leaders will meet on Friday in Washington D.C. to discuss a new fundamental reform of the financial system. In the wake of the crash in the credit markets, the billions in bailout packages put in place around the world and last week’s warnings of a global recession, many governments have high hopes for sharper regulations in the global financial markets.

German Chancellor Angela Merkel called for "more transparency" and a "better set of rules." French President Nicolas Sarkozy proposed a significantly stronger role for the International Monetary Fund (IMF), currently headed by French politician Dominique Strauss-Kahn. A "new Bretton Woods," the French president said, must "lead to a new founding of capitalism."

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Jim Sinclair’s Commentary

This is effectively a downgrade of the US dollar. You think that is bullish for the dollar? Hell NO.

Financial Big Shots Now Speaking Of U.S. Government Bankruptcy

The United States may be on course to lose its ‘AAA’ credit rating due to the large amount of debt it has accumulated, according to Martin Hennecke, senior manager of private clients at Tyche.

"The U.S. might really have to look at a default on the bankruptcy reorganization of the present financial system" and the bankruptcy of the government is not out of the realm of possibility, Hennecke said.

"In the United States there is already a funding crisis, and they will have to sell a lot more bonds next year to fund the bailout packages that have already been signed off," Hennecke told CNBC.

More…

Posted at 3:23 AM (CST) by & filed under Jim's Mailbox.

Dear Jim,

Here is another example of wafting anti-US dollar currency smoke.

Click here to view article…

This article lacks two big phrases:

1. "Possible" Future Gold backed currencies (Ruble or Yuan).
2. Trading in baskets of non US dollar currencies for trade settlement.

Now, is there a JSMinset reader who can parse Russian news releases? I know we have a few good Chinese interpreters. I think the Russians like to throw a lot of jabs when squaring off and they like to control the ring.

Ciga Ken

 

Jim,

I had a chance to travel cross country this past week and finally got a chance to begin reading Adam Fergusson’s book "When Money Dies: The nightmare of the Weimar collapse." While I have not completely finished it yet, I can say that much of what I have already read seems to be no different than opening up the newspaper on any given day here in November of 2008… including the corrupt cronyism, incompetence and political turmoil.

If anyone is calling you with questions about whether or not owning gold, silver or quality mining stocks is the right thing to do, please have them get a copy of this book. It is out of circulation but they can get a copy from one of Amazon’s used book dealers.

CIGA Buz

Posted at 3:04 AM (CST) by & filed under Uncategorized.

Dear Friends,

I invite you to read the following news article from Chinastakes.com. The Chinese often make official statements through a non-governmental expert. As the article suggests, when you become the world’s largest debtor nation, you cannot push others around to cure your debt problem. I have taken the liberty of highlighting sections of special interest.

When the exogenous event of dollar repatriation, the dollar short squeeze and the realigning of carry positions is over (very soon), the dollar will drop like a stone.

Respectfully,
Jim Sinclair

Before Saving the US
November 11,2008
by CSC staff

The nature of the current global financial crisis is the biggest debt crisis in America’s history. The issuer of the world’s reserve currency, the US has been borrowing for quite a long time without any limit. America’s trade, international payment and fiscal deficits have existed for over 40 years (a fiscal dividend once occurred during Clinton’s administration but deficit soon returned). Statistics show that America’s internal and external debt exceeds $60 trillion, over 400% of the country’s annual GDP of a bit over $14 trillion. Of that total, family debt (including mortgages), financial and non-financial firms’ debt, and municipal and national debt come to about $15 trillion, $17 trillion, $22 trillion, $3.5 trillion, and $11 trillion, respectively, though it is hard to tell how these debts have been split up among foreign governments, financial firms, companies, and individuals.

To relieve the crisis, the US must repay its debts, and to do that it needs to live a more frugal life instead of asking others to continue lending it the money to maintain its over-consumption.

The first thing the government needs to do is reduce spending and the deficit. Correspondingly, the US needs to cut military disbursement, stop its global expansion and the robbing of oil resources from other countries. Companies should also become thrifty and avoid highly leveraged operation. Families and individuals should stop anticipating their income to buy houses and travel globally. Instead, they should warmly welcome foreigners to travel to and spend money in the US.

China Should Raise Conditions

But if the US must ask China to buy some portion of its national debt, what kind of conditions and principles should China we raise?

The principle should be the same as the basic principle upheld by the US and IMF when "saving" other countries in crisis: cut fiscal disbursement and both the government and the people should save money. Besides that, there are six points: first, the US should cancel the limits on high-tech exports to China, and allow China to acquire advanced technology and high-tech companies from the US; secondly, the US needs to open its financial system to Chinese financial institutions, allowing all Chinese financial firms to open branches and develop business in the US; third, the US should not prevent Europe from canceling the ban against selling weapons to China; fourth, the US should stop selling military weapons to Taiwan; fifth, the US should loosen its limits on numbers of Chinese tourists and allow them to travel freely to the US; and sixth, the US should never restrain China’s exports to the US and force RMB appreciation in the name of domestic protectionism and employment pressure.

If the US should refuse to agree to the six principals, that only means it doesn’t really need China to save its market and buy its national debt. Then China’s choice is quite simple: rationally adjust the structure of its foreign exchange reserve assets and avoid the risk of the US national debt according to market rules.

What is worth special attention is that the prerequisite for China’s purchase of US national debt is that China has enough foreign currency to meet the exchange demand when hot money is flowing out in large scale. Otherwise China will have to sell US debt to relieve its lack of foreign exchange currency, which will lead to sharp depreciation of China’s dollar assets. What is even worse, China may immediately suffer a financial crisis led by the lack of foreign currency.

So if the US wants China to help save its market, the US government and the IMF must admit China’s right to manage its foreign exchange independently. Once large scale hot money outflows occurs, China has the right to take effective measures to restrain the speed and amount of hot money outflow, and the US and IMF can’t blame China for it. This is the most important prerequisite, even more important than the six principles mentioned above. If the US can’t agree to it, China may trap itself when saving the US. When exchange crisis happens in China, who can promise the US and the IMF won’t hit China when it’s down?

(The author is a professor at Central China University of Science and Technology. The piece is translated from his article on China Business News)

Link to full article…