Posted at 7:33 PM (CST) by & filed under General Editorial.

Dear CIGAs,

Walter J. “John” Williams informs us that:

Fed Began Sidestepping No “Bailout” Before First House Vote – M1 and M2 Annualized Surges of 800% and 200% are Panic Distortions (Offset in M3).

Visit John’s site at www.shadowstats.com

Dear CIGAs,

As Jim points out, financial collapses happen on weekends. We look for major European banks, among the world’s largest, to fail, be forced to merge or be taken over by their respective governments this weekend.

Respectfully yours,
Monty Guild

Dear Monty,

The Europeans are not apt to see solace in the US dollar. Such an event turns Europeans towards gold as the only safe asset with no liability associated with it.

The world of collapsing financial institutions will turn the tide towards gold. Keep in mind that 90 percent of all the OTC crap was manufactured in the good ole USA. The only real ball outside of that was UBS.

Regards,
Jim

Financial Crisis: So much for tirades against American greed
Ambrose Evans-Pritchard says it is ironic that European banks have turned out to be deeper in debt than their US counterparts.
By Ambrose Evans-Pritchard
Last Updated: 1:12AM BST 02 Oct 2008

It took a weekend to shatter the complacency of German finance minister Peer Steinbrück. Last Thursday he told us that the financial crisis was an “American problem”, the fruit of Anglo-Saxon greed and inept regulation that would cost the United States its “superpower status”. Pleas from US Treasury Secretary Hank Paulson for a joint US-European rescue plan to halt the downward spiral were rebuffed as unnecessary.

By Monday, Mr Steinbrück was having to orchestrate Germany’s biggest bank bail-out, putting together a €35 billion loan package to save Hypo Real Estate. By then Europe was “staring into the abyss,” he admitted. Belgium faced worse. It had to nationalise Fortis (with Dutch help), a 300-year-old bastion of Flemish finance, followed a day later by a bail-out for Dexia (with French help).

Within hours they were all trumped by Dublin. The Irish government issued a blanket guarantee of the deposits and debts of its six largest lenders in the most radical bank bail-out since the Scandinavian rescues in the early 1990s. Then France upped the ante with a €300 billion pan-European lifeboat for the banks. The drama has exposed Europe’s dark secret for all to see. EU banks took on even more debt leverage than their US counterparts, despite the tirades against ”le capitalisme sauvage” of the Anglo-Saxons.

We now know that it was French finance minister Christine Lagarde who begged Mr Paulson to save the US insurer AIG last week. AIG had written $300 billion in credit protection for European banks, admitting that it was for “regulatory capital relief rather than risk mitigation”. In other words, it was underpinning a disguised extension of credit leverage. Its collapse would have set off a lending crunch across Europe as banking capital sank below water level.

It turns out that European regulators have allowed even greater use of “off-books” chicanery than the Americans. Mr Paulson may have saved Europe.

More…

Posted at 4:19 PM (CST) by & filed under General Editorial.

Dear Friends,

The amount of calls and emails coming in are actually frightening in the sense of the work it would take to answer. I really must ask you to give me a break as there is so much on my table.

Please know that I am on top of things, feeling great and am full of energy. Also please know that there nothing wrong with anything I am attached to. I have never felt more sure about gold and the investments therein.

I am not concerned about anything. Time will prove me totally correct.

Be logical. Read what I have written and relax.

Respectfully yours,
Jim

Posted at 4:10 PM (CST) by & filed under Guild Investment.

Dear CIGAs,

THIS WEEKEND WILL BE BRUTAL FOR EUROPE and the World

We must understand that Europe will be in the news now about their banking crisis as their financial system along with those of the rest of the world begin to disintegrate. Europe has been blaming the US for their problems, yet they are at least as bad and will now come to light. Please continue to protect yourselves and listen to wise people like Jim Sinclair.

Note the article below:

France, Germany clash on financial rescue
Wed, 01 Oct 2008 17:50:27 GMT
By Huw Jones and Paul Taylor

BRUSSELS, Oct 1 (Reuters) – France and Germany were at loggerheads on Wednesday over the idea of a U.S.-style financial rescue fund for Europe as EU governments went their separate ways in response to the global credit crisis.

The European Commission appealed for more consistency in deposit guarantee schemes and stronger pan-European financial supervision, but the apparent discord between Paris and Berlin underlined the difficulty of finding a common approach.

French Finance Minister Christine Lagarde said in a German newspaper interview that a “European safety net” could be needed to prevent a bank in a smaller EU country from going bankrupt.

But Chancellor Angela Merkel said Germany “cannot and will not issue a blank cheque for all banks, regardless of whether they behave in a responsible manner or not”.

A European government source said Paris had floated the idea of a 300 billion euro ($425 billion) EU rescue fund ahead of a meeting of leaders of the four big European powers and top EU officials tentatively set for Saturday in Paris.

But Lagarde told reporters: “There is no such thing. There is nothing of the sort,” when asked about the report.

The German Finance Ministry said: “The government completely disagrees with these plans.”

European Commission President Jose Manuel Barroso said he was working closely with French President Nicolas Sarkozy to present proposals to the leaders in Paris.

More…

Posted at 4:03 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

The whole world will end unless Congress passes this bill we are warned… this bill is about freeing up the credit markets we are told….Wall Street must be bailed out or else Main Street will fall we are told….

Yes indeed, we must make certain that employees that ride bicycles to work instead of driving those dirty cars can have their employers can pay for those expenses….

Unreal – this has become nothing but a pork barrel spending project loaded with goodies….

Trader Dan

Click here to view the full text of the bailout bill…

Email your State Senator and let them know your opinion on the Bailout Bill:

Click here for a complete contact list of all US Senators…

205 (Page 205 in the link above)
1 SEC. 211. TRANSPORTATION FRINGE BENEFIT TO BICYCLE
2 COMMUTERS.

3 (a) IN GENERAL.-Paragraph (1) of section 132(f)
4 is amended by adding at the end the following:
5 ‘‘(D) Any qualified bicycle commuting re
6imbursement.”.
7 (b) LIMITATION ON EXCLUSION.-Paragraph (2) of
8 section 132(f) is amended by striking ‘‘and” at the end
9 of subparagraph (A), by striking the period at the end
10 of subparagraph (B) and inserting ‘‘, and”, and by adding
11 at the end the following new subparagraph:
12 ‘‘(C) the applicable annual limitation in
13 the case of any qualified bicycle commuting re
14 imbursement.”.
15 (c) DEFINITIONS.-Paragraph (5) of section 132(f)
16 is amended by adding at the end the following:
17 ‘‘(F) DEFINITIONS RELATED TO BICYCLE
18 COMMUTING REIMBURSEMENT.-
19 ‘‘(i) QUALIFIED BICYCLE COMMUTING
20 REIMBURSEMENT.-The term ‘qualified bi
21 cycle commuting reimbursement’ means,
22 with respect to any calendar year, any em
23 ployer reimbursement during the 15-month
24 period beginning with the first day of such
25 calendar year for reasonable expenses in
26 curred by the employee during such cal

206
1 endar year for the purchase of a bicycle
2 and bicycle improvements, repair, and stor
3 age, if such bicycle is regularly used for
4 travel between the employee’s residence
5 and place of employment.
6 ‘‘(ii) APPLICABLE ANNUAL LIMITA
7 TION.-The term ‘applicable annual limita
8 tion’ means, with respect to any employee
9 for any calendar year, the product of $20
10 multiplied by the number of qualified bicy
11 cle commuting months during such year.
12 ‘‘(iii) QUALIFIED BICYCLE COM
13 MUTING MONTH.-The term ‘qualified bi
14 cycle commuting month’ means, with re
15 spect to any employee, any month during
16 which such employee-
17 ‘‘(I) regularly uses the bicycle for
18 a substantial portion of the travel be
19 tween the employee’s residence and
20 place of employment, and
21 ‘‘(II) does not receive any benefit
22 described in subparagraph (A), (B),
23 or (C) of paragraph (1).”.
24 (d) CONSTRUCTIVE RECEIPT OF BENEFIT.-Para
25 graph (4) of section 132(f) is amended by inserting

207
1 ‘‘(other than a qualified bicycle commuting reimburse
2ment)” after ‘‘qualified transportation fringe”.
3 (e) EFFECTIVE DATE.-The amendments made by
4 this section shall apply to taxable years beginning after
5 December 31, 2008.

Posted at 1:09 PM (CST) by & filed under General Editorial.

Dear Friends,

Follow this logic:

Paper is collapsing as there is no credit market right now for major and financial entities.

The masses sell Honest Money (Gold) and run into paper, backed by bankrupt governments.

Proper logic would be to sell that paper and move into gold and gold shares that are at giveaway prices.

History proves the latter to be the course of action to take

Respectfully yours,
Jim

Jim Sinclair’s Commentary

A key reason why central banks want to hold onto gold is the instability of their most common reserve asset, the dollar.

Central banks in Europe favour gold as crisis unfolds
Published: October 03, 2008, 00:13

London: Sales of gold by European central banks are likely to be lower than expected over the next year as the global banking crisis boosts bullion’s appeal as a “safe” reserve asset.

And banks elsewhere in the world, most notably in Asia and the Middle East, may even become buyers of gold in an attempt to diversify their reserves away from the dollar, analysts say.

Under the terms of the Central Bank Gold Agreement, signed in 1999 by key European institutions including Germany’s Bundesbank and the European Central Bank and renewed in 2004, members can sell up to 500 tonnes of gold a year.

But in the fourth year of the latest agreement, which ended on Friday, sales fell well short of this ceiling, to just over 357 tonnes. With banks worried by the outlook for the financial sector, sales could be even lower in the final year of the pact.

More…

Jim Sinclair’s Commentary

This will go down as the dumbest thing our financial leaders ever do.

This has set off a huge amount of OTC default derivatives now moving to full value as a counterparty goes Chapter 11.

In a sense, do not let this happen to you. For God sake protect yourself

Gold is the only item that will, as the smoke clears, be understood as the single asset of wealth protection.

Lehman Hedge-Fund Clients Left Cold as Assets Frozen (Update3)
By Tom Cahill

Oct. 1 (Bloomberg) — Lehman Brothers Holdings Inc.’s bankruptcy probably means the end of hedge-fund manager Oak Group Inc. after 22 years in business.

John James, who runs the Chicago-based firm with $25 million of assets, didn’t buy Lehman stock or debt. Instead, his potentially fatal mistake was to rely on the bank’s prime brokerage in London, a unit that provides loans, clears trades and handles administrative chores for hedge funds. He’s one of dozens of investment managers whose Lehman prime-brokerage accounts were frozen when the company filed for protection from creditors on Sept. 15.

“We’re probably going out of business and liquidate, game over,” James, 59, said. “We’ve lost 70 percent of our assets.”

The list of funds trapped in the Lehman morass keeps growing. London-based MKM Longboat Capital Advisors LLP said last week it will close its $1.5 billion Multi-Strategy fund in part because of assets stuck at Lehman, according to an investor letter.

LibertyView Capital Management Inc. of Hoboken, New Jersey, owned by Lehman’s Neuberger Berman unit, told investors on Sept. 26 it had suspended “until further notice” attempts to calculate the value of its funds. LibertyView wasn’t included in the Sept. 29 sale of Neuberger to Bain Capital LLC and Hellman & Friedman LLC.

More…

Jim Sinclair’s Commentary

They just realized this?

IMF Says Financial Turmoil Now “Full Blown Crisis”
10/02/08 11:30 am (EST)

(CEP News) – According to a first glance of the IMF’s Global Economic Outlook, the financial turmoil has now been upgraded to a “full blown crisis”, and strong action is needed to counter it.There is a substantial likelihood of a severe economic downturn in the United States, although Europe may be partially insulated against further shocks.

As a consequence, the IMF called on governments across the globe to take strong action to “deal with the stress and support the restoration of financial system capital.”

In an interview with Reuters on Sept. 30, IMF Managing Director Dominique Strauss-Kahn said the U.S. Congress must act urgently and approve the $700 billion rescue package. He said even if the plan is not perfect, it’s better than nothing.

Strauss-Kahn also said Europe needs to develop a plan for its own financial crisis.

More…

Jim Sinclair’s Commentary

We do not have to worry that the following will happen here because the Zimbabwe situation was caused by foolish political judgment, the move towards socialism, a puppet central bank and a fascist/dictatorial type of government.

Life in Zimbabwe: Wait for Useless Money
By CELIA W. DUGGER
Published: October 1, 2008

HARARE, Zimbabwe Long before the rooster in their dirt yard crowed, Rose Moyo and her husband rolled out of bed. It is time to get up, intoned the robotic voice of her cellphone. Its glowing face displayed the time: 2:20 a.m.

They crept past their children sleeping on the floor of the one-room house Cinderella, 9, and Chrissie, 10 and took their daily moonlit stroll to the bank. The guard on the graveyard shift gave them a number. They were the 29th to arrive, all hoping for a chance to withdraw the maximum amount of Zimbabwean currency the government allowed last month the equivalent of just a dollar or two.

Zimbabwe is in the grip of one of the great hyperinflations in world history. The people of this once proud capital have been plunged into a Darwinian struggle to get by. Many have been reduced to peddlers and paupers, hawkers and black-market hustlers, eating just a meal or two a day, their hollowed cheeks a testament to their hunger.

Like countless Zimbabweans, Mrs. Moyo has calculated the price of goods by the number of days she had to spend in line at the bank to withdraw cash to buy them: a day for a bar of soap; another for a bag of salt; and four for a sack of cornmeal.

More…

Posted at 12:09 PM (CST) by & filed under General Editorial.

Dear CIGAs,

I have no doubt that $1650 will come. My concern is not that it will not happen, but that I am much too conservative in my long-term price objective since 2000.

If major banks can be torn apart how can we have faith in the small local institutions that hold most of your ready cash?

When I said “This is IT,” it is not something that I take lightly. Never in 49 years in finance have I seen a set of circumstances so challenging to the man in the street.

What I am getting at is a simple question. Are you prepared? You have heard us talk repeatedly on removing financial intermediaries between you and your assets, but the time has come for us to recommend going one step further:

Hold enough cash at your household to last you a month or two. It may be largely unnecessary for the majority, but what do you have to lose? If your bank should fail this will save you a lot of grief in the short term. If they do not, you still have all your cash that can easily be deposited back into your account.

Regards,
Jim

Posted at 12:08 PM (CST) by & filed under General Editorial.

Dear Extend Family,

Unless the LIBOR rate drops sharply we are facing a planetary financial crisis next week.

For God’s sake protect yourself.

Gold and gold related items will be the only true storehouses of wealth. The bailout bill is powerless to reverse what is now happening.

This is a modern day Weimar happening right before our eyes.

Respectfully yours,
Jim

Posted at 12:07 PM (CST) by & filed under Guild Investment.

Dear CIGAs,

THE PROBLEM IS FAR FROM OVER…EUROPE IS THE NEXT BIG TROUBLE SPOT FOR THE WORLD BANKING CRISIS

According to our calculations, the major global central banks European, U.K., U.S. and others added about $1.8 trillion of cash liquidity to the global banking system in the last week.  The $700 billion U.S. Treasury’s bailout plan that the U.S. Congress will vote on tomorrow is symbolism along with action.  There will be many more “bailouts” before this is finished.

I predict that the public will soon become jaded to bailouts, but that they will continue to happen in the U.S. and elsewhere.  This is not an enjoyable thing to say, they are not even come close to liquidating all the bad debts in the global banking system.

MONITORING THE BANKING SYSTEMS DISEASE

It is easy to monitor the disease in the banking system, much like a doctor would monitor the deterioration or progress of a patient.  One has only to monitor the various indicators of stress on the banking system, (the three major types of interest rate spreads in the interbank market).  Today, all three of these spreads are much wider than they have ever been as banks are refusing to lend…even to other banks.  If a bank wants to borrow from another bank, the cost of borrowing is rising, not falling.

Government officials had hoped that by now the reverse would be the case.  To use the doctor analogy, if a doctor is monitoring the patient’s vital signs, they currently see them deteriorating.  All of the actions taken so far may have created the potential for improvement in the patient, but thus far, the patient is not improving at all.  In fact the patient is continuing to deteriorate.

To make matters worse, the entire hospital is contaminated with a disease (let’s call it “derivatives disease”), that can infect anyone in the hospital.  Will the patient also be infected by the hospital-wide disease which is out there ready to infect anyone (even the caregivers) on a moments notice?

WHAT DO WE MEAN BY DERIVATIVE?

What do we mean by a derivative in this context?  There are many kinds of derivatives, but the kind we are most worried about are derivatives insuring the performance of mortgage bonds (packages of mortgages put into a bond structure), or other mortgage related securities.  These derivatives have been written and guaranteed by institutions that do not have the money to pay them off if any of the underlying mortgages fail to pay at once.

As with life insurance, an assumption is made that not all life insurance policyholders will die on the same day.  Actuarial tables and mathematical models are used to determine life expectancies, and a life insurer makes sure its policyholders are of different ages.  In the case of a horrible event where millions die all at once, many life insurance policies might be delayed in payment or not paid at all.

Similarly, mortgage insurance assumes that not all mortgages fail at the same time…because historical mathematical models suggest they won’t.  This current economic downturn has brought this assumption into question.  If too many mortgages fail to pay at the same time, the insurers who write the derivative contracts will be unable to meet their obligations to insure the mortgages.  By the way, there are hundreds of trillions of dollars of these derivatives.

The above is a simplistic answer to a very complex question, and it is not meant to explain every detail, but we hope it makes the point about why we are nervous about the effects of a specific type of credit default insurance derivative.  Derivatives like these are frequently referred to by the media and politicians as the “toxic paper” clogging the financial system.  We also have grave doubts about these and other types of derivatives, but more on that later.

THE DERIVATIVE DISEASE HAS THE POTENTIAL TO BECOME AN EPIDEMIC

The derivatives disease is going to have to be dealt with.  It has the potential to be much more devastating than the bad loan disease that the patient is currently fighting.

To fight the bad loan disease, the bad loans can be marked down to a clearing value and sold to investors.  These investors are willing to bet that they can make money buying the bad loans at a low enough price, because some percentage of them will pay off.

The derivatives disease has the ability to infect anyone, because there are so many entities involved.  If one party makes a mistake on their derivatives, and they cannot keep their part of the agreement, every other counterparty to the derivative will have to pay it for them.  To fight derivatives disease you must be sure that everyone else with whom you have derivative agreements is healthy, and behaves in such a way that they stay healthy.

This is proving to be a very difficult problem, because the total that may be needed to be paid to settle failed derivatives, far exceeds the total liquid assets available in the world banking system today.

In many cases, the derivatives are too complicated to easily know who owns the asset and who owns the cash flow from the asset.  Even the most sophisticated money managers, accountants and attorneys who work in this area don’t fully understand the derivatives that they are dealing with, and all the risks involved.  The derivatives disease will create big fees for accountants and lawyers who would be like doctors who work to cure the patient.

Then, if the patient expires, work must be done on an estate liquidation to find out which party gets which asset and which liability in an estate settlement.  A long time will pass before the final chapter is written in this saga.

Of course, as the hospital bills mount, the taxpayers are asked to pony up.

Thanks for listening.

Monty Guild and Tony Danaher
www.GuildInvestment.com