Posted at 2:02 AM (CST) by & filed under General Editorial.

Dear Friends,

Please understand that the Fed reacts to circumstances rather than acting before potential problems happen.

If the Fed hadn’t taken the rather strange action they took today by becoming OTC derivative dealers themselves this would have been the day the USA banking system imploded.

Watch Libor rates to signal the point of detonation.

Circumstances appear as if there were many problem Angels dancing on top of a pin that is being balanced on the nose of just those people who created the problem in the first place.

An implosion of the banking system is coming, which means a bank holiday will occur.

You now must have enough cash in hand to last a month or two.

If you have not distanced yourself from financial agents then you have a financial death wish.

If you have NOT made absolutely sure that your custodian account is a real custodial- ship you are probably in for a surprise.

I took a call yesterday from a mature lady who told me she feels her money market fund that is only in Treasuries will not pay her out. They did tell her they intend to in seven days. I asked her to call me back in eight days. How does she know that this money market fund is not in OTC derivatives based on the movement of Treasuries?

I do not want you to make that call to me.

If you can retire from your  retirement program at some reasonable discount do it NOW.

This is it and it is NOW. Gold is going to $1200 and $1650. The US dollar rally has NO fundamental legs.

Why are so many of you sitting there like a deer caught in the headlights? Protect yourself and do it TODAY!

Respectfully,
Jim

Posted at 5:37 PM (CST) by & filed under General Editorial.

Dear CIGAs,

  1. Gold is the ultimate currency when others fail as a store house of values.
  2. Gold has no liability attached to it.
  3. Gold is universally fungible.
  4. Gold is an appreciating asset on the balance sheets of central banks..
  5. Gold will trade at $1200 and $1650.
  6. Of course gold bottomed on its first break from $1033, but I only say such things once.
  7. The third try for above $1000 is being set up now.
  8. Have you protected yourself?

Your friend,
Jim

Posted at 5:35 PM (CST) by & filed under Jim's Mailbox.

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There is no doubt the US dollar is going to hit .52 in the coming years. Is there a chance the physical market is breaking or pressuring the Comex Paper market?

Alex

Dear Alex,

The answer to your question is YES. Add to that the fact that gold is the ultimate currency, not paper.

Regards,
Jim

Dear Jim,

I stand in awe to imagine 16000+ bank owned properties from foreclosures in one city alone, with 12000+ coming in pre-foreclosure! It is truly incredible. This amounts to HUGE selling pressure on real estate in coming months and years!

When gold is over $10,000 and estimated tax collections turn positive I will have to buy one in Arizona or Florida, along with an airplane!

Best,
CIGA Big Tatanka

Dear CIGA Big T,

I agree on one thing. I will buy an A-10 Wart-hog. The early models are in for decommissioning in two years.

All the best,
Jim

Posted at 1:01 AM (CST) by & filed under General Editorial.

Jim Sinclair’s Commentary

Read this as OTC derivatives kill more and more.

Another Fund Heavily Used by Schools Is Frozen
By JOHN HECHINGER in Boston and CRAIG KARMIN in New York

A second investment fund offered by investment adviser Commonfund froze most withdrawals this week, posing possible financial strains for the 200 colleges and schools invested in the fund.

The Commonfund Intermediate Term Fund held $1 billion in assets for the schools. Commonfund, a Wilton, Conn., investment adviser for colleges and schools, told clients they could withdraw only 30% of their money now, and said it will make the rest available “as quickly as possible,” depending on market conditions. The fund would normally give investors any part of their money the day after a withdrawal request.

Keith Luke, managing director of Commonfund, says about half of the fund was invested in mortgage- and other asset-backed securities from which investors have been fleeing. The rest was in government-agency and corporate debt that has held up better in the financial crisis. Mr. Luke said Commonfund instituted the freeze because redemption requests would have forced the fund to sell securities at “distressed prices.” He said the portfolio’s securities haven’t had defaults.

The fund returned less than 1% in the year ended June 30 and 2.7% annualized over the past five years, underperforming its benchmark Merrill Lynch 1-3 Year Treasury Index, according to Commonfund. Mr. Luke says the fund has had outflows but they “haven’t been huge.” He said he didn’t know when restrictions would be lifted but it would depend on improvements in the credit markets.

More…

Jim Sinclair’s Commentary

Gold is the final form of money. It will be chosen by all those seeking safety from paper instruments & currency over treasury instruments of bankrupt countries.

Financial Crisis: Rush for gold as savers queue for bullion
Savers have been queuing in the street to buy gold bars and coins, as they search for a safe place to invest their money.
By Harry Wallop, Consumer Affairs Editor
Last Updated: 6:26PM BST 02 Oct 2008

Traditionally, gold has been one of the safest investments during times of financial turmoil Photo: AP

London’s two leading bullion dealers, ATS Bullion and Baird & Co, have reported a rush of interest from savers, many of whom have hundreds of thousands of pounds worth of savings they want to convert into the precious metal.

At least two customers have invested the entire proceeds from selling their houses into gold, each buying up more than £500,000-worth of gold bars, according to one dealer.

Savers have been queuing in the street at ATS Bullion, whose offices are just off the Strand in London’s west end.

Sandra Conway, the company’s managing director, said: “We’ve had to turn people away. The queues have been right out of the door and it’s been really hectic at times.

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Jim Sinclair’s Commentary

Quietly and continually Pakistan is going pear-shaped.

US Strikes in Pakistan Tribal Areas Fuelling “Backlash” – Paper
Posted on: Saturday, 4 October 2008, 03:00 CDT

Text of editorial headlined “Fighting the militants” published by Pakistani newspaper Dawn website on 4 October

Shah Mahmood Qureshi, the foreign minister of Pakistan, has been a largely anonymous figure in the weeks since the US stepped up attacks inside FATA [Federally Administered Tribal Areas] in September. However, Mr Qureshi hit all the right notes in a speech at Princeton University this week. “I’m afraid that a relatively recent element in this already difficult war threatens to undo what we have already achieved,” the foreign minister said in a reference to US strikes inside Pakistan. When American Special Operation forces landed in a village near Angoor Adda in South Waziristan in early September, observers pointed out the disastrous potential such attacks had to alienate Pakistani public opinion — and especially the tribes whose support Pakistan requires to defeat the militants in Fata and northern Pakistan. Since that attack, the Americans have stated their respect for Pakistan’s territorial sovereignty, and launched numerous missile strikes inside Fata. US Secretary of Defence Robert Gates has even claimed that the UN charter permits America to act in “self-defence” against militants operating from Pakistani soil, if the Pakistani government is unable or unwilling to do anything about those militants.

The problem is that the Bush administration is desperate for a quick success along the Pakistan-Afghanistan border, whereas an effective anti-militancy strategy must necessarily be long-term. And an effective strategy can only be led by Pakistan itself, with some combination of tribal and state action. What Mr Qureshi was highlighting is that at present Pakistan is advancing against the militants, with clear help from local tribes. Lashkars [forces] have been organised by tribes in Bajaur, Peshawar, Khyber, Swat, Dir, Buner and Lakki Marwat, and they have had some success against the militants. Engaging the tribes in such a positive manner is a delicate affair for each tribe has its own dynamics and strategic position. Earlier this week Gen Kayani visited Bajaur Agency and met with tribal leaders; later, Salarzai tribesmen announced a full- fledged operation to clear their tehsil and neighbouring areas in Bajaur of militants.

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Posted at 2:37 PM (CST) by & filed under General Editorial.

Dear International Friends,

Maybe you should consider a visit to your local bank for their abbreviated Saturday hours.. What do you have to lose? That all depends on how much you have deposited there…

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 held 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 8:06 PM (CST) by & filed under General Editorial.

Thought for the weekend:

The entire financial world hangs by the LIBOR rate. It better drop Monday morning and stay down or it has all hit the fan.

Jim Sinclair’s Commentary

The question is will you lose your pension? The uncomfortable answer is probably YES.

Check out Bear and Lehman. Don’t forget GE is a major OTC derivative manufacturer within their financial arm.

WaMu employees likely to lose pensions; many to lose jobs
San Francisco Business Times – by Kirsten Grind

Washington Mutual employees are likely to lose their current pensions and they might not find out for another two months whether they have a job, according to a J.P. Morgan Chase executive who spoke to employees from both companies in a frank, hourlong conference call Thursday.

JPMorgan (NYSE: JPM) also plans to rebrand WaMu branches across the country with the JPMorgan Chase name, said Charlie Scharf, head of JPMorgan Chase’s Retail Financial Services group.

WaMu employs about 43,000 employees nationwide – including 3,500 in downtown Seattle – and JPMorgan Chase has about 195,600.

Scharf, who spent a chunk of the conference call answering blunt questions from employees, said employees’ pension plans are part of WaMu’s business that’s held up in Chapter 11 bankruptcy, so it’s not J.P. Morgan’s responsibility to honor them. That likely means employees who are currently accruing money into the plan as well as employees who are already retired might be cut off.

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Jim Sinclair’s Commentary

This is going to stand the world on top of its head financially primarily in oil and gold. It has the capacity of being the one piece of straw that breaks the banking system’s back completely.

This is no longer an if but a when. It looks very close to me, perhaps weeks, not months.

I would say the odds of this happening before the election is now north of 65%.

No denying it: It’s war in Pakistan
The army in engaged in full-scale battles against the Taliban and Al-Qaida. Tens of thousands of civilians have fled, and there is no end in sight.
By JANE PERLEZ and PIR ZUBAIR SHAH , New York Times
Last update: October 2, 2008 – 8:41 PM

PESHAWAR, PAKISTAN — War has come to Pakistan, not just as terrorist bombings, but as full-scale battles, leaving Pakistanis angry and dismayed as the dead, wounded and displaced turn up right on their doorsteps.

An estimated 250,000 people have now fled the gunship helicopters, jets, artillery and mortar fire of the Pakistani Army, and the assaults, intimidation and rough justice of the Taliban fighters who have dug into Pakistan’s tribal areas.

About 20,000 people are so desperate they have flooded over the border from the Bajur tribal area to seek safety in war-torn Afghanistan.

Many others are crowding around the city of Peshawar, in northwest Pakistan, where staff members from the U.N. refugee agency help at nearly a dozen camps.

The International Committee of the Red Cross flew in a special surgical team from abroad last week to work alongside Pakistani doctors to help treat the wounded in two hospitals. “This is now a war zone,” said Marco Succi, a Red Cross spokesman.

Not since Pakistan forged an alliance with the United States after 9/11 has the Pakistani Army fought its own people on such a scale and so close to a major city. After years of relative passivity, the army is now engaged in heavy fighting with the militants on at least three fronts.

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Jim Sinclair’s Commentary

Maybe we can have another bailout bill this week for states and municipalities with pork and bicycles attached. Today’s bailout that has the markets all befuddled is a bad joke with a lot of fanfare that means very little. The vote certainly was no booming success.

Schwarzenegger to U.S.: State may need $7-billion loan
In a letter obtained by The Times, the governor warns that tight credit has dried up funds California routinely relies on and it may have to seek emergency aid within weeks.
By Marc Lifsher and Evan Halper, Los Angeles Times Staff Writers
October 3, 2008

SACRAMENTO — California Gov. Arnold Schwarzenegger, alarmed by the ongoing national financial crisis, warned Treasury Secretary Henry M. Paulson on Thursday that the state might need an emergency loan of as much as $7 billion from the federal government within weeks.

The warning comes as California is close to running out of cash to fund day-to-day government operations and is unable to access routine short-term loans that it typically relies on to remain solvent.
The state of California is the biggest of several governments nationwide that are being locked out of the bond market by the global credit crunch. If the state is unable to access the cash, administration officials say, payments to schools and other government entities could quickly be suspended and state employees could be laid off.

Plans by several state and local governments to borrow in recent days have been upended by the credit freeze. New Mexico was forced to put off a $500-million bond sale, Massachusetts had to pull the plug halfway into a $400-million offering, and Maine is considering canceling road projects that were to be funded with bonds.

California finance experts say they know of no time in recent history when the state has sought an emergency loan of this magnitude from the federal government. The only other such rescue was in 1975, they said, when the federal government lent New York City money to avoid bankruptcy.

“Absent a clear resolution to this financial crisis,” Schwarzenegger wrote in a letter Thursday evening e-mailed to Paulson, “California and other states may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the federal treasury for short-term financing.”

The letter, obtained by The Times, came on the eve of a vote by the House of Representatives on a $700-billion rescue package, but it was too soon to know how the package would affect the nation’s paralyzed credit markets. The Senate approved the so-called rescue bill Wednesday night.

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Jim Sinclair’s Commentary

Be cautious of the “set in cement” opinion that the negative economic conditions in Europe will exceed the size of the unwind in the USA, the largest economy on the planet and the one who wrote over 75% of all OTC derivatives. This opinion is over discounted in the markets which tends to vote against it or at the least vote for overstatement.

The European situation may come all at once, giving a scary visage, but in the final analysis will be considerably smaller in financial terms than the many trillions already fried in dollar based financial entities.

IMF Says U.S. Faces `Sharp Downturn’ as Market Crisis Worsens
By Christopher Swann

Oct. 2 (Bloomberg) — The U.S. may fall into a recession as the financial rout deepens, the International Monetary Fund said in its most pessimistic outlook for the world’s largest economy since the credit crisis began last year.

“The financial turmoil that began in the summer of 2007 has mutated into a full-blown crisis,” the fund said in a section of its semiannual World Economic Outlook released in Washington today. There is “a substantial likelihood of a sharp downturn in the United States,” the fund said.

By contrast, the IMF in July projected the U.S. would “contract moderately” in the second half of 2008 before recovering in 2009. Officials also said in a July update of economic forecasts that the global growth outlook was more “balanced.”

“Strong actions by policy makers to deal with the stress and support the restoration of financial system capital seem particularly important,” the lender said today. Next week, the IMF will release updated projections for gross domestic product for the U.S. and other economies.

The warning came as the U.S. Congress worked to pass a $700 billion bank rescue package to reassure financial markets. The Senate passed the legislation late yesterday, and the House of Representatives may vote tomorrow after rejecting a different version three days ago.

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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.

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