Never in economic history has there been a night like tonight

Never had $1000 gold hit before, so I guess "Never in economic history has there been a night like tonight." from Jim Sinclair, your thoughts?

Dear Extended Family,

Never in economic history has there been a night like tonight. I am writing later than usual because of the enormity of all the converging forces. The euro reaches for $1.60, the Middle East oil producers are in shock, and the IMF tells the world to “plan for the worst.”

The reason this missive is late is because I am reverberating at the speed of the disintegration. These cursed OTC derivatives and their makers, who incidentally made the international banking community rich beyond your wildest dreams, are now unwinding at lightening speed.

Do you think any entity with any OTC derivative now has faith in the paper?

This paper is $550 trillion plus dollars in notional value. The horrible fact is that in bankruptcy notional value becomes real value with the capacity to destroy the world financial system.

The above is no wild assumption. It is hard, cold fact.

1. Expect currency intervention to slow down the rise of the euro.
2. Intervention has never worked. It will not now. In fact, it will backfire so fast that the effort will be abandoned, making things even worse.
3. Intervention in currency, the dollar, will only provide the capacity for other central banks, oil producers and holders of high risk long US treasury paper to diversify out in huge amounts of decaying dollars at singular prices.
4. I could go through a tome on how intervention works, but accept that any rise in short rates will break the bank immediately. Intervention in the euro/dollar is another practical impossibility except as a bluff.
5. There is no practical solution to today’s TERMINAL problems and that means you are up to your eyeballs in alligators.
6. You must protect yourselves.
7. Gold is going to $1650. In all probability my major error will be in forecasting a price that is much too low for gold.
8. The ratio spread long the major gold producers, short the juniors, is going to kill the math whizzes that think they are in the captain’s seat. The reason is the only value still in precious metals shares lies in the best junior issues these geeks have been hammering.
9. The prayer that a junior with quality assets has is that the illegal short position is enormous.



This is it!



Your concerned friend,
Jim

i believe this is called talking your book - where does he get this info, or have you corroborated it? 8. The ratio spread long the major gold producers, short the juniors, is going to kill the math whizzes that think they are in the captain’s seat. The reason is the only value still in precious metals shares lies in the best junior issues these geeks have been hammering. 9. The prayer that a junior with quality assets has is that the illegal short position is enormous. tia, klh

i believe this is called talking your book - where does he get this info, or have you corroborated it?

8. The ratio spread long the major gold producers, short the juniors, is going to kill the math whizzes that think they are in the captain’s seat. The reason is the only value still in precious metals shares lies in the best junior issues these geeks have been hammering.
9. The prayer that a junior with quality assets has is that the illegal short position is enormous.

tia,
klh

klh,

I'm sorry you might have barked at the wrong tree. I asked for it, but don't deserve it. I only trade index now, so its more of macro view, and no day trade, no scalping.

Just happened that what JS said, only point 1-7 are to some of my interests. Go bookmark his http://www.jsmineset.com/, may you find out where your answers. For your concern, I have also in my leash distance, Peter Grandich, http://www.grandich.com/, may give you some no brain info. He has been right on the money with macro, also with bunch of juniors some he got paid to "corroborate", so he exclaimed.

Good luck,

goflow

Intervene to slow the dollar’s decline Published: March 13 2008 19:41 | Last updated: March 13 2008 19:41 Selling the dollar is now close to a one-way bet. So great is concern about the health of the US financial system that the dollar traded below Y100 on Thursday, and above $1.56 against the euro. The danger of a dollar rout is rising, and the Federal Reserve, European Central Bank and Japan’s Ministry of Fi­nance should co-ordinate intervention to slow the greenback’s fall. Aggressive rate cuts and fears that US taxpayers will have to bail out their banks are undermining the dollar. Both make a surge in US inflation more likely, and since the Fed first cut rates last September the risk has been that foreign investors lose confidence, dump assets and trigger a run on the dollar. The dollar’s decline is accelerating. It fell by 10.4 per cent against the euro in 2007 and appeared to stabilise in December and January, but in the last month it has dropped by a further 6.5 per cent. In trade-weighted terms the dollar has fallen about 3 per cent so far in 2008. A weaker dollar is an essential tool to stimulate the US economy, but a collapsing dollar benefits nobody. If investors start to dump dollar bonds then the Fed could lose control of long-term interest rates, so rendering monetary policy ineffective. Europe and Japan, meanwhile, would suffer a savage adjustment in their export sectors. It would be pointless, foolish and wrong to try and fix the dollar at its current level. Markets are the best way to determine exchange rates, and on a trade-weighted basis it is far from clear that the dollar has overshot its fair value. But what intervention might do is slow the decline, by putting fear in the minds of momentum investors who are selling short on margin. Limited objectives are one pre­requisite for a successful intervention. Another is co-ordination. On past form Japan must be close to unilateral action but a joint move with the ECB and the Fed would be better and more likely to succeed. A third prerequisite is the co-operation, if not the active aid, of Asian nations that manage their cur­rencies against the dollar. Their central banks could take the other side of an intervention trade in order to diversify their reserves out of dollars and into euros and yen. Instead, they should now allow, and the G7 should press for, faster appreciation of their currencies. Intervention is never ideal – some of today’s problems stem from past manipulations – and there are large risks, most notably that central banks fail and lose credibility. But if the above conditions can be met, some action to stabilise the dollar would be a sensible part of the response to global financial turmoil.

Derivatives the new 'ticking bomb' Buffett and Gross warn: $516 trillion bubble is a disaster waiting to happen By Paul B. Farrell, MarketWatch Last update: 7:31 p.m. EDT March 10, 2008 ARROYO GRANDE, Calif. (MarketWatch) -- "Charlie and I believe Berkshire should be a fortress of financial strength" wrote Warren Buffett. That was five years before the subprime-credit meltdown. "We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly appreciative about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." That warning was in Buffett's 2002 letter to Berkshire shareholders. He saw a future that many others chose to ignore. The Iraq war build-up was at a fever-pitch. The imagery of WMDs and a mushroom cloud fresh in his mind. Also fresh on Buffett's mind: His acquisition of General Re four years earlier, about the time the Long-Term Capital Management hedge fund almost killed the global monetary system. How? This is crucial: LTCM nearly killed the system with a relatively small $5 billion trading loss. Peanuts compared with the hundreds of billions of dollars of subprime-credit write-offs now making Wall Street's big shots look like amateurs. Buffett tried to sell off Gen Re's derivatives group. No buyers. Unwinding it was costly, but led to his warning that derivatives are a "financial weapon of mass destruction." That was 2002. Derivatives bubble explodes five times bigger in five years Wall Street didn't listen to Buffett. Derivatives grew into a massive bubble, from about $100 trillion to $516 trillion by 2007. The new derivatives bubble was fueled by five key economic and political trends: 1. Sarbanes-Oxley increased corporate disclosures and government oversight 2. Federal Reserve's cheap money policies created the subprime-housing boom 3. War budgets burdened the U.S. Treasury and future entitlements programs 4. Trade deficits with China and others destroyed the value of the U.S. dollar 5. Oil and commodity rich nations demanding equity payments rather than debt In short, despite Buffett's clear warnings, a massive new derivatives bubble is driving the domestic and global economies, a bubble that continues growing today parallel with the subprime-credit meltdown triggering a bear-recession. Data on the five-fold growth of derivatives to $516 trillion in five years comes from the most recent survey by the Bank of International Settlements, the world's clearinghouse for central banks in Basel, Switzerland. The BIS is like the cashier's window at a racetrack or casino, where you'd place a bet or cash in chips, except on a massive scale: BIS is where the U.S. settles trade imbalances with Saudi Arabia for all that oil we guzzle and gives China IOUs for the tainted drugs and lead-based toys we buy. To grasp how significant this five-fold bubble increase is, let's put that $516 trillion in the context of some other domestic and international monetary data: • U.S. annual gross domestic product is about $15 trillion • U.S. money supply is also about $15 trillion • Current proposed U.S. federal budget is $3 trillion • U.S. government's maximum legal debt is $9 trillion • U.S. mutual fund companies manage about $12 trillion • World's GDPs for all nations is approximately $50 trillion • Unfunded Social Security and Medicare benefits $50 trillion to $65 trillion • Total value of the world's real estate is estimated at about $75 trillion • Total value of world's stock and bond markets is more than $100 trillion • BIS valuation of world's derivatives back in 2002 was about $100 trillion • BIS 2007 valuation of the world's derivatives is now a whopping $516 trillion Moreover, the folks at BIS tell me their estimate of $516 trillion only includes "transactions in which a major private dealer (bank) is involved on at least one side of the transaction," but doesn't include private deals between two "non-reporting entities." They did, however, add that their reporting central banks estimate that the coverage of the survey is around 95% on average. Also, keep in mind that while the $516 trillion "notional" value (maximum in case of a meltdown) of the deals is a good measure of the market's size, the 2007 BIS study notes that the $11 trillion "gross market values provides a more accurate measure of the scale of financial risk transfer taking place in derivatives markets." Bubbles, domino effects and the 'bad 2%' However, while that may be true as far as the parties to an individual deal, there are broader risks to the world's economies. Remember back in 1998 when LTCM's little $5 billion loss nearly brought down the world's banking system. That "domino effect" is now repeating many times over, straining the world's monetary, economic and political system as the subprime housing mess metastasizes, taking the U.S. stock market and the world economy down with it. This cascading "domino effect" was brilliantly described in "The $300 Trillion Time Bomb: If Buffett can't figure out derivatives, can anybody?" published early last year in Portfolio magazine, a couple months before the subprime meltdown. Columnist Jesse Eisinger's $300 trillion figure came from an earlier study of the derivatives market as it was growing from $100 trillion to $516 trillion over five years. Eisinger concluded: "There's nothing intrinsically scary about derivatives, except when the bad 2% blow up." Unfortunately, that "bad 2%" did blow up a few months afterwards, even as Bernanke and Paulson were assuring America that the subprime mess was "contained." Bottom line: Little things leverage a heck of a big wallop. It only takes a little spark from a "bad 2% deal" to ignite this $516 trillion weapon of mass destruction. Think of this entire unregulated derivatives market like an unsecured, unpredictable nuclear bomb in a Pakistan stockpile. It's only a matter of time. World's newest and biggest 'black market' The fact is, derivatives have become the world's biggest "black market," exceeding the illicit traffic in stuff like arms, drugs, alcohol, gambling, cigarettes, stolen art and pirated movies. Why? Because like all black markets, derivatives are a perfect way of getting rich while avoiding taxes and government regulations. And in today's slowdown, plus a volatile global market, Wall Street knows derivatives remain a lucrative business. Recently Pimco's bond fund king Bill Gross said "What we are witnessing is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August." In short, not only Warren Buffett, but Bond King Bill Gross, our Fed Chairman Ben Bernanke, the Treasury Secretary Henry Paulson and the rest of America's leaders can't "figure out" the world's $516 trillion derivatives. Why? Gross says we are creating a new "shadow banking system." Derivatives are now not just risk management tools. As Gross and others see it, the real problem is that derivatives are now a new way of creating money outside the normal central bank liquidity rules. How? Because they're private contracts between two companies or institutions. BIS is primarily a records-keeper, a toothless tiger that merely collects data giving a legitimacy and false sense of security to this chaotic "shadow banking system" that has become the world's biggest "black market." That's crucial, folks. Why? Because central banks require reserves like stock brokers require margins, something backing up the transaction. Derivatives don't. They're not "real money." They're paper promises closer to "Monopoly" money than real U.S. dollars. And it takes place outside normal business channels, out there in the "free market." That's the wonderful world of derivatives, and it's creating a massive bubble that could soon implode.