The Future Of Quantitative Easing

Posted: Oct 31 2010     By: Jim Sinclair      Post Edited: October 31, 2010 at 9:36 pm
Filed under: General Editorial

My Dear Friends,
Tomes have been written this week about quantitative easing, many written by those who didn’t know what QE meant twelve months ago. Tomes are silly as very few actually read them. Those that do read are comatose by the end. We do not do tomes here. We present conclusions.

QE to infinity means the economic can gets kicked down the road again at the cost of the dollar’s value and therefore sparks the event of accelerated currency induced cost push inflation.
No QE means a violent collapse of general business within 90 days. That takes the camouflage off of the following:
1. False balance sheets of financial entities, thanks to the sale of the FASB’s soul to political pressure, are exposed.
2. Further collapse of tax revenue to states brings about a financial crisis much larger than anyone presently anticipates.
3. The malaise in the US destroys what little is left of general confidence in the austere Euro region.
4. The rape of pension funds is exposed.
Gold will go to a figure equal to all foreign debt of the USA divided by the number of ounces that the US is assumed to have. This is how you can calculate the potential price.
If moderate levels of QE are utilized, that means the can gets kicked down the road once again at the cost of the dollar and therefore the event of accelerated currency induced cost push inflation. It might in this case take a few days before the markets figure it out. If moderate QE is announced that means QE to infinity but only revealed a little at a time or not revealed at all. To do QE to infinity without revealing it violates the tool of communication recently discuss by the Fed which means MOPE. It will be revealed.

In The News Today

Posted: Oct 31 2010     By: Jim Sinclair      Post Edited: October 31, 2010 at 9:05 pm
Filed under: In The News

Jim Sinclair’s Commentary
There is no question about whether we will experience state failures on debt. In truth it is already locked and loaded into many states of the USA.
It is one of the items that the Fed has considered as it embarks on the unprecedented course of QE to infinity, regardless of how QE is presented this week.
QE to infinity is an attempt to once again kick the can of economic problems down the road to perdition.
Everything we have spoken about for years has happened. The final act in this play of disintegration will unfold exactly as we anticipate.
Do not allow the madness of algorithms to impact your emotions to the degree that you throw away your insurance.


State of default Oct 25th 2010, 18:24 by Buttonwood
WHAT happens if an individual state defaults? That was the question posed to a panel of luminaries at the Buttonwood gathering in New York, including Robert Rubin, Josh Bolten, Glenn Hubbard, Laurence Meyer and Laura Tyson.
The panel was assumed to be a bunch of Presidential advisers faced with a request for funding from New Jefferson, a fictional state with many of the problems of a typical state – unfunded pension promises, years of fiddling the numbers to balance the budget and a government divided between the parties. New Jefferson is shut out from the markets and asks the Federal government for $1.5 billion to meet a debt repayment due 48 hours away. There could be systemic risks if default occurs with the Chinese government raising the issue of contagion and with some state banks owning a substantial portion of the state’s bonds.
The panel reluctantly agreed to provide temporary funding for the state – say for 30 days – but to require the state to sort out its mess. But it suggested a whole series of stringent conditions, including the use of proper accounting and a requirement to fund its pension plans properly. they were divided over what would happened if New Jefferson failed to save its problem within 30 days.
One suggestion for the long-term was that failed states might see their finances taken over, as happened to Washington DC, with the Federal government taking the decisions. The tricky issue is whether they legally could take such a power.
The panel didn’t really have time to consider whether the long-tem pension problem can be tackled if the courts decided that existing pension rights are legally protected. If they are, then the only answer would be substantial tax rises to pay for them, the last thing the Federal government might want if the economy remains weak.
More…

The Utility of Gold

Posted: Oct 31 2010     By: Jim Sinclair      Post Edited: October 31, 2010 at 5:18 pm
Filed under: General Editorial
Courtesy of CIGA Pedro

Dear CIGAs,
A popular argument against the utility of Gold at times of crisis is regularly offered up through the rather facile statement that it can’t be eaten. This is then given as reason why, in times of great crisis Gold will not “perform” the way food stocks and other inferior alternatives will. Even the Financial Times’ excellent journalist, Gillian Tett recently sang this refrain. It’s becoming a tiresome argument, and it needs to be deconstructed.
It is welcome that people are beginning to see the dichotomy between paper and hard assets. The predominant paper asset is (un-backed, fiat) currency. Hard assets, of course, are many and varied.
But if people believe that wealth preservation can be reduced to a simple juxtaposition between paper representations of wealth and tangible wealth, they are misguided. That is only a partial explanation. There are other issues. One of them is the issue of portability.
In times of economic disaster you can stock-pile food, yes, but what happens if you have to abandon your dwelling due to security issues. What happens if your “home garden” and livestock have to be defended? It is not a nice thought. In preparation for possible dislocations it is unwise to think that you may be able to remain in one place. This is one of the undervalued aspects of Gold. You can pack it up in a small case. Your wealth is mobile. At today’s prices, half a million (USD equivalent) is easily portable. In a years’ time a million or two may be just as easy to cart off in your hand. Things like paintings (especially miniatures) and gems perform a similar function. During a serious crisis like social-breakdown or war, it is not reasonable to assume you will be able to take all of your canned goods, water-filters, generators et al with you, in a vehicle that needs constant refuelling and repair… you’re going to have to be lean, mean and fast on your “feet”. Not weighed down by encumbrances. Ever wonder why people escaping Nazi Germany chose diamonds? Maximum wealth with smallest possible mass and weight. Quite simply, these “you can’t eat Gold” theories, that supposedly undercut Gold’s value, do not hold water.
When people live in crisis situations, one usually finds not that goods aren’t available – but that they are expensive. Fantastic food, caviar champagne and other “accoutrements” were available all over the Soviet Union (Mostly in hard-currency “bereoska”); a bottle of whiskey could even be found in remote American barracks during World War II – but the price, then, depending on location, was about a crisp $100 bill. (Then! … Not now.) Hoarding resets prices when demand goes up and supply crashes. Gold, a hoarded, not consumed, vehicle, performs perfectly in an environment when sought after goods are being restricted from the market and more so if paper currencies are under attack.
Let’s take the consumable issue one step further. If you buy a one lot of European barge delivered (ARA) gasoil, you can, theoretically, take delivery. But how, exactly does a non-configured layman deal with that reality? With great difficulty is the answer. Leaving aside the configuration issues of delivery (which are significant if you’re not a professional oil product transport or storage entity), are you going to transfer it and then store it on your own while meeting legal safety and environmental requirements so that you don’t (literally) blow up the neighbourhood? That’s unlikely. Your parcel will likely become distressed and no one is going to even pick up the telephone to talk to you about how to get rid of your 100 tons of gasoil. Moreover, the owner of the much larger parcel your piece is consigned within will demand that you meet all sorts of other regulations to siphon off your little piece. (Doesn’t this sound a little like sawing off your corner of that 400oz. London Good Delivery bar you were told by some Gold pool was “yours”?). It’s no different in coffee, cocoa and sugar, the grains and other “softs”. You’ll never be able to store in proper condition, and even if you did, deterioration would set in after a few weeks/months. So you’d have to unload it quick, which defeats the whole purpose for which you took delivery. Commodity professionals have noses like bloodhounds for distressed parcels – so you will have your financial eyes gouged out when trying to get rid of your inventory. In something less than a perfect environmental regime, your physical will become worthless and you’ll probably have to pay to get rid of it.
What should additionally be evident from the above is the inherent price potential for physical Gold if delivery demands rise. Not many people are going to know what to do with a one lot of gasoil, coffee, wheat, etc., if they want it delivered. But one hell of a lot of people know EXACTLY what to do with a 100oz bar of Gold. Namely: Hold on to it – i.e. store it. This is what gives the possibility for a delivery squeeze in Gold such massive price outcomes – delivery and storage does not rely solely in the realm of the professional. The amount of people who could demand delivery of paper contracts, and feasibly take delivery is potentially massive. Of course, by the time such demands become manifest, it is unlikely paper claims will be honored. Just the scent of a delivery squeeze (as we learned from the Hunt Brothers experience) can cause mayhem.
Lastly – for the “you can’t eat Gold” crowd – how the logistics of an economic implosion play out vis a vis Gold are already evident in Zimbabwe. The forlorn and starving, including the elderly and sick, spend much of their day panning rivers and streams to amass the miniscule amounts of raw, unrefined, Gold, which is the only thing the hoarders will accept in exchange for the foodstuffs necessary to stay alive. For those who would like a real-life, current example of the “You can’t eat Gold” theory in practice, go to You Tube and search under: “Gold for Bread – Zimbabwe”, for a very harsh dose of reality (the video is not suitable for children and the faint of heart – it is, however, reality).
CIGA Pedro



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The market is ‘baking in” significant inflation. Investors are buying United States government bonds that effectively had a negative rate of return, because these bonds offer a guaranteed protection against inflation. (TIPS). The investors who took part in the $10 billion auction are betting that inflation, now at about 1 percent annually, will rise to a level that more than compensates for the premium they paid.



The Inflation ‘Genie’ Unleashed: "By reducing real interest rates and trying to break the psychology of ‘Why spend today when I can buy goods cheaper tomorrow,’ they are hoping to drive growth that would be more commensurate with a pickup in employment,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York."