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Can A Sovereign Debt Crisis Happen Here? A Case Study Of The 1995 Debt Ceiling-Precipitated Government Shutdown

The Difference Between The Gold Market Of Today And 1980

Posted: Jan 16 2011     By: Jim Sinclair      Post Edited: January 16, 2011 at 11:11 pm
Filed under: General Editorial

Dear Extended Family,
This is reactive gold market as the product of the subjective recollection of the 1968 – 1980 bull gold market. The date is too on the spot to be coincidental.
It is a reaction only as circumstances are infinitely different now than they were in 1980. We have an ingrained systemic problem with false financial balance sheets. We have the specter of OTC derivatives that only grows and grows, preventing any Volcker type move. QE has a cumulative effect.
What broke the gold market in 1980 were as follows:
The bullishness was monumental with certain weekly respected business publications that are now anti gold were actually then wildly pro-gold. The editor, Mr. Bleighberg, wrote an editorial saying that I was a pinhead for calling Chairman Volcker a class act and was dangerous then to the price of gold.
The Comex board of directors unilaterally declared their written silver contract null and void. That is exactly what occurred when the Comex went to "sellers only" on Silver at a $53 bid, offered at $55 (Yes, that was the floor spread). That was the afternoon after trading on the day gold hit $887.50 on the Comex. With no transactions accepted that were buyers and sellers orders only, it left the Comex members to make the bids. Silver simply collapsed and platinum, started its $1000 daily limit moves on the downside. It was that which collapsed gold.
What primed gold for a flop were the actions of Chairman Paul Volcker. He was clearly on a path of bringing interest rates down from a level on the 10 year 14 7/8%, regardless of the cost to the country or the third world. There was a political ploy behind this to bust the then USSR by busting all their client nations. This gave Volcker the backing of the then administration.
Paul Volcker has recently left his post as Chairman of economic advisors to the present Administration. That event is telling. Bernanke is no Volcker. Do not buy into the MOPE that he retired due to age. He just got married so that boy has energy.
Position limits are a joke compared to "sellers only," meaning nothing to any commodity traded worldwide. All position limits will do is reduce the volume on US exchanges. It is so easy to get around that with non-US subsidiaries. The international non-US exchanges will celebrate this development.
Therefore with no Volcker and no "Sellers Only," any reaction in gold and silver is nothing more than what we have already experienced, a slight pause on the way to $1650 and higher.
The bears are out in force preparing to bully markets. Their ability to perform this is muted on repeated tries.
There are four men in gold that command my deepest respect outside of our direct family here at JSMineset.

Those people are:

Alf Fields

Sir Harry Schultz.

Richard (The Good) Russell

Martin Armstrong.

Sir Harry has retired which I find sad. Alf Fields studies price and volume, but not cycles, in his unique and long proven track record. Richard has for decades of spoken truth of many markets. Martin Armstrong has distinguished himself in the study of cycles.
Yes, the gold market has faced opposition from the $1440 area.
Cycles do not predict price, only time. The Angels are stronger in meaning when it comes to price.
Alf has said he does not want to be too available to a public because trying to trade reactions in the gold price will defeat the insurance nature needed for the months and years ahead.
So far the bears have failed pitifully in terms of the months of oppression, price blocking and the only slight price change.

Do not mind the youngsters running hedge funds that are further run by algorithms. They are the ones that will cause the price of gold to meet prices like Armstrong’s $5000 sooner than later.
Cycles look toward markets that validate their existence. Markets can deny the full term of degree of any cycle. They are judged by how they impact markets and not the other way around. They do and have had their effect, but always relative to what the markets do in order to judge the strength or weakness of the cycle itself.
The downward spiral of 2006 grinds on. No intervention has occurred to reverse this spiral. As such, the gold price will continue to rise as the masters of the economy continue the suicidal strategy of kicking the can down the dead end road.

States Will Soon Have To Start Paying Interest on Their Massive Unemployment Borrowing by Olga Pierce 
Sometimes it’s time to pay the piper. And sometimes that piper is the federal government. And sometimes the piper wants more than $1 billion. Soon.
Because of the high jobless rate and past fiscal irresponsibility, 30 states have collectively had to borrow more than $40 billion from the federal government just to keep unemployment insurance checks in the mail. A provision in the stimulus bill made those loans interest-free for an extended grace period.
But no more. Efforts to include an extension of the grace period in Obama’s tax cut extension enacted at the end of last year failed, and the first batch of 14 states will have to start paying interest before the end of this year. Given that state budgets need to be hammered out in advance, that means state legislatures will soon face tough choices as they come back in session.
The amounts due range from California and Michigan, which each face payments of more than $300 million dollars, to Kansas, which will owe about $6 million. (Fun fact: That’s $2 for every Kansan.) And because of federal rules, states can’t use unemployment insurance taxes to make interest payments, which means cash-strapped states will have to take that money from their general budgets, so there will be less money for roads, schools and other priorities.
Because of a historical compromise, each state operates its own unemployment insurance fund with wide latitude to set tax rates and benefits. While some states were careful to save up and build a cushion of reserves in good years, others got themselves into this mess by maintaining dangerously low levels of reserves for years before the Great Recession hit. (How is your state doing? Check out our Unemployment Insurance Tracker.)
The bill is coming due at a particularly bad time for state legislatures, which already face an $82 billion shortfall for 2012, said Arturo Perez, a fiscal analyst for the National Conference of State Legislatures.
More…

Jim’s Mailbox

Posted: Jan 16 2011     By: Jim Sinclair      Post Edited: January 16, 2011 at 10:53 pm
Filed under: Jim's Mailbox

Dear Mr. Eric De Groot
I am a very long term reader of Mr. Sinclair and also your website, which I find extremely informative. I would be very grateful to you if you can comment or give your opinion on news that are coming out from different writers, especially lately, that gold and silver miners will be nationalised when price of both metals shoot substantially higher and Western countries experience huge budgets deficits.
Although on the other side I think that most miners are domiciled in West and have mines in developing countries. If Western countries nationalize them they may trigger the nationalization of the mines one by one by their home countries. Many of those miners actually do not possess the metals under the earth, but have royalties to extract that metal – therefore no need for nationalization. Also developing countries would have no interest to nationalize as they mainly have no technical know how to safely and efficiently bring metals to the ground. So I somehow believe that I may be quite sure that US and Canadian mines wont be nationalized, at least not in widespread nationalization, when gold and silver will march very high.
That is my take, and would be very kind for your opinion on your blog if you believe that is of some interest for other readers?
Thank you,
CIGA Alex

Alex,
History suggests that nationalization, while always a short-term possibility, is never sustainable over the long-term. Will the same individuals that run the post office for billions in losses be asked to manage exploration, development, and operations of highly-specialized assets?
What’s the objective of a nationalized mine once the profit incentive has been removed? Will the refilling of Fort Knox, capping of gold, or some other official or unofficial reason motivate private capital to invest in nationalized interests? If not, can the inevitable disinvestment be overcome by investments from the printing press as some suggest?
If panic drives the government to nationalize resources what does that say about “king dollar” rhetoric. All actions have consequences. Any attempt to nationalize resources will only serve to redirect capital, the lifeblood of investment and economic growth, towards nations or regions that adhere to free market principles.
The collective answers to the questions above, unique to every investor, will direct capital as a whole.
Regards,
Eric

Dear Eric,
The recent deal I made with a government arm in Tanzania is the future, not nationalization, since no nationalized mines ever produce consistent products or any profits. The mineral rich countries are not stupid. Anyone thinking they are stupid is stupid. They want a fair deal and know they need us to work with them. It will take the majors a high degree of ego control to recognize this self evident fact.
Regards,
Jim

Dear Jim,
I have been dabbling in options recently and had a question concerning your recent Mineset post. You stated that it is prudent to move into further dated options when 50% of the options time has expired. Am I correct in assuming that this means 50% of the time from which you purchased the option? For instance if I bought April calls in October/November then I would be looking to trade those out further in the very near future?
Your friend,
CIGA Marc

Marc,
Only 50% of the time from which you purchased the option to the option expiration should be allowed until you start your spread forward operation.
I have published this repeatedly for those that use options for speculatively long or short positions.
Whenever you are naked long or short an option you need both time and price discipline. Screw the Delta, stay safe.
Regards,
Jim