James Sinclair on various gold topics, a good read (Dec13)
An Economic Suture The Stitching Together Of Economic Cause and Effect In
Order to Determine SIGNIFICANT Market Events
If awards were ever given for selfishly securing the worst possible timing
to do something apt to result in a detriment to the many and a good for the
few, it should go to Washington attorney Motley. Mr. Motley of course is
using good legal strategy, but bringing legal action at this time seeking
the assets of the Saudi Arabian Royalty, Saudi Banks and certain Saudi
related charities here in the United States guarantees their continued
shift politically away from the US and US dollar.
The legal rules in the US governing that part of civil litigation called
Discovery are broad and reaching. It is said that there are two places in
the US legal system in which tactics of the Wild West and mayhem are
practiced. Those places are Discovery at the deposition phase and Jury
Selection. It is questionable if any major financial interest outside the
US is willing to walk peacefully into the snake pit of Discovery at the
deposition phase in which no judge is present. The ability to legally
obtain documents by subpoena and issue subpoenas for verbal testimony in
the process of Discovery at the deposition phase is also loose in criteria
and far reaching. It is a forum in which counsel for both parties and the
witness square off away from the discipline of the courtroom. The slightest
ill-conceived statement can be terminal in a legal sense. Your attorney is
not allowed by the few rules there are for conduct in Discovery at the
deposition phase to advise or coach the witness except in the matter of the
rights of the witness. Assuming the Saudi Royal Family, Saudi Banks and The
Saudi Charities do not fulfill the requirement of a subpoena for records
and verbal testimony there are routes for the seizure of their vast US
assets.
This legal action, the Malaysian Dinar announcement and the much larger
Group of Six Dinar launch announcement indicates to me that the US dollar
is headed not only for new lows but to that price objective the Exchange
Stabilization Fund by their meddling (to no market effect longer than 30
seconds) was so kind as to build. That target is a definitive technical
indication of .80 on the USDX. I believe we in the gold community can now
anticipate that the 5th Element and Final Golden Key, a Bear market in
medium and long-term bonds is in for fundamental reasons and not for the
technical reason of a bear market rally in equities. It is no act of chance
that gold today decided to resolve itself above $330. I firmly believe that
chance is reason misunderstood.
It is my practice to introduce one concept at a time before tying them
together in a sutured progress of economic fundamental and technical market
chain link to a market outcome.
All of the above is a chain of interrelated events which will impact the
market for Gold & the US Dollar long-term:
1/ Starting at the Malaysian Gold Dinar
2/ To the Group of Six Euro/Gold Dinar
3/ To the US civil legal action against the Saudis, which is a clear and
present fundamental reason that will sustain a huge exit from the dollar
long-term
4/ To the two important remarks by the Chairman of the Federal Reserve
defined below.
5/ Now takes us to the key to lower lows for the US dollar and higher highs
for gold not truly anticipated by the gold community.
The Inverted Pyramid A Dangerous Construction
A very important statement was made by Alan Greenspan, Chairman of the
Federal Reserve at his November 19th 2002 Washington press conference.
Discussing the difficulties that the US economy has witnessed and listing
the various major bankruptcies that have occurred, Chairman Greenspan said
"The development of our paradigms (examples that stand as patterns or
models) for containing risks (over-the- counter derivatives) to those
willing, and presumably able to bear it. If risks are properly dispersed,
shocks to the overall economic system will be better absorbed and less
likely to create cascading failures that could threaten financial
stability." The key element in the presentation for the community to focus
on is the phrase:
"If risks are properly dispersed"
The inherent problem is that Risks are Not, by any means, Properly
Dispersed.
You need only see who have been the key market participants in granting
Last Risk Insurance that is a derivative construction ostensibly a
guarantee against the bankruptcy of corporate debt. Guess what? Up comes
the exact names of JP Morgan Chase, Merrill and a few of the usual suspect
derivative kings, all of whom have had multiple downgrades as to credit
worthiness relating to derivatives. There is however a difference here. Not
every participant in the derivative community was willing to go as far as
granting derivatives ostensibly protecting against the bankruptcy of known
(within the establishment underwriting community) financial cripples. As
the risk gets greater the risk takers get fewer. The pyramid of just the
derivative daisy chains that Chairman Greenspan was complimenting is Upside
Down. That means where the derivative risk is plain vanilla is where the
risk is dispersed well. Plain vanilla is upside down where the base is
facing the sky. When you get to the point where the risk is infinite the
pyramid is non-dispersed and pointed to the few, with credit downgrades as
it pertains to creditworthiness of derivatives in their position as counter
party. That point or tiniest place of risk dispersion facing towards the
ground.
Conclusion and Implications:
1/ The definition that Fed Chairman Alan Greenspan has given us is the
primary and most serous risk that we face economically. Last Risk
derivatives have the least dispersion amongst those least able to carry the
risk; the creditworthiness-downgraded institution now praying to sneak by
the economic trough period without recognition of the real problems they
face.
2/ Because of the now accelerating move toward the institution of a new
hard Arab currencies based on the Euro and settling in gold there is no
question in my mind that my late 2001 prediction of a top in the bond
market in November 2002 has in fact occurred.
3/ The major pressure to be exerted against Last Risk derivatives is the
change from a Bull market in bonds and a bear market in the cost of money
to a Bear market in bonds and therefore a Bull market in money costs.
Therefore the unthinkable has occurred in money costs.
4/ The continued unfunded retirement programs amongst major US corporations
like GM & IBM, as examples, plus the shift in money costs plus a now tired
Bear market rally in equities will put pressure on the total derivative
market structure.
5/ Last Risk insurance will, IMO, not pay off when called upon. It is my
understanding that the debits and credits stand but the insurance has not
been called upon in dollar payment terms. A failure of any institution
relying on a payoff from Last Risk Insurance derivative chains is in for a
surprise.
6/ This chain of events will put intolerable pressures on the US dollar
just when it cannot shoulder such stress.
7/ The dollar within the next 36 months will go into a NASDAQ example of a
free fall.
8/ The result is that gold will accomplish at least the high water mark of
$529.
9/ The solution to the lack of confidence in the dollar will be the
legislated ethic of a return of the Gold Cover Clause. This will signal the
real birth of the next major bull market in equities and the transition of
gold shares to the utilities they were in 1968, at much higher prices.
Chairman Greenspan's last and possibly most important statement came just
after speaking on the subject of the new paradigm of over-the-counter
derivative risk dispersion. He said "To be sure, the recent weakened pace
of world economic activity has raised concerns the FULL CYCLE of the past
decade has yet to be definitively concluded." I believe Chairman Greenspan
and Governor Bernanke know that full cycle is yet to come and that higher
gold prices at this point in time are not the enemy of mankind, only of the
derivative hedgers.
I am preparing the presentation to the community of the gold cover clause
in a revised form that could be utilized to reverse dollar weakness,
however be assured it will not be used until there is no other option.
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