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Thread: weekend commentary - Sinclair calling the 'big one'

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    Default weekend commentary - Sinclair calling the 'big one'

    from

    (snip)"Time To Protect Yourself

    Author: Jim Sinclair


    Dear Friends,

    If you have not started to protect yourself do so on Monday please.

    I am quite concerned for all of you as inertia usually prevents people from protecting themselves. I always wondered how a certain ethnic and religious persuasion could remain in Germany as Hitler was clearly coming into power. I would have been out.

    Even then, many of those who remained in Germany saved a great deal of their fortunes by certifying their investment shares in international companies, then burning the paper certificates.

    What I am getting at is that the signs of an international financial accident are in those incidents that have recently happened.

    There is no hiding place as this is a product of the greed and avarice of the new geek kids on the block who have killed themselves, their industry and hurt everyone everywhere. I am sure that in years to come derivative traders will be seen as pariahs and criminals deserving of prison - not as the multi-millionaires they are today.

    On Monday start to protect yourself to the degree it can be accomplished by removing people and institutions between you and your assets. This is the real thing. This is what was discussed in the 1970s but did not happen. It was discussed by many in 2000 but it is happening here and now. There is no functional tool to stop a derivative meltdown. It will like the grim reaper clean out many financial institutions and start a domino effect that I do not want you to be caught up in.

    You understand by now that I have the wherewithal (experience/industry contacts/etc.) to know these things before others. Call it cell memory, genetics or my historic access to some of the best teachers on earth in finance, risk management and markets. It's simply ingrained in me. Truth be told, Bert Seligman, my father, knew before the market knew; Jesse Livermore, one of the greatest traders of all time, knew before the market knew. Who knows how? I generally know before the markets figure things out. I tend to know the end at the beginning. It has been so all my life. This is why I am able to do the things I do, take the risks I take, and build the companies I have built.

    I want you to be safe. What can it cost you to take precautions? I believe that the cost to you is nothing. I am telling you to take less risk, not more. I know the central bankers will burn the dollar before all this comes down. What concerns me is that all this could easily get out of hand.

    Operation "White Noise," is getting hair thin as more and more financial institutions fess up to their ignorant greed-driven self destruction.

    Tell me if you have started. I want to get a feel for how many of our CIGAs are taking action. Drop me an email at [email protected]. I am not asking for a tome but simply "yes, I have started to protect myself." Help me help you by giving me a feeling for how many of you have taken action.

    But first some advice:

    1. What you cannot withdraw and is in cash put into short term treasury instruments. For those able, I prefer Swiss and Canadian dollar Federal T bills.
    2. Convert your investment shares into paper certificates. Do not lose them!
    3. Reduce personal debt for peace of mind.
    4. If you have coins stored at a coin dealer take delivery of them and request prompt service.
    5. If you have accounts at Internet financial entities close them and transfer the accounts to a smaller firm that can confirm in writing that they have no over the counter derivative exposure. Be sure to ask for certificates for your share investments and take delivery of them.
    6. Reduce - if not eliminate - your margined position even if that means selling down to rid yourself of debt on your securities or gold assets. The swings in gold now are going to become so violent that most people will not be able to tolerate it when debt is attached to their positions."(snip)

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    Default Re: weekend commentary - Sinclair calling the 'big one'

    Is he talking about selling off stocks and withdrawing money in cash from bank accounts? What about IRA accounts which we cannot touch until we are 59 1/2? Is he talking about American banks only or does it refer to everybody in the world?
    Financial institutions must be in some deep s%$#t.

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    Default Re: weekend commentary - Sinclair calling the 'big one'

    I'm not taking a position that I support Jim Sinclair's paranoia. However, the points that he is making seem to be that ...

    - lots of big banks have tremendous potential for taking additional losses based on their derivative / CDO exposure. If any more of these banks start going belly-up, it's entirely possible that Northern Rock style 'runs' by depositors will quickly deplete their remaining cash reserves. Thus it's better to keep some of your cash in a safe at home than in a local bank, and it's far better to keep some more of your cash in a local bank (which you can get to in a matter of minutes if the sky does fall) rather than in an internet based bank that can require 2-3 days to transfer (with the internet bank going insolvent before you can get your money out). In America the FDIC insures deposits so you'll get your money eventually (although by the law this could take years), but this doesn't help to provide cash you need to spend next week on groceries or next month on rent / mortgage payment.

    - lots of brokerage firms / precious metal dealers are similarly involved in 'hedged' positions which could quickly turn sour if markets become highly volatile. If the only official record of your ownership of stock shares or precious metals is on the computer of a brokerage firm / precious metal dealer that goes belly-up, it could take months worth of 'forensic accounting' to verify that the broker / dealer was in fact acting as custodian for stock shares / precious metals that YOU own. Until the 'forensic accountants' pick up the pieces, you would be unable to sell those 'electronic' stock shares / precious metals ... which could result in you being forced to take huge losses if markets were to crash causing prices for those stock shares / precious metals to start falling like rocks. But if you have actual stock certificates / precious metal bars in your home safe, if the sky starts falling you can walk into any local broker / dealer and immediately sell them.

    - in regard to 401k / IRA accounts holding stocks and bonds, Americans are essentially screwed if the sky should fall such that the custodial institution goes belly-up. While there may be FDIC insurance for 401k / IRA money invested in money market accounts, there is no such insurance for stock and bond values. Thus if the sky falls, and the custodial institution's trading capabilities are non-functional due to insolvency, the 401k / IRA account holder could wind up taking huge losses due to dropping values of stock shares and bonds which cannot be sold in a timely manner. However, because of the custodial requirements, there is no way for the 401k / IRA account holder to actually get their hands on stock certificates or bond paper covering the holdings in the 401k / IRA account.

    - I think that Sinclair's point about reducing debt has to do with the fact that, if desparate for cash reserves, distressed financial institutions do have the right to 'call' the full outstanding balance of loans which are in default providing that a 'call' provision is part of the lending agreement. The scenario that comes to mind is something like Countrywide / WaMu ( to pick just two possible examples) taking so many losses due to rising subprime mortgage bankruptcies and rising subprime credit card holder bankruptcies that they decide to 'call' the total outstanding balance of other subprime mortgage holders and/or subprime credit card holders who are also in default but not yet bankrupt. This would provide an immediate source of some amount of cash, as well as making a pre-emptive strike versus some amount of impending bankruptcy losses. However, you can imagine the financial distress which would be caused by heavily indebted credit card borrowers suddenly receiving notices that their entire $10,000 credit card balance is immediately due and payable ! Such a notice would force them to liquidate other assets (i.e. distressed sale of stocks and bonds into a rapidly falling market) in order to raise cash with which to pay off Countrywide / WaMu and stave off bankruptcy.


    The background point being made by Sinclair is that a lot has changed since the crash of 1929 and the dives of the 1980's. Physical possession of stock and bond certificates and/or precious metals has now been replaced with 'electronic' records. Thus, just like trying to make a credit card transaction during last year's New York City blackout, the ability to sell stocks and bonds as well as the ability to withdraw cash from a bank is now entirely dependent on a functioning 'electronic financial transaction network'. If that network becomes dysfunctional, or more specifically if a particular bank / broker / dealer on the network becomes dysfunctional, today's owner of the 'electronic' stocks, bonds or cash held by that bank / broker / dealer has no hard proof of that ownership which would allow the owner to sell those stocks or bonds via a different broker or withdraw their cash via a different bank. Thus those 'electronic' stocks, bonds or cash could essentially be 'held hostage' for weeks or months or even years should a financial cataclysm beset that bank / broker / dealer, with a very real risk of the owner taking huge losses on the value of those stocks and bonds in the meantime.
    Last edited by Melonie; 11-04-2007 at 09:16 AM.

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    Default Re: weekend commentary - Sinclair calling the 'big one'

    however, it would appear that at least one big financial house, Merrill Lynch, has found a way to 'paper over' their impending losses / balance sheet problems for another year ...

    from a professional investor BBS ...

    (snip)"The last few days the buzz has been about Merrill Lynch, and the possibility that they've been trying to engage in cosmetic balance sheet transactions to make things look better than they really are.

    From today's Wall Street Journal:

    Merrill Lynch & Co., in a bid to slash its exposure to risky mortgage-backed securities, has engaged in deals with hedge funds that may have been designed to delay the day of reckoning on losses, people close to the situation said.

    In one deal, a hedge fund bought $1 billion in commercial paper issued by a Merrill-related entity containing mortgages, a person close to the situation said. In exchange, the hedge fund had the right to sell back the commercial paper to Merrill itself after one year for a guaranteed minimum return, this person said.

    While the Merrill-related entity's assets and liabilities weren't on Merrill's own balance sheet, Merrill might have been required to take a write-down if the entity was unable to sell the commercial paper to other investors and suffered losses, the person said. The deal delayed that risk for a year, the person said.

    In a statement, a Merrill Lynch spokeswoman said, "We don't comment on specific transactions and we are confident in the appropriateness of our marks.
    "

    Whoa. Now as one who has trafficked in the world of structured transactions for the bulk of my career, I can tell you that this type of "creative balance sheet management" has been going on for decades. No joke.

    And in the wake of Enron, things were supposed to have changed, where "sham" transactions (those without true economic substance, or where the transfer of risk didn't truly take place) were supposed to go the way of the buggy whip.

    Well think again, friends. There is a fine line between risk retention and true risk reduction, and if what's described in the WSJ is true, these deals are all about balance sheet presentation and have nothing to do with risk reduction. And FYI, Merrill Lynch shareholders, your firm is paying money, your money, to effect this optical illusion. So not only is there a breach of trust, you are paying for it, too."(snip)

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