Tuesday, October 7, 2008

Jim Sincliar sounds off on the current crisis

Jim Sinclair's website is the first place to look for prophetic gold analysis, I thought this evening's post was worth repeating:

Things are out of control.

The draconian action taken by the Federal Reserve today was their entry into locked credit markets that are defined by the Libor Rate and Rate on Commercial Paper. This action prevented the triggering of a total implosion of all markets, with the exception of gold, the currency of ultimate final refuge.

"Out of Control" can be defined as a day the Dow crashes 500 points when the Chairman of the Federal Reserve and the President of the United States spoke on national TV, right on the heels of the much touted Bailout Bill, combined with the entrance of the Fed into the OTC derivative business with no binding limits set on the high side of this initiative.

This is a downward spiral in which now four major interventions have failed.

The only case study in History is the Weimar experience. You cannot compare this to the credit lockup of Livermore and JP Morgan times. Arguments against that point are hollow.

What I find inexplicable is that the "Uptick Rule for Short Selling" has not been reinstated. That rule is more powerful than even banning short selling. These people are not STUPID so one can only assume this "Out of Control" situation is not a surprise.

Do not be surprised by additional intervention failures, gold taking out $1000 on the 3rd try, three consecutive TIC reports failing to support the Trade Deficit, a Federal budget deficit of unprecedented proportions, a dollar trading at .72, .62 and .52 and gold trading at and above $1650.

I told you in the middle of the recent dismal state of mind many gold investors were in that I never felt better about gold. That may have sounded nuts to some of you.

I now say that I have never felt more confident about gold and silver juniors with good property, good management and money in the bank.

Saturday, October 4, 2008

TED Spreads Remain at Record Highs

A great read from Jesse's Cafe Americain: TED Spread Soars to a New Record:

Symptom of the Euro Dollar Squeeze?

There is a real possibility that the TED Spread blowout is not an artifact of risk per se, but a symptom of the US dollar squeeze in Europe.

US Dollar Rally and Deflationary Imbalances Overseas

TED is an acronym for Treasury and EuroDollar. A Spread is just the difference or 'distance' between one thing and another.

Eurodollars are bank deposits denominated in U.S. dollars but held at locations outside of the U.S.

Initially, the term only referred to dollar deposits in London but has been expanded to include dollar deposits at any offshore location.

T bills are US Treasury debt of short duration are considered to be risk free.

TED Spread = Yield on Eurodollar deposits - Yield on T Bills

The TED Spread is the difference between U.S. Treasury bill yields and yields for Euro deposit contracts of the same maturity, generally three months.

Demystifying the TED Spread