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XMFSinchiruna (26.58)

Sobering Words from Jim Sinclair



March 26, 2009 – Comments (24)

"The dollar does not have a future" ... he really needs to stop beating around the bush.

Seriously, though, he's right, and this move by China, Russia, India, Brazil, South Korea, and others to replace the USD as the world's reserve currency is al the writing on the wall a Fool needs to know this currency has just been deep fried in $13 trillion worth of saturated fat.

I just drafted an article about this development, examining the proposal to use SDRs as the new reserve currency. Guess what, their use would be predicated upon yet another new global market in over-the-counter derivatives. Now does that sound like a recipe for success?

I will post the article to the blog when it's out, likely tomorrow.

By the way, when Sinclair refers to Alf Field's numbers in the discussion below, he refers to a future gold price in the many thousands of dollars. Ultimately, when the global fiat money system prives unable to absorb this great unwinding, the global balance of accounts must be priced in gold.

Professor James Galbraith was interviewed early this morning on the Geithner plan for the purchase of toxic assets. This interview focused on the very subject that constitutes my most serious concerns. It was on Bloomberg TV, but I see no review of it on their website.

His analysis would confirm what I have been told concerning the condition of the paper held by many financial institutions.

His review confirms my belief that there is no alternative but to bail out every financial institution in amounts that can’t now, due to the opaque nature of the miscreant paper, be evaluated. What you can be sure of is that the number is enormous. Yes, larger than anything we have seen yet.

This financial situation is totally out of control. Government financial leaders are flailing in the wind, trying every remedy ever heard of while inventing new measures, all of it in total futility.

Major Banks will be nationalized. Smaller institutions will be rolled into nationalized banks.

The Dollar does not have a future. Gold is your only refuge asset.

To allow yourself to be run out of anything gold by the COMEX manipulators is to sacrifice your financial lifeline. It is just that bad.

The price of gold will attain Alf Field’s objectives. There is no question about this conclusion as this problem cannot remain hidden. The unavoidable financial consequences are already raising their ugly heads and the curtain is coming up on the degree of this total disaster.

New financial oversight regulations of hedge funds and the OTC derivative market are so late all they really will amount to are meaningless public relations. The damage is done and cannot be undone by spin.

Galbraith this morning voiced his concern that the paper held in the banking system is “permanently impaired.” That means this paper is to a large degree the left over partial contracts of the creation of the securitized OTC derivative paper sold everywhere to everyone without offset and is therefore valueless.

Galbraith alluded to a fractional reserve approach towards mortgage securitization by intent of error whereby the same mortgages were securitized more than one time.

Galbraith spoke of obscuration in terms of a planned cover-up of details of the asset’s condition. He also discussed the need for clean audits that will only be available on the true valuation of that which is worthless and those with partial valuation. He indicated the conditions are so dire that only nationalization will permit clean audits.

Your future depends on gold as there is no piece of paper or SDR package of various paper that can protect you.

Gold is no longer investment, it is your lifeline. It is that serious.

About that there is no question.


24 Comments – Post Your Own

#1) On March 26, 2009 at 4:52 PM, KeepYourCoolFool (98.62) wrote:

gold bug.

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#2) On March 26, 2009 at 5:29 PM, 100ozRound (28.68) wrote:

My questions are half in response to this post and half to your previous post.

What happens if the banks shorting Gold are forced to cover?


What happens if COMEX is forced to deliver Gold they don't actually have?

These don't seem like comfortable positions to be i!

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#3) On March 26, 2009 at 5:51 PM, XMFSinchiruna (26.58) wrote:


I rebuke that label


The former happens all the time... but I suspect rarely without some control over the timing. Massive sums of money have been tossed at these short positions, and they are often losing positions, but they make up for it in other ways I'm sure.

The latter would spell the either the reformulation of COMEX rules to require greater phsycal backing or it would spell the end of the derivatives-based markets for gold and silver.

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#4) On March 26, 2009 at 8:03 PM, 100ozRound (28.68) wrote:

Ah - so you mean they can't just bail them out by printing more Gold!? :O)

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#5) On March 26, 2009 at 10:19 PM, Jimmy2008 (< 20) wrote:


What you are saying is that USD is going to hell, I believe. If that is the case, we would need some gold and silver coins. What about gold/silver mining stocks? Buy oil, agriculture and industrial commodities and associated stocks? Canada is still a decent place. If we buy Canadian stocks, there might be less counterparty risks. Please advise. Thansk!

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#6) On March 27, 2009 at 6:42 AM, XMFSinchiruna (26.58) wrote:


The dollar's decline could come in an orderly, more gradual fashion... or it could come in a series of knee-jerk moves by foreign holders to cease buying additional U.S. debt to the greatest extent practicable given existing trade imbalances. China and Russia have clearly indicated they are not psyched to acquire any more USD exposure than they have to, and this swift movement toward a new reserve currency makes the latter scenario - most unfortunately - increasingly plausible. Either way, whether abruptly or gradually, the dollar is doomed by the measures already taken and by the implications for further printing ahead through quantitative easing and the unwinding of the $1+ quadrillion global market for derivatives.

By all means, yes, get out of the dollar. Yes to all the things you mention, with heavier weighting toward gold and silver and agricultural commodities and less toward industrial commodities. The Peter Schiff / Jim Rogers trade is back on in a big way... as I knew all along, those who decided those guys were somehow wrong just because the second half of 2008 saw indiscriminate liquidation that sent all asset values plummeting... those critics simply failed to take a long-term view.

Beyond that, if you haven't prepared in other ways, now would be a great time. Any supplies of food, water, and other emergency supplieswill go a long way when the broader populace catches on to the severity of this crisis. One can still hope to never have to use them, but that doesn't mean that having them is not prudent given the undeniable potential for some disruption to normal services and infrastructure at some point heading forward.

I used to prescribe to the relative safety of Canadian stocks over U.S., but I have since come to suspect that all fiat currencies could be sharing in the same risk given the global reach of the derivatives monster and the USD. If Treasury succeeds in spreading quantitative easing to the world community by felxing its muscle to induce global stimulus spending under the IMF or other framework, then we can be assured of a more systemic collapse of paper assets. I doubt that the BRIC countries would play along with that scenario, so there may be some hope for select currencies, but this super-reserve currency they're proposing is hardly a solution... it's based upon derivatives!

Once more, I'll close with a link to a blog post I wrote back in 2007.

And so, I urge you to take a fresh look at gold and silver, because though it may seem counter-intuitive to purchase more at these historically high levels, the circumstances at play here are purely unprecedented and collectively create a very compelling case for the prices of gold and silver.  I am concerned for my fellow Americans as we head into this Christmas season.  I think we stand on the verge of a horrible economic collapse, and I worry for those who are not prepared... for those who are mired in debt, or perhaps purchasing homes because they think the housing market couldn't possibly get worse from here, or spending more than they can afford for Christmas just as the rug is about to be swept out from beneath them. 

My Christmas wish?:  that Americans will spend their Christmas budgets on food, water, and other emergency supplies to care for their families when distribution networks are disrupted by the economic tsunami ahead; that they will shift to much greater proportions of energy and precious metals equities within their investment portfolios, and that they will each purchase a small amount of physical gold to hold for all time.  And my New Years' wish?:  that we will all remember to be kind to each other when the chips are down.  I think we will all encounter challenges like we've never before faced (as individuals and as a nation), and I sincerely hope that we can all find that deepest well of humanity within us, and work together as brethren and countrymen through the crisis.  May peace and prosperity abound, but failing that, may humanity and liberty endure forever!


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#7) On March 27, 2009 at 7:56 AM, Jimmy2008 (< 20) wrote:


I really appreciate your help!

Will it make difference to buy Canadian stocks in Toronto verse here in New York? I am thinking of confiscating XOM/ABX ect bought in New York by the American Government. The government can and will do anything to little people to protect big guys.

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#8) On March 27, 2009 at 8:02 AM, dudemonkey (51.43) wrote:

I don't see the collapse of the dollar leading to a gold-based economy.  It will probably just lead to a new fiat currency.  The world has moved past gold as the ultimate source of money.

Still, I don't think it's a bad thing to have in your portfolio.  I'm with you guys in thinking that the dollar now has a half-life.  I've been stockingpiling South Korean Won (I speak Korean so I could survive there) and Brazilian Reais (I'm learning Portuguese and I believe Brazil has a bright future ... and present) and my portfolio is based around commodities.  I'm looking into buying the commodities themselves because ... well, if I'm sure copper will go up, why mess around buying Southern Copper when I could just own the copper itself?

Anyway, TMFSinchiruna, please continue sharing your thoughts.  You definitely represent a good viewpoint that, while not always popular, has a lot of merit.

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#9) On March 27, 2009 at 8:18 AM, XMFSinchiruna (26.58) wrote:


Yeah... I'm not exactly the life of the party these days. :)  Thanks for the comments. I'll be here to offer my thoughts through it all.

There definitely is merit to owning the underlying commodities themselves, as Jim Rogers often advocates. For this reason, CEF comprises fully 20% of my portfolio. ;)


Let's all hope it never comes to government confiscation of equities. I think failure of finanical custodian institutions presents a greater threat to the American stockholder. However, I hope you're not in ABX... the worst miner of them all. ;) That being said, I think the location of mining operations is of greater significance than the jurisdiction in which the shares trade.

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#10) On March 27, 2009 at 8:18 AM, maxhoffa (< 20) wrote:

doesn't dealing with the taxes become more of a pain in the arse if you hold the actual commodities (or the contracts for the) as opposed to owning equities?  i've just heard it can be an april 15 nightmare figuring out the taxes on actual commodity trades.


if not for the tax issues, i'd certainly be looking at commodity-based ETFs.  but honestly it sounds like more than i want to deal with.  if true, that is.


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#11) On March 27, 2009 at 8:36 AM, Jimmy2008 (< 20) wrote:

dudemonkey and TMFSinchiruna,

I used to own RJA and RJI. No longer. They are ETNs. I am afraid of credit risks. How much credit risk is there with them? Are they still a good way to buy commodities? Thanks!

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#12) On March 27, 2009 at 8:41 AM, XMFSinchiruna (26.58) wrote:


I'm not the person to ask about tax details... sorry. :(

I do, however, strongly advise Fools to consider that we are approaching a point where derivative-based ETFs must be avoided. For me personally, I have crossed that line and will not own another such fund. Ultra-this and double-that... they achieve those via derivatives, and I want no part of it.



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#13) On March 27, 2009 at 8:43 AM, XMFSinchiruna (26.58) wrote:


Your instincts are correct... stay away, IMO. :)

I traded the double-long gold a couple of times for fun, but there is zero safety there as a long-term holding... for example.

The ultimate value of most derivatives will become zero.

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#14) On March 27, 2009 at 10:28 AM, dudemonkey (51.43) wrote:

There definitely is merit to owning the underlying commodities themselves, as Jim Rogers often advocates.

I'm just starting to get interested in the underlying commodities.  My real-life portfolio has a good percentage of commodities companies in it but I started reading Jim Rogers' "Hot Commodities" book and I'm buying into what he's saying.  I'm not ready to jump into futures contracts yet, but Rogers's overall system is one that makes sense.

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#15) On March 27, 2009 at 10:30 AM, XMFSinchiruna (26.58) wrote:


I like his latest recommendation... buy farmland and start farming. :)

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#16) On March 27, 2009 at 11:10 AM, OleDrippy (< 20) wrote:

We are going towards a global currency.. It may start with the AMERO, but it will end up being global. It is the only way a fiat system can work where countries aren't inclined to devalue their own currency for trade reasons. Look at Poland. They have a strong currency and their economy is being decimated due to the lack of trade. Sadly, the system does not reward prudence and a strong currency. We need something global to end the race to the bottom. Nationalists are going to have a lot of heartburn with this.. Just my two Ameros..

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#17) On March 27, 2009 at 11:27 AM, pete4357 (99.78) wrote:

Hi Sinchi,

Long time listener, first time caller. Pete here.

Do you consider Physical Gold / Silver ETFs to be any better, or are they also to be avoided? It seems as  I'd like to get some exposure to gold and silver, and i'm wondering whether acquiring physical gold (eg coins), will serve me better than buying a Gold or Physical Gold ETF. Or is a diversified approach including miners, ETFs, and physical metals the way to go? I take your point about ultras: i'm looking for a medium/long-term inflation-hedge and store of value, so i'm not interested in these.

Excellent post on gold short manipulation, by the way! thanks

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#18) On March 27, 2009 at 1:31 PM, XMFSinchiruna (26.58) wrote:


I personally have little faith in the likes of GLD and IAU. As I mentioned somewhere along the way, some have questioned the feasibility that GLD could possibly have acquired as much gold as it claims to have done. Another researcher scanned page after page of serial numbers through a software program and found the list rife with duplicates. I personally don't trust those bullion ETFs to have 100% unencumbered bullion.

SLV, suddenly and mysteriously removed the word bullion from its prospectus a year or so ago, and when they failed to respond to my inquiry about the matter, I sold that one as well and never looked back.

There is no true substitute for physical, although I believe CEF to be the closest thing.

Stable miners will enjoy substantial upside leverage to bullion price movements as the bull market matures further.

Good luck!

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#19) On March 27, 2009 at 1:43 PM, binve (< 20) wrote:

Sinch, Excellent post by the way. But the comments are really the most valuable thing here (its funny how that usually ends up being the case). I read and recced yesterday, but didn't comment yet :)

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#20) On March 27, 2009 at 2:11 PM, BradAllenton (31.88) wrote:

I like how Sinclair says the dollar will fall off a cliff and the whole financial system will implode, then he goes on to say "save as much as you can" WTF? Does that advice seem logical? Money will be worth nothing, so be sure to save it?????

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#21) On March 27, 2009 at 3:55 PM, XMFSinchiruna (26.58) wrote:

As promised, here is The Mother of All Curreny Crises.


He means save as much 'real' money as you can... i.e. gold. To his regular readers, that part goes without saying. ;)

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#22) On March 27, 2009 at 4:05 PM, BradAllenton (31.88) wrote:

Sinch, Thanks for the clarification.

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#23) On March 27, 2009 at 4:59 PM, Jimmy2008 (< 20) wrote:

I appreciate a lot for Sinchy's time and effort to educate us!

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#24) On March 27, 2009 at 5:20 PM, XMFSinchiruna (26.58) wrote:


Education, here at Fooldom, is a collective and participatory process. :) I learn from everyone here, and share that same sense of appreciation.

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