Wednesday, February 25, 2009

The Appearance Of Strength

The Appearance Of Strength

Posted By Jim Sinclair

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The outrageous machinations of the market place, as Trader Dan has described to you this afternoon, are a combination of hedge funds attacking by shorting the middle European low cap currencies, the Cando and the Down Unders, which by mirror reflection display an image of temporary dollar strength.

One of the tools of a short against a country’s currency is to work the Default Derivative Index violently upwards on the bonds of that country, thereby making the debt of the country look terminal.

All of this is feeding into the EUR/USD cross rate. Markets in securities and general commodities are in turn raked by the emotional fallout of paper implosions in the currency markets. As the hedgie sharks eat each other only a few fat hedgie sharks remain. The mega wealth they represent will in time turn their big guns broadside to the US dollar and long side to gold, producing levels on both that few consider possible, even today. It must happen because already the algorithm of gold is beginning to demand it.

As the hedgies go for cover in the middle European currency units, the momentum of the dollar will roll over, triggering the early dollar algorithm to magnetize money to the short side.

The same fund right now raping the middle European currencies will eventually dig a grave for the buck.

World flows of money know no human feelings, but like the demons at their heart, spread death and destruction wherever they flow. It is like a massive volcanic eruption poisoning the air and water, bringing with it a planetary malaise.

Remember that JP Morgan had to get Jesse Livermore to agree to stop raiding stocks, commodities and currencies short before Morgan could rescue the US banking system from a credit lock up.

I may be the only one who knows why the world is ending in the equity markets and why no 1930 style rally with staying power can occur until certain procedural trading matters are worked out

Hell has broken lose. It will be more than two generations before this plague of greed is overcome. This is not a short-term aberration. It is a cataclysm brought about by the uncontrolled greed of an army of sociopaths.

Gold is the only safe haven because unlike paper money it is impossible to create twice as much with the strike of a bailout plan pen.

Gold is your only insurance.

Gold is the difference from being the cause of your future or a victim of this colossal theft of unprecedented proportions. Be a survivor, and save yourself for you and your families sake.

Respectfully,
Jim

Jim Sinclair’s Commentary

The South Koreans central bank knows exactly what is going on as this article shows. Please read it as it is a clear road to understanding what I have been trying so hard to enlighten you on regarding the reasoning for an appearance of dollar strength that is limited in time.

" In a warning to hedge fund traders who may try to take advantage of a currency shortage, the government threatened to intervene in currency markets to support the won against perceived manipulation. Region wide expansion of currency swap arrangements denominated in dollars from 80B to 120B is being pursued at this week’s ASEAN+3 Finance Minister’s Conference."

Here also is an example of the technical dollar flows that have nothing to do with the underlying dollar fundamentals which means there will be an eventual collapse.

Did Minerva Actually Do the Government a Favor
23 FEBRUARY 2009

Though it may not have been his intention, Minerva may have actually done the government a favor with his post late last year predicting a "Yellow Rabbit" crisis during late February to March of this year.

It was this prediction that put him in the legal cross-hairs of Lee Myungbak’s government. His since fired finance minister, Kang Mangsoo, publicly responded and even offered to meet one on one. When a man named Park was arrested, jailed without bond and indicted for being Minerva, the original charge was related to Minerva’s claim that the government had told currency traders to stop selling won and buying dollars on December 27th. Nevertheless, it was the March crisis prediction that really set the government on edge.

The problem is that the Korean banks and other financial institutions borrowed a lot of money denominated in foreign currencies, particularly the Japanese yen and the American dollar. A lot of that money is coming due over the next month or so and Minerva’s fear was that Japan banks, most of which close their books at the end of March, would not want to continue financing Korean financial institutions. This situation would be exacerbated by Japanese hedge funds (or Yellow Rabbits) betting aggressively against the won and foreign indirect investment money (money invested in the bond and stock markets) flowing out of Korea.

The Korean government’s responses to Minerva’s post were two-fold. First, they set out to find and arrest him, a strategy which made them look foolish at best and repressively anti-democratic at worst. Their second strategy, however, was to proactively take steps to prevent a liquidity crisis. Lee’s government negotiated currency swap agreements and this week announced an open ended expansion designed to prevent the very crisis Minerva predicted. In a warning to hedge fund traders who may try to take advantage of a currency shortage, the government threatened to intervene in currency markets to support the won against perceived manipulation. Region wide expansion of currency swap arrangements denominated in dollars from 80B to 120B is being pursued at this week’s ASEAN+3 Finance Minister’s Conference.

Personally, I don’t see a major collapse this March, primarily because it’s become so widely known and the Korean government has taken the necessary steps. Also, the Japanese are hurting as bad as anybody with the overly high yen killing Japan’s economy. Real exports fell at an annualized rate of 45% in the fourth quarter of 2008, the last quarter for which we have data. Industrial production has fallen 50% on an annualized rate since September. Thus, the Japanese banks and government have just as strong an incentive to help Korea through whatever liquidity issues emerge as Korea does, because they would be badly hurt by any further unwinding of the yen carry-trade and escalation of the yen.

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