Oct. 24, 2008

The Federal Reserve cannot be the lender of last resort to all nations near and dear and to all major US and international employers. President Obama's 20 economic advisors will not accomplish anything real. The Federal Reserve under Bernanke has entered dangerous territory that up to now has been the bastion of academics.

As the world turns to the Fed to be bailed out, the question will soon be who will bail out the Fed. The answer is clear - no one. The US dollar is in grave danger due to this shift to so far failed (Japan) academic solutions. In truth, all other solution are failing as well.

This situation is bigger than the US Federal Reserve. The US Federal Reserve cannot accomplish what they have undertaken. If you don't know that you simply lack a calculator with enough zeros.

The US dollar as the common share of the USA cannot enjoy a bull market while their balance sheet is being torn to shreds.

Gold is a currency, not a commodity. It has always been a currency. Industrial demand is a trivial constituent to the price of gold. There is no question about that. Gold as a currency moves inverse to the US dollar. It has always been so. It will always be so.

Do not fail to protect yourself. You will need every avenue of protection that I have suggested to you.

The US dollar is headed to .72, .62 and .52 on the USDX as a product of the move of the Fed into the "strategy of quantitative easing."

There is no doubt in the mind of those blessed by understanding that gold is headed to at least $1650.

Order your shares as paper certificates while you still can.

Potential confiscation of retirement plans now being discussed in legislative testimony is the most disturbing scenario I have ever heard.

Consider gold confiscation now a potential whereas it was simply a bad dream before.

Consider that Gold ETFs fit into the confiscation scenario assuming such a draconian act could actually be taken.

Look for juniors that have strong characteristics of selection. These include juniors with strong management with proven track records that are willing to fight for their shareholders, ones with proven resources in the ground, ones that operate in politically sound countries, ones with no derivatives exposure and ones that have internal financing already in place. No we cannot provide you with a list - this is up to you to research on your own.

If I were to construct such a vehicle it would be incorporated outside the USA, do business in a third country and trade outside the USA. Most importantly, the shares should be paper certificated with those certificates in my hands, not the hands of a US brokerage firm.

Fed capitulates: the central bank is broken

Or perhaps better, the entire banking system is broken.

For it appears that the US Federal Reserve has given up on the idea of easing stress on interbank and wholesale lending and is resigned to being the central bank-come-market-maker of last, first and every resort.

For some time now there's been a debate about the direction of the Fed's policy. Would we see target rates come down further? Quantitative easing? Massive T-Bill issuance in the open market?

From the Fed yesterday:

The Federal Reserve Board on Wednesday announced that it will alter the formulas used to determine the interest rates paid to depository institutions on required reserve balances and excess reserve balances.

Previously, the rate on required reserve balances had been set at the average target federal funds rate established by the Federal Open Market Committee (FOMC) over a reserves maintenance period minus 10 basis points. The rate on excess balances had been set as the lowest federal funds rate target in effect during a reserve maintenance period minus 35 basis points. Under the new formulas, the rate on required reserve balances will be set equal to the average target federal funds rate over the reserve maintenance period. The rate on excess balances will be set equal to the lowest FOMC target rate in effect during the reserve maintenance period. These changes will become effective for the maintenance periods beginning Thursday, November 6.

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About Jim Sinclair

Jim Sinclair is a precious metals and commodities specialist. Some of the highlights of his nearly 50 year career include the founding of Sinclair Group of Companies (1977), which offered full brokerage services. Mr. Sinclair served as a Precious Metals Advisor to Hunt Oil and the Hunt family for the liquidation of their silver position as a prerequisite for the $1 billion loan arranged by the Chairman of the Federal Reserve, Paul Volcker. He was also a General Partner and Member of the Executive Committee of two New York Stock Exchange firms and President of Sinclair Global Clearing Corporation and Global Arbitrage

www.jsmineset.com/