Oct 30, 2007

Jim Sinclair: Protecting Your Financial Self

Here's a word of caution from the man who knows gold like the palm his hand:

Dear CIGAs,

For your information, gold above $782 by 3% means $882 - $889 and then on to $1050.

It does not matter if it is next week or next month. It is coming as the price of gold makes its way to $1650.

I have no doubt that $1650 will come. My concern is not that it will not happen, but that I am much too conservative in my long-term price objective since 2000.

Last week’s story is becoming too common to ignore. Keep in mind that all this damage has occurred because of a small part of the gigantic mountain of over the counter derivative paper, which if official figures are correct is only 5% of the total. What do you think the financial landscape would look like if 1/3 of the OTC derivative mountain were to melt? It will.

If major international investment banks can be torn apart how can we have faith in the small local institutions that hold most of your ready cash? How about all those retirement plans that prevent you from securing ownership without the need to pay a penalty tax?

When I said “This is IT,” it is not something that I take lightly. Never in 49 years in finance have I seen a set of circumstances so challenging to the man in the street.

If there is a severe financial challenge to the man in the street, there is possible decimation on the top. Decimation may well be too conservative a statement because that means one out of ten. Right now it looks like 80% of major names have problems from their principle position in the issuance of over the counter derivatives. It should not be a shock because the financial capacity to perform on these instruments depends on the balance sheet of the loser in the transaction. Add to that no clearinghouse financial structure and performance is not improbable but impossible in a crunch.

What I am getting at is a simple question. Are you prepared?

You would be amazed how little space $1,000,000 in gold coins takes up. $100,000 looks like a small loaf of bread. Now you can see the actual transformation from the US dollar to gold as a currency of choice. It has happened.

When gold is purchased as money there is no reason why you should play it as a speculative item trying to buy it cheaply as it may well leave you in the lurch.

It becomes more important now to take delivery of whatever investments you have in shares as paper certificates. Whenever a broker tells you it cannot be done it is either self-serving or rank stupidity. Once you do have them in your position DO NOT lose them.

The basic goal now is to eliminate intermediaries between your assets and yourself. What do you stand to lose by taking this action, a few percentage points interest, and a tax advantage? You gain the advantage of possession in the financial world that is separating people from billions, probably trillions of dollars. It cannot be contained among the Blue Blood International Investment firms. This is coming our way and you cannot simply weave and duck to avoid it. You need to be your own bank, your own broker and your own central bank.

If the once most respected international investment firms are teetering, if not already broke, how can you sit by without taking precautions? You have nothing to lose and your fortune to protect.

If there is no need for the actions I am suggesting then simply put it back. No bank will refuse your money if you wish to deposit it. No broker will turn you away if you want to convert your paper certificate back to a transfer agent’s computer entry.

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