Never in
economic history has there been a
night like tonight. I am writing
later than usual because of the
enormity of all the converging
forces. The euro reaches for $1.60,
the Middle East oil producers are in
shock, and the IMF tells the world
to plan for the worst.
The
reason this missive is late is
because I am reverberating at the
speed of the disintegration. These
cursed OTC derivatives and their
makers, who incidentally made the
international banking community rich
beyond your wildest dreams, are now
unwinding at lightening speed.
Do you
think any entity with any OTC
derivative now has faith in the
paper?
This
paper is $550 trillion plus dollars
in notional value. The horrible fact
is that in bankruptcy notional value
becomes real value with the capacity
to destroy the world financial
system.
The
above is no wild assumption. It is
hard, cold fact.
Expect currency intervention
to slow down the rise of the
euro.
Intervention has never worked.
It will not now. In fact, it
will backfire so fast that the
effort will be abandoned, making
things even worse.
Intervention in currency, the
dollar, will only provide the
capacity for other central
banks, oil producers and holders
of high risk long US treasury
paper to diversify out in huge
amounts of decaying dollars at
singular prices.
I could go through a tome on how
intervention works, but accept
that any rise in short rates
will break the bank immediately.
Intervention in the euro/dollar
is another practical
impossibility except as a bluff.
There is no practical solution
to today's TERMINAL problems and
that means you are up to your
eyeballs in alligators.
You must protect yourselves.
Gold is going to $1650. In all
probability my major error will
be in forecasting a price that
is much too low for gold.
The ratio spread long the major
gold producers, short the
juniors, is going to kill the
math whizzes that think they are
in the captain's seat. The
reason is the only value still
in precious metals shares lies
in the best junior issues these
geeks have been hammering.
The prayer that a junior with
quality assets has is that the
illegal short position is
enormous.
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