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An Economic Suture

The Stitching Together Of Economic Cause and Effect In Order to Determine SIGNIFICANT Market Events
December 13, 2002
By James Sinclair

If awards were ever given for selfishly securing the worst possible timing to do something apt to result in a detriment to the many and a good for the few, it should go to Washington attorney Motley. Mr. Motley of course is using good legal strategy, but bringing legal action at this time seeking the assets of the Saudi Arabian Royalty, Saudi Banks and certain Saudi related charities here in the United States guarantees their continued shift politically away from the US and US dollar.

The legal rules in the US governing that part of civil litigation called Discovery are broad and reaching. It is said that there are two places in the US legal system in which tactics of the Wild West and mayhem are practiced. Those places are Discovery at the deposition phase and Jury Selection. It is questionable if any major financial interest outside the US is willing to walk peacefully into the snake pit of Discovery at the deposition phase in which no judge is present. The ability to legally obtain documents by subpoena and issue subpoenas for verbal testimony in the process of Discovery at the deposition phase is also loose in criteria and far reaching. It is a forum in which counsel for both parties and the witness square off away from the discipline of the courtroom. The slightest ill-conceived statement can be terminal in a legal sense. Your attorney is not allowed by the few rules there are for conduct in Discovery at the deposition phase to advise or coach the witness except in the matter of the rights of the witness. Assuming the Saudi Royal Family, Saudi Banks and The Saudi Charities do not fulfill the requirement of a subpoena for records and verbal testimony there are routes for the seizure of their vast US assets.

This legal action, the Malaysian Dinar announcement and the much larger Group of Six Dinar launch announcement indicates to me that the US dollar is headed not only for new lows but to that price objective the Exchange Stabilization Fund by their meddling (to no market effect longer than 30 seconds) was so kind as to build. That target is a definitive technical indication of .80 on the USDX. I believe we in the gold community can now anticipate that the 5th Element and Final Golden Key, a Bear market in medium and long-term bonds is in for fundamental reasons and not for the technical reason of a bear market rally in equities. It is no act of chance that gold today decided to resolve itself above $330. I firmly believe that chance is reason misunderstood.

It is my practice to introduce one concept at a time before tying them together in a sutured progress of economic fundamental and technical market chain link to a market outcome.

All of the above is a chain of interrelated events which will impact the market for Gold & the US Dollar long-term:

1/ Starting at the Malaysian Gold Dinar

2/ To the Group of Six Euro/Gold Dinar

3/ To the US civil legal action against the Saudis, which is a clear and present fundamental reason that will sustain a huge exit from the dollar long-term

4/ To the two important remarks by the Chairman of the Federal Reserve defined below.

5/ Now takes us to the key to lower lows for the US dollar and higher highs for gold not truly anticipated by the gold community.
The Inverted Pyramid
A Dangerous Construction

A very important statement was made by Alan Greenspan, Chairman of the Federal Reserve at his November 19th 2002 Washington press conference. Discussing the difficulties that the US economy has witnessed and listing the various major bankruptcies that have occurred, Chairman Greenspan said "The development of our paradigms (examples that stand as patterns or models) for containing risks (over-the- counter derivatives) to those willing, and presumably able to bear it. If risks are properly dispersed, shocks to the overall economic system will be better absorbed and less likely to create cascading failures that could threaten financial stability." The key element in the presentation for the community to focus on is the phrase:

"If risks are properly dispersed"

The inherent problem is that Risks are Not, by any means, Properly Dispersed.

You need only see who have been the key market participants in granting Last Risk Insurance that is a derivative construction ostensibly a guarantee against the bankruptcy of corporate debt. Guess what? Up comes the exact names of JP Morgan Chase, Merrill and a few of the usual suspect derivative kings, all of whom have had multiple downgrades as to credit worthiness relating to derivatives. There is however a difference here. Not every participant in the derivative community was willing to go as far as granting derivatives ostensibly protecting against the bankruptcy of known (within the establishment underwriting community) financial cripples. As the risk gets greater the risk takers get fewer. The pyramid of just the derivative daisy chains that Chairman Greenspan was complimenting is Upside Down. That means where the derivative risk is plain vanilla is where the risk is dispersed well. Plain vanilla is upside down where the base is facing the sky. When you get to the point where the risk is infinite the pyramid is non-dispersed and pointed to the few, with credit downgrades as it pertains to creditworthiness of derivatives in their position as counter party. That point or tiniest place of risk dispersion facing towards the ground.
Conclusion and Implications:

1/ The definition that Fed Chairman Alan Greenspan has given us is the primary and most serous risk that we face economically. Last Risk derivatives have the least dispersion amongst those least able to carry the risk; the creditworthiness-downgraded institution now praying to sneak by the economic trough period without recognition of the real problems they face.

2/ Because of the now accelerating move toward the institution of a new hard Arab currencies based on the Euro and settling in gold there is no question in my mind that my late 2001 prediction of a top in the bond market in November 2002 has in fact occurred.

3/ The major pressure to be exerted against Last Risk derivatives is the change from a Bull market in bonds and a bear market in the cost of money to a Bear market in bonds and therefore a Bull market in money costs. Therefore the unthinkable has occurred in money costs.

4/ The continued unfunded retirement programs amongst major US corporations like GM & IBM, as examples, plus the shift in money costs plus a now tired Bear market rally in equities will put pressure on the total derivative market structure.

5/ Last Risk insurance will, IMO, not pay off when called upon. It is my understanding that the debits and credits stand but the insurance has not been called upon in dollar payment terms. A failure of any institution relying on a payoff from Last Risk Insurance derivative chains is in for a surprise.

6/ This chain of events will put intolerable pressures on the US dollar just when it cannot shoulder such stress.

7/ The dollar within the next 36 months will go into a NASDAQ example of a free fall.

8/ The result is that gold will accomplish at least the high water mark of $529.

9/ The solution to the lack of confidence in the dollar will be the legislated ethic of a return of the Gold Cover Clause. This will signal the real birth of the next major bull market in equities and the transition of gold shares to the utilities they were in 1968, at much higher prices.

Chairman Greenspan's last and possibly most important statement came just after speaking on the subject of the new paradigm of over-the-counter derivative risk dispersion. He said "To be sure, the recent weakened pace of world economic activity has raised concerns the FULL CYCLE of the past decade has yet to be definitively concluded." I believe Chairman Greenspan and Governor Bernanke know that full cycle is yet to come and that higher gold prices at this point in time are not the enemy of mankind, only of the derivative hedgers.

I am preparing the presentation to the community of the gold cover clause in a revised form that could be utilized to reverse dollar weakness, however be assured it will not be used until there is no other option.
Heads Up

Gold Breaks Above the $330
The Calvary Charges In
The Fight is on but the ESF, Gold Dealer's Cartel and Derivative Shorts have already Lost.
By James Sinclair
Just as I told you this was going to happen and it was going to happen now, I have more to tell you.

Gold has Won!

The instructions are simple now. Sell 1/3 of your position against the $348 level. In the meantime for those that care step ladder your purchases down on any more futile selling ventures by the Big Three which are really the Big One (the ESF, the Gold Cartel and our beloved hedgers) who just got the high one from gold. This move above $330 seals the fate of all those that are positioned in opposition to gold. I have only one thing to say to the gold producer hedgers. I told you so! Did you listen?
The Battle for Gold's Supremacy

A Technical Review & Heads Up
By James Sinclair

I need to keep tightly focused because the points that gold is hitting inter-day are simply too perfect to be perfect. The first break out above $324.50 took it almost to $332 inter-day. Now the ESF right from this morning's cash New York market sold the metal targeting a close below $324.50 as their goal. Are they reading these postings? Did I touch the rawest of all nerves by having the guts to publish who in fact stands at the top of the feeding chain in the management of world market for political purposes. Yes, political. Certainly not economic.

Was today's not too hidden death threat I received on my email, supposedly over the gold Dinar, truly a product of having simply revealed the facts of a gold development in Malaysia or something else. What a price to pay for service to my fellow man. Did I touch a raw nerve in my discussion of the Exchange Stabilization Fund and their activities in market quoting exact times of entry and exit, especially the market for the dollar & gold. Well they were at it again today in a manner only some one quite afraid of the market would adopt.

Well, if they are reading this material then take note. Your actions most certainly in gold today are so obvious that they reveal that you are scared stiff over the Asian and Islamic interest that continually buys everything you throw at them. You know this interest is not going to be scared out of the market so whose time and money are you wasting? Gold is not only going now to a new recover high but also above the old time high recorded in March 1980. In time your activities will be revealed as totally manipulative for more than political or society's economic purposes. You will not be able to lay off responsibility on a sitting Secretary of the Treasury, but rather you and others know that the ESF has taken on a life of its own for its own purposes.

Call it the "Gold Cartel" or "Central Banks" or large hedge fund interest but the most common presence in the gold and dollar market is the Exchange Stabilization Fund. The ESF is identified by many different names by observers but it is primarily and only the ESF. It all comes back to the ESF in the sense that they do the dirty work of the central banks from the perspective of one that favors golds. By using the commercial metals dealers as their stealth agents, the ESF has given impetus to the short side trading by these entities for the gold cartel's own accounts, now caught in a to the death financial fight with the price of gold over their short side spreads.

Today right at the US opening of the Comex, the Calvary having ridden into New York cash trading pounced on the Comex longs. Can't have the gold market saying bad things about the new appointment for Secretary of the Treasury certainly on the same day of the month that the Federal Reserve meets to discuss economic factors.

Note what occurred in the dollar at 9:12 this morning US time and three guess who SAVED THE DAY for the buck?

Please also note at 9:13 what started to happen in the cash market for gold and continued into the opening of the Comex with a goal of pushing gold under our $324.50 number. That presence was in the market both in the dollar and gold until 10.14 AM. Yet for all that muscle from that point on gold rose and the dollar fell.

We are very close to resolving this war into a new battleground of $348-$353. Yes, $324.50 is now the key number, not $330. The ESF will fight gold and the dollar all the way losing the daily battles and the war entirely. Certainly for those that only see the high, low and close of gold, it looks like an anti gold/pro dollar interest won but they did not. They didn't as they made their effect but instantly after their manipulative presence ended gold strengthen and the dollar weakened.

I still firmly feel that we are very close (tomorrow, as few days maybe) to a breakout of the handle of the three/four year teacup and a technical explosion to high gold prices.

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