Posted On: Friday, August 08, 2008, 5:30:00 PM EST

Been There, Done That

Author: Jim Sinclair

My Dear Extended Family:

It is time to regroup, recognizing that nothing has changed. What we saw today in the seven trillion dollar a day global marketplace were hedge funds, black boxes and terrified longs all heading through the same door at the exact same time.

The door is big enough but can seem awfully narrow when panicked participants head for the exits at the same time. Like the entrance way to a good rock concert, however, the traffic can be equally as heavy in both directions.

Fear is an anomaly to witness. It appears as a stampede, with people kicking and shoving to get out of the same burning building. The awful truth is that there really was no fire - although perception is often worse than reality.

Ask yourself the following questions:

1. Are US banks more trustworthy today than they were on Monday?

2. Are you aware of a new problem called Auction Rate Bonds which are estimated at between $400 to $500 Billion? The Fed will have to pony this money up as the problem is focused on just those institutions that are already at the Fed Begging Bowl window. Logically, if they are borrowing to retain wiggling room, it is simple logic to understand the new problem is very much the Fed?s problem, which in turn is another problem for your kids to bear.

3. Do you really believe that because technicals are presently supporting the dollar it will regain its prior position as the universal Reserve Currency of choice?

4. Do you really believe that your retirement funds will regain the value that has been stripped away by all forms of Securitized Investment Vehicles?

5. Do you really believe that there is such a thing as global demand destruction in the energy sector as Asia keeps ticking at high economic levels?

6. Do you really believe that after the Olympics are over that China will collapse?

7. Do you really believe that Europe's economic situation will be more severe that the USA's? Have you noted that the USA had a rather good head start towards a severe recession?

8. Do you really believe that any currency is a better storehouse of value than gold?

9. Do you really believe that all the OTC derivative problems are now behind us?

10. Do you really believe that the credit market is loosening up enough to benefit credit-starved businesses?

11. Do you really believe that the public entities whose entire business involves insuring the value of debt instruments can really make good as bankruptcies increase?

12. Do you really believe that present inflation is demand driven?

13. Do you not know that the price increases now being witnessed are a product of monetary inflation for which increased interest rates render no effect?

14. Do you not know that the ECB?s action of leaving rates unchanged favors the euro over the dollar?

15. Do you really believe that the next move of rates in the US is up?

16. Do you really believe that all those central banks seeking to diversify out of the US dollar have changed their minds?

17. Do you feel certain that Israel will permit Iran to reach that point where a push of a button can incinerate its citizens?

18. Are you sure that Pakistan holds no challenge to life as we know it on this planet?

If the answer to all the above is yes then buy some cheap financials, sell all your non-dollar currencies and go long the good old greenback.

If you do not accept all the above as reality then be calm. As long as you are not on margin you have no problem.

The only result of this week?s market action may be to postpone gold's ascent to $1,200 by 90 days. That is a big maybe, however.

I accept the responsibility of my words offered to you in truth to reinforce what is correct. Today was made difficult through the din of fear and the bullying of hedge fund fiends.

Respectfully,

Jim

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