Posted On: Sunday, August 17, 2008, 8:58:00 PM EST

Considering The Perma-Weak Euro Concept

Author: Jim Sinclair

Dear Friends,

Before you sign on to the concept of the perma-weak euro (Pritchard-Telegraph), consider the following:

The foundation of the entire present problem is a credit lock up based primarily on the US manufacture of noxious paper - OTC derivatives.

Only UBS can be considered a major OTC derivative manufacturer that nears the copious level of US greed driven money manic sociopath purveyors of that Ebola of the financial world.

Assumptions that Euroland has problems as serious and threatening as the US (Pritchard-Telegraph article) is presently an arm wave, not a solid demonstrated fact.

Now we know what the statement made by Chairman Bernanke meant when he referenced the possibility of non-US entities having access to the Fed Begging Bowl loan window. The European Central Bank is precluded from Bear Stearns type bailouts.

That would suggest the US Fed might bail out major European financial entities that are major grantors of OTC derivatives, thereby monetizing world bankruptcies.

The load on the US dollar is becoming terminal. As of today?s Barron?s article, this load will sink it.

Markets, thanks to the combination of hedge funds and black boxes, possess an unprecedented vengeance that is convincing investors to panic.

Media works to reinforce viewpoints that sustain the marketing of all sorts of paper. When have you heard that OTC derivative factories caused this planetary killer meltdown?

Media has worked hard to convince you that the dollar is king, commodities are junk, energy has only one way to go (down) and that the ECB is going to lower rates every month until they hit minus 1%.

Conclusion:

Either argument carries us on a clear path to $1200 and then $1650. A weak euro takes some more time while a strong euro is as close to immediate as markets can be.

It is no forgone conclusion that the euro is going to win the race of currencies to the bottom, as Pritchard indicates.

Pritchard-Telegraph disdain for the management of the ECB is clear. He fails to grant to them that they have a history of seeing what the result of today?s monetary push forward actions have resulted in - the Weimar Republic.

With a strong euro, gold is going to $1650 now. With a weak euro and the US Fed bailing out Euroland?s financial entities, gold will move to even higher prices.

This move will occur by the 2nd week of January, 2011.

Gold will be center stage trading at or above $1650.

The US dollar will be below .62. Right now a break below .72 we can call the major panic number.

I do not buy the entire Pritchard case, but you had to hear it to know both are gold positive, one immediate while the other takes longer and gold goes higher.

Respectfully,

Jim

Barrons put a nail into the coffin

"It is growing increasingly likely that the Treasury will recapitalize Fannie and Freddie in the months ahead on the taxpayer's dime, availing itself of powers granted it under the new housing bill signed into law last month. Such a move almost certainly would wipe out existing holders of the agencies' common stock, with preferred shareholders and even holders of the two entities' $19 billion of subordinated debt also suffering losses.

More?

U.S. likely to recapitalize Fannie, Freddie: report

Sun Aug 17, 2008 5:49pm EDT

?The report called an equity injection by the government a quasi-nationalization -- without having to put the agencies' liabilities on the U.S. balance sheet, and thus doubling the U.S. debt.?

NEW YORK (Reuters) - The U.S. Treasury is growing increasingly likely to recapitalize Fannie Mae and Freddie Mac in the months ahead on the taxpayer's dime, Barron's reported in its August 18 edition.

The weekly financial newspaper said that such a move could wipe out existing holders of the agencies' common stock, with preferred shareholders and even holders of the two entities' $19 billion of subordinated debt also suffering losses.

An insider in the Bush administration told Barron's that Fannie and Freddie "are being jawboned" by the Treasury Department and their new regulator, the Federal Housing Finance Agency (FHFA), to raise more equity.

But government officials don't expect the agencies to succeed, Barron's reported.

If the government-sponsored enterprises fail to raise fresh capital, the administration is likely to mount its own recapitalization, with Treasury infusing taxpayer money into the agencies, according to the Barron's source.

More?

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