Thursday, April 26, 2007

This is why we call this blog "Digging Deeper" -- a financial outlook from Jim Sinclair

Posted On: Tuesday, April 24, 2007, 6:12:00 PM EST

AMEX Precious and Base Metals Conference Luncheon Presentation

Author: Jim Sinclair





Dear CIGAs,

The following is the transcript of the luncheon presentation I gave at the AMEX Precious and Base Metals conference on April 11th, 2007.

PARTICIPANTS
Jim Sinclair

Moderator: Okay, I hope you enjoyed the morning session. Again, I'm John McGonigal, head of the Equity's Group at the AMEX. Up here, I'm going to introduce someone that does not need an introduction probably to 99.9% of the folks in this room. He is a noted author, a noted speaker, he is involved with an AMEX listed Company, and can actually trace his roots back to when we had folks outside the AMEX trading on the curb. His dad was a trader at that time, on the curb, a predecessor of the American Stock Exchange. So without any further delay, I know all of you are here to hear him speak and not me, please give a big warm welcome for Jim Sinclair.

(applause)
Jim Sinclair:

Thank you very much, I don't mean to interfere with your lunch, but we have got a very broad subject. A subject that we can spend and I have spent almost a lifetime trying to and understand. A subject which is more than simply a business to those that are in this luncheon, in terms of the companies that operating in gold and base metals, but rather in fact something which is and has been and will continue to be a money form.

Now for the base metals, because that is what this conference is all about, base metals are cash cows. Gold has an attraction to the subjective character of people, which makes it the most popular of the entities to be involved in, but bear in mind when you are talking about something like copper, like nickel, you are dealing in an entity which is, when finally brought about from its birthing process is a cash cow. Something that will flow out very significant amounts of monies, and in some cases, well beyond what any of us in gold would ever see to a bottom line. So something like the Kabanga project with Exstrada and the Barrick in Tanzania, which is surely coming on line as a combination of cobalt nickel mine, where it will make enough cobalt to actually control that market. The amounts of money coming out of it will be in the 100s upon 100s upon 100s and finally billions of dollars. Now where base metals are concerned, base metals at the present time, in terms of their value and demand are tied in intricately to the outrageous expansion economically in the developing worlds. The amount of materials being consumed, not only in China, but all of Asia, has actually brought to the producing companies a phenomenon that they find mind boggling. It is not something which is simply a passing, momentary market. It is long term, solid trend experience.

Now I will ask a question, not to see a raise of hands, but just for you to take into consideration. How many of the people attending today's luncheon have in fact lived outside the United States, especially in an area in Asia or in Africa? Those that have, especially in the Asian event, are seeing something that will not be reversed. What you are seeing is small percentages of huge populations being enfranchised as consumers, a trend that will not end. Simply stated, the first thing you want, the first day you have some money, as you have been living in poverty most of you life, is a stainless steel cup to drink out of, or a stainless dish to be able to eat a meal on. When you begin that, you begin to consume nickel. This is what is taking place. Don't discount this as a short term trend event.

When China contracts its economy, it will contract to somewhere between 6 and 8%. If the Euroland or the U.S. had a growth rate like that, we would consider it the greatest boom in our lifetimes. Bear in mind, this will ebb and flow, like all things do, but it is not going to ebb and flow away. So base metals are the most interesting area because of enormous cash flow but without much sex appeal.

When we speak gold, we come down to something entirely different. Something which just like the base metals is not about to simply like past markets, reach a price where it becomes overpriced from that level go into a prolonged bear market.

I'm going to attempt to make this presentation into a bullet form, because it is such a short period of time, and I have so much that I would like to be able to share with you. And, I am going to have a warning for you.

You must understand precious metals. You must understand gold. In order to be able to both in the mining sense and in the sector of a trading or investing sense, to have the confidence in your conclusions in order to be able to best benefit from the market itself.

That is understanding that gold migrates from a commodity form, to a barometer, to a currency, to a international assets balance sheet form.

When gold bottomed at $248 that was the true commodity value of gold. When gold is trading as a commodity, it is worth-less. It will trade eventually and finally, like any commodity, at the price of producing the metal. The price of producing gold is not the fallacious cash price of gold or price that the mine had; you also have to take into consideration the chairman's private jet and the scrap paper, from every end of corporate operation divided by the ounces produced. That is the true price of that entity's gold production per ounce.

When gold bottomed at 248, it had approximately met the level in a most efficient manner that valued it correctly at the average true cost of production per ounce. So the ability to be able to catch a low in gold is by no matter of means some act of a seer or genius. It is the act of somebody with an adding machine.

Gold will move out of that as it has now, into a form of a barometer. A barometer measures the level of anxiety brought about by various and different factors. Whether it is Iran, whether it is the concern over sub-prime loans, debt levels, over consumption, maxing out on credit, all of these items create some degree of anxiety, which is measured in the gold price.

Now gold will have all of these characteristics running together as it goes forward. In other words, you will never lose the sum of commodity form. It will never lose the sum of barometric form. It will finally find itself in a currency form.

Gold becomes a currency, when the appreciation in gold is in a percentage term greater than the appreciation in the strongest currency trading at that time. Clearly then, gold has been elected as the currency of choice, by the majority. Now that you might say is only a statistical comparison, but it won't happen unless a subjective mind of the marketplace sees the entity as a currency. If you understand where you are in that transition, you can have the degree of courage required to know, that in fact, the metal you are trading, the metal you are producing, the metal you are interested in, the metal you investing, is in fact within a category and that has not reached its maximum valuation.

The maximum value category in gold, in which gold gets fully priced, is when it attempts to balance the balance sheet of the United States. Whether that will continue as the U.S. loses its position internationally as the major key player in the world economy, is questionable, but it is in fact right now still in that position. That is when the amount of gold held by the U.S. Treasury, in the form of Treasury gold certificates, is by increasing valuation attempting to equalize the value of an external debt of the United States held by central banks to the value of gold held in Treasury. That is how I was able in the market, between '68 and '80 early on in '74; suggested 900 would be the high. Therefore the value of gold as it stands right now is not in danger of being overpriced, and any idea that, that has occurred, is not an idea with foundation or understanding, in fact, of what this commodity, barometer, currency, and international balance sheet item is. So that takes care of the general understanding.

What right now has the greatest impact on the gold you produce? There are 2 items that will have the most impact. The first item is the Treasury International Capital Flows Report, because that basically speaks to the willingness of the international investors to sustain the debt and spending of the U.S. There has been a lot of help from friends to keep that relatively positive, but if you take a look at it in technical form, you would know that there was no question that in fact the TIC was in its declining trend. The first item's most important event would be three consecutive monthly reports, in which the TIC report was below the level of the deficit trade balance. That is the measure in the minds of most analysts, as to whether or not internationally, the consumption activities, military processes, day-to-day cost of government, spending and entitlements, are covered by international lending. So the TIC report of three consecutive numbers below the deficit Trade Balance would be an extraordinarily event, taking gold to the next level of characterization.

The other item with the potential of changing gold characterization is the fact that the economy in the U.S. has rolled over, be it as slightly as it is. You as business men and business ladies understand that the profit you make in a corporate operation is made on a very small, very small margin between the gross income and full expenses. So the mathematics of that is that if you have a roll-over in your gross activities, gross business activity, you are going to have a geometric fall in the taxation revenues. So the second factor as business activity contracts is what will occur in terms of tax revenue at a period of time, where there seems to be no real willingness to restrain international or national spending.

What you are looking at, is the probability, no I would even go higher than that, the almost certainty that there will be a significant expansion in the Federal Budget deficit. Now that expansion will be small at first, but will grow very quickly. It doesn't take much of a roll-over of general business activity to create a significant amount of depreciation in the amount of revenue received by the Federal Government. One is arithmetic, the roll-over. The other is geometric, tax revenue contraction. Things have gone so well because of the enormous tax revenue that has been a product of the very significant business expansion over the last seven years. This has been brought about by a huge growth of liquidity that was produced in 2002 and 2003, when the fear was that the US, like Japan, were headed towards zero rate of interest bound. The post 2002 expansion came about primarily because Governor Bernanke created a wonderful mechanism for being able to inject the most liquidity into the international system in the shortest period of time. This was done as a by product of the Bank of Japan's intervention in currency, the function of international bank wire and the fact that they New York Federal Reserve who manage what is called the Japanese float account. BOJ intervened, they gained dollars, which then came directly over to the New York Federal Reserve Bank and was invested by the investment committee of that bank, which purchased US debt instruments. The float account managers did not subscribe to issues but rather purchased bonds, and notes, and bills, all over the entire yield curve, from the shortest instrument to 30-years, and bought them in the open market. This process injected liquidity into many and all international investment banks dealing for themselves, and into their client's pockets.

That enormous injection of liquidity gave you the various bubbles that we have run into and especially the last, which is of course your housing experience. It gave the ability to create bubbles, but it also created a serious byproduct. For everything you do medically, there is something that happens that you don't expect. For everything you do economically, you have a goal that you can accomplish when something happens you don't expect. The injection of liquidity has no practical means of being drained. It is very simple to follow. If all of you were bond traders for a major international investment bank and I am a New York Fed, and I am constantly making the rounds asking you offerings and I'm taking the offerings in large amounts, therefore, sending you cash and taking your instrument the liquidity is created. This is somewhat similar in classical way that any central bank has ever put liquidity into a system, yet different. It is the first time that any central bank anywhere, put liquidity into the international monetary system, but I don't think it was extraordinarily well thought out because the transaction can only be reversed in same way it was created. That is you have to sell all those maturities into the international market for US Treasuries. That can't be done in the practical sense. If you bought all over the world in that anonymous market called the Treasury Market, if you bought every single maturity from the days left on a 91-day Treasury bill to 30 years maturity you have created a monster. The monster is a huge ball of liquidity that rolls around the world looking for markets to be involved in, which now begins to explain the huge international bubbles that develop, but it cannot be removed in any practical sense. So when you hear that the FED is in fact active as an inflation fighter, they are in fact active as an inflation fighter, more in the rhetoric than in the reality. The type of inflation creeping up on us now has no definition or economic precedent. This is one of the reasons why the materials that you are involved in, that you invest in, that you produce are looking at a significant future in terms of price, in terms of length of this bull market, which will be generational, and because of the reality underlying it, which is a combination of what I've now discussed in three ways; characteristic, the events coming up in the Treasury International Capitals report, and in your Federal budget deficit, and in this enormous ball of liquidity that has no practical means of being drained.

I see this moving out well into 2011, 2012, with a move in 2007 and 2008, which will be very interesting.

I know there is going to be a Q&A session, so I'd like to make a warning and a definition for you. In the means of financing most of the new production, silver, gold and in some cases base metals, has been to obtain non-recourse lending. We all know that there isn't a bank around alive who is willing to take risk on a loan for interest return. It was in the old days, that we finance by equity issues for new production, because we believed firmly that bringing on this new production was economic. Non recourse loans don't require even your confidence that the project would be economic, because you actually sold the product in the future, in order to guarantee to the bank the economics of the entity in order to give them comfort that you would pay the debt. Because if the economics didn't support your payment of the debt, the market profit on the gold sold for the future, the silver sold for the future or the copper sold for the future, would cover the banks liability. For that reason, they banks took only that project as their collateral making the loan non recourse to the producer's other assets.

Now, this has come home to roost. But the companies that say they don't have any margin call are legally telling you the truth. They don't. Because a margin call is generally involved with the price of the final product versus some contractual relationship. In this case, the banks have made the loan predicated on the condition of the company's balance sheet and the rating of the company's bonds. As long as the balance sheet is kept liquid and the bonds maintain their present rating level or don't drop significantly in credit rating, they will have no problem at all with any of the gold or silver or copper that is sold forward. However, if the balance sheet should weaken in a simple liquidity sense, where the liquidity ratios that measure the health of the balance sheet begin to change, then according to what was negotiated to be embedded in the loan contract, there will be a demand for funds. Ashanti is your test case, if you want to know how this happened and what it means, then you need to study step-by-step how brokers became creditors in the Ashanti case, and how that outstanding debt was settled in shares of the Company. It is very important to understand.

Now as junior companies in production, mostly on a percentage transaction, where you have taken your 30% of a project, and you have entered a relationship with a major company to obtain financing by subordinating your percentage of the property as collateral for the loan.

The question that you need to ask is very simple. Does the major in the project have a loan which is recourse or non-recourse? If the answer is non-recourse, than you as the percentage junior have a derivative risk. The reason why you would have a derivative risk is because you have collateralized your percentage, as you must, in the property that you are operating to the major, for the development loan. So you actually have of that loan 30% and all of the characteristics of the loan. If embedded in that loan there is a short of gold or silver derivative, then what you own is 30% of that risk. Should that risk come to fruition, ask yourself whether the major is a philanthropic and merciful entity. If your answer comes up not a chance, then recognize that you do have the potential of losing your property to the major, who will then water down their stock to their creditors and keep just paddling along very nicely, especially if the price of the final product is rising. As in the case of Ashanti, the stockholders didn't really get creamed, they ended up with a watered down item, and if the bull market continues, they should be able to get their price or better back.

So the derivative risk means more to the junior than it means to the major. I'm not making any statement of catastrophic risk, but I am telling you that your majors are not of the character to fail, to take advantage of opportunity. In that sense, consider renegotiating your contracts. If there is a non-recourse loan then you have your percentage of that derivative risk. I would renegotiate to exchange the percentage for royalty, because 3% royalty, is really more money down to the bottom line than you will ever see with 30%, because no mine makes money in the developing world at the mine head. You already know what the expenses look like that you are getting from your majors as you begin to produce. So my particular message is to those who represent the companies that are beginning to grow, beginning to become something of significance, who are fulfilling what the mission of the American Stock Exchange has really always been, and that is to nurture and provide a place of trading for solid young companies that seek to become old major companies. Then you need to protect yourself from a nuance of our industry, which in fact has put everyone in that sense and definition into danger. The question is easy. Is the loan of which I am part non-recourse? If the answer is yes it is non-recourse and isn't that wonderful, the real reply is, then let's go back to my board and see what kind of renegotiation we can make on this, because in the final analysis, your stockholders would benefit infinitely more from having money to the bottom line than counting ounces that don't really mean anything.

So that simple part of the presentation is, really I believe for this unique audience, the most important part. This industry has gotten into a situation because of the need to maintain the liquidity of the balance sheet of the major, where exploration has come to a screeching end. If the company announces that they are doing exploration, that means they are approaching bankable feasibility or at bankable feasibility, because the majors cannot allow their balance sheet to deteriorate. They can take over, and accumulate, and purchase other companies with ease, because that simply puts more assets into a pot, and a creditor doesn't give a darn about how many shares are outstanding because all the creditor looks at are the total assets within the corporation. So the consolidation of the industry is in proof the natural byproduct of the fact that the derivatives were set at infinitely lower prices. So the round you've seen of companies accumulating other companies doesn't produce 1 ounce more reserves, it simply consolidates the known reserves at that price of the entity within the one company. But how many major new projects have started in the last 16 to 18-months from a grass roots type of exploration? The answer is, very, very few, except the ones that you have undertaken. That makes your industry infinitely more important as time goes along. Therefore, the industry must survive by examining what their liabilities are, having subordinated their percentage of the property to the development loan, and what type of entity is built into or embedded within that loan because the derivative short of gold has come home to roost.

Gold shares have been relatively weak lately because they have become a playground of the hedge funds, and because of the exchange traded funds, there has been new money attracted away.

The potential for gold right here, is $682, $761, $887.50 and then into 4 figures. If you compare what 4 figures would mean, you will find out it doesn't mean much. I wouldn't even be the old high of the 1980 experience, and therefore, not outrageous. Silver will obviously do exactly what it always does. That is, it starts slow and then specs launch it like a rocket ship.

We haven't reincarnated the Hunts Brothers, but a lot of that equation is there. Markets in the ETFS exchange traded fund achievement, may in fact be the reincarnation of quasi Hunts. We certainly do have a very significant problem in energy, should push come to a real shove. We also have this mountain of liquidity floating around the world that nobody can get rid of. That combination is actually a form of a combination that brought silver into the great heights. So, silver generally performs better than gold in the final analysis. But with my apologies to the silver producers, silver is a game, gold is a currency. Yet, silver is a great game, and it is a game full of the highest and most powerful rollers in the world. So I am not in any sense negating that silver is an extraordinarily interesting item with a high potential, I'm simply being very down to earth in what it is. Silver is not a currency, no matter how many people tell you it is. Yet, that doesn't in any sense with the new uses of silver, and this huge amount of silver being purchased by both speculators and funds, take away by any matter of means the potential for the metal.

I would suggest that as we go out further that there is a possibility that we won't go into the huge decline we went into, but that is a subject in itself, and it would deal with, and I have written on it extensively, would be a modernize and revitalized Federal Reserve gold certificate ratio tied to a measure of international liquidity, not tied to interest rates. That is very possible but that is not convertibility. That is however bringing gold back into the monetary system. It is simply using gold for what gold really is. Gold is a control item, and we live in a society that has neither controls nor alarms. Should situations become so that policy makers decide or should enough money be made by major people that they want its values to remain solid, then that subject which would take us another hour to discuss, will in fact in that definition come about. But, I've got all the things that I have ever written down. Convertibility is an impossibility because of the size of world trade, period, end, forget it. It is in fact historic, it can't be brought back, it just simply wouldn't work. It is like trying to do 150 mph in a Model-T, it won't happen. The price of gold will remain high and a major bull market in the dollar will begin should a modernized and revitalized Federal Reserve Gold Certificate Ration be readopted and tied to a measure of international liquidly, not interest rates.

Now, I understand there is a question-and-answer period. I don't want to use up to much time, and not leave enough time Q&A. I see we have got about 8 or 9 minutes left. It is time for me to stop trying to tell you what I would think you need to hear, and for you now to tell me what you want to hear.

Q: First, I would like to thank you Jim for sharing your mind with us and for coming here today and for all the things you say on your website. I think I speak for everybody here. My question is 2 parts. One, if you were to be appointed the Secretary of the Treasury tomorrow, how would you bring back some kind of a standard in a basket of medals or what ever, to stabilize the dollar and to control Congresses spending? Second, is your heard of elephants in Tanzanian starting to get restless and move?

A: The answer to the first question is I did have the honor of being proposed of Secretary of the Treasure in the Nixon administration, and a great, good fortune not to have been chosen. The second part of the question, they would never appoint me Secretary of anything after what they just heard. But I go refer you to the former Chairman of the Federal Reserve Volcker. I'm going to take a quote from him, which is the answer to your question. Until polices are adopted, that have an historical ability to be able to move deficits towards surpluses, the dollar will continue to decline. In fact, I was at a dinner with him. He looked at me and my former partner, and said oh you two were the gold guy's, I certainly got you. And I said, no you didn't, when I saw you coming I left. So the answer to your question is policies that have a clear precedent for being able to solve the problem. The problem is no different than a problem that a family would have, it is simply overspending. It is simply the birth of authoritarian free enterprise, rather than a capitalistic system or free enterprise system. That is really what has taken place. The comparison, although it is not a direct comparison, is fascism. It is where the corporate authoritarians are the primary entities to be preferred in all matters.

Yes, is the answer to the second.

Q: Jim you said your, correct me where I'm wrong, but I believe your upward targeted goal is 1650.

A: That has to do with the computation dealing with where gold would acting as the asset to balance the amount of treasuries held by foreign central banks. That is the same basic computation used to predict $900 in 1974.

Barrons was not to pleased taking a advertisements for that prediction at that time. So the $1650 as we speak is gold's final role as the asset to balance the balance sheet. Now if something like that was to occur, and you where a major holder of dollars, would you not want that balance to remain because of that is the beginning of a major bull market in the U.S. currency. Because a currency is a common stock of the nation it represents, which has been in bankruptcy and now repairs itself to the point where the assets now cover all the liabilities, does it not begin to gain value. So you have to take the U.S. dollar, and look at it as the United States incorporated, then assets equaling liability on a national basis would be what would end the bear market in the dollar. If you had all the dollars, would you want it to remain a bear market? No. The means to keep the balance now developed for the national balance sheet is a modernized and revitalized Federal Reserve Gold Certificate Ratio, tied to a measure of international liquidity, not tied to interest rates, as it was back in the 20s.

Q: You are basically saying that is what you prediction is? What you think will happen once gold does hit $1650, which is not even inflation adjusted to $850 back in '79-'80? We talked upstairs and you briefly had said that you see the blow-up happening in 2011-2012. What will be that process? What is the current range for the blow-up....

A: We might not just blow-up. Blow-up comes from your previous history in watching what happened in March in 1980. when Volcker jammed rates to 14 7/8 percent return on 10-year treasuries. That would suck money off of the moon. What you need to keep in mind, is markets don't simply happen. I'm convinced that there is no market that isn't in fact constructed or made in the final analysis. Your investment banks recommending tech shares had made a price on the market back in 1999 and 2000. The concepts we are talking about here, are the concept of what would make the dollar solid. By that time, those authoritarians, which exist throughout every administration, whether it is democrat or republican, have accumulated so much wealth, that at that point in time, they would want that wealth to pass on to their families because they are married to paper as solid paper. You could begin a long-term bull market in the U.S. dollar as the common shares of the United States, by taking its balance sheet and balancing because it is always an ongoing business. So there is a possibility, of adopting a medium, the revitalized and modernized Federal Reserve Gold Certificate Ratio tied to a measure of international liquidity making sure that at some point in the future, the dollar gains again the quality of the Reserve currency of choice. That is a very simple formula of how to make it happen. That would go back to the question, if I was to make policy, the first thing I would do, would begin to set in place slowly, because you can't inject into an economy to much medicine or it goes into seizure. So you would want to slowly put into place those policies that have a precedent reversing deficits towards surpluses, and they are very well known and they are simple. Then you would want to make sure money began to become worth more rather than worth -less. So you'd have the policies first and then you would go to look at something that would control international liquidity as an automaticity then I believe you would have a sound concept, which by the way I expect will be adopted at some time between 2012 and 2015. I have worked on this for some degree with Dr. Brenner up in Canada, a Nobel Prize winner. Well one of the major prize winners. He sees that as a viable concept.

More questions?

Q: Yeah Jim.

A: Shoot. Now we get something from a floor trader.

Q: I'm George Giro, I'm a floor trader. To make a long story short, we believe that most of the popular commodities recently copper, nickel, energy, gold for the most part have been moving in tandem. Recently, in the last couple of days at least, we have seen divergence in some of that as we've begun to realize that there is a different war premium or geopolitical premium, which ever you want to call it, in each commodity. Do you believe that gold is going to continue its divergence from energy?

A: Divergence is created by change in definition from commodity to barometer to currency to asset balance sheet asset. So when it is playing into the barometer area, moving towards currency but not yet having made that jump, it will be tied from time-to-time by the subjective mind of the market to other popular commodities that have significant inflationary impact, not simply because of the war premium, I really don't know what that means. That means you are a talking head on financial TV. There is no war premium. There is a value and consideration of today's circumstances, which may not be tomorrow's circumstances. The talking head defines it to be an artificial value. It is not artificial. The value of energy under the present circumstances. Many of these markets are affecting your market, it is affected by this great ball of liquidity now in the hands of the hedge funds, which is the largest single group on earth holding the most speculative money at the present time. So gold will change the relationship you have had as it matures. You need only define by observation what classification gold is demonstrating to understand its value mechanism and recognize that it is going uphill not downhill. So my answer to you is, yes it is going to change dramatically in three chapters during the period of this market. That is one of the keys to value for you, is observing what that change is, and what gold is locking into, and then what gold is leading. When the gold price appreciates faster than the strongest currency, it now has become a currency. When the gold price begins to discount in value the amount of U.S. treasuries in international hands, it is approaching the end of that period of appreciation. Something will have to happen to maintain that price. The dollar will probably will be somewhere between .72 on the USDX, possibly .56. Something has to be done to bring that back. I mean if you take a look at the dollar, you are going to see the most miserable technical situations that probably have ever existed since Enron. The dollar like Enron is nothing but multiple head and shoulders, from the top down. It is absolute technical analysis 101. Go back and look at a monthly chart. Be prepared to fall over backwards.

We are right at the point of demarcation, which is .8230. We've touched it 3 times, and we will go through it. That will mean we'll go down to .8057, where again a significant battle will take place. If the market was to slide through that level like a hot knife through butter, then I would suggest that things are much weaker than even I believe. I would suggest that if we bounced three times or more, you are probably looking at .72. If it falls through that level, you are looking at .56. That is not horrible, I've bought 10-year Treasuries at 14 7/8, which equals .56, in the early part of 1980. So I am not suggesting to you anything that doesn't have historical precedent. Do this one thing. Take a look at a monthly chart on the DOW. Do it objectively. No matter what your present persuasion on the future of the US dollar. Take a look at where we are right now sitting on a neck-line of a massive head and shoulders the likes of which few have ever seen in your life. Then start taking a look at how this goes on. Currencies top in an up-slanting head and shoulders conflict, then look at all the times that happened on the way down, I mean an absolute fortune was made there on the reverse of how I trade gold. In other words, in this case, you sell strength short. Then your first transaction is short. Well in a bull market, your first transaction is long, and then you fade each move using whatever tools you use. So that is an increment towards making the final product of your trading significantly valuable.

The need of the authoritarians to start a new bull market in the dollar will come some time between 2012 and 2015.

More questions?

Moderator: We have time for 1 more question.

Q: Can I ask what is your outlook for PGMs for prime and for other PGMs, I mean do you perform as....

A: Well I wrote a book on strategic metals and materials. As we move down from platinum to the platinum group metals to those associated rhodium, ruthineam and the various other items involved, recognizing the world has become a high technology society, which we are pushing the envelope on right now. That increases the demand for the lesser known metals and materials, which are usually co products. So the uses of items like platinum, rhodium, ruthinum really develop their maximum value at the point of the ability to substitute. So to know the value of the item that you are trading especially in the platinum group, you need to have a geological economist. A person versed in the minor metals market. I owned the minor metals dealer for quite some time. We made markets in these items. They are not inactive. The spreads are enormous. The market is active. That is an overage and underage market, because many of these are dealt in as contracts not as an open market. So the answer lies more within that point at which substitution occurs and don't discount those byproducts that you are now producing that have significant uses in technology. Because in the technological sense, let's take something like rhodium, which is the most reflective metal on earth and the evil empire in that group of movies that they had when you saw the soldiers coming in their white plastic uniforms, that's what they were mocking up was rhodium, because there is not a laser beam on earth that is not going to be reflected by rhodium. In fact, if we really want to have a protected satellite, it would have to have a rhodium coating. So the potential is you are going to get a dump truck backing up to a teaspoon of supply, and find out that your byproduct are making as much money for you as your primary product. I remember what happened in the platinum, I think it put me into an overwhelmed and I will never forget, and that is when platinum was beginning to break as silver came down from the lofty levels of 52. Platinum at that time, and it may be true now, is traded by an ethnic group. Well you went in to sell platinum, you looked inside the pit and there was nobody there. It was the original to whom are you going to sell it, and it went down in lack/limit, from 1000 to 500 in a straight line. So there was lock limit because there was nobody, literally, they all just turned around and walked out. So you need to clearly understand in this contract market, what substitution is possible and at what point. Then you need to max out, and by the way, there is nothing wrong with hedging in a first derivative. The only time you get in trouble hedging is when you go into these complex over-the-counter hedges and derivatives, which are simply specific performance contracts unfunded. In which the action of the derivative and its performance depends not on the winner but the loser's balance sheet. They're like skeletons floating around a financial system, which as long as everything remains relatively calm, will perform. But, if there is ever a significant amount of these high-binding trading funds that go under at the same time, there will be a major test of the ability to perform because they are unfunded. In other words, there is no clearing house. When you are going to a first derivative, every night the loser pays in and the winner gets his/her money. So the worst that can happen to you is whatever happens in 24 hours if the clearing house goes broke. Because the money has already gone to your brokers in your account, it is out of the clearing house. But there is no clearing house for the majority of derivatives that have been granted in the over-the-counter market, in which the bigger issue has been all the money that sat on the front end was at inception sucked out the back as income to the brokers. Up to 50% of the earnings of major investment banks has come out of the derivative trading department. What is left there is unfunded contracts, specific performance and just think of the logic, who pays for the specific performance? The loser, has to perform, not the winner. Therefore, they fall back on the balance sheets and the ability of that entity to do its performance. They can be negotiated any way you want. I mean to be facetious, maybe you have to jump through a hoop and over a Grand prix fence, but whatever you write. They have indexes that are look-alike to what you are doing. In the platinum, I would suggest that when it gets to the point of substitution, you might begin thinking of some degree of reasonable hedging, but not in over-the-counter derivatives, but rather in the listed first derivative with clearing house guarantee. Because, they are not going to go broke. So that is my answer, substitution will give you your valuation, and it will be higher and significantly higher I'm sure, than where it is trading now.

Any other questions.

Ah, yes finally.

Q: I'm Kathy with Silver Corp. It is interesting, you definitely have very strong ideas about PGM, but in the main body of your presentation, you actually spoke about two metals. You spoke about gold and you actually spent some time talking about silver. Yet, you said silver has no real intrinsic monetary value. But then you went on and you talked about how silver, the Hunt cycle or what happened in 1980 is perhaps comparable with what is happening with the silver ETF.

A: Your are not reincarnating the Hunt, but you are coming pretty close.

Q: And because out of all the metal, you really focus on gold and silver, and yet you do not want to compare them.

A: I like currency.

Q: But allow me to ask you, in this cycle in this incredible veracious cycle, which will outperform, gold or silver?

A: Silver, because it is the nature of the entity.

Q: Thank you.

A: But, I like the currency.

Q: For those who want to know about Silver Corp, come and visit with me.

Moderator: We would like to thank Jim Sinclair for this great lunch presentation. Thank you very much.

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