A Little Help From Your Friends
Jim Sinclair

Q: Some months ago you stated that the window of opportunity to successfully pump up the money supply had passed. Shortly thereafter, the Fed began frantically running the presses. Your comment to me was "no traction" would be achieved because they were attempting to "push on a string." 

Those comments have certainly proved prophetic. With the aggregates plunging in spite of Fed attempts to re-inflate, where does that leave us? Specifically, considering the above and our jobless non-recovery, will it "hit the fan" prior to the election?  Thanks.

A: What you cannot push with a string you find a friend to pull. "Made in Japan" is the product label on the US Treasury market today. In 20 trading days in December, $56 billion dollars assumed a long position in the yen. At the same time, the US Fed kept banging away on the short end of the yield curve to artificially hold the shortest term interest rates at about 1%.

US medium and long bonds are not in a rally based on deflationary economic potential. They are in a rally from simple demand artificially generated by the unending buying of the Japanese yen and Japan's apparent application for US Statehood.

You might say the Japanese monetary authority is green-nosing the US. You have to give credit to the present administration at the US Federal Reserve and Washington for their market savvy. Never in the history of modern economics has government got its hands into everything from media to administrative law in order to keep the most valued item to the American voter, their checkbooks, appearing healthy.

Look at the advertising for home refinancing on TV. They show a man who had purchased his over-the-top lifestyle on credit and now can't even pay the interest so he yells, "someone help me."  Not to worry, he is saved by refinancing his home, apparently withdrawing equity to meet his payments. No where in this add is the feared phrase, "pay off the loans stupid" uttered. What total madness!

The real question is not whether this plastic economy can last until December 1, 2004 but what do we do after December 1, 2004? What is happening now if I had to place it in a time period is around the end of 1978. Therefore, the bill to produce the plastic economy will be presented to the USA for payment in 2005.

That bill will result in the sucking of every ounce of gold that central banks might be foolish enough to sell. This is what the Asian/Islamic buying was all about and these folks don't play for peanuts.