How serious is the Over The Counter (OTC) Derivatives crisis?
*JSMineSet, by Jim Sinclair, March 13, 2008:
Economic Forces Converge Like Never Before
"Never in economic history has there been a night like tonight. I am
writing later than usual because of the enormity of all the converging
forces. The euro reaches for $1.60, the Middle East oil producers are
in shock, and the IMF tells the world to “plan for the worst.”
The reason this missive is late is because I am reverberating at the
speed of the disintegration. These cursed OTC derivatives and their
makers, who incidentally made the international banking community rich
beyond your wildest dreams, are now unwinding at lightening speed.
Do you think any entity with any OTC derivative now has faith in the
paper?
This paper is $550 trillion plus dollars in notional value. The
horrible fact is that in bankruptcy notional value becomes real value
with the capacity to destroy the world financial system.
The above is no wild assumption. It is hard, cold fact.
1. Expect currency intervention to slow down the rise of the euro.
2. Intervention has never worked. It will not now. In fact, it will
backfire so fast that the effort will be abandoned, making things even
worse.
3. Intervention in currency, the dollar, will only provide the capacity
for other central banks, oil producers and holders of high risk long US
treasury paper to diversify out in huge amounts of decaying dollars at
singular prices.
4. I could go through a tome on how intervention works, but accept that
any rise in short rates will break the bank immediately. Intervention
in the euro/dollar is another practical impossibility except as a bluff.
5. There is no practical solution to today’s TERMINAL problems and that
means you are up to your eyeballs in alligators.
6. You must protect yourselves.
7. Gold is going to $1650. In all probability my major error will be in
forecasting a price that is much too low for gold."
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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