I have to mirror something one of my best sources in financial, especially gold, markets said last week: How can anyone put their money with a clearing house given todays risks. This was from the mouth of Jim Sinclair, a highly respected voice in the metals and mining markets.
After the bankruptcy of MF Global and now the near collapse of a stock brokerage firm that cleared a ton of trades for other firms, it is even riskier to place your money with ‘others’. Given the financial health, a all time lows, of so many brokerage firms in both stocks and futures an argument can be made for simply avoiding them all together.
Unfortunately there is not only the risk that your money will disappear from a bankruptcy of one of these firms but also there is the risk inherent in these type of investments. With the new lows in fixed income rates of returns many folks are looking to add more risk by investing in the stock markets to hopefully have a somewhat better return.
Personally, there is an inordinate amount of risk these days in almost everything. Fixed income markets are just not paying enough to offset any of the risks. To avoid the additional risk of the brokerage firms you have to take delivery of the physical bonds and put them in your bank safety deposit box and then keep track of the coupons etc.
I am still a buyer of gold and silver, although I feel that the risk here is in your entry point now. Seems that there is some sort of base around 1550 in gold so prices close to that level might be good.
There are so many things out there now to be worried about, at least theoretically since we can’t do a thing about them, such as the drought and a really terrible corn and wheat crop which will cause food prices to rise even higher, collapse of the Euro and the European Community (EC) which will affect our exports and jobs that would have been there had this not happened, collapse of our economy as evidenced by first the failure of municipalities (interesting to note the Warren Buffet paid to ‘cancel’ 1/2 of his exposure to municipal defaults last quarter), not to mention the rise in senseless violence across the country.
On top of it all we have a couple of guys running for President that by all appearances and history have few differences in economic terms. Sure they talk a good game but when you look at track records there is a very odd convergence in some really critical areas-at least in my opinion.
So here is to hoping and praying that we see some substantial change, of the good kind, and very soon. In the meantime we are preparing for the worst…gold, silver, stored food and herbs and of course water!
This article just in from Jim Sinclair a highly respected metals industry insider, trader and investor. The system broke with the bankruptcy of Lehman and now we are seeing the worst possible scenario with MF Global’s demise. I suggest everyone read this article and prepare themselves!
My Dear Extended Family:
We all know bank’s balance sheets are cartoons due to FASB’s capitulation on the fair market value issue, that the euro financial leaders do not deserve the title leader, and that the Fed is the source of liquidity for Euroland in unlimited cheap dollar swaps, but there is more.
That more is the first failure of a major clearing house.
Clearing is the mechanism of all markets.
It is the guts of the system.
It is the engine under the hood of finance.
It is the pulleys that turn inside the watch.
It is basic to finance for without clearing trades cannot close.
Without faith in the clearing house system where is faith that what your account statement says means anything whatsoever?
Unless MF clients are made whole in every way, the system is broken. It is as if the heads blew off the engine of finance. Where can you keep your money and investments if a clearinghouse is allowed for whatever reason to go broke, therein leaving the clients to suffer?
Are you safe even in a custodial account if the clearing mechanism can erase assets across the board as a product of insolvency for any reason?
The system is in a critical seizure.
It may take some time, but even the financial sheeple are going to worry about their own funds. God help you if you hit gold right on a paper exchange with the wrong clearing facility.
You are wholly dependent on the ability of the clearing house to pay into your account the winnings by deducting those funds from the loser. You are wholly dependent on the ability of the clearing house to guarantee the safety and security (are T Bills securities?) beyond SIPC levels. SIPC is underfunded but would be made whole by funny paper.
God help all the exchange traded funds that are nothing more than houses of derivative paper requiring a sound clearing system to have even an excuse for existing.
If the clearing system fails then you have nothing whatsoever. God help you if you are a farmer hedging your crop or livestock if you the farmer have nothing whatsoever due to a broken clearing house. You are insolvent regardless of the fact that your hedge may have been perfect for the needs of your operation.
Unless MF clients are made whole in every way the system is broken.
People did not realize then and some even now that the failure of Lehman broke the technical procedures (mechanism) for the functioning of the OTC derivative and for that reason broke the Western world’s financial system for which we are paying dearly today.
MF is a Lehman Brothers, but worse. OTC derivatives have always been a fraud but could have, before Lehman failed, been globally netted to practically zero.
The lack of faith in the clearing house system breaks the mechanism of the marketplace, even for legitimate transactions. This leaves gold in your possession as the asset of last resort. This is quietly driving the gold price towards Alf’s objective of $4500.
For your sake immediately take delivery of your gold and silver.
For your sake immediately take paper delivery of your gold and silver shares from those very few companies still willing to facilitate that kind of transaction.
For your sake immediately make your general securities positions “direct registration” as a second best method of protection the asset against failure of your clearing facility.
You all have clearing facility dependence even if you do not know it. Unless MF clients are made whole in every way, the system is broken.
This is no time to take any unnecessary risk.
This is no time to be lazy.
If you do not know how to do direct registration, get paper securities or take delivery of paper gold and silver, ask me.
This is really quite serious and I suggest you act accordingly.