Jim Sinclair – 5 Major US Banks Could Fail From Derivatives

January 12, 2012

With gold rallying toward the $1,650 level, today King World News reached out to legendary trader Jim Sinclair to get his take on what is happening. Jim Sinclair’s KWN audio will be released today and when asked if the technical damage that many claimed existed in the gold market was a bit of nonsense and a scare tactic by the cartel, Sinclair stated, “Exactly, correct. (It was) a product of algorithms, of manipulation, of chart drawing, a product of the times. They (the commercials) will sell again at $1,681, but it’s just more delay in a drama.”
“The accordion chop that we’ve been in over the last month or two is over and the downside risk of buying gold on reactions is now cancelled. It’s never impunity if impunity implies credit because the margin man will get you. But in terms of buying gold on a dip, the idea that you might face a 300 point (dollar) drop in the market is completely over. There is belief (in the gold market), but the belief is coming from a very monied, very influential, inside type of activity that has taken place over the last two weeks.Alf Fields published today that the reaction in gold has completed itself. That would mean the lows have been set solidly and certainly. The right way of trading in this market, since $248, has been to have a willingness to buy on reactions. The risk of buying on the chop was the size of the chop or 200 points. That risk is now cancelled.”

Regarding the mining shares, Sinclair stated, “They’ve suffered significantly at the hands of the wunderkinds of the hedge fund industry. But the barrel is rolling and we will have our bull market in gold shares. It’s impossible that the inventory of companies should become so valuable and the common shares of the companies lack interest….
When asked about derivatives, Sinclair said, “They do nothing but grow and fail to perform. Defaults work constantly if nobody asks them to perform. If the credit swaps are asked to perform, five major US banks will fail. When you have a ticking time bomb, it’s the rationale for kicking everything down the road, hoping to God something improves.

It is an insurance industry that doesn’t have the backing or the regulation of an insurance industry. They are selling insurance they can’t insure. It will keep rolling along as long as nobody uses the two ‘D’ words, depression or defaults.

If you can camouflage, such as FASB allows auditors to do, the real value of the paper you are holding, your balance sheet looks sound and is accepted as sound. What people can’t see, they can’t focus on. If you are the average blue-collar guy you are in terrible trouble.

If you are working for a huge financial entity, you are shaking in your boots every Friday to see whether you are still employed. The (economic) statistics are modestly off the bottom, mostly statistical aberration, and again, blasted over the airwaves as recovery and the sheeple yell, ‘We’re saved!’”

Sinclair had this to say about the US dollar: “From 80 to 82 the dollar fulfills its maximum price objective, not for technical reasons, but because that attracts the selling of dollar holders looking for alternative methods.”
The KWN audio interview with Jim Sinclair is available now and you can listen to it by CLICKING HERE.

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