Noront Resources

Posted On: Sunday, June 29, 2008, 8:11:00 PM EST

Fed's Lack of Credibility Certain to Impact Dollar

Author: Jim Sinclair

Dear CIGAs:

How can you hold dollars in excess of what you need for expenses over the next six months? The recent ?Hawk Talk? followed by ?No Action? has discredited the Federal Reserve which is already deemed a tool of the OTC derivative market.

Greenspan's statement that the derivative market needs no regulation and that it spreads risk from the few to the many will haunt that organization (and him personally) for a very long time.

The distance is growing between the Fed and other central banks as there is a building consensus that the OTC derivative market supported by the Fed has permanently changed the financial world - and not for the better.

The Fed has assumed the onerous position of counter party on all the crap paper the banks have tendered against the "Begging Bowl" loans. What happens when the Fed is called upon to perform and the OTC derivative migrates from nominal value to total value?

A central bank can never go broke because they can print their own capital. What a central bank can do as its balance sheet softens is to break the currency of that central bank.

That dollar?s final breaking is near. It might be closer than anyone anticipates. I feel that proposition is not impossible by any means.

The question simply is can the Balance Sheet of the Fed stand one more major rescue? I feel the answer is no because the entire fractional reserve system sits atop

perception and belief in fiscal management and economic strength. Already the Fed has deeply injured that.

The Fed cannot continue issuing US treasuries in exchange for something worse than junk and becoming the last counter-party to the world. But they will. The Fed is headed to being counter-party to the entire mountain of OTC derivatives that are still being created daily by the many YOUNG HORSEMEN OF THE FINANCIAL APOCALYPSE.

I don?t believe it matters a damn what to pay for gold on Monday if you are under weighted. I do not care what the exchange rate is for any un-dollar of choice. The system based on perception is like the Indian flat bread Papadam. Breath on it and it crumbles.

How can you possibly continue to hold dollars? Gold, Swiss Franc, the Euro, the Cando are all un-dollars and as such are preferable to the extreme.

Barclays warns of a financial storm as Federal Reserve's credibility crumbles

Last Updated: 12:01am BST 28/06/2008

US central bank accused of unleashing an inflation shock that will rock financial markets, reports Ambrose Evans-Pritchard

Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero".

"We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth."

Barclays Capital said in its closely-watched Global Outlook that US headline inflation would hit 5.5pc by August and the Fed will have to raise interest rates six times by the end of next year to prevent a wage-spiral. If it hesitates, the bond markets will take matters into their own hands. "This is the first test for central banks in 30 years and they have fluffed it. They have zero credibility, and the Fed is negative if that's possible.

More...

RBS issues global stock and credit crash alert

By Ambrose Evans-Pritchard, International Business Editor

Last Updated: 12:19am BST 19/06/2008

The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.

A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

Such a slide on world bourses would amount to one of the worst bear markets over the last century.

More...

Jim Sinclair's Commentary:

My take on this is that it's simply "oral intervention and pretend muscle flexing." The weakness of this exercise is that markets at the time of the action were neither significant traders nor were they trading effectively in a global form.

The history of emergency actions reveals the major weakness of the CFTC, that being they cannot dent globally traded markets. All the CFTC can accomplish is two days of impact. Then all major traders move to other and potentially better trading and cheaper margin global markets. Once traders move electronically to London, Dubai, Iran and Russia there is no guarantee they will return. To transfer only means a bank wire transfer and click another key on their laptops.

Assuming that crude is the target, the CFTC could go a long way towards shifting the crude settlement totally out of dollars. For every action there is a equal and opposite reaction. Be careful Mr. CFTC. You might singlehandedly put crude to $170 after two days of high fiving.

Commodity Futures Trading Commission

Office of External Affairs

Three Lafayette Centre

1155 21st Street, NW

Washington, DC 20581

202.418.5080

CFTC Emergency Authority Background

June 26, 2008

The CFTC currently has emergency authority powers, as granted by Congress and found in Section 8a(9) of the Commodity Exchange Act (CEA).

These powers are based on Commission judgment and allow the Commission to take action to ?maintain or restore orderly trading.?

In the CEA, the term ?emergency? means, in addition to threatened or actual market manipulations and corners, any act of the United States or a foreign government affecting a commodity or ?any other major market disturbance which prevents the market from accurately reflecting the forces of supply and demand for such commodity.?

The Commission has exercised its emergency powers in response to extreme events, such as manipulation or a specific disturbance that caused a sudden shock to the markets.

The CFTC has never exercised emergency powers based on price trends that have developed over months or years.

Since the agency?s creation in 1976, it has used its emergency authority four times.

? November 1976 Maine Potatoes Traded on NYMEX: This involved a threat of manipulation in an expiring contract. In November 1976, the Commission declared an emergency and ordered the exchange to impose 100% margins on all accounts and to limit trading in this contract to liquidation only.

? December 1977 Coffee Traded on New York Coffee and Sugar Exchange: This again involved a threat of manipulation in an expiring contract. In November 1977, the Commission, in conjunction with the exchange, declared an emergency and ordered a phased liquidation of all positions subject to a prescribed

schedule.

? March 1979 Wheat Traded on CBOT: This again involved a threat of manipulation in an expiring contract. In early 1979, the Commission declared a market emergency and ordered a 1-day suspension of trading so the exchange could take further regulatory action. Subsequently, based on its belief that an emergency continued to exist, the Commission ordered the exchange to suspend all further trading in the contract and to settle any contracts remaining after the delivery period expired at the last prevailing settlement price for that contract.

? January 1980 Soviet Grain Embargo: In January 1980, when President Carter imposed the Soviet grain embargo after the USSR invaded Afghanistan, the Commission declared an emergency and suspended trading for 2 days in futures for wheat, corn, oats, soybeans, soybean meal and soybean oil that were traded on 4 different exchanges. The Commission acted because, in its view, the sudden shock to the market and uncertainties concerning unannounced USDA plans to compensate those affected by the embargo would render the markets

temporarily incapable of accurately reflecting the forces of supply and demand. The 2-day suspension gave the markets time to consider the USDA support

programs in light of the embargo action.

The exercise of emergency action by the CFTC is subject to review in the U.S. Courts of Appeals based upon the information before the Commission at the time of the emergency action.

The designated contract markets (regulated futures exchanges) also have similar emergency authority by statute, as outlined in CEA Section 5(d)(6