This message is from Jim Sinclair at www.jsmineset.com

Jim Sinclair is one of the most respected precious metals experts in the industry and I highly recommend visiting his website listed above.

"My Dear Friends,

It is not coming – it is already here.

I am convinced that all that has been anticipated since 1968 has now occurred. I see the mountain of over the counter derivatives which, when including all types, exceeds USD$30 trillion. It is shaking quite badly.

The situation now resembles the Weimar Republic in the sense that the Weimar case study is predicated on planed currency destruction to avoid war reparations that got out of control.  The present situation is based on the ultimate sin of greed called over the counter derivatives. This mountain of unfunded special performance contracts is shaking and will, as a product of declining US business activity and profits, fall.

Before the fall of the unimaginably big mountain of garbage paper, ALL world central banks will in concert prime the pump any way they can figure out how to. Priming for this purpose has no practical way of being drained. What is going to get out of control now is monetary inflation to offset the shaking mountain of over the counter derivatives. The process of the fall is in progress and will be history by 2012 or SOONER.

Simply stated this is it, today, now! Think the best, but protect yourself under a worst case scenario.

There is no more “if this happens that will happen” scenario. It has already happened, and the Formula applied internationally is going to bull all commodities to a level that even the wildest (rational) bull cannot not even verbalize. The dollar is headed below the estimates of the biggest (rational) bear.

I take what is said here very seriously. What I have just said I have never said before.

The over the counter shaking mountain of derivatives can’t be fixed by trying to hide it. The problems cannot be fixed by any interest rate action. The problem will not even be fixed by a monetary inflation of unprecedented amounts. The problem is coming home by 2012 or much SOONER.

Keep in mind that over the counter derivatives generally have the following characteristics.

1. Without regulation.
2. Without listing on public exchanges.
3. Without standards.
4. Therefore not in the least bit transparent.
5. Therefore without an open market of the bid/ask type.
6. Dealt in by private treaty negotiations.
7. Without a clearinghouse.
8. Unfunded without financial guarantee of any kind.
9. Functioning as contracts of specific performance.
10. Financial character or ability to perform is totally dependent on the balance sheet of the loser in the arrangement.
11. Evaluated by computer assumptions made by geek, non market experienced mathematicians who assume religiously that all markets return to their normal relationships regardless of disruptions.
12. Now in the credit and default category alone considered by accepted authorities as totaling more than USD$20 trillion in notional value.
13. Notional value becomes real value when the agreement is forced to find a real market for ending the obligation which is how one says sell it.

Jim’s Formula:
September 1, 2006

1. First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.
2. This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella - Goldilocks situations.
3. We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.
4. The formula economically is inherent in #2 which is lower economic activity equals lower profits.
5. Lower profits leads to lower Federal Tax revenues.
6. Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.
7. The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.
8. The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).
9. It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.
10. If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.
11. Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.
12. This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.

Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.

I heard all this "slow business" as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now.