Dow up 400, Gold down 40, commods down, oil down.

Posted On: Tuesday, April 01, 2008, 5:29:00 PM EST

The Greatest Show On Earth Author: Jim Sinclair

Dear CIGAs,

I join Monty and Dan in not wishing to witness the circumstances that would develop assuming that a major financial institution went into bankruptcy without a bailout or merger.

- The lock up of credit markets, better known as the meltdown in credit and default derivatives, offer plentiful opportunity for such a bankruptcy.
- Today’s principle of economic management is massage perception to create reality.
- The key factor in this extreme market day was the OVER SUBSCRIPTION OF THE LEHMAN FINANCING. Remember that it is clear the Exchange Stabilization Fund has the right to purchase common shares in any US company they wish.
It is unclear if the Fed can but I have been told they do. In the present conditions where banking rules are being bent for pragmatic purposes, the Fed could lend to the ESF, but in all likelihood not such loan would be required.That would be a brilliant move to oversubscribe the Lehman issue in order to paint the situation as A-OK.
- This was presented to the markets as a sign that the financial problems and financial stocks had bottomed.
- The immediate action of the US dollar, with some help from its friends, appeared to confirm the media spin on the Lehman financing.
- Because of the drubbing that sovereign funds have taken in financials, it is a long shot to credit them with the over-subscription to a company recently seen borrowing at the Fed Begging Bowl loan facility
- As far as a public appetite for this offering in those number goes, it is stretching the imagination.
- The inviting question is will the buyers of the Lehman deal please stand up. I bet the room will be silent.
- All this was set up ahead of time by the Paulson Plan and will be capped tomorrow by Chairman Bernanke’s public testimony on the state of the Art of Obscuration.

You have to respect the cunning nature of this spin, yet who wants it to fail. Failure would rip apart the seams of world finance where credit can be directly attributable to OTC derivatives and their absurd values derived from “mark to model,” a total financial cartoon. Mark to model is still the means of valuation as no market can exist without standards.

The problem is spin and greed got us here, so more of the same will only result in a problem of more significant proportions.

There is no practical solution to the meltdown of OTC derivatives, therefore the entire sum of parts of the program can be named “Operation White Noise.” The basic guidelines for this are anything you cannot fix make opaque and pray by some miracle it goes away.

What you need to keep in mind is the word CONSEQUENCES. All economic medicine has side effects. Side effects can be as large or larger than the problem, but never smaller.

The side effect of all this money being thrown at the international investment banks is to produce an unprecedented degree of monetary inflation over the shortest time in economic history.

This dwarfs the “Bernanke Helicopter Electric Printing Press Money Drop.”

That means price inflation will be caused regardless of a slowing economy and will be history making. That cannot and will not be avoided.

You can fool the tiny and over-margined gold market, as seen today, but you cannot fool the US dollar market for long.

What you have just witnessed is the Greatest Show on Earth in the form not only of the steps leading up to, but specifically the Lehman Financing.

Will the buyers of the $4 billion Lehman financing please identify yourselves?

In other economic news today, UBS announced another $19b writedown, most commentators agree there are many more writedowns to come and this is just from the mortgage derivatives, without touching the next piece in the $516trillion of OTC derivatives which will be credit swaps.

Also US manufacturing and construction spending was down, US auto sales were down, housing prices were down for umpteenth month in a row etc.

This is why I won't short, even when I'm sure the whole house of cards is coming down. Just sit tight on good gold/silver/oil and a couple fo carefully chosen commodity shares, without margin and be patient, while watching the greatest show on earth!