Re: [A-List] JP Morgan's *$23tn* derivative bust?

["Anne Williamson" <annewilliamson@xxxxxxx>]

Christian:

It so happens I just received an email concerning gold from a very
smart person I know who's a player in the markets who is debating
the issue with another correspondent.  I thought forwarding their
exchange to you might help give you a feel for what is going on - it's a
very
big play, a very big game we're looking at here on the part of the
manipulators.

("Contango" is the difference between the rate a gold
borrower - bullion bank - pays to the central bank and the rate the buyer
can get on safe instruments, T-bills say, in a declining
gold price market.  So the bullion bank borrows the gold at 1% or 2%,
sells it, then invests the fiat at 6% in the T-bill market, for example,
enjoying a 4% return as pure cream. Problem is - gold loans can not be
paid back in fiat, they must be paid back in gold.  But the bullion banks
sold
the gold, so the game only works if they can buy it back in the market
cheap --
otherwise they would have to cover their bets with high-priced gold and face
sudden ruin.  With Greenscam lowering rates 11 times this year, the
"contango" has
become almost nonexistant.  With returns so low, savers and foreigners
might decide the reward of remaining in fiat is too little to risk when
dollars
are being printed hand-over-fist, and move to gold as a safer depository for
their capital, thus unleashing a higher price for gold, a dollar collapse
and
rising interest rates since there would be a negligible number of foreign
volunteers to eat US inflation --  and, ultimately, the collapse of bullion
banks,
and Morgan which doubled up their risk with interest rate derivatives based
on a low gold price.):


"The contango on the short side is gone as the United States short-term
interest rates plummet in dollar terms.  So short selling can work only if
gold falls.  If New York were to force this, it would throw South Africa
into chaos, and jeopardize the American economy as other minerals there such
as titanium, platinum and palladium would be jeopardized in the potential
disruptions.  I wonder why South Africa just does not tell Bush that they
will stop all mineral shipments to the United States unless the gold
manipulation stops.  It may be that they are taking care of South Africa by
letting the rand crash.  The organ of International Finance, The Financial
Times, had an editorial on Friday praising the fall of the rand, and only
suggesting interest rates be raised to prevent inflation.  Inflation would
negate the widening of profit margins at the gold mines that the fall of the
rand engenders.  Now, the fall in the rand has made the gold mines there so
profitable that they are adding on more help to open more shafts stimulating
the South African economy.  Only inflation in wages could alter that.  So
the plan may be to let the rand continue to fall resuscitating the gold
mining industry, hold the dollar price of gold to support the dollar, and
work to prevent inflation in South Africa by keeping a lid on inflation
through the interest rate instrument.  This makes Harmony a grand investment
as they can not only profit more, but step up production in marginal shafts.
  The same with Gold Fields.  I have to look at Durban Deep.

Gold is being held down by the sale of Swiss gold that was coerced.  We
should study the effect of the 1933 depression on real estate.  The
fundamentals of a 4% or 5% current account deficit, and a 2.4 trillion
dollar net deficit position, should crash the dollar at some point.  Only a
very marginal tightening of credit here two years ago, and that was not a
contraction of credit but a slowing of its growth, created the tornado in
the dot.com stocks, internet, etc.  What would a destablized dollar do?
Would a Saudi oil cutoff be a catalyst?

The problem with gold is that it should fall in a deflation as the 1930s as
it is usual in a deflation that the currency becomes more valuable unless
that currency is destroyed as in Germany in 1923.    But all other
commodities fall also including real estate.  Your mother says that the
those who are tenants in New York City are fleeing and refusing to pay their
rents in the commercial area.  She said to my father don't invest in New
York City real estate for that reason.  Landlords have to chase after their
former fleeing tenants for the rent and are basically out of luck.  That
could happen in Providence too.  My father wants to start a real estate
company but I am advising to let the downturn run its course first.

If you look at Argentina, the pundits on television--McNeil-Lehr report on
Channel 13, tell us everyone could see it coming.  That is what they said
about the 1930s and it will be easy to say that about the United States in
the event the dollar crashes.  Well, they will say, the current account was
ingnored for decades and it had to happen.

The question, then, if it happens, is where is the best place to be
invested.  Is it gold?  Is it long-term bonds in Switzerland?

I put the trust into gold about some months ago at the lows for Harmony and
Anglogold with their good dividends, and Apache and Anadarko at their lows.
So we have 20 to 30 percent in a few months.

My and my father's average cost personally at Harmony is 4.50.

>From: Morrse
>To: bslif
>Subject: Re: The Yen and gold:
>Date: Sat, 22 Dec 2001 22:53:25 EST
>
>rents in nyc are coming down because people are starting to realize that it
>is a crummy place to live.  obviously i agree.  all new real estate we are
>purchasing is outside.  the stuff we already own in on longterm lease.
>
>we own 8.5% of the company that owns all the vacant land in the center of
>providence..about 30 acres... and have leased out all but 350,000 square
>feet
>that is now under option.  8 high-end office and residential buildings are
>due to begin going up on our land and we, like sarah korein, will own the
>ground, collecting cpi adjusted rents.....since it throws off cash and is
>subject to revaluations every 10-20 years, i believe it is superior to
>gold.
>providence is between nyc and boston and undervalued, hence we were able to
>pick up our interests slowly over the last 7 years at a rock-bottom price.
>
>gold will go nowhere because it's ownership is weak and represents a better
>opportunity on the short side...the short side is cash-flow positive, the
>long side cash flow negative.  so, maybe it has a rally....but then, once
>new
>suckers are drawn in it will always draw back in the smarter shortplayers
>who
>understand how money is made in gold and how it is lost.  in gold, over
>time,
>the longs lose the shorts win.
>
>we will be buying new properties.  we are looking in florida and in
>maryland.
>


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----- Original Message -----
From: Christian Gregory <christian11@xxxxxxxxxxxxxx>
To: <a-list@xxxxxxxxxxxxxxxxxxx>
Sent: Saturday, December 22, 2001 7:08 PM
Subject: Re: [A-List] JP Morgan's *$23tn* derivative bust?


> >With a rigged gold market and a constantly strong dollar, J.P.  Morgan
> Chase built up a 23 trillion dollar derivative rate position that is ON
> THEIR BOOKS RIGHT NOW! That unfathomable mega-position is one that cannot
> tolerate interest rate and general market VOLATILITY as they are SHORT
> volatility.
>
> Does anyone have any idea of how you would short volatility? Would this
mean
> short selling fixed rate interest swaps?
>
> Also, if Henry or anyone else has article or book references for the gold
> market situation, I'd appreciate it.
>
> All best
> Christian
>
>
>
>
>