Dear CIGAs,

The following are two observations of mine today:

1. Talk about gold stocks outperforming gold on this move with charts and diagrams is on financial media and should get some attention from all those illegal, legal and pool gold share short sellers.
2. The newest SPIN is the conversation of if the banks will pay back the Federal money they have received in order not to be subject to events like yesterday’s severe public dressing down. How the hell can they pay it back? They are broke.

Jim Sinclair’s Commentary

The press is alight with articles declaring that European financial institutions are up to their eyeballs to the tune of $24 trillion in Toxic Paper known as failed OTC derivatives.

This may be so, but the writer has no way of fact checking that assumption.

The bottom line of this as it pertains to the dollar/euro price is who bails out those institutions.

So far the producer of the capital to bail out Euroland financial institutions has not been the ECB, although they applied the money.

It has been the US Federal Reserve via swaps with the ECB that has provided the paper (money for lack of a better name).

The answer to all these question is always, "Follow the Money," not “Read the headlines.”

Three men went to jail for the invention of the exact vehicle, the OTC derivative, but not one of the insider financiers is suffering one second of incarceration or loss of their own trillions.

This reaffirms my sad conclusion that the best investment a man can make with $1,000,001 in the past many years has been a donation of $1,000,000 to the success political party.

European bank bail-out could push EU into crisis
A bail-out of the toxic assets held by European banks’ could plunge the European Union into crisis, according to a confidential Brussels document.
By Bruno Waterfield in Brussels
Last Updated: 3:50PM GMT 11 Feb 2009

“Estimates of total expected asset write-downs suggest that the budgetary costs – actual and contingent – of asset relief could be very large both in absolute terms and relative to GDP in member states,” the EC document, seen by The Daily Telegraph, cautioned.

"It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems.”

The secret 17-page paper was discussed by finance ministers, including the Chancellor Alistair Darling on Tuesday.

National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors – particularly those who lend money to European governments – have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.

The Commission figure is significant because of the role EU officials will play in devising rules to evaluate “toxic” bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries.

More…

Chinese Dollar Holdings:

Concerning China making sales of dollar denominated instruments they hold in reserve, that is most unlikely. What is more likely is that the momentum of Chinese buying will fall sharply. Any opportunities the Chinese Central Banks have to offload dollars for things or lend dollars to their industry will be taken advantage of as that is the way to decrease their holdings without overt impact on the US dollar market. Any sales of gold by the IMF would offer just such an opportunity.