From the May 01, 2012 issue of Futures Magazine • Subscribe!

Jim Sinclair has something to say

Q&A

FM: So how do you drain liquidity?

JS: You would have many means of draining and they all would be ok because you wouldn’t bust the recovery; you might mute it. You might not go into the great bubbles we’ve gone into of asset values. You might have a feel of what 1950 to 1970 felt but for those of us who lived and did business in those times, it wasn’t so bad. This is the strategy. It is not a decision, it is an absolute necessity. There is no other way to keep interest rates down.

FM: We have been dancing around QE3; is it coming?

JS: It already happened: In December when the Fed did the [approximate] $600 billion in swaps that went to the ECB, [and] went from the ECB to the major banks of the ECB. The Fed had basically debt monetized the euro. Quantitative easing comes in many different ways. But there is no program for drain. The method of applied economics since Nixon is management of perspective economics: If the public perceives business is improving it will improve. Therefore, you can keep equity markets high, you should be able to manage the economic perspective of economic decision-makers.  The new school of economics is MOPE, management of perspective economics, and it is practiced everywhere.

FM: What if political pressure on Bernanke prevents him from continuing QE?

JS: That is why Ron Paul can’t win. The desire to do the right thing would be absolutely the wrong thing. The explosion you would hear economically, you would hear on Mars. The right things only can be done in conditions of economic ease. You can’t have a gold convertible currency. You can’t at this point in time violently drain the system. That whole mountain of notional value will descend on us all. The idea that we are going to have a change in administration, in an extreme sense, isn’t going to happen. The other candidates that have any possibility of being able to [beat] President Obama wouldn’t make much change. The only one in there who would make great change — and it would be wonderful intellectually and horrible practically — [is Ron Paul]. We are in a box, there is one way out, there is only one tool available, quantitative easing.

FM: Your equation that compares U.S.  external debts to  the value of U.S. gold reserves to calculate an indicative gold price has been used to give a potential gold price of more than $13,500 an ounce.

JS: That is how I [predicted] $900 in 1974 for that bull market. I don’t like to discuss it now because the debt has grown so much, but if you do the figures on international debt and say that the amount of gold that the U.S. says it has, times the price of gold would equal international debt, you’d be talking about $12,400 per oz. for gold.

FM: Is that still viable?

JS: It is not viable because of the environment. Every tool known to mankind would be used to prevent that from happening. 

FM: Your web site, MineSet, includes a pretty eclectic group of international stories and commentary. Your motto is “Who will watch the watchers?” What does that mean?

JS: Who really sees what we talked about today? Do you recall that the BIS reduced the value of the notional value of the entire OTC derivatives from 1 quadrillion 144 trillion down to $700 trillion simply by changing the computer model for valuation? That is watching the watchers. The Swift system is a tool of combat that can disable a country economically with a flash of a delete button. It is so powerful that we scared the hell out of the Indians; they are already starting to talk accommodation.

FM: What are you trying to accomplish by it?

JS: I have a wealth of knowledge. I’ve made 35 OTC markets.  I’ve traded all my life. Markets run in my blood. Should I die with this knowledge or should I publish it? It’s not brain surgery, it’s called attention. I don’t have a lot of outside interests; I love my business and I love trading. I think this all of the time.

FM: Are you still trading?

JS: Of course. I can’t stop. Anything that is attractive at the time: From soybeans to rice to gold.

FM: Where is gold going this year?

JM: I am looking for the real range for gold, post-June, being $1,700 on the low end and $2,100 on the high end. We have a strong dollar policy that is interpreted as not allowing the dollar to drop precipitously but intervening to moderate the decline. We also have a weak gold policy, which is not to depress the price of gold but to intervene in the gold market so it doesn’t start screaming to extreme prices. The primary level it must not go above is $1,764 but that will fall in time and the next level after $1,764, I assure you, is $2,111 it must not go above. That is the weak gold policy and you do have the legal intervention in those markets by the Exchange Stabilization Fund and other entities. The Exchange Stabilization Fund is run by two people, the President of the United States and the Secretary of the Treasury.

What you don’t want gold doing when you are trying to calm the system, is go ballistic. Our entire world is a sea of algorithms and the people who intervene in the markets are more savvy than your general hedge fund industry. So the weak gold policy is not a policy to decrease the price of gold but a policy to prevent it from being a tattletale at the wrong time. Right now they think $1,764 is tattletaling and that has been the swing point for gold ever since it broke over $1,650.

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