Taken from jim Sinclair's site today:

Dear Comrades In Golden Arms,

Quantitive Easing - the direction the Fed is taking, saying they no longer are interested in buying toxic OTC derivatives with little or no value.

This change may well be a result of Bloomberg's suit to force the Fed to reveal what these assets are on their balance sheet. This forced change to Quantitive Easing is the strongest tool for blasting trillions into economies.

If you know anything about, monetary science, gold is down on one of the greatest positive gold factors.

In the Japanese experience banks and other institutions did not renew lending significant enough for any positive effect. Many simply took the funds to rebuild their shattered balance sheets.
Quantitive Easing does not provide a basis for dollar strength, no matter what the algorithms say.

Not only was it an internal failure but it took the Yen down about 20%.

The talking heads are now saying that the dollar is the measure of how bad the economy will become. That is foolish in today's situation

Jim Sinclair's Commentary

As the balance sheet of the Fed turns toxic on the asset side, the US dollar as the common share of this balance sheet must go down

The Federal Reserve's balance sheet
October 25, 2008

On Thursday, the Federal Reserve issued its weekly H.4.1 report, which provides details of the Fed's balance sheet. Once upon a time, this was one of the least interesting of the government's many releases of data. These days, it's become one of the most exciting.

The essence of the Fed's balance sheet used to be quite simple. The Fed's primary operations would consist of either buying outstanding Treasury securities or issuing loans to banks through its discount window. It paid for these transactions by creating credits in accounts that banks hold with the Federal Reserve, known as reserve deposits. Banks can turn those reserves into green cash any time they desire, so the process is sometimes loosely summarized as saying that the Fed pays for the Treasury bills it buys or loans it extends by "printing money". Before the excitement began, the Fed's assets consisted primarily of the Treasury securities it had acquired over time (about $800 billion as of August 2007) plus its discount loans (an insignificant number at that time). Its liabilities consisted primarily of cash held by the public (about $800 billion a year ago) plus the reserve deposits held by banks (which again used to be a very small number).

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The Carry Trade
The Return of the Geeks
Jun 07, 2006

I have been thinking about the nightmare carry trade scenario. In other words, what is the worst possible situation for carry trade players?

For those unfamiliar with the term 'carry trade,' I will use the definition found on Freebuck.com.

"Carry trade - The speculation strategy that borrows an asset at one interest rate, sells the asset, then invests those funds into a different asset that generates a higher interest rate yield. Profit is acquired by the difference between the cost of the borrowed asset and the yield on the purchased asset."

The nightmare carry trade scenario: the six conditions
I view the nightmare scenario something like the following:
1. End of quantitative easing (QE) in Japan
2. End of ZIRP in Japan (Rising interest rates)
3. Rising interest rates in Europe
4. Falling interest rates in the U.S.
5. Tightening credit in the U.S.
6. A rising yen vs. the U.S. dollar

The nightmare carry trade scenario: quantitative easing has ended

Quantitative easing has already ended in Japan. Quantitative easing simply means excessive printing of money by the Bank of Japan in order to defeat the deflation that has been raging for about 18 years.

I believe that ZIRP (zero interest rate policy) and QE (quantitative easing) prolonged Japan's deflation, but for now, that is irrelevant. The key point is that both are about to come to an end. Proof of the

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Jim Sinclair's Commentary

Quantitive Easing at an unprecedented rate (certainly to take place) combined with 1% interest rates in the US is a road to Weimar. The dollar and the Fed are at the helm.

Therefore:

If you know anything about monetary science, gold is down on the greatest positive factor for gold.

Respectfully,
Jim