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Dear CIGAs,

We all know the strategy of creating a Straw Man and then Knocking him down. Well, today you witnessed the creation of a Straw Reason and then the Knocking of it down.

If you were to believe the MOPE the reason that gold was strong is because of an article on Kitco. The article speculated on Germany withdrawing from the EU.

Gold was in the process of rising early in the Asian market with a take off at about 4:45 AM EST.

Kitco was a handy way to put up a Straw Reason to be knocked down.

Regardless of the day to day drama gold is on its way to $1650.

Jim Sinclair’s Commentary

This says it correctly. The problem is the Western world as a whole.

Investors are still in denial but that is starting to change.

Gold will trade at $1650.

The Western world keeps spending its way to disaster
Neil Reynolds

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The Swiss-based Bank of International Settlements (BIS), the oldest international financial institution in the world, has functioned as the central bank of central bankers for 80 years. In a working paper written by three senior staff economists (“The future of public debt: prospects and implications”), released in March, BIS warns that Greece isn’t the only Western economy with hazard lights flashing.

Indeed, it names 11 more: Austria, France, Germany, Ireland, Italy, Japan, the Netherlands, Portugal, Spain, Britain – and the United States. Without “drastic measures,” BIS says, all of these countries will hit a wall of debt.

When the senior economists at BIS warn 12 of the richest countries on Earth that they must take drastic action to reduce debt, you know that it’s time to check the air bags. The only thing you don’t know, that you need to know, is the precise time of the crash. The lesson is already obvious: Governments can’t drive recklessly, use only the accelerator for braking and not eventually crash.

The BIS paper notes that the public debt of 30 OECD countries will (on average) exceed 100 per cent of GDP within the next year, “something that has never happened before in peacetime.” But it warns that conventional debt-to-GDP ratios are misleading – missing “enormous future costs” that are already authorized by past fiscal commitments, that will inexorably inflate public debt further still.

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Jim Sinclair’s Commentary

You knew this the day it happened. Algorithms have gone wild in electronic markets that lack liquidity.

Wall Street crash exposes world of stock market electronic trading
Regulators picking through the rubble of last week’s dramatic Wall Street crash have exposed a Byzantine system of electronic trading in the stock market that may have propelled the sell-off.

In 10 bone-shaking minutes on Thursday the Dow Jones Industrial Average – representing the 30 most venerable US firms – briefly lost almost a tenth of its value.

Open-jawed investors blanched as the pensions and savings of millions of Americans were decimated, along with the livelihoods of countless more.

Days and a partial recovery later, the most fundamental question has still not been answered: What happened?

Concerns about Europe’s debt crisis no doubt contributed, but few analysts believed worries about Greece’s fiscal malfeasance – as serious as it may be – would cause US equities markets to go through a near-death experience.

The Securities and Exchange Commission, the New York Stock Exchange and even President Barack Obama have vowed to uncover the causes of the fall.

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Jim Sinclair’s Commentary

Limiting this to "Financial Institutions" makes the effort a total waste of time.

Senate adds Fed audit to financial reform bill

One-time examination looks at emergency lending since December 2007
By Jim Kuhnhenn
updated 3:16 p.m. MT, Tues., May 11, 2010

WASHINGTON – The Senate voted unanimously to peer into Federal Reserve decision-making Tuesday, authorizing an examination of the central bank’s emergency lending to financial institutions in the months surrounding the 2008 financial crisis.

Separately, Democrats rejected a Republican plan to end the government’s support of mortgage giants Fannie Mae and Freddie Mac — a financial rescue that now stands at $145 billion. Instead, the Senate voted to instruct the Treasury to study and recommend how the government can end its relationship with the two housing finance companies.

The two measures that passed were amendments to a comprehensive financial regulation bill that the Senate intends to wrap up sometime next week.

Passed 96-0, the Fed measure requires a one-time audit of the central bank’s more than $2 trillion in lending and the disclosure of all recipients of that assistance. A proposal for a broader review of the Fed failed.

The vote came as the Fed ramped up its emergency program to keep a European debt crisis from spreading further. In a sign of the Fed’s sensitivity to congressional scrutiny, Fed Chairman Ben Bernanke on Tuesday promised weekly reports on its efforts to help protect the euro.

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Jim Sinclair’s Commentary

According to the Formula, California doesn’t have much, if any, chance of meeting its debt requirements.

Today bankruptcy is called rescheduling. Therefore, be prepared for California’s restructuring of its debt, but know what that truly means.

Schwarzenegger Preps ‘Terrible Cuts’ to Close Deficit (Update1)
By Michael B. Marois and William Selway

May 11 (Bloomberg) — California Governor Arnold Schwarzenegger will seek “terrible cuts” to eliminate an $18.6 billion budget deficit facing the most-populous U.S. state through June 2011, his spokesman said.

Schwarzenegger, 62, who will introduce his revised budget plans on May 14, has said he won’t seek tax increases to bolster California’s finances. The Republican’s forecast for the budget gap may rise after revenue fell short of his targets last month.

“We can’t get through this deficit without very terrible cuts,” Schwarzenegger spokesman Aaron McLear told reporters in Sacramento. “We don’t believe that raising taxes right now is the right thing to do.”

California’s revenue in April, when income-tax payments are due, trailed the governor’s estimates by $3.6 billion, or 26 percent. The gap wiped out gains from the previous four months, leaving collections $1.3 billion behind projections for the budget year that ends in June.

Schwarzenegger’s newest plan will revise the proposals introduced in January to account for the tax-collection shortages. In January, the governor said California may have to eliminate entire welfare programs, including the main one that provides cash and job assistance to families below the poverty line, without an influx of cash from the federal government.

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