Good Afternoon Mr Sinclair,

I sent the following article and comment to clients.

This doesn’t look or smell good to me. Today’s market means a reliance on your gut instinct in investment decisions becoming ever more important than relying on what we are told by either the banks , rating agencies or the powers that be.

Best wishes,
CIGA Viktor

Ambac Says JPMorgan Refused Mortgage Repurchases It Also Sought
2011-01-25 05:00:01.13 GMT
By Jody Shenn, Patricia Hurtado and Prashant Gopal

Jan. 25 (Bloomberg) — JPMorgan Chase & Co. demanded that a lender repurchase bad mortgages even as it resisted calls to buy back the loans from bonds created by Bear Stearns Cos., an insurer said in court papers.

“That would be pretty bad” if true, said Joshua Rosner, an analyst at New York-based research firm Graham Fisher & Co. He said such allegations show why “investors and consumers have a right to be distrustful of the banks’ statements.”

Ambac Assurance Corp., the debt guarantor partly seized last year by Wisconsin’s insurance commissioner, made the claim in a proposed amended complaint in its lawsuit against Bear Stearns’s EMC Mortgage unit, now owned by JPMorgan. Ambac, seeking to add a fraud claim to the case, referenced depositions, e-mail and letters in the filing, which was unsealed Jan. 14 in Manhattan federal court.

More… ^[1]

Taking Candy From A Baby
CIGA Eric

How many have noticed the technical damage in the U.S. Dollar market recently?

U.S. Dollar ETF
^[2]

The unfolding of yet another massive weak to strong hands paper transfer in the precious metals markets suggests not many. Selective media coverage, intensive, repetitive focus on obvious areas while important areas receive total blackout, reinforces the importance of the money flows and technical setups discussed below.

The break of the down trend in early 2011 suggested a change in trend for the U.S. dollar.

U.S. Dollar Index and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest
^[3]

The paper transfer in gold can only be characterized as “taking candy from a baby ^[4]” – it’s simply too easy. This paper blitz by connected money is already the fourth largest since the bull market started in 2001. Moreover, the panic liquidation that ensued after 1/18/11 has yet to be recognized in the chart below. The ‘control’ still displayed in precious metals while a tidal wave of liquidity extends to every corner of the economic globe is truly amazing.

Gold London P.M Fixed and the Commercial Traders COT Futures and Options ZScore Weighted Average of Net Long As A % of Open Interest:
^[5]

Paper control, however, has it limits. As James Turk recently pointed out in a commentary entitled “Silver in Backwardation, Set to Explode ^[6]”, that spot price is higher than the futures price in silver (backwardation). It’s not only higher relative to the short-term but also twelve months forward.

Turk goes on to make the following observations,

Backwardation happens regularly in most commodities, but it is rare in the precious metals. The last time this happened Eric was in January of 2009. Over the next few weeks silver rose from about $10.50 to $14.50, a roughly a 40% move higher. The key to understanding backwardation is that the price must rise to entice holders of physical metal to sell and accept a national currency in return. I think we can expect a similar event to repeat over the next few weeks.

Turk’s observation about the growing strain in the silver market is confirmed by extreme reading in London PM fixed (physical price) and silver ETF (paper silver) ratio. The last two extreme readings, an indication of extreme strain between physical and paper markets, were March and September of 2008.

Silver London PM Fixed to Silver ETF ratio:
^[7]

In other words, what the markets are trying to say is that there’s a limit to paper control. The sheeple will always be slaughtered, but the market forces that drive price cannot. This implies that paper price, despite the best efforts of the sheeple to comply into fear, cannot be pushed beyond the limits of credibility as a reasonable price marker for physical it’s suppose to represent. If that happens, there will be no market left to control.

More… ^[8]