“Jim Sinclair said the other day, “The drop at this time will in retrospect be seen as the foundation for gold trading not at $1,650, but rather at $5,000 an ounce.”
–Wealth Daily

Dear CIGAs,

I am preparing to leave tomorrow for Tanzania and Oman. There is no departure whatsoever from what Wealth Daily quoted today. Technical damage requires technical repair because today algorithms are the major participant in metals markets. The technical repair will take place and gold will trade to a minimum of $1764.

The Federal Reserve Balance Sheet was piled full of the worst garbage that financial institutions had. There was no Fed review of the junk OTC derivatives that make up these so called assets that were purchased. I suspect that is why the nice lady expert on the board retired. The banks just poured in all their losers. If the international public knew what that inventory was, the US dollar would be well below the .7200 level on the USDX.

The ability to reduce the assets by selling them would indicate that what has been a loser has miraculously become valuable. In my opinion it was the bad side of the Lehman flush that makes up a great deal of the assets of the Federal Reserve.

The remaining balance is US Treasury Instruments purchased by the simple creation of electronic paper. This also constitutes a great reason why QE (by that name or another) must continue. If the Fed did not have their QE check book open, I believe the Fed would be broke, having taken it on from the banks.

U.S. Fed balance sheet approaches $2.729 trillion
Thu May 12, 2011 4:43pm EDT

NEW YORK, May 12 (Reuters) – The size of the U.S. Federal Reserve’s balance sheet reached another record in the latest week, due to the central bank’s plan to spur economic growth, Fed data released on Thursday showed.

The balance sheet — a broad gauge of Fed lending to the financial system — expanded to $2.729 trillion in the week ended May 11 from $2.703 trillion the previous week.

The central bank’s holding of U.S. government securities grew to $1.466 trillion on Wednesday from last week’s $1.442 trillion total.

The Treasuries purchases were part of the Fed’s second phase of quantitative easing, dubbed QE2, a $600 billion purchase plan meant to stimulate investment and growth.

The central bank has signaled it will complete QE2 at the end of June, but will continue to reinvest proceeds from the bonds as they mature.

The Fed’s ownership of mortgage bonds guaranteed by Fannie Mae , Freddie Mac and the Government National Mortgage Association (Ginnie Mae) totaled $927.02 billion, unchanged from the previous week.

The Fed’s holdings of debt issued by Fannie, Freddie and the Federal Home Loan Bank system totaled $125.12 billion, also unchanged from a week earlier.

More… ^[1]

Jim Sinclair’s Commentary

Here is the latest from ShadowStats.com’s John Williams.

- April Year-to-Year Consumer Inflation: 3.2% (CPI-U), 3.6% (CPI-W), 10.7% (SGS)
- Fed’s Dollar Debasement Efforts Boost Three-Month CPI Inflation into 6% to 7% Range
- Official Double-Digit Consumer Inflation Possible in Third-Quarter
- With Rising Prices Dominating Sales Gains, “Core” Retail Sales Were Unchanged in April

"No. 368: April Inflation, Retail Sales, Trade Deficit"
www.ShadowStats.com ^[2]