Jim’s Mailbox

Posted at 8:59 PM (CST) by & filed under Jim's Mailbox.

Jim Sinclair’s Commentary

QE to Infinity is unavoidable due to The Formula in action.

Greetings Jim,

I thought you would find the following data trend interesting.

Best,

Erik McCurdy
Prometheus Market Insight
http://www.prometheusmi.com

Sharp Decline in Withholding Tax Receipts Signals Imminent Recession

The forward indicators that produce the most reliable signals with respect to recession forecasting continue to indicate that a return to economic contraction is highly likely in early 2012. Our computer models have been predicting the likely start of a new recession in the US for the past several months and the data trends continue to weaken as we approach the end of the year, suggesting that the recession scenario is becoming even more likely. One indicator that has weakened significantly during the last two months is the trend in Federal withholding tax deposits. Economist John Williams of Shadow Government Statistics discussed the deterioration in this data set in a recent commentary.

A sharp downturn in the annual change in withholding tax receipts by the U.S. Treasury is signaling a deterioration in personal income. The shift in tax revenues began to surface in Treasury reporting of October 2011 and has continued through the latest available numbers, as of December 7th.

Although the relationship between employment, income and these tax receipts is a complex one, essentially, one would expect to see the year-to-year change in the tax receipts run in parallel to the year-over-year change in total payroll earnings (jobs times average earnings), as estimated by the Bureau of Labor Statistics (BLS). This was the case during most of 2011, but, starting in October, a divergence developed: Whereas year-to-year change in BLS estimated payroll earnings continued at a more-or-less constant, positive level, tax receipts fell quite markedly.

The sharp decline in withholding tax deposits that began in early 2011 is gaining momentum as we move into 2012 and this type of material deterioration was accompanied by economic contraction when it occurred in 2001 and 2008. As always, there are no certainties when it comes to financial market forecasting, only possible scenarios and their associated probabilities. However, the vast majority of historically reliable indicators continue to signal that the development of a recession is highly likely, so we will remain defensive until provided with compelling evidence to the contrary.

 

Dear Jim,

Just a little reminder to all of where we have come from in terms of gold coin prices and the Canadian dollar investor. Since this journey began back in 2005, we’ve seen a typical staircase being developed. Maple Leafs wandered back and forth 10% or so, from 500-550 dollars per coin, and that carried on for months. When that paradigm was broken out of, with coin prices moving north of 550, they ran to 770, some 40%, before retrenching to 700 dollars. Prices then steadied, and varied within the 10% band, 700-770, for many months. When the 770 level was breached, prices ran to 1043 to buy, before retrenching in a sideways chop from about 900 to 1043.  This again was a break of 35% to the upside.  Once 1043 was breached, coin prices ran to 1335 or so, before becoming range bound from about 1180 to 1335, the normal 10% or so pulse.  Once 1335 was decisively broken, we paused at 1500 or so, and then moved to 1960 on the high side.  Another 40% move depending on whether you wish to use 1335 or 1500.  The current price range in maples, is now from 1720 on the low side, to 1960 on the high side, a range of about 12%.  Note that the percentage numbers have remained about the same all along, while the dollar values have fluctuated greatly.  Maples, if past history is any guide at all, should be accumulated by those wishing to add to their positions, as price approaches the 1720 area.  This may well be caused by Cando strength or gold price weakness, or a combination of the two.

Volatility is only going to increase as we move forward, but with the unlimited amounts of paper currency being printed every single day, the present trend is unlikely to change any time soon. Many of you may be unaware that the Canadian central bank, amongst others, purchased Euro bonds last week, to “liquify” the system, with money created out of thin air. In fact, it might accelerate. 2012 will be a year of many surprises.  Maintain proper cash cushions outside of the system, be patient in your holdings (many gold mining companies are now paying dividends or are increasing them) as the values currently given do not reflect reality in any way, and hold physical gold and silver in bars and coins to deal with depreciating paper.  Remember, that all paper currencies, have been devaluing against gold and silver bullion at a 20% annual clip since 2001.  I see nothing out there at this point, that would suggest that isn’t going to continue.

We are at year end, where tax loss selling and portfolio rebalancings are going on, so the markets are unpredictable on a day to day basis.  It is a time to be buying gold and silver and their related equities, not selling them, and cherry picking those things which make sense. People in Europe are rushing out of euros to buy the paper currency of a bankrupt nation, the US. That’s clever. As Martin Armstrong has alluded, once they’ve finished that dance, and look around to see that the US dollar is no longer a safe haven, I wonder what they might be buying?

CIGA Yahn

Dear CIGA Yahn,

Alf is right. Gold is going to $4500.-

Nobody promised the golden trip would be a rose garden; the promise made was just where it was going.

Regards,
Jim