Posted at 8:58 PM (CST) by & filed under In The News.

Dear CIGAs,

My advice to gold and gold share holders is, in the vernacular of the times, to "CHILL."

clip_image001

Jim Sinclair’s Commentary

The G20 script caste against present circumstances.

1. EC members terrified by the power of OTC derivatives to destroy national bond markets are running scared. The strategy is twofold. Intervention at $1.19 to $1.20 in the euro and massive PR concerning strong currency initiatives weakened the dollar from its highs and took the euro so far into its $1.24-$1.25 key resistance.

2. Bernanke as a student of the Great Depression organizes a strong argument for continued coordinated monetary expansion with the US Treasury.

3. Monetarism fails miserably when applied in an open system. That is its major weakness. Bernanke’s thesis demands the entire Western World be on the same page of Monetarism for without it new lows in the history of this period will be established. A return to locked credit markets is a reasonable assumption

4. Media seems to have slowed down on its revelations of EU weak states.

5. There seems to be a slight pickup in media discussion of the dire condition of US states heading towards bankruptcy.

Keep in mind that in this new global economy a problem anywhere is a problem everywhere. As any currency in the Western World comes under attack, Gold has become the asset of choice.

Be ready for more violence in the USD/EU equation. Violence regardless of direction will be gold positive. This move is to $1650 and beyond.

 

Jim Sinclair’s Commentary

An event to keep in mind: More than a million people are expected to run out of benefits this month, according to the National Employment Law Project.

 

Jim Sinclair’s Commentary

The is a clear and present danger when a competitor holds your future in their hands.

The story that China would suffer as much is total crap when you see them cultivating Asian trading partners, internal consumptive power and cornering world hard assets.

China’s holding of US Treasuries is a strategic move and a weapon of mass financial destruction if it should be used in a manner other than as an investment.

U.S. intelligence community debates China’s bond holdings
Wed Jun 23, 2010 3:19pm EDT
By Emily Flitter

NEW YORK, June 23 (Reuters) – U.S. intelligence officials and top academics last week debated the risk China could wield its massive U.S. debt holdings as a weapon aimed at influencing U.S. foreign policy, according to a person who attended the meeting.

At a National Intelligence Council meeting last week, held at a Washington, D.C. hotel, members of U.S. intelligence agencies and China watchers discussed potential outcomes if China chose to sell its $900 billion of U.S. Treasury bond holdings, pushing up interest rates and making life much tougher for U.S. businesses and consumers.

While considered a remote possibility, China’s tremendous economic stranglehold over the United States remains much-debated as the world’s third largest economy grows in leaps and bounds and the number one economy struggles to break free from a deep recession.

The meeting took place as the United States prepares to issue a report that could label China a currency manipulator. U.S. lawmakers are also arguing over a bill that would penalize China for any protectionist policies.

"The best offense is often a good defense and you must be prepared. This is something that allows the U.S. to consider what policy alternatives they might have when facing threats from the outside," said Paul Markowski, president of the Global Strategies-Analysis Group in New York.

More…

Jim Sinclair’s Commentary

Back towards crisis levels.

How about to worse than recent crisis levels in this Ski Jump Virtual Recovery.

Deutsche Bank: U.S. Financial Conditions Just Collapsed Back To Crisis Levels
Vincent Fernando, CFA | Jun. 24, 2010, 5:36 AM

Deutsche Bank has a new and improved index of U.S. financial conditions, and this index just slumped back towards the lows of our recent crisis.

Deutsche Bank’s Peter Hooper:

Financial conditions appear to have worsened substantially in recent quarters based on our update of the broad index of US financial variables presented earlier this year at the US Monetary Policy Forum. In the wake of recent developments in Europe, increased stress in financial markets has pushed that index halfway back to its immediate post- Lehman crisis lows.

clip_image002

The index is built from an array of financial indicators such as U.S. treasury yields, the volatility index (VIX), the stock market, Broker-Dealer leverage, among others. It’s a bit of a black box, but it’s calculation is giving a similar reading to what we saw during the worst of the financial crisis.

More…

Jim Sinclair’s Commentary

In Africa’s Riff Valley this happened to a large lake, and as the level rose the methane bubble popped the top, flowed with the wind and killed an entire town.

Methane in Gulf "astonishingly high": U.S. scientist

(Reuters) – As much as 1 million times the normal level of methane gas has been found in some regions near the Gulf of Mexico oil spill, enough to potentially deplete oxygen and create a dead zone, U.S. scientists said on Tuesday.

Texas A&M University oceanography professor John Kessler, just back from a 10-day research expedition near the BP Plc oil spill in the gulf, says methane gas levels in some areas are "astonishingly high."

Kessler’s crew took measurements of both surface and deep water within a 5-mile (8 kilometer) radius of BP’s broken wellhead.

"There is an incredible amount of methane in there," Kessler told reporters in a telephone briefing.

In some areas, the crew of 12 scientists found concentrations that were 100,000 times higher than normal.

"We saw them approach a million times above background concentrations" in some areas, Kessler said.

More…

Jim Sinclair’s Commentary

CIGA Will asks if this is a plus for employment, and therefore will be heralded as a sign of an improved economy.

Bank of America Boosts Staff Handling Troubled Loans
By David Mildenberg – Jun 23, 2010

Bank of America Corp., the second- largest U.S. home lender, added 2,000 employees since April to work with borrowers having trouble paying their mortgages, a senior executive said.

The lender now has more than 18,000 workers in “default management,” a 60 percent increase since January 2009, Barbara Desoer, president of Bank of America’s home-loan and insurance unit, said in testimony prepared for a congressional hearing on U.S. housing policy tomorrow. Those workers handle 100,000 calls a day, she said. Wells Fargo & Co., the largest U.S. home lender, Bank of America and other companies have hired thousands of employees or shifted staff from other departments to work with borrowers who have lost jobs or experienced declining incomes. Banks repossessed a record 257,944 homes in the first quarter, 35 percent more than a year earlier, according to Irvine, California-based RealtyTrac Inc. More than a fifth of U.S. mortgage holders owed more than their homes were worth, Seattle- based real estate data provider Zillow.com reported last month.

“Given the depth of the nation’s recessionary impacts on homeowners, a considerable number of customers will transition from homeownership over the next two years,” Desoer said in the testimony. “We must compassionately and responsibly help those customers who have exhausted all their options and can no longer afford to stay in their homes.”

Handling More Calls

Bank of America, based in Charlotte, North Carolina, handles almost 14 million home loans, or about one of every five U.S. mortgages, more than any other U.S. servicer, Desoer said. Payments on 1.4 million loans are more than 60 days late, she said. Investors or government-sponsored entities such as Freddie Mac and Fannie Mae own most of those loans and pay servicers fees to handle billing and collection.

More…

Posted at 12:57 PM (CST) by & filed under Jim's Mailbox.

As Goes Housing So Goes Stimulus
CIGA Eric

The end of the Federal homebuyer tax credit in April slowed down Lennar Corp.’s May results and hurt fiscal second-quarter revenue, but the homebuilder reversed a year-ago loss as it cut costs.

The pressure to resume programs that support housing intensify as market trends deteriorate.

New home sales drop to lowest level since the inception of the series.

New Home Sales And Change YOY, SA:
clip_image001

The price of lumber has fallen below the October 2009 lows. Connected money has been fading the weakness but not enough to generate a statistically significant, bullish setup.

Lumber Futures Continuous Contract and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:
clip_image002

The consolidation pattern within the downtrend has been broken to the downside in the Housing Index.

Housing Index:
clip_image003

Source: finance.yahoo.com

More…

 

Deutsche Bank: U.S. Financial Conditions Just Collapsed Back To Crisis Levels
CIGA Eric

Back towards to Crisis levels. How about worse than recent crisis levels in this, The Ski Jump Virtual Recovery.

Jim,

Credit conditions or liquidity are once again tightening (spreads widening) as the economy is losing momentum from waning stimulus. Watch out. This is a precursor for trouble, which usually means more stimulus.

Commercial Paper 90 days less Treasury Bill 90 days:
clip_image004

Deutsche Bank has a new and improved index of U.S. financial conditions, and this index just slumped back towards the lows of our recent crisis.

Source: businessinsider.com

More…

Posted at 9:36 PM (CST) by & filed under Jim's Mailbox.

Jim Sinclair’s Commentary

My former Chicago Floor partner, Yra, makes some very important points here.

Notes From Underground: The Fed breaks new ground
By Yra

The FOMC press release did not surprise anyone except some financial television pundits. However, there are two items that are new as we do our scatological analysis of the entrails of FED SPEAK. First is the following line:

“Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.”

This is the only time we can remember the Bernanke Fed explicitly stating its concern about events outside the U.S. Yes, we know the FED extended its DOLLAR SWAP LINES last month but we can’t remember anything alluding to weakness abroad as a reason to maintain a soft FED policy. Furthermore, the FED added the words, “prices of energy and other commodities have declined in recent months.”

This gives greater credence to the Bernanke FED being an output gap-oriented FED and it’s for that reason the extended period is based on the employment situation and the capacity utilization numbers come in behind. It’s interesting that the FOMC actually mentioned energy and other commodities because we doubt that if OIL was $100 a barrel that the FED would have moved to tighten. Who were they trying to assuage with that language?

PUT THIS ON YOUR RADAR SCREEN: The British POUND performed well after OSBORNE brought the austerity budget forward. The question must be asked: If the POUND was rewarded for fiscal austerity, is the DOLLAR going to be punished for continual profligacy? Our initial thought that was that Britain would be punished for promoting austerity over growth and that the U.S. might be the recipient of investment money as they went the route of economic growth at all costs. We don’t know what the technical picture says about the POUND but from the action we urge those looking for a change in the risk on/risk off paradigm to do their homework.

More…

Dear CIGAs,

In response to The Farce and The Fact.

I have no quarrel with the posted analysis. In order to finish the analysis and illustrate the complete dominance of capital flows, I suggest that dividends be included when comparing the performance of gold with U.S. equities. The enclosed chart illustrates the relative performance between the two asset classes with dividends included in the total return. The dotted blue line marks the 1971 reference point.

Despite the variation of the calculation, the modified relative performance between the two assets does not alter your assertion that gold has and continues to attract capital over equities since 2000.

Regards,
CIGA Eric

clip_image001[1]

Jim,

President Clinton acknowledged that he was wrong to take the advice of those advising him against regulating derivatives.

“On derivatives, yeah I think they were wrong and I think I was wrong to take [their advice] because the argument on derivatives was that these things are expensive and sophisticated and only a handful of investors will buy them and they don’t need any extra protection, and any extra transparency. The money they’re putting up guarantees them transparency,” Clinton told me.

“And the flaw in that argument,” Clinton added, “was that first of all sometimes people with a lot of money make stupid decisions and make it without transparency.”

The former President also said he was also wrong about understanding the consequences if the derivatives market tanked. “The most important flaw was even if less than 1 percent of the total investment community is involved in derivative exchanges, so much money was involved that if they went bad, they could affect a 100 percent of the investments, and indeed a 100 percent of the citizens in countries, not investors, and I was wrong about that.”

Click here to read the full article…

Best regards,
CIGA Christopher

5-Year Treasury Auction Trends
CIGA Eric

No change in participation trends. Direct bidders continue to represent an increasing portion of the accepted bids since 2009.

5-Year Treasury Auction Trends
clip_image001

Source: treasurydirect.gov

More…

 

Jim,

"The Australian and Canadian dollars are becoming reserve currencies for central bankers seeking alternatives to deteriorating government credit quality in Europe, the U.S. and Japan."

Not good for the US dollars.

Best regards,
CIGA Christopher

Central Banks Show Euro Losing Reserve Status as Loonie Gains
By Oliver Biggadike and Mary Childs – Jun 22, 2010

The Australian and Canadian dollars are becoming reserve currencies for central bankers seeking alternatives to deteriorating government credit quality in Europe, the U.S. and Japan.

"They’ll gain an increasing place in reserves because of diversification," European Central Bank governing council member Christian Noyer said in a June 16 interview with Bloomberg News in Paris.

Russia may add the Australian and Canadian dollars to its international reserves for the first time after fluctuations in the U.S. currency and euro, Alexei Ulyukayev, the first deputy chairman of the nation’s central bank, said in an interview in Moscow on June 15. The International Monetary Fund may add the Aussie and loonie to a basket of currencies it uses in transactions, strategists at UBS AG, the world’s second largest foreign-exchange trader, predict (Bloomberg).

More…

Posted at 3:35 PM (CST) by & filed under In The News.

Dear CIGAs,

Remember the Cinderella Economy?

The economic recovery is and has always been headed to the same place. The only beneficiary of the stimulus is the stimulation of the fat cats’ pocketbooks.

clip_image001

Jim Sinclair’s Commentary

Shadow Statistics is a window into REALITY.

– Census Firings Cost June Payrolls Roughly 240,000 Jobs 
– May New Home Sales Down 40.5% in Month after Major Downside Revisions to Earlier Reporting

"No. 304: Census Jobs Loss, Home Sales" Report
http://www.shadowstats.com/

Jim Sinclair’s Commentary

Actually it is surprising that an $8000 tax credit actually resulted in so many home sales.

New home sales plummet to record low
By Hibah Yousuf, staff reporter / June 23, 2010: 11:25 AM ET

clip_image002

NEW YORK (CNNMoney.com) — New home sales plummeted to a record low in May, the first month following the expiration of the homebuyer tax credit. This snapped a two-month streak of gains.

New home sales declined 32.7% to a seasonally adjusted annual rate of 300,000 last month, down from an downwardly revised 446,000 in April, the Commerce Department reported Wednesday. Sales year-over-year fell 18.3%.

This is the slowest sales pace since the Commerce Department began tracking data in 1963. The prior record was set in September 1981, when new homes sold at an annual rate of 338,000.

"We expected a slowdown, but the extent of this decline was a surprise," said Anika Khan, an economist at Wells Fargo. The figure was even worse than her relatively pessimistic forecast of an annual rate of 380,000 in May.

A consensus of economists surveyed by Briefing.com had expected May sales to slide to an annual rate of 430,000.

"Clearly, the lack of a tax credit had a lot to do with it, and it’s going to be a bit of a bumpy road ahead as we get a few more months of payback," Khan said.

More…

Jim Sinclair’s Commentary

Plausible denial (Europe did it) is being formulated ahead of the next leg down which will look more like a ski jump that went wrong than a W, and definitely not a U or a V.

QE to infinity is guaranteed.

The G20 meeting is where the US will plead with others to also quantitative ease to infinity. In the end the entire Western world will be stuck in QE to Infinity.

Fed Leaves Rates Unchanged, Citing Overseas Threats to U.S. Growth
By CHRISTINE HAUSER
Published: June 23, 2010

The Federal Reserve’s policy-making arm said on Wednesday that it had decided to keep short-term interest rates near zero for “an extended period” in light of continuing threats to economic growth, including “developments abroad.”

The announcement by the Federal Open Market Committee was released at the end of its two-day meeting.

The Fed’s decision to stick with its low-interest-rate policy was in line with what analysts had expected, taking into account the pressures on consumer spending, an unemployment rate of 9.7 percent and other conditions that factor into the pace of the economic recovery.

There are also concerns, especially in equity and credit markets, that the European debt crisis could worsen, affecting the health of the global economy. This was reflected in the Fed’s statement, which said: “Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.”

The Fed said it continued to anticipate that economic conditions, “including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

More…

Jim Sinclair’s Commentary

"Accept all events as gifts from God. Do not judge in human terms."
–SSB

Maybe McChrystal got a get out of jail free card.

US Afghan commander Stanley McChrystal fired by Obama

The top US military commander in Afghanistan, Gen Stanley McChrystal, has been dismissed by President Barack Obama over comments made in a magazine.

He will be replaced by Gen David Petraeus, who led the "surge" in Iraq. Mr Obama insisted it was "a change in personnel but not a change in policy".

In a statement, Gen McChrystal said he was leaving because of a "desire to see the mission succeed".

He agreed that his statements in Rolling Stone showed "poor judgement".

The announcement that Gen McChrystal was standing down came after he had met Mr Obama at the White House on Wednesday.

Mr Obama said he had made the decision as Gen McChrystal had failed to "meet the standard that should be set by a commanding general".

He insisted: "I don’t make this decision based on any difference in policy with General McChrystal, nor on any personal insult."

‘Poor judgement’

Afghan President Hamid Karzai had indicated he did not want Gen McChrystal replaced, with a spokesman describing him as the best commander in nine years of US military operations in Afghanistan.

Gen McChrystal quickly apologised for the magazine article, The Runaway General, written by Michael Hastings and due out on Friday, extending his "sincerest apology" and saying it showed a lack of integrity.

More…

Posted at 1:49 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

In one of the more marvelous market displays I have seen in many years, gold was able to shrug off a major technical reversal sign and actually attract enough buying to not only minimize downside movement but actually bounce higher. Considering the extent of speculative long side exposure, and the nature of today’s computer algorithms, its ability to remain firm is astonishing and probably says more about the overall psychology towards the metal than any comments I could make. Investors and traders at the Comex are not panicking out of gold in spite of the formidable technical resistance that surfaced yesterday.

The same goes for the HUI which moved higher while the broader equity market moved lower based on the action of the S&P 500. Again – this is remarkable stuff for gold.

While the record high of yesterday’s session is serving as our new upside technical resistance level and holding price in check for right now, the fact is gold did not fall apart – that alone has to have unnerved those dwelling in their bear dens which is why we saw them begin covering when gold held yesterday’s session lows and refused to break down any further. One day does not a market trend make but for the sheer audacious of the bulls’ performance, you have to tip your hat to their gritty determination to stand firm and refusal to run.

As far as open interest readings go – yesterday’s sell off was accompanied by a rather mediocre drop of a bit under 2,200 contracts bringing the overall number down to 600,895. Considering the extent of the volume of contracts traded yesterday, it is evident that there was a determined selling cap shoved in place even as some of the weaker shorts were forced out on the initial spike into a new record high price. I am a bit surprised that volume yesterday came in where it did; I had expected to see something closer to 200,000. Perhaps that is also why we are seeing gold holding up so well today. Fear by the long side did not apparently materialize during the plunge. As a matter of fact, volume in today’s session is actually more impressive. This is an interesting development which bears further scrutiny over the next couple of trading sessions. If this is the best that the bears can do with all the technicals in their favor, they are in trouble. They will need to take the market down below yesterday’s low on better volume to tip the market convincingly in their favor. I still cannot get over the amazing resiliency being displayed by gold today. This is definitely not the same gold market as back in 2008.

The HUI needs to climb back above 490 to turn the charts a bit more friendly and prevent more of the momentum oscillators from turning lower. Some are still rising but a few are flipped over into bearish territory.

Have to keep the comments short today due to time constraints.

Click chart to enlarge today’s hourly action in God in PDF format with commentary from Trader Dan Norcini

clip_image001

Posted at 12:55 PM (CST) by & filed under Jim's Mailbox.

Dear CIGAs,

A bankrupt BP is worse for the financial world than Lehman Brothers was for exactly the same reason.

Pedro’s credentials in energy exceed by orders of magnitude those talking heads giving daily BP opinions. In fact, Pedro’s credentials might just be better than all of them added together.

Please read this article closely, and share it with others. It is just that important.

Regards,
Jim

Dear Jim,

The BP crisis in the Gulf of Mexico has rightfully been analysed from the ecological perspective. People’s lives and livelihoods are in grave danger. But that focus has equally masked something very serious from a financial perspective, in my opinion, that could lead to an acceleration of the crisis brought about by the Lehman implosion.

People are seriously underestimating how much liquidity in the global financial world is dependent on a solvent BP. BP extends credit – through trading and finance. They extend the amounts, quality and duration of credit a bank could only dream of. The Gold community should think about the financial muscle behind a company with 100+ years of proven oil and gas reserves. Think about that in comparison with what a bank, with few tangible assets, (truly, not allegedly) possesses (no wonder they all started trading for a living!). Then think about what happens if BP goes under. This is no bank. With proven reserves and wells in the ground, equity in fields all over the planet, in terms of credit quality and credit provision – nothing can match an oil major. God only knows how many assets around the planet are dependent on credit and finance extended from BP. It is likely to dwarf any banking entity in multiples.

And at the heart of it all are those dreadful OTC derivatives again! Banks try and lean on major oil companies because they have exactly the kind of credit-worthiness that they themselves lack. In fact, major oil companies, conversely, spend large amounts of time both denying Banks credit and trying to get Bank risk off of their books in their trading operations. Oil companies have always mistrusted bank creditworthiness and have largely considered the banking industry a bad financial joke. Banks plead with oil companies to let them trade beyond one year in duration. Banks even used to do losing trades with oil companies simply to get them on their trading register… a foot in the door so that they could subsequently beg for an extension in credit size and duration. For the banks, all trading was based on what the early derivatives giant, Bankers Trust, named their trading system: RAROC – or, Risk Adjusted Return on Credit. Trading is a function of credit bequeathed, mixed with the risk of the (trading) position. As trading and credit are intertwined, we might do well to remember what might happen to global liquidity and markets if BP suffers what many believe to be its deserved fate of bankruptcy. The Intercontinental Exchange (ICE) has already been and will be further undermined by BP’s distress. They are one of the only “hard asset” entities backing up this so-called exchange.

If BP does go bust (regardless of whether it is deserved), and even if it is just badly wounded and the US entity is allowed to fail, the long-term OTC derivatives in the oil, refined products and natural gas markets that get nullified could be catastrophic. These will kick-back into the banking system. BP is the primary player on the long-end of the energy curve. How exposed are Goldman sub J. Aron, Morgan Stanley and JPM? Probably hugely. Now credit has been cut to BP. Counter-parties will not accept their name beyond one year in duration. This is unheard of. A giant is on the ropes. If he falls, the very earth may shake as he hits the ground.

As we are beginning to see, the Western pension structure, financial trading and global credit are all inter-twined. BP is central to this, as a massive supplier of what many believe(d) to be AAA credit. So while we see banks roll over and die, and sovereign entities begin to falter… we now have a major oil company on the verge of going under. Another leg of the global economic “chair” is being viciously kicked out from under us. Ecological damage is not just an eco-event on its isolated own. It has been added to the list of man-made disasters jeopardizing the world economy. The price tag and resultant knock-on effects of a BP failure could easily be equal to that of a Lehman, if not more. It is surely, at the very least, Enron x10.

All the counter-party risk associated with the current BP situation means the term curve of the global oil trade has likely shut down. Here we have yet another credit-based event causing a lock-up in markets that will now impede trade and commerce. It looks like an exact replication of the 2008 credit market seizure could ensue all over again – and it could probably be a lot worse. The world is in a far more delicate state now.

Although never really discussed, the world is highly reliant on BPs provision of long-term credit to many core industries. Who makes good on all the outstanding paper that so many smaller oil, gas and electricity companies, airlines, shipping companies, local bus, railway and transportation networks that rely on BPs creditworthiness and performance for? It doesn’t take a genius to figure out how this could all unwind. If BP has to be bailed-out, like a bank, the system will have to print even more unimaginable amounts of money.

The market, intellectually lazy and slow to realization, as it often is, probably has not woken up to it yet – but the BP crisis could unleash damage similar to the banking crisis. A BP failure through bankruptcy could make Lehman look small in comparison, and shake the financial house of cards we live in even more severely. If the implicit danger of the possibilities imbedded in such an event doesn’t make an individual now turn towards Gold at full speed, it is likely that nothing will.

Respectfully yours,
CIGA Pedro

 

Jim Sinclair’s Commentary

No surprise where the Cando is concerned for you.

Canada’s economy is suddenly the envy of the world
CIGA Eric

Canada Inc will be reflected in the exchange rate of the Canadian Dollar (Loonie). Par or better with the U.S. dollar is coming.

The 20 world leaders at an economic summit in Toronto next weekend will find themselves in a country that has avoided a banking crisis where others have floundered, and whose economy grew at a 6.1 percent annual rate in the first three months of this year. The housing market is hot and three-quarters of the 400,000 jobs lost during the recession have been recovered.

Source: news.yahoo.com

More…