Posted at 9:27 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Eradicate the poppy plantation and you eradicate the Afghan farmer, the economy and the Afghan political middle management.

They will not like the West ruining their primary cash crop without replacing it with something of equal value. How about Banga?

US says Afghan poppy eradication ‘failure’
Sun, 28 Jun 2009 23:38:38 GMT

The United States admits that its efforts in eradicating opium poppy production in Afghanistan have proven to be of no avail.

Washington’s special envoy to Pakistan and Afghanistan, Richard Holbrooke said on Sunday that the current measures taken against poppy growers had been "a failure".

"The Western policies against the opium crop, the poppy crop, have been a failure. They did not result in any damage to the Taliban, but they put farmers out of work," Holbrooke said at a G8 meeting in Italy.

More…

 

Jim Sinclair’s Commentary

129 dollars on the wall, 129 dollars on the wall, take away 129 and then watch the dollar fall?

No you do not have to wait 129 days as all economic processes start slow only to do their thing in a very short amount of time.

UPDATE 1-BIS-China, Brazil working on trade FX deal-cenbanks
Sun Jun 28, 2009 1:37pm EDT

BASEL, Switzerland, June 28 (Reuters) – China and Brazil are working on a currency arrangement to allow exporters and importers to settle deals in their local currencies, bypassing the U.S. dollar, the countries’ central banks said on Sunday.

China’s central bank governor Zhou Xiaochuan and Brazil’s Central Bank President Henrique Meirelles discussed the bilateral deal in a meeting at the Bank for International Settlements on Saturday.

"It is agreed in principle," a spokeswoman for the Brazilian central bank told Reuters. "They will start to study this."

No details were available on the size of the arrangement or the timeline for finalising details.

Zhou said a further step was for Brazilian President Luiz Inacio Lula da Silva and Chinese President Hu Jintao to discuss the arrangement, which he said would not necessarily involve a currency swap like those China has in place with other countries.

"What we are discussing is that Brazil’s president Mr Lula and our president Mr Hu talk about the possibility and gradual development to use our local currency for some trade settlement and … investment, that’s the major thing," he told reporters.

"It’s not necessarily to use a currency swap."

The People’s Bank of China has arranged six bilateral currency swaps, totalling 650 billion yuan ($95.12 billion), since December with countries including Malaysia, Argentina and Hong Kong.

More…

Jim Sinclair’s Commentary

Do you really want to pay $5 a gallon for low test gasoline? Well here is a way to.

Remember this – the wing nuts that structured this bill are now running your banks and financial concerns, auto companies and God only knows what else.

We have a government new car Czar and maybe soon a $4500 auto clunker Czar.

Obama Opposes Trade Sanctions in Climate Bill
By JOHN M. BRODER
Published: June 28, 2009

WASHINGTON — President Obama on Sunday praised the energy bill passed by the House late last week as an “extraordinary first step,” but he spoke out against a provision that would impose trade penalties on countries that do not accept limits on global warming pollution.

“At a time when the economy worldwide is still deep in recession and we’ve seen a significant drop in global trade,” Mr. Obama said, “I think we have to be very careful about sending any protectionist signals out there.”

He added, “I think there may be other ways of doing it than with a tariff approach.”

The passage of the House bill on Friday night was an important, if tentative, victory for the president, becoming the first time either chamber of Congress had approved a mandatory ceiling on the gases linked to global warming.

Mr. Obama, hoping to build momentum in the Senate after the narrow victory in the House, delayed the start of a Sunday golf game to speak to a small group of reporters in the Oval Office.

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Jim Sinclair’s Commentary

In case you missed it, this is worth a re-read. The rent-an-army Surge was pure Wag the Dog, Pakistan style.

Taliban to return to carry on its fight as Pak Army’s offensive lacks credibility: NYT
2009-06-28 13:20:00

The Pakistan Army has been boasting of success against the Taliban and other extremists, and claims that it has flushed the insurgents out, besides killing scores of them during its offensive in the Swat and Malakand Divisions, but a closer look at the region where the military operation purportedly resulted in death of several militants presents a different picture, casting serious questions over the Army’s claims.

While the military has been claiming being engaged in a stiff battle with the Taliban, no such signs are visible in the region, which clearly suggests that the insurgents have just melted into the local population here, only to remerge and fight another day, The New York Times reports.

Analysts also believe that amid the claims of the military of sanitizing scores of militants, it has failed to provide any proof of it, which raises serious doubts.

The military operation which has rendered over three million people homeless in the region, and has won strong support from the United States, has amazingly failed to destroy the Taliban’s leadership.

The military has also failed to kill or capture even one top Taliban commander, experts pointed out.

More…

Jim Sinclair’s Commentary

By 2012 Banksters will be an endanger species.

High-Flying Banker Boumeester Found Dead
12:41pm UK, Monday June 29, 2009

A Dutch financier who went missing after leaving his job at troubled banking group ABN Amro has been found dead with gunshot wounds.

Fears grew for the safety of high-flying banker Huibert Boumeester when he missed a business appointment. He had not been seen for a week.

Police said two of his shotguns had also disappeared from his homes in London and Scotland.

The body of the 49-year-old former chief financial officer at ABN Amro was found in woodland in Winkfield near Ascot, Berkshire, on Sunday morning.

A Thames Valley Police spokesman said they could not confirm the identity of the dead man, but added: "He is believed to have died from gunshot wounds.

"At the moment it is being treated as an unexplained death. A definite cause of death has not been established."

Mr Boumeester joined ABN Amro, the 2007 takeover of which plunged the Royal Bank of Scotland into record losses, in 1987

He worked his way up to the post of chief financial officer before leaving early last year.

More…

Posted at 1:47 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

This movement away from the Dollar is gaining momentum. It appears to me that we are witnessing the early stages of a global consensus that the Dollar can no longer be the SOLE reserve currency. What many do not seem to realize is that currency risk due to foreign exchange volatility is a huge factor in the profitability of various import and export-related businesses. This is especially exasperating to risk management departments which are forced to conduct trade in a currency not even related to the nation that they are doing business with.

Trader Dan

DJ After China, Brazil Eyes Non-Dlr Trade With India -Estado
06/29/09 08:25

SAO PAULO (Dow Jones)–Brazil is considering using its own currency when conducting trade with India, the local Estado de Sao Paulo newspaper said Monday.

Central Bank President Henrique Meirelles met with Indian banking officials in Europe at the Bank for International Settlements meeting over the weekend to discuss the move away from the dollar in trade between the nations, Estado reported.

Brazil and China are also conducting studies on how to shed the dollar in trade, according to Estado.

A move away from the dollar could eventually do away with currency volatility. Although the dollar is considered the benchmark currency for trade and commodities pricing, many Brazilian companies have lost hundreds of millions over the last two years due to dollar weakness.

Posted at 12:50 PM (CST) by & filed under General Editorial.

Dear CIGAs,

The more I hear from contacts concerning Pakistan the more theatrical it appears.

Rent-an-army Pakistani forces forced all the residents of Swat to join the largest procession of refugees since Burundi and Rwanda by curfew and intimidation. They had to be rescued by Tanzania.

The strategy was that once you emptied most of Swat you simply need to kill anyone there, therein eliminating the Taliban. Well that is not the way it works. The Taliban just buried their weapons, took off anything they were wearing that would identify them and joined the ranks of the 2,500,000 refugees. This didn’t leave many to be killed but Pakistan citizens. One major Taliban leader was caught and confirmed that such occurrences are correct.

Pakistan has never been nor currently is a democracy. Bhutto was killed to get her out of the way of internal politics.

Pakistan offers more danger now than it did before the Surge. There are 2,500,000 witnesses to government action that is destabilizing their lives, placing them in harms way as well as subjecting the Swat citizenry to starvation and homelessness.

My contacts in Pakistan inform me that there is no better recruitment campaign for insurgents against the government than putting so many into such dire conditions.

Media glee over the trashing of the Taliban and Pakistan citizens turning against the Taliban is not worth the ink to print or power to download. It is drivel.

Pakistan is historically and presently corrupt, fractioned, and impoverished. It is a functional dictatorship.

Now the citizens add to the Western power the Pakistan Army as the great Satan. That is what the surge accomplished and nothing more. Pakistan is a greater threat to the world now than it was before the failed Surge.

The Surge is the tide of the times as an answer to everything, yet accomplishes nothing more than the standard quiet time before the weapons dig up occurs again.

130 Day Warning

Yes, that is right. You have a little more than 130 DAYS before MOPE (management of perspective economics) falls into the abyss of loss of confidence in the US dollar.

The event will be the birth of hyperinflation in the US and elsewhere to the horror of the spin media. Crude has been trying to explain this to the public, but so far they have not gotten a clue. Crude strength is being called a hedge against the dollar as fundamental energy analysts are hard pressed to explain a rise from $30 into the $70s with NO pick up in US economic activity and NO massive draw down on supplies. The oil price is an example of the arcane and exoteric mechanism of hyperinflation soon to take gold to $1224, $1650 and then on to Alf and Armstrong’s numbers. This phenomenon is something that the murderous Children of the Corn that run the hedge funds will not accept until it happens.

Happen it will.

130 days is no time at all. Are you prepared?

Posted at 4:56 PM (CST) by & filed under General Editorial.

Dear CIGAs,

The why behind the “no comment” on Bernanke’s grilling yesterday on the Merrill deal is because it is just too embarrassing for any American to have a major financial leader dogged by such a paper trail.

Inflation:

A note on the form of inflation coming: It has NOTHING whatsoever to do with consumer demand pull or wage cost push. It will be a currency related item producing hyperinflation in the midst of ugly business conditions.

These conditions have always been the result of QE where there is no practical method of draining, regardless of a political situation, war or now management of perception economics.

Classic examples of this: (From Wikipedia)

Angola
Angola went through its worst inflation from 1991 to 1995

Austria
Between 1921 and 1922, inflation in Austria reached 134%

Belarus
Belarus went through steady inflation from 1994 to 2002.

Bolivia
Bolivia went through its worst inflation between 1984 and 1986.

Bosnia-Herzegovina
Bosnia-Hezegovina went through its worst inflation in 1993

Brazil
From 1986 to 1994, the base currency unit was shifted three times to adjust for inflation in the final years of the Brazilian military dictatorship era.

Chile
Beginning in 1971, during the presidency of Salvador Allende, Chilean inflation began to rise and reached peaks of 1,200% in 1973

China
As the first user of fiat currency, China has had an early history of troubles caused by hyperinflation. The Yuan Dynasty printed huge amounts of fiat paper money to fund their wars, and the resulting hyperinflation, coupled with other factors, led to its demise at the hands of a revolution. The Republic of China went through the worst inflation 1948-49. In 1947, the highest denomination was 50,000 yuan. By mid-1948, the highest denomination was 180,000,000 yuan. The 1948 currency reform replaced the yuan by the gold yuan at an exchange rate of 1 gold yuan = 3,000,000 yuan. In less than 1 year, the highest denomination was 10,000,000 gold yuan. In the final days of the civil war, the Silver Yuan was briefly introduced at the rate of 500,000,000 Gold Yuan. Meanwhile the highest denomination issued by a regional bank was 6,000,000,000 yuan (issued by XinJiang Provincial Bank in 1949). After the renminbi was instituted by the new communist government, hyperinflation ceased with a revaluation of 1:10,000 old Renminbi in 1955.

Free City of Danzig
Danzig went through its worst inflation in 1923. In 1922, the highest denomination was 1,000 Mark. By 1923, the highest denomination was 10,000,000,000 Mark.

Georgia
Georgia went through its worst inflation in 1994. In 1993

Germany
Main article: Inflation in the Weimar Republic
Germany went through its worst inflation in 1923. In 1922, the highest denomination was 50,000 Mark. By 1923, the highest denomination was 100,000,000,000,000 Mark. In December 1923 the exchange rate was 4,200,000,000,000 Marks to 1 US dollar.[14] In 1923, the rate of inflation hit 3.25 × 106 percent per month (prices double every two days). Beginning on November 20, 1923, 1,000,000,000,000 old Marks were exchanged for 1 Rentenmark[14] so that 4.2 Rentenmarks were worth 1 US dollar, exactly the same rate the Mark had in 1914.

Greece
Greece went through its worst inflation in 1944-1946

Hungary
Hungary went through the worst inflation ever between the end of 1945 and July 1946

Israel
Inflation accelerated in the 1970s, rising steadily from 13% in 1971 to 111% in 1979. From 133% in 1980, it leaped to 191% in 1983 and then to 445% in 1984, threatening to become a four-digit figure within a year or two.

Japan
After WW II, Japan went through the highest denomination at that time, which was a 75,000,000,000 Yen bank cheque. The Japan wholesale price index (relative to 1 as the average of 1930) shot up to 16.3 in 1943, 127.9 in 1948 and 342.5 in 1951. In the early 1950s, after achieving independence from USA, Japan controlled its own money. Through its rapidly growing export trade, Japan stabilized the Yen quickly.

Madagascar
The Malagasy franc had a turbulent time in 2004, losing nearly half its value and sparking rampant inflation

Mozambique
Mozambique was one of the world’s poorest countries when it became
independent in 1975

Nicaragua
Nicaragua went through the worst inflation from 1987 to 1990.

Peru
Peru went through its worst inflation from 1988 to 1990.

Philippines
The Japanese government occupying the Philippines during the World War II issued fiat currencies for general circulation. The Japanese-sponsored Second Philippine Republic government led by Jose P. Laurel at the same time outlawed possession of other currencies, most especially “guerilla money.” The fiat money was dubbed “Mickey Mouse Money” because it is similar to play money and is next to worthless.

Poland
Poland went through inflation (second time) between 1989 and 1991.

Russian Federation
Between 1921 and 1922 inflation in Soviet Russia reached 213%.

In 1992, the first year of post-Soviet economic reform, inflation was 2,520%. In 1993 the annual rate was 840%, and in 1994, 224%. The ruble devalued from about 40 r/$ in 1991 to about 30,000 r/$ in 1999.

Turkey
Throughout the 1990s Turkey dealt with severe inflation rates that finally crippled the economy into a recession in 2001.

Ukraine
Ukraine went through its worst inflation between 1993 and 1995

United States
During the Revolutionary War, the Continental Congress authorized the printing of paper currency called continental currency. The easily counterfeited notes depreciated rapidly, giving rise to the expression “not worth a continental.”

Between January 1861 and April 1865, the Lerner Commodity Price Index of leading cities in the eastern Confederacy states increased from 100 to over 9000.[20] As the U.S. Civil War dragged on the Confederate States of America dollar had less and less value, until it was almost worthless by the last few months of the war.

Yugoslavia
Yugoslavia went through a period of hyperinflation and subsequent currency reforms from 1989 to 1994

Zaire (now the Democratic Republic of the Congo)
Zaire went through a period of inflation between 1989 and 1996.

Zimbabwe
A selection of Zimbabwe Reserve Bank bearer cheques printed between July 2007 and July 2008 (now expired) that illustrate the hyperinflation rate in Zimbabwe. Hyperinflation in Zimbabwe has persisted since the early 2000s, shortly after that country’s confiscation of white-owned farmlandand its repudiation of debts to the International Monetary Fund. Figures from November 2008 estimated Zimbabwe’s annual inflation rate at 89.7 sextillion (1021) percent (i.e. prices double every 24.7 hours). In April 2009, Zimbabwe abandoned printing of the Zimbabwean dollar, and the South African rand and US dollar became the standard currencies for exchange. The government does not intend to reintroduce the currency until 2010.

Jim’s Predictions:

Maximum nearby dollar weakness will be in November of 2009 with a price objective of USDX .7200 and .6200.

Gold will reach $1224 on its way to $1650.

Posted at 3:02 PM (CST) by & filed under In The News.

Three weeks to go:

1. California Labor Unions hold tight and will not cooperate with the needs of funding.
2. California legislators refuse to raise significant taxes.
3. The Obama Administration holds tight in saying they will not bail out California.

In three weeks California will be out of money with the inflow nowhere near the needs.

Then what? A bailout or no bailout?

New York State is not far behind California as well as other states.

Remember Jim’s Formula of 2006 that many laughed at and even more argued with.

Don’t forget to file for your TARP cut of the taxpayer’s pie. If a Rum manufacturer can get theirs, why shouldn’t you get yours? If Captain Morgan Rum  can pull it off then why not us?

Jim Sinclair’s Commentary

The most popular question I receive on a daily basis is to comment on the gold to silver ratio.

Here is my answer and promise to you:

As pressure to deliver gold hits the COMEX exchange in the last quarter of 2009 with titanic force, the ratio trades will totally explode, killing the gold to silver spread traders.

With gold to silver ratios you are not buying insurance, you are a gambleholic buying decimation.

Jim Sinclair’s Commentary

From the article:

“Jim Sinclair of jsmineset.com, a legendary gold trader, reported that some of his contacts have told him that, when they request to withdraw their 100oz. bars from the Comex depositories, they have not received the proper indicted bars. They received a bar, but not one with the correct serial number or weight.

Why not? One possibility is that an honest mistake was made. The high demand recently has apparently kept the depository workers very busy. Wall Street veterans recall that delivery errors were chronic in the days of paper share certificates.

Another possibility is that the bar indicated on the warehouse receipt does not actually exist. The implications of that are rather dire.”

Where’s The Gold?

The Comex is the name for the largest gold futures market in the world, traditionally centered in New York City. Although the market recently became part of the Chicago Mercantile Exchange, it has retained its old nickname. Also, the depositories which hold the actual bars of gold used to settle the futures contracts remain in New York City.

A gold depository must be the most boring business on earth. They charge a small monthly fee to store 100oz. standardized bars of gold in an insured vault. It is an industrial-sized version of a safe deposit box.

The owner of a 100oz. bar owns a specific chunk of gold. It has a manufacturer, a serial number, and an exact weight measured to the 1/100th of an ounce. A written depository receipt — similar to an old-fashioned paper share certificate — shows the exact date the bar entered the depository, and the entire chain of ownership since that date; they often change hands without leaving the depository. You can request to withdraw the bar from the depository, and you should receive exactly the bar indicated.

Interest in precious metals as an investment has been heating up, and some fund managers have begun to take very large positions. Demand for Comex gold bars has been increasing — especially as they are significantly cheaper per ounce than alternatives like 1oz. bullion coins or the kilogram bars popular in Europe.

Jim Sinclair of jsmineset.com, a legendary gold trader, reported that some of his contacts have told him that, when they request to withdraw their 100oz. bars from the Comex depositories, they have not received the proper indicted bars. They received a bar, but not one with the correct serial number or weight.

Why not? One possibility is that an honest mistake was made. The high demand recently has apparently kept the depository workers very busy. Wall Street veterans recall that delivery errors were chronic in the days of paper share certificates.

More…

CIGA Eric’s Commentary

Spin vs. Reality: Management of Perception Economics

May incomes surge, but savings outpace spending
Households push savings rate to 15-year high as May incomes rise by largest amount in year
By Martin Crutsinger, AP Economics Writer
On Friday June 26, 2009, 1:48 pm EDT

WASHINGTON (AP) — Households pushed their savings rate to the highest level in more than 15 years in May as a big boost in incomes from the government’s stimulus program was devoted more to bolstering nest eggs than increased spending.

The higher savings rate is healthy in the long term, economists said. But without vigorous consumer spending, the government may have to do more to revive the economy, possibly through further tax breaks and spending.

The Commerce Department said Friday that consumer spending rose 0.3 percent in May, in line with expectations. But incomes jumped 1.4 percent, the biggest gain in a year and easily outpacing the 0.3 percent increase that economists expected.

The savings rate, which was hovering near zero in early 2008, surged to 6.9 percent, the highest level since December 1993.

More…

Economists React: ‘Short-Lived’ Boost to Income, Spending
By Phil Izzo

Economists and others weigh in on the jump in personal income and spending.

Wage and salary income, which is key for consumer spending, fell… While lower taxes and one time checks from the government are obviously a net positive for the consumer, they tend to have a short-lived effect on spending growth as they only affect the rate of change in disposable income when they are implemented or shortly thereafter. Of more importance to ongoing spending growth is the rate of growth in wages and salaries and other continuing sources of income flow. –Joshua Shapiro, MFR Inc.

The lion’s share (94.3%) of the increase in income came from one-time increases of $250 per eligible recipient of social security, supplemental security, veterans benefits, and railroad retirement benefits. The $13.1 billion of these transfers boosted May income by about $158 billion (annualized). These transfers are not recurring so incomes will fall by a like amount in June. Spending from this actual $13.1 billion is likely to be spread out over several months or even years if recipients use the proceeds to increase saving or reduce debt. The key fundamental driver of spending — wage and salary income — fell 0.1% after a slightly smaller advance in April. –Nomura Global Economics

More…

Jim Sinclair’s Commentary

For those that profess all is well and getting better, have a look at this.

Now here is a lot of improvement! (Click chart to enlarge)

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Jim Sinclair’s Commentary

MOPE (management of perspective economics) can fool any fool, but the result here is a lower dollar without recovery. Once confidence is broken by markets, it cannot be put back together with more of what broke it.

Fading of the Dollar’s Dominance

The days of calling the dollar almighty may be numbered.

Since World War II, when the dollar eclipsed the British pound as the king of world currencies, the United States has reaped the rewards of its monetary strength. The greenback’s sense of indestructibility allowed the U.S. government to borrow cheaply and gave rise to an era of rich American globetrotters toting the world’s most easily convertible form of cash.

But the financial crisis that started in the United States is dramatically intensifying the debate over the future of the dollar, and whether it can, or should, remain at the top of the financial food chain. Although a meaningful shift away from the dollar is likely to take years or more, some analysts believe that the debate is now reaching a tipping point.

Last week, the leaders of Brazil, Russia, India and China — whose governments are some of the world’s largest dollar holders — jointly declared the need for a “more diversified international monetary system,” sparking a drop in the greenback on world markets. In recent months, China in particular has led a campaign for a new world monetary order, arguing that the financial crisis has exposed profound vulnerabilities in the U.S. economy and financial system. Those flaws, critics argue, show it is simply too risky for the world’s central banks to rely largely on the dollar for their global reserves.

At the same time, Beijing has taken unprecedented steps to increase the international role of its own currency, the yuan, to a level commensurate with China’s relatively new status as a major economic power. In the coming weeks, the International Monetary Fund — the institution charged with the monitoring and stability of the global economy — will issue a vast amount of currency-like assets known as Special Drawing Rights, which some analysts see as a long-term substitute for the hordes of dollar reserves being held by central banks around the world. Some now envision that the dollar will fall from its recent levels of 60 to 65 percent of international reserves to less than 50 percent a decade from now.

A diminishing of the dollar’s global role has far-reaching implications for the United States. The value of the dollar versus other major currencies could markedly drop as it slips from supremacy, making millions of Americans overseas feel poorer while potentially fueling a new golden era for U.S. exporters as American goods become more cost-competitive. The U.S. government may also be forced to pay higher rates to investors when selling, for instance, Treasury bonds to raise cash — making it far more costly in the future to cover the kind of massive stimulus spending the government is now undertaking.

More…

Jim Sinclair’s Commentary

It was only a matter of time.

Terrorists recruit for cyberwar, official says
Islamic extremists increasingly using the Internet as outreach tool
updated 5:58 p.m. ET, Thurs., June 18, 2009

WASHINGTON – Terrorist groups that have long used the Internet to spread propaganda are increasingly tapping the Web to teach Islamic extremists how to be hackers, recruit techies for cyberwarfare and raise money through online fraud, U.S. officials say.

A senior defense official said intelligence reports indicate extremist groups are seeking computer experts, including those capable of breaching government or other sensitive network systems.

The official, who spoke on condition of anonymity to discuss sensitive information, said the extent and success of those recruiting efforts are unclear.

More…

Jim Sinclair’s Commentary

Here is the new GM Volt car, not exactly emission free and somewhat methane powered, but definitely greenish.

clip_image001

By comparison to the GM Volt shown above, below is transportation in Greenwich, CT today. The two people pictured are OTC credit default derivative dealers on their way to work, financed by TARP. Palm trees were imported, and paid for by Madoff clients.

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Jim Sinclair’s Commentary

Hey, in today’s financial condition what difference would a few trillion (true number) make?

clip_image003

Jim Sinclair’s Commentary

COT: Fight it they will. Fail they will.

The following is quite gold positive. Reducing dependence on the dollar is quite dollar negative. The MOPE is the Chinese can’t do anything because they have so many treasuries, but that is SPIN at its best.

Financial TV actually MOPEs about it saying it is all talk and no substance.

U.S. Stocks, Dollar Decline on China Calls for World Currency
By Elizabeth Stanton

June 26 (Bloomberg) — U.S. stocks and the dollar dropped after China’s central bank reiterated a call for a “super sovereign currency,” while energy shares retreated with oil and agricultural shares slumped.

Exxon Mobil Corp. and Tesoro Corp. fell as crude oil futures lost 1.3 percent to $69.34 a barrel. Monsanto Co., the biggest seed maker, dropped after Potash Corp. of Saskatchewan cut its second-quarter profit forecast. The dollar slumped 0.7 percent against six trading partners as China sought to replace it as the global reserve currency. Micron Technology Inc. fell after posting a wider-than-estimated loss because of an industry glut that drove memory-chip prices below the cost of production.

The Standard & Poor’s 500 Index decreased 0.5 percent to 915.44 at 10:10 a.m. Futures on the index expiring in September had risen as much as 0.4 percent after the Commerce Department said at 8:30 a.m. that Americans’ incomes increased the most in a year last month. The Dow Jones Industrial Average fell 50.26 points, or 0.6 percent, to 8,422.14.

“There will be diversification among global central banks,” said Beat Siegenthaler, chief emerging markets strategist at TD Securities Ltd. in London. The comments from China “tend to remind traders of that, but there’s still a question about the time horizon.”

China, the biggest foreign owner of U.S. Treasuries, cut its holdings of government notes and bonds by $4.4 billion to $763.5 billion in April, according to data released on June 15 in Washington. People’s Bank of China Governor Zhou Xiaochuan in March urged the IMF to expand the functions of its unit of account and move toward an international reserve currency to reduce dependence on the dollar.

More…

Jim Sinclair’s Commentary

So are US banks after the false FASB first quarter.

British banks highly vulnerable to future shocks, Bank of England warns
Britain’s banks remain over-indebted, highly vulnerable and harbour growing funding gaps which leave them susceptible to future shocks, the Bank of England has said.
By Edmund Conway
Published: 5:56AM BST 26 Jun 2009

In a warning to bankers and consumers after months that have seen large jumps in share prices and hopes that the banking system is recovering, the Bank used its Financial Stability Report to emphasise that the UK remains highly vulnerable to potential shocks.

With the Government poised to deliver its White Paper on financial regulation next week, the Bank also cautioned that life for financial institutions was about to change forever, with big banks facing a whole spectrum of new restraints on their size, structure, business plans and lending.

The report, published today, said: “While pressures on the major global banks have stabilised over the past few months, their balance sheets remain impaired. Banks’ leverage remains high, with the possibility of further impairment of assets placing continued pressure on profitability and capital ratios. Future revenue generation will need to balance the desire to deleverage with the need to generate new business at profitable spreads.

“At the same time, the major UK banks maintain a high and rising customer funding gap. The withdrawal of overseas funding and competition for domestic deposits has added to these funding pressures.”

The report revealed that the funding gap – the shortfall between what banks have in deposits and what they lend out to customers – has further widened in the past year to more than £800bn. The increase underlines the scale of adjustment that they will have to undergo before life returns to relative normality. The report also pointed out that the amount banks have in liquid assets remains low, while the leverage ratios remain high, saying: “As long as these balance sheet vulnerabilities persist, there is a risk to the banking system from further adverse economic or financial sector developments, which could in turn affect lending and economic recovery.”

More…

Jim Sinclair’s Commentary

Naughty CITI.

Citigroup Ordered to Suspend Some Operations in Japan (Update2)
By Shingo Kawamoto and Takahiko Hyuga

June 26 (Bloomberg) — Citigroup Inc. was ordered by Japan’s financial regulator to suspend marketing of banking services to individuals for a month, after failing to put in place adequate internal controls to prevent money laundering.

The Financial Services Agency told Citibank Japan Ltd. to halt retail banking sales from July 15 to Aug. 14, except in cases where the company is approached by customers, the regulator said in a statement in Tokyo today. It also ordered the bank to improve governance and control systems.

The regulator found Citigroup had “fundamental problems” with its compliance, including systems to detect and monitor suspicious transactions. The New York-based bank failed to implement an improvement plan it submitted after it was forced to close its private banking business in Japan in 2004 for a similar failure, the watchdog said.

Citibank Japan didn’t update a database used to screen suspicious transactions since 2004, and management officials “lack an understanding of the rules applied in Japan, such as laws and regulations, and an awareness of improvement,” the regulator said in its statement.

Citigroup will comply with the regulator’s order and will submit an improvement plan by July 31, the company said in a statement. The order won’t have any impact on business with institutional clients, the bank said.

“We apologize deeply and take the situation seriously,” the company said in the statement.

More…

Jim Sinclair’s Commentary

MOPE (management of perceptions economics) strikes again!

BofA got 2nd top U.S. regulatory grade-documents
Reuters, Thursday June 25 2009
By Jonathan Stempel

NEW YORK, June 25 (Reuters) – Bank of America Corp, which got a $45 billion government bailout and was ordered to raise $33.9 billion more capital, was awarded the second-highest rating by U.S. banking regulators for overall financial health, documents released on Thursday show.

Regulators assign confidential ratings that assess banks’ capital adequacy, asset quality, management quality, earnings, liquidity and sensitivity to market risk. They are known as “Camels” ratings based on the first letters of the six factors, and go on a scale of 1 to 5, where 1 is highest.

Bank of America and its Bank of America NA banking unit were awarded “2″ composite ratings, according to documents released by the House of Representatives Committee on Oversight and Government Reform.

One of the documents showing the ratings is dated May 29, three weeks after regulators ordered the Charlotte, North Carolina-based bank to raise $33.9 billion following a “stress test” of its ability to weather a deep recession. Bank of America said on Thursday it has more than built that buffer.

“They have a lower Camels rating than we would like to see given their size,” said Tony Plath, a finance professor at the University of North Carolina at Charlotte. “It suggests that regulators are taking a dim view of the bank’s risk controls and management capability. That’s pretty scary.”

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Jim Sinclair’s Commentary

Generally this type of news is blacked out to prevent disturbing the social order.

I am surprised by the LA times.

H1N1 ‘swine’ flu has infected an estimated 1 million in U.S.
The virus is also spreading rapidly through the Southern Hemisphere. A French company announces large-scale production of a vaccine.
By Thomas H. Maugh II
3:54 PM PDT, June 25, 2009

At least 1 million Americans have now contracted the novel H1N1 influenza, according to mathematical models prepared by the Centers for Disease Control and Prevention, while data from the field indicates that the virus is continuing to spread even though the normal flu season is over and that an increasing proportion of victims are being hospitalized.

Meanwhile, the virus is continuing its rapid spread through the Southern Hemisphere, infecting increasing numbers of people and at least one pig.

Nearly 28,000 laboratory-confirmed U.S. cases of the virus, also known as swine flu, have been reported to the CDC, almost half of the more than 56,000 cases globally reported to the World Health Organization.

But Lyn Finelli, a flu surveillance official with CDC, told a vaccine advisory committee meeting in Atlanta today that standard models of viral spread indicate that many times that number have been infected. Although 1 million seems like a high number, between 15 million and 60 million Americans are infected by the influenza virus during a normal flu season.

At least 3,065 of those infected in this country have been hospitalized and 127 have died. The very young are most likely to be infected, Finelli said, but older patients seem to suffer more. The average age of swine flu victims is 12, the average age of hospitalized patients is 20 and the average age of those who have died is 37, she said.

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Posted at 1:46 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

The battle between the inflationists and the deflationists continues unabated with market gyrations becoming increasingly violent as neither side appears able to gain an advantage. Just as it looks as if the bond market is going to side with the inflationists, it miraculously bounces from a major long term support area and ricochets higher while crude oil simultaneously drops lower giving up the gains from the previous day.

Trying to make sense out of all these wild price swings? Why bother; no one knows what is going on or what is coming with any degree of conviction to stand firm in their trading positions. Traders are buying and then dumping, selling and then covering with what can best be described as bipolar behavior. The markets have become nearly useless for sending any kind of price signals that are remotely reliable.

As such, only short term traders and I do mean short term (one hour or two at the most) can play in this sandbox. Those who believe gold is going much higher are better served simply accumulating the metal on any bouts of price weakness and finding an enjoyable hobby with which to occupy their time while the hedge funds murder and maim one another.

The price discovery mechanism is therefore short circuited for now as these things are merely bouncing around with the money flows on any given day. If the funds decide to buy, they go up – if the funds decide to sell, they go down. That is all that anyone really needs to know to explain any of this. I honestly do feel sympathy for the end users and producers of commodities who are attempting to get some sort of read on all this speculative idiocy in an attempt to establish legitimate risk management positions.

That brings us to gold – it is caught up in these same forces along with the rest of the markets and particularly the commodity sector. It does not know whether to follow crude oil down or follow the movement in the US Dollar or the bond market.

In my opinion, the federal monetary authorities have so interfered in the free market process and in the price discovery mechanism that they are responsible for a great deal of this confusion which is manifesting itself in these bizarre day to day price gyrations. When you have the Fed actively buying in the bond market in a deliberate attempt to artificially keep longer term interest rates excessively low, how can it be said with a straight face that the market is attempting to find the true rate of interest? The feds will not let it. The longer they meddle the more the distortions they are producing will increase and only serve to compound matters and further muddy the already murky waters. Hayek must be rolling over in his grave in witnessing all this centralized planning by hubristic men enamored with their own wisdom and prognosticative ability.

The mining shares, as evidenced by the HUI and the XAU, after bouncing strongly from the last swing low and looking like they are putting in an upside reversal on the weekly charts, are running into a bit of selling associated with the weakness in the broader equities and the deflation play as bonds move higher.

Open interest in Comex gold continues to remain locked within what can also be described as a relatively narrow range which also tends to confirm the lackluster, meandering consolidation pattern that the market continues to sketch on the technical charts. It looks like the summer doldrums are upon us. I am not sure what it will take to snap us out of this range other than a very sharp drop in the Dollar below support firstly near the 79.50 level and more critically, the 78.40 region.

At some point, this struggle between the deflationists and the inflationists will come to a conclusion and the markets will resume a more “orderly” behavior. I am in the camp of the inflationists when it comes to hard assets. When it does, gold will accelerate to the upside as the market then anticipates the wave of inflation. Right now everyone is sitting around debating whether the market has confidence in the Fed to head off any nascent inflationary pressures should those surface. That is folly in my opinion. These guys are wishing, hoping, praying and doing rain dances in the hopes that inflation will show up. They want it to show up and rear its head. The problem they face is that once that genie is out of the bottle, they are no longer in control, all claims to the contrary.

In looking over this environment, it seems to me one of the key missing factors on the inflation front is the absence of any real upward pressure on wages. We do have the commodity world bottoming out as evidenced by the CCI and the move up and away from the $35 – $40 level in crude oil and gasoline price increases but with the economy in the crapper, it is an employer’s market and workers have little in the way of clout that they could bring to justify increases in wages. Hey, if you have 5 guys standing in line to replace you it does not exactly give you the chutzpah to go in and demand a pay increase.

The problem arises when the weakness in the Dollar translates into speculative buying in the commodity complex which forces prices upward in energy, food and raw materials. That translates into higher prices at the retail level if merchants wish to maintain their profit margins. Consumers fall further behind because their wages are not keeping up with the increases in the basic necessities of life so discretionary spending suffers unless they are willing to dig themselves deeper into debt, something which does not appear to be happening. All in all, the middle class gets further squeezed as they find themselves unable to maintain the lifestyle which their parents enjoyed. Increasingly, it seems to me that more and more Americans are finding themselves depressed when looking into the future of their kids and grandkids. For maybe the first time in our history in a long time, more and more Americans do not believe that their children will be better off than they were. That is what is perhaps the most pernicious of effects of the damnable and cursed Federal Reserve and their pals on Wall Street and allies in the federal government who will not stop spending money that they do not have.

That more than anything is the reason to hold physical gold – you must protect your family from the depredations of these detestable leeches who are intent on destroying our national currency all for short term gain.

Posted at 10:09 PM (CST) by & filed under In The News.

Dear CIGAs,

You are going to see a great deal more of this.

Do you honestly know how bad things are going to get?

Do you really accept that the US dollar is going to take a historical percentage of value hammering in the final quarter of 2009?

Do you recognize that as pressure to deliver gold hits the COMEX exchange with titanic force, the ratio traders will totally explode and kill the spread traders?

Do you have any idea how long it is going to be before real green shoots become crops?

Do you know that certain medicines are already in short supply for economic reasons?

There is only a small minority out there that really understands. There is no need for bank holidays as long as QE and TARP type programs are grown to meet the growing demand.

I have long told you that our financial leaders will burn the barn down before letting nature take its course. The barn is the US dollar.

Look out the window and stop listening to MOPE.

Please give food, not money.

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In the 1930s insurance companies did this to pay claims. These California IOU claims will probably trade at 25% of face value. They will trade in today’s world of paper shufflers.

California set to issue IOUs as fiscal crisis weighs
By Dan Whitcomb and Ciara Linnane Dan Whitcomb And Ciara Linnane
Wed Jun 24, 10:00 pm ET

LOS ANGELES/NEW YORK (Reuters) – California’s controller said on Wednesday that he would have to issue IOUs in a week if lawmakers can’t quickly solve a $24 billion budget deficit, and the state’s treasurer plans to tap a reserve fund to meet debt service costs.

The measures came as a budget crisis deepened in the most populous U.S. state and the gridlocked legislature failed to pass a proposed $11 billion in cuts.

"Next Wednesday we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression," Controller John Chiang said in a statement announcing that he would be forced to use IOUs to pay the state’s bills beginning on July 2.

"The state’s $2.8 billion cash shortage in July grows to $6.5 billion in September and after that we see a double digit freefall," Chiang said. "Unfortunately, the state’s inability to balance its checkbook will now mean short-changing taxpayers, local governments and small businesses."

State Treasurer Bill Lockyer, meanwhile, is planning to draw on reserves for economic recovery sales tax bonds, according to a spokesman.

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Jim Sinclair’s Commentary

In Addis Ababa, Ethiopia, mothers are telling their kids to eat all their food because children are starving in America.

US cities may have to be bulldozed in order to survive
Dozens of US cities may have entire neighbourhoods bulldozed as part of drastic "shrink to survive" proposals being considered by the Obama administration to tackle economic decline.
By Tom Leonard in Flint, Michigan
Published: 6:30PM BST 12 Jun 2009

The government looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature.

Local politicians believe the city must contract by as much as 40 per cent, concentrating the dwindling population and local services into a more viable area.

The radical experiment is the brainchild of Dan Kildee, treasurer of Genesee County, which includes Flint.

Having outlined his strategy to Barack Obama during the election campaign, Mr Kildee has now been approached by the US government and a group of charities who want him to apply what he has learnt to the rest of the country.

Mr Kildee said he will concentrate on 50 cities, identified in a recent study by the Brookings Institution, an influential Washington think-tank, as potentially needing to shrink substantially to cope with their declining fortunes.

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The Saga of Make Believe Bank Profits

There was lots of talk today about Bank of America’s second quarter loss.

The reality is that the first quarter profits by the financial group was all a gift from FASB which allowed the financial group to value their worthless derivative paper at whatever their computer models said.

The profits were attributed to their trading department as that camouflaged mark-ups on previously marked down OTC derivatives now taken in as profit.

This magical accounting exercise profits will now depend on business activity and recognition of loan losses plus credit card lay downs.

This quarter, the third quarter, substance will begin to overcome form (accounting fabrications blessed by FASB). This will make it much harder to keep the party going via management of perception economics.

MOPE, Management of Perception Economics, is outlined in the book, "Die Zeit Ohne Beispiel."

Bank of America Heads for Quarterly Loss, Citi Says (Update1)
By David Mildenberg

June 25 (Bloomberg) — Bank of America Corp. will post a second-quarter loss as it builds reserves to cushion defaults on credit cards and consumer loans, Citigroup Inc. analyst Keith Horowitz said.

Mounting losses on consumer credit will erase a $5 billion gain from the sale of China Construction Bank Corp. shares, bringing the quarter’s loss to 11 cents a share, Horowitz said in the report dated yesterday. The bank is also facing an $875 million charge from the Federal Deposit Insurance Corp. to help bolster the agency’s fund and $2 billion of writedowns tied to the Merrill Lynch & Co. unit.

Citigroup’s estimate contradicts the consensus among the 22 analysts surveyed by Bloomberg, which predicts a profit of 8 cents a share for Bank of America. While Horowitz cut his price target on the stock by $2 to $18 a share, he affirmed his “buy” rating, saying that the need to build reserves may be peaking at the Charlotte, North Carolina-based lender.

Bank of America “will emerge from this cycle faster than peers,” Horowitz wrote. “We remain confident that even with expected credit deterioration” in the quarter, “there is more than adequate capital cushion to absorb embedded credit losses.”

The bank fell 11 cents to $12.24 at 11:48 a.m. in New York Stock Exchange composite trading. The shares have dropped 13 percent this year.

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Jim Sinclair’s Commentary

If the Fed increases QE all this will go away. If they do not, by legislative action, the Fed will fade away. Watch!

Lawmaker accuses Fed of "cover-up" in BofA deal
Wed Jun 24, 2009 7:03pm EDT
By Kim Dixon

WASHINGTON (Reuters) – The Federal Reserve sought to hide its involvement in Bank of America Corp’s (BAC.N) acquisition of Merrill Lynch as Merrill’s financial condition worsened, the top Republican on the House Oversight and Government Reform Committee said on Wednesday.

The Fed "engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies," Representative Darrell Issa said in a statement released to Reuters.

Bernanke has in the past denied any inappropriate pressure on Bank of America. Fed spokeswoman Michelle Smith on Wednesday referred to a letter Bernanke sent Representative Dennis Kucinich on April 30 and later testimony in which he offered an "unconditional assertion" that he did not ask Bank of America CEO Ken Lewis to withhold information regarding Merrill.

"The Federal Reserve acted with the highest integrity throughout its discussions with Bank of America," Bernanke wrote to the Ohio Democrat, who chairs a subcommittee on the Oversight panel.

The Democrat who heads the committee, Edolphus Towns of New York, has called Bernanke to testify on Thursday. "I am not going to prejudge these issues. We are not even close to finishing the Bank of America-Merrill Lynch investigation at this point," Towns said in a statement.

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Jim Sinclair’s Commentary

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- GDP Revisions Little More Than Statistical Noise but Watch Out for July 31st Benchmark Revisions
- Annual Plunge in Durable Goods Orders Continued
- Worst of the Downturn Still is Ahead
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