Posted at 3:18 PM (CST) by & filed under Jim's Mailbox, JSMineset Editor.

Jim,

Price and volume. The rest is statistical fluff. God bless statistical fluff.

Exactly – no volume even as the market jumps the creek. The market does not necessarily need volume to continue. I’ve seen the equity markets produce a series of false breakouts that last months before gravity overtakes the trend’s upward inertia.

The question is did we see a panic bottom? A bottom where the public rejects equity ownership? Ala 1919-1920, 1929-1932, 1973-1974, 1980-982. I suggest that the market will stair step it’s way to the ultimate panic bottom around 2012-2015.

In my opinion, what QE is trying to arrest or pause is the waterfall decline. Examples are the1932-1934 and 1974-1976 (spot-shadowed) advances. They want a 2009-2011 (spot-shadowed) advance. The trouble is, another huge C-wave advance is scheduled to begin this summer. There’s no way equities will be able to keep up.

Decisive failure of the 1967-1971 swing high suggests to me that the waterfall decline is still in play. That level was tested in March 09.

CIGA Eric

june0709-eric3june0709-eric4

Jim,

The Federal Reserve Bank of Kansas City Thomas M. Hoening had the same interpretation about the rising Treasury yield as his counterpart of the Federal Reserve Bank of San Francisco, President Janet Yellen. In his speech named “An Economy at Risk: the Tough Decisions Ahead” (attached), he said:

“The markets won´t be fooled by artificially low rates for long. Market participants realize that a period of high deficits and accommodative monetary policy are an invitation to increased pressure. I suspect we are experiencing the first signs of the markets´ concerns in the rising rates and increased volatility in long-term Treasury markets.” (p. 9)

However, I don’t expect Ben Bernanke to take any anti-inflationary actions.

Regards,
CIGA Christopher

Jim,

Dubai calls on the Rothschild bank for help, perhaps out of desperation. In Saudi Arabia a Saad Group company defaults. US, European and Asian banks are struggling. The end of Ramadan in September might mark the start of an economic depression worse than that of the 1930s.

CIGA Ken

Signs of a new financial storm for September coming from Dubai and Saudi Arabia
by Maurizio d’Orlando
Dubai calls on the Rothschild bank for help, perhaps out of desperation. In Saudi Arabia a Saad Group company defaults. US, European and Asian banks are struggling. The end of Ramadan in September might mark the start of an economic depression worse than that of the 1930s.

Milan (AsiaNews) – Rothschild’s Dubai office has been retained by Dubai’s Department of Finance for advice on the US$ 10 billion financial support fund (FSF) the emirate raised on the bond markets.

Nakheel, the property development arm of Dubai World, was the first to benefit, but is likely to be the last of its kind because funds will be handed out on the basis of two criteria: urgency and strategic importance.

More…

Dear Jim,

This is what the American dream has become thanks to the OTC paper shufflers and their complicit politicians.

Best,
CIGA BT

One in nine Americans on food stamps, USDA says
Wed Jun 3, 5:38 pm ET

WASHINGTON (Reuters) – One in nine Americans are using federal food stamps to help buy groceries as the country’s deep recession forced another 591,000 people onto the federal anti-hunger program at latest count.

Enrollment jumped 2 percent to 33.2 million people in March, the fourth consecutive month that rolls hit a record, said the Agriculture Department. The average monthly benefit was $113.87 per person.

“It’s tough out there for struggling families and will be for many months to come,” Jim Weill, president of the Food Research and Action Center, said.

More…

Jim Sinclair’s Commentary

Young Eric is going to be very famous in time. I see him as a market leader coming out of this bone grinding experience with experience and discipline.

Jim,

“This is followed by buying of equities driven by the desire to own the not-dollar similar to the equity market driven not-Weimar mark. All of this will have the algorithm goosed, driving markets into conditions without precedent.”

Agreed.

The Weimar experience has taught us that a currency panic can send stock prices to what appears to be the stratosphere. Unfortunately, rising German stock prices did not keep up with the savage currency devaluation. The German stock price to gold ratio and the impoverishment of nearly all Germans as described in the history books during the late Weimar Republic reminds us of this point.

Nevertheless, I keep my mind and options open. Panic-driven Central Bank(s) and Treasury pressing even harder on the accelerator of QE have the potential to produce an unexpected outcome. Panic-driven humans, like cornered animals, also have a tendency to do unexpected things when self-preservation is challenged.

CIGA Eric

june0709-eric1june0709-eric2

Hi Jim,

Adrian Douglas of GATA indicated a big move in June according to his analysis.

Click here to view the analysis…

However, I believe the emphasis has shifted to the August Gold contract with 260305 OI on the Futures and 66975 accumulative total Options 2:1 ratio of calls to puts.

This might suggest a big move in July (not that is matters much but it is fun to watch).

I will be monitoring the August OI and Option volume and Call/Put ratios in the coming days.

I look forward to you comments.

Thanks in advance.

Nigel

Nigel,

There is a huge gold price move coming so why chance missing it because you believe in a given time span? Gold is a simple trend line entity. The short term downtrend or bottom of the down channel are bells and if they ring, you act.

Jim

Jim,

I guess they’ll be talking about how to deliver the coup d’grace to the US Dollar.

CIGA Pedro

BRIC’s Yaketenaburg summit
2009-05-30 08:38:11

BRIC- Brazil, Russia, India and China meet to begin June 16, top leaders to attend are Prime Minister Manmohan Singh and Chinese President Hu Jintao along with the presidents of Russia and Brazil.Dr Singh will be attending both the BRIC and SCO meetings. However the ministry of external affairs refused to confirm Dr Singh’s attendance at the SCO.

All aspects of “global security” and “complexities” in the field of economy in the backdrop of the world financial meltdown will come up during the first “full-format” summit of BRIC nations, including India, Russian President Dmitri Medvedev said today.

More…

CIGA Pedro,

There has never been a better set up than what is now taking place. The commercials are operating a dollar short squeeze to open up the opportunity to run all the margined public out of their gold positions just before a major up move in the price of gold and downward spiral in the US dollar.

The odds are starting to disfavor the commercials while their fortunes rely on their ability to get the US dollar over .8200. Considering the almost universal wish by major central banks to diversify out of the USD, the commercials are going to have a major battle getting the USDX over .8200 and keeping it there.

Friday’s price action in the gold market is more a sign of desperation and necessity than it is a forbearer of ill price tidings.

Regards,
Jim

Jim,

Weimer currency event takes everything up. You (and I) have discussed that option already. Nice to see Jim Roger’s discussion’s reflecting this increasing possibility.

Armstrong’s waterfall decline scenario with specific timing dates, however, cannot be completely dismissed at this point. The waterfall decline will have little impact on gold and quality gold shares. Though, the gold stocks tend to get lumped into the equity basket during declines.

I have included the NYA Composite Index. I study volume relative to price using what I can best describe as Richard Wyckoff’s volume analysis from the 1920′s.It’s mostly studying the force of the trend using volume at swing highs and lows.

I study the NYA and exchange volume to gauge the strength of the trend for equities.

Interesting observations:

The May highs (purple arrow) in the NYA were breached on diminishing volume which implies a false breakout. While false breakouts can persist for some time, they eventually are reversed in the direction of the prevailing trend (down).

Also, the new June highs (blue arrow) continue to be probed as on decreasing energy – volume. This suggests that the upside force is waning on what is already considered a false breakout.

The above observations suggest a rising wedge formation since March 09. A failed rising wedge suggests a retest of the Nov 2008 at a minimum.

CIGA Eric

(Click chart to enlarge)

clip_image001

Dear Eric,

The most likely scenario is on the time line Armstrong has offered to us – we experience a degree of the waterfall which is offset by a panic driven Central Bank and Treasury reaction pressing even harder on the accelerator of QE.

This is followed by buying of equities driven by the desire to own the not-dollar similar to the equity market driven not-Weimar mark.

All of this will have the algorithm goosed, driving markets into conditions without precedent.

Armstrong’s 4000 Dow might not be reached. The best play is long gold. The equity side is iffy as so many variables are at play.

All the best,
Jim

Posted at 6:27 PM (CST) by & filed under In The News.

Dear CIGAs,

I made this wager when Gold was at $248, and all I got was a Forbes article because they were looking for some dumb bell then that liked gold in order to make fun of him/her. Click here to view the Forbes article… That’s a nice way to get a career article in Forbes.

Robertson is right, so we are right, as the rates he looks for come compliments of a currency event that delivers hyperinflation. He just has to be sure the other side or sides of his OTC derivative puts up margin on a daily basis or he could be 100% right and not get paid one penny.

Please don’t send 10,000 emails and faxes asking "if the interest rate goes up will that not make for a strong dollar and weak gold" because it has been answered almost every day for the past several years. No it will not because in the midst of lousy business a currency event creates hyperinflation thereby producing the rate of interest over the top.

Julian Robertson Bets the Farm on Inflation
June 04,

Simply put, Julian Robertson is the definition of a hedge fund legend. And, his success is noted by the fortune he has amassed as he now graces the Forbes’ billionaire list. He has pioneered a successful investment methodology, he has generated outstanding returns at his famous hedge fund Tiger Management, and his influence has sprouted some of the most successful modern day hedge funds in the form of the ‘Tiger Cubs.’ And, most importantly, he predicted the financial crisis two and a half years ago in an interview with Value Investor Insight. When he talks, you listen.

For those unfamiliar with Robertson, we’d highly recommend checking out the profile/biography we just wrote on him. In that piece, we have outlined exactly why you should follow him (and the Tiger Cubs for that matter too). As we detailed in his profile, Robertson has a unique investment methodology. He takes a macro approach, finds a smart idea, researches it exhaustively, and places a big bet. And, when he feels he is more than correct, he will ‘bet the farm.’ And, it looks like we have identified Robertson’s next play where he has and will continue to ‘bet the farm.’

Julian’s Big Bet

While this is not a new position for Robertson, his constant confidence behind the play has inspired us to look at it more closely. Today, we are going to highlight Julian Robertson’s steepener swap play. In layman’s terms, he is betting on inflation. Taken from eFinancialNews, "Steepeners are a type of interest rate swap, where one party agrees to pay the other a fixed rate in exchange for a floating rate, which is derived from the difference between long and short term rates. Many of these products also use high leverage, where the difference between the two rates is multiplied by up to 50 times to produce a higher return."

He thinks rates could hit 7% easily and could go as high as 18%. We agree with him on this play and we first published our very basic rationale behind shorting US Treasuries back in October of last year. The main point we’re focused on is the wager that inflation is in our future. If such an outcome came to fruition, yields on long-term Treasuries would rise. When the yields increase, bond prices will drop, thus benefiting the short position. While the vehicles noted in this article are all slightly different in construction and purpose, they all broadly wager on the same outcome: inflation. Julian’s talked about this play in numerous forms, and we actually first heard about his ‘curve steepener’ play in January 2008 in Forbes. That piece highlighted how Robertson was "long the price of two-year Treasuries and short the price of the ten-year Treasury – betting that the difference, or curve, in the yield between the two will increase." Such a play is negative on the US economy and Robertson executed it because he felt the Federal Reserve would continue to flood the economy with money. And, he has been right.

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Jim Sinclair’s Commentary

Vanity Fair’s article calls it a Beach Bummer.

I am sure we all feel very sorry for the OTC derivative mavens that have been thrown onto hard times. Now they will have to both winter and summer in Greenwich CT.

BEACH BUMMER
The Hamptons Stress Test
As summer begins, what better way to measure Wall Street’s health than a real-estate tour of the Hamptons? For every mansion on the sales or rental market, there’s a story—sometimes involving Bernie Madoff—and brokers are shell-shocked. The author surveys the deals, no-deals, lawsuits, divorces, and teardowns that characterize this strange, dark season.
By MICHAEL SHNAYERSONJuly 2009

clip_image001

It was the deal of the season—the deal, that is, that epitomized this dark, down, fraud-ridden year—in the once extravagant, now somber Hamptons.

John Veronis, a founding partner of Veronis Suhler Stevenson, the media-based private-equity firm that bears his name, thought he had a buyer last summer for his 10,000-square-foot oceanfront home, on Meadow Lane in Southampton’s prized estate section. Just how much he and his wife, Lauren, had been motivated to sell by the spec house going up beside them is unclear, since the Veronises declined to speak to Vanity Fair.

More…

Jim Sinclair’s Commentary

The new inflation alarm at the vigilant New York Federal Reserve Bank:

WV FIRE ALARM

Jim Sinclair’s Commentary

Stand firm and stay the course.

Yellen speaks of substantial shocks to come. If you assume that the algorithms were triggered and went wild today based on the green shoot demand for the dollar early on, what do you think SUBSTANTIAL SHOCKS will do to the algorithms?

Stand firm and stay the course.

Yellen Says Fed Must Brace for ‘Substantial Shocks’
By Vivien Lou Chen and Scott Lanman

June 5 (Bloomberg) — Federal Reserve Bank of San Francisco President Janet Yellen said that policy makers need to be prepared for “substantial shocks” and that rising Treasury yields may be a “disconcerting” signal of inflation fears.

“Recent experience raises the possibility that the Great Moderation is behind us, so we must be prepared for substantial shocks,” Yellen said today during a panel discussion hosted by the Fed Board of Governors in Washington. “Great Moderation” is a term used to describe the comparative economic stability seen in the U.S. and other major industrial countries, except Japan, since the mid-1980s.

Yellen’s comments on yields go beyond remarks made two days ago by Fed Chairman Ben S. Bernanke, who said in congressional testimony that the increases may reflect rising optimism about the economy and concerns about large federal deficits. Policy makers next meet June 23-24 in Washington and may consider whether to increase their planned purchases of $1.45 trillion of housing-related debt and $300 billion of long-term Treasuries.

Responding to audience questions, Yellen said that if she “had to write down a number” for the ideal long-term inflation goal, it would be 2 percent. That number is the preference of most Fed policy makers, she said, adding she would like to see more formal evaluation and research on the issue. She said she previously favored a 1.5 percent inflation rate.

“It’s a subject in which I have an open mind,” Yellen said.

Treasuries Tumbled

Treasuries tumbled today, driving two-year yields to an eight-month high, as traders began speculating the U.S. central bank will raise interest rates later this year.

More…

Jim Sinclair’s Commentary

This article focuses on the reality of ETF gold and silver with no bone to pick. That makes it required reading for all of us involved in the metals markets. Further, it is published by a Financial Times sponsored entity, which is another positive.

Will a ‘Silver Bullet’ Finally Kill the Metal Manipulators?
June 04,

In my previous commentary, “Silver market fundamentals DISTORTED by bullion-ETFs", I pointed out how (so-called) “bullion-ETFs" were (with rare exceptions) merely a tool of the manipulators – with two primary purposes.

First of all, bullion-ETFs soak-up billions of investor-dollars each year, which would otherwise be invested in real bullion, or in the shares of precious metals miners. Naturally, this has helped to depress the price of silver, andseverely depress the price of silver miners – since almost all of the diverted investor-dollars were diverted from the miners, and not bullion, itself. I also showed how these fraudulent investment vehicles have been used to artificially inflate the supposed inventory-levels of silver stockpiles.

Specifically, at a time when actual silver inventories are at their lowest level in centuries, the (supposed) amount of “bullion” these funds claim to hold hassinglehandedly resulted in “official” inventory levels tripling in just three years – after plunging by 90%.

Today’s market price is based upon these phony “inventories” despite the fact that the bullion-banks who claim to hold all this silver are neversubjected to audits, to determine that they are not only holding enough silver to cover their custodial agreements with the “bullion-ETFs" – but are alsoholding sufficient silver to cover the MUCH larger “short” positions of these Manipulators (see “Silver Manipulation the worst in history – Ted Butler”).

Unless and until there is such a full and complete audit, the only rational assumption for investors is this supposed “tripling”of inventories is totally illusory, which also means that the “bullion” that is claimed to be held by these bullion-ETFs is also illusory.

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Jim Sinclair’s Commentary

The question is timing.

Yes, it is possible for equities to perform like that in currency event driven hyperinflation.

What a delightful event to see the illegal (not legal – for them we have respect) goons ground into their own dirt, filth and fowl existences.

What do you think such an event would mean to gold equities as they follow the gold price, and get no opposition?

Jim Rogers On CNBC- I Have No Shorts
June 5, 2009

For the majority of his career, Jim Rogers has had both long and short positions. As of this interview, this is one of the few times Jim Rogers does not have a short position. Among the reasons for Jim not having any shorts is a possible currency crisis and thus should avoid shorting the market. The last time Jim had no shorts was the market crash of 1987. Among other things Jim Rogers continues to be “wildly” bullish on China, “wildly” bullish on commodities. Specifically, Jim likes Silver over Gold, Natural Gas and Cotton.

“I’m afraid they’re printing so much money that stocks could go to 20,000 or 30,000″ -Jim Rogers

More…

 

- May Jobs Loss Was About 538,000 Net of Biases versus 345,000 Official Decline
- Birth-Death Model Upside Bias Increased by 27%
- Annual Payroll Decline Deepened to 4.0% / SGS-Alternate Unemployment at 20.5%

From the following subscription service you should subscribe to:

http://www.shadowstats.com

Jim Sinclair’s Commentary

Extremely well said.

No country has ever abolished poverty by printing paper
by Egon von Greyerz
June 4, 2009

We have consistently warned investors that the USA and many other countries including the UK will have a hyperinflationary depression in coming years.  In this Newsletter we discuss why hyperinflation will happen. We also look at why government debt will grow exponentially in the next few years and discuss who is going to repay the additional $30-50 trillion that the world is likely to print since this crisis started?

Hyperinflationary Scenario Confirmed

We are primarily discussing the USA in this Newsletter, but most of the discussion also applies to the UK and many more countries.

Our three most important indicators are now confirming that the hyperinflationary avalanche is set in motion. The three indicators are: US Dollar US, Treasury Bonds,  and Gold.  In our January 5, 2009 Newsletter we stated “the big surprise in the coming year will be long rates going up and bond markets falling rapidly”. We also said:  “We expect the dollar fall to accelerate during  2009 against most currencies”. And finally we said back in January that gold is our favourite investment for 2009. So it should be no surprise to our readers that the US Treasury 30 year bond is falling rapidly (interest rates going up),  that the US dollar has resumed its down trend and that gold is on its way to new highs.

The three indicators – US Dollar,T Bonds,  and gold are all variations on a theme. The theme is clear, namely that the USA is on its way to bankruptcy and that the rest of the world is no longer prepared to finance pieces of paper that have no value and can only be repaid by printing more of the same worthless paper. As George Bernard Shaw said:

“YOU HAVE TO CHOOSE BETWEEN TRUSTING THE NATURAL STABILITY OF GOLD AND THE NATURAL STABILITY AND HONESTY OF THE MEMBERS OF THE GOVERNMENT. AND WITH DUE RESPECT FOR THESE GENTLEMEN, I ADVISE YOU AS LONG AS THE CAPITALIST SYSTEM LASTS, TO VOTE FOR GOLD”

We agree with Shaw – How can you trust a government that first creates the biggest financial bubble in history and then, as proof of their total idiocy, attempts to solve the problem by massively increasing the size of the bubble!

More…

 

Jim Sinclair’s Commentary

Here is today’s bullish news on the dollar so you know it is a short squeeze in La La Land.

U.S. employers cut 345,000 jobs; jobless rate jumped to 9.4 percent

WASHINGTON – With companies in no mood to hire, the unemployment rate jumped to 9.4 percent in May, the highest in more than 25 years. But the pace of layoffs eased, with employers cutting 345,000 jobs, the fewest since September.

The much smaller-than-expected reduction in payroll jobs, reported by the Labor Department on Friday, adds to evidence that the recession is loosening its hold on the country. It marked the fourth straight month that the pace of layoffs slowed.

Still, the increase in the nation’s unemployment rate from 8.9 percent in April underscores the difficulties that America’s 14.5 million unemployed are having in finding new jobs. Economists had expected the rate to hit 9.2 percent last month.

If laid-off workers who have given up looking for new jobs or have settled for part-time work are included, the unemployment rate would have been 16.4 percent in May, the highest on records dating to 1994.

Even with layoffs slowing, companies will be reluctant to hire until they feel certain that economic conditions are improving and that any recovery will last.

More…

Jim Sinclair’s Commentary

Another prime example of why anyone who fears IMF gold sales are also terrified of things going bump in the night.

REFILE-UPDATE 1-China ready to buy up to $50 bn IMF bonds-Lipsky
Fri Jun 5, 2009 6:45am EDT
(Refiles to correct title of IMF’s Lipsky in first paragraph)
(Adds background, quotes)

ST PETERSBURG, Russia, June 5 (Reuters) – China will invest up to $50 billion in new International Monetary Fund bonds, the IMF’s first deputy managing director John Lipsky told Reuters financial television on Friday.

"The Chinese authorities have indicated that … (they) would be interested in investing up to $50 billion dollars in these bonds when they are ready and we hope that other countries will follow suit," Lipsky said on the sidelines of the St Petersburg Economic Forum.

Russia has already said it is interested in buying up to $10 billion of the bonds, which will form part of the extra $500 billion in capital the IMF is seeking to raise to help it support countries through the worst global economic slowdown since the great depression [ID:nL5330603].

China is the world’s biggest holder of gold and forex reserves, followed by Japan and Russia.

Lipsky said proposals for the bond issuance will soon be submitted to the IMF’s executive board, which should also receive the proposals for the issue of new Special Drawing Rights (SDRs) next month.

More…

 

Jim Sinclair’s Commentary

Who out there is so naive as to think that these banks actually made all those billions trading in the first quarter?

That was the end of the mark to market rule followed by upward revaluation of the toxic asset portfolios booked as trading profits.

Destroyers and Paper Shufflers are all that is out there.

The street knows it, financial TV knows it, the dancing clown knows it and they all love it. You see how foul, amoral and soul-less these demons are.

They are so bad they are not even welcomed by King Ravana in Lanka.

Bank Profits From Accounting Rules Masking Looming Loan Losses
6-05-09
By Yalman Onaran

June 5 (Bloomberg) — Big banks in the U.S. say they’re on the mend. The five largest were profitable in the first quarter, rebounding from record losses for the industry in the fourth quarter. Share prices have jumped, with the KBW Bank Index doubling since March 6.

Treasury Secretary Timothy Geithner, after “stress testing” 19 banks on their ability to withstand a worsening economy, declared in early May that Americans can be confident in the banks’ stability and resilience. Wells Fargo & Co. and Morgan Stanley were among banks raising $43 billion in new capital since then through share sales.

“With our capital and assets, stressed as they have been, we can go back to focusing all our attention on managing our business and restoring value,” Citigroup Inc. Chief Executive Officer Vikram Pandit said after Geithner’s examinations were completed.

The revival may be short-lived. Analysts who have examined the quarterly profits and government tests say that accounting rule changes and rosy assumptions are making the institutions look healthier than they are.

The government probably wants to win time for the banks, keeping them alive as they struggle to earn their way out of the mess, says economist Joseph Stiglitz of Columbia University in New York. The danger is that weak banks will remain reluctant to lend, hobbling President Barack Obama’s efforts to pull the economy out of recession.

More…

 

Jim Sinclair’s Commentary

And now a few words by the former Chairman uttered before the sins and greed of La La Land got to him!

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. … This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process… It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard."

–Alan Greenspan in a 1967 speech

 

Jim Sinclair’s Commentary

All of these initiatives and discussions have but one agenda, and that is the death of the US dollar.

Japan’s shadow finance minister wants single Asian currency

The man who hopes to be Japan’s next finance minister envisions an Asia united by a single currency, saying the dollar may no longer reign supreme in future.

The opposition’s "shadow finance minister" Masaharu Nakagawa also says he hopes to reshape the world’s number two economy into a kinder, gentler place if his Democratic Party of Japan (DPJ) wins elections this year.

"You can’t invigorate society only through… the law of the jungle where the strong become stronger," he told AFP. "The same player would always win if there were no handicaps in golf."

Japan’s conservative Prime Minister Taro Aso must call elections by September, when the DPJ hopes to topple his Liberal Democratic Party, which has been in power for almost all of the past half century.

In an interview with AFP, Nakagawa outlined some of the changes he would like to make if he becomes finance minister in Asia’s largest economy, which is now in the throes of its worst post-World War II recession.

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Jim Sinclair’s Commentary

According to Fox News.

All pronouncements from upon high have high consequences:

Obama Overture to Hamas Suggests Inevitability of Terror Group’s Dominance Among Palestinians

In an apparent policy shift, President Obama on Thursday invited Hamas — a designated terror organization — to "play a role" in the future of the Palestinian people.

During his speech to the Muslim world in Cairo on Thursday, the U.S. president bluntly recognized the group, which has called for the destruction of Israel, in a two-sentence passage that was part of a broader discussion about the terms for peace between the Israelis and the Palestinians.

"Hamas does have support among some Palestinians, but they also have to recognize they have responsibilities. To play a role in fulfilling Palestinian aspirations, to unify the Palestinian people, Hamas must put an end to violence, recognize past agreements, recognize Israel’s right to exist," Obama said.

The president then called on Israel to end settlement construction and for both sides to embrace a two-state solution. He reiterated that the U.S. bond with Israel is "unbreakable."

Some observers said they were struck by the firm tone Obama took with both sides in addressing the generations-old conflict and particularly with his recognition of Hamas, which may signal to the group that it is seen as an inevitable part of the Palestinian future.

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Jim Sinclair’s Commentary

It is high stakes poker that our leaders play.

It should be quite apparent now what "Israel makes a significant miscalculation," means.

Obama shifts tone toward Islamic parties

President Obama hinted Thursday that the United States would for the first time accept the results of Middle East elections won by Islamist parties.

In contrast to the Bush administration, which boycotted groups such as Hamas and Hezbollah even after they performed well in elections, Mr. Obama said, "America respects the right of all peaceful and law-abiding voices to be heard around the world, even if we disagree with them. And we will welcome all elected, peaceful governments — provided they govern with respect for all their people."

Those words carry particular significance because on June 7 Lebanon is expected to hold an election where Hezbollah, an Iran-backed group, could win a plurality of votes.

It was also a message to the Egyptian Muslim Brotherhood, whose members running as independents won 88 seats — 20 percent of the Egyptian national assembly — in 2005 despite widespread cheating on behalf of the government.

Several members of the group were in the audience at Cairo University as the president spoke. Egypt holds new parliamentary elections next year.

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Jim Sinclair’s Commentary

First, China/Brazil and now China/Russia. The dollar rally is going to run into real problems.

The set up is perfect: The 2nd week of June coming up with a target for the big lift off in the 3rd.

$1650 is a minimum for this phase. Alf thinks an overrun could be double that.

Good luck to the Goons. Their window of opportunity, if the Goons have one, is in the next 2 weeks ONLY.

Russia, China should dump dollar in trade – Medvedev
Fri Jun 5, 2009 3:07pm IST

MOSCOW (Reuters) – Russia and China should consider switching to domestic currencies in bilateral trade without going to the dollar, Russia’s president Dmitry Medvedev said in an interview with Kommersant daily published on Friday.

China has already entered similar agreements with Brazil and Belarus. The deal involves a currency swap agreement between the two countries. Trade turnover between Russia and China reached about $50 billion in 2008 and is set to increase.

"I think that we can think about such positions, for example the rouble against yuan," Medvedev was quoted by Kommersant as saying. Russia’s own attempt to switch to the rouble in bilateral trade with Belarus has so far not been successful.

Leaders of Brazil, Russia, India and China, known by their BRIC acronym, are meeting in the Russian city of Yekaterinburg on June 16 to discuss the role of the dollar in the global financial system among other issues.

Medvedev said bilateral currency deals between trade partners ease impact of the economic crisis in an environment when many countries have difficulties tapping international capital markets.

More…

Posted at 2:43 PM (CST) by & filed under Jim's Mailbox.

Dear CIGAs,

In case you are interested in how SPIN is SPUN and a crowded short USD corner is run into cover…

Jim,

Jobless rate hits 9.4 percent in May; layoffs slow
Jobless rate jumps to 9.4 percent in May, even as layoffs slow to 345,000
–Jeannine Aversa, AP Economics Writer

Click here to read the article…

"But the pace of layoffs eased, with employers cutting 345,000 jobs, the fewest since September."

The equity traders jumped all over this tidbit. Did I hear someone scream "Green shoot?" Listen, same data (crap), different month. The birth/death model continues to distort the payroll numbers by showing aggressive job creation from non-traditional job sources. This extend of this distortion is revealed in the following graph.

clip_image002

Over 6000 jobs have been lost since 2009.01. Yet, despite this job loss from tradition employers, the birth/death model suggests that 1341 non-traditional jobs have been created over the same period. This is 3 times the average birth/death model contribution since 2004. Call me skeptical, but the current run rate of 1341 seems not only distortional but a tad coincidental.

For further review of how the birth/death model creates (but rarely destroys jobs) see

http://www.bls.gov/web/cesbd.htm

Regards,
CIGA Eric

 

Jim Sinclair’s Commentary

Don’t let the goons get you down. Gold is going to $1650 before moving on to Alf’s numbers.

The US dollar will not survive the winter intact.

"In life there are always undesirable things. Perhaps we can feel better about ourselves if we realize just how good we have it.

I hope this message will bring fresh new ways of thinking to everyone and that everyone can appreciate and be thankful for each beautiful day that follows. Faith is the continual demonstration of the Strength of Life."

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Posted at 1:54 PM (CST) by & filed under General Editorial.

Dear CIGAs,

The investment world has always been made up of three categories:

1. Builders of enterprises.
2. Destroyers of enterprises and all they touch.
3. Shufflers of paper.

From 1945 to 1985 there were more builders than destroyers with the same number of paper shufflers

Today the population is primarily if not almost totally made up of:

1. Destroyers.
2. Paper shufflers who are also destroyers (OTC derivative manufacturers and distributors).

Who out there is really dedicated to building an enterprise? The answer is very few, and when they are they have to beat their way past the Destroyers and Paper Shufflers.

For gold shares the paper shufflers and destroyers work via a mechanism called a PIPE. When a resource company hears the word PIPE they should not walk away, they should run away as fast as they can.

An important characteristic about a PIPE is that it provides money in tranches only. Generally the tranches are the total required divided by the time to complete the project being financed.

Pipes work this way. The Hedge fund agrees with the company to provide lets say $25,000,000 over one or two years. Please note that the financing entity has the right to walk away at any time. The financing entity insists on getting shares that are immediately saleable.

Upon agreement the financing entity initiates a short position because the price of the shares delivered will be the price of the shares as it is trading on the day of the company’s request for money, less 15%. They generally are short more than the monthly delivery tranche. This device specializes in raping small caps.

A PIPE arrangement via its mechanism and the financier’s short position guarantees the short (financing entity) a profit of 15% or more if you can batter the price down, which of course the financing entity does.

To accept a PIPE financing is to offer up your shareholders as sacrificial lambs which many companies find irresistible in hard times. It puts the company into the hands of Jabba the Hut, PIPE financiers who will pull the money plug at some critical moment leaving the dumb company to fold.

In knowledge that they have tanked the company, the Jabba the Hut PIPE financiers of course pummels the share values into oblivion without risk.

This is how a company goes down a PIPE into a Rat Hole.

A PIPE financing is the ultimate set up that hunts, as a top predictor, for the weak and stupid small cap anything. Investors and companies BEWARE!

You should warn your investment management not to participate in this type of financing, or at least understand what has happened so you can get out of Dodge before the PIPE financing entity kills the company.

Posted at 11:14 AM (CST) by & filed under General Editorial.

Dear CIGAs,

To answer the multiple calls this morning please re-read this posting from last evening:

"The commercial interests are still not ready for this. For the commercial interest to either miss this move or be buried by it is a reach. It could happen, but is unlikely to happen without a fight. We will be watching closely to call it for you.

In truth the best possible action would be for gold to decline from some level into the third week of this month and then launch forward. However, to those utilizing gold to insure their standard of living and life it makes no difference at all. The reason for that is gold is going to $1650 and then on to Alf’s numbers."

1. The commercials will do everything possible when any opportunity arises to bang gold in order to reposition for the most dynamic move in gold since $248 on the upside.

2. The dollar rally on the jobs report is a weak handed short being bamboozled by a massaged number which if closely examined and understood in terms of its volatility is ABSOLUTELY not a long term trend maker.

Nothing whatsoever has changed in any way except the pituitary output and serotonin level of the gambleholics many of you have become.

Those that call me more than five times in one day even if they feel positively motivated are actually trying to test my resolve.

I posted late last night because I actually have many other things than JSMineset to do. I slept late this morning because I wanted some rest. The gold market got COMEXED and many of you, truth be known, panicked and called not to check on me but rather to check on your position when there is nothing whatsoever to be concerned about outside of your own emotions.

I plan to spend this weekend with my daughter, her dogs and a 14 foot boat on a quiet lake. I suggest you all make similar efforts to relax and enjoy life because there is nothing to be concerned about in Gold or anything Gold related.

Respectfully yours,
Jim

Posted at 11:15 PM (CST) by & filed under In The News.

Dear CIGAs,

A major criteria for the most significant move in gold, called a Golden Pillar, is the demise of the long bond. This is why you must understand that hyperinflation is a product of a currency event that occurs in the midst of the worst of business conditions. The event is locked in and loaded by quantitative easing.

The first window in time for this event is the early 4th quarter of 2009. When it starts it runs quite quickly. Within 12 to 18 month from the initial rumblings hyperinflation consumes the currency.

The first rumblings are here and now below .8200 on the USDX. Below .7200 and you will be looking back at $1224 as gold runs towards $1650.

This is definitely on its way.

The commercial interests are still not ready for this. For the commercial interest to either miss this move or be buried by it is a reach. It could happen, but is unlikely to happen without a fight. We will be watching closely to call it for you.

In truth the best possible action would be for gold to decline from some level into the third week of this month and then launch forward. However, to those utilizing gold to insure their standard of living and life it makes no difference at all. The reason for that is gold is going to $1650 and then on to Alf’s numbers.

The goons are now making fools out of themselves in gold equities. The gold share hit yesterday was GRANDSTANDING in an attempt to shake out stock for a cover.It is apparent to me that the shorts are getting very itchy to cover. That is what dirty tricks are all and only about.

I really can’t understand why anyone wants to trade here or try to market time here. It is so obvious to the trained eye that the train is pulling out of the station for biggest move so far in gold. Stop trying to time everything to the minute. You want a full position – do it and do it now.

U.S. mortgage rates surge to highest level since December
Thu Jun 4, 2009 4:04pm EDT
By Julie Haviv

NEW YORK (Reuters) – U.S. mortgage rates surged to their highest in almost six months in the latest week, despite government efforts to keep rates at low levels that will help the hard-hit housing market begin to recover.

Interest rates on U.S. 30-year fixed-rate mortgages soared to 5.29 percent for the week ending June 4, up from 4.91 percent in the previous week, according to a survey released on Thursday by home funding company Freddie Mac.

The higher rates reflected an increase in yields on U.S. government bonds, which act as a benchmark for the mortgage market.

"Any additional rate increases will significantly hurt the home purchase and refinance markets, which will really hurt the economic recovery," said Alan Rosenbaum, president of Guardhill Financial, a New York City-based mortgage banker and brokerage company.

The last time rates exceeded current levels was the week ended December 11, 2008, when the 30-year rate was at 5.47 percent. The latest week marked the biggest jump since a 0.42 percentage point rise in the week ended October 30, 2008, when rates hit 6.46 percent.

More…

 

Jim Sinclair’s Commentary

Another bank headed for trouble?

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Jim Sinclair’s Commentary

Green shoot or only fertilizer?

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Jim Sinclair’s Commentary

In the 4th quarter of this year China will in be competition with the entire world to consume all the production for the next few years and more.

The Chinese are smart – they will not be waiting for the 4th quarter.

By the 4th quarter of 2009 the full sized lady will have sung. You can count on that.

China to consume 40% of global gold production
2009-06-04 16:00:00
By Karim Rahemtulla

The economic fundamentals for gold are favorable. Production of gold from South Africa, United States, Australia and Canada, has dwindled every year over this past decade.

These countries, which combined to produce two thirds of the global gold through the 1980’s, now produce less than half of the gold mined today. In 2006, South Africa, the world’s largest producer of gold, hit its lowest production level of gold in 84 years.

Meanwhile, physical demand for gold has been going through the roof. Much of the recent explosion in demand can be attributed to retail investors in India, China and other parts of Asia where the appetite for gold as investments is soaring.

India, for example, is experiencing an 80% growth in gold investment following a loosening of trade and market restrictions.

And let’s not forget China.

China, which has the fastest-growing economy in modern history, is undergoing major changes in the way they handle gold.

China, home to 1.3 billion people, private gold ownership has been outlawed for generations. But in 2002, the Shanghai Gold Exchange opened and started free trade in gold for the first time in the nation’s history.

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Jim Sinclair’s Commentary

A strange thing happened on the way to the State of the Union. Expenses went sky high and revenues dropped into a black hole.

It looks like the Formula was all people had to know in 2006, but then who wants the truth when there is such large rewards for liars, goons and all around SOBs.

Benefit spending soars to new high

By Dennis Cauchon, USA TODAY

The recession is driving the safety net of government benefits to a historic high, as one of every six dollars of Americans’ income is now coming in the form of a federal or state check or voucher.

Benefits, such as Social Security, food stamps, unemployment insurance and health care, accounted for 16.2% of personal income in the first quarter of 2009, the Bureau of Economic Analysis reports. That’s the highest percentage since the government began compiling records in 1929.

In all, government spending on benefits will top $2 trillion in 2009 — an average of $17,000 provided to each U.S. household, federal data show. Benefits rose at a 19% annual rate in the first quarter compared to the last three months of 2008.

The recession caused about half of the increase, according to the report. Unemployment insurance nearly tripled in the past year. The other half is the result of policies enacted during President George W. Bush’s first term.

Following the 2001 recession — when costs normally decline — social spending soared to pay for the Medicare drug benefit, expanded health care for children and greater use of food stamps.

The safety net is working, advocates say.

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Jim Sinclair’s Commentary

It is time for the kids to stand aside. They need beer money while the older applicants need to put food on the family table. Yes, it is that bad.

This is what the OTC derivative manufacturers and distributors have contributed to society.

Older workers muscling out teens for summer jobs
By Tony Pugh | McClatchy Newspapers

WASHINGTON — After three years of braving Alaska’s minus 50-degree winter temperatures and round-the-clock summer sunshine, architect Victoria Schmitz is taking a break. She’s going to summer camp for two months outside Boulder, Colo.

Schmitz, 34, won’t spend her time horseback riding, hiking or canoeing in the scenic foothills of the Rocky Mountains, however. She’ll be working from 6 a.m. to 7:30 p.m. serving meals to adolescent boys as an assistant cook in the camp kitchen.

Her summer foray into food service isn’t by choice. It was the only job she could find, as so many companies have halted or postponed construction projects because of the recession.

"I’m the lunch lady. Hoagies and grinders and navy beans," Schmitz said, in a sly reference to the old Adam Sandler-Chris Farley skit from "Saturday Night Live."

Across the country, the job shortage has created a buyers’ market for traditional summer employers who can now pick from an abundance of laid-off and older workers, such as Schmitz, whose experience, reliability and hunger make them more attractive as short-term seasonal hires.

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Jim Sinclair’s Commentary

Regardless of the chatter of the talking heads, this overvalued dollar is going to seek .72, .62 and .52. This winter is going to be extremely difficult for the US dollar. I am sure that before December the dollar will be pummelled

U.S. dollar ‘seriously overvalued’: study
Wed Jun 3, 2009 8:07pm EDT

WASHINGTON (Reuters) – The U.S. dollar is "seriously overvalued," mostly against the Chinese renminbi and some other Asian currencies, according to a new study published on Wednesday.

The Peterson Institute for International Economics, a Washington-based think tank, said the majority of the 29 currencies it studied need to appreciate against the dollar, with a large rise especially needed by the Chinese currency.

"The principal counterpart to the overvalued dollar is the undervaluation of the Chinese renminbi, which would have needed to appreciate about 21 percent on a weighted average basis and about 40 percent against the dollar to achieve equilibrium," said the study by economists William Cline and John Williamson.

Investor flight to the dollar safe haven since last year has pushed the U.S. currency up by about 10 percent, which on top of an estimated overvaluation of about 7 percent a year ago made for an overvaluation of about 17 percent by March this year, the study said.

But the dollar slid to its low in 2009 on June 1 against the euro and a basket of currencies amid optimism the prospect of a global economic recovery boosted riskier assets.

More…

Jim Sinclair’s Commentary

The biggest gamble Washington has taken is the fast (maybe) GM and Chrysler bankruptcy. The auto downsized giants are counting on car sales at a no less than 9-10 million units rate after bankruptcy.

A failure for these sales to occur will be so public that no matter of SPIN will cancel the disappointment. You can count on the government buying of vehicles to be jammed into the first 6 to 8 weeks, but that will be it. All of the indices that have given the largest support to the green shoot BS are those whose foundations are subjective and interview based.

The USA will be right behind GB as per the following article;

The Bank of England’s medicine is not working
Posted By: Edmund Conway at Jun 2, 2009 at 16:33:57

Anyone who really believes the credit crisis is over; that the bull market is back and that we are effectively back to the races may be in for a shock. Yes, an unprecedented amount of monetary and fiscal medicine has been thrown at the economy. Yes, economic growth may have passed its nadir. But real signs of recovery? No, the medicine is not working yet. Starting with quantitative easing.

QE – the process in which the Bank of England effectively prints money and pumps it directly into the economy – was always going to be a tough one to pull off. The Japanese tried it in the 1990s and any evidence of success is hardly conclusive. And the earliest signs from the UK’s own experience are hardly any more encouraging.

Today the Bank of England released its mammoth monthly monetary and financial stats book and a dig beneath the numbers uncovers some rather alarming facts about the QE programme and its efficacy. The first is that the so-called leakage of the cash overseas (we first reported on this last month) is gathering pace.

Simply put, the way the Bank had intended to get the money into the economy is as follows: it would like to buy as many gilts (government bonds) as possible off UK pension funds and non-bank investors. With this cash then burning a hole in their pockets, not to mention bumping up banks’ deposit accounts, the investors should go out and spend it on equities and corporate debt. The credit crunch should then abate and, voila, you’ve got your economic recovery.

More…

Bernanke Speaks:

"Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth," Bernanke said in testimony to lawmakers today. "Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance."

So I guess he means we will have neither

The Chairman took my breath away when he said that the unemployed could use the time to bone up on their skills so that they would be able to take new jobs when they are offered. Mr. Chairman, please descend from your rarefied strata. Statements like that might make the unemployed go wild.

Following this an African American congress women asked the Chairman how he thought consumers would increase buying when they were unemployed. Instantly she was flushed as the financial TV station went to a commercial.

The Colbert Show should replace financial TV

Jim Sinclair’s Commentary

We are awaiting Pakistan’s announcement that the Surge has defeated the Taliban and that displacing more than 2,500,000 refuges was a successful operation.

U.S. experts: Pakistan on course to become Islamist state
Tuesday, Jun. 02, 2009
Jonathan S. Landay – McClatchy Newspapers

"It’s a disaster in the making on the scale of the Iranian revolution," said a U.S. intelligence official with long experience in Pakistan who requested anonymity because he wasn’t authorized to speak publicly.

WASHINGTON — A growing number of U.S. intelligence, defense and diplomatic officials have concluded that there’s little hope of preventing nuclear-armed Pakistan from disintegrating into fiefdoms controlled by Islamist warlords and terrorists, posing a greater threat to the U.S. than Afghanistan’s terrorist haven did before 9/11.

"It’s a disaster in the making on the scale of the Iranian revolution," said a U.S. intelligence official with long experience in Pakistan who requested anonymity because he wasn’t authorized to speak publicly.

Pakistan’s fragmentation into warlord-run fiefdoms that host al Qaida and other terrorist groups would have grave implications for the security of its nuclear arsenal; for the U.S.-led effort to pacify Afghanistan; and for the security of India, the nearby oil-rich Persian Gulf and Central Asia, the U.S. and its allies.

"Pakistan has 173 million people and 100 nuclear weapons, an army which is bigger than the American army, and the headquarters of al Qaida sitting in two-thirds of the country which the government does not control," said David Kilcullen, a retired Australian army officer, a former State Department adviser and a counterinsurgency consultant to the Obama administration.

"Pakistan isn’t Afghanistan, a backward, isolated, landlocked place that outsiders get interested in about once a century," agreed the U.S. intelligence official. "It’s a developed state . . . (with) a major Indian Ocean port and ties to the outside world, especially the (Persian) Gulf, that Afghanistan and the Taliban never had."

More…

Jim Sinclair’s Commentary

The rally in the US dollar yesterday is comical. The only real demand out there is in defense of the Brazilian currency wherein the Brazil Real is being bought because of Brazil / China ousting the dollar in trade in that pivotal place.

Gold would be perfect if it did not break out to above $1000 for a short few weeks. Then Alf, here we come.

Gross Says Diversify From Dollar as Deficits Surge (Update4) 
By Dakin Campbell

June 3 (Bloomberg) — Bill Gross, founder of Pacific Investment Management Co., advised holders of U.S. dollars to diversify before central banks and sovereign wealth funds ultimately do the same amid concern about surging deficits.

Treasury Secretary Timothy Geithner’s plan to bring the budget back into balance won’t be successful as consumers shrink spending and the U.S. growth rate slows, Gross said in a Bloomberg Radio interview today. The budget deficit will be narrowed to “roughly” 3 percent of GDP from a projected 12.9 percent this year, Geithner said June 1.

“I think he’ll fail at pulling a balanced rabbit out of a hat,” Gross said from Pimco’s headquarters in Newport Beach, California. “They are talking about — once the economy in the U.S. renormalizes — the move back toward balance or much less of a deficit. I suspect that will be hard to do.”

Higher savings rates and an increase in the cost to service the national debt will drag on the U.S. economy, likely meaning “trillion-dollar deficits are here to stay,” Gross wrote in his June investment outlook posted today on the firm’s Web site.

Gross, manager of the world’s biggest bond fund, said on May 21 the U.S. will “eventually” lose its AAA credit rating after Standard & Poor’s lowered its outlook on the U.K.’s AAA to “negative” from “stable” amid an escalating ratio of debt- to-gross domestic product. While U.S. marketable debt is at about 45 percent of GDP, annual deficits of 10 percent will push the amount to 100 percent within five years, a level that rating companies and markets view as a “point of no return,” he wrote.

More…

Posted at 8:00 AM (CST) by & filed under Guild Investment.

U.S. BOND MARKET FALL—EFFECTS WILL BE FELT WORLD WIDE

Last week, the U.S. bond market fell substantially and yields rose as investors finally began to see the obvious: Quantitative Easing (the purchase of U.S. Treasury bonds by the Federal Reserve) and its potential inflationary pressures are weakening the U.S. dollar.

As most economists will tell you, the U.S. economy is in a depression.  Statistically speaking, most depressions are deflationary and therefore accompanied by a fall in interest rates.  However, the bond market’s recent behavior provides evidence that the current depression is not deflationary.  On the contrary, inflationary pressures are building and interest rates are rising.  Bond investors, looking ahead and seeing a light, are realizing that it is the headlight of an oncoming train…and this oncoming train is the trillions of dollars of U.S. bonds which must be floated by the Federal Reserve in the next few years.  The consequences of this flotation will include a weakening of the dollar and an increase in interest rates.  Investors are finally awakening to this trend which we believe will continue for some time.

Certainly, the last two weeks have rewarded our long held global investment strategies.  In our view, this is not the end, but rather the beginning of the decline in the U.S. dollar…and the rise in many other investment areas.  Accordingly, we continue to believe that the wise investor will not hold U.S. dollars, but rather invest their portfolio in oil shares, gold shares, better-managed non U.S. currencies, and stocks in countries where corporate profits will grow rapidly, such as China, India, and Brazil and selected other countries.

For several years, our commentary has brought attention to the looming deficits and the questionable methods of financing them that have become so prevalent.  The current situation of the U.S. economy thus comes as no surprise to our readers. [Please see our archived commentaries at www.guildinvestment.com  for more details].  What may be a surprise to our readers is how long the U.S. dollar will decline, and how high many alternative areas of investment, including the areas mentioned above, will rise.

We do not mean to imply that there will be no price corrections.  In fact, investors should be aware that a correction in one or more of the areas we mentioned could take place at any time.  However, they must remember that these are just corrections in a long term uptrend.

We strongly recommend that you use these corrections as buying opportunities.  Do not let go of your strong positions just because profit takers or market manipulators temporarily slow down or reverse the trend.

THIS MAJOR TREND WILL LAST FOR A PROLONGED PERIOD

Use declines to add to your foreign currency and strong stock positions.  We expect something close to what was seen in the late 1970’s, when investors globally tried to diversify out of a depreciating U.S. dollar.  At that time, the U.S. dollar fell, while the prices of gold, commodities, and many stocks in growing companies rose.  Today, China, India, Japan, and other buyers of U.S. treasury bonds reiterated that they would continue to buy U.S. treasuries.  Those are kind words, but looking at the available cash of some of these countries, we see that they do have much cash to use on U.S. bonds.  So their words just may be meant to keep their existing positions from falling to rapidly.

GLOBAL STOCK MARKETS LOOK FORWARD—FOCUS ON CHINA AND INDIA

As we have expected, global markets are rising even though global economic growth continues to shrink.  Markets always look forward; the only question is how far forward do they look?

For example, every professional money manager knows that you buy cyclical stocks, like steel, oil, coal, and heavy manufacturing shares when earnings are low or nonexistent, and when orders and backlogs are collapsing.  They also know you must sell the same industries when business is booming, when profits are high and everyone thinks they will go on rising because “this time it’s different”.

Gold (COMEX)-One Year Chart

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Crude Oil (NYMEX)-One Year Chart

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As we pointed out several weeks ago, the North American, Chinese, and European stock markets are currently selling for about the same P/E ratio versus last 12 months earnings.  The difference is the forward earnings of the four regions.  We expect China’s corporate profits to grow at a rate in excess of 17% per annum for the next five years, and Indian corporate profits to grow at a rate in excess of 13% per annum.  We expect Brazil to grow corporate profits at about 10% per annum, while in Europe, Japan and the U.S. corporate profits may grow at a rate of about 5% per annum for the same time period.

Since stock market valuations are highly correlated with corporate profit growth, we expect Chinese, Indian, and Brazilian stock markets to greatly outperform the North American, European and Japanese stock markets over the next five years…especially when measuring the returns in U.S. dollars.

U.S. NATIONAL DEBT

The U.S. national debt is currently about $11 trillion, which is about $100,000 for every household and about $36,000 for every American resident.  We are paying about 4% interest on this debt, but rates will be rising and we will be paying much more as Quantitative Easing and an ugly U.S. balance sheet cause our creditors to demand much more interest on the money that they lend to us.  When interest rates get to 8%, as they soon will, the cost of servicing this debt will escalate even more rapidly.  Disconcertingly, none of this realism is found in the Congressional Budget Office’s estimates, where they expect the U.S. to enjoy continued low interest rates.

The Congressional Budget Office, which always estimates much too low (we assume due to political pressure), states that the budget deficit for this fiscal year is $1.8 trillion.  Looking ahead they estimate next year’s deficit to be about $1 trillion, and state that it will stay in the high ranges (above $0.5 trillion) for at least the next few years.  In our view, these numbers underestimate the severe deficits we will be facing.

UNFORTUNATELY, THE U.S. HAS NO CHOICE.  IT MUST CONTINUE TO PRINT MONEY AND DEBASE THE DOLLAR

China is positioning itself using a panoply of agreements that include allowing Chinese Yuan bond financing by Hong Kong banks, arranging trade related currency swap agreements with Brazil and six other countries, and working with countries and companies all over to world to lock up assets that it will need to run its production machine.  China’s purchases include oil, coal, iron ore, nickel, and zinc to name a few.  In short, China is buying assets worldwide –including an ever increasing share of the world’s gold supply — to stoke its economic machine in coming years.

China’s lust for gold is significant and deserves note.  The fact is that China has been buying much more gold than it is producing.  China is buying gold in the open market, willing to take gold off of the hands of the poorly managed IMF and central banks like Britain, who sold most of their gold at about $250 per ounce.  Britain, the IMF, and others who have been, or will be, gold sellers appear to us to be operating with an excess of pompous verbiage and a shortage of common sense.

Gold will be an instrumental part of any new monetary system that is created in the world to succeed the current Breton Woods system.  When the U.S. turns over power as the world’s reserve currency to China, it will be China’s large holdings of gold and large cash hoard which will make them a new monetary superpower.  When that transition takes place, the old cliché about the golden rule, “Whoever holds the gold makes the rules” will be remembered for its wisdom.

VENEZUELA

It has been some time since we discussed Hugo Chavez and the devastation his economic policies would cause.  President Chavez has not been satisfied with badly damaging the Venezuelan economy and causing Venezuela’s oil production to decline.  His latest activity is arresting top Venezuelan military officials as he seeks a tighter grip on the military.  As we have stated, he plans to become president for life, and his continued economic mismanagement and politics of class hatred will end up costing Venezuelans dearly for decades to come.

Next week we will discuss the U.S. financing of General Motors and the probability that the outcome will be much like the previous adventures in Britain, France and Italy when those governments attempted to take over and manage failed automobile manufacturers.

Thanks for listening.

Monty Guild and Tony Danaher
www.GuildInvestment.com

Posted at 3:10 AM (CST) by & filed under Uncategorized.

Jim,

National debt is at $545,668 per household and growing!

National debt at $545,668 per household
Published: May 30, 2009 at 2:51 PM

WASHINGTON, May 30 (UPI) — Federal debt last year amounted to a record $545,668 per U.S. household — a 12-percent spike in just one year, government sources said.

The increase burdens each household with an additional $55,000 in national debt for just 2008, USA Today reported Saturday.

The increase can be pinned on the explosion of federal borrowing during the recession and an aging population that is driving up the costs of Medicare and Social Security.

More…

No government can live with that burden without taking unprecedented action at one point.

Regards,
CIGA Christopher