Posted at 12:50 AM (CST) by & filed under In The News.

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up home-less on the continent their fathers conquered."
–Thomas Jefferson

Jim Sinclair’s Commentary

The following cartoon was sent to me by my former partner and respected friend, Yra Harris. It is from the 1934 Chicago Tribune. Sound familiar?

clip_image001

Posted at 5:46 PM (CST) by & filed under General Editorial.

Dear CIGAs,

Recently an article used what they perceived as a lack of key reports to be released by me as one of its main hatchets. These reports are generally third party reviews. What fact checking did not identify is that the compilation of the report in question had been contracted over two months prior to the publishing date of the article and was nearly complete.

One by one every point of the article in question will be addressed. The points shown within will be proven to be misinterpretations or simply wrong. The result will be the continuation of my now fifty years of participation in the international financial industry as a builder of successful businesses that are without fault.

You can download the report by clicking here…

Respectfully yours,
Jim

Posted at 2:40 PM (CST) by & filed under In The News.

Dear CIGAs,

There is NO practical method, NONE, that can drain the international liquidity being produced by Quantitative Easing. That is the key to what the future, incontrovertibly, holds for the US dollar, gold and you. There simply is no question whatsoever.

Gold is headed to Alf’s number on Armstrong’s schedule and will not be diverted by any force on the planet.

The monetary expansion you can’t drain will drain the life out of the US dollar. This alone guarantees hyperinflation, yet the Western sheeple just keep plodding towards the cliff of no return.

China fears bond crisis as it slams quantitative easing
China has given its clearest warning to date that emergency monetary stimulus by Western governments risks setting off worldwide inflation and undermining global bond markets.
By Ambrose Evans-Pritchard
Last Updated: 1:13PM BST 07 May 2009

"A policy mistake made by some major central bank may bring inflation risks to the whole world," said the People’s Central Bank in its quarterly report.

"As more and more economies are adopting unconventional monetary policies, such as quantitative easing (QE), major currencies’ devaluation risks may rise," it said. The bank fears a "big consolidation" in the bond markets, clearly anxious that interest yields will surge as western states try to exit their QE experiment.

Simon Derrick, currency chief at the Bank of New York Mellon, said the report is the latest sign that China is losing patience with the US and aims to diversify part its $1.95 trillion (£1.3 trillion) foreign reserves away from US Treasuries and other dollar securities.

"There is a significant shift taking place in China. They are concerned about the stability of the global financial system so they are not going to sell US bonds they already have. But they are still accumulating $40bn of fresh reserves each month, and they are going to be much more careful where they invest it," he said.

Hans Redeker, head of currencies at BNP Paribas, said China is switching into hard assets. "They want to buy production rights to raw materials and gain access to resources such as oil, water, and metals. They know they can’t keep buying bonds," he said

Premier Wen Jiabao left no doubt at the Communist Party summit in March that China is irked by Washington’s response to the credit crunch, suspecting that the US is engaging in a stealth default on its debt by driving down the dollar. "We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets. To speak truthfully, I do indeed have some worries," he said.

More…

 

Jim Sinclair’s Commentary

The bigger picture is not the brighter picture.

US unemployment hits 25-year high
Fri, 08 May 2009 14:27:24 GMT

A US government report says the US economy lost 539,000 jobs in April, catapulting the unemployment rate to 8.9 percent — its highest point in a generation.

The Labor Department’s report on Friday signaled that the relentless pace of job losses was starting to level off slightly.

Estimates had projected the April job losses to rise to 590,000 against March which witnessed hemorrhages of 699,000 jobs.

Some economists say that the better-than-expected data hints that the recession is bottoming out and economic activities are expected to gradually recover toward the end of the year, Reuters reported.

"It’s a confirmation that we’re in the early stages of a turn," the New York Times quoted Ethan Harris, co-head of United States economic research at Barclays Capital, as saying.

More…

Jim Sinclair’s Commentary

Who said we are becoming more transparent? Flog that idiot!

“Ladies and Gentlemen:

TOCOM  launched their Next Generation System on May 7th and with it stopped releasing the Open Interest by Member data required to report on the daily net position changes for the seven historically largest TOCOM paper gold and silver short manipulators, and STDJ.  To see the various categories of data that will be reported by the exchange from this day forward please go to the new TOCOM website (link below) and click on the Market Data link at the top left of the page:

http://www.tocom.or.jp/news/index.html

Jim Sinclair’s Commentary

Do you recall that in the recently posted Ron Paul/Bernanke exchange much fuss was made by the Chairman over the ongoing review of the Fed by the Inspector General? Now listen to her depth of knowledge concerning Fed activity.

Fed Inspector General Knows Roughly Nothing About The Fed
05/ 8/09 09:05 AM

The inspector general tasked with overseeing and auditing the Federal Reserve knows pretty much nothing about what the Fed is doing. That’s the conclusion that comes from watching the exchange Tuesday between Rep. Alan Grayson (D-Fla.) and inspector general Elizabeth A. Coleman.

Coleman could not tell Grayson what kind of losses the Fed has so far suffered on its $2 trillion portfolio, which has greatly expanded since September.

She appeared unaware that the Fed engages in trillions of dollars in off-balance-sheet exchanges.

She is not investigating the role of the Fed in allowing the collapse of Lehman Brothers.

She did not know where the Fed has invested its $2 trillion on the liability side of the balance sheet. "I do not know. We have not looked at that specific area at this particular point on," she said.

More…

Jim Sinclair’s Commentary

This speaks for itself.

The Big Lie: Stress Test Optimism Just Wall St. Propaganda, Former Bank Regulator Says
Posted May 08, 2009 12:12pm EDT by Aaron Task

Results of the stress test brought a collective sigh of relief from Washington D.C. to Wall Street Friday, and stocks were rallying again on a growing sense the financial crisis has past.

Don’t you believe it, says William Black, an Associate Professor of Economics and Law at the University of Missouri – Kansas City.

"It’s in the interest of the financial community to send this propaganda out," Black says. "It’s remarkable not that they do it but that it still works."

In other words, this isn’t the first time we’ve been told "the crisis is over" and that "banks are well capitalized" – and probably won’t be the last.

The professor and former financial regulator foresees another wave of foreclosures and future bank losses of more than $2.5 trillion vs. the government’s $599 billion estimate.

More…

Jim Sinclair’s Commentary

Does anyone know where we can get an application for the Federal Bailout of some of our CIGAs out there that have been reporting layoffs across the board? This is just so wrong!

Fannie Mae asks Treasury for aid

US mortgage finance firm Fannie Mae has asked the Treasury for another $19bn (£12.6bn), as it announced a loss for the first three months of 2009.

It is the second time that Fannie Mae has requested government aid in recent months. It received $15.2bn in March.

The Treasury has made available funds of $200bn each to Fannie Mae and fellow mortgage giant Freddie Mac.

Fannie Mae reported a loss of $23.2bn, but it was smaller than the $25.2bn loss it made in the previous quarter.

The firm said the loss was driven by credit-related expenses of $20.9bn.

It also took a $5.7bn loss on mortgage securities.

More…

Jim Sinclair’s Commentary

Cities raid cash from residents by increasing real estate taxes and fees as they go broke, further pushing the formula in high 6th gear.

State may raid cash from cities, county
By Kurtis Alexander
Posted: 05/08/2009 01:30:14 AM PDT

SANTA CRUZ — Call it a threat or a grim reality. Whatever it is, it’s not being welcomed at city halls across California.

The governor’s office suggested this week that if the May 19 budget-reform measures are rejected by voters, the state will have to borrow $2 billion from cities and counties.

The proposal, which comes as polls show little hope for the ballot measures, is being met with horror by local governments that face red ink of their own.

"Our budget gap is so big it’s beyond anything we could have imagined already," said Santa Cruz City Manager Dick Wilson. "If the state adds this additional burden, it’s overwhelming. … It’s appalling beyond words."

Under the state proposal, the city of Santa Cruz could be forced to hand over as much as $1.6 million next year, adding to an existing hole of $6.5 million. With a total budget of $75 million, the city is already having to make concessions — like giving up operation of two museums and a community center and asking employees to take pay cuts — which Wilson said would become more severe should the city lose more money.

More…

Jim Sinclair’s Commentary

Eliot Spitzer and his article have been hitting the Fed hard.

New York Federal Reserve’s Friedman Resigns Post Immediately
By Scott Lanman

May 7 (Bloomberg) — Stephen Friedman, chairman of the New York Federal Reserve Bank’s board of directors, resigned from his position effective immediately to avoid the appearance of a conflict of interest.

Friedman, a retired chairman and current member of Goldman Sachs Group Inc.’s board, had been granted a waiver to keep serving after Goldman Sachs became a bank holding company in September, a change that would have normally barred Friedman from serving as a director appointed to represent the public. Last month, he planned to depart at the end of the year.

“Although I have been in compliance with the rules, my public service-motivated continuation on the Reserve Bank Board is being mischaracterized as improper,” Friedman said in a letter to Fed officials, posted on the New York Fed’s Web site. “The Federal Reserve System has important work to do and does not need this distraction.”

Denis Hughes, the board’s deputy chair, will take over the chairman’s duties, the New York Fed said in a statement. Friedman led the search committee for the bank’s new president after Timothy Geithner’s departure to become Treasury Secretary. The New York Fed appointed William Dudley, a former Goldman economist, as president in January.

Thomas Baxter, general counsel of the New York Fed, said in the Fed’s statement that regarding Friedman’s purchases of Goldman shares in December and January, “it is my view that these purchases did not violate any Federal Reserve statute, rule or policy.”

The New York Fed posted the announcement on its Web site today.

More…

Jim Sinclair’s Commentary

Click the following links to view Part 1 and Part 2 of the video.

http://www.cnbc.com/id/15840232?play=1&video=1116537475

http://www.cnbc.com/id/15840232?play=1&video=1116546525

The New York Fed is the most powerful financial institution you’ve never heard of. Look who’s running it.
By Eliot Spitzer
Posted Wednesday, May 6, 2009, at 12:29 PM ET

The kerfuffle about current New York Federal Reserve Bank Chairman Stephen Friedman’s purchase of some Goldman stock while the Fed was involved in reviewing major decisions about Goldman’s future-well-covered by the Wall Street Journal here and here-raises a fundamental question about Wall Street’s corruption. Just as the millions in AIG bonuses obscured the much more significant issue of the $70 billion-plus in conduit payments authorized by the N.Y. Fed to AIG’s counterparties, the small issue of Friedman’s stock purchase raises very serious issues about the competence and composition of the Federal Reserve of New York, which is the most powerful financial institution most Americans know nothing about.

A quasi-independent, public-private body, the New York Fed is the first among equals of the 12 regional Fed branches. Unlike the Washington Federal Reserve Board of Governors, or the other regional fed branches, the N.Y. Fed is active in the markets virtually every day, changing the critical interest rates that determine the liquidity of the markets and the profitability of banks. And, like the other regional branches, it has boundless power to examine, at will, the books of virtually any banking institution and require that wide-ranging actions be taken-from raising capital to stopping lending-to ensure the stability and soundness of the bank. Over the past year, the New York Fed has been responsible for committing trillions of dollars of taxpayer money to resuscitate the coffers of the banks it oversees.

Given the power of the N.Y. Fed, it is time to ask some very hard questions about its recent performance. The first question to ask is: Who is the New York Fed? Who exactly has been running the show? Yes, we all know that Tim Geithner was the president and CEO of the N.Y. Fed from 2003 until his ascension as treasury secretary. But who chose him for that position, and to whom did he report? The N.Y. Fed president reports to, and is chosen by, the Fed board of directors.

So who selected Geithner back in 2003? Well, the Fed board created a select committee to pick the CEO. This committee included none other than Hank Greenberg, then the chairman of AIG; John Whitehead, a former chairman of Goldman Sachs; Walter Shipley, a former chairman of Chase Manhattan Bank, now JPMorgan Chase; and Pete Peterson, a former chairman of Lehman Bros. It was not a group of typical depositors worried about the security of their savings accounts but rather one whose interest was in preserving a capital structure and way of doing business that cried out for-but did not receive-harsh examination from the N.Y. Fed.

The composition of the New York Fed’s board, which supervises the organization and current Chairman Friedman, is equally troubling. The board consists of nine individuals, three chosen by the N.Y. Fed member banks as their own representatives, three chosen by the member banks to represent the public, and three chosen by the national Fed Board of Governors to represent the public. In theory this sounds great: Six board members are "public" representatives.

So whom have the banks chosen to be the public representatives on the board during the past decade, as the crisis developed and unfolded? Dick Fuld, the former chairman of Lehman; Jeff Immelt, the chairman of GE; Gene McGrath, the chairman of Con Edison; Ronay Menschel, the chairwoman of Phipps Houses and also, not insignificantly, the wife of Richard Menschel, a former senior partner at Goldman. Whom did the Board of Governors choose as its public representatives? Steve Friedman, the former chairman of Goldman; Pete Peterson; Jerry Speyer, CEO of real estate giant Tishman Speyer; and Jerry Levin, the former chairman of Time Warner. These were the people who were supposedly representing our interests!

Of course, there have been the occasional nonfinance representatives from academia and labor. But they have been so outnumbered that their presence has done little to alter the direction of the board.

More…

NY Fed chair resigns amid stock purchase questions
By Kristina Cooke Kristina Cooke – Thu May 7, 8:30 pm ET

NEW YORK (Reuters) – Stephen Friedman, chairman of the New York Federal Reserve Bank’s board of directors, resigned on Thursday amid questions about his purchases of stock in his former firm, Goldman Sachs.

Friedman, a retired chairman of Goldman Sachs who has led the New York Fed’s board since January 2008, said he quit to prevent criticism about his stock buying from becoming a distraction as the Fed battles a severe U.S. recession.

"Although I have been in compliance with the rules, my public service motivated continuation on the Reserve Bank Board is being mischaracterized as improper," he said in a letter of resignation to New York Fed President William Dudley.

"The Federal Reserve System has important work to do and does not need this distraction," Friedman said.

The U.S. central bank is comprised of a seven-member Board of Governors in Washington, and 12 regional Fed banks.

Some of the regional directors are appointed by the Washington-based board. Those directors are not allowed to own shares of bank holding companies, a status that Goldman Sachs won in September to secure access to Fed lending facilities.

More…

Jim Sinclair’s Commentary

There is so much of this that you would have to arrest every money center banker everywhere. That has the ability to make this a watershed situation.

JPMorgan Reveals Threat of SEC Charges Over Alabama Sewer Deals
By Martin Z. Braun and William Selway

May 8 (Bloomberg) — JPMorgan Chase & Co., the biggest U.S. bank by market value, says it may be charged with violating federal securities laws for selling fixed-income financing that helped push Alabama’s most populous county to the brink of bankruptcy.

The potential sanctions by the U.S. Securities and Exchange Commission, disclosed yesterday in two sentences of a 162-page quarterly regulatory filing, relate to a series of bond and interest-rate swap sales in 2002 and 2003 for sewers in Jefferson County, which covers about 1,125 square miles including Birmingham, the state capital with more than 240,000 residents.

Since credit markets seized up in 2007, Jefferson County’s annual sewer debt payment more than doubled. At least seven former JPMorgan bankers are under scrutiny in a Justice Department criminal antitrust investigation of the sale of unregulated derivatives to local governments across the U.S., federal regulatory records show.

The SEC investigation of New York-based JPMorgan is the first by the commission to directly challenge the ways in which securities firms sell derivatives to state and local governments. Derivatives are contracts whose values are tied to assets, including stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.

“The bigger the amount of money, the more temptation there is for corruption,” said Christopher “Kit” Taylor, who was executive director of the Alexandria, Virginia-based Municipal Securities Rulemaking Board, the national regulator of the municipal bond market, from 1978 to 2007.

More…

Posted at 2:07 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

It is evident after yesterday’s and today’s price action that the US monetary authorities are working overtime to thwart any rallies in the Comex gold market. Yesterday’s volume was the largest we have seen in more than a month but in spite of that, open interest in the active June contract increased only by a piddly 1,883 contracts. The push by gold bulls into the $920 level set off an avalanche of buy stops which was confirmed by the meager increase in open interest in that month on a volume of 124,794 in that month alone. The volume in the June was larger than the entire daily combined volume of all pit contracts for any day in more than a month! The amount of buy stops that were set off must have been enormous. Yet, price was repulsed in the face of a massive buying binge and promptly shoved back below the $920 level again. Only a fool or a price rigger would sell in such quantity when that volume of automatic buy orders are flooding the pit.

Today we saw the exact same pattern repeated once again – gold moved up strongly into the $920 level only to be summarily executed by its enemies. Make no mistake about our enemies in the gold arena – they can read technical charts and are fearful of a breach of $920 on a close because that will bring in momentum based buying and begin an upside trending move.

There really is not much to be gained any more by condemning this government sanctioned descent into third world banana republic techniques where crony capitalism replaces free market economics. The bullion banks get billions and billions of dollars courtesy of the taxpayers to bail them out from their stupidity and greed with the caveat that they must do their master’s bidding and work to keep the pretense that the creation of unlimited gazillions in paper dollars has no inflationary consequences. Most of the investment world outside of the US and the leaders of China, Russia, etc. know that the US authorities have been reduced to rigging the gold market as our nation goes into decline.  Still,  until those who buy gold to protect their wealth learn that these paper markets are nothing but diversions intended to suck up capital that could otherwise be used to acquire the real physical metal, the bullion banks will be able to get away with their jig.

The Dollar collapsed today breaking below the March 2009 low and the 40 week moving average in the process. Even the Yen moved up against it in today’s session. The result was a surge higher in large number of commodities with the energy complex in particular quite strong. Crude oil has pushed within $1.55 of $60 barrel! We continue to see this reflation trade which is pushing the CCI steadily higher. While the bullion banks are attempting to prevent gold from signaling that the market shift is now away from DEFLATION and towards INFLATION by sitting on its price, unfortunately for them, they cannot sit on the entire commodity complex which is reflected in the steady rise in the CCI.  Good luck guys – you are going to need it. Our monetary officials in conjunction with the current administration have put into place policies which guarantee the Dollar’s descent into mediocrity.

Bonds managed a bit of a bounce today which in the scheme of things is probably more related to profit taking by shorts. The technical damage in the long bond has been done however with the market now thumbing its nose in the face of the Fed.

The mining shares are dramatically outperforming the paper gold price with the HUI and the XAU moving up into this year’s highs once again. If the HUI can maintain its current footing as of the time I write this, it is on target to put in its highest weekly closing price for this year. The XAU is similar but not quite as impressive looking as its cousin on the weekly chart. Still, the XAU is trading solidly above the 50 week moving average and has a shot at the 100 week if it can close above 143. It is appearing more and more likely that the shares are now leading bullion. If they continue to exhibit strength, the job of the price riggers at the Comex is going to become increasingly complicated.

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

image

Posted at 9:49 AM (CST) by & filed under Jim's Mailbox.

Jim,

Same old same old.

How in the world can the birth/death model estimate job creation of this magnitude while the traditional job space continues to shed jobs at an alarming rate?

We have become so anesthetised by the statistical illusions. Do we know the difference between perception and reality?

http://www.facebook.com/photo.php?pid=1615370&l=12c66272d0&id=557304509

CIGA Eric

Jim,

The Chinese needs are all out on the table in full view.

Your modernized and revitalized Federal reserve Gold Certificate Ratio, which you have seen for many years as coming is looking more attractive for the dollar every day.

CIGA Ken

China stirs a pot of gold
By John Browne

This week, based on indicators of improving Chinese manufacturing activity, commodity and stock markets surged in the Pacific Rim. It appears that China’s recession-fighting policies are being judged successful. The 41% rally in Chinese stocks in 2009 from the 2008 lows dwarfs the single-digit rallies in the US and Europe. With Western economies still sluggish, eyes are turning eastward for solutions to the global economic riddle. As such, recent hints at the direction of Chinese monetary policy should be closely regarded.

At the recent Group of 20 London meetings, China called for a new international monetary order with a gold link. This was followed by the sudden disclosure that China had used part of its huge gold output to boost its own reserves by some 600 metric tons, a 75% increase in total holdings since 2003. In his first 100 days in office, President Barack Obama’s administration has injected nearly US$40 billion each day into US economy. Given the inflationary impact that such a torrent of new cash will spark, it is logical that the Chinese hedge its $1 trillion position with a more reliable store of value.

International money continues to flood towards the Chinese economic sphere, leaving the "old" industrial economies of America and Europe out in the cold. The cause is quite simple: the economies of America and China are mirror images of each other. The China-centric countries are producer-dominated and America is consumer-dominated. Over time, this dichotomy is producing massive shifts in global wealth.

More…

Jim,

"A policy mistake made by some major central bank may bring inflation risks to the whole world," said the People’s Central Bank in its quarterly report.

"As more and more economies are adopting unconventional monetary policies, such as quantitative easing (QE), major currencies’ devaluation risks may rise," it said. The bank fears a "big consolidation" in the bond markets, clearly anxious that interest yields will surge as western states try to exit their QE experiment.

More…

Best,
CIGA BT

Dear BT,

I told all the CIGAs that there is no PRACTICAL solution to the OTC meltdown.

Please know without any doubt that there is simply NO WAY OUT of international liquidity blast resulting from Quantitative Easing without major and drastic restructuring of the currency and bond markets.

Increased interest rates as a liquidity drain method for the impact of Quantitative Easing is simply too STUPID to believe. Interest rates as a monetary tool are killed by Quantitative Easing.

Jim

Posted at 7:10 PM (CST) by & filed under In The News.

Dear CIGAs,

"Buy em Bull Bond Trader Ben." He better be there in Europe and Asia tonight or all hell will have broken loose before the US wakes up to find another Blacker Friday

Today’s obliterated long bond futures market is a challenge to the US Fed to "put up" or "shut up."

The US Fed has publicly threatened to buy one trillion US dollars worth of bonds.

Well, they better start cranking the electronic quantitative printing press and throw a few hundred billion at it here and now.

Markets have a nasty way of diving for zero if they conclude the Fed is bluffing. It sure looked like it today.

Jim Sinclair’s Commentary

Payback is a b***h.

He’s back. Eliot Spitzer and his article are hard hitting. Click the following links to view Part 1 and Part 2 of the video.

http://www.cnbc.com/id/15840232?play=1&video=1116537475

http://www.cnbc.com/id/15840232?play=1&video=1116546525

The New York Fed is the most powerful financial institution you’ve never heard of. Look who’s running it.
By Eliot Spitzer
Posted Wednesday, May 6, 2009, at 12:29 PM ET

The kerfuffle about current New York Federal Reserve Bank Chairman Stephen Friedman’s purchase of some Goldman stock while the Fed was involved in reviewing major decisions about Goldman’s future-well-covered by the Wall Street Journal here and here-raises a fundamental question about Wall Street’s corruption. Just as the millions in AIG bonuses obscured the much more significant issue of the $70 billion-plus in conduit payments authorized by the N.Y. Fed to AIG’s counterparties, the small issue of Friedman’s stock purchase raises very serious issues about the competence and composition of the Federal Reserve of New York, which is the most powerful financial institution most Americans know nothing about.

A quasi-independent, public-private body, the New York Fed is the first among equals of the 12 regional Fed branches. Unlike the Washington Federal Reserve Board of Governors, or the other regional fed branches, the N.Y. Fed is active in the markets virtually every day, changing the critical interest rates that determine the liquidity of the markets and the profitability of banks. And, like the other regional branches, it has boundless power to examine, at will, the books of virtually any banking institution and require that wide-ranging actions be taken-from raising capital to stopping lending-to ensure the stability and soundness of the bank. Over the past year, the New York Fed has been responsible for committing trillions of dollars of taxpayer money to resuscitate the coffers of the banks it oversees.

Given the power of the N.Y. Fed, it is time to ask some very hard questions about its recent performance. The first question to ask is: Who is the New York Fed? Who exactly has been running the show? Yes, we all know that Tim Geithner was the president and CEO of the N.Y. Fed from 2003 until his ascension as treasury secretary. But who chose him for that position, and to whom did he report? The N.Y. Fed president reports to, and is chosen by, the Fed board of directors.

So who selected Geithner back in 2003? Well, the Fed board created a select committee to pick the CEO. This committee included none other than Hank Greenberg, then the chairman of AIG; John Whitehead, a former chairman of Goldman Sachs; Walter Shipley, a former chairman of Chase Manhattan Bank, now JPMorgan Chase; and Pete Peterson, a former chairman of Lehman Bros. It was not a group of typical depositors worried about the security of their savings accounts but rather one whose interest was in preserving a capital structure and way of doing business that cried out for-but did not receive-harsh examination from the N.Y. Fed.

The composition of the New York Fed’s board, which supervises the organization and current Chairman Friedman, is equally troubling. The board consists of nine individuals, three chosen by the N.Y. Fed member banks as their own representatives, three chosen by the member banks to represent the public, and three chosen by the national Fed Board of Governors to represent the public. In theory this sounds great: Six board members are "public" representatives.

So whom have the banks chosen to be the public representatives on the board during the past decade, as the crisis developed and unfolded? Dick Fuld, the former chairman of Lehman; Jeff Immelt, the chairman of GE; Gene McGrath, the chairman of Con Edison; Ronay Menschel, the chairwoman of Phipps Houses and also, not insignificantly, the wife of Richard Menschel, a former senior partner at Goldman. Whom did the Board of Governors choose as its public representatives? Steve Friedman, the former chairman of Goldman; Pete Peterson; Jerry Speyer, CEO of real estate giant Tishman Speyer; and Jerry Levin, the former chairman of Time Warner. These were the people who were supposedly representing our interests!

Of course, there have been the occasional nonfinance representatives from academia and labor. But they have been so outnumbered that their presence has done little to alter the direction of the board.

More…

NY Fed chair resigns amid stock purchase questions
By Kristina Cooke Kristina Cooke – Thu May 7, 8:30 pm ET

NEW YORK (Reuters) – Stephen Friedman, chairman of the New York Federal Reserve Bank’s board of directors, resigned on Thursday amid questions about his purchases of stock in his former firm, Goldman Sachs.

Friedman, a retired chairman of Goldman Sachs who has led the New York Fed’s board since January 2008, said he quit to prevent criticism about his stock buying from becoming a distraction as the Fed battles a severe U.S. recession.

"Although I have been in compliance with the rules, my public service motivated continuation on the Reserve Bank Board is being mischaracterized as improper," he said in a letter of resignation to New York Fed President William Dudley.

"The Federal Reserve System has important work to do and does not need this distraction," Friedman said.

The U.S. central bank is comprised of a seven-member Board of Governors in Washington, and 12 regional Fed banks.

Some of the regional directors are appointed by the Washington-based board. Those directors are not allowed to own shares of bank holding companies, a status that Goldman Sachs won in September to secure access to Fed lending facilities.

More…

Jim Sinclair’s Commentary

There will come a time when the disposed seek those who have caused their pain and suffering. CIGAs are now losing their jobs and it is heartbreaking to know they are suffering. They worked hard for companies that have been broken by the OTC derivative market. It is so wrong.

clip_image001

Jim Sinclair’s Commentary

Just a drop in the phony money paper bucket. It is hardly worth writing about if you judge it by today’s standards.

All inside financial institutions will be provided with as much money as is required and when required.

To infinity it will be.

Remember that hyperinflation is a currency event and not an economic event. The barn will be burned to save all insider institutions. The Barn is the US dollar.

Gold is going to Alf’s price objectives on Armstrong’s schedule.

U.S. Says Ailing Banks Need $75 Billion
By EDMUND L. ANDREWS
Published: May 7, 2009

Federal regulators told the country’s 19 largest banks that they must raise $75 billion in extra capital by November, a more upbeat verdict on the health of the financial system than the industry had feared just two months ago.

Ten of the 19 bank holding companies deemed “too big to fail” by the Obama administration will be required to raise additional capital, according to the results of the government’s stress tests, released late Thursday afternoon. But the 10 banks will have to raise much less capital than some analysts had expected as recently as a few days ago.

“With the clarity today’s announcement will bring, we hope banks are going to get back to the business of banking,” Treasury Secretary Timothy F. Geithner said during a news briefing on Thursday afternoon.

Mr. Geithner noted that banks had a long way to go to restore the nation’s confidence in the financial industry, and that they could get a start in generating good will by lending more.

More…

Jim Sinclair’s Commentary

Gerald Celente of the Trend Research Institute, a by subscription service, said today:

"’Green shoots’ may sprout," said Celente, "but they will not flower.  The economy cannot be coerced back into growth with tons of money manure."  As the ancient parable puts it:

"A sower went out to sow his seed: and as he sowed, some fell by the way side; and it was trodden down, and the fowls of the air devoured it. And some fell upon a rock; and as soon as it was sprung up, it withered away, because it lacked moisture. And some fell among thorns; and the thorns sprang up with it, and choked it. And other fell on good ground, and sprang up, and bare fruit an hundredfold. And when he had said these things, he cried, He that hath ears to hear, let him hear." — Luke 8:4-8

Jim Sinclair’s Commentary

Remember when public bank company management worked for their Board, which in turn was legally bound to protect the stockholders?

It would seem that the bank Boards are now window dressing and the boss of the boss is the Treasury Secretary.

When Washington give $1 it takes $1000.

Now please name the new system.

Regulators put bank CEOs on notice
Banks that need capital after stress tests will have a month to give regulators a plan and to review management to make sure they have "sufficient expertise."
By Colin Barr, senior writer
Last Updated: May 7, 2009: 3:55 AM ET

NEW YORK (Fortune) — Banks that need more capital under the stress tests will have a month to present regulators with a fundraising plan, federal officials said Wednesday.

The banks will have six months to raise the funds, according to a statement from the Treasury Department, the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.

The banks will also have to review their management and board within a month, "to assure that the leadership of the firm has sufficient expertise and ability to manage the risks presented by the current economic environment," the bank regulators said in a statement Wednesday afternoon.

The announcement comes just a day before the results of regulators’ Supervisory Capital Assessment Program, which covers the 19 biggest bank holding companies in the U.S., are due to be released to the public.

Wall Street has been eagerly awaiting the results since the government unveiled the stress test plan in February. The results of the tests were initially scheduled for release earlier this week, but the announcement was rescheduled for Thursday afternoon to allow banks a chance to review the findings.

More…

Jim Sinclair’s Commentary

The various predictions made by Alphaville FT assuming the worst case scenario has elucidated comments of being "too negative."

Read what is below and understand that if we return to a psychology of contraction what is outlined below will expand. Those 9 points are the story of an Empire that down spirals into a Banana Republic.

If this occurs, all of that essay will unfortunately be CORRECT.

Please protect yourselves!

Click here to review the 12 points Worst Case Scenario article from SeekingAlpha.com

Ex-Owners Turning Aggressive in Efforts to Resist Leaving
By Derek Kravitz
Sunday, May 3, 2009

One former homeowner rigged his front door with coffeepots filled with boiling water. Another left piles of ferret feces. Hidden compartments have been used as living spaces, with people hiding in attics, tool sheds and garages to elude police.

In the D.C. suburbs, a new class of squatter has emerged, as people illegally remain in homes after they have lost them to the bank. Some have become aggressive in their efforts to stay, setting booby traps to ward off police.

"People got in over their heads, and they don’t want to leave," said Loudoun County sheriff’s Capt. Chuck Wyant, who oversees the department’s five-person eviction unit.

The problem seems especially acute outside the Capital Beltway. Initially viewed as an unusual symptom of the economic downturn, squatting has grown into something closer to an epidemic in Loudoun. Court-ordered evictions in the county have more than doubled over the past three years, and a six-month backlog of cases at the Loudoun courthouse is a dire reminder that things might only get worse, Wyant said. A docket at the courthouse has been created for the approximately 2,300 in the county facing evictions.

"It’s hit us hard, worse than other counties, because we grew so quickly," he said.

More…

Jim Sinclair’s Commentary

The Crimex makes a phony paper gold price while the physical market is tight.

A shift from the physical market by mints and other consumers of physical gold to making their purchases on the COMEX will transmute the COMEX to a cash exchange. This will extinguish the gold bank’s ability to make the gold price.

It is so easy to see that the Commercial Dealers are not yet prepared to run gold higher as their short position still needs more balancing between options, physical and reduction.

When that occurs gold will be off to a penetration of the $1000 level and a visit at $1224.

It is only time, and the time is short.

U.K.’s Royal Mint Uses 75% More Gold as Investor Demand Expands
By Thomas Biesheuvel and Nicholas Larkin

May 7 (Bloomberg) — The Royal Mint, established in the 13th century, used 75 percent more gold in the first quarter amid a surge in demand for bullion to diversify investments.

The U.K. mint made 28,496 ounces of gold coins in the quarter, compared with 16,317 ounces a year earlier, according to data obtained by Bloomberg News under a Freedom of Information Act request. Production last year rose 30 percent to 53,089 ounces, the data show.

Demand for gold and exchange-traded funds linked to the metal accelerated as equities collapsed and governments spent trillions of dollars to combat recessions. The Austrian mint, Muenze Oesterreich AG, sold a record 1.5 million ounces of gold last year, while the U.S. Mint’s sales of 1-ounce American Eagle gold coins more than quadrupled in January to 92,000.

“People are worried about their savings and banks, and a lot of people realize it’s a safe-haven asset,” said Mark O’Byrne, managing director of brokerage Gold and Silver Investments Ltd. in Dublin. “Very few people are selling.”

Investment in the SPDR Gold Trust, the biggest ETF backed by bullion, has expanded to 1,104.45 metric tons, overtaking Switzerland as the world’s sixth-largest gold holding. Gold has advanced for eight consecutive years, the longest winning streak since at least 1948, according to data compiled by Bloomberg.

The Royal Mint is now based in Llantrisant, Wales. Its 2009 Gold Proof Sovereign coin, made from 22-carat gold and weighing 7.99 grams (0.26 ounce) sells for 299 pounds ($450), according to the government agency’s Web site. Gold for immediate delivery averaged $904.18 an ounce this year, compared with $872.25 an ounce last year.

More…

Jim Sinclair’s Commentary

Expectations of a Fortress Europe are not farfetched as blame for the financial disaster sticks to Washington and the US Banksters. This has negative implications for the US dollar.

Sarkozy plans a fortress Europe à la française

Nicolas Sarkozy has just done a favour to British Conservatives and other sceptics who like to see the European Union as a plot for putting a French face on Europe.

Super Sarko used his second anniversary in office to sketch a vision for the Union which fell somewhere between that of the late Charles de Gaulle and the pro-European French leaders of the 1970s and 80s. If Europe follows his recipe, it will be able to pull out of the "deep intellectual and moral crisis" from which it is suffering, he said.

Sarkozy wants a Union with a new "economic government" — run by the member states not the supranational Brussels Commission. He wants a centralised industrial policy, new tight financial regulations, a closed door to "predators from the world at large". He wants a curb on the free market laws that are policed by Brussels.  He also reaffirmed his pledge to stop Turkey ever joining the Union.

Sarko was speaking in Nîmes to kick off the campaign for next month’s European Parliament elections but the assembly — the other supranational pillar of the Union — got barely a mention in his manifesto for a continent run by the Council of member governments.  He shares ground with the British sceptics on that front, but not on much else.

More…

Posted at 6:55 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

Interesting fact for you:

-For the April/June Qtr 2008, Treasury issuance was $13billion
-For the April/June Qtr 2009, Treasury issuance is expected to be $361 billion
-For the July/September Qtr 2009, Treasury issuance is expected to be $515 billion

I just can’t see how this gets funded without significant $USD weakness which should be supportive of gold and hard assets

Also it appears the long bond has topped and LT rates are going to shoot higher

CIGA Mike K.

Dear Mike,

You are 100% correct regarding the dollar and support for gold.

Look at the Pillars chart:

sinclair16

Regards,
Jim

Jim,

I was watching CNBC this morning while waiting for my internet service to be repaired and I had no idea the ‘recession’ was over!! Rah-rah! Kudlow absolutely declared the recession is now over. Wow was that fast. Not 6 weeks ago we were spiralling down out of control without any light seen at the end of the tunnel and now it’s all over and done with.

The traders they paraded in front of the camera’s are now declaring Dow 10,000 is right upon us and here we are, back in action just like the old days. I had no idea that major downturns the likes of nothing seen since the 1930’s could be turned like an F-16 doing mountain fury training… You got to love the Fed; man are they good. The new bull market has started and they are telling everyone to get back into the stock market, and now, or you’ll miss the move.

CIGA Bruce

Dear Bruce,

Please see my posting today concerning the deadly spider that has been found with a happy face on its tail. Consider Mr. Kudlow the spider. He looks good but be careful. Rallies in bear markets can be awe inspiring but not trend changing.

Regards,
Jim

Posted at 2:32 PM (CST) by & filed under Guild Investment.

Dear CIGAs,

Today, we would like to talk about India, but first we would like to summarize our views on investment management strategy and tactics.

A. In order to maximize stock price appreciation, invest where corporate profits are growing fast.  In our opinion, and in the opinion of many investment professionals, corporate profits determine stock price appreciation.  Many academic studies corroborate this point of view.

B. Since corporate profits grow most rapidly in countries where GDP is growing most rapidly, we prefer to focus investments in those countries.  Which countries among the large countries will grow GDP and corporate profits fastest?  In our opinion, #1 will be China, #2 will be India, #3 will be Brazil, #4 will be the U.S., Canada, and Australia.  Europe and Japan will bring up the rear.

C. How we judge stock valuation.  There are many measures of stock valuation.  Based on traditional valuation measures, the world markets were very highly valued in October 2007.  As of today, valuations have plummeted, especially for those countries where stock prices have fallen while corporate profits have grown.  As a result of a major bear market, some world markets have become very inexpensive, in our opinion.

D. Last, but certainly not least, is RISK MANAGEMENT.  The standard "buy and hold" strategy employed by many investment managers may make their lives easier, but this strategy does not protect investors from violent financial declines, such as the world experienced since October 2007.  Guild Investment Management pursues active management by cutting losses.

Now that the damage to portfolios has been done, people are recognizing that many of the popular mathematical asset allocation models used by investors and financial mangers incorrectly managed for major risk by underestimating the frequency of such risks. 

These financial planning and asset allocation models’ evaluation of the frequency of violent declines is something that I argued about with my professors forty years ago, so I can assure you that when Guild Investment Management originated, it was organized with a plan to control big risk.  Our motto has been to always cut losses quickly.  In our opinion, even if you re-enter the markets and lose again, stick to the policy and in the long run above average returns will result. 

Here is an article on the subject from this past weekend’s Wall Street Journal.

Odds-On Imperfection: Monte Carlo Simulation
Financial Planning Tool Fails to Gauge Extreme Events
By Eleanor Laise, May 2, 2009.

If one had asked a financial adviser 18 months ago for retirement-planning guidance, there is a good chance he would have run a "Monte Carlo" simulation. This calculation method, as it is commonly used in financial planning, estimates the odds of reaching retirement financial goals.

But there is little chance your Monte Carlo simulation, named for the gambling mecca, would have highlighted a scenario like the market slide just seen. Though these tools typically run a portfolio through hundreds or thousands of potential market scenarios, they often assign minuscule odds to extreme market events. Yet these extreme events seem to be happening more often.

Some industry participants and academics are pushing to improve the Monte Carlo tools’ ability to highlight the risk of major market slides.

There is no standard Monte Carlo approach, but the method is nothing new. It was used during World War II to help develop the atomic bomb. By the late 1990s some financial-services firms, like T. Rowe Price Group Inc., had introduced Monte Carlo tools aimed at individuals.

Monte Carlo simulation has wide appeal, and is used in online tools offered by firms like Fidelity Investments and by independent retirement planners. The financial-services industry provides retirement planning, in part, because it attracts clients and boosts fee income.

Here is how a typical Monte Carlo retirement-planning tool might work: The user enters information about his age, earnings, assets, retirement-plan contributions, investment mix and other details. The calculator crunches the numbers on hundreds or thousands of potential market scenarios, guided by assumptions about inflation, volatility and other parameters.

It then spits out a "success rate," which shows the percentage of market scenarios in which the investor had money remaining at the end of his estimated life span. In many cases, the consequences of failure — say, running out of money at age 80 — aren’t laid out.

Many providers of the tools argue that it is a significant improvement over the traditional retirement-planning approach, which typically involves assuming some set market return, say 8% for U.S. stocks, year after year, an assumption considered unrealistic by academics and financial pros.

The questions about Monte Carlo tools reflect broader concerns about mathematical models for gauging portfolio risks.

These models were supposed to help quantify and manage the risks of mortgage-backed securities, credit-default swaps and other complex instruments. But given the events of the past couple of years, it appears that the models often gave big institutions, as well as small investors, a false sense of security.

Now, some investors have decided that if risk can’t be accurately measured, they will just have to play it safe. Jeff McComas, a chemical engineer in Woodbury, Minn., has used six or seven Monte Carlo calculators and found that none highlighted the possibility of a scenario like the recent market downturn. The lesson: "The future is so unknown that your prudent choice is to save as much as you can now and live below your means," said Mr. McComas, 39 years old.

Some financial advisers are equally skeptical. "I take whatever probability of failure that comes out of your Monte Carlo simulation and add 20 percentage points," said William J. Bernstein, author of "The Four Pillars of Investing."

Critics emphasize that the problem isn’t Monte Carlo itself, but the assumptions that go into it. Since no standard approach exists, one user might plug in a range of assumptions on interest rates, inflation or volatility that is different from another user.

Also controversial is that many Monte Carlo simulations assume that market returns fall along a bell-curve-shaped distribution. That means a high probability may be assigned to, say, a stock-market return of 5%, which would fall toward the middle of the bell, and negligible odds assigned to a 54% decline, which would fall near the extreme edge, or "tail."

clip_image001

"In a bell-shaped curve the probability of getting one of these extreme outcomes we’re seeing is basically zero," said Paul Kaplan, vice president of quantitative research at Morningstar Inc.

While a bell-curve model indicates there is almost no chance of a greater than 13% monthly decline in the Standard & Poor’s 500-stock index, such declines have happened at least 10 times since 1926, according to a report by Mr. Kaplan.

Some Monte Carlo models, like the one used by Financial Engines, assign higher odds to extreme market events than the bell-curve distributions. Even so, "I would not claim we have the magical ability to accurately predict very infrequent events," said Christopher Jones, the firm’s chief investment officer.

Some firms are considering revising Monte Carlo models to reflect a world where big market swings happen more often. Morningstar last year tweaked its asset-allocation software offered to institutional investors, allowing users to choose a bell-curve-shaped distribution or a "fat-tailed" distribution, which assigns higher probabilities to extreme market events. The company is exploring using this model in more products, Mr. Kaplan said.

Laurence Kotlikoff, a Boston University economics professor who developed the ESPlanner financial-planning software, and Richard Fullmer, senior portfolio strategist at Russell Investments, said they also are considering offering clients Monte Carlo scenarios that incorporate fatter-tailed distributions.
The choice could make a difference in an investor’s retirement plans. While a bell-curve model shows a negligible risk of a greater than 50% decline in the S&P 500 over extended time periods, a fatter-tailed model assigns it a probability of 4% or 5%, odds high enough to grab the attention of risk-adverse investors, according to Mr. Kaplan’s report.

Some industry participants and academics are pushing for Monte Carlo tools to more clearly illustrate the scarier scenarios. In a recent paper, Moshe Milevsky, associate finance professor at York University’s Schulich School of Business in Toronto, proposed a calculation that Monte Carlo tools could use to show a retirement plan’s vulnerability to extreme market events.

Some industry participants also are trying to set standards that could help Monte Carlo tools more accurately capture extreme market events. The Retirement Income Industry Association in 2007 issued a set of principles noting that the calculators should run a large number of scenarios.

The ideal models run tens of thousands or hundreds of thousands of scenarios, which help gauge extreme events at the tail end of the distribution, observers said. Yet some tools run only 1,000 scenarios or just several hundred.

-Neal Templin contributed to this article.

INDIA

India is currently in the midst of a long national election process. The final results from all of India’s polling places will be announced on May 16, 2009.

Corruption will become more obvious as the election results are announced.  In India, some thieves (many politicians look at politics as a license to steal) will attain political office.  At the same time, many good people, who are selfless public servants, will also rise to high positions.  Still, India has managed to grow in spite of all of its myriad problems.

Most observers of the Indian scene agree that India is a land of large and numerous contrasts.  The election will point out many of these contrasts, and is likely to confuse us and other westerners.  It is easy to misunderstand India.

India has great intellects, a remarkable ancient culture.  India has some of the wisest and most foolish people I have ever met.  India has some of the most forward thinking, and backward thinking people I have ever met.  India may have the most educated and most uneducated people I have ever met, the most honest, and the most corrupt people that I have ever met, the most humble high achievers, and the most egotistic and arrogant failures…that I have ever met.

In short, I love India and remain baffled and enthralled by the place.  It has been forty four years since my first visit, and I have made forty or so more visits over the decades.

INDIA LIKE CHINA IS A FUTURE GIANT IN WORLD AFFAIRS.

India is home to over 1.1 billion people.  It has numerous languages, cultures and many formerly independent countries operating as one nation.  Contrary to many countries, like the former Yugoslavia that have been broken into many parts, India has for the most part held together.  The current collapse of Pakistan makes India even more important to the entire world.

We look at India and see the potential for a huge positive force in world affairs, a country which is generally tolerant of difference, and which has been able to coexist with China and Pakistan on its borders.  Its military has had ongoing disputes with both, but have been able to avoid major wars with China.  Several very limited wars with Pakistan have developed in the decades since Pakistan and Bangladesh were carved out of India.

India is growing.  The key to their success has been education and wide spread spoken English.  They have developed a bigger domestic consumer market than China, but remain hampered by very poor infrastructure, a byzantine political system, and the remnants of a Fabian socialist economic system established by Oxford and Cambridge-educated Indians in the early and mid 20th century.    

Many uniquely Indian developments, such as the dreaded license Raj, (a system where a license is needed for many things that those of us in the west would never dream of needing permission to undertake) creates bureaucracy.  The further problem is that underpaid civil servants make the granting of a license an opportunity to collect a gratuity. This often slows activity to a standstill.

On the positive side, the Indians are generally rational in foreign affairs and very skilled engineers, scientists, technologists, and businesspeople. Education is respected and sought after, and the intense competition within the Indian university system causes many highly intelligent Indians to seek education abroad. Historically many have remained abroad and many countries have benefited from the talents of Indian entrepreneurs and scientists.

Today, in the United States and other parts of the world, Indians sit as CEO’s of some of the largest companies.  Indian professors populate many universities and are widely found in the professions.

As a result of all these facts, and in spite of its problems, we expect India to grow rapidly. China has grown at a very rapid rate.  India will grow slightly slower but still at a rate far in excess of growth in the developed world.

SUMMARY

The investment world has once again embraced India, Brazil, China, and emerging Asia as good areas to invest.  We are focusing on these areas, and certain sectors in the U.S.  We hold energy and precious metals related investments in Canada and Australia.  We see Europe as an underperforming region, and have only a few investments in Europe.

We had a hard time understanding, the rally in the U.S. dollar earlier this year.  Now, it has once again begun to decline, which has given a boost to gold and to Asian stock markets.  Gold has also benefited from the turmoil that has resulted from the melt down of Pakistan.  We believe that Pakistan is already lost, and when the world comes to realize this, gold will appreciate further.  The ongoing decline of the U.S. dollar and the fiscal irresponsibility at work in the world today will also benefit precious metals.

Thanks for listening.

Monty Guild and Tony Danaher
www.GuildInvestment.com