Posted at 5:38 PM (CST) by & filed under General Editorial.

Dear CIGAs,

The euro below $1.20 would strongly suggest Chairman Volcker is right on the subject.

The euro below $1.10 would confirm that Volcker is correct.

Presently there is key support at $1.2150.

The euro today traded as high as 1.2448 and dropped below $1.2150 trading now at $1.2202. That is outrageous activity for a major currency

There is no central bank nor is there any intervention that can stand against the tool of credit default derivative swaps. Gold is you’re only safe harbor.

 

Dear Jim,

I know you have a deep respect for Chairman Volcker.

It surprises me that he would make a public statement concerning the euro that was akin to pouring gas on the fire.

Sincerely, 
CIGA Arlen

Dear Arlen,

Volcker would seek any advantage he could for the benefit of the US.

You must remember that his activities in the 80s totally slammed both South America and Africa when he ran overnight money to above 20% and 10 year to 14 7/8%. The developing nations all imploded based on what the Chairman deduced as an action in the best interest of the USA.

It very well might be seen as in the best interest of the USA to not have a euro to compete with.

Volcker has already stated that the present problem is the Sum of All Fears that can be cured only by doing politically impossible things. I do not believe he holds out much hope for that.

Exacerbating the euro problem might just speed this crisis along.

Regards,
Jim

 

Jim,

While cumulative momentum, MOVB(E) is reaching extremely oversold levels, it does not necessarily suggest an inflection point. A relief rally, if possible, is not a turn. The breach of the monthly low on increasing volume and new lows in the REV(E) reflects what could be an irrevocable loss of public confidence in the Euro. The withdrawal of any member nation, particularly Germany, from the Union will represent the beginning of the end for the current fiat system – which includes the US dollar.

Euro ETF (FXE):
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More…

Posted at 2:42 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Price capping near the $1250 level has been effective at thwarting the continued rise in gold and has resulted in new short selling by locals looking to capitalize on the backstopping of the bullion bank sell programs.

I was hoping to see the longs hold steady and not run but that appears to have not been the case today. Apparently they have been properly conditioned by the Feds to run at the first sign of a stall in upside momentum. That is how this market has traded for nearly a decade now so it is just wishful thinking to believe that might have changed. The charade in gold could end tomorrow if we had not raised a generation of computer nerds who never learned how to think for themselves.

Keep in mind however that what started out as a mild dip in gold was widely announced to have been a lessening of fears concerning Europe’s credit woes. That is what caused the big spike in the equity markets early this morning along with some friendly economic news and put some pressure on gold. The Euro moved higher as a result and the lemmings all gave a collective sigh of relief as they plunged back into the risk trades. Midday however, it all began unraveling as the Euro got nailed and is currently down more than a full penny against the Dollar and the equities are falling sharply again.

Gold has not yet responded because the bullion bank capping generated enough long liquidation to push the hedgie algos into the sell mode.

It escapes my ability to comprehend how a collapse lower in the Euro is compatible with a lessening of fears about European debt woes. With this occurring, it should not be too long before gold responds accordingly and moves higher. Personally I love watching these “analysts” making asses of themselves by commenting on one day’s price action as if a crisis years in the making has suddenly gone away overnight. Wait and see how the physical market will lead this phony paper market at the Comex.

The woes that are currently besetting Europe are not, I repeat, NOT going to go away. They may fade somewhat from the forefront of traders’ minds for a bit but that does not mean anything has been cured. Do not allow yourself to be shaken by the short term gyrations caused by these wild market fluctuations. There is NO INTELLIGENT thought behind them. It is machine generated. All such price movements do is to create opportunities for those who keep their wits and can calmly analyze a situation without being unduly influenced by the actions of the mob.

I will be curious to see how gold “fixes” at tomorrow afternoon’s PM fix and whether or not is can get above the 1,000 Euro mark. I will say however, that the inability of the Euro to thus far even manage a complete one day short covering pop is a very troubling sign. It just shows how eager sellers are to hit it again and again. If it cannot hold yesterday’s low, it is going to trade at 12100 quite rapidly. It is still lower than its worst levels of 2008 when the great carry trade unwind was in full force. Looking at the monthly chart shows that there is not a lot of support until you get down below 11900. That is how serious this is becoming.

The HUI could not hold support at yesterday’s low which coincided with the rising 10 day moving average. Unless we see those hedge fund ratio trades lifted off the shares, the most likely scenario is a drift down towards the 20 day moving average near 460. That will need to hold to prevent some sell stops from taking the shares lower.

The index must get back above yesterday’s high to force a resurgence in bullish momentum. That level is near 487.

Crude oil selling off continues to give drivers a bonanza for their summer vacations. Maybe the airlines can now actually afford to give us a bag of peanuts with our drink or at least stop trying to charge us for every thing we carry on the blasted planes. If this keeps up the Obama administration’s fixation with Hybrids is going to give way to a new wave of SUV buying!

Click chart to enlarge in PDF format

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Posted at 1:39 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

It doesn’t look as if the Lumber market was particularly impressed with the headline Housing Starts number – it rather appears it is focused on the Permits number instead.

As mentioned before – two of the best indicators for the overall strength or weakness in the economy are the Lumber and the Copper (see the charts below) markets.

Both are evidently not sending off bullish signals at the present and appear to be more concerned with the possibility of the credit contagion in Europe worsening and eventually moving over here. When and if BOTH of these markets move higher in tandem and establish clear bull trends, then we can give credence to the improving economy scenario.

Only if “risk trades” come back in force will these two markets be able to improve their current technical picture on the charts and what determines whether or not the risk trades will revive is how the hedge funds view the unfolding of the debt crisis in Europe.

Click charts to enlarge in PDF format

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Posted at 1:32 PM (CST) by & filed under In The News.

Dear CIGAs,

The euro trading level is on the left hand side of www.jsmineset.com. The present bids on the euro have gone from $1.29, to $1.26 and now $1.2150.

Below $1.2150, and Volcker looks right.

The German Finance Ministry today banned the use of naked CDSs as well as share and certain bond short sales.

OTC derivatives, their manufacturers and distributors, have killed the Western world. The world now knows how dangerous OTC derivative credit defaults swaps are.

If there is no global ban on OTC derivative CDS then there is no ban at all, because when banned somewhere they will just trade elsewhere while doing the same or greater damage.

 

Jim Sinclair’s Commentary

Time outs can ease a panic, but never change a trend. They in fact act to advertise that trend.

S.E.C. Proposes Circuit Breakers for S.&P. 500 Stocks

The Securities and Exchange Commission on Tuesday proposed a trial of individual circuit breakers on all of the stocks in the Standard & Poor’s 500-stock index in response to the May 6 market disruption.

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Jim Sinclair’s Commentary

In one paragraph Egon has caught the gist of the entire matter.

ALEA IACTA EST
by Egon von Greyerz – Matterhorn Asset Management

Yes this is it! We have crossed the Rubicon and events in the world economy are now likely to unfold in a totally uncontrollable fashion. Clueless governments still don’t understand that it is their ruinous actions that have created a credit infested and bankrupt world. They will continue to prescribe the same remedy that caused the problem in the first place, namely more credit and more printed money. The consequences are clear; we will have hyperinflation, economic and human misery as well as social unrest.

More…

Jim Sinclair’s Commentary

Do not be concerned by natural reactions in a gold bull market which is going to $1650 and beyond.

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Jim Sinclair’s Commentary

Uptick rules are infinitely more effective than a clear ban of shorting.

Merkel to announce short-selling ban -coalition source

BERLIN, May 18 (Reuters) – Chancellor Angela Merkel plans to announce Germany’s ban on short-selling on Wednesday, a coalition source told Reuters on Tuesday.

Another source said earlier that Germany would ban naked short-selling on certain stocks and euro government bonds from midnight.

"From midnight today there will be a ban on naked short selling of certain stocks and euro government bonds," a source told Reuters. No further details were immediately available.

Economy Minister Rainer Bruederele told Reuters that it was possible the short-selling ban would be quickly enacted.

No other details were immediately available.

More…

Jim Sinclair’s Commentary

The reason you have not seen any substantial civil cases go to court regarding OTC derivatives is because all OTC derivatives fit the legal description of fraud.

That description is set in cement in the Federal Court of the Southern District of New York in the 1991 Manko case.

Greece posses a great risk to anyone that helped its financial officers hide debt or sold them any kind of derivative at all.

Whatever OTC derivatives do not do to the international investment banks litigation will. Keep in mind that litigation is both criminal and civil.

Greece blames US for snowballing debts
Sun, 16 May 2010 18:39:31 GMT

Greek Prime Minister George Papandreou says he is considering taking legal action against US investment banks for their alleged role in the snowballing Greek debt crisis.

Papandreou said Sunday that an investigation will be launched to examine whether the financial sector engaged in "fraud", leading to the spiraling of Greece’s debt, the Associated Press reported.

It is predicted that Greece will exceed 140 percent of its economic output in 2012.

Papandreou rejected international skepticism about Greece’s ability to pay back loans it acquired from Germany to manage the crisis.

Some officials in Germany have expressed dissatisfaction that Greeks are taking the easy way out.

The under-pressure prime minister, however, remains steadfast in defusing the crisis.

"We are ready to make the changes … we have made our mistakes. We are living up to this responsibility. But at the same time, give us a chance," Papandreou said.

More…

Jim Sinclair’s Commentary

What, you expected something different?

Banks dump Greek debt on the ECB as eurozone flashes credit warnings
Foreign holders of Greek and Portuguese debt have seized on emergency intervention by the European Central Bank to exit their positions, leaving eurozone taxpayers exposed to the credit risk.
By Ambrose Evans-Pritchard, International Business Editor
Published: 6:57PM BST 17 May 2010

The Bank of New Mellon said its custodial data showed a "sharp acceleration" of net sales of debt from the two countries after the ECB began purchasing €16.5bn of bonds from southern Europe and Ireland in bid to halt market panic. "It rather suggests that investors leapt at the opportunity to clear their balance sheets of intolerable risk," said Neil Mellor, the bank’s currency strategist. "This leaves the ECB itself in an unpleasant situation since it now faces a deterioration in its own balance sheet."

While ECB action has greatly reduced bond spreads on peripheral eurozone debt, it has not yet stabilized the broader markets. The euro fell to a four-year low of $1.2260 against the dollar in early trading. Jean-Claude Juncker, the head of the Eurogroup, said on Monday that this risks becoming disorderly. "I’m not worried as far as the current exchange rate is concerned: I’m worried as far as the rapidity of the fall is concerned."

Crucially, there are still serious strains in the interbank lending market. Hans Redeker, currency chief at BNP Paribas, said the LIBOR-OIS spread in Europe used to gauge credit stress is flashing danger signals, hovering near levels seen during the Lehman crisis.

The ECB’s strategy of draining liquidity to offset the stimulus from the bond purchases risks making matters worse. "They are using one-week deposits for sterilisation and the effects of this to make short-term funding more expensive. This will force banks to sell assets to shrink their balance sheet and risks causing a credit crunch," he said.

Mr Redeker said the ECB is pursuing a contractionary policy to assuage concerns in Germany that Club Med bond purchases will stoke inflation. "They have read the German press and it made their hair stand up on their necks. The reality is that a deflationary cycle is developing in Euroland and the ECB will eventually have to start quantitative easing," he said.

More…

Jim Sinclair’s Commentary

The Volcker type statements continue to fly.

Germany, Greece and Exiting the Eurozone
May 18, 2010
By Marko Papic, Robert Reinfrank and Peter Zeihan

Rumors of the imminent collapse of the eurozone continue to swirl despite the Europeans’ best efforts to hold the currency union together. Some accounts in the financial world have even suggested that Germany’s frustration with the crisis could cause Berlin to quit the eurozone — as soon as this past weekend, according to some — while at the most recent gathering of European leaders French President Nicolas Sarkozy apparently threatened to bolt the bloc if Berlin did not help Greece. Meanwhile, many in Germany — including Chancellor Angela Merkel herself at one point — have called for the creation of a mechanism by which Greece — or the eurozone’s other over-indebted, uncompetitive economies — could be kicked out of the eurozone in the future should they not mend their “irresponsible” spending habits.

Rumors, hints, threats, suggestions and information “from well-placed sources” all seem to point to the hot topic in Europe at the moment, namely, the reconstitution of the eurozone whether by a German exit or a Greek expulsion. We turn to this topic with the question of whether such an option even exists.

More…

Posted at 1:21 PM (CST) by & filed under Jim's Mailbox.

Break down of Commercial Bank Credit
CIGA Eric

The real economy continues to stagnate. This is reflected by anemic loan growth of the influence business & commercial and real estate loan sectors. These two sectors represent over 50% of total bank credit within the US. Yet, despite this the lackluster participation within critical sectors, consumer and credit card loan growth has surged. Is this a reflection of desperation or foolishness? That will be answered in time.

Total Bank Credit Table:
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Source: federalreserve.gov

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Dear CIGAs,

The salient point is the FDIC is making up a significant portion of the overvaluation of assets permitted by the FASB.

Who covers you and I if we overvalue our assets in a certified balance sheet? This simply is wrong.

Dear Jim,

The FDIC announced four more bank closings last Friday (5/14/10), bringing this year’s total up to 72. One of the banks that failed, Midwest Bank and Trust Company of Elmwood Park, Illinois, was fairly large, with stated assets of $3.17 billion and deposits of $2.42 billion. The other three were relatively small.

The FDIC estimates that Midwest’s failure will cost $216.4 million, about 9% of deposits. Based on that estimate, the bank’s assets were really only worth about $2.20 billion, and had been over-valued by 43%.

Furthermore, the FDIC had to enter into a loss share agreement with the acquiring bank covering $2.27 billion of the assets it took over from Midwest. That is about 69% of the stated value of Midwest’s assets.

Collectively, the remaining three banks had assets of approximately $341 million and deposits of $338 million. The FDIC’s total loss projection for all three was $85 million, which amounts to 25% deposits. Based on that projection, the banks’ assets (collectively) were really only worth about $253 million, and had been over-stated by about 35%.

The acquiring banks took over virtually all of the failed banks’ assets, and the FDIC agreed to enter into loss share agreements with them covering $263 million of those assets. That is about 77% of their stated value.

These are certainly not the worst statistics we’ve seen. However, they need to be considered in the context of the significant additional loss share obligations undertaken by the FDIC in connection with each bank closing.

Over at least the past year, in each case where the FDIC has accomplished a closing with the successor bank taking over the failed bank’s assets, it has ended up having to enter into a loss share agreement covering some 65-70% of the stated value of the failed bank’s assets. The total value of assets the FDIC now has guaranteed under loss share is about $168 billion.

This represents a huge potential loss to the U.S. taxpayer in the event the FDIC’s current loss projections prove to be overly optimistic, and the loss potential is growing each week. We can only imagine the total value of assets the FDIC will end up guaranteeing before the end of this crisis.

Respectfully yours,
CIGA Richard B.

 

Dear Jim,

I know you have a deep respect for Chairman Volcker.

It surprises me that he would make a public statement concerning the euro that was akin to pouring gas on the fire.

Sincerely,
CIGA Arlen

Dear Arlen,

Volcker would seek any advantage he could for the benefit of the US.

You must remember that his activities in the 80s totally slammed both South America and Africa when he ran overnight money to above 20% and 10 year to 14 7/8%. The developing nations all imploded based on what the Chairman deduced as an action in the best interest of the USA.

It very well might be seen as in the best interest of the USA to not have a euro to compete with.

Volcker has already stated that the present problem is the Sum of All Fears that can be cured only by doing politically impossible things. I do not believe he holds out much hope for that.

Exacerbating the euro problem might just speed this crisis along.

Regards,
Jim

Posted at 9:59 PM (CST) by & filed under In The News.

Thoughts For The Day

The euro below $1.20 would strongly suggest Chairman Volcker is right on the subject. The euro below $1.10 would confirm that Volcker is correct.

Presently there is key support at $1.2150.

The euro in Asia is present selling off its high by 50 points.

Volcker Sees Euro ‘Disintegration’ Risk From Greece (Update1)
By Simon Clark

May 14 (Bloomberg) — Former Federal Reserve Chairman Paul Volcker said he’s concerned that the euro area may break up after the Greek fiscal crisis that sparked an unprecedented bailout by the region’s members.

“You have the great problem of a potential disintegration of the euro,” Volcker, 82, said in a speech in London yesterday. “The essential element of discipline in economic policy and in fiscal policy that was hoped for” has “so far not been rewarded in some countries.”

European leaders pledged a rescue package of almost $1 trillion this week to counter a mounting debt crisis and restore confidence in the currency. Former U.S. Treasury Secretary John Snow said this week the euro may need a common fiscal policy to survive, a comment echoed by Norman Lamont, who was U.K. finance minister when Britain opted out from the euro in 1992.

“Will economic and financial distress finally be resolved by looking toward more integration in a closely integrated Europe, politically as well as economically?” said Volcker, who chairs President Barack Obama’s Economic Recovery Advisory Board. “I do have my hopes, as a believer in the euro.”

The aid package also involved the European Central Bank, which intervened in debt markets after a rout in bonds across the euro region’s periphery. The European Commission in Brussels said it would “strengthen” its deficit oversight and “align national budget and policy planning” under a system of economic policy coordination.

More…

 

Jim Sinclair’s Commentary

Before you get your shorts in a knot, the following conclusion has merit.

Goodman’s Cohen Says Gold May Rise for `Several Decades’

Click here to watch the video…

Posted at 8:37 PM (CST) by & filed under General Editorial.

Dear CIGAs,

Tomorrow is the first day Greece receives a tranche of emergency funding which of course caused some euro short covering from below 1.2236 to the present 1.2394. Recall I gave you the 121 1/2 to 122 1/2 as support under the break of 126.

The present relationship, although short term, is that gold is moving in the same direction, of the US dollar. That means that as the US dollar falls markets interpret that as a relief of the euro crisis which results in longs taking profits and shorts establishing positions in gold. A softer dollar today as a product of short covering in the euro for very modest technical and fundaments tidbits means temporarily lower gold as the euro crisis has caused a rush to gold by euro holders. That relationship will stop, but the euro must cease first.

As I explained to you in detail, the next target of credit default derivatives after battering the euro is to batter the US dollar.

After the euro is done within a few sessions the relationship between the dollar and gold will return to inverse in a very big way. This I assure you. With more than 50 years in markets you learn a few things about the madness that goes on.

In light of this consider what Rick Santelli has to say about a problem we have been aware of for a long time. Maybe Rick should read the prospectus that says specifically this ETF does not have to hold real gold bullion.

Gold bullion is on its way to $1650 and above making today’s reaction or any nearby reaction totally irrelevant in the big picture.

If you are playing short term your opposition is Goldman and all the little Goldmans. That strategy makes no sense. Speculating short term or selling your gold insurance is totally wrong.

Stay the course!

RICK SANTELLI: "THERE’S NOT ENOUGH PHYSICAL GOLD" 5-13-2010

Posted at 8:31 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

Why was silver so weak today?

Regards,
CIGA Green Hornet

Dear Green Hornet,

Silver was up strongly on the discussions of JP Morgan who we were informed had a Department of Justice examination of their activities in silver. This was reported as fact.

The reports were 50% correct in that JP Morgan was being looked into concerning their derivative dealings, however the target of exchange listed silver was not mentioned in the official report.

Since silver went up hard on euro weakness, as the euro strengthened gold reacted downwards, and silver gave up part of its recent significant gains.

Regards,
Jim